Philippine Supreme Court Jurisprudence > Year 1999 > September 1999 Decisions > G.R. No. 103073 September 14, 1999 - REPUBLIC OF THE PHIL v. COURT OF APPEALS, ET AL.:

At bar is a petition for review on certiorari under Rule 45 of the Revised Rules of Court seeking review of the Decision dated November 27, 1991 of the Court of Appeals in CA G.R. CV No. 21966.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The facts that matter are as follows:chanrob1es virtual 1aw library

Endelo Manufacturing Corporation (Endelo) is a domestic corporation engaged in the manufacture of embroidery and apparel articles for export using imported raw materials. Sometime between 1969 and 1970, Endelo imported from Kobe 1 , Keelung 2 and New York, several bales of raw materials including the items involved in the present controversy, covered by eleven import entry numbers, to wit: Import Entry Nos. 065436, 086162, 096980, 103008, 107811, series of 1969, and Import Entry Nos. 002380, 011983, 022298, 029368, 034975, 035418, series of 1970.chanrobles.com:cralaw:red

After they were unloaded in the Philippines, the aforementioned materials were deposited in a designated customs bonded warehouse. To release said materials from the customs warehouse, Endelo secured embroidery re-export bonds from the Communications Insurance Company, Inc. (CICI), and R & B Surety Company and Insurance Co., Inc. (R & B Surety). The bonds served to guarantee the payment of duties, taxes and other charges due thereon to the Bureau of Customs should Endelo default in its obligation to re-export the finished goods or the imported materials, in their original state, within the stipulated period from the date of arrival thereof, in compliance with the requirements of Sections 2001 to 2004 of the Tariff and Customs Code and Republic Act No. 3137, 3 as well as the germane rules and regulations issued by the Collector of Customs. The bonds uniformly stipulate that:jgc:chanrobles.com.ph

"If within two (2) years from the date of arrival of such materials and supplies, or if, at any time within two (2) years from the said date of arrival, or within two and one-half (2-1/2) years or three (3) years if the time is extended by the EMBROIDERY AND APPAREL CONTROL AND INSPECTION BOARD, as provided in Par VIII, Section 4 of Republic Act No. 3137, or by the Commissioner of Customs under Section 1908 of the Tariff and Customs Code of the Philippines, said importation shall be withdrawn pursuant to regulations and exported beyond the limits of the Philippines as finished embroidery and apparel articles or as raw material in its original state, then this obligation shall be null and void, otherwise to remain in full force and effect, provided, however, that should the performance by the PRINCIPAL of his/its obligation under this Bond becomes impossible by reason of the cancellation or revocation of his/its license or permit for cause and with the notice in and with due notice in writing to the SURETY Company concerned, then the obligation under this Bond shall at once become due and demandable."cralaw virtua1aw library

It appears that Endelo’s license to operate was subsequently suspended by the Embroidery and Apparel Control and Inspection Board on the ground of alleged pilferage of the imported materials from the customs warehouse by one Enrique Jocson who, petitioner claims, is a representative of the respondent corporation.chanrobles.com:cralaw:red

According to Endelo, the suspension of its license resulted in its failure to re-export the imported materials or the finished goods. It was not granted an extension of the period, either by the Embroidery Board, or by the Commissioner of Customs. As a consequence, the Commissioner of Customs sent a letter of demand to Endelo, CICI and R& B Surety, for the payment of the customs duties and taxes due to the Bureau of Customs.

On February 21, 1973, in view of the failure of Endelo, CICI, and R & B Surety to heed its demand, the petitioner commenced below the present case for collection of sum of money against Endelo and CICI on seven of the eleven import entries and against Endelo, CICI and R & B Surety, as defendants, on the other four import entries, praying that the defendants pay, jointly and severally, the obligation under their aforementioned bonds plus legal rate of interest thereon, from the filing of the Complaint.

In its Answer to the Complaint, defendant Endelo theorized that it was not liable under the bonds sued upon because of the suspension by the Embroidery and Apparel Control and Inspection Board of its license to operate. Endelo alleged further that the acts of Enrique Jocson of spiriting out from the customs warehouse the said materials, with the connivance of Eduardo Gatchalian, 4 and of appropriating for himself some of the imported materials, without the knowledge and consent of Endelo, contributed to the failure of the latter to perform its obligation under the said bonds. Endelo also raised as a defense partial importation of the goods and the fact that the Republic did not make any formal demand for the payment of the duties and taxes litigated upon. 5chanrobles.com:cralaw:red

For its part, defendant CICI denied in its Answer any legal obligation to petitioner, and averred a cross-claim against Endelo for alleged unpaid premiums amounting to P600.00, attorney’s fees of P10,000.00, and litigation expenses of P10,000,00.

On the other hand, defendant R & B Surety contended in its Answer that the Complaint states no cause of action and the lower Court has no jurisdiction over the case, arguing that under General Order No. 2-A it is the Military Court which has jurisdiction thereover. R & B Surety likewise filed a cross-claim against Endelo. In answer to the crossclaims, Endelo asserted that subject bonds were not secured by Endelo but by Enrique Jocson himself, without the knowledge and consent of Endelo. The latter also filed a third-party complaint against the third-party defendants, Enrique Jocson and Eduardo Gatchalian. 6

After trial, the court a quo came out with a decision adjudging the three defendants liable in all the eleven causes of action, and disposing as follows:jgc:chanrobles.com.ph

"WHEREFORE, in view of the foregoing, based on the allegations, prayer and evidence adduced, judgment is hereby rendered in favor of plaintiff and against defendants Endelo Manufacturing Corp. (Endelo, in brief), Communications (CICI, for convenience) and R and B Surety Insurance Company, Inc. (R and B, in brief), as follows:chanroblesvirtual|awlibrary

FIRST CAUSE OF ACTION

(a) Ordering defendants Endelo Manufacturing Corporation and CICI to pay plaintiff, jointly and severally the amount of P481,767.00 plus interests at the legal rate of interest from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI to wit:chanrob1es virtual 1aw library

1. CICI C (1S) 210 in the sum of P250,000.00 dated June 13, 1969;

2. CICI C (1S) 211 in the sum of P250,000.00 dated June 13, 1969;

3. CICI C (1S) 217 in the sum of P50,000.00 dated March 7, 1969;

4. CICI C (1S) 218 in the sum of P50,000.00 dated March 7, 1969;

5. CICI C (1S) 382 in the sum of P250,000.00 dated July 2, 1969;chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

SECOND CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P1,009,521.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by Communications Insurance Company, Inc., to wit:chanrob1es virtual 1aw library

1. CICI C(18) 94 in the sum of P250,000.00 dated July 6, 1969;

2. CICI C(18) 95 in the sum of P250,000.00 dated July 9, 1969;

3. CICI C(18) 96 in the sum of P250,000.00 dated July 10, 1969;

4. CICI C(18) 97 in the sum of P250,000.00 dated August 14, 1969;

5. CICI C(18) 383 in the sum of P250,000.00 dated July 2, 1969;cralawnad

THIRD CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P749,132.00 plus interest at the legal rate from the filing of this complaint until fully paid; and Ordering the forfeiture of the bonds filed by CICI, to wit:chanrob1es virtual 1aw library

1. CICI C(18) 313 in the sum of P500,000.00 dated September 23, 1969;

2. CICI C(18) 385 in the sum of P250,000.00 dated July 2, 1969;

FOURTH CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P499,565.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI, to wit:chanroblesvirtual|awlibrary

1. CICI C(18) 515 in the sum of P500,000.00 dated September 24, 1969;

2. CICI C(18) 384 in the sum of P250,000.00 dated July 2, 1969;

FIFTH CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P944,322.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI, to wit:chanrob1es virtual 1aw library

1. CICI C (18) 315 in the sum of P500,000.00 dated September 24, 1969;

2. CICI C (18) 407 in the sum of P500,000.00 dated November 3, 1969;

3. CICI C (18) 409 in the sum of P500,000.00 dated November 4, 1969;chanrobles virtual lawlibrary

SIXTH CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P526,704.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI, to wit:chanrob1es virtual 1aw library

1. CICI C(18) 437 in the sum of P500,000.00 dated January 6, 1970;

2. CICI C(18) 438 in the sum of P500,000.00 dated January 6, 1970;

SEVENTH CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI to pay plaintiff, jointly and severally, the amount of P321,497.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI, to wit:chanrob1es virtual 1aw library

1. CICI C (18) 438 in the sum of P500,000.00 dated January 6, 1970;

EIGHT CAUSE OF ACTION

(a) Ordering defendants Endelo and CICI, and R & B Surety and Insurance Company, Inc. (R & B Surety, in Brief), to pay; jointly and severally, plaintiff the amount of P1,515,798.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI and R and B Surety, to wit:chanroblesvirtual|awlibrary

1. CICI C(18) 500 in the sum of P500,000.00 dated February 24, 1970;

2. CICI C(18) 441 in the sum of P500,000.00 dated January 6, 1970

3. CICI C(18) 438 in the sum of P500,000.00 dated January 6, 1970;

4. R and B Surety C(19) 0064 in the sum of P500,000.00 dated February 20, 1970;

NINTH CAUSE OF ACTION

(a) Ordering defendants Endelo CICI, and R & B Surety to pay plaintiff, jointly and severally, the amount of P662,961.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI and R and B Surety, to wit:chanrob1es virtual 1aw library

1. CICI C(18) 443 in the sum of P500,000.00 dated January 7, 1970;

2. R and B Surety C(19) 0067 in the sum of P500,000.00 dated March 18, 1970 increased to P1,000.00 as Bond indorsement dated April 29, 1970;chanroblesvirtual|awlibrary

TENTH CAUSE OF ACTION

(a) Ordering defendants Endelo CICI, and R & B Surety to pay plaintiff, jointly and severally, the amount of P1,200,651.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI and R and B Surety, to wit:chanrob1es virtual 1aw library

1. CICI C(18) 512 in the sum of P500,000.00 dated April 1, 1970;

2. CICI C(18) 512 in the sum of P500,000.00 dated April 2, 1970;

3. R and B Surety C(19) 0073 in the sum of P500,000.00 dated April 10, 1970;chanrobles law library : red

ELEVENTH CAUSE OF ACTION

(a) Ordering defendants Endelo CICI, and R & B Surety to pay plaintiff, jointly and severally, the amount of P925,607.00 plus interest at the legal rate from the filing of this complaint until fully paid; and

(b) Ordering the forfeiture of the bonds filed by CICI and R and B Surety, to wit:chanrob1es virtual 1aw library

1. CICI C(18) 512 in the sum of P500,000.00 dated April 2, 1970;

2. R and B Surety C(19) 0067 in the sum of P500,000.00 dated March 1, 1970 increased to P1,000,000.00 as per Bond Indorsement dated April 29, 1970;

COMMON TO ALL CAUSES OF ACTION

(a) Ordering all the defendants to pay costs;chanrobles law library : red

As to the THIRD PARTY COMPLAINT against 3rd Party Defendants Atty. Eduardo Gatchalian (not summoned, hence, no jurisdiction on his person had been acquired) and Enrique Jocson, is hereby DISMISSED for failure of proof and substantiation of its allegations on the part of 3rd party plaintiff Endelo and with costs of suit.

COUNTERCLAIM OF 3rd party defendant Enrique Jocson for want of proof and substantiation of the allegations stated in his responsive pleading.

CROSS CLAIM:chanrob1es virtual 1aw library

Anent the Crossclaim of defendant CICI, Judgment is hereby rendered in its favor and against defendant Endelo, to wit:chanrob1es virtual 1aw library

1. Sentencing defendant Endelo Manufacturing Corporation, to subrogate the answering defendant CICI in, or indemnify the latter for, any such liability, plus 14% interest thereon, as stipulated; and

2. Ordering defendant Endelo to pay answering defendant P600.00 for unpaid premiums.

As regard the crossclaim of defendant R and B Surety and Insurance Co., Inc. judgment if hereby rendered in its favor and against principal defendant Endelo, to wit:chanroblesvirtuallawlibrary:red

1. Sentencing defendant Endelo Manufacturing Corporation to subrogate answering defendant R and B Surety in and to indemnify the latter, for any such liability, plus twelve percent (12%) interest thereon as stipulated.

SO ORDERED." 7

Only R & B Surety appealed to the Court of Appeals from the decision with respect to the eight (8) to eleven (11) causes of action, for which the petitioner (now respondent) was made liable by the lower court of origin.

On November 27, 1991, the Court of Appeals rendered the assailed Decision reversing the judgment of the trial court.

Dissatisfied, petitioner has come to this Court via the petition for review on certiorari under consideration, anchored on the assignment of errors, that:chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph



THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE TESTIMONIES OF ATTY. RODOLFO CASARENO, (CUSTOMS LEGAL OFFICER), SERGIO ROMERO (BONDS CUSTODIAN), AND MELCHOR CRUZ (CUSTOMS EXPORT TRADE ASSESSOR) ARE HEARSAY, HENCE, INSUFFICIENT TO ESTABLISH PETITIONER’S CAUSE OF ACTION AGAINST R AND B SURETY.



THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE SUSPENSION OF ENDELO’S LICENSE TO OPERATE WAS NOT FULLY SUBSTANTIATED.



THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT NO EVIDENCE EXISTS TO PROVE THAT ENDELO PARTICIPATED OR RATIFIED ENRIQUE JOCSON’S ACTS OF PILFERAGE.



THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT R AND B SURETY’S LIABILITY UNDER ITS EMBROIDERY BONDS WAS EXTINGUISHED UPON PETITIONER’S FAILURE TO NOTIFY IT OF ENDELO’S SUSPENSION OF LICENSE TO OPERATE.

In its Comment, private respondent maintains that the above assignment of errors does not call for the exercise of this Court’s power of review as contemplated by Rule 45, invoking the settled rule that factual findings of the Court of Appeals which are supported by substantial evidence are binding and conclusive upon this Court. 8chanroblesvirtuallawlibrary

In a number of cases, this Court sanctioned a departure from the general rule, as in the case at bar, where the findings of fact by the Court of Appeals are contrary to what the trial court 9 found and concluded.

In the first assigned error, petitioner cites the testimonies of its witnesses, Rodolfo Casareno, Sergio Romero and Melchor Cruz, disputing the finding of the Court of Appeals that the same are hearsay and therefore, insufficient to establish and support petitioner’s cause of action.

Verily, the respondent court erred in holding that the testimonies of the above-named witnesses are pure hearsay for not being based on personal knowledge as they were not present during the transaction, subject of the documents they presented. Very much to the contrary, their testimonies are properly within the exception to the hearsay rule under Section 44 of Rule 130, which permits entries in official records made in the performance of duty by a public officer of the Philippines or by a person in the performance of a duty specially enjoined by law, to be admitted as prima facie evidence of the facts therein stated.

Correct is the assertion by petitioner that Atty. Casareno’s testimony concerns the existence of various documents which form part of the records of the Bureau of Customs. 10 As such, his testimony is not hearsay since it relates to facts which he knows of his personal knowledge; that is, which are derived from his own perception. 11 The same is true with the testimony of Sergio Romero. As Bonds Custodian, he testified that the bonds posted by the defendant (now the respondent corporation) remained uncancelled, matters properly within his (Sergio Romero’s) personal knowledge. 12 Equally competent is the testimony of Melchor Cruz. Being a Customs Export Trade Assessor, his testimony pertained to certain records evidencing the failure of Endelo to re-export the imported raw materials in their original state or as finished products. These matters are well within Cruz’s personal knowledge and therefore, outside the realm of hearsay evidence. 13chanroblesvirtuallawlibrary

Petitioner next attacks the finding by the Court of Appeals that Endelo’s alleged misdeed justifying the suspension of its license to operate has not been sufficiently proven. It was the petitioner’s version that due to pilferage activity, i.e. withdrawal of goods from a customs bonded warehouse without clearance from the Collector of Customs, perpetrated by Enrique Jocson on behalf of Endelo, an investigation dating back to 1969-1970 was conducted by the Customs Police Office together with the Embroidery and Apparel Board. On account of this, petitioner stressed that to release Endelo and its sureties from liability for customs duties and other tax liabilities would be to put a premium on the said illegal act of pilferage. 14

Admittedly, Endelo’s license to operate was suspended sometime in 1970, a fact clearly gleanable from the allegations of Endelo in its Answer to the Complaint, claiming that its failure to export the imported raw materials in its original state or as finished products was due to the suspension of its license to operate allegedly done illegally and unnecessarily by the Board. Such allegation of illegal and unnecessary suspension was, however, not backed by any supporting evidence. Neither is there sufficient proof that the suspension of Endelo’s license was made during the two-year period. Much less has it been shown that such suspension prevented it from complying with its obligations under the bonds.

Records show that the pilferage by Endelo and the subsequent investigation conducted thereon, which resulted in the suspension of its license in 1970, was admitted by Atty. Casareno under cross-examination on October 23, 1986. That the investigation report thereon could not be produced was adequately explained by Atty. Casareno who testified that the investigation report and records pertaining to such investigation have been condemned since the said documents were kept in the custody of the Bureau of Customs only for a period of five (5) years.chanrobles.com.ph : virtual law library

Having relied on the illegality of its suspension by way of defense, Endelo and not petitioner has the burden of proving the same. In addition, Endelo was duty-bound to prove whether or not the suspension of its license was for an indefinite period or merely for a limited time. Despite this well-established rule, the Court of Appeals shifted that burden to the petitioner, and without any sustainable basis, upheld the theory of Endelo that the suspension of its license was invalid. But no such implication can be drawn either from the failure of petitioner to show the propriety of the suspension order or from the mere non-production of the documents or records of the alleged investigation prior to the order of suspension. Further, absent convincing evidence to the contrary, the presumption of regularity in the performance of official functions has to be applied. 15

Finally, petitioner assails private respondent’s discharge from any liability under subject embroidery bonds on the ground that R & B Surety was not notified of the suspension of Endelo’s license to operate to which the latter is entitled under the bonds. It is argued that R & B Surety’s obligations thereunder became due and demandable notwithstanding the lack of notice since the said bonds did not require the Republic to give such notice in case of mere suspension of Endelo’s license to operate, 16 the requisite notice being required only in case of a revocation or cancellation of the license.chanrobles.com.ph : virtual law library

This issue is rendered moot and academic in view of the Court’s finding that R & B Surety, which is sought to be held solidarily liable with Endelo, has not been able to discharge its burden of proving the alleged impropriety of the said suspension of its license and whether the same was for an indefinite period as to amount to a cancellation or revocation of subject license. What is more, Endelo was not without recourse insofar as its duty to comply with its obligation was concerned. Assuming for the sake of argument that the suspension in question was indeed illegal, records show no effort on the part of Endelo to have the said suspension lifted by the Embroidery and Apparel Control and Inspection Board. As aptly observed by petitioner, such omission has bolstered the submission that the suspension of Endelo’s license was proper and the alleged pilferage was the main cause therefor. Moreover, it does not appear that Endelo was precluded from exporting the imported materials subject of the controversy, in their original state, within two (2) years from the time they were deposited in the bonded warehouse of the Bureau of Customs.

WHEREFORE, the petition is GRANTED, the Decision of the Court of Appeals in CA-G.R. CV No. 21966 is SET ASIDE, and the Decision of the Regional Trial Court of origin, dated February 13, 1989, REINSTATED and AFFIRMED. No pronouncement as to costs.chanroblesvirtuallawlibrary

SO ORDERED.

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Endnotes:

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1. Japan.

2. Taiwan.

3. An Act creating the Embroidery and Apparel Control and Inspection Board.

4. The then Chairman of the Embroidery and Apparel Control and Inspection Board.

5. Rollo, p. 47.

6. Ibid.

7. RTC Decision, pp. 22-27.

8. Boneng v. People of the Philippines, G.R. No. 133563, March 4, 1999; citing Pal v. Court of Appeals, 275 SCRA 621.

9. Manlapaz v. Court of Appeals, Et Al., 147 SCRA 236, 239.

10. Rollo, p. 113.

11. Ibid., citing Section 36, Rule 130, Revised Rules of Court.

12. Rollo, p. 19-20.

13. Ibid., p. 20-21.

14. Petition, pp. 21-28.

15. People v. Lapura, 255 SCRA 85, 92.

16. Petition, pp. 32-33.