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NPC v. PROVINCE OF QUEZON & MUNICIPALITY OF PAGBILAO 611 SCRA 71

NATIONAL POWER CORPORATION,

Petitioner,

- versus -

PROVINCE OF QUEZON andMUNICIPALITY OF PAGBILAO,

Respondent.

G.R. No. 171586

Present:

CARPIO MORALES, J.,

Acting Chairperson,

LEONARDO-DE CASTRO,

BRION,

ABAD, and

PEREZ, JJ.

Promulgated:

January 25, 2010

x ------------------------------------------------------------------------------------------x

R E S O L U T I O N

BRION, J .:

The petitioner National Power Corporation (Napocor ) filed the present motion for

reconsideration[1]

of the Court’s Decision of July 15, 2009, in which we denied

Napocor’s claimed real property tax exemptions. For the resolution of the motion, we deem it

proper to provide first a background of the case.

BACKGROUND FACTS

The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant ) for unpaid real

property taxes in the amount of P1.5 Billion for the machineries located in its power plant in

Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT ) Agreement

(entitled Energy Conversion Agreement ) with Mirant, was furnished a copy ofthe tax assessment.

Napocor (nota bene, not Mirant) protested the assessment before the Local Board of

Assessment Appeals (LBAA), claiming entitlement to the tax exemptionsprovided under Section

234 of the Local Government Code (LGC ), which states:

http://sc.judiciary.gov.ph/jurisprudence/2010/january2010/171586.htm#_ftn1





Section 234. Exemptions from Real Property Tax . – The following are

exempted from payment of the real property tax:

x x x x

(c) All machineries and equipment that are actually, directly, andexclusively used by local water districts and government-owned or –controlled

corporations engaged in the supply and distribution of water and/or generation

and transmission of electric power;

x x x x

(e) Machinery and equipment used for pollution control and

environmental protection.

x x x x

Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled to

certain tax privileges, namely:

a. the lower assessment level of 10% under Section 218(d) of the LGC for

government-owned and controlled corporations engaged in the generation

andtransmission of electric power, instead of the 80% assessment level

for commercial properties imposed in the assessment letter; and

b. an allowance for depreciation of the subject machineries under Section 225 of the

LGC.

In the Court’s Decision of July 15, 2009, we ruled that Napocor is not entitled to any of

these claimed tax exemptions and privileges on the basis primarily of thedefective protest filed

by the Napocor. We found that Napocor did not file a valid protest against the realty tax

assessment because it did not possess the requisite legal standing. When a taxpayer fails to

question the assessment before the LBAA, the assessment becomes final, executory, and

demandable, precluding the taxpayer from questioning the correctness of the assessment or

from invoking any defense that would reopen the question of its liability on the merits.[2]

Under Section 226 of the LGC,[3]

any owner or person having legal interest in the

property may appeal an assessment for real property taxes to the LBAA. Since Section 250

adopts the same language in enumerating who may pay the tax, we equated those who are

liable to pay the tax to the same entities who may protest the tax assessment. A person legally

burdened with the obligation to pay for the tax imposed on the property has the legal interest

in the property and the personality to protest the tax assessment.











To prove that it had legal interest in the taxed machineries, Napocor relied on:.

1. the stipulation in the BOT Agreement that authorized the transfer of ownership to

Napocor after 25 years;

2. its authority to control and supervise the construction and operation of the powerplant; and

3. its obligation to pay for all taxes that may be incurred, as provided in the BOT

Agreement.

Napocor posited that these indicated that Mirant only possessed naked title to the machineries.

We denied the first argument by ruling that legal interest should be one that is actual

and material, direct and immediate, not simply contingent or expectant.[4]

We disproved

Napocor’s claim of control and supervision under the second argument after reading the full

terms of the BOT Agreement, which, contrary to Napocor’s claims, granted Mirant substantial

power in the control and supervision of the power plant’s construction and operation.[5]

For the third argument, we relied on the Court’s rulings in Baguio v. Busuego[6] and Lim

v. Manila.[7]

In these cases, the Court essentially declared that contractual assumption of tax

liability alone is insufficient to make one liable for taxes. The contractual assumption of tax

liability must be supplemented by an interest that the party assuming the liability had on the

property; the person from whom payment is sought must have also acquired the beneficial use

of the property taxed. In other words, he must have the use and possession of the property –

an element that was missing in Napocor’s case.

We further stated that the tax liability must be a liability that arises from law, which the

local government unit can rightfully and successfully enforce, not the contractual liability that is

enforceable only between the parties to the contract. In the present case, the Province of

Quezon is a third party to the BOT Agreement and could thus not exact payment from Napocor

without violating the principle of relativity of contracts.[8]

Corollarily, for reasons of fairness,

the local government units cannot be compelled to recognize the protest of a tax assessment

from Napocor, an entity against whom it cannot enforce the tax liability.

At any rate, even if the Court were to brush aside the issue of legal interest to protest,

Napocor could still not successfully claim exemption under Section 234 (c) of the LGC because

to be entitled to the exemption under that provision, there must be actual, direct, and

exclusive use of machineries. Napocor failed to satisfy these requirements.

THE MOTION FOR RECONSIDERATION






















Although Napocor insists that it is entitled to the tax exemptions and privileges claimed,

the primary issue for the Court to resolve, however, is to determinewhether Napocor has

sufficient legal interest to protest the tax assessment because without the requisite interest,

the tax assessment stands, and no claim of exemption or privilege can prevail.

Section 226 of the LGC, as mentioned, limits the right to appeal the local assessor’s

action to the owner or the person having legal interest in the property. Napocor posits that it is

the beneficial owner of the subject machineries, with Mirant retaining merely a naked title to

secure certain obligations. Thus, it argues that the BOT Agreement is a mere financing

agreement and is similar to the arrangement authorized under Article 1503 of the Civil Code,

which declares:

Art. 1503. When there is a contract of sale of specific goods, the seller

may, by the terms of the contract, reserve the right of possession or ownershipin the goods until certain conditions have been fulfilled. The right of possession

or ownership may be thus reserved notwithstanding the delivery of the goods to

the buyer or to a carrier or other bailee for the purpose of transmission to the

buyer.

Where goods are shipped, and by the bill of lading the goods are

deliverable to the seller or his agent, or to the order of the seller or of his agent,

the seller thereby reserves the ownership in the goods. But, if except for the

form of the bill of lading, the ownership would have passed to the buyer on

shipment of the goods, the seller's property in the goods shall be deemed to beonly for the purpose of securing performance by the buyer of his obligations

under the contract.

x x x x

Pursuant to this arrangement, Mirant’s ownership over the subject machineries is merely a

security interest, given only for the purpose of ensuring the performance of Napocor’s

obligations.

Napocor additionally contends that its contractual assumption liability (through the BOT

Agreement) for all taxes vests it with sufficient legal interest because it is actually, directly, andmaterially affected by the assessment.

While its motion for reconsideration was pending, Napocor filed a Motion to Refer the

Case to the Court En Banc considering that “the issues raised have far-reaching consequences in

the power industry, the country’s economy and the daily lives of the Filipino people, and since



it involves the application of real property tax provision of the LGC against Napocor, an exempt

government instrumentality.”[9]

Also, the Philippine Independent Power Producers Association, Inc. (PIPPA) filed

a Motion for Leave to Intervene and a Motion for Reconsideration-in-Intervention. PIPPA is anon-stock corporation comprising of privately-owned power generating companies which

includes TeaM Energy Corporation (TeaM Energy ), successor of Mirant. PIPPA is claiming

interest in the case since any decision here will affect the other members of PIPPA, all of which

have executed similar BOT agreements with Napocor.

THE COURT’S RULING

At the outset, we resolve to deny the referral of the case to the Court en banc. We do not

find the reasons raised by Napocor meritorious enough to warrant the attention of the

members of the Court en banc, as they are merely reiterations of the arguments it raised in the

petition for review on certiorari that it earlier filed with the Court.[10]

Who may appeal a real property tax

assessment

Legal interest is defined as interest in property or a claim cognizable at law, equivalent

to that of a legal owner who has legal title to the property .[11]

Given this definition, Napocor is

clearly not vested with the requisite interest to protest the tax assessment, as it is not an entityhaving the legal title over the machineries. It has absolutely no solid claim of ownership or

even of use and possession of the machineries, as our July 15, 2009 Decision explained.

A BOT agreement is not a mere financing arrangement. In Napocor v. CBAA[12]

– a case

strikingly similar to the one before us, we discussed the nature of BOT agreements in the

following manner:

The underlying concept behind a BOT agreement is defined and described

in the BOT law as follows:

Build-operate-and-transfer – A contractual arrangement

whereby the project proponent undertakes the construction,

including financing, of a given infrastructure facility, and the

operation and maintenance thereof. The project proponent

operates the facility over a fixed term during which it is allowed to

charge facility users appropriate tolls, fees, rentals, and charges

















not exceeding those proposed in its bid or as negotiated and

incorporated in the contract to enable the project proponent to

recover its investment, and operating and maintenance expenses

in the project. The project proponent transfers the facility to the

government agency or local government unit concerned at the

end of the fixed term which shall not exceed fifty (50) years x x xx.

Under this concept, it is the project proponent who constructs the project at its

own cost and subsequently operates and manages it. The proponent secures the

return on its investments from those using the project’s facilities through

appropriate tolls, fees, rentals, and charges not exceeding those proposed in its

bid or as negotiated. At the end of the fixed term agreed upon, the project

proponent transfers the ownership of the facility to the government

agency. Thus, the government is able to put up projects and provide immediate

services without the burden of the heavy expenditures that a project start up

requires.

A reading of the provisions of the parties’ BOT Agreement shows that it

fully conforms to this concept. By its express terms, BPPC has complete

ownership – both legal and beneficial – of the project, including the

machineries and equipment used, subject only to the transfer of these

properties without cost to NAPOCOR after the lapse of the period agreed

upon. As agreed upon, BPPC provided the funds for the construction of the

power plant, including the machineries and equipment needed for power

generation; thereafter, it actually operated and still operates the power plant,

uses its machineries and equipment, and receives payment for these activitiesand the electricity generated under a defined compensation scheme. Notably,

BPPC – as owner-user – is responsible for any defect in the machineries and

equipment.

x x x x

That some kind of “financing” arrangement is contemplated – in the sense

that the private sector proponent shall initially shoulder the heavy cost of

constructing the project’s buildings and structures and of purchasing the needed

machineries and equipment – is undeniable. The arrangement, however, goesbeyond the simple provision of funds, since the private sector proponent not

only constructs and buys the necessary assets to put up the project, but operates

and manages it as well during an agreed period that would allow it to recover its

basic costs and earn profits. In other words, the private sector proponent goes

into business for itself, assuming risks and incurring costs for its account. If it

receives support from the government at all during the agreed period, these are

pre-agreed items of assistance geared to ensure that the BOT agreement’s



objectives – both for the project proponent and for the government – are

achieved. In this sense, a BOT arrangement is sui generis and is different from

the usual financing arrangements where funds are advanced to a borrower who

uses the funds to establish a project that it owns, subject only to a collateral

security arrangement to guard against the nonpayment of the loan. It is

different, too, from an arrangement where a government agency borrows fundsto put a project from a private sector-lender who is thereafter commissioned to

run the project for the government agency. In the latter case, the government

agency is the owner of the project from the beginning, and the lender-operator

is merely its agent in running the project.

If the BOT Agreement under consideration departs at all from the concept

of a BOT project as defined by law, it is only in the way BPPC’s cost recovery is

achieved; instead of selling to facility users or to the general public at large, the

generated electricity is purchased by NAPOCOR which then resells it to

power distribution companies. This deviation, however, is dictated, more than

anything else, by the structure and usages of the power industry and does not

change the BOT nature of the transaction between the parties.

Consistent with the BOT concept and as implemented, BPPC – the owner-

manager-operator of the project – is the actual user of its machineries and

equipment. BPPC’s ownership and use of the machineries and equipment are

actual, direct, and immediate, while NAPOCOR’s is contingent and, at this stage

of the BOT Agreement, not sufficient to support its claim for tax

exemption. Thus, the CTA committed no reversible error in denying NAPOCOR’s

claim for tax exemption. [Emphasis supplied.]

Given the special nature of a BOT agreement as discussed in the cited case, we find

Article 1503 inapplicable to define the contract between Napocor and Mirant, as it refers only

to ordinary contracts of sale. We thus declared in Tatad v. Garcia[13]

that under BOT

agreements, the private corporations/investors are the owners of the facility or machinery

concerned. Apparently, even Napocor and Mirant recognize this principle; Article 2.12 of their

BOT Agreement provides that “until the Transfer Date, *Mirant+ shall, directly or indirectly, own

the Power Station and all the fixtures, fitting, machinery and equipment on the Site x x

x. [Mirant] shall operate, manage, and maintain the Power Station for the purpose ofconverting fuel of Napocor into electricity.”

Moreover, if Napocor truly believed that it was the owner of the subject machineries, it

should have complied with Sections 202 and 206 of the LGC which obligates owners of real

property to:






a. file a sworn statement declaring the true value of the real property, whether

taxable or exempt;[14]

and

b. file sufficient documentary evidence supporting its claim for tax exemption.

[15]

While a real property owner’s failure to comply with Sections 202 and 206 does not necessarily

negate its tax obligation nor invalidate its legitimate claim for tax exemption, Napocor’s

omission to do so in this case can be construed as contradictory to its claim of ownership of the

subject machineries. That it assumed liability for the taxes that may be imposed on the subject

machineries similarly does not clothe it with legal title over the same. We do not believe that

the phrase “person having legal interest in the property” in Section 226 of the LGC can include

an entity that assumes another person’s tax liability by contract.

A review of the provisions of the LGC on real property taxation shows that the phrase

has been repeatedly adopted and used to define an entity:

a. in whose name the real property shall be listed, valued, and assessed;[16]

b. who may be summoned by the local assessor to gather information on which to

base the market value of the real property;[17]

c. who may protest the tax assessment before the LBAA[18]

and may appeal the

latter’s decision to the CBAA;[19]

d. who may be liable for the idle land tax,[20]

as well as who may be exempt from the

same;[21] e. who shall be notified of any proposed ordinance imposing a special levy,

[22] as well

as who may object the proposed ordinance;[23]

f. who may pay the real property tax;[24]

g. who is entitled to be notified of the warrant of levy and against whom it may be

enforced;[25]

h. who may stay the public auction upon payment of the delinquent tax, penalties

and surcharge;[26]

and

i. who may redeem the property after it was sold at the public auction for delinquent

taxes.

[27]

For the Court to consider an entity assuming another person’s tax liability by contract as

a person having legal interest in the real property would extend to it the privileges and

responsibilities enumerated above. The framers of the LGC certainly did not contemplate that

the listing, valuation, and assessment of real property can be made in the name of such entity;

nor did they intend to make the warrant of levy enforceable against it. Insofar as the provisions


























































of the LGC are concerned, this entity is a party foreign to the operation of real property tax laws

and could not be clothed with any legal interest over the property apart from its assumed

liability for tax. The rights and obligations arising from the BOT Agreement between Napocor

and Mirant were of no legal interest to the tax collector – the Province of Quezon – which is

charged with the performance of independent duties under the LGC.

[28]

Some authorities consider a person whose pecuniary interests is or may be adversely

affected by the tax assessment as one who has legal interest in the property (hence, possessed

of the requisite standing to protest it), citing Cooley’s Law on Taxation.[29]

The reference to this

foreign material, however, is misplaced. The tax laws of the United States deem it sufficient

that a person’s pecuniary interests are affected by the tax assessment to consider him as a

person aggrieved and who may thus avail of the judicial or administrative remedies against

it. As opposed to our LGC, mere pecuniary interest is not sufficient; our law has required legal

interest in the property taxed before any administrative or judicial remedy can be availed. The

right to appeal a tax assessment is a purely statutory right; whether a person challenging an

assessment bears such a relation to the real property being assessed as to entitle him the right

to appeal is determined by the applicable statute – in this case, our own LGC, not US federal or

state tax laws.

In light of our ruling above, PIPPA’s motion to intervene and motion for reconsideration -

in-intervention is already mooted. PIPPA as an organization of independent power producers is

not an interested party insofar as this case is concerned. Even if TeaM Energy, as Mirant’s

successor, is included as one of its members, the motion to intervene and motion for

reconsideration-in-intervention can no longer be entertained, as it amounts to a protest againstthe tax assessment that was filed without the complying with Section 252 of the LGC, a matter

that we shall discuss below. Most importantly, our Decision has not touched or affected at all

the contractual stipulations between Napocor and its BOT partners for the former’s assumption

of the tax liabilities of the latter.

Payment under protest is required before

an appeal to the LBAA can be made

Apart from Napocor’s failure to prove that it has sufficient legal interest, a further

review of the records revealed another basis for disregarding Napocor’s protest against the

assessment.

The LBAA dismissed Napocor’s petition for exemption for its failure to comply with

Section 252 of the LGC[30]

requiring payment of the assailed tax before any protest can be














made. Although the CBAA ultimately dismissed Napocor’s appeal for failure to meet the

requirements for tax exemption, it agreed with Napocor’s position that “the protest

contemplated in Section 252 (a) is applicable only when the taxpayer is questioning the

reasonableness or excessiveness of an assessment. It presupposes that the taxpayer is subject

to the tax but is disputing the correctness of the amount assessed. It does not apply where, asin this case, the legality of the assessment is put in issue on account of the taxpayer’s claim that

it is exempt from tax.” The CTA en banc agreed with the CBAA’s discussion, relying mainly on

the cases of Ty v. Trampe[31]

and Olivarez v. Marquez.[32]

We disagree. The cases of Ty and Olivarez must be placed in their proper perspective.

The petitioner in Ty v. Trampe questioned before the trial court the increased real

estate taxes imposed by and being collected in Pasig City effective from the year 1994,

premised on the legal question of whether or not Presidential Decree No. 921 ( PD 921) was

repealed by the LGC. PD 921 required that the schedule of values of real properties in the

Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created

therein; while Section 212 of the LGC stated that the schedule shall be prepared by the

provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area

for the different classes of real property situated in their respective local government units for

enactment by ordinance of the Sanggunian concerned. The private respondents assailed Ty’s

act of filing a prohibition petition before the trial court contending that Ty should have availed

first the administrative remedies provided in the LGC, particularly Sections 252 (on payment

under protest before the local treasurer) and 226 (on appeals to the LBAA).

The Court, through former Chief Justice Artemio Panganiban, declared that Ty correctly

filed a petition for prohibition before the trial court against the assailed act of the city assessor

and treasurer. The administrative protest proceedings provided in Section 252 and 226 will not

apply. The protest contemplated under Section 252 is required where there is a question as

to the reasonableness or correctness of the amount assessed. Hence, if a taxpayer disputes

the reasonableness of an increase in a real property tax assessment, he is required to "first pay

the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. Ty

however was questioning the very authority and power of the assessor, acting solely and

independently, to impose the assessment and of the treasurer to collect the tax. These werenot questions merely of amounts of the increase in the tax but attacks on the very validity of

any increase. Moreover, Ty was raising a legal question that is properly cognizable by the trial

court; no issues of fact were involved. In enumerating the power of the LBAA, Section 229

declares that “the proceedings of the Board shall be conducted solely for the purpose of

ascertaining the facts x x x.” Appeals to the LBAA (under Section 226) are therefore fruitful only

where questions of fact are involved.











Olivarez v. Marquez, on the other hand, involved a petition for certiorari , mandamus,

and prohibition questioning the assessment and levy made by the City ofParañaque. Olivarez

was seeking the annulment of his realty tax delinquency assessment. Marquez assailed

Olivarez’ failure to first exhaust administrative remedies, particularly the requirement ofpayment under protest. Olivarez replied that his petition was filed to question the assessor’s

authority to assess and collect realty taxes and therefore, as held in Ty v. Trampe, the

exhaustion of administrative remedies was not required. The Court however did not agree with

Olivarez’s argument. It found that there was nothing in his petition that supported his claim

regarding the assessor’s alleged lack of authority. What Olivarez raised were the following

grounds: “(1) some of the taxes being collected have already prescribed and may no longer be

collected as provided in Section 194 of the Local Government Code of 1991; (2) some

properties have been doubly taxed/assessed; (3) some properties being taxed are no longer

existent; (4) some properties are exempt from taxation as they are being used exclusively for

educational purposes; and (5) some errors are made in the assessment and collection of taxes

due on petitioners’ properties, and that respondents committed grave abuse of discretion in

making the improper, excessive and unlawful the collection of taxes against the

petitioner.” The Olivarez petition filed before the trial court primarily involved the

correctness of the assessments, which is a question of fact that is not allowed in a petition

for certiorari , prohibition, and mandamus. Hence, we declared that the petition should have

been brought, at the very first instance, to the LBAA, not the trial court.

Like Olivarez, Napocor, by claiming exemption from realty taxation, is simply raising a

question of the correctness of the assessment. A claim for tax exemption, whether full or

partial, does not question the authority of local assessor to assess real property tax. This may

be inferred from Section 206 which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. - Every

person by or for whom real property is declared, who shall claim tax exemption

for such property under this Title shall file with the provincial, city or municipal

assessor within thirty (30) days from the date of the declaration of real property

sufficient documentary evidence in support of such claim including corporate

charters, title of ownership, articles of incorporation, bylaws, contracts,

affidavits, certifications and mortgage deeds, and similar documents. If therequired evidence is not submitted within the period herein prescribed, the

property shall be listed as taxable in the assessment roll. However, if the

property shall be proven to be tax exempt, the same shall be dropped from the

assessment roll. [Emphasis provided]



By providing that real property not declared and proved as tax-exempt shall be included in the

assessment roll, the above-quoted provision implies that the local assessor has the authority to

assess the property for realty taxes, and any subsequent claim for exemption shall be allowed

only when sufficient proof has been adduced supporting the claim. Since Napocor was simply

questioning the correctness of the assessment, it should have first complied with Section 252,particularly the requirement of payment under protest. Napocor’s failure to prove that this

requirement has been complied with thus renders its administrative protest under Section 226

of the LGC without any effect. No protest shall be entertained unless the taxpayer first pays the

tax.

It was an ill-advised move for Napocor to directly file an appeal with the LBAA under

Section 226 without first paying the tax as required under Section 252. Sections 252 and 226

provide successive administrative remedies to a taxpayer who questions the correctness of an

assessment. Section 226, in declaring that “any owner or person having legal interest in the

property who is not satisfied with the action of the provincial, city, or municipal assessor in the

assessment of his property may x x x appeal to the Board of Assessment Appeals x x x,” should

be read in conjunction with Section 252 (d), which states that “in the event that the protest is

denied x x x, the taxpayer may avail of the remedies as provided for in Chapter 3, Title II,

Book II of the LGC [Chapter 3 refers to Assessment Appeals, which includes Sections 226 to

231]. The “action” referred to in Section 226 (in relation to a protest of real property tax

assessment) thus refers to the local assessor’s act of denying the protest filed pursuant to

Section 252. Without the action of the local assessor, the appellate authority of the LBAA

cannot be invoked. Napocor’s action before the LBAA was thus prematurely filed.

For the foregoing reasons, we DENY the petitioner’s motion for reconsideration.

SO ORDERED.

NATIONAL POWER CORPORATION VS. PROVINCE OF QUEZON - REAL PROPERTY TAX

FACTS:

NPC is a GOCC that entered into an EnergyConversion Agreement (ECA) under a build-operate-

transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement, Mirant will build

and finance a thermal power plant in Quezon, and operate and maintain the same for 25 years,

after which, Mirant will transfer the power plant to the Respondent without compensation.

NPC also undertook to pay all taxes that the government may impose on Mirant. Quezon then

assessed Mirant real property taxes on the power plant and its machineries.



ISSUES:

(1) Can Petitioner file the protest against the realproperty tax assessment?

(2) Can Petitioner claim exemption from the RPT given the BOT arrangement with Mirant?

(3) Is payment under protest required before an appeal to the LBAA is made?

HELD:

(1) NO. The two entities vested with personality to contest an assessment are (a) the owner or

(b) the person with legal interest in the property. NPC is neither the owner nor the

possessor/user of the subject machineries even if it will acquireownership of the plant at the

end of 25 years. TheCourt said that legal interest should be an interest that is actual and

material, direct and immediate, not simply contingent or expectant. While the Petitioner does

indeed assume responsibility for the taxes due on the power plant and its machineries, the tax

liability referred to is the liability arising from law that the local government unit can rightfully

and successfully enforce, not the contractual liability that is enforceable between the parties to

a contract. The local government units can neither be compelled to recognize the protest of a

tax assessment from the Petitioner, an entity against whom it cannot enforce the tax liability.

(2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the claimant must

prove two elements: a) the machineries and equipmentare actually, directly,

and exclusively used by local water districts and government-owned or controlled corporations;

and b) the local water districts and government-owned and controlled corporations claiming

exemption must be engaged in the supply and distribution of water and/or the generation and

transmission of electric power. Since neither the Petitioner nor Mirant satisfies both

requirements, the claim for exemption must fall.

(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property tax

assessment, he is required to "first pay the tax" under protest. The case of Ty does not apply as

it involved a situation where the taxpayer was questioning the very authority and power of the

assessor, acting solely and independently, to impose the assessment and of the treasurer to

collect the tax. A claim for tax exemption, whether full or partial, does not question the

authority of local assessors to assess real property tax.



LEONIS NAVIGATION CO., INC. and WORLD

MARINE PANAMA, S.A.,

Petitioners,

- versus -

CATALINO U. VILLAMATER and/or The Heirs of the

Late Catalino U. Villamater, represented herein bySonia Mayuyu Villamater; and NATIONAL LABOR

RELATIONS COMMISSION,

Respondents.

G.R. No. 179169

Present:

CORONA, J.,

Chairperson,

VELASCO, JR.,

NACHURA,

PERALTA, and

MENDOZA, JJ.

Promulgated:

March 3, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J .:

This is a petition for review on certiorar i [1]

under Rule 45 of the Rules of Court, seeking

to annul and set aside the Decision[2]

dated May 3, 2007 and the Resolution[3]

dated July 23,

2007 of the Court of Appeals (CA) in CA-G.R. SP No. 85594, entitled “Leonis Navigation Co., Inc.,

et al. v. Catalino U. Villamater, et al.”

http://sc.judiciary.gov.ph/jurisprudence/2010/march2010/179169.htm#_ftn1












The antecedents of this case are as follows:

Private respondent Catalino U. Villamater (Villamater) was hired as Chief Engineer for

the ship MV Nord Monaco, owned by petitioner World Marine Panama,S.A., through the

services of petitioner Leonis Navigation Co., Inc. (Leonis), as the latter’s local

manning agent. Consequent to this employment, Villamater, on June 4, 2002, executed

an employment contract,[4]

incorporating the Standard Terms and Conditions Governing the

Employment of Filipino Seafarers on Board Ocean-Going Vessels as prescribed by the

Philippine Overseas Employment Administration (POEA).

Prior to his deployment, Villamater underwent the required Pre-Employment Medical

Examination (PEME). He passed the PEME and was declared “Fit to Work.”[5]

Thereafter,

Villamater was deployed on June 26, 2002.

Sometime in October 2002, around four (4) months after his deployment, Villamater

suffered intestinal bleeding and was given a blood transfusion. Thereafter, he again felt weak,

lost considerable weight, and suffered intermittent intestinal pain. He consulted a physician

in Hamburg, Germany, who advised hospital confinement. Villamater was diagnosed with

Obstructive Adenocarcinoma of the Sigmoid, with multiple liver metastases, possibly

local peritoneal carcinosis and infiltration of the bladder, possibly lung metastasis, and anemia;

Candida Esophagitis; and Chronic Gastritis. He was advised to undergo chemotherapy and

continuous supportive treatment, such as pain-killers and blood transfusion.[6]

Villamater was later repatriated, under medical escort, as soon as he was deemed fit to

travel. As soon as he arrived in the Philippines, Villamater was referred to company-designated

physicians. The diagnosis and the recommended treatment abroad were confirmed. He was

advised to undergo six (6) cycles of chemotherapy. However, Dr. Kelly Siy Salvador, one of the

company-designated physicians, opined that Villamater’s condition “appears to be not work-

related,” but suggested a disability grading of 1.[7]

In the course of his chemotherapy, when no noticeable improvement occurred,

Villamater filed a complaint[8]

before the Arbitration Branch of the National Labor

Relations Commission (NLRC) for payment of permanent and total disability benefits in the

amount of US$80,000.00, reimbursement of medical and hospitalization expenses in the

amount of P11,393.65, moral damages in the sum of P1,000,000.00, exemplary damages in the

amount of P1,000,000.00, as well asattorney’s fees.























After the submission of the required position papers, the Labor Arbiter rendered a

decision[9]

dated July 28, 2003 in favor of Villamater, holding that his illness was compensable,

but denying his claim for moral and exemplary damages. The Labor Arbiter disposed as

follows—

WHEREFORE, foregoing premises considered, judgment is hereby

rendered declaring complainant’s illness to be compensable and ordering

respondents LEONIS NAVIGATION CO., INC. and WORLD MARINE PANAMA, S.A.

liable to pay, jointly and severally, complainant CATALINO U. VILLAMATER, the

amount of US$60,000.00 or its Philippine Peso equivalent at the time of actual

payment, representing the latter’s permanent total disability benefits plus ten

percent (10%) thereof as Attorney’s Fees.

All other claims are dismissed for lack of merit.

SO ORDERED.[10]

Petitioners appealed to the NLRC. Villamater also filed his own appeal, questioning the

award of the Labor Arbiter and claiming that the 100% degree of disability should be

compensated in the amount of US$80,000.00, pursuant to Section 2, Article XXI of the ITF-

JSU/AMOSUP Collective Bargaining Agreement (CBA) between petitioners and Associated

Marine Officers & Seamen’s Union of the Philippines, which covered the employment contract

of Villamater.

On February 4, 2004, the NLRC issued its resolution,[11]

dismissing the

respective appeals of both parties and affirming in toto the decision of the Labor Arbiter.

Petitioners filed their motion for reconsideration of the February 4, 2004 resolution, but

the NLRC denied the same in its resolution dated June 15, 2004.

Aggrieved, petitioners filed a petition for certiorari under Rule 65 of the Rules of Court

before the CA. After the filing of the required memoranda, the CA rendered its assailed May 3,

2007 Decision, dismissing the petition. The appellate court, likewise, denied petitioners’

motion for reconsideration in its July 23, 2007 Resolution.















Hence, this petition based on the following grounds, to wit:

First, the Court of Appeals erroneously held that *the+ Commission’s

Dismissal Decision does not constitute grave abuse of discretion amounting to

lack or excess of jurisdiction but mere error of judgment, considering that the

decision lacks evidentiary support and is contrary to both evidence on record

and prevailing law and jurisprudence.

Second, the Court of Appeals seriously erred in upholding the NLRC’s

decision to award Grade 1 Permanent and Total Disability Benefits in favor of

seaman Villamater despite the lack of factual and legal basis to support such

award, and more importantly, when it disregarded undisputed facts and

substantial evidence presented by petitioners which show that seaman

Villamater’s illness was not work-related and hence, not compensable, as

provided by the Standard Terms of the POEA Contract.

Third, the Court of Appeals erred in holding that non-joinder of

indispensable parties warrant the outright dismissal of the Petition for Review on

Certiorari.

Fourth, the Court of Appeals erroneously held that final and executory

decisions or resolutions of the NLRC render appeals to superior courts moot and

academic.

Last, the Court of Appeals seriously erred in upholding the award of

attorney’s fees considering that the grant has neither factual nor legal basis.

[12]

Before delving into the merits of this petition, we deem it fit to discuss the procedural

issues raised by petitioners.

First. It is worthy to note that the CA dismissed the petition, considering that (1) the

June 15, 2004 Resolution of the NLRC had already become final and executory on June 26,

2004, and the same was already recorded in the NLRC Book of Entries of Judgments; and that

(2) the award of the Labor Arbiter was already executed, thus, the case was closed andterminated.

According to Sections 14 and 15, Rule VII of the 2005 Revised Rules of Procedure of the

NLRC—







Section 14. Finality of decision of the commission and entry of

judgment. – a) Finality of the Decisions, Resolutions or Orders of the

Commission. – Except as provided in Section 9 of Rule X, the decisions,

resolutions or orders of the Commission shall become final and executory after

ten (10) calendar days from receipt thereof by the parties.

b) Entry of Judgment. – Upon the expiration of the ten (10) calendar day

period provided in paragraph (a) of this Section, the decision, resolution, or

order shall be entered in a book of entries of judgment.

The Executive Clerk or Deputy Executive Clerk shall consider the decision,

resolution or order as final and executory after sixty (60) calendar days from

date of mailing in the absence of return cards, certifications from the post office,

or other proof of service to parties.

Section 15. Motions for reconsideration. – Motion for reconsideration

of any decision, resolution or order of the Commission shall not be entertained

except when based on palpable or patent errors; provided that the motion is

under oath and filed within ten (10) calendar days from receipt of decision,

resolution or order, with proof of service that a copy of the same has been

furnished, within the reglementary period, the adverse party; and provided

further, that only one such motion from the same party shall be entertained.

Should a motion for reconsideration be entertained pursuant to this

SECTION, the resolution shall be executory after ten (10) calendar days from

receipt thereof .[13]

Petitioners received the June 15, 2004 resolution of the NLRC, denying their motion for

reconsideration, on June 16, 2004. They filed their petition for certiorari before the CA only on

August 9, 2004,[14] or 54 calendar days from the date of notice of the June 15, 2004

resolution. Considering that the above-mentioned 10-day period had lapsed without

petitioners filing the appropriate appeal, the NLRC issued an Entry of Judgment dated June 28,

2004.

Moreover, by reason of the finality of the June 15, 2004 NLRC resolution, the Labor

Arbiter issued on July 29, 2004 a Writ of Execution.[15]

Consequently, Leonis voluntarily paid

Villamater’s widow, Sonia M. Villamater (Sonia), the amount of P3,649,800.00, with Rizal

Commercial and Banking Corporation (RCBC) Manager’s Check No. 0000008550[16]

dated

August 12, 2004, as evidenced by the Acknowledgment Receipt[17]

dated August 13, 2004, and






















the Cheque Voucher[18]

dated August 12, 2004. Following the complete satisfaction of the

judgment award, the Labor Arbiter issued an Order[19]

dated September 8, 2004 that reads—

There being complete satisfaction of the judgment award as shown by the

record upon receipt of the complainant of the amount of P3,649,800.00,voluntarily paid by the respondent, as full and final satisfaction of the Writ of

Execution dated July 29, 2004; and finding the same to be not contrary to law,

morals, good custom, and public policy, and pursuant to Section 14, Rule VII of

the Rules of Procedure of the National Labor Relations Commission (NLRC), this

case is hereby ordered DISMISSED with prejudice, and

considered CLOSED andTERMINATED.

SO ORDERED.

Petitioners never moved for a reconsideration of this Order regarding the voluntariness of

their payment to Sonia, as well as the dismissal with prejudice and the concomitant termination

of the case.

However, petitioners argued that the finality of the case did not render the petition

for certiorari before the CA moot and academic. On this point, we agree with petitioners.

In the landmark case of St. Martin Funeral Home v. NLRC ,[20]

we ruled that judicial review

of decisions of the NLRC is sought via a petition for certiorari under Rule 65 of the Rules ofCourt, and the petition should be filed before the CA, following the strict observance of the

hierarchy of courts. Under Rule 65, Section 4,[21]

petitioners are allowed sixty (60) days from

notice of the assailed order or resolution within which to file the petition. Thus, although the

petition was not filed within the 10-day period, petitioners reasonably filed their petition

for certiorari before the CA within the 60-day reglementary period under Rule 65.

Further, a petition for certiorari does not normally include an inquiry into the correctness

of its evaluation of the evidence. Errors of judgment, as distinguished from errors of

jurisdiction, are not within the province of a special civil action for certiorari , which is merely

confined to issues of jurisdiction or grave abuse of discretion. It is, thus, incumbent upon

petitioners to satisfactorily establish that the NLRC acted capriciously and whimsically in order

that the extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such

capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it

must be shown that the discretion was exercised arbitrarily or despotically.


















The CA, therefore, could grant the petition for certiorari if it finds that the NLRC, in its

assailed decision or resolution, committed grave abuse of discretion by capriciously,

whimsically, or arbitrarily disregarding evidence that is material to or decisive of the

controversy; and it cannot make this determination without looking into the evidence of the

parties. Necessarily, the appellate court can only evaluate the materiality or significance of the

evidence, which is alleged to have been capriciously, whimsically, or arbitrarily disregarded by

the NLRC, in relation to all other evidence on record.[22]

Notably, if the CA grants the petition

and nullifies the

decision or resolution of the NLRC on the ground of grave abuse of discretion amounting to

excess or lack of jurisdiction, the decision or resolution of the NLRC is, in contemplation of law,

null and void ab initio; hence, the decision or resolution never became final and executory.[23]

In the recent case Bago v. National Labor Relations Commission,[24]

we had occasion to

rule that although the CA may review the decisions or resolutions of the NLRC on jurisdictional

and due process considerations, particularly when the decisions or resolutions have already

been executed, this does not affect the statutory finality of the NLRC decisions or resolutions in

view of Rule VIII, Section 6 of the 2002 New Rules of Procedure of the NLRC, viz.:

RULE VIII

x x x x

SECTION 6. EFFECT OF FILING OF PETITION FOR CERTIORARI ON

EXECUTION. – A petition for certiorari with the Court of Appeals or the Supreme

Court shall not stay the execution of the assailed decision unless a temporary

restraining order is issued by the Court of Appeals or the Supreme Court.[25]

Simply put, the execution of the final and executory decision or resolution of the NLRC

shall proceed despite the pendency of a petition for certiorari , unless it is restrained by the

proper court. In the present case, petitioners already paid Villamater’s widow, Sonia, theamount of P3,649,800.00, representing the total and permanent disability award plus

attorney’s fees, pursuant to the Writ of Execution issued by the Labor Arbiter. Thereafter, an

Order was issued declaring the case as “closed and terminated.” However, although there was

no motion for reconsideration of this last Order, Sonia was, nonetheless, estopped from

claiming that the controversy had already reached its end with the issuance of the Order closing



















and terminating the case. This is because the Acknowledgment Receipt she signed when she

received petitioners’ payment was without prejudice to the final outcome of the petition

for certiorari pending before the CA.

Second. We also agree with petitioners in their position that the CA erred in dismissing

outright their petition for certiorari on the ground of non-joinder of indispensable parties. It

should be noted that petitioners impleaded only the then deceased Villamater[26]

as respondent

to the petition, excluding his heirs.

Rule 3, Section 7 of the Rules of Court defines indispensable parties as those who

are parties in interest without whom there can be no final determination of an action.[27]

They

are those parties who possess such an interest in the controversy that a final decree would

necessarily affect their rights, so that the courts cannot proceed without their presence.[28]

A

party is indispensable if his interest in the subject matter of the suit and in the relief

sought is inextricably intertwined with the other parties’ interest.[29]

Unquestionably, Villamater’s widow stands as an indispensable party to this case.

Under Rule 3, Section 11 of the Rules of Court, neither misjoinder nor non-joinder

of parties is a ground for the dismissal of an action, thus:

Sec. 11. Misjoinder and non-joinder of parties. Neither misjoindernor non-joinder of parties is ground for dismissal of an action. Parties may be

dropped or added by order of the court on motion of any party or on its own

initiative at any stage of the action and on such terms as are just. Any claim

against a misjoined party may be severed and proceeded with separately.

The proper remedy is to implead the indispensable party at any stage of the action. The

court, either motu proprio or upon the motion of a party, may order the inclusion of

the indispensable party or give the plaintiff an opportunity to amend his complaint in order to

include indispensable parties. If the plaintiff ordered to include the indispensable party refuses

to comply with the order of the court, the complaint may be dismissed upon motion of the

defendant or upon the court's own motion. Only upon unjustified failure or refusal to obey the

order to include or to amend is the action dismissed.[30]























On the merits of this case, the questions to be answered are: (1) Is Villamater entitled to

total and permanent disability benefits by reason of his colon cancer? (2) If yes, would he also

be entitled to attorney’s fees?

As to Villamater’s entitlement to total and permanent disability benefits, petitioners

argue, in essence, that colon cancer is not among the occupational diseases listed under Section

32-A of the POEA Standard Terms and Conditions Governing the Employment of Filipino

Seafarers On-Board Ocean Going Vessels (POEA Standard Contract), and that the risk of

contracting the same was not increased by Villamater’s working conditions during his

deployment. Petitioners posit that Villamater had familial history of colon cancer; and that,

although dietary considerations may be taken, his diet -- which might have been high in fat and

low in fiber and could have thus increased his predisposition to develop colon cancer -- might

only be attributed to him, because it was he who chose what he ate on board the vessels he

was assigned to. Petitioners also cited the supposed declaration of their company-designated

physicians who attended to Villamater that his disease was not work-related.

We disagree.

It is true that under Section 32-A of the POEA Standard Contract, only two types of

cancers are listed as occupational diseases – (1) Cancer of the epithelial lining of the bladder

(papilloma of the bladder); and (2) cancer, epithellematous or ulceration of the skin or of the

corneal surface of the eye due to tar, pitch, bitumen, mineral oil or paraffin, or compound

products or residues of these substances. Section 20 of the same Contract also states that

those illnesses not listed under Section 32 are disputably presumed as work-related. Section 20

should, however, be read together with Section 32-A on the conditions to be satisfied for an

illness to be compensable,[31]

to wit:

For an occupational disease and the resulting disability or death to be

compensable, all the following conditions must be established:

1. The seafarer’s work must involve the risk described herein;

2. The disease was contracted as a result of the seafarer’s exposure to the

described risks;







3. The disease was contracted within a period of exposure and under such

other factors necessary to contract it;

4. There was no notorious negligence on the part of the seafarer.

Colon cancer, also known as colorectal cancer or large bowel cancer, includes cancerous

growths in the colon, rectum and appendix. With 655,000 deaths worldwide per year, it is the

fifth most common form of cancer in the United States of America and the third leading cause

of cancer-related deaths in the Western World. Colorectal cancers arise from adenomatous

polyps in the colon. These mushroom-shaped growths are usually benign, but some develop

into cancer over time. Localized colon cancer is usually diagnosed through colonoscopy.[32]

Tumors of the colon and rectum are growths arising from the inner wall of the large

intestine. Benign tumors of the large intestine are called polyps. Malignant tumors of the large

intestine are called cancers. Benign polyps can be easily removed during colonoscopy and are

not life-threatening. If benign polyps are not removed from the large intestine, they can

become malignant (cancerous) over time. Most of the cancers of the large intestine are

believed to have developed as polyps. Colorectal cancer can invade and damage adjacent

tissues and organs. Cancer cells can also break away and spread to other parts of the body

(such as liver and lung) where new tumors form. The spread of colon cancer to distant organs

is called metastasis of the colon cancer. Once metastasis has occurred in colorectal cancer, a

complete cure of the cancer is unlikely.[33]

Globally, colorectal cancer is the third leading cause of cancer in males and the fourth

leading cause of cancer in females. The frequency of colorectal cancer varies around the

world. It is common in the Western world and is rare in Asia and in Africa. In countries where

the people have adopted western diets, the incidence of colorectal cancer is increasing.[34]

Factors that increase a person’s risk of colorectal cancer include high fat intake, a family

history of colorectal cancer and polyps, the presence of polyps in the large intestine, and

chronic ulcerative colitis.[35]

Diets high in fat are believed to predispose humans to colorectal cancer. In countries

with high colorectal cancer rates, the fat intake by the population is much higher than in

countries with low cancer rates. It is believed that the breakdown products of fat metabolism



















lead to the formation of cancer-causing chemicals (carcinogens). Diets high in vegetables and

high-fiber foods may rid the bowel of these carcinogens and help reduce the risk of cancer.[36]

A person’s genetic background is an important factor in colon cancer risk. Among first-

degree relatives of colon-cancer patients, the lifetime risk of developing colon cancer is

18%. Even though family history of colon cancer is an important risk factor, majority (80%) of

colon cancers occur sporadically in patients with no family history of it. Approximately 20% of

cancers are associated with a family history of colon cancer. And 5% of colon cancers are due

to hereditary colon cancer syndromes. Hereditary colon cancer syndromes are disorders where

affected family members have inherited cancer-causing genetic defects from one or both of the

parents.[37]

In the case of Villamater, it is manifest that the interplay of age, hereditary, and dietary

factors contributed to the development of colon cancer. By the time he signed his employment

contract on June 4, 2002, he was already 58 years old, having been born on October 5,

1943,[38]

an age at which the incidence of colon cancer is more likely.[39]

He had a familial

history of colon cancer, with a brother who succumbed to death and an uncle who underwent

surgery for the same illness.[40]

Both the Labor Arbiter and the NLRC found his illness to be

compensable for permanent and total disability, because they found that his dietary provisions

while at sea increased his risk of contracting colon cancer because he had no choice of what to

eat on board except those provided on the vessels and these consisted mainly of high-fat, high-

cholesterol, and low-fiber foods.

While findings of the Labor Arbiter, which were affirmed by the NLRC, are entitled to

great weight and are binding upon the courts, nonetheless, we find it also worthy to note that

even during the proceedings before the Labor Arbiter, Villamater cited that the foods provided

on board the vessels were mostly meat, high in fat and high in cholesterol. On this matter,

noticeably, petitioners were silent when they argued that Villamater’s affliction was brought

about by diet and genetics. It was only after the Labor Arbiter issued his Decision, finding colon

cancer to be compensable because the risk was increased by the victuals provided on board,

that petitioners started claiming that the foods available on the vessels also consisted of fresh

fruits and vegetables, not to mention fish and poultry. It is also worth mentioning that while

Dr. Salvador declared that Villamater’s cancer “appears to be not work-related,” she

nevertheless suggested to petitioners Disability Grade 1, which, under the POEA Standard

Contract, “shall be considered or shall constitute total and permanent disability.”[41]

During his

confinement in Hamburg, Germany, Villamater was diagnosed to have colon cancer and was

advised to undergo chemotherapy and medical treatment, including blood transfusions. These



























findings were, in fact, confirmed by the findings of the company-designated physicians. The

statement of Dr. Salvador that Villamater’s colon cancer “appears to be not work-related”

remained at that, without any medical explanation to support the same. However, this

statement, not definitive as it is, was negated by the same doctor’s suggestion of Disability

Grade 1. Under Section 20-B of the Philippine Overseas Employment Administration-Standard

Employment Contract (POEA-SEC), it is the company-designated physician who must certify that

the seafarer has suffered a permanent disability, whether total or partial, due to either injury or

illness, during the term of his employment.[42]

On these points, we sustain the Labor Arbiter and the NLRC in granting total and

permanent disability benefits in favor of Villamater, as it was sufficiently shown that his having

contracted colon cancer was, at the very least, aggravated by his working conditions,[43]

taking

into consideration his dietary provisions on board, his age, and his job as Chief Engineer, who

was primarily in charge of the technical and mechanical operations of the vessels to ensure

voyage safety. Jurisprudence provides that to establish compensability of a non-occupational

disease, reasonable proof of work-connection and not direct causal relation is

required. Probability, not the ultimate degree of certainty, is the test of proof in compensation

proceedings.[44]

The Labor Arbiter correctly awarded Villamater total and permanent disability benefits,

computed on the basis of the schedule provided under the POEA Standard Contract,

considering that the schedule of payment of benefits under the ITF-JSU/AMOSUP CBA refers

only to permanent disability as a result of an accident or injury.[45]

By reason of Villamater’s entitlement to total and permanent disability benefits, he (or

in this case his widow Sonia) is also entitled to the award of attorney’s fees, not under Article

2208(2) of the Civil Code, “*w+hen the defendant’s act or omission has compelled the plaintiff

to litigate with third persons or to incur expenses to protect his interest,” but under Article

2208(8) of the same Code, involving actions for indemnity under workmen’s compensation and

employer’s liability laws.

WHEREFORE, the petition is DENIED and the assailed May 3, 2007 Decision and the July

23, 2007 Resolution of the Court of Appeals are AFFIRMED. Costs against petitioners.

SO ORDERED.



















JOSE L. ATIENZA, JR., MATIAS G.R. No. 188920

V. DEFENSOR, JR., RODOLFO G.

VALENCIA, DANILO E. SUAREZ,

SOLOMON R. CHUNGALAO,

SALVACION ZALDIVAR-PEREZ,

HARLIN CAST-ABAYON, MELVIN G.

MACUSI and ELEAZAR P. QUINTO,

Petitioners, Present:

Puno, C . J.,

Carpio,

Corona,

Carpio Morales,

Velasco, Jr.,

Nachura,

- versus - Leonardo-De Castro,

Brion,

Peralta,

Bersamin,Del Castillo,

Abad,

Villarama, Jr.,

Perez, and

Mendoza, JJ.

COMMISSION ON ELECTIONS,

MANUEL A. ROXAS II,

FRANKLIN M. DRILON and Promulgated:

J.R. NEREUS O. ACOSTA,

Respondents. February 16, 2010 x ---------------------------------------------------------------------------------------- x

DECISION

ABAD, J .:



This petition is an offshoot of two earlier cases already resolved by the Court involving a

leadership dispute within a political party. In this case, the petitioners question their expulsion

from that party and assail the validity of the election of new party leaders conducted by the

respondents.

Statement of the Facts and the Case

For a better understanding of the controversy, a brief recall of the preceding events is in

order.

On July 5, 2005 respondent Franklin M. Drilon (Drilon), as erstwhile president of

the Liberal Party (LP), announced his party’s withdrawal of support for the administration of

President Gloria Macapagal-Arroyo. But petitioner Jose L. Atienza, Jr. (Atienza), LP Chairman,

and a number of party members denounced Drilon’s move, claiming that he made the

announcement without consulting his party.

On March 2, 2006 petitioner Atienza hosted a party conference to supposedly discuss

local autonomy and party matters but, when convened, the assembly proceeded to declare all

positions in the LP’s ruling body vacant and elected new officers, with Atienza as LP

president. Respondent Drilon immediately filed a petition[1]

with the Commission on Elections

(COMELEC) to nullify the elections. He claimed that it was illegal considering that the party’s

electing bodies, the National Executive Council (NECO) and the National Political Council

(NAPOLCO), were not properly convened. Drilon also claimed that under the amended LP

Constitution,[2] party officers were elected to a fixed three-year term that was yet to end on

November 30, 2007.

On the other hand, petitioner Atienza claimed that the majority of the LP’ s NECO and

NAPOLCO attended the March 2, 2006 assembly. The election of new officers on

that occasion could be likened to “people power,” wherein the LP majority removed

respondent Drilon as president by direct action. Atienza also said that the amendments[3]

to

the original LP Constitution, or the Salonga Constitution, giving LP officers a fixed three-year

term, had not been properly ratified. Consequently, the term of Drilon and the other officers

already ended on July 24, 2006.

On October 13, 2006, the COMELEC issued a resolution,[4]

partially granting respondent

Drilon’s petition. It annulled the March 2, 2006 elections and ordered the holding of a new

http://sc.judiciary.gov.ph/jurisprudence/2010/february2010/188920.htm#_ftn1

















election under COMELEC supervision. It held that the election of petitioner Atienza and the

others with him was invalid since the electing assembly did not convene in accordance with the

Salonga Constitution. But, since the amendments to the Salonga Constitution had not been

properly ratified, Drilon’s term may be deemed to have ended. Thus, he held the position of LP

president in a holdover capacity until new officers were elected.

Both sides of the dispute came to this Court to challenge the COMELEC rulings. On April

17, 2007 a divided Court issued a resolution,[5]

granting respondent Drilon’s petition and

denying that of petitioner Atienza. The Court held, through the majority, that the COMELEC

had jurisdiction over the intra-party leadershipdispute; that the Salonga Constitution had been

validly amended; and that, as a consequence, respondent Drilon’s term as LP president was to

end only on November 30, 2007.

Subsequently, the LP held a NECO meeting to elect new party leaders before respondent

Drilon’s term expired. Fifty-nine NECO members out of the 87 who were supposedly qualified

to vote attended. Before the election, however, several persons associated with petitioner

Atienza sought to clarify their membership status and raised issues regarding the composition

of the NECO. Eventually, that meeting installed respondent Manuel A. Roxas II (Roxas) as the

new LP president.

On January 11, 2008 petitioners Atienza, Matias V. Defensor, Jr., Rodolfo G. Valencia,

Danilo E. Suarez, Solomon R. Chungalao, Salvacion Zaldivar-Perez, Harlin Cast-Abayon, Melvin

G. Macusi, and Eleazar P. Quinto, filed a petition for mandatory and prohibitory

injunction[6] before the COMELEC against respondents Roxas, Drilon and J.R. Nereus O. Acosta,

the party secretary general. Atienza, et al . sought to enjoin Roxas from assuming the

presidency of the LP, claiming that the NECO assembly which elected him was invalidly

convened. They questioned the existence of a quorum and claimed that the NECO composition

ought to have been based on a list appearing in the party’s 60th Anniversary Souvenir

Program. Both Atienza and Drilon adopted that list as common exhibit in the earlier cases and

it showed that the NECO had 103 members.

Petitioners Atienza, et al . also complained that Atienza, the incumbent party chairman,

was not invited to the NECO meeting and that some members, like petitioner Defensor, were

given the status of “guests” during the meeting. Atienza’s allies allegedly raised these issues

but respondent Drilon arbitrarily thumbed them down and “railroaded” the proceedings. He










suspended the meeting and moved it to another room, where Roxas was elected without

notice to Atienza’s allies.

On the other hand, respondents Roxas, et al . claimed that Roxas’ election as LP president

faithfully complied with the provisions of the amended LP Constitution. The party’s

60th Anniversary Souvenir Program could not be used for determining the NECO members

because supervening events changed the body’s number and composition. Some NECO

members had died, voluntarily resigned, or had gone on leave after accepting positions in the

government. Others had lost their re-election bid or did not run in the May 2007 elections,

making them ineligible to serve as NECO members. LP members who got elected to public

office also became part of the NECO. Certain persons of national stature also became NECO

members upon respondent Drilon’s nomination, a privilege granted the LP president under the

amended LP Constitution. In other words, the NECO membership was not fixed or static; it

changed due to supervening circumstances.

Respondents Roxas, et al . also claimed that the party deemed petitioners Atienza,

Zaldivar-Perez, and Cast-Abayon resigned for holding the illegal election of LP officers on March

2, 2006. This was pursuant to a March 14, 2006 NAPOLCO resolution that NECO subsequently

ratified. Meanwhile, certain NECO members, like petitioners Defensor, Valencia, and Suarez,

forfeited their party membership when they ran under other political parties during the May

2007 elections. They were dropped from the roster of LP members.

On June 18, 2009 the COMELEC issued the assailed resolution denying petitioners

Atienza, et al .’s petition. It noted that the May 2007 elections necessarily changed the

composition of the NECO since the amended LP Constitution explicitly made incumbent

senators, members of the House of Representatives, governors and mayors members of that

body. That some lost or won these positions in the May 2007 elections affected the NECO

membership. Petitioners failed to prove that the NECO which elected Roxas as LP president

was not properly convened.

As for the validity of petitioners Atienza, et al .’s expulsion as LP members, the COMELEC

observed that this was a membership issue that related to disciplinary action within the

political party. The COMELEC treated it as an internal party matter that was beyond its

jurisdiction to resolve.



Without filing a motion for reconsideration of the COMELEC resolution, petitioners

Atienza, et al . filed this petition for certiorari under Rule 65.

The Issues Presented

Respondents Roxas, et al . raise the following threshold issues:

1. Whether or not the LP, which was not impleaded in the case, is an indispensable

party; and

2. Whether or not petitioners Atienza, et al ., as ousted LP members, have the

requisite legal standing to question Roxas’ election.

Petitioners Atienza, et al ., on the other hand, raise the following issues:

3. Whether or not the COMELEC gravely abused its discretion when it upheld the

NECO membership that elected respondent Roxas as LP president;

4. Whether or not the COMELEC gravely abused its discretion when it resolved the

issue concerning the validity of the NECO meeting without first resolving the issue concerning

the expulsion of Atienza, et al . from the party; and

5. Whether or not respondents Roxas, et al . violated petitioners Atienza, et al .’s

constitutional right to due process by the latter’s expulsion from the party.

The Court’s Ruling

One. Respondents Roxas, et al . assert that the Court should dismiss the petition for

failure of petitioners Atienza, et al . to implead the LP as an indispensable party. Roxas, et al .

point out that, since the petition seeks the issuance of a writ of mandatory injunction against

the NECO, the controversy could not be adjudicated with finality without making the LP a party

to the case.[7]

But petitioners Atienza, et al .’s causes of action in this case consist in respondents

Roxas, et al .’s disenfranchisement of Atienza, et al . from the election of party leaders and in the

illegal election of Roxas as party president. Atienza, et al . were supposedly excluded from the

elections by a series of “despotic acts” of Roxas, et al ., who controlled the proceedings. Among

these acts are Atienza, et al .’s expulsion from the party, their exclusion from the NECO, and







respondent Drilon’s “railroading” of election proceedings. Atienza, et al . attributed all these

illegal and prejudicial acts to Roxas, et al .

Since no wrong had been imputed to the LP nor had some affirmative relief been sought

from it, the LP is not an indispensable party. Petitioners Atienza, et al .’s prayer for the undoing

of respondents Roxas, et al .’s acts and the reconvening of the NECO are directed against

Roxas, et al .

Two. Respondents Roxas, et al . also claim that petitioners Atienza, et al . have no legal

standing to question the election of Roxas as LP president because they are no longer LP

members, having been validly expelled from the party or having joined other political

parties.[8]

As non-members, they have no stake in the outcome of the action.

But, as the Court held in David v. Macapagal-Arroyo,[9]

legal standing in suits is governed

by the “real parties-in-interest” rule under Section 2, Rule 3 of the Rules of Court. This states

that “every action must be prosecuted or defended in the name of the real party -in-

interest.” And “real party-in-interest” is one who stands to be benefited or injured by the

judgment in the suit or the party entitled to the avails of the suit. In other words, the plaintiff’s

standing is based on his own right to the relief sought. In raising petitioners Atienza, et al .’s

lack of standing as a threshold issue, respondents Roxas, et al . would have the Court

hypothetically assume the truth of the allegations in the petition.

Here, it is precisely petitioners Atienza, et al .’s allegations that respondents Roxas, et al .

deprived them of their rights as LP members by summarily excluding them from the LP roster

and not allowing them to take part in the election of its officers and that not all who sat in the

NECO were in the correct list of NECO members. If Atienza, et al .’s allegations were correct,

they would have been irregularly expelled from the party and the election of officers,

void. Further, they would be entitled to recognition as members of good standing and to the

holding of a new election of officers using the correct list of NECO members. To this extent,

therefore, Atienza, et al . who want to take part in another election would stand to be benefited

or prejudiced by the Court’s decision in this case. Consequently, they have legal standing to

pursue this petition.

Three. In assailing respondent Roxas’ election as LP president, petitioners Atienza, et al .

claim that the NECO members allowed to take part in that election should have been limited to

those in the list of NECO members appearing in the party’s 60th

Anniversary Souvenir Program.











composition for the purpose of electing the party leaders.[12]

The explanation is logical and

consistent with party rules. Consequently, the COMELEC did not gravely abuse its discretion

when it upheld the composition of the NECO that elected Roxas as LP president.

Petitioner Atienza claims that the Court’s resolution in the earlier cases recognized his

right as party chairman with a term, like respondent Drilon, that would last up to November 30,

2007 and that, therefore, his ouster from that position violated the Court’s resolution. But the

Court’s resolution in the earlier cases did not preclude the party from disciplining Atienza under

Sections 29[13]

and 46[14]

of the amended LP Constitution. The party could very well remove him

or any officer for cause as it saw fit.

Four. Petitioners Atienza, et al . lament that the COMELEC selectively exercised its

jurisdiction when it ruled on the composition of the NECO but refused to delve into the legality

of their expulsion from the party. The two issues, they said, weigh heavily on the leadership

controversy involved in the case. The previous rulings of the Court, they claim, categorically

upheld the jurisdiction of the COMELEC over intra-party leadership disputes.[15]

But, as respondents Roxas, et al . point out, the key issue in this case is not the validity of

the expulsion of petitioners Atienza, et al . from the party, but the legitimacy of the NECO

assembly that elected respondent Roxas as LP president. Given the COMELEC’s finding as

upheld by this Court that the membership of the NECO in question complied with the LP

Constitution, the resolution of the issue of whether or not the party validly expelled petitioners

cannot affect the election of officers that the NECO held.

While petitioners Atienza, et al . claim that the majority of LP members belong to their

faction, they did not specify who these members were and how their numbers could possibly

affect the composition of the NECO and the outcome of its election of party leaders. Atienza, et

al . has not bothered to assail the individual qualifications of the NECO members who voted for

Roxas. Nor did Atienza, et al . present proof that the NECO had no quorum when it then

assembled. In other words, the claims of Atienza, et al . were totally unsupported by evidence.

Consequently, petitioners Atienza, et al . cannot claim that their expulsion from the

party impacts on the party leadership issue or on the election of respondent Roxas as president

so that it was indispensable for the COMELEC to adjudicate such claim. Under the

circumstances, the validity or invalidity of Atienza, et al .’s expulsion was purely a membership

















Five. Petitioners Atienza, et al . argue that their expulsion from the party is not a simple

issue of party membership or discipline; it involves a violation of their constitutionally-

protected right to due process of law. They claim that the NAPOLCO and the NECO should have

first summoned them to a hearing before summarily expelling them from the party. According

to Atienza, et al ., proceedings on party discipline are the equivalent of administrative

proceedings[20] and are, therefore, covered by the due process requirements laid down in Ang

Tibay v. Court of Industrial Relations.[21]

But the requirements of administrative due process do not apply to the internal affairs

of political parties. The due process standards set in Ang Tibay cover only administrative bodies

created by the state and through which certain governmental acts or functions are

performed. An administrative agency or instrumentality “contemplates an authority to which

the state delegates governmental power for the performance of a state function.”[22]

The

constitutional limitations that generally apply to the exercise of the state’s powers thus, apply

too, to administrative

bodies.

The constitutional limitations on the exercise of the state’s powers are found in Article

III of the Constitution or the Bill of Rights. The Bill of Rights, which guarantees against the

taking of life, property, or liberty without due process under Section 1 is generally a limitation

on the state’s powers in relation to the rights of its citizens. The right to due process is meant

to protect ordinary citizens against arbitrary government action, but not from acts committed

by private individuals or entities. In the latter case, the specific statutes that provide reliefs

from such private acts apply. The right to due process guards against unwarranted

encroachment by the state into the fundamental rights of its citizens and cannot be invoked in

private controversies involving private parties.[23]

Although political parties play an important role in our democratic set-up as an

intermediary between the state and its citizens, it is still a private organization, not a state

instrument. The discipline of members by a political party does not involve the right to life,

liberty or property within the meaning of the due process clause. An individual has no vested

right, as against the state, to be accepted or to prevent his removal by a political party. The only

rights, if any, that party members may have, in relation to other party members, correspond to

those that may have been freely agreed upon among themselves through their charter, which is

a contract among the party members. Members whose rights under their charter may have


















been violated have recourse to courts of law for the enforcement of those rights, but not as a

due process issue against the government or any of its agencies.

But even when recourse to courts of law may be made, courts will ordinarily not interfere

in membership and disciplinary matters within a political party. A political party is free to

conduct its internal affairs, pursuant to its constitutionally-protected right to free

association. In Sinaca v. Mula,[24]

the Court said that judicial restraint in internal party matters

serves the public interest by allowing the political processes to operate without undue

interference. It is also consistent with the state policy of allowing a free and open party system

to evolve, according to the free choice of the people.[25]

To conclude, the COMELEC did not gravely abuse its discretion when it upheld Roxas’

election as LP president but refused to rule on the validity of Atienza, et al .’s expulsion from the

party. While the question of party leadership has implications on the COMELEC’s performance

of its functions under Section 2, Article IX-C of the Constitution, the same cannot be said of the

issue pertaining to Atienza, et al .’s expulsion from the LP. Such expulsion is for the moment an

issue of party membership and discipline, in which the COMELEC cannot intervene, given the

limited scope of its power over political parties.

WHEREFORE, the Court DISMISSES the petition and UPHOLDS the Resolution of the

Commission on Elections dated June 18, 2009 in COMELEC Case SPP 08-001.

SO ORDERED.









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