[G.R. No. 153176.

March 29, 2004]

CONTRARY TO LAW.
PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. ZEIDA AURORA B.
GARFIN, In her capacity as Presiding Judge of RTC, Branch 19, of the City of
Naga and SERAFIN SABALLEGUE, respondents.
DECISION
PUNO, J:
For determination in this petition is a question in procedural law - - whether an information filed by a state prosecutor without the prior written
authority or approval of the city or provincial prosecutor or chief state
prosecutor should be dismissed after the accused has entered his plea
under the information.
Petitioner comes before us with a petition for certiorari and mandamus
under Rule 65 of the Revised Rules of Court, seeking to declare as null and
void the Orders issued by the Regional Trial Court of Naga City, Branch 19
dated February 26, 2002[1] and April 3, 2002[2] which dismissed for lack
of jurisdiction the case of People vs. Serafin Saballegue, Criminal Case No.
RTC 2001-0597, and denied petitioners motion for reconsideration.
The antecedent facts are undisputed.
On June 22, 2001, private respondent was charged with violation of Section
22(a) in relation to Sections 19(b) and 28(e) of Republic Act No. 8282,
otherwise known as the Social Security Act, in an information which
reads:
The undersigned State Prosecutor of the Office of the Regional State
Prosecutor, Legazpi City, accuses SERAFIN SABALLEGUE, as proprietor of
Saballegue Printing Press with business address at 16 San Mateo St.,
Peafrancia Ave., Naga City for Violation of Section 22(a) in relation to
Sections 19(b) and 28(e) of R.A. 8282 otherwise known as the Social
Security Act of 1997, committed as follows:
That on or about February 1990 and up to the present, in the City of Naga,
Philippines, within the functional jurisdiction of SSS Naga Branch and the
territorial jurisdiction of this Honorable Court, the above named accused,
while being the proprietor of Saballegue Printing Press, did then and there
willfully, unlawfully, and criminally refuse and fail and continuously refuse
and fail to remit the premiums due for his employee to the SSS in the
amount of SIX THOUSAND FIVE HUNDRED THIRTY-THREE PESOS
(P6,533.00), Philippine Currency, representing SSS and EC premiums for
the period from January 1990 to December 1999 (n.i.), and the 3% penalty
per month for late remittance in the amount of ELEVEN THOUSAND ONE
HUNDRED FORTY-THREE PESOS and 28/100 (P11,143.28) computed as of
15 March 2000, despite lawful demands by letter in violation of the abovecited provisions of the law, to the damage and prejudice of the SSS and the
public in general.

Legazpi City for Naga City. 22 June 2001.

(sgd.) ROMULO SJ. TOLENTINO
State Prosecutor
Special Prosecutor on SSS Cases
in Region V[3]
The information contains a certification signed by State Prosecutor Romulo
SJ. Tolentino which states:
I hereby certify that the required investigation in this case has been
conducted by the undersigned Special Prosecutor in accordance with law
and under oath as officer of the court, that there is reasonable ground to
believe that the offense has been committed, that the accused is probably
guilty thereof and that the filing of the information is with the prior
authority and approval of the Regional State Prosecutor.[4]
The case was raffled to Branch 19 of the Regional Trial Court of Naga City
presided by respondent judge Hon. Zeida Aurora B. Garfin. On September
24, 2001, accused Serafin Saballegue pleaded not guilty to the charge and
the case was set for pre-trial.[5] Three days thereafter, the accused filed a
motion to dismiss[6] on the ground that the information was filed without
the prior written authority or approval of the city prosecutor as required
under Section 4, Rule 112 of the Revised Rules of Court.[7]
The People, through State Prosecutor Tolentino, filed an opposition,[8]
against which the accused filed a rejoinder.[9] The People filed a reply to
the rejoinder[10] on December 21, 2001. A rejoinder to the reply[11] was
filed by the accused on January 21, 2002.
After considering the arguments raised, the trial court granted the motion
to dismiss in its first questioned Order dated February 26, 2002, to wit:
After considering the respective arguments raised by the parties, the Court
believes and so resolves that the Information has not been filed in
accordance with Section 4, par. 3 of Rule 112 of the 2000 Rules on Criminal
Procedure, thus:
Rule 112, Section 4 x x x x x x
No complaint or information may be filed or dismissed by an investigating
prosecutor without the prior written authority or approval of the provincial
or city prosecutor or chief state prosecutor or the Ombudsman or his
deputy.
Expresio unius est exclusio alterius.

The Information will readily show that it has not complied with this rule as
it has not been approved by the City Prosecutor.
This Court holds that the defendants plea to the Information is not a
waiver to file a motion to dismiss or to quash on the ground of lack of
jurisdiction. By express provision of the rules and by a long line of
decisions, questions of want of jurisdiction may be raised at any stage of
the proceedings (People vs. Eduarte, 182 SCRA 750).
The Supreme Court in Villa vs. Ibaez (88 Phil 402) dwelt on lack of
authority of the officer who filed the information and on jurisdiction at the
same time, pertinent portions run as follows:
The defendant had pleaded to the information before he filed a motion to
quash, and it is contended that by his plea he waived all objections to the
information. The contention is correct as far as formal objections to the
pleadings are concerned. But by clear implication, if not by express
provision of section 10 of Rule 113 of the Rules of Court, and by a long line
of uniform decisions, questions of want of jurisdiction may be raised at any
stage of the proceedings. Now, the objection to the respondents
actuations goes to the very foundations of jurisdiction. It is a valid
information signed by a competent officer which, among other requisites,
confers jurisdiction on the court over the person of the accused and the
subject matter of the accusation. In consonance with this view, an infirmity
of the nature noted in the information cannot be cured by silence,
acquiescence, or even by express consent.
Prosecutor Tolentino also contends that having been duly designated to
assist the City Prosecutor in the investigation and prosecution of all SSS
cases by the Regional State prosecutor as alter ego of the Secretary of
Justice in Region V, then that authority may be given to other than the City
Prosecutor. The Court finds this contention to be devoid of merit. The
Regional State Prosecutor is not the alter ego of the Secretary of Justice but
a mere subordinate official and if ever the former files cases, it is by virtue
of a delegated authority by the Secretary of Justice. Potestas delegada non
potesta delegare (sic) what has been delegated cannot be redelegated.
In his opposition, the state prosecutor also attached a memorandum dated
June 22, 2001 by Regional State Prosecutor Santiago M. Turingan
addressed to Provincial Prosecutor and City Prosecutors of Region V
directing them to inhibit and to append the following NOTATION after the
certification in the Information for filing.
NOTATION: The herein City/Provincial Prosecutor is inhibiting from this case
and the Special Prosecution Team on SSS Cases in Region V is authorized
to dispose of the case without my approval in view of the request for
inhibition of the SSS Regional Manager as granted by the Regional State
Prosecutor.
A perusal of the Information, however, would readily show that nowhere in
the Information has the City Prosecutor of Naga City appended the above-

quoted notation/inhibition. At most, the authority of the special prosecutor

is only for the conduct of preliminary investigations and the prosecution of
cases after they are filed. The Court, however, believes that the filing of
this Information must be in conformity with the Rules on Criminal
Procedure, particularly Section 4 of Rule 112.
WHEREFORE, premises considered and for lack of jurisdiction, the Court
hereby resolves to DISMISS this case without pronouncement as to cost.
SO ORDERED.[12]
A motion for reconsideration was filed by the People contending that as a
special prosecutor designated by the regional state prosecutor to handle
SSS cases within Region V, State Prosecutor Tolentino is authorized to file
the information involving violations of the SSS law without need of prior
approval from the city prosecutor. [13] Letters of commendation from Chief
State Prosecutor Jovencito Zuo[14] and Secretary Hernando Perez[15]
were offered as proof to show that State Prosecutor Tolentinos authority to
file the information was recognized. In response, the defense pointed out in
its opposition that the motion for reconsideration lacked a notice of
hearing, hence it is pro forma or a mere scrap of paper. [16]
On April 3, 2002, respondent judge issued the second questioned Order
which reads:
Acting upon the Motion for Reconsideration filed by State Prosecutor
Romulo SJ. Tolentino, Special Prosecutor on SSS cases in Region V, and it
appearing that the same has failed to comply with the requirement of
notice prescribed in Sections 4 and 5, Rule 15 of the Rules of Court, the
same is hereby DENIED for being a mere scrap of paper.
SO ORDERED.[17]
Hence, this petition by the People through Regional State Prosecutor
Santiago Turingan and State Prosecutor Romulo SJ. Tolentino. Petitioner
attributes grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of respondent judge, viz:[18]
1. RESPONDENT JUDGE DISMISSED THE INFORMATION WITHOUT THE
REQUIRED SUPPORTING FACTUAL AND LEGAL BASES;
2. RESPONDENT JUDGE DELIBERATELY AND CAPRICIOUSLY IGNORED THE
PRESUMPTION OF REGULARITY IN FAVOR OF THE PROSECUTION WITHOUT
THE REQUIRED SUFFICIENCY OF REBUTTAL EVIDENCE. THE WORD MAY IN
SEC. 4, RULE 112 OF THE RULES OF COURT IS NOT MANDATORY;
3. RESPONDENT JUDGE COMMITTED GRAVE ERROR IN DELIBERATELY
IGNORING THE JUDICIALLY KNOWN INHIBITION OF THE CITY PROSECUTOR
AND THE SETTLED JURISPRUDENCE ON THE MATTER;

4.
RESPONDENT JUDGE GRAVELY ABUSED HER DISCRETION IN
INTERFERING WITH THE PURELY EXECUTIVE FUNCTION OF FILING AN
INFORMATION BY RULING ON THE AUTHORITY OF THE FILING OFFICER TO
FILE THE INFORMATION.
The Office of the Solicitor General (OSG) filed its comment[19] in
compliance with this Courts Resolution dated September 23, 2002.[20] It
opines that the dismissal of the information is mandated under Section 4,
Rule 112 of the Rules of Criminal Procedure.
Private respondent contends that:[21] 1) the instant petition was filed out
of time; 2) the special State Prosecutor is only authorized to conduct
preliminary investigation and prosecution of SSS cases and not to sign the
information; and 3) the City Prosecutor did not expressly inhibit himself
from handling SSS cases nor signing the information.
We shall first resolve the procedural issues. Respondent contends that the
motion for reconsideration filed on April 1, 2002 is late because it was filed
eighteen days after March 14, 2002, the date when petitioner received the
first questioned order. Respondent has overlooked that the 15th day after
March 14 is a Good Friday. Hence, petitioners last day to file the motion for
reconsideration was on the next working day after Good Friday, April 1.[22]
Next, respondent argues that having been considered as a mere scrap of
paper, the motion for reconsideration of the petitioner did not toll the
running of the reglementary period. Respondent, however, erroneously
assumes that the present case is an appeal by certiorari under Rule 45. As
stated at the outset, this is an original petition for certiorari and mandamus
under Rule 65.
Sec. 2, Rule 37 of the Rules of Court is clear. It provides that (a) pro forma
motion for new trial or reconsideration shall not toll the reglementary
period of appeal. (emphases supplied) Hence, the same provision has no
application in the case at bar.
The reckoning date is the receipt of the second questioned Order and not
the receipt of the first. Section 4, Rule 65, as amended by En Banc
Resolution A.M. No. 00-2-03-SC, September 1, 2000, provides, viz:
Sec. 4. When and where petition filed.-- The petition may be
than sixty (60) days from notice of the judgment, order or
case a motion for reconsideration or new trial is timely filed,
motion is required or not, the sixty (60)- day period shall be
notice of the denial of said motion.
xxx

xxx

filed not later

resolution. In
whether such
counted from

second questioned order was received by petitioner on April 11, 2002.[26]

A motion for extension of time to file a petition for review on certiorari was
filed on April 18, 2002.[27] A motion for leave to file and admit the instant
petition for certiorari and mandamus was filed on May 29, 2002.[28]
Having been filed within the reglementary period, petitioners motion for
leave to file the instant petition was granted in this Courts Resolution
dated July 15, 2002.[29]
We now come to the other issue: whether the prior written authority and
approval of the city or provincial prosecutor or chief state prosecutor is
necessary in filing the information at bar.
Petitioner takes the unbending view that the approval of the city or
provincial prosecutor is no longer required. It is contended that the
Regional State Prosecutor has already directed the city or provincial
prosecutor to inhibit from handling SSS cases.[30] Petitioner cites the letter
of Regional State Prosecutor Santiago M. Turingan to SSS Regional Director
in Naga City dated June 6, 1997[31] and copies of Regional Orders No. 97024-A[32] and 2001-033[33] dated July 14, 1997 and September 28, 2001,
respectively, showing the designation of State Prosecutor Tolentino as
special prosecutor for SSS cases in Region V. Petitioner relies on Galvez, et
al. v. Court of Appeals, et al.[34] and Sanchez v. Demetriou, et al.[35] to
prop up its contention that given the designation of State Prosecutor
Tolentino, the city prosecutor need not participate in the filing and
prosecution of the information in the case at bar.
We disagree. Under Presidential Decree No. 1275, the powers of a Regional
State Prosecutor are as follows:
Sec. 8.
The Regional State Prosecution Office: Functions of Regional
State Prosecutor. - The Regional State Prosecutor shall, under the control of
the Secretary of Justice, have the following functions:
a)
Implement policies, plans, programs, memoranda, orders, circulars
and rules and regulations of the Department of Justice relative to the
investigation and prosecution of criminal cases in his region.
b)
Exercise immediate administrative supervision over all provincial
and city fiscals and other prosecuting officers of provinces and cities
comprised within his region.
c)

Prosecute any case arising within the region.

d)
With respect to his regional office and the offices of the provincial
and city fiscals within his region, he shall:
xxx

As shown by the records, petitioner received the first questioned order

dated February 26, 2002 on March 14, 2002.[23] A motion for
reconsideration was timely filed on April 1, 2002[24] which was dismissed
for lack of notice of hearing in an Order dated April 3, 2002.[25] This

1)
Appoint such member of subordinate officers and employees as
may be necessary; and approve transfers of subordinate personnel within
the jurisdiction of the regional office.

2)
Investigate administrative complaints against fiscals and other
prosecuting officers within his region and submit his recommendation
thereon to the Secretary of Justice who shall, after review thereof, submit
the appropriate recommendation to the Office of the President: Provided,
that where the Secretary of Justice finds insufficient grounds for the filing
of charges, he may render a decision of dismissal thereof.
3)
Investigate administrative complaints against subordinate
personnel of the region and submit his recommendations thereon to the
Secretary of Justice who shall have the authority to render decision
thereon. (emphases supplied)
The power of administrative supervision is limited to the authority of the
department or its equivalent to generally oversee the operations of such
agencies and to insure that they are managed effectively, efficiently and
economically but without interference with day-to-day activities; or require
the submission of reports and cause the conduct of management audit,
performance evaluation and inspection to determine compliance with
policies, standards and guidelines of the department; to take such action
as may be necessary for the proper performance of official functions,
including rectification of violations, abuses and other forms of
maladministration; and to review and pass upon budget proposals of such
agencies but may not increase or add to them.[36] This is distinguished
from the power of supervision and control which includes the authority
to act directly whenever a specific function is entrusted by law or
regulation to a subordinate; direct the performance of duty; restrain the
commission of acts; review, approve, reverse or modify acts and decisions
of subordinate officials or units; determine priorities in the execution of
plans and programs; and prescribe standards, guidelines, plans and
programs.[37]
The Regional State Prosecutor is clearly vested only with the power of
administrative supervision. As administrative supervisor, he has no power
to direct the city and provincial prosecutors to inhibit from handling certain
cases. At most, he can request for their inhibition. Hence, the said directive
of the regional state prosecutor to the city and provincial prosecutors is
questionable to say the least.
Petitioner cannot lean on the cases of Galvez and Sanchez. In those cases,
the special prosecutors were acting under the directive of the Secretary of
Justice. They were appointed in accordance with law. Nowhere in P.D. No.
1275 is the regional state prosecutor granted the power to appoint a
special prosecutor armed with the authority to file an information without
the prior written authority or approval of the city or provincial prosecutor or
chief state prosecutor. P.D. No. 1275 provides the manner by which special
prosecutors are appointed, to wit:
Sec. 15. Special Counsels. - Whenever the exigencies of the service require
the creation of positions of additional counsel to assist provincial and city
fiscals in the discharge of their duties, positions of Special Counsels may
be created by any province or city, subject to the approval of the Secretary

of Justice, and with salaries chargeable against provincial or city funds. The
Secretary of Justice shall appoint said Special Counsels, upon
recommendation of the provincial or city fiscal and regional state
prosecutors concerned, either on permanent or temporary basis.
Special Counsel shall be appointed from members of the bar and shall be
allowed not more than the salary rate provided in this Decree for the
lowest rank or grade of assistant fiscal in the province or city where
assigned. (emphases supplied)
Under Department Order No. 318,[38] Defining the authority, duties and
responsibilities of regional state prosecutors, then Acting Secretary of
Justice Silvestre H. Bello III ordered the appointed regional state
prosecutors (which included Regional State Prosecutor Turingan for Region
V) to, among others, (i)nvestigate and/or prosecute, upon the directive of
the Secretary of Justice, specific criminal cases filed within the region.
(emphasis supplied)
In the case at bar, there is no pretense that a directive was issued by the
Secretary of Justice to Regional State Prosecutor Turingan to investigate
and/or prosecute SSS cases filed within his territorial jurisdiction. A bare
reading of the alleged letter of commendation by then Secretary Hernando
Perez would show that it does not amount to a directive or even a
recognition of this authority. In fact, while the letter of Secretary Perez
commends the efforts of Regional State Prosecutor Turingan in successfully
prosecuting SSS cases, it also negates his authority to prosecute them.
Secretary Perez called the Regional State Prosecutors attention to DOJ
Circular No. 27, series of 2001, which states that all important cases of the
SSS should be referred to the Office of the Government Corporate Counsel.
[39] Thus, Regional State Prosecutor Turingan cannot be considered a
special prosecutor within the meaning of the law.
Petitioner argues that the word may is permissive. Hence, there are
cases when prior written approval is not required, and this is one such
instance. This is too simplistic an interpretation. Whether the word may
is mandatory or directory depends on the context of its use. We agree with
the OSG that the use of the permissive word may should be read
together with the other provisions in the same section of the Rule. The
paragraph immediately preceding the quoted provision shows that the
word may is mandatory. It states:
Sec. 4, Rule 112. x x x
Within five (5) days from his resolution, he (investigating prosecutor) shall
forward the record of the case to the provincial or city prosecutor or chief
state prosecutor, or to the Ombudsman or his deputy in cases of offenses
cognizable by the Sandiganbayan in the exercise of its original jurisdiction.
They shall act on the resolution within ten (10) days from their receipt
thereof and shall immediately inform the parties of such action. (emphasis
supplied)

Having settled that the prior authority and approval of the city, provincial
or chief state prosecutor should have been obtained, we shall now resolve
the more important issue: whether the lack of prior written approval of the
city, provincial or chief state prosecutor in the filing of an information is a
defect in the information that is waived if not raised as an objection before
arraignment.

Rule 112, Section 4, paragraph 3 provides, viz:

We hold that it is not.

Private respondent and the OSG take the position that the lack of prior
authority or approval by the city or provincial prosecutor or chief state
prosecutor is an infirmity in the information that prevented the court from
acquiring jurisdiction over the case. Since lack of jurisdiction is a defect
that may be raised as an objection anytime even after arraignment, the
respondent judge did not err in granting the motion to dismiss based on
this ground. As basis, they cite the case of Villa v. Ibaez, et al.[40] where
we held, viz:

The provisions in the 2000 Revised Rules of Criminal Procedure that

demand illumination are Sections 3 and 9 of Rule 117 in relation to
paragraph 3, Section 4 of Rule 112, to wit:
Rule 117, Section 3. Grounds.The accused may move to quash the
complaint or information on any of the following grounds:
(a)

That the facts charged do not constitute an offense;

(b)
That the court trying the case has no jurisdiction over the offense
charged;
(c)
That the court trying the case has no jurisdiction over the person of
the accused;
(d)

That the officer who filed the information had no authority to do so;

(e)

That it does not conform substantially to the prescribed form;

(f)
That more than one offense is charged except when a single
punishment for various offenses is prescribed by law;
(g)

That the criminal action or liability has been extinguished;

(h)
That it contains averments which, if true, would constitute a legal
excuse or justification; and
(i)
That the accused has been previously convicted or acquitted of the
offense charged, or the case against him was dismissed or otherwise
terminated without his express consent.
xxx
xxx

xxx

Section 9. Failure to move to quash or to allege any ground therefor.The

failure of the accused to assert any ground of a motion to quash before he
pleads to the complaint or information, either because he did not file a
motion to quash or failed to allege the same in said motion, shall be
deemed a waiver of any objections except those based on the grounds
provided for in paragraphs (a), (b), (g), and (i) of section 3 of this Rule.
(emphasis supplied)

No complaint or information may be filed or dismissed by an investigating

prosecutor without the prior written authority or approval of the provincial
or city prosecutor or chief state prosecutor or the Ombudsman or his
deputy. (emphasis supplied)

The defendant had pleaded to an information before he filed a motion to

quash, and it is contended that by his plea he waived all objections to the
informations. The contention is correct as far as formal objections to the
pleadings are concerned. But by clear implication, if not by express
provision of section 10 of Rule 113 of the Rules of Court (now Section 9 of
Rule 117), and by a long line of uniform decisions, questions of want of
jurisdiction may be raised at any stage of the proceeding. Now, the
objection to the respondents actuations goes to the very foundation of the
jurisdiction. It is a valid information signed by a competent officer which,
among other requisites, confers jurisdiction on the court over the person of
the accused and the subject matter of the accusation. In consonance with
this view, an infirmity in the information cannot be cured by silence,
acquiescence, or even by express consent.[41] (emphasis supplied)
The case of Villa is authority for the principle that lack of authority on the
part of the filing officer prevents the court from acquiring jurisdiction over
the case. Jurisdiction over the subject matter is conferred by law while
jurisdiction over the case is invested by the act of plaintiff and attaches
upon the filing of the complaint or information.[42] Hence, while a court
may have jurisdiction over the subject matter, like a violation of the SSS
Law, it does not acquire jurisdiction over the case itself until its jurisdiction
is invoked with the filing of the information.
In the United States, an information has been held as a jurisdictional
requirement upon which a defendant stands trial. Thus, it has been ruled
that in the absence of probable cause, the court lacks jurisdiction to try the
criminal offense.[43] In our jurisdiction, we have similarly held that:
While the choice of the court where to bring an action, where there are two
or more courts having concurrent jurisdiction thereon, is a matter of
procedure and not jurisdiction, as suggested by appellant, the moment
such choice has been exercised, the matter becomes jurisdictional. Such
choice is deemed made when the proper complaint or information is filed
with the court having jurisdiction over the crime, and said court acquires
jurisdiction over the person of the defendant, from which time the right

and power of the court to try the accused attaches. (citations omitted) It is
not for the defendant to exercise that choice, which is lodged upon those
who may validly file or subscribe to the complaint or information under
sections 2 and 3 of Rule 106 of the Rules of Court. [44] (emphasis supplied)
A closer look at Villa would be useful in resolving the issue at hand. In that
case, Atty. Abelardo Subido, Chief of the Division of Investigation in the
Office of the Mayor of Manila, was appointed by the Secretary of Justice as
special counsel to assist the City Fiscal of Manila in the cases involving city
government officials or employees. Pursuant to his appointment, Atty.
Subido filed an information against Pedro Villa for falsification of a payroll.
Atty. Subidos authority to file the information was challenged on the
ground that he was disqualified for appointment under Section 1686 of the
Revised Administrative Code, as amended by Section 4 of Commonwealth
Act No. 144, to wit:
SEC. 1686. Additional counsel to assist fiscal. The Secretary of Justice
may appoint any lawyer, being either a subordinate from his office or a
competent person not in the public service, temporarily to assist a fiscal or
prosecuting attorney in the discharge of his duties, and with the same
authority therein as might be exercised by the Attorney General or Solicitor
General.[45]
We held, viz:
Appointments by the Secretary of Justice in virtue of the foregoing
provisions of the Revised Administrative Code, as amended, were upheld in
Lo Cham vs. Ocampo et al., 44 Official Gazette, 458, and Go Cam et al., vs.
Gatmaitan et al., (47 Official Gazette, 5092). But in those cases, the
appointees were officials or employees in one or another of the bureaus or
offices under the Department of Justice, and were rightly considered
subordinates in the office of the Secretary of Justice within the meaning of
section 1686, ante.
The case at bar does not come within the rationale of the above decisions.
Attorney Subido is a regular officer or employee in the Department of
Interior, more particularly in the City Mayors office. For this reason, he
belongs to the class of persons disqualified for appointment to the post of
special counsel.
That to be eligible as special counsel to aid a fiscal the appointee must be
either an employee or officer in the Department of Justice is so manifest
from a bare reading of section 1686 of the Revised Administrative Code as
to preclude construction. And the limitation of the range of choice in the
appointment or designation is not without reason.
The obvious reason is to have appointed only lawyers over whom the
Secretary of Justice can exercise exclusive and absolute power of
supervision. An appointee from a branch of the government outside the
Department of Justice would owe obedience to, and be subject to orders
by, mutually independent superiors having, possibly, antagonistic

interests. Referring particularly to the case at hand for illustration, Attorney

Subido could be recalled or his time and attention be required elsewhere
by the Secretary of Interior or the City Mayor while he was discharging his
duties as public prosecutor, and the Secretary of Justice would be helpless
to stop such recall or interference. An eventuality or state of affairs so
undesirable, not to say detrimental to the public service and specially the
administration of justice, the Legislature wisely intended to avoid.
The application of the 1951 Villa ruling is not confined to instances where
the person who filed the information is disqualified from being a special
prosecutor under Section 1686 of the Revised Administrative Code, as
amended, but has been extended to various cases where the information
was filed by an unauthorized officer as in the case at bar. In Cruz, Jr. v.
Sandiganbayan, et al.,[46] the Court held that it is a fundamental principle
that when on its face the information is null and void for lack of authority
to file the same, it cannot be cured nor resurrected by amendment. In that
case, the Presidential Commission on Good Government (PCGG) conducted
an investigation and filed an information with the Sandiganbayan against
petitioner Roman Cruz, Jr. charging him with graft and corruption. The
petitioner sought to quash the information on the ground that the crime
charged did not constitute a Marcos crony related crime over which the
PCGG had authority to investigate and file an information. The Court found
that the crime alleged in the information was not among those which PCGG
was authorized to investigate under Executive Orders No. 1 and 14 of then
President Corazon Aquino and ruled that the information was null and void.
Of similar import is Romualdez v. Sandiganbayan, et al.[47] where we ruled
that the information having been filed by an unauthorized party (the
PCGG), the information was fatally flawed. We noted that this defect is not
a mere remediable defect of form, but a defect that could not be cured.
In Cudia v. Court of Appeals, et al.,[48] we also reiterated the Villa ruling.
The accused in that case was apprehended in Mabalacat, Pampanga for
illegal possession of firearms and was brought to Angeles City where the
headquarters of the arresting officers was located. The City Prosecutor of
Angeles City filed an information in the Regional Trial Court of Angeles City.
We invalidated the information filed by the City Prosecutor because he had
no territorial jurisdiction, as the offense was committed in Mabalacat,
Pampanga and his territorial jurisdiction was only in Angeles City. We held
that an information, when required by law to be filed by a public
prosecuting officer, cannot be filed by another.[49] Otherwise, the court
does not acquire jurisdiction.[50] It is a valid information signed by a
competent officer which, among other requisites, confers jurisdiction on
the court over the person of the accused and the subject matter thereof.
The accuseds plea to an information may be a waiver of all formal
objections to the said information but not when there is want of
jurisdiction. Questions relating to lack of jurisdiction may be raised at any
stage of the proceeding. An infirmity in the information, such as lack of
authority of the officer signing it, cannot be cured by silence,
acquiescence, or even by express consent.[51]

Despite modifications of the provisions on unauthorized filing of

information contained in the 1940 Rules of Criminal Procedure under which
Villa was decided, the 1951 Villa ruling continues to be the prevailing case
law on the matter.[52]
The 1940 Rules of Court provided in Rule 113, Section 10 that, if the
defendant fails to move to quash the complaint or information before he
pleads thereto, he shall be taken to have waived all objections which are
grounds for a motion to quash except (1) when the complaint or
information does not charge an offense or (2) the court is without
jurisdiction of the same. (emphasis ours) Among the enumerated grounds
for a motion to quash under Section 2 of the same Rule was (t)hat the
fiscal has no authority to file the information. With only the above two
exceptions provided by the 1940 Rules, the Court nevertheless made the
Villa ruling that if the filing officer lacks authority to file the information,
jurisdiction is not conferred on the court and this infirmity cannot be cured
by silence or waiver, acquiescence, or even by express consent.
The 1940 Rules of Court was amended in 1964. With only minimal changes
introduced, the 1964 Rules of Court contained provisions on unauthorized
filing of information similar to the above provisions of the 1940 Rules.[53]
Then came the 1985 Rules of Criminal Procedure. Lack of authority of the
officer who filed the information was also a ground for a motion to quash
under these rules. The 1985 Rules also provided for waiver of the grounds
for a motion to quash under Rule 117, Section 8, but enumerated the
following exceptions to the waiver: (a) the facts charged do not constitute
an offense; (b) the court trying the case has no jurisdiction over the
offense charged or the person of the accused; (c) the criminal action or
liability has been extinguished; and (d) the accused has been previously
convicted or in jeopardy of being convicted, or acquitted of the offense
charged. Apparently, the want of jurisdiction under the 1985 Rules refers to
jurisdiction over the offense and the person, and not over the case as in
Villa where the court did not acquire jurisdiction over the case for lack of
authority of the officer who filed the information. Still, despite the
enumeration, the Court continued to apply the Villa ruling as shown in the
afore-cited Cruz and Cudia cases.
The 1985 Rules was amended in 2000. The 2000 Revised Rules of Criminal
Procedure also provide for lack of authority of the filing officer as among
the grounds for a motion to quash and the waiver of these grounds. Similar
to the 1985 Rules, the Revised Rules enumerate the exceptions from the
waiver, namely: (a) that the facts charged do not constitute an offense; (b)
that the court trying the case has no jurisdiction over the offense charged;
(c) that the criminal action or liability has been extinguished; and (d) that
the accused has been previously convicted or acquitted of the offense
charged, or the case against him was dismissed or otherwise terminated
without his express consent. Under the regime of the 2000 Revised Rules,
we reiterated the Villa ruling in the above-cited Romualdez case. With the
enumeration of the four exceptions, which was almost a replica of the
enumeration in the 1985 Rules, the 2000 Rules did not intend to abandon

Villa. The Villa ruling subsisted alongside the enumerated exceptions under
the 1985 Rules, and it remains to do so under the enumerated exceptions
under the 2000 Rules. Neither the Rationale of the 2000 Revised Rules of
Criminal Procedure nor the Minutes of the Meeting of the Committee on the
Revision of the Rules of Court evinces any intent to abandon the doctrine
enunciated in Villa.
In sum, we hold that, in the absence of a directive from the Secretary of
Justice designating State Prosecutor Tolentino as Special Prosecutor for SSS
cases or a prior written approval of the information by the provincial or city
prosecutor, the information in Criminal Case No. RTC 2001-0597 was filed
by an officer without authority to file the same. As this infirmity in the
information constitutes a jurisdictional defect that cannot be cured, the
respondent judge did not err in dismissing the case for lack of jurisdiction.
WHEREFORE, premises considered, the petition is DENIED. The respondent
courts orders dated February 26, 2002 and April 3, 2002 are AFFIRMED.
Criminal Case No. RTC 2001-0597 is DISMISSED without prejudice to the
filing of a new information by an authorized officer.
SO ORDERED.

G. R. No. 156982. September 8, 2004]

NATIONAL AMNESTY COMMISSION, petitioner, vs. COMMISSION ON
AUDIT, JUANITO G. ESPINO, Director IV, NCR, Commission on
Audit, and ERNESTO C. EULALIA, Resident Auditor, National
Amnesty Commission. respondents.
DECISION
CORONA, J.:
This petition for review[1] seeks to annul the two decisions of
respondent Commission on Audit (COA) [2] dated July 26, 2001[3] and January
30, 2003,[4] affirming the September 21, 1998 ruling [5] of the National
Government Audit Office (NGAO). The latter in turn upheld Auditor Ernesto
C. Eulalias order
disallowing
the
payment
of honoraria to
the
representatives of petitioners ex officio members, per COA Memorandum
No. 97-038.
Petitioner National Amnesty Commission (NAC) is a government
agency created on March 25, 1994 by then President Fidel V. Ramos
through Proclamation No. 347. The NAC is tasked to receive, process and
review amnesty applications. It is composed of seven members: a
Chairperson, three regular members appointed by the President, and the

Secretaries of Justice, National Defense and Interior and Local Government

as ex officio members.[6]

7.

Artemio Aspiras

It appears that after personally attending the initial NAC meetings, the
three ex officio members turned over said responsibility to their
representatives
who were
paid honorariabeginning
December
12,
1994. However,
on
October
15,
1997,
NAC
resident
auditor Eulalia disallowed on audit the payment of honoraria to these
representatives amounting toP255,750 for the period December 12, 1994
to June 27, 1997, pursuant to COA Memorandum No. 97-038. On
September 1, 1998, the NGAO upheld the auditors order and notices of
disallowance were subsequently issued to the following:[7]

Justice

Department

REPRESENTATIVES
1.

2.

Meanwhile, on April 28, 1999, the NAC passed Administrative Order

No. 2 (the new Implementing Rules and Regulations of Proclamation No.
347), which was approved by then President Joseph Estrada on October 19,
1999. Section 1, Rule II thereof provides:

a) A Chairperson who shall be appointed by the President;

Department
P 2,500.00

of

National

b) Three (3) Commissioners who shall be appointed by the President;

c) Three (3) Ex-officio Members

Ramon Martinez

Department
Defense

P255,750.00

Section 1, Composition The NAC shall be composed of seven (7)

members:

AMOUNT

Cesar Averilla

Defense

of
1,250.00

of

National

1. Secretary of Justice

73,750.00
2. Secretary of National Defense

3.

Cielito Mindaro,
3. Secretary of the Interior and Local Government
Department of Justice

4.

18,750.00

Purita Deynata
Department of Justice
5.

62,000.00

The ex officio members may designate their representatives to the

Commission.
Said
Representatives
shall
be entitled
to per
diems, allowances, bonuses and other benefits as may be
authorized by law. (Emphasis supplied)
Petitioner invoked Administrative Order No. 2 in assailing before the
COA the rulings of the resident auditor and the NGAO disallowing payment
of honoraria to the ex officiomembers representatives, to no avail.

Alberto Bernardo
Department of the Interior
And Local Government

6.

71,250.00

Stephen Villaflor
Department of the Interior and
Local Government

26,250.00

Hence, on March 14, 2003, the NAC filed the present petition,
contending that the COA committed grave abuse of discretion in: (1)
implementing COA Memorandum No. 97-038 without the required notice
and publication under Article 2 of the Civil Code; (2) invoking paragraph 2,
Section 7, Article IX-B of the 1987 Constitution to sustain the disallowance
ofhonoraria under said Memorandum; (3) applying the Memorandum to the
NAC ex officio members representatives who were all appointive officials
with ranks below that of an Assistant Secretary; (4) interpreting laws and
rules outside of its mandate and declaring Section 1, Rule II of
Administrative Order No. 2 null and void, and (5) disallowing the payment

of honoraria on the ground of lack of authority of representatives to attend

the NAC meetings in behalf of the ex officio members.[8]

It is in accordance with this constitutional mandate that the COA

issued Memorandum No. 97-038 on September 19, 1997:

We hold that the position of petitioner NAC is against the law and
jurisprudence. The COA is correct that there is no legal basis to grant per
diem, honoraria or
any
allowance
whatsoever
to
the
NAC ex
officio members official representatives.

COMMISSION ON AUDIT MEMORANDUM NO. 97-038

The Constitution mandates the Commission on Audit to ensure that

the funds and properties of the government are validly, efficiently and
conscientiously used. Thus, Article IX-D of the Constitution ordains the COA
to exercise exclusive and broad auditing powers over all government
entities or trustees, without any exception:
Section 2. (1) The Commission on Audit shall have the power, authority
and duty to examine, audit, and settle all accounts pertaining to the
revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions
and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and
(d) such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law of
the granting institution to submit to such audit as a condition of subsidy or
equity. However, where the internal control system of the audited agencies
is inadequate, the Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and appropriate to correct
the deficiencies. It shall keep the general accounts of the Government and,
for such period as may be provided by law, preserve the vouchers and
other supporting papers pertaining thereto.
(2)
The Commission shall have exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and
examination,
establish
the
techniques
and
methods
required therefor, and promulgate accounting and auditing rules
and regulations, including those for the prevention and
disallowance of irregular, unnecessary, inexpensive, extravagant,
or unconscionable expenditures, or uses of government funds and
properties.
Section 3. No law shall be passed exempting any entity of the
Government or its subsidiary in any guise whatever, or any investment of
public funds, from the jurisdiction of the Commission on
Audit. (Emphasis supplied).

SUBJECT: Implementation of Senate Committee Report No. 509,

Committee on Accountability of Public Officers and Investigations and
Committee on Civil Service and Government Reorganization.
The Commission received a copy of Senate Committee Report No. 509
urging the Commission on Audit to immediately cause the
disallowance of any payment of any form of additional
compensation or remuneration to cabinet secretaries, their
deputies and assistants, or their representatives, in violation of
the rule on multiple positions, and to effect the refund of any and
all such additional compensation given to and received by the
officials concerned, or their representatives, from the time of the
finality of the Supreme Court ruling in Civil Liberties Union v.
Executive Secretary to the present. In the Civil Liberties Union case,
the Supreme Court ruled that Cabinet Secretaries, their deputies
and assistants may not hold any other office or employment. It
declared Executive Order 284 unconstitutional insofar as it allows
Cabinet members, their deputies and assistants to hold other
offices in addition to their primary office and to receive
compensation therefor. The
said
decision became
final
and executory on August 19, 1991.
In view thereof, all unit heads/auditors/team leaders of the national
government agencies and government owned or controlled corporations
which have effected payment of subject allowances, are directed to
implement the recommendation contained in the subject Senate
Committee Report by undertaking the following audit action:
1. On accounts that have not been audited and settled
under certificate of settlements and balances on record
from August 19, 1991 to present to immediately issue
the Notices of disallowance and corresponding
certificate of settlements and balances.
2. On accounts that have been audited and settled under
certificate of settlements and balances on record to review
and re-open said accounts, issue the corresponding notices of
disallowance, and certify a new balance thereon. It is
understood that the re-opening of accounts shall be
limited to those that were settled within the
prescriptive period of three (3) years prescribed in
Section 52 of P.D. 1445.

3. On disallowances previously made on these accounts to

submit a report on the status of the disallowances indicating
whether those have been refunded/settled or have become
final andexecutory and the latest action taken by the Auditor
thereon.
All auditors concerned shall ensure that all documents evidencing the
disallowed payments are kept intact on file in their respective offices.
Any problem/issue arising from the implementation of this Memorandum
shall be brought promptly to the attention of the Committee created under
COA Officer Order No. 97-698 thru the Director concerned, for immediate
resolution.
An initial report on the implementation of this Memorandum shall be
submitted to the Directors concerned not later than October 31, 1997.
Thereafter, a quarterly progress report on the status of disallowances
made shall be submitted, until all the disallowances shall have been
enforced.
The Committee created under COA Office Order No. 97-698, dated
September 10, 1997, shall supervise the implementation of this
Memorandum which shall take effect immediately and shall submit a
consolidated report thereon in response to the recommendation of the
Senate Committee on Accountability of Public Officers and Investigation
and Committee on Civil Service and Government Reorganization.
[9]
(Emphasis supplied)
Contrary to petitioners claim, COA Memorandum No. 97-038 does not
need, for validity and effectivity, the publication required by Article 2 of the
Civil Code:
Art. 2. Laws shall take effect after fifteen days following the completion of
their publication in the Official Gazette, unless it is otherwise provided. This
Code shall take effect one year after such publication.
We clarified this publication requirement in Taada vs. Tuvera:[10]
[A]ll statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days
after publication unless a differenteffectivity date is fixed by the
legislature.
Covered by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative powers
whenever the same are validly delegated by the legislature or, at
present, directly conferred by the Constitution. Administrative

rules and regulations must also be published if their purpose is to

enforce or implement existing law pursuant to a valid delegation.
Interpretative regulations and those merely internal in nature,
that is, regulating only the personnel of the administrative agency
and not the public, need not be published. Neither is publication
required of the so-called letters of instructions issued by
administrative superiors concerning the rules or guidelines to be
followed by their subordinates in the performance of their
duties. (Emphasis supplied.)
COA Memorandum No. 97-038 is merely an internal and interpretative
regulation or letter of instruction which does not need publication to be
effective and valid. It is not an implementing rule or regulation of a statute
but a directive issued by the COA to its auditors to enforce the selfexecuting prohibition imposed by Section 13, Article VII of the Constitution
on the President and his official family, their deputies and assistants, or
their representatives from holding multiple offices and receiving double
compensation.
Six years prior to the issuance of COA Memorandum No. 97-038, the
Court had the occasion to categorically explain this constitutional
prohibition in Civil Liberties Union vs. TheExecutive Secretary:[11]
Petitioners maintain that this Executive Order which, in effect, allows
members of the Cabinet, their undersecretaries and assistant secretaries
to hold other government offices or positions in addition to their primary
positions, albeit subject to the limitation therein imposed, runs counter to
Section 13, Article VII of the 1987 Constitution, which provides as follows:
Sec. 13. The President, Vice-President, the Members of the Cabinet, and
their deputies or assistants shall not, unless otherwise provided in this
Constitution, hold any other office or employment during their tenure. They
shall not, during said tenure, directly or indirectly practice any other
profession, participate in any business, or be financially interested in any
contract with, or in any franchise, or special privilege granted by the
Government or any subdivision, agency, or instrumentality thereof,
including government-owned or controlled corporations or their
subsidiaries. They shall strictly avoid conflict of interest in the conduct of
their office.
xxx

xxx

xxx

[D]oes the prohibition in Section 13, Article VII of the 1987

Constitution insofar as Cabinet members, their deputies or
assistants are concerned admit of the broad exceptions made for
appointive officials in general under Section 7, par. (2), Article IX-B
which, for easy reference is quoted anew, thus: "Unless otherwise
allowed by law or by the primary functions of his position, no appointive

official shall hold any other office or employment in the Government or any
subdivision, agency or instrumentality thereof, including governmentowned or controlled corporation or their subsidiaries."

properly an imposition of additional duties and functions on said

officials.
xxx

xxx

xxx

We rule in the negative.

xxx

xxx

xxx

But what is indeed significant is the fact that although Section 7, Article
IX-B already contains a blanket prohibition against the holding of
multiple offices or employment in the government subsuming both
elective and appointive public officials, the Constitutional
Commission should see it fit to formulate another provision, Sec.
13, Article VII, specifically prohibiting the President, VicePresident, members of the Cabinet, their deputies and assistants
from holding any other office or employment during their tenure,
unless otherwise provided in the Constitution itself.
xxx

xxx

xxx

[T]he prohibition under Section 13, Article VII is not to be

interpreted as covering positions held without additional
compensation in ex-officio capacities as provided by law and as
required by the primary functions of the concerned official's office.
The term ex-officio means "from office; by virtue of office." It refers to
an "authority derived from official character merely, not expressly
conferred upon the individual character, but rather annexed to the official
position." Ex-officio likewise denotes an "act done in an official character,
or as a consequence of office, and without any other appointment or
authority than that conferred by the office." An ex-officio member of a
board is one who is a member by virtue of his title to a certain office, and
without further warrant or appointment. To illustrate, by express provision
of law, the Secretary of Transportation and Communications is the exofficio Chairman of the Board of the Philippine Ports Authority, and the
Light Rail Transit Authority.

Thus, while all other appointive officials in the civil service are
allowed to hold other office or employment in the government
during their tenure when such is allowed by law or by the primary
functions of their positions, members of the Cabinet, their
deputies and assistants may do so only when expressly authorized
by the Constitution itself. In other words, Section 7, Article IX-B is
meant to lay down the general rule applicable to all elective and
appointive public officials and employees, while Section 13, Article
VII is meant to be the exception applicable only to the President,
the Vice-President, Members of the Cabinet, their deputies and
assistants.

xxx

This being the case, the qualifying phrase "unless otherwise

provided in this Constitution" in Section 13, Article VII cannot
possibly refer to the broad exceptions provided under Section 7,
Article IX-B of the 1987 Constitution. . . .

[E]x-officio posts held by the executive official concerned

without additional compensation as provided by law and as
required by the primary functions of his office do not fall under
the definition of "any other office" within the contemplation of the
constitutional prohibition... (Emphasis supplied).

xxx

xxx

xxx

xxx

The ex-officio position being actually and in legal contemplation part of the
principal office, it follows that the official concerned has no right to
receive additional compensation for his services in the said
position. The reason is that these services are already paid for and
covered by the compensation attached to his principal
office. x x x
xxx

xxx

xxx

xxx

The prohibition against holding dual or multiple offices or

employment under Section 13, Article VII of the Constitution must
not, however, be construed as applying to posts occupied by the
Executive
officials
specified
therein
without
additional
compensation in an ex-officio capacity as provided by law and
as required by the primary functions of said officials' office. The
reason is that these posts do no comprise "any other office" within
the contemplation of the constitutional prohibition but are

Judicial decisions applying or interpreting the laws or the Constitution,

such as the Civil Liberties Union doctrine, form part of our legal system.
[12]
Supreme Court decisions assume the same authority as valid statutes.
[13]
The Courts interpretation of the law is part of that law as of the date of
enactment because its interpretation merely establishes the contemporary
legislative intent that the construed law purports to carry into effect. [14]
COA Memorandum No. 97-038 does not, in any manner or on its own,
rule against or affect the right of any individual, except those provided for

under the Constitution. Hence, publication of said Memorandum is not

required for it to be valid, effective and enforceable.

RA 6758, the Salary Standardization Law, also bars the receipt of such
additional emolument.

In Civil Liberties Union, we elucidated on the two constitutional

prohibitions against holding multiple positions in the government and
receiving double compensation: (1) the blanket prohibition of paragraph 2,
Section 7, Article IX-B on all government employees against holding
multiple government offices, unless otherwise allowed by law or the
primary functions of their positions, and (2) the stricter prohibition under
Section 13, Article VII on the President and his official family from holding
any other office, profession, business or financial interest, whether
government or private, unless allowed by the Constitution.

The representatives in fact assumed their responsibilities not by virtue

of a new appointment but by mere designation from the ex
officio members who were themselves also designated as such.

The NAC ex officio members representatives who were all appointive

officials with ranks below Assistant Secretary are covered by the two
constitutional prohibitions.
First, the NAC ex officio members representatives are not exempt
from the general prohibition because there is no law or administrative
order creating a new office or position and authorizing additional
compensation therefor.
Sections 54 and 56 of the Administrative Code of 1987 reiterate the
constitutional prohibition against multiple positions in the government and
receiving additional or double compensation:
SEC. 54. Limitation on Appointment. (1) No elective official shall be
eligible for appointment or designation in any capacity to any public office
or position during his tenure.
xxx

xxx

xxx

(3) Unless otherwise allowed by law or by the primary functions of his

position, no appointive official shall hold any other office or employment in
the Government or any subdivision, agency or instrumentality thereof,
including government-owned or controlled corporations or their
subsidiaries.
xxx

xxx

xxx

SEC. 56. Additional or Double Compensation. -- No elective or appointive

public officer or employee shall receive additional or double compensation
unless specifically authorized by law nor accept without the consent of the
President, any present, emolument, office, or title of any kind form any
foreign state.
Pensions and gratuities shall not be considered as additional, double or
indirect compensation.

There is a considerable difference between an appointment and

designation. An appointment is the selection by the proper authority of an
individual who is to exercise the powers and functions of a given office; a
designation merely connotes an imposition of additional duties, usually by
law, upon a person already in the public service by virtue of an earlier
appointment.[15]
Designation does not entail payment of additional benefits or grant
upon the person so designated the right to claim the salary attached to the
position. Without an appointment, a designation does not entitle the officer
to receive the salary of the position. The legal basis of an employees right
to claim the salary attached thereto is a duly issued and approved
appointment to the position,[16] and not a mere designation.
Second, the ex officio members representatives are also covered by
the strict constitutional prohibition imposed on the President and his official
family.
Again, in Civil Liberties Union, we held that cabinet secretaries,
including their deputies and assistants, who hold positions in ex
officio capacities, are proscribed from receiving additional compensation
because their services are already paid for and covered by the
compensation attached to their principal offices. Thus, in the attendance of
the NAC meetings, the ex officio members were not entitled to, and were in
fact prohibited from, collecting extra compensation, whether it was
called per diem, honorarium, allowance or some other euphemism. Such
additional compensation is prohibited by the Constitution.
Furthermore, in de la Cruz vs. COA[17] and Bitonio vs. COA,[18] we
upheld COAs disallowance of the payment of honoraria and per diems to
the officers concerned who sat as ex officio members or alternates. The
agent, alternate or representative cannot have a better right than his
principal, the ex officio member. The laws, rules, prohibitions or restrictions
that cover the ex officio member apply with equal force to his
representative. In short, since the ex officio member is prohibited from
receiving additional compensation for a position held in an ex
officio capacity, so is his representative likewise restricted.
The Court also finds that the re-opening of the NAC accounts within
three years after its settlement is within COAs jurisdiction under Section
52 of Presidential Decree No. 1445, promulgated on June 11, 1978:

SECTION 52. Opening and revision of settled accounts. (1) At any time
before the expiration of three years after the settlement of any account by
an auditor, the Commission may motupropio review and revise the account
or settlement and certify a new balance.
More importantly, the Government is never estopped by the mistake
or error on the part of its agents. [19] Erroneous application and enforcement
of the law by public officers do not preclude subsequent corrective
application of the statute.
In declaring Section 1, Rule II of Administrative Order No. 2 s. 1999
null and void, the COA ruled that:
Petitioner further contends that with the new IRR issued by the NAC
authorizing the ex-officio members to designate representatives to attend
commission meetings and entitling them to receive per diems, honoraria
and other allowances, there is now no legal impediment since it was
approved by the President. This Commission begs to disagree. Said
provision in the new IRR is null and void for having been promulgated in
excess of its rule-making authority. Proclamation No. 347, the presidential
issuance creating the NAC, makes no mention that representatives of exofficio members can take the place of said ex-officio members during its
meetings and can receive per diems and allowances. This being the case,
the NAC, in the exercise of its quasi-legislative powers, cannot add, expand
or enlarge the provisions of the issuance it seeks to implement without
committing an ultra vires act.[20]
We find that, on its face, Section 1, Rule II of Administrative Order No.
2 is valid, as it merely provides that:
The ex officio members may designate their representatives to the
Commission. Said Representatives shall be entitled to per diems,
allowances, bonuses and other benefits as may be authorized by law.
(Emphasis supplied).
The problem lies not in the administrative order but how the NAC and
the COA interpreted it.
First, the administrative order itself acknowledges that payment of
allowances to the representatives must be authorized by the law, that is,
the Constitution, statutes and judicial decisions. However, as already
discussed, the payment of such allowances is not allowed, prohibited even.
Second,
the
administrative
order
merely
allows
the ex
officio members to designate their representatives to NAC meetings but
not to decide for them while attending such meetings. Section 4 of the
administrative order categorically states:

Decisions of the NAC shall be arrived at by a majority vote in a meeting

where there is a quorum consisting of at least four members.
Thus, although the administrative order does not preclude the
representatives from attending the NAC meetings, they may do so only as
guests or witnesses to the proceedings. They cannot substitute for the ex
officio members for purposes of determining quorum, participating in
deliberations and making decisions.
Lastly, we disagree with NACs position that the representatives
are de facto officers and as such are entitled to allowances, pursuant to our
pronouncement in Civil Liberties Union:
where there is no de jure officer, a de facto officer, who in good faith has
had possession of the office and has discharged the duties pertaining
thereto, is legally entitled to the emoluments of the office, and may in
appropriate action recover the salary, fees and other compensation
attached to the office.
A de facto officer derives his appointment from one having colorable
authority to appoint, if the office is an appointive office, and whose
appointment is valid on its face. (He is) one who is in possession of an
office and is discharging its duties under color of authority, by which is
meant authority derived from an appointment, however irregular or
informal, so that the incumbent be not a mere volunteer. [21]
The representatives cannot be considered de facto officers because
they were not appointed but were merely designated to act as such.
Furthermore, they are not entitled to something their own principals are
prohibited from receiving. Neither can they claim good faith, given the
express prohibition of the Constitution and the finality of our decision
in Civil Liberties Union prior to their receipt of such allowances.
WHEREFORE the petition is hereby DISMISSED for lack of merit.
SO ORDERED.

YNARES-SANTIAGO, J.:

The instant consolidated petitions seek to annul and set aside the
Decisions of the Regional Trial Court of Olongapo City, Branch 72, in Civil
Case No. 20-0-04 and Civil Case No. 22-0-04, both dated May 24, 2004;
and the February 14, 2005 Decision of the Court of Appeals in CA-G.R. SP.
No. 83284, which declared Article 2, Section 3.1 of Executive Order No. 156

(EO 156) unconstitutional. Said executive issuance prohibits the

importation into the country, inclusive of the Special Economic and
Freeport Zone or the Subic Bay Freeport (SBF or Freeport), of used motor
vehicles, subject to a few exceptions.

The undisputed facts show that on December 12, 2002, President

Gloria Macapagal-Arroyo, through Executive Secretary Alberto G. Romulo,
issued EO 156, entitled PROVIDING FOR A COMPREHENSIVE INDUSTRIAL
POLICY AND DIRECTIONS FOR THE MOTOR VEHICLE DEVELOPMENT
PROGRAM AND ITS IMPLEMENTING GUIDELINES. The challenged provision
states:

3.

funeral hearse/coaches

4.

crane lorries

5.

tractor heads and truck tractors

6.

boom trucks

7.

tanker trucks

8.

tank lorries with high pressure spray gun

9.

reefers or refrigerated trucks

10. mobile drilling derricks

11. transit/concrete mixers
12. mobile radiological units

3.1
The importation into the country,
inclusive of the Freeport, of all types of used motor
vehicles is prohibited, except for the following:

13. wreckers or tow trucks

14. concrete pump trucks
15. aerial/bucket flat-form trucks

3.1.1 A vehicle that is owned and for the personal

use of a returning resident or immigrant and covered by an
authority to import issued under the No-dollar Importation
Program. Such vehicles cannot be resold for at least three
(3) years;

16. street sweepers

17. vacuum trucks
18. garbage compactors
19. self loader trucks

3.1.2 A vehicle for the use of an official of the

Diplomatic Corps and authorized to be imported by the
Department of Foreign Affairs;

20. man lift trucks

21. lighting trucks
22. trucks mounted with special purpose equipment

3.1.3

23. all other types of vehicle designed for a specific

use.

Trucks excluding pickup trucks;

1.
with GVW of 2.5-6.0 tons covered
by an authority to import issued by the DTI.
2.

3.1.4

With GVW above 6.0 tons.

Buses:

1.
with GVW of 6-12 tons covered by
an authority to import issued by DTI;
2.

The issuance of EO 156 spawned three separate actions for

declaratory
relief
before
Branch
72
of
the Regional Trial Court of Olongapo City, all seeking the declaration of the
unconstitutionality of Article 2, Section 3.1 of said executive order. The
cases were filed by herein respondent entities, who or whose members, are
classified as SubicBay Freeport Enterprises and engaged in the business of,
among others, importing and/or trading used motor vehicles.

with GVW above 12 tons.

G.R. No. 164171:

3.1.5

Special purpose vehicles:

1.

fire trucks

2.

ambulances

On January 16, 2004, respondents Southwing Heavy Industries,

Inc., (SOUTHWING) United Auctioneers, Inc. (UNITED AUCTIONEERS),
and Microvan, Inc. (MICROVAN), instituted a declaratory relief case

docketed as Civil Case No. 20-0-04, [1] against the Executive Secretary,
Secretary of Transportation and Communication, Commissioner of
Customs, Assistant Secretary and Head of the Land Transportation
Office, Subic Bay Metropolitan Authority (SBMA), Collector of Customs for
the Port atSubic Bay Freeport Zone, and the Chief of the Land
Transportation Office at Subic Bay Freeport Zone.

SOUTHWING, UNITED AUCTIONEERS and MICROVAN prayed that

judgment be rendered (1) declaring Article 2, Section 3.1 of EO 156
unconstitutional and illegal; (2) directing the Secretary of Finance,
Commissioner of Customs, Collector of Customs and the Chairman of the
SBMA to allow the importation of used motor vehicles; (2) ordering the
Land Transportation Office and its subordinates inside the Subic Special
Economic Zone to process the registration of the imported used motor
vehicles; and (3) in general, to allow the unimpeded entry and importation
of used motor vehicles subject only to the payment of the required
customs duties.

Upon
filing
of
petitioners
answer/comment,
respondents SOUTHWING and MICROVAN filed a motion for summary
judgment which was granted by the trial court. On May 24, 2004, a
summary judgment was rendered declaring that Article 2, Section 3.1 of
EO 156 constitutes an unlawful usurpation of legislative power vested by
the Constitution with Congress. The trial court further held that the proviso
is contrary to the mandate of Republic Act No. 7227 (RA 7227) or the Bases
Conversion and Development Act of 1992 which allows the free flow of
goods and capital within the Freeport. The dispositive portion of the said
decision reads:

WHEREFORE, judgment is hereby rendered in favor

of petitioner declaring Executive Order 156 [Article 2,
Section] 3.1 for being unconstitutional and illegal; directing
respondents Collector of Customs based at SBMA to allow
the importation and entry of used motor vehicles pursuant
to the mandate of RA 7227; directing respondent Chief of
the Land Transportation Office and its subordinates inside
the Subic Special Economic Zone or SBMA to process the
registration of imported used motor vehicle; and in
general, to allow unimpeded entry and importation of used
motor vehicles to the Philippines subject only to the
payment of the required customs duties.

SO ORDERED.[2]

From the foregoing decision, petitioners sought relief before this

Court via a petition for review on certiorari, docketed as G.R. No. 164171.

G.R. No. 164172:

On January 20, 2004, respondent Subic Integrated Macro Ventures

Corporation (MACRO VENTURES) filed with the same trial court, a similar
action for declaratory relief docketed as Civil Case No. 22-0-04, [3] with the
same prayer and against the same parties [4] as those in Civil Case No. 200-04.

In this case, the trial court likewise rendered a summary judgment

on May 24, 2004, holding that Article 2, Section 3.1 of EO 156, is
repugnant to the constitution.[5] Elevated to this Court via a petition for
review on certiorari, Civil Case No. 22-0-04 was docketed as G.R. No.
164172.

G.R. No. 168741

On January 22, 2003, respondent Motor Vehicle Importers

Association of Subic Bay Freeport, Inc. (ASSOCIATION), filed another action
for declaratory relief with essentially the same prayer as those in Civil Case
No. 22-0-04 and Civil Case No. 20-0-04, against the Executive Secretary,
Secretary of Finance, Chief of the Land Transportation Office, Commissioner
of Customs, Collector of Customs at SBMA and the Chairman of SBMA. This
was docketed as Civil Case No. 30-0-2003,[6] before the same trial court.

In a decision dated March 10, 2004, the court a quo granted

the ASSOCIATIONs prayer and declared the assailed proviso as contrary to
the Constitution, to wit:

WHEREFORE, judgment is hereby rendered in favor

of petitioner declaring Executive Order 156 [Article 2,
Section] 3.1 for being unconstitutional and illegal; directing
respondents Collector of Customs based at SBMA to allow
the importation and entry of used motor vehicles pursuant
to the mandate of RA 7227; directing respondent Chief of
the Land Transportation Office and its subordinates inside
the Subic Special Economic Zone or SBMA to process the
registration of imported used motor vehicles; directing the
respondent Chairman of the SBMA to allow the entry into
the Subic Special Economic Zone or SBMA imported used
motor vehicle; and in general, to allow unimpeded entry

and importation of used motor vehicles to the Philippines

subject only to the payment of the required customs
duties.

against
imported
used
motor
respondent ASSOCIATIONs members.

vehicles

belonging

to

Petitioners arguments lack merit.

SO ORDERED.[7]

Aggrieved, the petitioners in Civil Case No. 30-0-2003, filed a

petition for certiorari[8] with the Court of Appeals (CA-G.R. SP. No. 83284)
which denied the petition onFebruary 14, 2005 and sustained the finding of
the trial court that Article 2, Section 3.1 of EO 156, is void for being
repugnant to the constitution. The dispositive portion thereof, reads:

WHEREFORE, the instant petition for certiorari is

hereby DENIED. The assailed decision of the Regional Trial
Court, Third Judicial Region, Branch 72, Olongapo City, in
Civil Case No. 30-0-2003, accordingly, STANDS.

SO ORDERED.[9]

The aforequoted decision of the Court of Appeals was elevated to

this Court and docketed as G.R. No. 168741. In a Resolution dated October
4, 2005,[10] said case was consolidated with G.R. No. 164171 and G.R. No.
164172.

Petitioners are now before this Court contending that Article 2,

Section 3.1 of EO 156 is valid and applicable to the entire country,
including the Freeeport. In support of their arguments, they raise
procedural and substantive issues bearing on the constitutionality of the
assailed
proviso. The procedural
issues are:
the
lack
of
respondents locusstandi to question the validity of EO 156, the propriety
of challenging EO 156 in a declaratory relief proceeding and the
applicability of a judgment on the pleadings in this case.

Petitioners argue that respondents will not be affected by the

importation ban considering that their certificate of registration and tax
exemption do not authorize them to engage in the importation and/or
trading of used cars. They also aver that the actions filed by respondents
do not qualify as declaratory relief cases. Section 1, Rule 63 of the Rules of
Court provides that a petition for declaratory relief may be filed before
there is a breach or violation of rights. Petitioners claim that there was
already a breach of respondents supposed right because the cases were
filed more than a year after the issuance of EO 156. In fact, in Civil Case
No. 30-0-2003, numerous warrants of seizure and detention were issued

The established rule that the constitutionality of a law or

administrative issuance can be challenged by one who will sustain a direct
injury as a result of its enforcement [11] has been satisfied in the instant
case. The broad subject of the prohibited importation is all types of
used motor vehicles. Respondents would definitely suffer a direct
injury from the implementation of EO 156 because their certificate of
registration and tax exemption authorize them to trade and/or import
new and used motor vehicles and spare parts, except used
cars.[12] Other types of motor vehicles imported and/or traded by
respondents and not falling within the category of used carswould thus be
subjected to the ban to the prejudice of their business. Undoubtedly,
respondents have the legal standing to assail the validity of EO 156.

As to the propriety of declaratory relief as a vehicle for assailing

the executive issuance, suffice it to state that any breach of the rights of
respondents will not affect the case. In Commission on Audit of the
Province of Cebu v. Province of Cebu,[13] the Court entertained a suit for
declaratory relief to finally settle the doubt as to the proper interpretation
of the conflicting laws involved, notwithstanding a violation of the right of
the party affected. We find no reason to deviate from said ruling mindful of
the significance of the present case to the national economy.

So also, summary judgments were properly rendered by the trial

court because the issues involved in the instant case were pure questions
of law. A motion forsummary judgment is premised on the assumption that
the issues presented need not be tried either because these are patently
devoid of substance or that there is no genuine issue as to any pertinent
fact. It is a method sanctioned by the Rules of Court for the prompt
disposition of a civil action in which the pleadings raise only a legal issue,
not a genuine issue as to any material fact. [14]

At any rate, even assuming the procedural flaws raised by

petitioners truly exist, the Court is not precluded from brushing aside these
technicalities and taking cognizance of the action filed by respondents
considering its importance to the public and in keeping with the duty to
determine whether the other branches of the government have kept
themselves within the limits of the Constitution.[15]

We now come to the substantive issues, which are: (1) whether

there is statutory basis for the issuance of EO 156; and (2) if the answer is
in the affirmative, whether the application of Article 2, Section 3.1 of EO
156, reasonable and within the scope provided by law.

Delegation of legislative powers to the President is permitted in

Section 28(2) of Article VI of the Constitution. It provides:

The main thrust of the petition is that EO 156 is constitutional

because it was issued pursuant to EO 226, the Omnibus Investment Code
of the Philippines and that its application should be extended to the
Freeport because the guarantee of RA 7227 on the free flow of goods into
the said zone is merely an exemption from customs duties and taxes on
items brought into the Freeport and not an open floodgate for all kinds of
goods and materials without restriction.

(2)
The Congress may, by law, authorize the
President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the
national development program of the Government.
[19]
(Emphasis supplied)

In G.R. No. 168741, the Court of Appeals invalidated Article 2,

Section 3.1 of EO 156, on the ground of lack of any statutory basis for the
President to issue the same. It held that the prohibition on the importation
of used motor vehicles is an exercise of police power vested on the
legislature and absent any enabling law, the exercise thereof by the
President through an executive issuance, is void.

Police power is inherent in a government to enact laws, within

constitutional limits, to promote the order, safety, health, morals, and
general welfare of society. It is lodged primarily with the legislature. By
virtue of a valid delegation of legislative power, it may also be exercised by
the President and administrative boards, as well as the lawmaking bodies
on all municipal levels, including the barangay.[16] Such delegation confers
upon the President quasi-legislative power which may be defined as the
authority delegated by the law-making body to the administrative body to
adopt rules and regulations intended to carry out the provisions of the law
and implement legislative policy.[17] To be valid, an administrative
issuance, such as an executive order, must comply with the following
requisites:

(1)

Its promulgation must be authorized by the legislature;

(2)
It must be promulgated in accordance with the prescribed
procedure;
(3)
It must be within the scope of the authority given by the
legislature; and
(4)

It must be reasonable.[18]

Contrary to the conclusion of the Court of Appeals, EO 156 actually

satisfied the first requisite of a valid administrative order. It has both
constitutional and statutory bases.

The relevant statutes to execute this provision are:

1)
The Tariff and Customs Code which authorizes the
President, in the interest of national economy, general welfare and/or
national security, to, inter alia, prohibit the importation of any
commodity. Section 401 thereof, reads:

Sec. 401. Flexible Clause.

a.
In the interest of national economy,
general welfare and/or national security, and subject
to the limitations herein prescribed, the President,
upon recommendation of the National Economic and
Development Authority (hereinafter referred to as
NEDA), is hereby empowered: x x x (2) to establish
import quota or to ban imports of any commodity, as
may be necessary; x x x Provided, That upon periodic
investigations
by
the
Tariff
Commission
and
recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section
One hundred and four of this Code, including those
subsequently granted pursuant to this section. (Emphasis
supplied)

2)
Executive Order No. 226, the Omnibus Investment Code of
the Philippines which was issued on July 16, 1987, by then President
Corazon C. Aquino, in the exercise of legislative power under the
Provisional Freedom Constitution,[20] empowers the President to approve or
reject the prohibition on the importation of any equipment or raw materials
or finished products. Pertinent provisions thereof, read:

ART. 4. Composition of the board. The Board of

Investments shall be composed of seven (7) governors:
The Secretary of Trade and Industry, three (3)
Undersecretaries of Trade and Industry to be chosen by the
President; and three (3) representatives from the
government agencies and the private sector x x x.

ART. 7. Powers and duties of the Board.

xxxx

(12)
Formulate and implement rationalization
programs for certain industries whose operation may result
in dislocation, overcrowding or inefficient use of resources,
thus impeding economic growth. For this purpose, the
Board
may
formulate
guidelines
for
progressive
manufacturing
programs,
local
content
programs,
mandatory sourcing requirements and dispersal of
industries. In appropriate cases and upon approval of
the President, the Board may restrict, either totally
or partially, the importation of any equipment or
raw materials or finished products involved in the
rationalization program; (Emphasis supplied)

3)
Republic Act No. 8800, otherwise known as the Safeguard
Measures Act (SMA), and entitled An Act Protecting Local Industries By
Providing Safeguard Measures To Be Undertaken In Response To Increased
Imports And Providing Penalties For Violation Thereof, [21] designated the
Secretaries[22] of the Department of Trade and Industry (DTI) and the
Department of Agriculture, in their capacity as alter egos of the President,
as the implementing authorities of the safeguard measures, which
include, inter alia, modification or imposition of any quantitative restriction
on the importation of a product into the Philippines. The purpose of the
SMA is stated in the declaration of policy, thus:

SEC. 2. Declaration of Policy. The State shall

promote competitiveness of domestic industries and
producers based on sound industrial and agricultural
development policies, and efficient use of human, natural
and technical resources. In pursuit of this goal and in the
public interest, the State shall provide safeguard measures
to protect domestic industries and producers from
increased imports which cause or threaten to cause serious
injury to those domestic industries and producers.

There are thus explicit constitutional and statutory permission

authorizing the President to ban or regulate importation of articles and
commodities into the country.

Anent the second requisite, that is, that the order must be issued
or promulgated in accordance with the prescribed procedure, it is
necessary that the nature of the administrative issuance is properly
determined. As in the enactment of laws, the general rule is that, the
promulgation of administrative issuances requires previous notice and
hearing, the only exception being where the legislature itself requires it
and mandates that the regulation shall be based on certain facts as
determined at an appropriate investigation. [23] This exception pertains to
the issuance of legislative rules as distinguished from interpretative
rules which give no real consequence more than what the law itself has
already prescribed;[24] and are designed merely to provide guidelines to the
law which the administrative agency is in charge of enforcing.
[25]
A legislative rule, on the other hand, is in the nature of subordinate
legislation, crafted to implement a primary legislation.

In Commissioner of Internal Revenue v. Court of Appeals,

and Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop,
Inc.,[27] the Court enunciated the doctrine that when an administrative
rule goes beyond merely providing for the means that can facilitate or
render less cumbersome the implementation of the law and substantially
increases the burden of those governed, it behooves the agency to accord
at least to those directly affected a chance to be heard and, thereafter, to
be duly informed, before the issuance is given the force and effect of law.
[26]

In the instant case, EO 156 is obviously a legislative rule as it seeks

to implement or execute primary legislative enactments intended to
protect the domestic industry by imposing a ban on the importation of a
specified product not previously subject to such prohibition. The due
process requirements in the issuance thereof are embodied in
Section 401[28] of the Tariff and Customs Code and Sections 5 and 9 of the
SMA[29] which essentially mandate the conduct of investigation and public
hearings before the regulatory measure or importation ban may be issued.

In the present case, respondents neither questioned before this

Court nor with the courts below the procedure that paved the way for the
issuance of EO 156. What they challenged in their petitions before the trial
court was the absence of substantive due process in the issuance of the
EO.[30] Their main contention before the court a quo is that the importation
ban is illogical and unfair because it unreasonably drives them out of
business to the prejudice of the national economy.

Considering the settled principle that in the absence of strong

evidence to the contrary, acts of the other branches of the government are
presumed to be valid,[31] and there being no objection from the
respondents as to the procedure in the promulgation of EO 156, the
presumption is that said executive issuance duly complied with the
procedures and limitations imposed by law.

To determine whether EO 156 has complied with the third and

fourth requisites of a valid administrative issuance, to wit, that it was
issued within the scope of authority given by the legislature and that it is
reasonable, an examination of the nature of a Freeport under RA 7227 and
the primordial purpose of the importation ban under the questioned EO is
necessary.

RA 7227 was enacted providing for, among other things, the sound
and balanced conversion of the Clark and Subic military reservations and
their extensions into alternative productive uses in the form of Special
Economic and Freeport Zone, or the Subic Bay Freeport, in order to
promote the economic and social development of Central Luzon in
particular and the country in general.

The Rules and Regulations Implementing RA 7227 specifically

defines the territory comprising the Subic Bay Freeport, referred to as the
Special Economic and Freeport Zone in Section 12 of RA 7227 as "a
separate customs territory consisting of the City of Olongapo and the
Municipality of Subic, Province of Zambales, the lands occupied by
the Subic Naval Base and its contiguous extensions as embraced, covered
and defined by the 1947 Philippine-U.S. Military Base Agreement as
amended and within the territorial jurisdiction of Morong and Hermosa,
Province of Bataan, the metes and bounds of which shall be delineated by
the President of the Philippines; provided further that pending
establishment of secure perimeters around the entire SBF, the SBF shall
refer to the area demarcated by the SBMA pursuant to Section
13[32] hereof."

Among the salient provisions of RA 7227 are as follows:

SECTION 12. Subic Special Economic Zone.

xxxx

The abovementioned zone shall be subject to the

following policies:

xxxx

(a)
Within the framework and subject to the
mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code,
the Subic Special Economic Zone shall be developed into a
self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities
in and around the zone and to attract and promote
productive foreign investments;

(b)
The Subic Special Economic Zone shall be
operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital
within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax
and duty-free importations of raw materials, capital and
equipment. However, exportation or removal of goods from
the territory of the Subic Special Economic Zone to the
other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines;

The Freeport was designed to ensure free flow or movement of

goods and capital within a portion of the Philippine territory in order to
attract investors to invest their capital in a business climate with the least
governmental intervention. The concept of this zone was explained by
Senator Guingona in this wise:

Senator Guingona. Mr. President, the special

economic
zone
is
successful
in
many
places,
particularly Hong Kong, which is a free port. The difference
between a special economic zone and an industrial estate
is simply expansive in the sense that the commercial
activities, including the establishment of banks, services,
financial institutions, agro-industrial activities, maybe
agriculture to a certain extent.

This delineates the activities that would have

the least of government intervention, and the
running of the affairs of the special economic zone

would be run principally by the investors

themselves, similar to a housing subdivision, where
the subdivision owners elect their representatives
to run the affairs of the subdivision, to set the
policies, to set the guidelines.

We would like to see Subic area converted

into a little Hong Kong, Mr. President, where there is
a hub of free port and free entry, free duties and
activities to a maximum spur generation of
investment and jobs.

While the investor is reluctant to come in

the Philippines, as a rule, because of red tape and
perceived delays, we envision this special economic zone
to be an area where there will be minimum government
interference.

The initial outlay may not only come from the

Government or the Authority as envisioned here, but from
them themselves, because they would be encouraged to
invest not only for the land but also for the buildings and
factories. As long as they are convinced that in such an
area they can do business and reap reasonable profits,
then many from other parts, both local and foreign, would
invest, Mr. President.[33] (Emphasis, added)

With minimum interference from the government, investors can, in

general, engage in any kind of business as well as import and export any
article into and out of theFreeport. These are among the rights accorded
to Subic Bay Freeport Enterprises under Section 39 of the Rules and
Regulations Implementing RA 7227, thus

SEC. 39. Rights and Obligations.- SBF Enterprises

shall have the following rights and obligations:

a.

To freely engage in any business, trade,

manufacturing, financial or service activity, and to
import and export freely all types of goods into and
out of the SBF, subject to the provisions of the Act,
these Rules and other regulations that may be
promulgated by the SBMA;

Citing, inter alia, the interpellations of Senator Enrile, petitioners

claim that the free flow or movement of goods and capital only means
that goods and material brought within the Freeport shall not be subject to
customs duties and other taxes and should not be construed as an open
floodgate for entry of all kinds of goods. They thus surmise that the
importation
ban
on
motor
vehicles
is
applicable
within
the Freeport. Pertinent interpellations of Senator Enrile on the concept
of Freeport is as follows:

Senator Enrile: Mr. President, I think we are talking

here of sovereign concepts, not territorial concepts. The
concept that we are supposed to craft here is to carve out
a portion of our terrestrial domain as well as our adjacent
waters and say to the world: Well, you can set up your
factories in this area that we are circumscribing, and
bringing your equipment and bringing your goods, you are
not subject to any taxes and duties because you are not
within the customs jurisdiction of the Republic of the
Philippines, whether you store the goods or only for
purposes of transshipment or whether you make them into
finished products again to be reexported to other lands.

xxxx

My understanding of a free port is, we are

in effect carving out a part of our territory and make
it as if it were foreign territory for purposes of our
customs laws, and that people can come, bring their
goods, store them there and bring them out again,
as long as they do not come into the domestic
commerce of the Republic.

We do not really care whether these goods are

stored here. The only thing that we care is for our people
to have an employment because of the entry of these
goods that are being discharged, warehoused and reloaded
into the ships so that they can be exported. That will
generate employment for us. For as long as that is done,
we are saying, in effect, that we have the least contact
with our tariff and customs laws and our tax
laws. Therefore, we consider these goods as outside of the
customs jurisdiction of the Republic of the Philippines as
yet, until we draw them from this territory and bring them
inside our domestic commerce. In which case, they have
to pass through our customs gate. I thought we are

carving out this entire area and convert it into this kind of
concept.[34]

However, contrary to the claim of petitioners, there is nothing in

the foregoing excerpts which absolutely limits the incentive
to Freeport investors only to exemption from customs duties and
taxes. Mindful of the legislative intent to attract investors, enhance
investment and boost the economy, the legislature could not have limited
the enticement only to exemption from taxes. The minimum interference
policy of the government on the Freeport extends to the kind of business
that investors may embark on and the articles which they may import or
export into and out of the zone. A contrary interpretation would defeat the
very purpose of the Freeport and drive away investors.

It does not mean, however, that the right of Freeport enterprises to

import all types of goods and article is absolute. Such right is of course
subject to the limitation that articles absolutely prohibited by law cannot
be imported into the Freeport.[35] Nevertheless, in determining whether
the prohibition would apply to the Freeport, resort to the purpose of the
prohibition is necessary.

In issuing EO 156, particularly the prohibition on importation under

Article 2, Section 3.1, the President envisioned to rationalize the
importation of used motor vehicles and to enhance the capabilities of the
Philippine motor manufacturing firms to be globally competitive producers
of completely build-up units and their parts and components for the local
and export markets.[36] In justifying the issuance of EO 156, petitioners
alleged that there has been a decline in the sales of new vehicles and a
remarkable growth of the sales of imported used motor vehicles. To
address the same, the President issued the questioned EO to prevent
further erosion of the already depressed market base of the local motor
vehicle industry and to curtail the harmful effects of the increase in the
importation of used motor vehicles.[37]

either to abridge the authority given it by Congress or the

Constitution or to enlarge its power beyond the scope
intended. Constitutional and statutory provisions control
what rules and regulations may be promulgated by such a
body, as well as with respect to what fields are subject to
regulation by it. It may not make rules and regulations
which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is
administering or which created it, or which are in
derogation of, or defeat, the purpose of a statute.

In the instant case, the subject matter of the laws authorizing the
President to regulate or forbid importation of used motor vehicles, is
the domestic industry. EO 156, however, exceeded the scope of its
application by extending the prohibition on the importation of used cars to
the Freeport, which RA 7227, considers to some extent, a foreign territory.
The domestic industry which the EO seeks to protect is actually the
customs territory which is defined under the Rules and Regulations
Implementing RA 7227, as follows:

the portion of the Philippines outside the Subic Bay

Freeport where the Tariff and Customs Code of the
Philippines and other national tariff and customs
laws are in force and effect.[39]

The proscription in the importation of used motor vehicles should

be operative only outside the Freeport and the inclusion of said zone within
the ambit of the prohibition is an invalid modification of RA 7227. Indeed,
when the application of an administrative issuance modifies existing laws
or exceeds the intended scope, as in the instant case, the issuance
becomes void, not only for being ultra vires, but also for being
unreasonable.

Taking our bearings from the foregoing discussions, we hold that

the importation ban runs afoul the third requisite for a valid
administrative order. To be valid, an administrative issuance must not
be ultra vires or beyond the limits of the authority conferred. It must not
supplant or modify the Constitution, its enabling statute and other existing
laws, for such is the sole function of the legislature which the other
branches of the government cannot usurp. As held in United BF
Homeowners Association v. BF Homes, Inc.:[38]

This brings us to the fourth requisite. It is an axiom in

administrative law that administrative authorities should not act arbitrarily
and capriciously in the issuance of rules and regulations. To be valid, such
rules and regulations must be reasonable and fairly adapted to secure the
end in view. If shown to bear no reasonable relation to the purposes for
which they were authorized to be issued, then they must be held to be
invalid.[40]

The rule-making power of a public administrative

body is a delegated legislative power, which it may not use

There is no doubt that the issuance of the ban to protect

the domestic industry is a reasonable exercise of police power. The
deterioration of the local motor manufacturing firms due to the influx of

imported used motor vehicles is an urgent national concern that needs to

be swiftly addressed by the President. In the exercise of delegated police
power, the executive can therefore validly proscribe the importation of
these vehicles. Thus, in Taxicab Operators of Metro Manila, Inc. v. Board of
Transportation,[41] the Court held that a regulation phasing out taxi cabs
more than six years old is a valid exercise of police power. The regulation
was sustained as reasonable holding that the purpose thereof was to
promote the convenience and comfort and protect the safety of the
passengers.

The problem, however, lies with respect to the application of the

importation ban to the Freeport. The Court finds no logic in the all
encompassing application of the assailed provision to the Freeport which is
outside the customs territory. As long as the used motor vehicles do not
enter the customs territory, the injury or harm sought to be prevented or
remedied will not arise. The application of the law should be consistent
with the purpose of and reason for the law. Ratione cessat lex,
et cessat lex. When the reason for the law ceases, the law ceases. It is
not the letter alone but the spirit of the law also that gives it life. [42] To
apply the proscription to the Freeport would not serve the purpose of the
EO. Instead of improving the general economy of the country, the
application of the importation ban in the Freeport would subvert the
avowed purpose of RA 7227 which is to create a market that would draw
investors and ultimately boost the national economy.

In similar cases, we also declared void the administrative issuance

or ordinances concerned for being unreasonable. To illustrate, in De la
Cruz v. Paras,[43] the Court held as unreasonable and unconstitutional an
ordinance
characterized
by overbreadth.
In
that
case,
the Municipality of Bocaue, Bulacan, prohibited the operation of all night
clubs, cabarets and dance halls within its jurisdiction for the protection of
public morals. As explained by the Court:

x x x It cannot be said that such a sweeping exercise of a

lawmaking power by Bocaue could qualify under the term
reasonable. The objective of fostering public morals, a
worthy and desirable end can be attained by a measure
that does not encompass too wide a field. Certainly the
ordinance on its face is characterized by overbreadth. The
purpose sought to be achieved could have been attained
by reasonable restrictions rather than by an absolute
prohibition. The admonition in Salaveria should be heeded:
The Judiciary should not lightly set aside legislative action
when there is not a clear invasion of personal or property
rights under the guise of police regulation. It is clear that
in the guise of a police regulation, there was in this
instance a clear invasion of personal or property rights,
personal in the case of those individuals desirous of

patronizing those night clubs and property in terms of the

investments made and salaries to be earned by those
therein employed.

Lupangco v. Court of Appeals,[44] is a case involving a resolution

issued by the Professional Regulation Commission which prohibited
examinees from attending review classes and receiving handout materials,
tips, and the like three days before the date of examination in order to
preserve the integrity and purity of the licensure examinations in
accountancy. Besides being unreasonable on its face and violative of
academic freedom, the measure was found to be more sweeping than what
was necessary, viz:

Needless to say, the enforcement of Resolution No.

105 is not a guarantee that the alleged leakages in the
licensure examinations will be eradicated or at least
minimized. Making the examinees suffer by depriving them
of legitimate means of review or preparation on those last
three precious days when they should be refreshing
themselves with all that they have learned in the review
classes and preparing their mental and psychological
make-up for the examination day itself would be like
uprooting the tree to get rid of a rotten branch. What is
needed to be done by the respondent is to find out the
source of such leakages and stop it right there. If corrupt
officials or personnel should be terminated from their loss,
then so be it. Fixers or swindlers should be flushed out.
Strict guidelines to be observed by examiners should be
set up and if violations are committed, then licenses should
be suspended or revoked. x x x

In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,[45] the

Court likewise struck down as unreasonable and overbreadth a city
ordinance granting an exclusive franchise for 25 years, renewable for
another 25 years, to one entity for the construction and operation of one
common
bus
and jeepney terminal
facility
in Lucena City. While
professedly aimed towards alleviating the traffic congestion alleged to
have been caused by the existence of various bus and jeepney terminals
within the city, the ordinance was held to be beyond what is reasonably
necessary to solve the traffic problem in the city.

By parity of reasoning, the importation ban in this case should also

be declared void for its too sweeping and unnecessary application to
the Freeport which has no bearing on the objective of the prohibition. If
the aim of the EO is to prevent the entry of used motor vehicles from

the Freeport to the customs territory, the solution is not to forbid entry of
these vehicles into the Freeport, but to intensify governmental campaign
and measures to thwart illegal ingress of used motor vehicles into the
customs territory.

At this juncture, it must be mentioned that on June 19, 1993,

President Fidel V. Ramos issued Executive Order No. 97-A, Further
Clarifying The Tax And Duty-Free Privilege Within The Subic Special
Economic And Free Port Zone, Section 1 of which provides:

SECTION 1. The following guidelines shall govern

the tax and duty-free privilege within the Secured Area of
the Subic Special Economic and Free Port Zone:

1.1.
The Secured
Area consisting
of
the
presently fenced-in former Subic Naval Base shall be the
only completely tax and duty-free area in the
SSEFPZ. Business enterprises and individuals (Filipinos and
foreigners) residing within the Secured Area are free to
import raw materials, capital goods, equipment, and
consumer items tax and dutry-free. Consumption items,
however, must be consumed within the Secured
Area. Removal of raw materials, capital goods, equipment
and consumer items out of the Secured Area for sale to
non-SSEFPZ registered enterprises shall be subject to the
usual taxes and duties, except as may be provided herein.

In Tiu v. Court of Appeals[46] as reiterated in Coconut Oil Refiners

Association, Inc. v. Torres,[47] this provision limiting the special privileges on
tax and duty-free importation in the presently fenced-in former Subic Naval
Base has been declared valid and constitutional and in accordance with RA
7227. Consistent with these rulings and for easier management and
monitoring of activities and to prevent fraudulent importation of
merchandise and smuggling, the free flow and importation of used motor
vehicles shall be operative only within the secured area.

In sum, the Court finds that Article 2, Section 3.1 of EO 156 is void
insofar as it is made applicable to the presently secured fenced-in
former Subic Naval Base area as stated in Section 1.1 of EO 97A.
Pursuant to the separability clause[48] of EO 156, Section 3.1 is
declared valid insofar as it applies to the customs territory or the Philippine
territory outside the presently secured fenced-in former Subic Naval Base
area as stated in Section 1.1 of EO 97-A. Hence, used motor vehicles that
come
into
the
Philippine
territory via the
secured
fenced-in
former Subic Naval Base area may be stored, used or traded therein, or

exported out of the Philippine territory, but they cannot be imported into
the Philippine territory outside of the secured fenced-in former Subic Naval
Base area.

WHEREFORE, the petitions are PARTIALLY GRANTED and the May

24, 2004 Decisions of Branch 72, Regional Trial Court of Olongapo City, in
Civil Case No. 20-0-04 and Civil Case No. 22-0-04; and the February 14,
2005 Decision of the Court of Appeals in CA-G.R. SP No. 63284,
are MODIFIED insofar as they declared Article 2, Section 3.1 of Executive
Order No. 156, void in its entirety.

Said provision is declared VALID insofar as it applies to the

Philippine territory outside the presently fenced-in former Subic Naval
Base area and VOID with respect to its application to the secured fencedin former Subic Naval Base area.

SO ORDERED.

[G.R. No. 143964. July 26, 2004]

GLOBE

TELECOM,
INC., petitioner,
vs. THE
NATIONAL
TELECOMMUNICATIONS
COMMISSION,
COMMISSIONER
JOSEPH A. SANTIAGO, DEPUTY COMMISSIONERS AURELIO M.
UMALI
and
NESTOR
DACANAY,
and
SMART
COMMUNICATIONS, INC. respondents.

DECISION
TINGA, J.:
Telecommunications services are affected by a high degree of public
interest.[1] Telephone companies have historically been regulated as
common carriers,[2] and indeed, the 1936 Public Service Act has classified
wire or wireless communications systems as a public service, along with
other common carriers.[3]
Yet with the advent of rapid technological changes affecting the
telecommunications industry, there has been a marked reevaluation of the
traditional paradigm governing state regulation over telecommunications.
For example, the United States Federal Communications Commission has
chosen not to impose strict common regulations on incumbent cellular

providers, choosing instead to let go of the reins and rely on market forces
to govern pricing and service terms.[4]

within the confines of their legal mandate and conform to the demands of
due process and equal protection.[12]

In the Philippines, a similar paradigm shift can be discerned with the

passage of the Public Telecommunications Act of 1995 (PTA). As noted by
one of the laws principal authors, Sen. John Osmea, under prior laws, the
government regulated the entry of pricing and operation of all public
telecommunications entities. The new law proposed to dismantle gradually
the barriers to entry, replace government control on price and income with
market instruments, and shift the focus of governments intervention
towards ensuring service standards and protection of customers. [5] Towards
this goal, Article II, Section 8 of the PTA sets forth the regulatory logic,
mandating that a healthy competitive environment shall be fostered, one
in which telecommunications carriers are free to make business decisions
and to interact with one another in providing telecommunications services,
with the end in view of encouraging their financial viability while
maintaining affordable rates.[6] The statute itself defines the role of the
government to promote a fair, efficient and responsive market to
stimulate growth and development of the telecommunications facilities and
services.[7]

Antecedent Facts

The present petition dramatizes to a degree the clash of philosophies

between traditional notions of regulation and the au corant trend to
deregulation. Appropriately, it involves the most ubiquitous feature of the
mobile phone, Short Messaging Service (SMS) [8] or text messaging,
which has been transformed from a mere technological fad into a vital
means of communication. And propitiously, the case allows the Court to
evaluate the role of the National Telecommunications Commission (NTC)
in this day and age.
The NTC is at the forefront of the government response to the
avalanche
of
inventions
and
innovations
in
the
dynamic
telecommunications field. Every regulatory action it undertakes is of keen
interest not only to industry analysts and players but to the public at
large. The intensive scrutiny is understandable given the high financial
stakes involved and the inexorable impact on consumers. And its rulings
are traditionally accorded respect even by the courts, owing traditional
deference to administrative agencies equipped with special knowledge,
experience and capability to hear and determine promptly disputes on
technical matters.[9]
At the same time, judicial review of actions of administrative agencies
is essential, as a check on the unique powers vested unto these
instrumentalities.[10] Review is available to reverse the findings of the
specialized administrative agency if the record before the Court clearly
precludes the agencys decision from being justified by a fair estimate of
the worth of the testimony of witnesses or its informed judgment on
matters within its special competence, or both. [11] Review may also be
warranted to ensure that the NTC or similarly empowered agencies act

Globe and private respondent Smart Communications, Inc. (Smart)

are both grantees of valid and subsisting legislative franchises,
[13]
authorizing them, among others, to operate a Cellular Mobile Telephone
System (CMTS),
utilizing
the Global
System
for
Mobile
Communication (GSM) technology.[14] Among the inherent services
supported by the GSM network is the Short Message Services (SMS),[15] also
known colloquially as texting, which has attained immense popularity in
the Philippines as a mode of electronic communication.
On 4 June 1999, Smart filed a Complaint[16] with public respondent
NTC, praying that NTC order the immediate interconnection of Smarts and
Globes GSM networks, particularly their respective SMS or texting
services. The Complaint arose from the inability of the two leading CMTS
providers to effect interconnection. Smart alleged that Globe, with evident
bad faith and malice, refused to grant Smarts request for the
interconnection of SMS.[17]
On 7 June 1999, NTC issued a Show Cause Order, informing Globe of
the Complaint, specifically the allegations therein that, among others
despite formal request made by Smart to Globe for the interconnection of
their respective SMS or text messaging services, Globe, with evident bad
faith, malice and to the prejudice of Smart and Globe and the public in
general, refused to grant Smarts request for the interconnection of their
respective SMS or text messaging services, in violation of the mandate of
Republic Act 7925, Executive Order No. 39, and their respective
implementing rules and regulations.[18]
Globe filed its Answer with Motion to Dismiss on 7 June 1999,
interposing grounds that the Complaint was premature, Smarts failure to
comply with the conditions precedent required in Section 6 of NTC
Memorandum Circular 9-7-93,[19] and its omission of the mandatory
Certification of Non-Forum Shopping.[20] Smart responded that it had
already submitted the voluminous documents asked by Globe in
connection with other interconnection agreements between the two
carriers, and that with those voluminous documents the interconnection of
the SMS systems could be expedited by merely amending the parties
existing CMTS-to-CMTS interconnection agreements.[21]
On 19 July 1999, NTC issued the Order now subject of the present
petition. In the Order, after noting that both Smart and Globe were
equally blameworthy for their lack of cooperation in the submission of
the documentation required for interconnection and for having unduly
maneuvered the situation into the present impasse, [22] NTC held that since
SMS falls squarely within the definition of value-added service or

enhanced-service given in NTC Memorandum Circular No. 8-9-95 (MC

No. 8-9-95) the implementation of SMS interconnection is mandatory
pursuant to Executive Order (E.O.) No. 59.[23]
The NTC also declared that both Smart and Globe have been providing
SMS without authority from it, in violation of Section 420 (f) of MC No. 8-995 which requires PTEs intending to provide value-added services (VAS) to
secure prior approval from NTC through an administrative process. Yet, in
view of what it noted as the peculiar circumstances of the case, NTC
refrained from issuing a Show Cause Order with a Cease and Desist Order,
and instead directed the parties to secure the requisite authority to provide
SMS within thirty (30) days, subject to the payment of fine in the amount of
two hundred pesos (P200.00) from the date of violation and for every day
during which such violation continues.[24]
Globe filed with the Court of Appeals a Petition for Certiorari and
Prohibition[25] to nullify and set aside the Order and to prohibit NTC from
taking any further action in the case. It reiterated its previous arguments
that the complaint should have been dismissed for failure to comply with
conditions precedent and the non-forum shopping rule. It also claimed that
NTC acted without jurisdiction in declaring that it had no authority to
render SMS, pointing out that the matter was not raised as an issue before
it at all. Finally, Globe alleged that theOrder is a patent nullity as it
imposed an administrative penalty for an offense for which neither it nor
Smart was sufficiently charged nor heard on in violation of their right to
due process.[26]
The Court of Appeals issued a Temporary Restraining Order on 31
August 1999.
In its Memorandum, Globe also called the attention of the appellate
court to the earlier decision of NTC pertaining to the application of Isla
Communications Co., Inc. (Islacom) to provide SMS, allegedly holding
that SMS is a deregulated special feature of the telephone network and
therefore does not require the prior approval of NTC.[27] Globe alleged that
its departure from its ruling in the Islacom case constitutes a denial of
equal protection of the law.
On 22 November 1999, a Decision[28] was promulgated by the Former
Special Fifth Division of the Court of Appeals [29] affirming in toto the
NTC Order. Interestingly, on the same day Globe and Smart voluntarily
agreed to interconnect their respective SMS systems, and the
interconnection was effected at midnight of that day.[30]
Yet, on 21 December 1999, Globe filed a Motion for Partial
Reconsideration,[31] seeking
to
reconsider
only
the
portion
of
the Decision that upheld NTCs finding that Globe lacked the authority to
provide SMS and its imposition of a fine. Both Smart and NTC filed their
respective comments, stressing therein that Globe indeed lacked the

authority to provide SMS.[32] In reply, Globe asserted that the more salient
issue was whether NTC complied with its own Rules of Practice and
Procedure before making the finding of want of authority and imposing the
fine. Globe also reiterated that it has been legally operating its SMS
system since 1994 and that SMS being a deregulated special feature of the
telephone network it may operate SMS without prior approval of NTC.
After the Court of Appeals denied the Motion for
Reconsideration,[33] Globe elevated the controversy to this Court.

Partial

Globe contends that the Court of Appeals erred in holding that the
NTC has the power under Section 17 of the Public Service Law [34] to subject
Globe to an administrative sanction and a fine without prior notice and
hearing in violation of the due process requirements; that specifically due
process was denied Globe because the hearings actually conducted dwelt
on different issues; and, the appellate court erred in holding that any
possible violation of due process committed by NTC was cured by the fact
that NTC refrained from issuing a Show Cause Order with a Cease and
Desist Order, directing instead the parties to secure the requisite authority
within thirty days. Globe also contends that in treating it differently from
other carriers providing SMS the Court of Appeals denied it equal
protection of the law.
The case was called for oral argument on 22 March 2004.
Significantly, Smart has deviated from its original position. It no longer
prays that the Court affirm the assailed Decisionand Order, and the twin
rulings therein that SMS is VAS and that Globe was required to secure prior
authority before offering SMS. Instead, Smart now argues that SMS is not
VAS and that NTC may not legally require either Smart or Globe to secure
prior approval before providing SMS. Smart has also chosen not to make
any submission on Globes claim of due process violations. [35]
As presented during the oral arguments, the central issues are: (1)
whether NTC may legally require Globe to secure NTC approval before it
continues providing SMS; (2) whether SMS is a VAS under the PTA, or
special feature under NTC MC No. 14-11-97; and (3) whether NTC acted
with due process in levying the fine against Globe. [36] Another issue is also
raised whether Globe should have first filed a motion for reconsideration
before the NTC, but this relatively minor question can be resolved in brief.
Necessity of Filing Motion for Reconsideration
Globe deliberately did not file a motion for reconsideration with the
NTC before elevating the matter to the Court of Appeals via a petition for
certiorari. Generally, a motion for reconsideration is a prerequisite for the
filing of a petition for certiorari. [37] In opting not to file the motion for
reconsideration, Globe asserted before the Court of Appeals that the case
fell within the exceptions to the general rule. [38] The appellate court in the

questioned Decision cited the purported procedural defect,[39] yet chose

anyway to rule on the merits as well.
Globes election to elevate the case directly to the Court of Appeals,
skipping the standard motion for reconsideration, is not a mortal mistake.
According to Globe, the Order is a patent nullity, it being violative of due
process; the motion for reconsideration was a useless or idle ceremony;
and, the issue raised purely one of law. [40] Indeed, the circumstances
adverted to are among the recognized exceptions to the general rule.
[41]
Besides, the issues presented are of relative importance and
novelty[42] so much so that it is judicious for the Court to resolve them on
the merits instead of hiding behind procedural fineries.
The Merits
Now, on to the merits of the petition.
Deregulation is the mantra in this age of globalization. Globe invokes
it in support of its claim that it need not secure prior authority from NTC in
order to operate SMS. The claim has to be evaluated carefully. After all,
deregulation is not a magic incantation that wards off the spectre of
intrusive government with the mere invocation of its name. The principles,
guidelines, rules and regulations that govern a deregulated system must
be firmly rooted in the law and regulations that institute or implement the
deregulation regime.[43] The implementation must likewise be fair and
evenhanded.
Globe hinges its claim of exemption from obtaining prior approval
from the NTC on NTC Memorandum Circular No. 14-11-97 (MC No. 14-1197). Globe notes that in a 7 October 1998 ruling on the application of
Islacom for the operation of SMS, NTC declared that the applicable circular
for SMS is MC No. 14-11-97.[44] Under this ruling, it is alleged, NTC
effectively denominated SMS as a special feature which under MC No.
14-11-97 is a deregulated service that needs no prior authorization from
NTC. Globe further contends that NTCs requiring it to secure prior
authorization violates the due process and equal protection clauses, since
earlier it had exempted the similarly situated Islacom from securing NTC
approval prior to its operation of SMS.[45]
On the other hand, the assailed NTC Decision invokes the NTC
Implementing Rules of the PTA (MC No. 8-9-95) to justify its claim that
Globe and Smart need to secure prior authority from the NTC before
offering SMS.
The statutory basis for the NTCs determination must be thoroughly
examined. Our first level of inquiry should be into the PTA. It is the
authority behind MC No. 8-9-95. It is also the law that governs all public
telecommunications entities (PTEs) in the Philippines. [46]

Public Telecommunications Act

The PTA has not strictly adopted laissez-faire as its underlying
philosophy to promote the telecommunications industry. In fact, the law
imposes strictures that restrain within reason how PTEs conduct their
business. For example, it requires that any access charge/revenue sharing
arrangements between all interconnecting carriers that are entered into
have to be submitted for approval to NTC.[47] Each telecommunication
category[48] established in the PTA is governed by detailed regulations.
Also, international carriers and operators of mobile radio services are
required to provide local exchange service in unserved or underserved
areas.[49]
At the same time, the general thrust of the PTA is
modernizing the legal framework for the telecommunications
sector. The transmutation has become necessary due to the rapid
as well within the telecommunications industry. As noted by
Osmea in his sponsorship speech:

towards
services
changes
Senator

[D]ramatic developments during the last 15 years in the field of

semiconductors have drastically changed the telecommunications sector
worldwide as well as in the Philippines. New technologies have
fundamentally altered the structure, the economics and the nature of
competition in the telecommunications business. Voice telephony is
perhaps the most popular face of telecommunications, but it is no longer
the only one. There are other faces such as data communications,
electronic mail, voice mail, facsimile transmission, video conferencing,
mobile radio services like trunked radio, cellular radio, and personal
communications services, radio paging, and so on. Because of the mindboggling developments in semiconductors, the traditional boundaries
between
computers,
telecommunications,
and
broadcasting
are
increasingly becoming blurred.[50]
One of the novel introductions of the PTA is the concept of a valueadded service (VAS). Section 11 of the PTA governs the operations of a
value-added service provider, which the law defines as an entity which
relying on the transmission, switching and local distribution facilities of the
local exchange and inter-exchange operators, and overseas carriers, offers
enhanced services beyond those ordinarily provided for by such
carriers.[51] Section 11 recognizes that VAS providers need not secure a
franchise, provided that they do not put up their own network. [52] However,
a different rule is laid down for telecommunications entities such as Globe
and PLDT. The section unequivocally requires NTC approval for the
operation of a value-added service. It reads, viz:
Telecommunications entities may provide VAS, subject to the additional
requirements that:

a)

prior approval of the Commission is secured to

ensure that such VAS offerings are not crosssubsidized from the proceeds of their utility
operations;

b)

other providers of VAS are not discriminated against in

rates nor denied equitable access to their facilities; and

c)

separate books of accounts are maintained for the

VAS. (Emphasis supplied)[53]

Oddly enough, neither the NTC nor the Court of Appeals cited the
above-quoted provision in their respective decisions, which after all, is the
statutory premise for the assailed regulatory action. This failure is but a
mere indicia of the pattern of ignorance or incompetence that sadly
attends the actions assailed in this petition.
It is clear that the PTA has left open-ended what services are classified
as value-added, prescribing instead a general standard, set forth as a
matter of principle and fundamental policy by the legislature. [54] The
validity of this standard set by Section 11 is not put into question by the
present petition, and there is no need to inquire into its propriety. [55]The
power to enforce the provisions of the PTA, including the implementation of
the standards set therein, is clearly reposed with the NTC. [56]
It can also be gleaned from Section 11 that the requirement that PTEs
secure prior approval before offering VAS is tied to a definite purpose, i.e.,
to ensure that such VAS offerings are not cross-subsidized from
the proceeds of their utility operations. The reason is related to the
fact that PTEs are considered as public services, [57] and mandated to
perform certain public service functions. Section 11 should be seen in
relation to E.O. 109, which mandates that international gateway operators
shall be required to provide local exchange service, [58] for the purpose of
ensuring availability of reliable and affordable telecommunications service
in both urban and rural areas of the country.[59] Under E.O. No. 109, local
exchange services are to be cross-subsidized by other telecommunications
services within the same company until universal access is achieved.
[60]
Section 10 of the PTA specifically affirms the requirements set by E.O.
No. 109. The relevance to VAS is clear: public policy maintains that the
offer of VAS by PTEs cannot interfere with the fundamental provision by
PTEs of their other public service requirements.
More pertinently to the case at bar, the qualification highlights the
fact that the legal rationale for regulation of VAS is severely limited. There
is an implicit recognition that VAS is not strictly a public service offering in
the way that voice-to-voice lines are, for example, but merely
supplementary to the basic service. Ultimately, the regulatory attitude of
the State towards VAS offerings by PTEs is to treat its provisioning
as a business decision subject to the discretion of the offeror, so

long as such services do not interfere with mandatory public service

requirements imposed on PTEs such as those under E.O. No. 109. Thus,
non-PTEs are not similarly required to secure prior approval
before offering VAS, as they are not burdened by the public
service requirements prescribed on PTEs.[61] Due regard must be
accorded to this attitude, which is in consonance with the general
philosophy of deregulation expressed in the PTA.
The Pertinent NTC Memorandum Circulars
Next, we examine the regulatory framework devised by NTC in dealing
with VAS.
NTC relied on Section 420(f) of the Implementing Rules of the PTA
(Implementing Rules) as basis for its claim that prior approval must be
secured from it before Globe can operate SMS. Section 420 of the
Implementing Rules, contained in MC No. 8-9-95, states in full:
VALUE ADDED SERVICES (VAS)
(a) A non-PTE VAS provider shall not be required to secure a
franchise from Congress.
(b) A non-PTE VAS provider can utilize its own equipment capable
only of routing, storing and forwarding messages in whatever
format for the purpose of providing enhanced or augmented
telecommunications services. It shall not put up its own
network. It shall use the transmission network, toll or local
distribution, of the authorized PTES.
(c) The provision of VAS shall not in any way affect the cross
subsidy to the local exchange network by the international
and national toll services and CMTS service.
(d) Entities intending to provide value added services only shall
submit to the commission application for registration for
approval. The application form shall include documents
showing, among others, system configuration, mode of
operation, method of charging rates, lease agreement with
the PTE, etc.
(e) The application for registration shall be acted upon by the
Commission through an administrative process within thirty
(30) days from date of application.
(f)

PTEs intending to provide value added services are

required to secure prior approval by the Commission
through an administrative process.

(g)

VAS providers shall comply strictly with the service

performance and other standards prescribed commission.
(Emphasis supplied.)

An examination of MC No. 14-11-97 further highlights the state of

regulatory confusion befalling the NTC. The relevant portions thereof are
reproduced below:

Instead of expressly defining what VAS is, the Implementing Rules

defines what enhanced services are, namely: a service which adds a
feature or value not ordinarily provided by a public telecommunications
entity such as format, media conversion, encryption, enhanced security
features, computer processing, and the like. [62] Given that the PTA defines
VAS as enhanced services, the definition provided in the Implementing
Rules may likewise be applied to VAS. Still, the language of the
Implementing Rules is unnecessarily confusing. Much trouble would have
been spared had the NTC consistently used the term VAS as it is used in
the PTA.

SUBJECT: DEREGULATING THE PROVISION OF SPECIAL FEATURES

IN THE TELEPHONE NETWORK.

The definition of enhanced services in the Implementing Rules,

while more distinct than that under the PTA, is still too sweeping. Rather
than enumerating what possible features could be classified as VAS or
enhanced services, the Implementing Rules instead focuses on the
characteristics of these features. The use of the phrase the like, [63] and its
implications of analogy, presumes that a whole myriad of technologies can
eventually be subsumed under the definition of enhanced services. The
NTC should not be necessarily faulted for such indistinct formulation since
it could not have known in 1995[64] what possible VAS would be available in
the future. The definition laid down in the Implementing Rules may validly
serve as a guide for the NTC to determine what emergent offerings would
fall under VAS.
Still, owing to the general nature of the definition laid down in the
Implementing Rules, the expectation arises that the NTC would promulgate
further issuances defining whether or not a specific feature newly available
in the market is a VAS. Such expectation is especially demanded if the NTC
is to penalize PTEs who fail to obtain prior approval in accordance with
Section 11 of the PTA. To our knowledge, the NTC has yet to come out with
an administrative rule or regulation listing which of the offerings in the
market today fall under VAS or enhanced services.
Still, there is MC No. 14-11-97, entitled Deregulating the Provision of
Special Features in the Telephone Network. Globe invokes this circular as
it had been previously cited by the NTC as applicable to SMS.
On 2 October 1998, Islacom wrote a letter to the NTC, informing the
agency that it will be offering the special feature of SMS for its CMTS,
and citing therein that the notice was being given pursuant to NTC
Memorandum Circular No. 14-11-97. [65] In response, the NTC acknowledged
receipt of the letter informing it of Islacoms offering the special
feature of SMS for its CMTS, and instructed Islacom to adhere to the
provisions of MC No. 14-11-97.[66] The clear implication of the letter is that
NTC considers the Circular as applicable to SMS.

For the purpose of exempting specific telecommunications service from

rate or tariff regulations if the service has sufficient competition to ensure
fair and reasonable rates or tariffs, the Commission hereby
deregulates the provision of special features inherent to the
Telephone Network.
Section 1.
For the purpose of this Circular, Special Feature shall refer
to a feature inherent to the telephone network which may not be
ordinarily provided by a Telephone Service Providersuch as call
waiting, call forwarding, conference calling, speed dialing, caller ID,
malicious call ID, call transfer, charging information, call pick-up, call
barring, recorded announcement, no double connect, warm line, wake-up
call, hotline, voicemail, and special features offered to customers with
PABXs such as direct inward dialing and number hunting, and the like;
provided that in the provision of the feature, no law, rule, regulation or
international convention on telecommunications is circumvented or
violated. The Commission shall periodically update the list of
special features in the Telephone Network which, including the
charging of rates therefor, shall be deregulated.
Section 2. A duly authorized Telephone Service Provider shall inform the
Commission in writing of the special features it can offer and the
corresponding rates thirty (30) days prior to launch date.
xxx
Section 4. Authorized Telephone Service Providers shall continue to charge
their duly approved rates for special services for 3 months from the
effectivity of this circular, after which they may set their own rates.
xxx (Emphasis supplied)
Just like VAS as defined under the PTA, special features are also not
ordinarily provided by the telephone company. Considering that MC No.
14-11-97 was promulgated after the passage of the PTA, it can be assumed
that the authors of the Circular were well aware of the regulatory scheme
formed under the PTA. Moreover, MC No. 14-11-97 repeatedly invokes the
word deregulation, and it cannot be denied that the liberalization ethos
was introduced by the PTA. Yet, the net effect of MC No. 14-11-97 is to add
to the haze beclouding the NTCs rationale for regulation. The introduction
of a new concept, special feature, which is not provided for in the PTA

just adds to the confusion, especially in light of the similarities between

special features and VAS. Moreover, there is no requirement that a PTE
seeking to offer special features must secure prior approval from the
NTC.
Is SMS a VAS, enhanced service, or a special feature? Apparently,
even the NTC is unsure. It had told Islacom that SMS was a special
feature, then subsequently held that it was a VAS. However, the
pertinent laws and regulations had not changed from the time of the
Islacom letter up to the day the Order was issued. Only the thinking of NTC
did.
More significantly, NTC never required ISLACOM to apply for prior
approval in order to provide SMS, even after the Order to that effect was
promulgated against Globe and Smart. This fact was admitted by NTC
during oral arguments.[67] NTCs treatment of Islacom, apart from being
obviously discriminatory, puts into question whether or not NTC truly
believes that SMS is VAS. NTC is unable to point out any subsequent rule or
regulation, enacted after it promulgated the adverse order against Globe
and Smart, affirming the newly-arrived determination that SMS is VAS.
In fact, as Smart admitted during the oral arguments, while it did
comply with the NTC Order requiring it to secure prior approval, it was
never informed by the NTC of any action on its request. [68] While NTC
counters that it did issue a Certificate of Registration to Smart, authorizing
the latter as a provider of SMS, such Certificate of Registration was issued
only on 13 March 2003, or nearly four (4) years after Smart had made its
request.[69] This inaction indicates a lack of seriousness on the part of the
NTC to implement its own rulings. Also, it tends to indicate the lack of
belief or confusion on NTCs part as to how SMS should be treated. Given
the abstract set of rules the NTC has chosen to implement, this should
come as no surprise. Yet no matter how content the NTC may be with its
attitude of sloth towards regulation, the effect may prove ruinous to the
sector it regulates.
Every party subject to administrative regulation deserves an
opportunity to know, through reasonable regulations promulgated
by the agency, of the objective standards that have to be met.
Such rule is integral to due process, as it protects substantive rights. Such
rule also promotes harmony within the service or industry subject to
regulation. It provides indubitable opportunities to weed out the most
frivolous conflicts with minimum hassle, and certain footing in deciding
more substantive claims. If this results in a tenfold in administrative rules
and regulations, such price is worth paying if it also results in clarity and
consistency in the operative rules of the game. The administrative process
will best be vindicated by clarity in its exercise. [70]
In short, the legal basis invoked by NTC in claiming that SMS is VAS
has not been duly established. The fault falls squarely on NTC. With the

dual classification of SMS as a special feature and a VAS and the varying
rules pertinent to each classification, NTC has unnecessarily complicated
the regulatory framework to the detriment of the industry and the
consumers. But does that translate to a finding that the
NTC Order subjecting Globe to prior approval is void? There is a fine line
between professional mediocrity and illegality. NTCs byzantine approach to
SMS regulation is certainly inefficient. Unfortunately for NTC, its actions
have also transgressed due process in many ways, as shown in the ensuing
elucidation.
Penalized Via a Quasi-Judicial Process,
Globe and Smart are Entitled to
Corresponding Protections
It is essential to understand that the assailed Order was promulgated
by NTC in the exercise of its quasi-judicial functions. The case arose when
Smart had filed the initial complaint against Globe before NTC for
interconnection of SMS.[71] NTC issued a Show Cause Order requiring Globe
to answer Smarts charges. Hearings were conducted, and a decision made
on the merits, signed by the three Commissioners of the NTC, sitting as a
collegial body.[72]
The initial controversy may have involved a different subject matter,
interconnection, which is no longer contested. It cannot be denied though
that the findings and penalty now assailed before us was premised on the
same exercise of jurisdiction. Thus, it is not relevant to this case that the
process for obtaining prior approval under the PTA and its Implementing
Rules is administrative in nature. While this may be so, the assailed NTCs
determination and corresponding penalty were rendered in the exercise of
quasi-judicial functions. Therefore, all the requirements of due process
attendant to the exercise of quasi-judicial power apply to the present case.
Among them are the seven cardinal primary rights in justiciable cases
before administrative tribunals, as enumerated in Ang Tibay v. CIR.[73] They
are synthesized in a subsequent case, as follows:
There are cardinal primary rights which must be respected even in
proceedings of this character. The first of these rights is the right to a
hearing, which includes the right of the party interested or affected to
present his own case and submit evidence in support thereof. Not only
must the party be given an opportunity to present his case and to adduce
evidence tending to establish the rights which he asserts but the tribunal
must consider the evidence presented. While the duty to deliberate does
not impose the obligation to decide right, it does imply a necessity which
cannot be disregarded, namely, that of having something to support its
decision. Not only must there be some evidence to support a finding or
conclusion, but the evidence must be substantial. The decision must be

rendered on the evidence presented at the hearing, or at least contained in

the record and disclosed to the parties affected.[74]
NTC violated several of these cardinal rights due Globe in the
promulgation of the assailed Order.
First. The NTC Order is not supported by substantial evidence. Neither
does it sufficiently explain the reasons for the decision rendered.
Our earlier discussion pertained to the lack of clear legal basis for
classifying SMS as VAS, owing to the failure of the NTC to adopt clear rules
and regulations to that effect. Muddled as the legal milieu governing SMS
already is, NTCs attempt to apply its confusing standards in the case of
Globe and Smart is even more disconcerting. The very rationale adopted
by the NTC in its Order holding that SMS is VAS is short and shoddy.
Astoundingly, the Court of Appeals affirmed the rationale bereft of
intelligent inquiry, much less comment. Stated in full, the relevant portion
of the NTC Order reads:
xxx Getting down [to] the nitty-gritty, Globes SMS involves the
transmission of data over its CMTS which is Globes basic service. SMS is
not ordinarily provided by a CMTS operator like Globe, and since SMS
enhances Globes CMTS, SMS fits in to a nicety [sic] with the definition
of value-added-service or enhanced-service under NTC Memorandum
Circular [8]-9-95 (Rule 001, Item [15]).[75]
The Court usually accords great respect to the technical findings of
administrative agencies in the fields of their expertise, even if they are
infelicitously worded. However, the above-quoted finding is nothing more
than
bare
assertions,
unsupported
by
substantial
evidence.
[76]
The Order reveals that no deep inquiry was made as to the nature of
SMS or what its provisioning entails. In fact, the Court is unable to find how
exactly does SMS fits into a nicety with NTC M.C. No. 8-9-95, which
defines enhanced services as analogous to format, media conversion,
encryption, enhanced security features, computer processing, and the
like.[77] The NTC merely notes that SMS involves the transmission of data
over [the] CMTS, a phraseology that evinces no causal relation to the
definition in M.C. No. 8-9-95. Neither did the NTC endeavor to explain why
the transmission of data necessarily classifies SMS as a VAS.
In fact, if the transmission of data over [the] CMTS is to be reckoned
as the determinative characteristic of SMS, it would seem that this is
already sufficiently covered by Globe and Smarts respective legislative
franchises.[78] Smart is authorized under its legislative franchise to establish
and operate integrated telecommunications/computer/ electronic services
for public domestic and international communications, [79] while Globe is
empowered to establish and operate domestic telecommunications, and
stations for transmission and reception of messages by means of
electricity, electromagnetic waves or any kind of energy, force, variations

or impulses, whether conveyed by wires, radiated through space or

transmitted through other media and for the handling of any and all types
of telecommunications services.[80]
The question of the proper legal classification of VAS is uniquely
technical, tied as at is to the scientific and technological application of the
service or feature. Owing to the dearth of substantive technical findings
and data from the NTC on which a judicial review may reasonably be
premised, it is not opportunely proper for the Court to make its own
technical evaluation of VAS, especially in relation to SMS. Judicial factfinding of the de novo kind is generally abhorred and the shift of decisional
responsibility to the judiciary is not favored as against the substantiated
and specialized determination of administrative agencies. [81] With greater
reason should this be the standard for the exercise of judicial review when
the administrative agency concerned has not in the first place come out
with a technical finding based on evidence, as in this case.
Yet at the same time, this absence of substantial evidence in support
of the finding that SMS is VAS already renders reversible that portion of the
NTC Order.
Moreover, the Order does not explain why the NTC was according the
VAS offerings of Globe and Smart a different regulatory treatment from
that of Islacom. Indeed, to this day, NTC has not offered any sensible
explanation why Islacom was accorded to a less onerous regulatory
requirement, nor have they compelled Islacom to suffer the same burdens
as Globe and Smart.
While stability in the law, particularly in the business field, is
desirable, there is no demand that the NTC slavishly follow precedent.
[82]
However, we think it essential, for the sake of clarity and
intellectual honesty, that if an administrative agency decides
inconsistently with previous action, that it explain thoroughly why
a different result is warranted, or if need be, why the previous
standards should no longer apply or should be overturned. [83] Such
explanation is warranted in order to sufficiently establish a
decision as having rational basis. [84] Any inconsistent decision
lacking thorough, ratiocination in support may be struck down as
being arbitrary. And any decision with absolutely nothing to
support it is a nullity.[85]
Second. Globe and Smart were denied opportunity to present
evidence on the issues relating to the nature of VAS and the prior approval.
Another disturbing circumstance attending this petition is that until
the promulgation of the assailed Order Globe and Smart were never
informed of the fact that their operation of SMS without prior authority was
at all an issue for consideration. As a result, neither Globe or Smart was
afforded an opportunity to present evidence in their behalf on that point.

NTC asserts that since Globe and Smart were required to submit their
respective Certificates of Public Convenience and Necessity and franchises,
the parties were sufficiently notified that the authority to operate such
service was a matter which NTC could look into. This is wrong-headed
considering the governing law and regulations. It is clear that before NTC
could penalize Globe and Smart for unauthorized provision of SMS, it must
first establish that SMS is VAS. Since there was no express rule or
regulation on that question, Globe and Smart would be well within reason if
they submitted evidence to establish that SMS was not VAS. Unfortunately,
no such opportunity arose and no such arguments were raised simply
because Globe and Smart were not aware that the question of their
authority to provide SMS was an issue at all. Neither could it be said that
the requisite of prior authority was indubitable under the existing rules and
regulations. Considering the prior treatment towards Islacom, Globe (and
Smart, had it chosen to do so) had every right to rely on NTCs disposal of
Islacoms initiative and to believe that prior approval was not necessary.
Neither was the matter ever raised during the hearings conducted by
NTC on Smarts petition. This claim has been repeatedly invoked by Globe.
It is borne out by the records or the absence thereof. NTC could have
easily rebuffed this claim by pointing to a definitive record. Yet strikingly,
NTC has not asserted that the matter of Globes authority was raised in any
pleading or proceeding. In fact, Globe in its Consolidated Reply before this
Court challenged NTC to produce the transcripts of the hearings it
conducted to prove that the issue of Globes authority to provide SMS was
put in issue. The Court similarly ordered the NTC to produce such
transcripts.[86] NTC failed to produce any.[87]
The opportunity to adduce evidence is essential in the administrative
process, as decisions must be rendered on the evidence presented, either
in the hearing, or at least contained in the record and disclosed to the
parties affected.[88] The requirement that agencies hold hearings in which
parties affected by the agencys action can be represented by counsel may
be viewed as an effort to regularize this struggle for advantage within a
legislative adversary framework.[89] It necessarily follows that if no
evidence is procured pertinent to a particular issue, any eventual
resolution of that issue on substantive grounds despite the absence of
evidence is flawed. Moreover, if the parties did have evidence to counter
the ruling but were wrongfully denied the opportunity to offer the
evidence, the result would be embarrassing on the adjudicator.
Thus, the comical, though expected, result of a definitive order which
is totally unsupported by evidence. To this blatant violation of due process,
this Court stands athwart.
Third. The imposition of fine is void for violation of due process
The matter of whether NTC could have imposed the fine on Globe in
the assailed Order is necessarily related to due process considerations.

Since this question would also call to fore the relevant provisions of the
Public Service Act, it deserves its own extensive discussion.
Globe claims that the issue of its authority to operate SMS services
was never raised as an issue in the Complaint filed against it by Smart. Nor
did NTC ever require Globe to justify its authority to operate SMS
services before the issuance of the Order imposing the fine.
The Court of Appeals, in its assailed decision, upheld the power of NTC
to impose a fine and to make a pronouncement on Globes alleged lack of
operational authority without need of hearing, simply by citing the
provision of the Public Service Act [90] which enumerates the instances when
NTC may act motu proprio. That is Section 17, paragraph (a), which reads
thus:
Sec. 17. Proceedings of [the National Telecommunications Commission]
without previous hearing. The Commission shall have power, without
previous hearing, subject to established limitations and exceptions and
saving provisions to the contrary:
(a) To investigate, upon its own initiative, or upon complaint in writing, any
matter concerning any public service as regards matters under its
jurisdiction; to require any public service to furnish safe, adequate, and
proper service as the public interest may require and warrant; to enforce
compliance with any standard, rule, regulation, order or other requirement
of this Act or of the Commission, and to prohibit or prevent any public
service as herein defined from operating without having first secured a
certificate of public convenience or public necessity and convenience, as
the case may be, and require existing public services to pay the fees
provided for in this Act for the issuance of the proper certificate of public
convenience or certificate of public necessity and convenience, as the case
may be, under the penalty, in the discretion of the Commission, of the
revocation and cancellation of any acquired rights.
On the other hand, NTC itself, in the Order, cites Section 21 as the
basis for its imposition of fine on Globe. The provision states:
Sec. 21. Every public service violating or failing to comply with the terms
and conditions of any certificate or any orders, decisions or regulations of
the Commission shall be subject to a fine of not exceeding two hundred
pesos per day for every day during which such default or violation
continues; and the Commission is hereby authorized and empowered to
impose such fine, after due notice and hearing. [Emphasis supplied.]
Sections 17 and 21 of the Public Service Act confer two distinct
powers on NTC. Under Section 17, NTC has the power to investigate a PTE
compliance with a standard, rule, regulation, order, or other requirement
imposed by law or the regulations promulgated by NTC, as well as require
compliance if necessary. By the explicit language of the provision, NTC may

exercise the power without need of prior hearing. However, Section 17

does not include the power to impose fine in its enumeration. It is Section
21 which adverts to the power to impose fine and in the same breath
requires that the power may be exercised only after notice and hearing.
Section 21 requires notice and hearing because fine is a sanction,
regulatory and even punitive in character. Indeed, the requirement is the
essence of due process. Notice and hearing are the bulwark of
administrative due process, the right to which is among the primary rights
that must be respected even in administrative proceedings. [91] The right is
guaranteed by the Constitution itself and does not need legislative
enactment. The statutory affirmation of the requirement serves merely to
enhance the fundamental precept. The right to notice and hearing is
essential to due process and its non-observance will, as a rule, invalidate
the administrative proceedings.[92]

As earlier stated, the Court is convinced that prior to the promulgation

of the assailed Order Globe was never notified that its authority to operate
SMS was put in issue. There is an established procedure within NTC that
provides for the steps that should be undertaken before an entity such as
Globe could be subjected to a disciplinary measure. Section 1, Rule 10 of
the NTC Rules of Procedure provides that any action, the object of which is
to subject a holder of a certificate of public convenience or authorization,
or any person operating without authority from NTC, to any penalty or a
disciplinary or other measure shall be commenced by the filing of a
complaint. Further, the complaint should state, whenever practicable, the
provisions of law or regulation violated, and the acts or omissions
complained of as constituting the offense. [97] While a complaint was indeed
filed against Globe by Smart, the lack of Globes authority to operate SMS
was not raised in the Complaint, solely predicated as it was on Globes
refusal to interconnect with Smart.[98]

In citing Section 21 as the basis of the fine, NTC effectively concedes

the necessity of prior notice and hearing. Yet the agency contends that the
sanction was justified by arguing that when it took cognizance of Smarts
complaint for interconnection, it may very well look into the issue of
whether the parties had the requisite authority to operate such
services.[93]As a result, both parties were sufficiently notified that this was
a matter that NTC could look into in the course of the proceedings. The
parties subsequently attended at least five hearings presided by NTC. [94]

Under the NTC Rules of Procedure, NTC is to serve a Show Cause

Order on the respondent to the complaint, containing therein a statement
of the particulars and matters concerning which the Commission is
inquiring and the reasons for such actions.[99] The Show Cause
Order served on Globe in this case gave notice of Smarts charge that
Globe, acting in bad faith and contrary to law, refused to allow the
interconnection of their respective SMS systems. [100] Again, the lack of
authority to operate SMS was not adverted to in NTCsShow Cause Order.

That particular argument of the NTC has been previously disposed of.
But it is essential to emphasize the need for a hearing before a fine may be
imposed, as it is clearly a punitive measure undertaken by an
administrative agency in the exercise of its quasi-judicial functions.
Inherently, notice and hearing are indispensable for the valid exercise by
an administrative agency of its quasi-judicial functions. As the Court held
in Central Bank of the Phil. v. Hon. Cloribel:[95]

The records also indicate that the issue of Globes authority was never
raised in the subsequent hearings on Smarts complaint. Quite noticeably,
the respondents themselves have never asserted that the matter of
Globes authority was raised in any pleading or proceeding. In fact, Globe
in its Consolidated Reply before this Court challenged NTC to produce the
transcripts of the hearings it conducted to prove that the issue of Globes
authority to provide SMS was put in issue. It did not produce any
transcript.

[T]he necessity of notice and hearing in an administrative proceeding

depends on the character of the proceeding and the circumstances
involved. In so far as generalization is possible in view of the great variety
of administrative proceedings, it may be stated as a general rule that
notice and hearing are not essential to the validity of administrative action
where the administrative body acts in the exercise of executive,
administrative, or legislative functions; but where a public administrative
body acts in a judicial or quasi-judicial matter, and its acts are particular
and immediate rather than general and prospective, the person whose
rights or property may be affected by the action is entitled to notice and
hearing.[96]
The requirement of notice and hearing becomes even more imperative if
the statute itself demands it, as in the case of Section 21 of the Public
Service Act.

Being an agency of the government, NTC should, at all times, maintain

a due regard for the constitutional rights of party litigants. [101] In this case,
NTC blindsided Globe with a punitive measure for a reason Globe was not
made aware of, and in a manner that contravened express provisions of
law. Consequently, the fine imposed by NTC on Globe is also invalid.
Otherwise put, since the very basis for the fine was invalidly laid, the fine is
necessarily void.
Conclusion
In summary: (i) there is no legal basis under the PTA or the
memorandum circulars promulgated by the NTC to denominate SMS as
VAS, and any subsequent determination by the NTC on whether SMS is VAS
should be made with proper regard for due process and in conformity with
the PTA; (ii) the assailed Order violates due process for failure to

sufficiently explain the reason for the decision rendered, for being
unsupported by substantial evidence, and for imputing violation to, and
issuing a corresponding fine on, Globe despite the absence of due notice
and hearing which would have afforded Globe the right to present evidence
on its behalf.
Thus, the Order effectively discriminatory and arbitrary as it is, was
issued with grave abuse of discretion and it must be set aside. NTC may
not legally require Globe to secure its approval for Globe to continue
providing SMS. This does not imply though that NTC lacks authority to
regulate SMS or to classify it as VAS. However, the move should be
implemented properly, through unequivocal regulations applicable to all
entities that are similarly situated, and in an even-handed manner.
Concurrently, the Court realizes that the PTA is not intended to
constrain the industry within a cumbersome regulatory regime. [102] The
policy as pre-ordained by legislative fiat renders the traditionally
regimented business in an elementary free state to make business
decisions, avowing that it is under this atmosphere that the industry would
prosper.[103] It is disappointing at least if the deregulation thrust of the law
is skirted deliberately. But it is ignominious if the spirit is defeated through
a crazy quilt of vague, overlapping rules that are implemented
haphazardly.
By no means should this Decision be interpreted as removing SMS
from the ambit of jurisdiction and review by the NTC. The issue before the
Court is only the prior approval requirement as imposed on Globe and
Smart. The NTC will continue to exercise, by way of its broad grant,
jurisdiction over Globe and Smarts SMS offerings, including questions of
rates and customer complaints. Yet caution must be had. Much
complication could have been avoided had the NTC adopted a proactive
position, promulgating the necessary rules and regulations to cope up with
the advent of the technologies it superintends. With the persistent advent
of new offerings in the telecommunications industry, the NTCs role will
become more crucial than at any time before. If NTCs behavior in the
present case is but indicative of a malaise pervading this crucial regulatory
arm of the State, the Court fears the resultant confusion within the industry
and the consuming public. The credibility of an administrative agency
entrusted with specialized fields subsists not on judicial doctrine alone, but
more so on its intellectual strength, adherence to law, and basic fairness.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 22 November 1999, as well as its Resolution dated 29 July
2000, and the assailed Order of the NTC dated 19 July 1999 are hereby SET
ASIDE. No cost.
SO ORDERED.

G.R. No. 130584

June 27, 2006

YAZAKI
TORRES
MANUFACTURING,
INC., Petitioner,
vs.
THE COURT OF APPEALS, THE HOME DEVELOPMENT MUTUAL FUND,
through its Board of Trustees, and HONORABLE ZORAYDA AMELIA
C. ALONZO, in her capacity as President of the Home Development
Mutual Fund, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
This is a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, seeking to annul the Decision 1 of the Court of
Appeals (Special Eighth Division), dated February 5, 1997, in CA-G.R. SP
No. 41487 for having been issued with grave abuse of discretion.
The Home Development Mutual Fund (HDMF) is the government agency
tasked with the administration of the PAG-IBIG2 Fund (Fund) created under
Presidential Decree (P.D.) No. 1530, signed into law on June 11, 1978. The
Fund has been intended for housing purposes to be sourced from voluntary
contributions from its members.
On December 14, 1980, P.D. No. 1530 was amended by P.D. No. 1752
providing that membership in the Fund is mandatory for all gainfullyemployed Filipinos.
On June 17, 1994, P.D. No. 1752 was amended by Republic Act (R.A.) No.
7742 which took effect on January 1, 1995. Under the new law, the
coverage of the Fund extends to all members of the Social Security System
and Government Service Insurance System, as well as their employers.
However, membership is voluntary for employees earning less
than P4,000.00 a month.
On July 18, 1994, the HDMF Board of Trustees promulgated Rules and
Regulations implementing R.A. No. 7742. Rule VII provides:
RULE
WAIVER OR SUSPENSION

VII

SEC. 1. Waiver or Suspension, Existing Provident or Retirement Plan. An

employer and/or employee group who has an existing provident or
retirement plan as of the effectivity of Republic Act No. 7742, qualified
under Republic Act No. 4917 and actuarially determined to be sound and

reasonable by an independent actuary duly accredited by the Insurance

Commission may apply with the Fund for waiver or suspension of coverage.
Such waiver or suspension may be granted by the President of the Fund on
the basis of verification that the waiver or suspension does not contravene
any effective collective bargaining or other existing agreement and that
the features of the plan or plans are superior to the Fund and continue to
be so. The certificate of waiver or suspension of coverage issued therein
shall only be for a period of one (1) year but the same may be renewed for
another year upon the filing of a proper application within a period of sixty
(60) days prior to the expiration of the existing waiver or suspension.
SEC. 2. Waiver or Suspension, Existing Housing Plan. An employer and/or
employee group who has an existing housing plan as of the effectivity of
Republic Act No. 7742 may apply with the Fund for waiver or suspension of
coverage. Such waiver or suspension may be granted by the President of
the Fund on the basis of verification that the waiver or suspension does not
contravene any effective collective bargaining or other existing agreement
and that the features of the plan or plans are superior to the Fund and
continue to be so. The certificate of waiver or suspension of coverage
issued therein shall only be for a period of one (1) year but the same may
be renewed for another year upon the filing of a proper application within a
period of sixty (60) days prior to the expiration of the existing waiver or
suspension.
xxx
SEC. 4. Effects of Waiver or Suspension, Existing Provident or
Retirement/Housing Plan. - Waiver or suspension of coverage granted to an
employer under Sections 1 and 2 of this Rule shall likewise apply to his
employees who are members of the employers private plan; Provided,
That such members are not member-borrowers of the Fund. A memberborrower shall continue to pay and remit to the fund his monthly
contributions together with the employer contributions to be shouldered by
him. A member-saver may opt to remain in good standing by remitting to
the Fund his monthly contributions with or without employer contribution.
Employees who are non-members of the employers private plan at the
time of the certificate of waiver or suspension of coverage is granted shall
continue to be mandatorily covered by the Fund and their employer is
required to set aside and remit to the Fund the employee contributions
together with the employer contributions.
Yazaki Torres Manufacturing, Inc., petitioner herein, a corporation organized
under Philippine laws, applied for and was granted by the HDMF a waiver
from the Fund coverage for the period from January 1 to December 31,
1995. The HDMF found that petitioners retirement plan for its employees
is superior to that offered by the Fund.

On September 1, 1995, the HDMF Board of Trustees amended Rule VII of

the Rules and Regulations implementing R.A. No. 7742. The amended Rule
provides:
SEC. 1. Waiver or Suspension Because of Existing Provident/Retirement
and Housing Plan. An employer with a plan providing both for a
provident/retirement and housing benefits for all his employees and
existing as of December 14, 1980, the effectivity date of Presidential
Decree No. 1752, may apply with the Fund for waiver or suspension of the
coverage. The provident/retirement aspect of the plan must be qualified
under Republic Act No. 4917 and actuarially determined to be sound and
reasonable by an independent actuary duly accredited by the Insurance
Commission. The provident/retirement and housing benefits as provided
for under the plan must be superior to the provident/retirement and
housing benefits offered by the Fund.
Such waiver or suspension may be granted by the Fund on the basis of
actual certification that the waiver or suspension does not contravene any
collective bargaining agreement, any other existing agreement or clearly
spelled out management policy and that features of the plan or plans are
superior to the Fund and continue to be so.
Provided further, That the application must be endorsed by the labor union
representing a majority of the employees or in the absence thereof by at
least a majority vote for all the employees in the said establishment in a
meeting specifically called for the purpose; Provided furthermore, That
such a meeting be held or conducted under the supervision of an
authorized representative from the Fund.
The certificate of waiver or suspension of coverage issued herein shall only
be for a period of one (1) year effective upon issuance thereof. No
certificate of waiver issued by the President of the Fund shall have
retroactive effect. Application for renewal must be filed within sixty (60)
days prior to the expiration of the existing waiver or suspension and such
application for renewal shall only be granted based on the same conditions
and requirements under which the original application was approved.
Pending the approval of the application for waiver or suspension of
coverage or the application for renewal, the employer and his covered
employees shall continue to be mandatorily covered by the Fund as
provided for under Republic Act No. 7742.
xxx
SEC. 3. Effects of Waiver or Suspension; Existing Provident or
Retirement/Housing Plan. Waiver or suspension of coverage granted to an
employer under Section 1 shall likewise apply to his employees who are
members of the employers private plan; Provided, That such members are
not member-borrowers of the Fund. A member-borrower shall continue to

pay and remit to the Fund his monthly contributions together with the
employer contribution to be shouldered by him. A member-saver may opt
to remain in good standing by remitting to the Fund his monthly
contributions with or without employer contributions. Notwithstanding the
certificate of waiver or suspension granted to the employer, it is still the
obligation of the employer to service this type of contributing employeemember by deducting through salary deductions and remitting to the Fund
the contribution as required herein.
Employees who are non-members of the employers private plan at the
time the certificate of waiver or suspension of coverage is granted shall
continue to be mandatorily covered by the Fund and their employer is
required to set aside and remit to the Fund the employee contributions
together with the employers required contributions.
xxx
After its waiver from the Fund coverage lapsed, petitioner applied for a
renewal. The ground relied upon was once again its "superior retirement
plan" to that of the Fund.
On February 16, 1996, the HDMF Chief Executive Officer disapproved
petitioners application on the ground that its retirement plan is not
superior to that provided by the Fund. Petitioner was then directed "to
register its employees with the Fund and to remit their monthly
contributions together with the mandatory employers share."
Petitioner interposed an appeal to the HDMF Board of Trustees, but in a
Resolution dated May 29, 1996, the Board denied the appeal.
Thereupon, petitioner filed with the Court of Appeals a petition for review,
docketed as CA-G.R. SP No. 41487.
In a Decision dated February 5, 1997, the Court of Appeals (Special Eighth
Division) denied the petition, holding that:
Petitioner contends that the existing rules and regulations cannot be
amended unless and until R.A. No. 7742 is likewise amended and since the
September 1, 1995 amendment on Rule VII of the HDMF rules and
regulations was beyond the 60-day period required under Section 5 of R.A.
No. 7742, the same is invalid. To uphold these arguments would render the
administrative agency inutile to correct the rules and regulations duly
promulgated by it. A contario, such rules and regulations or orders may be
amended, modified or revoked to conform to the requirements of the law
or the demands of justice (Benito v. Public Service Commission, 86 Phil.
624 [1950]; Raymundo Transportation Co. v. Tanay Transit Co., 63 Phil.
1064 [1936]). The only limitation is that the administrative regulations
cannot extend the law and amend a legislative enactment for settled is the

rule that administrative regulations must be in harmony with the provisions

of the law (Land Bank of the Philippines v. Court of Appeals, 249 SCRA 149
[1995]). In case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails (Shell Philippines, Inc.
v. Central Bank of the Philippines, 162 SCRA 628 [1988]).
The September 1, 1995 amendment to the rules requiring both
provident/retirement and housing plans to the employees in order that the
employer may be granted a waiver or suspension of the Pag-ibig Fund
coverage is in harmony with WHEREAS clauses of Presidential Decree No.
1752, thus:
WHEREAS, the Government, in pursuit of the Constitutional mandates on
the promotion of public welfare through ample social services, as well as
its humanist commitment to the interests of the working group, in relation
particularly to their need for decent shelter has established the Home
Development Mutual Fund, under Presidential Decree 1530, a system of
employee employer contributions for housing purposes; and
WHEREAS, there is need to strengthen the Home Development Mutual
Funds and make it more effective both as savings generation and home
building program for the gainfully-employed members of the Philippine
society; (Emphasis supplied)
The governing law which is Section 19 of Pres. Decree No. 1752
states:lavvphi1.net
SEC. 19. Existing Provident/Housing Plans An employer and/or employee
group who, at the time this Decree becomes effective have their own
provident and/or employee housing plans, may register with the Fund, for
any of the following purposes:
(a) For annual certification of waiver or suspension from coverage or
participation in the Fund, which shall be granted on the basis of verification
that the waiver or suspension does not contravene any effective collective
bargaining agreement and that the features of the plan or plans are
superior to the Fund or continue to be so; or
xxxxxxxxx
x x x The grant of the certification of waiver to the petitioner was only for a
specific period, i.e., from January 1, 1995 to December 31, 1995 but
subject to the condition that the same may be renewed for another year
upon the filing of the proper application within 60 days prior to the
expiration of the existing waiver or suspension. The grant is merely a
privilege which the State in the exercise of its police power has the right
not to renew the same as the exigency of the case warrants. After the
lapse of the specified period, the HDMF is not automatically required to

enter another contract with the petitioner as long as the latter applies for
renewal of certification. To reiterate, Section 1 of the original HDMF rules,
the law in force at the time of the granting of the certification of waiver to
the petitioner, provides "[s]uch waiver or suspension may be granted by
the President of the Fund on the basis of verification that the waiver or
suspension does not contravene any effective collective bargaining or
other existing agreement and that the features of the plan or plans are
superior to the Fund and continue to be so." The word "may" is merely
permissive and operates to confer discretion upon a party (Capati v.
Ocampo, 113 SCRA 794 [1982]). The disapproval of the petitioners
application for renewal of waiver from the Pag-ibig Fund coverage was by
reason that the petitioners retirement plan was not superior to Pag-ibig
Fund (Annex "D", Petition, p. 30, Rollo). It is well-settled principle that the
finding of facts by the administrative bodies which has acquired the
expertise in the field is entitled to great respect and, should not be
disturbed on appeal unless it is shown that it has patently misappreciated
the facts. Petitioner however failed to prove by sufficient evidence that the
findings of the President of the Fund was patently erroneous. 3
Petitioner filed its Motion for Reconsideration, but it was denied in a
Resolution dated June 17, 1997.
Hence, the instant petition for certiorari.4
Petitioner contends that the Court of Appeals acted with grave abuse of
discretion in upholding the HDMFs Resolution denying petitioners
application for renewal of waiver of the Fund membership coverage; and in
confirming the authority of the HDMF to amend the implementing Rules of
the Fund. It claims that Section 5 of R.A. No. 7742 does not grant HDMF the
power to amend the implementing Rules and Regulations, contending that
"the power to make laws does not necessarily include the power to alter or
repeal the same." Since the HDMF is merely an administrative agency
tasked to implement the law, its authority to promulgate implementing
Rules does not include the power to amend or revise them.
It is a doctrine of long-standing that courts will not interfere in matters
which are addressed to the sound discretion of the government agency
entrusted with regulation of activities coming under the special and
technical training and knowledge of such agency. 5 For the exercise of
administrative discretion is a policy decision and a matter that best be
discharged by the government agency concerned and not by the courts. 6 In
this case, there is no showing that the HDMF arbitrarily, whimsically or
capriciously denied petitioners application for renewal of its waiver. It
conducted the necessary investigation, comparison, evaluation, and
deliberation of petitioners retirement plan vis--vis the Fund. This Court
thus holds that the Court of Appeals committed no grave abuse of
discretion amounting to lack or excess of jurisdiction when it affirmed the
denial of petitioners application for renewal of waiver by the HDMF.

Moreover, the grant of waiver or exemption from the coverage of the Fund
is but a mere privilege granted by the State. A privilege is a particular and
peculiar benefit or advantage enjoyed by a person, company, or class
beyond the common advantages of other citizens. 7 Like any other privilege
or exemption, it may be withdrawn by the State on a finding that the
recipient is no longer entitled to it. There is no provision whatsoever in R.A.
No. 7742 or its Implementing Rules and Regulations that the HDMF shall
automatically renew a waiver from the Fund coverage upon an application
for renewal. The task of determining whether such application should be
granted is best discharged by the HDMF, not by the courts. Absent a
showing that the denial of petitioners application by the HDMF is tainted
by caprice, arbitrariness, or despotism, this Court will not interfere in the
exercise of its discretion.
Petitioner claims that under the original Implementing Rules and
Regulations of the HDMF, superior retirement plan and superior housing
plan were separate and alternative grounds for the waiver of the Fund
coverage. However, under the Amended Rules and Regulations, superior
retirement plan and superior housing plan are joint requirements. Since
petitioner does not have a housing plan, this is the reason why its
retirement plan was not considered superior to that of the Fund. Hence, its
application for renewal of waiver was denied. Consequently, it insists that
the HDMF exceeded its authority when it amended its original Rules and
Regulations.
The legislative power is granted pursuant to Section 1, Article VI of the
Constitution which provides:
SEC. 1. The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives,
except to the extent reserved to the people by the provision on initiative
and referendum.
The legislative power has been described generally as the power to make,
alter, and repeal laws. 8 The authority to amend, change, or modify a law is
thus part of such legislative power. It is the peculiar province of the
legislature to prescribe general rules for the government of society.
However, the legislature cannot foresee every contingency involved in a
particular problem that it seeks to address. Thus, it has become customary
for it to delegate to instrumentalities of the executive department, known
as administrative agencies, the power to make rules and regulations. This
is because statutes are generally couched in general terms which express
the policies, purposes, objectives, remedies and sanctions intended by the
legislature. The details and manner of carrying out the law are left to the
administrative agency charged with its implementation. In this sense, rules
and regulations promulgated by an administrative agency are the product
of a delegated power to create new or additional legal provisions that have
the effect of law.9 Hence, in general, rules and regulations issued by an
administrative agency, pursuant to the authority conferred upon it by law,
have the force and effect, or partake of the nature, of a statute. 10

The law delegated to the HDMF the rule-making power since this is
necessary for the proper exercise of its authority to administer the Fund.
Following the doctrine of necessary implication, this grant of express
power to formulate implementing rules and regulations must necessarily
include the power to amend, revise, alter, or repeal the same.
WHEREFORE, the petition is DISMISSED. The Decision and Resolution of
the Court of Appeals dated February 5 and July 17, 1997 in CA-G.R. SP No.
41487 are AFFIRMED IN TOTO. Costs against petitioner.

application for extension of corporate term equivalent to 1/10 of

1% of its authorized capital stock plus 20% thereof or an amount
of P1,212,200.00.
On September 26, 1995, the petitioner informed the SEC of its
intention to contest the legality and propriety of the said
assessment. However, the petitioner requested the SEC to approve
the other amendments being requested by the petitioner without
being deemed to have withdrawn its application for extension of
corporate term.

SO ORDERED.
On October 20, 1995, the petitioner formally protested the
assessment amounting to P1,212,200.00 for its application for
extension of corporate term.

G.R. No. 164026

December 23, 2008

SECURITIES
AND
EXCHANGE
vs.
GMA NETWORK, INC., respondent.

COMMISSION, petitioner,

DECISION
TINGA, J.:
Petitioner Securities and Exchange Commission (SEC) assails the
Decision1 dated February 20, 2004 of the Court of Appeals in CA-G.R. SP
No. 68163, which directed that SEC Memorandum Circular No. 1, Series of
1986 should be the basis for computing the filing fee relative to GMA
Network, Inc.s (GMAs) application for the amendment of its articles of
incorporation for purposes of extending its corporate term.
The undisputed facts as narrated by the appellate court are as follows:
On August 19, 1995, the petitioner, GMA NETWORK, INC., (GMA, for
brevity), a domestic corporation, filed an application for collective
approval of various amendments to its Articles of Incorporation and
By-Laws with the respondent Securities and Exchange Commission,
(SEC, for brevity). The amendments applied for include, among
others, the change in the corporate name of petitioner from
"Republic Broadcasting System, Inc." to "GMA Network, Inc." as
well as the extension of the corporate term for another fifty (50)
years from and after June 16, 2000.
Upon such filing, the petitioner had been assessed by the SECs
Corporate and Legal Department a separate filing fee for the

On February 20, 1996, the SEC approved the other amendments to

the petitioners Articles of Incorporation, specifically Article 1
thereof referring to the corporate name of the petitioner as well as
Article 2 thereof referring to the principal purpose for which the
petitioner was formed.
On March 19, 1996, the petitioner requested for an official
opinion/ruling from the SEC on the validity and propriety of the
assessment for application for extension of its corporate term.
Consequently,
the
respondent
SEC,
through
Associate
Commissioner Fe Eloisa C. Gloria, on April 18, 1996, issued its
ruling upholding the validity of the questioned assessment, the
dispositive portion of which states:
"In light of the foregoing, we believe that the questioned
assessment is in accordance with law. Accordingly, you are
hereby required to comply with the required filing fee."
An appeal from the aforequoted ruling of the respondent SEC was
subsequently taken by the petitioner on the ground that the
assessment of filing fees for the petitioners application for
extension of corporate term equivalent to 1/10 of 1% of the
authorized capital stock plus 20% thereof is not in accordance with
law.
On September 26, 2001, following three (3) motions for early
resolution filed by the petitioner, the respondent SEC En Banc
issued the assailed order dismissing the petitioners appeal, the
dispositive portion of which provides as follows:
WHEREFORE, for lack of merit, the instant Appeal is hereby
dismissed.

SO ORDERED.2
In its petition for review 3 with the Court of Appeals, GMA argued that its
application for the extension of its corporate term is akin to an amendment
and not to a filing of new articles of incorporation. It further averred that
SEC Memorandum Circular No. 2, Series of 1994, which the SEC used as
basis for assessing P1,212,200.00 as filing fee for the extension of GMAs
corporate term, is not valid.
The appellate court agreed with the SECs submission that an extension of
the corporate term is a grant of a fresh license for a corporation to act as a
juridical being endowed with the powers expressly bestowed by the State.
As such, it is not an ordinary amendment but is analogous to the filing of
new articles of incorporation.
However, the Court of Appeals ruled that Memorandum Circular No. 2,
Series of 1994 is legally invalid and ineffective for not having been
published in accordance with law. The challenged memorandum circular,
according to the appellate court, is not merely an internal or interpretative
rule, but affects the public in general. Hence, its publication is required for
its effectivity.
The appellate court denied reconsideration in a Resolution 4 dated June 9,
2004.
In its Memorandum5 dated September 6, 2005, the SEC argues that it
issued the questioned memorandum circular in the exercise of its
delegated legislative power to fix fees and charges. The filing fees required
by it are allegedly uniformly imposed on the transacting public and are
essential to its supervisory and regulatory functions. The fees are not a
form of penalty or sanction and, therefore, require no publication.
For its part, GMA points out in its Memorandum, 6 dated September 23,
2005, that SEC Memorandum Circular No. 1, Series of 1986 refers to the
filing fees for amended articles of incorporation where the amendment
consists of extending the term of corporate existence. The questioned
circular, on the other hand, refers only to filing fees for articles of
incorporation. Thus, GMA argues that the former circular, being the one
that specifically treats of applications for the extension of corporate term,
should apply to its case.
Assuming that Memorandum Circular No. 2, Series of 1994 is applicable,
GMA avers that the latter did not take effect and cannot be the basis for
the imposition of the fees stated therein for the reasons that it was neither
filed with the University of the Philippines Law Center nor published either
in the Official Gazette or in a newspaper of general circulation as required
under existing laws.

It should be mentioned at the outset that the authority of the SEC to collect
and receive fees as authorized by law is not in question. 7 Its power to
collect fees for examining and filing articles of incorporation and by-laws
and amendments thereto, certificates of increase or decrease of the capital
stock, among others, is recognized. Likewise established is its power under
Sec. 7 of P.D. No. 902-A to recommend to the President the revision,
alteration, amendment or adjustment of the charges which it is authorized
to collect.
The subject of the present inquiry is not the authority of the SEC to collect
and receive fees and charges, but rather the validity of its imposition on
the basis of a memorandum circular which, the Court of Appeals held, is
ineffective.
Republic Act No. 3531 (R.A. No. 3531) provides that where the amendment
consists in extending the term of corporate existence, the SEC "shall be
entitled to collect and receive for the filing of the amended articles of
incorporation the same fees collectible under existing law as the filing of
articles of incorporation."8 As is clearly the import of this law, the SEC shall
be entitled to collect and receive the same fees it assesses and collects
both for the filing of articles of incorporation and the filing of an amended
articles of incorporation for purposes of extending the term of corporate
existence.
The SEC, effectuating its mandate under the aforequoted law and other
pertinent laws,9 issued SEC Memorandum Circular No. 1, Series of 1986,
imposing the filing fee of 1/10 of 1% of the authorized capital stock but not
less thanP300.00 nor more than P100,000.00 for stock corporations, and
1/10 of 1% of the authorized capital stock but not less than P200.00 nor
more than P100,000.00 for stock corporations without par value, for the
filing of amended articles of incorporation where the amendment consists
of extending the term of corporate existence.
Several years after, the SEC issued Memorandum Circular No. 2, Series of
1994, imposing new fees and charges and deleting the maximum filing fee
set forth in SEC Circular No. 1, Series of 1986, such that the fee for the
filing of articles of incorporation became 1/10 of 1% of the authorized
capital stock plus 20% thereof but not less thanP500.00.
A reading of the two circulars readily reveals that they indeed pertain to
different matters, as GMA points out. SEC Memorandum Circular No. 1,
Series of 1986 refers to the filing fee for the amendment of articles of
incorporation to extend corporate life, while Memorandum Circular No. 2,
Series of 1994 pertains to the filing fee for articles of incorporation. Thus,
as GMA argues, the former circular, being squarely applicable and, more
importantly, being more favorable to it, should be followed.
What this proposition fails to consider, however, is the clear directive of
R.A. No. 3531 to impose the same fees for the filing of articles of

incorporation and the filing of amended articles of incorporation to reflect

an extension of corporate term. R.A. No. 3531 provides an unmistakable
standard which should guide the SEC in fixing and imposing its rates and
fees. If such mandate were the only consideration, the Court would have
been inclined to rule that the SEC was correct in imposing the filing fees as
outlined in the questioned memorandum circular, GMAs argument
notwithstanding.
However, we agree with the Court of Appeals that the questioned
memorandum circular is invalid as it does not appear from the records that
it has been published in the Official Gazette or in a newspaper of general
circulation. Executive Order No. 200, which repealed Art. 2 of the Civil
Code, provides that "laws shall take effect after fifteen days following the
completion of their publication either in the Official Gazette or in a
newspaper of general circulation in the Philippines, unless it is otherwise
provided."
In Taada v. Tuvera,10 the
requirement, held:

Court,

expounding

on

the

publication

We hold therefore that all statutes, including those of local

application and private laws, shall be published as a condition for
their effectivity, which shall begin fifteen days after publication
unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative powers
whenever the same are validly delegated by the legislature, or, at
present, directly conferred by the Constitution. Administrative rules
and regulations must also be published if their purpose is to
enforce or implement existing law pursuant also to a valid
delegation.
Interpretative regulations and those merely internal in nature, that
is, regulating only the personnel of the administrative agency and
not the public, need not be published. Neither is publication
required of the so-called letters of instructions issued by
administrative superiors concerning the rules or guidelines to be
followed by their subordinates in the performance of their duties. 11
The questioned memorandum circular, furthermore, has not been filed with
the Office of the National Administrative Register of the University of the
Philippines Law Center as required in the Administrative Code of 1987. 12

In Philsa International Placement and Services Corp. v. Secretary of Labor

and Employment,13 Memorandum Circular No. 2, Series of 1983 of the
Philippine Overseas Employment Administration, which provided for the
schedule of placement and documentation fees for private employment
agencies or authority holders, was struck down as it was not published or
filed with the National Administrative Register.
The questioned memorandum circular, it should be emphasized, cannot be
construed as simply interpretative of R.A. No. 3531. This administrative
issuance is an implementation of the mandate of R.A.
No. 3531 and indubitably regulates and affects the public at large. It
cannot, therefore, be considered a mere internal rule or regulation, nor an
interpretation of the law, but a rule which must be declared ineffective as it
was neither published nor filed with the Office of the National
Administrative Register.
A related factor which precludes consideration of the questioned issuance
as interpretative in nature merely is the fact the SECs assessment
amounting to P1,212,200.00 is exceedingly unreasonable and amounts to
an imposition. A filing fee, by legal definition, is that charged by a public
official to accept a document for processing. The fee should be just, fair,
and proportionate to the service for which the fee is being collected, in this
case, the examination and verification of the documents submitted by GMA
to warrant an extension of its corporate term.
Rate-fixing is a legislative function which concededly has been delegated
to the SEC by R.A. No. 3531 and other pertinent laws. The due process
clause, however, permits the courts to determine whether the regulation
issued by the SEC is reasonable and within the bounds of its rate-fixing
authority and to strike it down when it arbitrarily infringes on a persons
right to property.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
in CA-G.R. SP No. 68163, dated February 20, 2004, and its Resolution,
dated June 9, 2004, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.