THE PAQUETE HABANA, 175 U.S. 677 (1900)

Facts:
These are two appeals from decrees of the district court of the United States for the southern district of Florida condemning two fishing vessels and their cargoes as prize of war.

Each vessel was a fishing smack, running in and out of Havana, and regularly engaged in fishing on the coast of Cuba. It sailed under the Spanish flag and was owned by a Spanish subject of Cuban birth, living in the city of Havana. It was commanded by a subject of Spain, also residing in Havana. Her master and crew had no interest in the vessel, but were entitled to share her catch.

Her cargo consisted of fresh fish, caught by her crew from the sea, put on board as they were caught, and kept and sold alive. Until stopped by the blockading squadron she had no knowledge of the existence of the war or of any blockade. She had no arms or ammunition on board, and made on attempt to run the blockade after she knew of its existence, nor any resistance at the time of the capture.

The Paquete Habana (1st vessel) was a sloop and had a crew of three Cubans, including the master, who had a fishing license from the Spanish government, and no other commission or license. She left Havana and was captured by the United States gunboat Castine.

The Lola (2nd vessel) was a schooner and had a crew of six Cubans, including the master, and no commission or license. She was stopped by the United States steamship Cincinnati, and was warned not to go into Havana, but was told that she would be allowed to land at Bahia Honda. She then set for Bahia Honda, but on the next morning, when near that port, was captured by the United States steamship Dolphin.

Both the fishing vessels were brought by their captors into Key West. A libel for the condemnation of each vessel and her cargo as prize of war was filed. Each vessel was sold by auction (the Paquete Habana for the sum of $490 and the Lola for the sum of $800). There was no other evidence in the record of the value of either vessel or of her cargo.

Issue:

Whether or not the fishing smacks were subject to capture during the war with Spain.

Held:

No. By an ancient usage among civilized nations, beginning centuries ago, and gradually ripening into a rule of international law, coast fishing vessels, pursuing their vocation of catching and bringing in fresh fish, have been recognized as exempt, with their cargoes and crews, from capture as prize of war. (The case then discussed instances throughout history where fishing vessels were captured.)

It will be convenient to refer to some leading French treatises on international law as determined by the general consent of civilized nations.

'Enemy ships,' say Pistoye and Duverdy, in their Treatise on Maritime Prizes, published in 1855, 'are good prize. Not all, however; for it results from the unanimous accord of the maritime powers that an exception should be made in favor of coast fishermen. Such fishermen are respected by the enemy so long as they devote themselves exclusively to fishing.'

De Cussy, in his work on the Phases and Leading Cases of the Maritime Law of Nations, affirms in the clearest language the exemption from capture of fishing boats, saying, that 'in time of war the freedom of fishing is respected by belligerents; fishing boats are considered as neutral; in law, as in principle, they are not subject either to capture or to confiscation.

Ortolan, in the fourth edition of his Regles Internationales et Diplomatie de la Mer, after stating the general rule that the vessels and cargoes of subjects of the enemy are lawful prize, says: 'Nevertheless, custom admits an exception in favor of boats engaged in the coast fishery; these boats, as well as their crews, are free from capture and exempt from all hostilities. The coast-fishing industry is, in truth, wholly pacific, and of much less importance in regard to the national wealth that it may produce than maritime commerce or the great fisheries. Peaceful and wholly inoffensive, those who carry it on, may be called the harvesters of the territorial seas, since they confine themselves to gathering in the products thereof; they are for the most part poor families who seek in this calling hardly more than the means of gaining their livelihood.' Again, after observing that there are very few solemn public treaties which make mention of the immunity of fishing boats in time of war, he says: 'From another point of view the custom which sanctions this immunity is not so general that it can be considered as making an absolute international rule; but it has been so often put in practice, and, besides, it accords so well with the rule in use in wars on land, in regard to peasants and husbandmen, to whom coast fishermen may be likened, that it will doubtless continue to be followed in maritime wars to come. (A lot of opinions of other writers were also included which will not be mentioned in this digest)

This review of the precedents and authorities on the subject appears to us abundantly to demonstrate that at the present day, by the general consent of the civilized nations of the world, and independently of any express treaty or other public act, it is an established rule of international law, founded on considerations of humanity to a poor and industrious order of men, and of the mutual convenience of belligerent states, that coast fishing vessels, with their implements and supplies, cargoes and crews, unarmed and honestly pursuing their peaceful calling of catching and bringing in fresh fish, are exempt from capture as prize of war.

The exemption, of course, does not apply to coast fishermen or their vessels if employed for a warlike purpose, or in such a way as to give aid or information to the enemy; nor when military or naval operations create a necessity to which all private interests must give way.

Nor has the exemption been extended to ships or vessels employed on the high sea in taking whales or seals or cod or other fish which are not brought fresh to market, but are salted or otherwise cured and made a regular article of commerce.

This rule of international law is one which prize courts administering the law of nations are bound to take judicial notice of, and to give effect to, in the absence of any treaty or other public act of their own government in relation to the matter.

By the practice of all civilized nations, vessels employed only for the purposes of discovery or science are considered as exempt from the contingencies of war, and therefore not subject to capture. It has been usual for the government sending out such an expedition to give notice to other powers; but it is not essential.

To this subject in more than one aspect are singularly applicable the words uttered by Mr. Justice Strong, speaking for this court: 'Undoubtedly no single nation can change the law of the sea. The law is of universal obligation and no statute of one or two nations can create obligations for the world. Like all the laws of nations, it rests upon the common consent of civilized communities. It is of force, not because it was prescribed by any superior power, but because it has been generally accepted as a rule of conduct. Whatever may have been its origin, whether in the usages of navigation, or in the ordinances of maritime states, or in both, it has become the law of the sea only by the concurrent sanction of those nations who may be said to constitute the commercial world. Many of the usages which prevail, and which have the force of law, doubtless originated in the positive prescriptions of some single state, which were at first of limited effect, but which, when generally accepted, became of universal obligation.'

In the case, each vessel was of a moderate size, such as is not unusual in coast fishing smacks, and was regularly engaged in fishing on the coast of Cuba. The crew of each were few in number, had no interest in the vessel, and received, in return for their toil and enterprise, two thirds of her catch, the other third going to her owner by way of compensation for her use. Each vessel went out from Havana to her fishing ground, and was captured when returning along the coast of Cuba. The cargo of each consisted of fresh fish, caught by her crew from the sea, and kept alive on board. Although one of the vessels extended her fishing trip, we cannot doubt that each was engaged in the coast fishery, and not in a commercial adventure, within the rule of international law.

The case was adjudged that the capture was unlawful and without probable cause ordered that the proceeds of the sale of the vessel, together with the proceeds of any sale of her cargo, be restored to the claimant, with damages and costs.

C. M. Hoskins & Co. Inc. v Commissioner of Internal Revenue

Facts:

Hoskins, a domestic corporation engaged in the real estate business as broker, managing agents and administrators, filed its income tax return (ITR) showing a net income of P92,540.25 and a tax liability of P18,508 which it paid.

CIR disallowed 4 items of deductions in the ITR. Court of Tax Appeals upheld the disallowance of an item which was paid to Mr. C. Hoskins representing 50% of supervision fees earned and set aside the disallowance of the other 3 items.

Issue:

Whether or not the disallowance of the 4 items were proper.

Held:

NOT deductible.  It did not pass the test of reasonableness which is:

General rule, bonuses to employees made in good faith and as additional compensation for services actually rendered by the employees are deductible, provided such payments, when added to the salaries do not exceed the compensation for services rendered.

The conditions precedent to the deduction of bonuses to employees are:

·         Payment of bonuses is in fact compensation

·         Must be for personal services actually rendered

·         Bonuses when added to salaries are reasonable when measured by the amount and quality of services performed with relation to the business of the particular taxpayer.

There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many factors.

In the case, Hoskins fails to pass the test. CTA was correct in holding that the payment of the company to Mr. Hoskins of the sum P99,977.91 as 50% share of supervision fees received by the company was inordinately large and could not be treated as an ordinary and necessary expenses allowed for deduction.

China Banking Corporation v CA

Facts:

China Banking Corporation made a 53% equity investment (P16,227,851.80) in the First CBC Capital – a Hongkong subsidiary engaged in financing and investment with “deposit-taking” function.

It was shown that CBC has become insolvent so China Banking wrote-off its investment as worthless and treated it as a bad debt or as an ordinary loss deductible from its gross income.

CIR disallowed the deduction on the ground that the investment should not be classified as being worthless. It also held that assuming that the securities were worthless, then they should be classified as a capital loss and not as a bad debt since there was no indebtedness between China Banking and CBC.

Issue:

Whether or not the investment should be classified as a capital loss.

Held:

Yes.  Section 29.d.4.B of the NIRC contains provisions on securities becoming worthless. It conveys that capital loss normally requires the concurrence of 2 conditions:

a.       there is a sale or exchange

b.      the thing sold or exchanges is a capital asset.

When securities become worthless, there is strictly no sale or exchange but the law deems it to be a loss. These are allowed to be deducted only to the extent of capital gains and not from any other income of the taxpayer. A similar kind of treatment is given by the NIRC on the retirement of certificates of indebtedness with interest coupons or in registered form, short sales and options to buy or sell property where no sale or exchange strictly exists. In these cases, The NIRC dispenses with the standard requirements.

There is ordinary loss when the property sold is not a capital asset.

In the case, CBC as an investee corporation, is a subsidiary corporation of China Banking whose shares in CBC are not intended for purchase or sale but as an investment. An equity investment is a capital asset of the investor. Unquestionably, any loss is a capital loss to the investor.

--

Additional notes:

*The loss cannot be deductible as bad debt since the shares of stock do not constitute a loan extended by it to its subsidiary or a debt subject to obligatory repayment by the latter.

Garces v CA

FACTS:

Lucita Garces was appointed Election Registrar of Gutalac, Zamboanga del Norte on July 27, 1986.  She was to replace respondent Election Registrar Claudio Concepcion, who, in turn, was transferred to Liloy, Zamboanga del Norte.

Both appointments were to take effect upon assumption of office.  Concepcion, however, refused to transfer post as he did not request for it. Garces was directed by the Office of Assistant Director for Operations to assume the Gutalac post. But she was not able to do so because of a Memorandum issued by respondent Provincial Election Supervisor Salvador Empeynado that prohibited her from assuming office as the same is not vacant.

Garces received a letter from the Acting Manager, Finance Service Department, with an enclosed check to cover for the expenses on construction of polling booths.  It was addressed “Mrs. Lucita Garces E.R. Gutalac, Zamboanga del Norte” which Garces interpreted to mean as superseding the deferment order. Meanwhile, since Concepcion continued occupying the Gutalac office, the COMELEC en banc cancelled his appointment to Liloy.

Garces filed before the RTC a petition for mandamus with preliminary prohibitory and mandatory injunction and damages against Empeynado and Concepcion. Meantime, the COMELEC en banc resolved to recognize respondent Concepcion as the Election Registrar of Gutalac and ordered that the appointments of Garces be cancelled.

Empeynado moved to dismiss the petition for mandamus alleging that the same was rendered moot and academic by the said COMELEC Resolution, and that the case is cognizable only by the COMELEC under Sec. 7 Art. IX-A of the 1987 Constitution.  Empeynado argues that the matter should be raised only on certiorari before the Supreme Court and not before the RTC, else the latter court becomes a reviewer of an en banc COMELEC resolution contrary to Sec. 7, Art. IX-A.

 RTC dismissed the petition for mandamus on two grounds, viz., (1) that quo warranto is the proper remedy, and (2) that the “cases” or “matters” referred under the constitution pertain only to those involving the conduct of elections.  

 CA affirmed the RTC’s dismissal of the case.

ISSUE:

Whether or not the case is cognizable by the Supreme Court?

HELD:

No. The case is cognizable in the RTC.

Sec. 7, Art. IX-A of the Constitution provides:

“Each commission shall decide by a majority vote of all its members any case or matter brought before it within sixty days from the date of its submission for decision or resolution.  A case or matter is deemed submitted for decision or resolution upon the filing of the last pleading, brief, or memorandum required by the rules of the commission or by the commission itself.  Unless otherwise provided by this constitution or by law, any decision, order, or ruling of each commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a copy thereof.”

This provision is inapplicable as there was no case or matter filed before the COMELEC.  On the contrary, it was the COMELEC’s resolution that triggered this Controversy.  

The “case” or “matter” referred to by the constitution must be something within the jurisdiction of the COMELEC, i.e., it must pertain to an election dispute.  The settled rule is that “decision, rulings, order” of the COMELEC that may be brought to the Supreme Court on certiorari under Sec. 7 Art. IX-A are those that relate to the COMELEC’s exercise of its adjudicatory or quasi-judicial powers involving “elective regional, provincial and city officials.”

In this case, what is being assailed is the COMELEC’s choice of an appointee to occupy the Gutalac Post which is an administrative duty done for the operational set-up of an agency. The controversy involves an appointive, not an elective, official.  Hardly can this matter call for the certiorari jurisdiction of the Supreme Court.  

To rule otherwise would surely burden the Court with trivial administrative questions that are best ventilated before the RTC, a court which the law vests with the power to exercise original jurisdiction over “all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising judicial or quasi-judicial functions.”

*Petition denied 

Limpin v IAC

Facts:
Four lots were mortgaged by the spouses Jose and Marcelina Aquino to Guillermo Ponce and his wife Adela (since deceased) as security for a loan of P2,200,000.00. The mortgages were registered. Two of the lots, those covered by TCTs Nos. 92836 and 92837, were afterwards sold by the Aquinos to the Butuan Bay Wood Export Corporation, which caused an adverse claim to be annotated on the certificates of title.

Gregorio Y. Limpin, Jr. obtained a money judgment against Butuan Bay Wood Export Corporation in Court of First Instance of Davao. To satisfy the judgment, the lots covered by TCTs Nos. 92836 and 92837 were levied upon on and sold at public auction to Limpin as the highest bidder for the sum of P517,485.41.

On order of the trial court, the covering titles were cancelled and issued to Limpin. Limpin sold the two lots to Rogelio M. Sarmiento. By virtue of said sale, TCTs Nos. 285450 and 285451 were cancelled on November 4, 1983, and TCT’S were replaced in Sarmiento's name.

Ponce filed suit against the Aquino spouses for judicial foreclosure of the mortgage over the Aquinos' four lots. Judgment was rendered in favor of Ponce. After the judgment became final, the Trial Court, directed the sale at public auction of the 4 mortgaged lots to satisfy the judgment.

The 4 lots, including those formerly covered by TCTs Nos. 92836 and 92837, were sold to Ponce himself whose bid was the highest and exactly correspond to the judgment debt. On the same day, the sheriff's certificate of sale was registered.

Ponce then moved for the confirmation of the sale and the issuance of a writ of possession in his favor covering the four lots. But the Trial Court confirmed only the sale of the lots covered by TCTs Nos. 02839 and 92840, refusing to confirm the sale or issue a writ of possession in regard to the lots covered by TCTs Nos. 92836 and 92837 on the ground that those titles had already been cancelled and new ones issued to Gregorio F. Limpin.

Limpin refused to participate in the hearings contending that the Court had no jurisdiction over his person; but he did comment that the mortgage over the lots covered by TCTs Nos. 92836 and 92837 had been released by Ponce by virtue of a "Partial Release of Real Estate Mortgage". The Trial Court denied Ponce's motion for reconsideration, whereupon he sought corrective relief by filing a special civil action for certiorari and mandamus in the Intermediate Appellate Court, impleading Limpin and Sarmiento, as private respondents.

IAC set aside the judgment of the Trial Court and issue a writ of possession to Ponce with respect thereto, subject to Sarmiento's equity of redemption.

Issue:

Whether or not IAC erred in according superiority to the mortgage rights of Ponce over the levy and sale in favor of Limpin and the subsequent sale to Sarmiento.

Held:

NO. The superiority of the mortgagee's lien over that of a subsequent judgment creditor is now expressly provided in Rule 39, Section 16 of the Revised Rules of Court, which states with regard to the effect of levy on execution that it shall create a lien in favor of a judgment creditor over the right title and interest of the judgment debtor in such property at the time of the levy, subject to the liens or encumbrances then existing.

Using jurisprudence in Santiago v Dionisio, the Court in that case held that:

... [T]he effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the "unforeclosed equity of redemption." But the foreclosure is valid as between the parties to the suit.
Applied to this case, this means that the sale to Ponce, as the highest bidder in the foreclosure sale of the two lots in question should have been confirmed, subject to Limpin's (and now Sarmiento's equity to redemption. The registration of the lands, first in the name of Limpin and later of Sarmiento, was premature. At most what they were entitled to was the registration of their equity of redemption.

It is well settled that a recorded mortgage is a right in rem, a lien on the property whoever its owner may be. The recordation of the mortgage in this case puts the whole world on constructive notice of its existence and warned everyone who thereafter dealt with the property on which it was constituted that he would have to reckon with that encumbrance. Hence, Limpin's subsequent purchase of the "interests and participation" of Butuan Bay Wood Export Corporation in the lots covered by TCTs Nos. 92836 and 92837, as well as the sale of the same to Sarmiento were both subject to said mortgage.

--

Additional rulings not related to topic:

* The fact that at the time Ponce foreclosed the mortgage on October 21, 1983, the lots had already been bought by Limpin and subsequently sold to Sarmiento is of no consequence, since the settled doctrine is that the effects of the foreclosure sale retroact to the date of registration of the mortgage, i.e., March 1, 1973 in the present case.

* As regards the claim that Ponce executed a deed of partial release of his mortgage on July 20, 1977, the evidence discloses that Ponce and Jose Aquino, the mortgagor, thereafter executed separate affidavits dated December 1, 1983, stating that the said partial release was void, not only for want of consideration but also for lack of the signatures of Ponce's two sons who at the time of the execution of the document, were co-mortgagees as successors and heirs of Mrs. Adela Ponce. Moreover, the Deed of Partial Release was not registered but had simply been attached.

Galano v Roxas

Facts:

In the local elections of 1967, respondent Nemesio Roxas was elected mayor of the Municipality of San Mateo, Rizal. Shortly after he assumed office there were filed with his office 24 resignations signed by petitioners Chief of Police Jesus Galano and his twenty-three co-petitioners, all members of the police department of said town. These resignations were accepted by respondent mayor.

As a result of the above resignations, 8 policemen of the town remained. With the police force thus badly depleted, two municipal councilors, Arriola and Valerio, had to perform traffic and patrol duties. Soon enough, respondent mayor appointed replacements to the positions vacated by petitioners.

Petitioners addressed separate letters to the Police Commission and the Civil Service Commission complaining that respondent mayor had threatened them into filing those "courtesy resignations" and praying that the same be declared null and void and the appointments of their respective replacements be accordingly disapproved.

The Civil Service Commission referred the matter for investigation to the Police Commission. Hearing Officer of the Police Commission who conducted the investigation submitted his report recommending that the resignations of petitioners be declared null and void and that they be reinstated to their former positions with corresponding payment of back salaries. This report was approved by the Police Commission en banc and forwarded to the Civil Service Commission, with the result that the latter made the indorsement to respondent mayor. Respondent then made the indorsement to the President (at this time, it was Marcos).

After respondent submitted copies of the transcript of the proceedings in the PolCom and other pertinent documents, as required, to the Office of the President, no further action has been taken by that office on respondent's indorsement. And as respondent would not comply with the orders of the Civil Service Commission, on November 20, 1969, the instant petition for mandamus (which is actually a quo warranto proceeding) was filed with this Court.

Issue:

Whether or not the quo warranto proceeding was properly filed.

Held:

NO. A petition for quo warranto and mandamus affecting titles to public office must be filed within 1 year from the date the petitioner is ousted from his position And this period is not interrupted by the prosecution of any administrative remedy. Accordingly, after said period has lapsed, the remedy of the aggrieved party, if any, lies exclusively with administrative authorities.

The reason is obvious. While it may be desirable that administrative remedies be first resorted to, no one is compelled or bound to do so; and as said remedies neither are pre-requisite to nor bar the institution of quo warranto proceedings, it follows that he who claims the right to hold a public office allegedly usurped by another and who desires to seek redress in the courts, should file the proper judicial action within the reglementary period.

In the case at bar, the theory of petitioners themselves is that they were separated from the service thru the ruse of accepting their "courtesy resignations" between January 2 and 6, 1968 and the record shows that they were aware of the supposed illegality of their ouster as early as January 10, 1968, the date of their separate letters to the Police Commission and the Civil Service Commission impugning the action of respondent mayor. It is thus evident that in the premises, they are beyond the help of the courts, their time to resort thereto having lapsed.

*Petitioner to declare Galano in contempt of court, DENIED

CIR v Solidbank Corporation (G.R. No. 148191)

Facts:

Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts amounting to P1,474,693.44. It alleged that the total included P350,807,875.15 representing gross receipts from passive income which was already subjected to 20%final withholding tax (FWT).

The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should not form part of its taxable gross receipts for purposes of computing the tax.

Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for the refund or tax credit. It also filed a petition for review with the CTA where the it ordered the refund.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross receipts because the FWT was not actually received by the bank but was directly remitted to the government.

The Commissioner claims that although the FWT was not actually received by Solidbank, the fact that the amount redounded to the bank’s benefit makes it part of the taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA ruling is correct.

Issue:

Whether or not the FWT forms part of the gross receipts tax.

Held:

Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed. The payor, a separate entity, acts as no more than an agent of the government for the collection of tax in order to ensure its payment. This amount that is used to settle the tax liability is sourced from the proceeds constitutive of the tax base.

These proceeds are either actual or constructive. Both parties agree that there is no actual receipt by the bank. What needs to be determined is if there is constructive receipt. Since the payee is the real taxpayer, the rule on constructive receipt can be rationalized.

The Court  applied provisions of the Civil Code on actual and constructive possession. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established.  The withholding process is one such act.  There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power shall be considered as acquired when ratified by the person in whose name the act of possession is executed.

 In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt.

The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are tantamount to delivery, receipt or remittance. Besides, Solidbank admits that its income is subjected to a tax burden immediately upon “receipt”, although it claims that it derives no pecuniary benefit or advantage through the withholding process.

There being constructive receipt, part of which is withheld, that income is included as part of the tax base on which the gross receipts tax is imposed.