G.R. No.

L-49705-09 February 8, 1979

TOMATIC ARATUC, SERGIO TOCAO, CISCOLARIO DIAZ, FRED TAMULA,
MANGONTAWAR GURO and BONIFACIO LEGASPI, petitioners,
vs.
The COMMISSION ON ELECTIONS, REGIONAL BOARD OF
CANVASSERS for Region XII (Central Mindanao), ABDULLAH
DIMAPORO, JESUS AMPARO, ANACLETO BADOY, et al., respondents.
Nos. L-49717-21 February 8,1979.
LINANG MANDANGAN, petitioner,
vs.
THE COMMISSION ON ELECTIONS, THE REGIONAL BOARD OF
CANVASSERS for Region XII, and ERNESTO ROLDAN, respondents.
L-49705-09 Lino M. Patajo for petitioners.
Estanislao A. Fernandez for private respondents.
L-49717-21 Estanislao A. Fernandez for petitioner.
Lino M. Patajo for private respondent.
Office of the Solicitor General, for Public respondents.
BARREDO, J.:
Petition in G. R. Nos. L-49705-09 for certiorari with restraining order and
preliminary injunction filed by six (6) independent candidates for
representatives to tile Interim Batasang Pambansa who had joined together
under the banner of the Kunsensiya ng Bayan which, however, was not
registered as a political party or group under the 1976 Election Code, P.D.
No. 1296, namely Tomatic Aratuc, Sorgio Tocao, Ciscolario Diaz, Fred Tamula,
Mangontawar Guro and Bonifacio Legaspi her referred to as petitioners, to
review the decision of the respondent Commission on Election (Comelec)
resolving their appeal from the Of the respondent Regional Board of
Canvasses for Region XII regarding the canvass of the results of the election
in said region for representatives to the I.B.P. held on April 7, 1978. Similar
petition in G.R. Nos. L49717-21, for certiorari with restraining order and
preliminary injunction filed by Linang Mandangan, abo a candidate for
representative in the same election in that region, to review the decision of
the Comelec declaring respondent Ernesto Roldan as entitled to be
proclaimed as one of the eight winners in said election.
The instant proceedings are sequels of Our decision in G.R. No. L- 48097,
wherein Tomatic Aratuc et al. sought the suspension of the canvass then
being undertaken by respondent dent Board in Cotabato city and in which
canvass, the returns in 1966 out of a total of 4,107 voting centers in the
whole region had already been canvassed showing partial results as follows:
NAMES OF CANDIDATES

1. Roldan, Ernesto (KB)

2. Valdez, Estanislao (KBL)

3. Dimporo, Abdullah (KBL)

199,244

4. Tocao, Sergio (KB)

199,062

5. Badoy, Anacleto (KBL)

198,966

6. Amparo, Jesus (KBL)

184,764

7. Pangandaman, Sambolayan (KBL)

183,646

8. Sinsuat, Datu Blah (KBL)

182,457

9. Baga, Tomas (KBL)

171,656

10. Aratuc, Tomatic (KB)

165,795

11. Mandangan, Linang(KB)

165,032

12. Diaz, Ciscolario (KB)

159,977

13. Tamalu, Fred (KB)

153,734

14. Legaspi Bonifacio (KB)

148,200

NO. OF VOTES

225,674

217,789

15. Guro, Mangontawar (KB)

139,386

16. Loma, Nemesio (KB)

107,455

17.
Macapeges,
(Independent)

Malamama

101,350

(Votes Of the independent candidates who actually were not in contention

omitted)" (Page 6, Record, L-49705-09.)
A supervening panel headed by Commissioner of Elections, Hon- Venancio S.
Duque, had conducted of the complaints of the petitioners therein of alleged
irregularities in the election records in all the voting centers in the whole
province of Lanao del Sur, the whole City of Marawi, eight (8) towns of Lanao
del Norte, namely, Baloi, Karomatan, Matungao, Munai, Nunungan, Pantao
Ragat, Tagoloan and Tangcal, seven (7) towns in Maguindanao, namely,
Barrira, Datu Piang, Dinaig, Matanog Parang, South Upi and Upi, ten (10)
towns in North Cotabato, namely, Carmen, Kabacan, Kidapwan, Magpet,
Matalam Midsayap, Pigcawayan, Pikit, Pres. Roxas and Tulonan, and eleven
(11) towns in Sultan Kudarat, namely, Bagumbayan, Columbia Don Mariano
Marcos, Esperanza, Isulan, Kalamansig, Lebak, Lutayan, Palimbang,
President Quirino and Tacurong, by reason for which, petitioners had asked
that the returns from said voting centers be excluded from the canvass.
Before the start of the hearings, the canvass was suspended but after the
supervisory panel presented its report, on May 15, 1978, the Comelec lifted
its order of suspension and directed the resumption of the canvass to be
done in Manila. This order was the one assailed in this Court. We issued a
restraining order.
After hearing the parties, the Court allowed the resumption of the canvass
but issued the following guidelines to be observed thereat:
1. That the resumption of said canvass shall be held in the Comelec main
office in Manila starting not later than June 1, 1978;
2. That in preparation therefor, respondent Commission on Elections shall
see to it that all the material election paragraph corresponding to all the
voting center involved in Election Nos. 78-8, 78-9, 78-10, 78-11 and 78-12
are taken to its main office in Manila, more particularly, the ballot boxes,
with the contents, used during the said elections, the books of voters or
records of voting and the lists or records of registered voters, on or before
May 31, 1978;
3. That as soon as the corresponding records are available, petitioners and
their counsel shall be allowed to examine the same under such security
measures as the respondent Board may determine, except the contents of
the ballot boxes which shall be opened only upon orders of either the
respondent Board or respondent Commission, after the need therefor has
become evident, the purpose of such examination being to enable
petitioners, and their counsel to expeditiously determine which of them they

would wish to be scrutinized and passed upon by the Board as supporting

their charges of election frauds and anomalies, petitioners and their counsel
being admonished in this connection, that no dilatory tactics should be in by
them and that only such records substantial objections should be offered by
them for the scrutiny by the Board;
4. That none of the election returns reffered to in the petition herein shall be
canvassed without first giving the herein petitioners ample opportunity to
make their specific objections thereto, if they have any, and to show
sufficient basis for the rejection of any of the returns, and, in this connection,
the respondent Regional Board of Canvassers should give due consideration
to the points raised in the memorandum filed by said petitioners with the
Commission on Election in the above cases dated April 26, 1978;
5. That should it appear to the board upon summary scrutiny of the records
to be offered by petitioners indication that in the voting center actually held
and/or that election returns were prepared either before the day of the
election returns or at any other time, without regard thereto or that there
has been massive substitution of voters, or that ballots and/or returns were
prepared by the same groups of persons or individuals or outside of the
voting centers, the Board should exclude the corresponding returns from the
canvass;
6. That appeals to the commission on Election of the Board may be made
only after all the returns in question in all the above, the above five cases
shall have been passed upon by the Board and, accordingly, no proclamation
made until after the Commission shall have finally resolved the appeal
without prejudice to recourse to this court, if warranted as provided by the
Code and the Constitution, giving the parties reasonable time therefor;
7. That the copies of the election returns found in the corresponding ballot
boxes shall be the one used in the canvass;
8. That the canvass shall be conducted with utmost dispatch, to the end that
a proclamation, if feasible, may be made not later than June 10, 1978; thus,
the canvass may be terminated as soon as it is evident that the possible
number of votes in the still uncanvassed returns with no longer affect the
general results of the elections here in controversy;
9. That respondent Commission shall promulgate such other directive not
inconsistent with this resolution y necessary to expedite the proceedings
herein contemplated and to accomplish the purposes herein intended. (Pp.
8-9, Record.
On June 1, 1978, upon proper motion, said guidelines were modified:
... in the sense that the ballot boxes for the voting centers just referred to
need not be taken to Manila, EXCEPT those of the particular voting centers
as to which the petitioners have the right to demand that the corresponding
ballot boxes be opened in order that the votes therein may be counted
because said ballots unlike the election returns, have not been tampered
with or substituted, which instances the results of the counting shall be
specified and made known by petitioners to the Regional Board of
Canvassers not later than June 3, 1978; it being understood, that for the
purposes of the canvass, the petitioners shall not be allowed to invoke any
objection not already alleged in or comprehend within the allegations in their
complaint in the election cases above- mentioned. (Page 8, Id.)
Thus respondent Board proceeded with the canvass, with the herein
petitioners presenting objections, most of them supported by the report of

handwriting and finger print experts who had examined the voting records
and lists of voters in 878 voting centers, out of 2,700 which they specified in
their complaints or petitions in Election Cases 78-8, 78-9, 78-10, 78-11 and
7812 in the Comelec. In regard to 501 voting centers, the records cf. which,
consisting of the voters lists and voting records were not available- and
could not be brought to Manila, petitions asked that the results therein be
completely excluded from the canvass. On July 11, 1978, respondent Board
terminated its canvass and declared the result of the voting to be as follows:
NAME OF CANDIDATE

VALDEZ, Estanislao

DIMAPORO, Abdullah

PANGANDAMAN, Sambolayan

SINSUAT, Blah

ARATUC, Tomatic

205,829

GURO, Mangontawar

190,489

DIAZ, Ciscolario

190,077

TAMULA, Fred

180,280

LEGASPI, Bonifacio

174,396

MACAPEGES, Malamana

160,271

VOTES OBTAIN

436,069

429,351

406,106

403,445
(Pp. 11-12, Record.)

AMPARO, Jesus

399,997

MANDANGAN, Linang

387,025

BAGA, Tomas

386,393

BADOY,Anacleto

374,933

ROLDAN, Ernesto

275,141

TOCAO, Sergio

239,914

Without loss of time, the petitioners brought the resolution of respondent

Board to the Comelec. Hearing was held on April 25, 1978, after which , the
case was declared submitted for decision. However, on August 30,1978, the
Comelec issued a resolution stating inter alia that :
In order to enable the Commission to decide the appeal properly :
a. It will have to go deeper into the examination of the voting records and
registration records and in the case of voting centers whose voting and
registration records which have not yet been submitted for the Commission
to decide to open the ballot boxes; and
b. To interview and get statements under oath of impartial and disinterested
persons from the area to determine whether actual voting took place on
April 7, 1978, as well as those of the military authorities in the areas affects
(Page 12). Record, L-49705-09 .)
On December 11, 1978, the Comelec required the parties "to file their
respective written comments on the reports they shall periodically receive
from the NBI-Comelec team of finger-print and signature experts within the
inextendible period of seven (7) days from their receipt thereof". According
to counsel for Aratuc, et al., "Petitioners submitted their various comments
on the report 4, the principal gist of which was that it would appear
uniformly in all the reports submitted by the Comelec-NBI experts that the
registered voters were not the ones who voted as shown by the fact that the

thumbprints appearing in Form 1 were different from the thumbprints of the

voters in Form 5. " But the Comelec denied a motion of petitioners asking
that the ballot boxes corresponding to the voting centers the record of which
are not available be opened and that a date be set when the statements of
witnesses referred to in the August 30, 1978 resolution would be taken, on
the ground that in its opinion, it was no longer necessary to proceed with
such opening of ballot boxes and taking of statements.
For his part, counsel for petitioner M in G.R. No. L-49717-21 filed with
Comelec on December 19,1978 a Memorandum. To quote from the petition:
On December 19, 1978, the KBL, through counsel, filed a Memorandum for
the Kilusang Bagong Lipunan (KBL) Candidates on the Comelec's Resolution
of December 11, 1978, a xerox copy of which is attached hereto and made a
part hereof as Annex 2, wherein they discussed the following topics: (I) Brief
History of the President Case; (II) Summary of Our Position and Submission
Before the Honorable commission; and (III) KBL's Appeal Ad Cautelam. And
the fourth topic, because of its relevance to the case now before this
Honorable Court, we hereby quote for ready reference:
IV
OUR POSITION WITH RESPECT TO THE
ESOLUTION OF THE HONORABLE
COMMISSION OF DECEMBER 11, 1978
We respectfully submit that the Resolution of this case by this Honorable
Commission should be limited to the precincts and municipalities involved in
the KB'S Petitions in Cases Nos. 78-8 to 78-12, on which evidence had been
submitted by the parties, and on which the KB submitted the reports of their
handwriting-print. Furthermore, it should be limited by the appeal of the KB.
For under the Supreme Court Resolution of May 23, 1978, original
jurisdiction was given to the Board, with appeal to this Honorable
Commission-Considerations of other matters beyond these would be, in our
humble opinion, without jurisdiction.
For the present, we beg to inform this Honorable Commission that we stand
by the reports and findings of the COMELEC/NBI experts as submitted by
them to the Regional Board of Canvassers and as confirmed by the said
Regional Board of Canvassers in its Resolution of July 11, 1978, giving the 8
KBL candidates the majorities we have already above mentioned. The Board
did more than make a summary scrutiny of the records' required by the
Supreme Court Resolution, Guideline No. 5, of May 23, 1978. Hence, if for
lack of material time we cannot file any Memorandum within the nonextendible period of seven (7) days, we would just stand by said
COMELEC/NBI experts' reports to the Regional Board, as confirmed by the
Board (subject to our appeal ad cautelam).
The COMELEC sent to the parties copies of the reports of the NBI-COMELEC
experts. For lack of material time due to the voluminous reports and number
of voting centers involved, the Christmas holidays, and our impression that
the COMELEC will exercise only its appellate jurisdiction, specially as per
resolution of this Honorable Court of May 23, 1978 (in G.R. No. L-48097), we,
the KBL, did not comment any more on said reports. (Pp. 5-6, Record, L49717-21.)
On January 13, 1979, the Comelec rendered its resolution being assailed in
these cases, declaring the final result of the canvass to be as follows:

CANDIDATES

VOTES

VALDEZ, Estanislao

319,514

DIMAPORO, Abdullah

289.751

AMPARO, Jesus

286,180

BADOY, Anacleto

285,985

BAGA, Tomas

271,473

PANGANDAMAN, Sambolayan

271,393

SINSUAT, Blah

269,905

ROLDAN, Ernesto

268,287

MANDANGAN, Linang

251,226

TACAO, Sergio

229,124

DIAZ, Ciscolario

187,986

ARATUC, Tomatic

183,316

LEGASPI, Bonifacio

178,564

TAMULA, Fred

177,270

GURO, Mangontawar

163,449

LOMA, Nemesio

129,450

(Page 14, Record, L-49705-09.)

It is alleged in the Aratuc petition that:

The Comelec committee grave abuse of dicretion, amounting to lack of
jurisdiction:
1. In not pursuing further the examination of the registration records and
voting records from the other voting centers questioned by petitioners after
it found proof of massive substitute voting in all of the voting records and
registration records examined by Comelec and NBI experts;
2. In including in the canvass returns from the voting centers whose book of
voters and voting records could not be recovered by the Commission in spite
of its repeated efforts to retrieve said records;
3. In not excluding from the canvass returns from voting centers showing a
very high percentage of voting and in not considering that high percentage
of voting, coupled with massive substitution of voters is proof of
manufacturing of election returns;
4. In denying petitioners' petition for the opening of the ballot boxes from
voting centers whose records are not available for examination to determine
whether or not there had been voting in said voting centers;
5. In not Identifying the ballot boxes that had no padlocks and especially
those that were found to be empty while they were shipped to Manila
pursuant to the directive of the Commission in compliance with the
guidelines of this Honorable Court;
6. In not excluding from the canvass returns where the results of
examination of the voting records and registration records show that the
thumbprints of the voters in CE Form 5 did not correspond to those of the
registered voters as shown in CE Form 1;
7. In giving more credence to the affidavits of chairmen and members of the
voting centers, municipal treasurers and other election officials in the voting
centers where irregularities had been committed and not giving credence to
the affidavits of watchers of petitioners;

8. In not including among those questioned before the Board by petitioners

those included among the returns questioned by them in their Memorandum
filed with the Commission on April 26, 1978, which Memorandum was
attached as Annex 'I' to their petition filed with this Honorable Court G.R. No.
L-48097 and which the Supreme Court said in its Guidelines should be
considered by the Board in the course of the canvass (Guidelines No. 4). (Pp.
15-16, Record, Id.)
On the other hand, the Mandangan petition submits that the Comelec
comitted the following errors:
1. In erroneously applying the earlier case of Diaz vs. Commission on
Elections (November 29, 1971; 42 SCRA 426), and particularly the highly
restrictive criterion that when the votes obtained by the candidates with the
highest number of votes exceed the total number of highest possible valid
votes, the COMELEC ruled to exclude from the canvass the election return
reflecting such rests, under which the COMELEC excluded 1,004 election
returns, involving around 100,000 votes, 95 % of which are for KBL
candidates, particularly the petitioner Linang Mandangan, and which rule is
so patently unfair, unjust and oppressive.
2. In not holding that the real doctrine in the Diaz Case is not the total
exclusion of election returns simply because the total number of votes
exceed the total number of highest possible valid votes, but 'even if all the
votes cast by persons Identified as registered voters were added to the
votes cast by persons who can not be definitely ascertained as registered or
not, and granting, ad arguendo, that all of them voted for respondent Daoas,
still the resulting total is much below the number of votes credited to the
latter in returns for Sagada, 'and that 'of the 2,188 ballots cast in Sagada,
nearly one-half (1,012) were cast by persons definitely Identified as not
registered therein or still more than 40 % of substitute voting which was the
rule followed in the later case of Bashier/Basman (Diaz Case, November
19,1971,42 SCRA 426,432).
3. In not applying the rule and formula in the later case of Bashier and
Basman vs. Commission on Election(February 24, 1972, 43 SCRA 238) which
was the one followed by the Regional Board of Canvassers, to wit:
In Basman vs Comelec (L-33728, Feb. 24, 1972) the Supreme Court upheld
the Supreme Court upheld the ruling of the Commission setting the standard
of 40 % excess votes to justify the exclusion of election returns. In line with
the above ruling, the Board of Canvassers may likewise set aside election
returns with 40 % substitute votes. Likewise, where excess voting occured
and the excess was such as to destroy the presumption of innocent mistake,
the returns was excluded.
(COMELEC'S Resolution, Annex I hereof, p. 22), which this Honorable Court
must have meant when its Resolution of May 23, 1978 (G.R. No. 7), it
referred to "massive substitution of voters.
4. In examining, through the NBI/COMELEC experts, the records in more than
878 voting centers examined by the KB experts and passed upon by the
Regional Board of Canvassers which was all that was within its appellate
jurisdiction is examination of more election records to make a total of 1,085
voting centers (COMELEC'S Resolution, Annex 1 hereof, p. 100), being
beyond its jurisdiction and a denial of due process as far as the KBL,
particularly the petitioner Mandangan, were concerned because they were
informed of it only on December, 1978, long after the case has been

submitted for decision in September, 1978; and the statement that the KBL
acquiesced to the same is absolutely without foundation.
5. In excluding election returns from areas where the conditions of peace
and order were allegedly unsettled or where there was a military operation
going on immediately before and during election and where the voter turn
out was high (90 % to 100 %), and where the people had been asked to
evacuate, as a ruling without jurisdiction and in violation of due process
because no evidence was at all submitted by the parties before the Regional
Board of Canvasssers. (Pp. 23-25, Record, L-47917-21.)
Now before discussing the merits of the foregoing contentions, it is
necessary to clarify first the nature and extent of the Supreme Court's power
of review in the premises. The Aratuc petition is expressly predicated on the
ground that respondent Comelec "committed grave abuse of discretion,
amounting to lack of jurisdiction" in eight specifications. On the other hand,
the Mandangan petition raises pure questions of law and jurisdiction. In
other words, both petitions invoked the Court's certiorari jurisdiction, not its
appellate authority of review.
This is as it should be. While under the Constitution of 1935, "the decisions,
orders and rulings of the Commission shall be subject to review by the
Supreme Court" (Sec. 2, first paragraph, Article X) and pursuant to the Rules
of Court, the petition for "certiorari or review" shall be on the ground that
the Commission "has decided a question of substance not theretofore
determined by the Supreme Court, or has decided it in a way not in accord
with law or the applicable decisions of the Supreme Court" (Sec. 3. Rule 43),
and such provisions refer not only to election contests but even to preproclamation proceedings, the 1973 Constitution provides somewhat
differently thus: "Any decision, order or ruling of the Commissionmay be
brought to the Supreme Court on certiorari by the aggrieved party within
thirty days from his receipt of a copy thereof" (Section 11, Article XII c), even
as it ordains that the Commission shall "be the sole judge of all contests
relating to the elections, returns and qualifications of all members of the
National Assembly and elective provincial and city official" (Section 2(2).)
Correspondingly, the ElectionCode of 1978, which is the first legislative
constructionof the pertinent constitutional provisions, makes the
Commission also the "sole judge of all pre-proclamation controversies" and
further provides that "any of its decisions, orders or rulings (in such
contoversies) shall be final and executory", just as in election contests, "the
decision of the Commission shall be final, and executory and inappealable."
(Section 193)
It is at once evident from these constitutional and statutory modifications
that there is a definite tendency to enhance and invigorate the role of the
Commission on Elections as the independent constitutinal body charged with
the safeguarding of free, peaceful and honest elections. The framers of the
new Constitution must be presumed ot have definite knowledge of what it
means to make the decisions, orders and rulings of the Commission "subject
to review by the Supreme Court". And since instead of maintaining that
provision intact, it ordained that the Commission's actuations be instead
"brought to the Supreme Court on certiorari", We cannot insist that there
was no intent to change the nature of the remedy, considering that the
limited scope of certiorari, compared to a review, is well known in remedial
law.

Withal, as already stated, the legislative construction of the modified

peritinent constitutional provision is to the effect that the actuations of the
Commission are final, executory and even inappealable. While such
construction does not exclude the general certiorari jurisdiction of the
Supreme Court which inheres in it as the final guardian of the Constitution,
particularly, of its imperious due process mandate, it correspondingly
narrows down the scope and extent of the inquiry the Court is supposed to
undertake to what is strictly the office of certiorari as distinguished from
review. We are of the considered opinion that the statutory modifications are
consistent with the apparent new constitional intent. Indeed, it is obvious
that to say that actuations of the Commission may be brought to the
Supreme Court on certiorari technically connotes something less than saying
that the same "shall be subject to review by the Supreme Court", when it
comes to the measure of the Court's reviewing authority or prerogative in
the premises.
A review includes digging into the merits and unearthing errors of judgment,
while certiorari deals exclusively with grave abuse of discretion, which may
not exist even when the decision is otherwise erroneous. certiorari implies
an indifferent disregard of the law, arbitrariness and caprice, an omission to
weight pertinent considerations, a decision arrived at without rational
deliberation. While the effecdts of an error of judgment may not differ from
that of an indiscretion, as a matter of policy, there are matters taht by their
nature ought to be left for final determination to the sound discretion of
certain officers or entities, reserving it to the Supreme Court to insure the
faithful observance of due process only in cases of patent arbitrariness.
Such, to Our mind, is the constitutional scheme relative to the Commission
on Elections. Conceived by the charter as the effective instrument to
preserve the sanctity of popular suffrage, endowed with independence and
all the needed concommittant powers, it is but proper that the Court should
accord the greatest measure of presumption of regularity to its course of
action and choice of means in performing its duties, to the end that it may
achieve its designed place in the democratic fabric of our government.
Ideally, its members should be free from all suspicions of partisan
inclinations, but the fact that actually some of them have had stints in the
arena of politics should not, unless the contrary is shown, serve as basis for
denying to its actuations the respect and consideration that the Constitution
contemplates should be accorded to it, in the same manner that the
Supreme Court itself which from time to time may have members drawn
from the political ranks or even from military is at all times deemed
insulated from every degree or form of external pressure and influence as
well as improper internal motivations that could arise from such background
or orientation.
We hold, therefore that under the existing constitution and statutory
provisions, the certiorari jurisdiction of the Court over orders, and decisions
of the Comelec is not as broad as it used to be and should be confined to
instances of grave abuse of discretion amounting to patent and substantial
denial of due process. Accordingly, it is in this light that We the opposing
contentions of the parties in this cases.
THE MANDANGAN CASE
Being more simple in Our view, We shall deal with the petition in G.R. No. L49717-21 first.

The errors assigned in this petition boil down to two main propositions,
namely, (1) that it was an error of law on the part of respondent Comelec to
have applied to the extant circumstances hereof the ruling of this Court in
Diaz vs. Comelec 42 SCRA 426 instead of that of Bashier vs. Comelec 43
SCRA 238; and (2) that respondent Comelec exceeded its jurisdiction and
denied due process to petitioner Mandangan in extending its inquiry beyond
the election records of "the 878 voting centers examined by the KB experts
and passed upon by the Regional Board of Canvassers" and in excluding
from the canvass the returns showing 90 to 100 % voting, from voting
centers where military operations were by the Army to be going on, to the
extent that said voting centers had to be transferred to the poblaciones the
same being by evidence.
Anent the first proposition, it must be made clear that the Diaz and Bashier
rulings are not mutually exclusive of each other, each being an outgrowth of
the basic rationale of statistical improbability laid down in Lagumbay vs.
Comelec and , 16 SCRA 175. Whether they be apply together or separately
or which of them be applied depends on the situation on hand. In the factual
milieu of the instant case as found by the Comelec, We see no cogent
reason, and petitioner has not shown any, why returns in voting centers
showing that the votes of the candidate obtaining highest number of votes
of the candidate obtaining the highest number of votes exceeds the highest
possible number of valid votes cast therein should not be deemed as
spurious and manufactured just because the total number of excess votes in
said voting centers were not more than 40 %. Surely, this is not the
occasion, consider the historical antecedents relative to the highly
questionable manner in which elections have been bad in the past in the
provinces herein involved, of which the Court has judicial notice as attested
by its numerous decisions in cases involving practically every such election,
of the Court to move a whit back from the standards it has enunciated in
those decisions.
In regard to the jurisdictional and due process points raised by herein
petitioner, it is of decisive importance to bear in mind that under Section
168 of the Revised Election Code of 1978, "the Commission (on Elections)
shall have direct control and supervision on over the board of canvassers"
and that relatedly, Section 175 of the same Code provides that it "shall be
the sole judge of all pre-proclamation controversies." While nominally, the
procedure of bringing to the Commission objections to the actuations of
boards of canvassers has been quite loosely referred to in certain quarters,
even by the Commission and by this Court, such as in the guidelines of May
23,1978 quoted earlier in this opinion, as an appeal, the fact of the matter is
that the authority of the Commission in reviewing such actuations does not
spring from any appellate jurisdiction conferred by any specific provision of
law, for there is none such provision anywhere in the Election Code, but from
the plenary prerogative of direct control and supervision endowed to it by
the above-quoted provisions of Section 168. And in administrative law, it is a
too well settled postulate to need any supporting citation here, that a
superior body or office having supervision and control over another may do
directly what the latter is supposed to do or ought to have done.
Consequently, anything said in Lucman vs. Dimaporo, 33 SCRA 387, cited by
petitioner, to the contrary notwithstanding, We cannot fault respondent
Comelec for its having extended its inquiry beyond that undertaken by the

Board of Canvass On the contrary, it must be stated that Comelec correctly

and commendably asserted its statutory authority born of its envisaged
constitutional duties vis-a-vis the preservation of the purity of elections and
electoral processes and p in doing what petitioner it should not have done.
Incidentally, it cannot be said that Comelec went further than even what
Aratuc et al. have asked, since said complaints had impugned from the
outset not only the returns from the 878 voting centers examined by their
experts but all those mentioned in their complaints in the election cases
filed originally with the Comelec enumerated in the opening statements
hereof, hence respondent Comelec had that much field to work on.
The same principle should apply in respect to the ruling of the Commission
regarding the voting centers affected by military operations. It took
cognizance of the fact, not considered by the board of canvass, that said
voting centers had been transferred to the poblaciones. And, if only for
purposes of pre-proclamation proceedings, We are persuaded it did not
constitute a denial of due process for the Commission to have taken into
account, without the need or presentation of evidence by the parties, a
matter so publicly notorious as the unsettled situation of peace and order in
localities in the provinces herein involved that their may perhaps be taken
judicial notice of, the same being capable of unquestionable demonstration.
(See 1, Rule 129)
In this connection, We may as well perhaps, say here as later that
regrettably We cannot, however, go along with the view, expressed in the
dissent of our respected Chief Justice, that from the fact that some of the
voting centers had been transferred to the poblaciones there is already
sufficient basis for Us to rule that the Commission should have also
subjected all the returns from the other voting centers of the some
municipalities, if not provinces, to the same degree of scrutiny as in the
former. The majority of the Court feels that had the Commission done so, it
would have fallen into the error by petitioner Mandangan about denial of due
process, for it is relatively unsafe to draw adverse conclusions as to the
exact conditions of peace and order in those other voting centers without at
list some prima facie evidence to rely on considering that there is no
allegation, much less any showing at all that the voting centers in question
are so close to those excluded by the Comelec on as to warrant the
inescapable conclusion that the relevant circumstances by the Comelec as
obtaining in the latter were Identical to those in the former.
Premises considered the petition in G.R. Nos. L-49717-21 is hereby dismiss
for lack of merit.
THE ARATUC ET AL. PETITION
Of the eight errors assigned by herein petitioners earlier adverted to, the
seventh and the sight do not require any extended disquisition. As to the
issue of whether the elections in the voting centers concerned were held on
April 7, 1978, the date designated by law, or earlier, to which the seventh
alleged error is addressed, We note that apparently petitioners are not
seriously pressing on it anymore, as evidenced by the complete absence of
any reference thereto during the oral argument of their counsel and the
practically cavalier discussion thereof in the petition. In any event, We are
satisfied from a careful review of the analysis by the Comelec in its
resolution now before Us that it took pains to consider as meticulously as the
nature of the evidence presented by both parties would permit all the

contentions of petitioners relative to the weight that should be given to such

evidence. The detailed discussion of said evidence is contained in not less
than nineteen pages (pp. 70-89) of the resolution. In these premises, We are
not prepared to hold that Comelec acted wantonly and arbitrarily in drawing
its conclusions adverse to petitioners' position. If errors there are in any of
those conclusions, they are errors of judgment which are not reviewable in
certiorari, so long as they are founded on substantial evidence.
As to eighth assigned error. the thrust of respondents, comment is that the
results in the voting centers mentioned in this assignment of error had
already been canvassed at the regional canvass center in Cotabato City.
Again, We cannot say that in sustaining the board of canvassers in this
regard, Comelec gravely abused its discretion, if only because in the
guidelines set by this Court, what appears to have been referred to is, rightly
or wrongly, the resumption only of the canvass, which does not necessarily
include the setting aside and repetition of the canvass already made in
Cotabato City.
The second and fourth assignments of error concern the voting centers the
corresponding voters' record (C.E. Form 1) and record of voting, (C.E. Form
5) of which have never been brought to Manila because they, were not
available The is not clear as to how many are these voting centers.
According to petitioners they are 501, but in the Comelec resolution in
question, the number mentioned is only 408, and this number is directly
challenged in the petition. Under the second assignment, it is contended
that the Comelec gravely abused its discretion in including in the canvass
the election returns from these voting centers and, somewhat alternatively,
it is alleged as fourth assignment that the petitioners motion for the opening
of the ballot boxes pertaining to said voting centers was arbitraly denied by
respondent Comelec.
The resolution under scrutiny explains the situation that confronted the
Commission in regard to the 408 voting centers reffered to as follows :
The Commission had the option of excluding from the canvass the election
returns under category. By deciding to exclude, the Commission would be
summarily disenfranchising the voters registered in the voting centers
affected without any basis. The Commission could also order the inclusion in
the canvass of these elections returns under the injunction of the Supreme
Court that extremes caution must be exercised in rejecting returns unless
these are palpably irregular. The Commission chose to give prima facie
validity to the election returns mentioned and uphold the votes cast by the
voters in those areas. The Commission held the view that the failure of some
election officials to comply with Commission orders(to submit the records)
should not parties to such official disobedience. In the case of Lino Luna vs.
Rodriguez, 39 Phil. 208, the Supreme Court ruled that when voters have
honestly cast their ballots, the same should not be nullified because the
officers appointed under the law to direct the election and guard the purity
of the ballot have not complied with their duty. (cited in Laurel on Elections,
p. 24)
On page 14 of the comment of the Solicitor General, however, it is stated
that:
At all events, the returns corresponding to these voting centers were
examined by the Comelec and 141 of such returns were excluded, as
follows:

SUMMARY
PROVINCE

TOTAL

EXCLUDED

INCLUDED

Lanao del Norte

30

30

Lanao del Sur

342

137

205

Maguindanao

21

20

North Cotabato

Sultan Kudarat

12

10

totals -----

412

141

271

(Page 301, Record.)

This assertion has not been denied by petitioners.
Thus, it appears that precisely use of the absence or unavailability of the CE
Forms 1 and 5 corresponding to the more than 400 voting centers concerned
in our present discussion the Comelec examined the returns from said voting
centers to determine their trustworthiness by scrutinizing the purported
relevant data appearing on their faces, believing that such was the next best
thing that could be done to avoid total disenfranchisement of the voters in
all of them On the Other hand, Petitioners' insist that the right thing to do
was to order the opening of the ballot boxes involved.
In connection with such opposing contentions, Comelec's explanation in its
resolution is:
... The commission had it seen fit to so order, could have directed the
opening of the ballot boxes. But the Commission did not see the necessity of
going to such length in a that was in nature and decided that there was
sufficient bases for the revolution of the appeal. That the Commission has
discretion to determine when the ballot boxes should be opened is implicit in
the guidelines set by the Supreme Court which states that '. . . the ballot
bones [which] shall be opened only upon orders of either the respondent
Board or respondent Commission, after the need therefor has become
evident ... ' (guideline No. 3; emphasissupplied). Furthermore, the Court on
June 1, 1978, amended the guidelines that the "ballot boxes for the voting
centers ... need not be taken to Manila EXCEPT those of the centers as to
which the petitioners have the right to demand that the corresponding ballot
boxes be opened ... provided that the voting centers concerned shall be
specified and made known by petitioners to the Regional Board of
Canvassers not later than June 3,1978 ... ' (Emphasis supplied). The KB,
candidates did not take advantage of the option granted them under these
guidelines.( Pp 106-107, Record.)
Considering that Comelec, if it had wished to do so, had the facilities to
Identify on its own the voting centers without CE Forms I and 5, thereby
precluding the need for the petitioners having to specify them, and under
the circumstances the need for opening the ballot boxes in question should
have appeared to it to be quite apparent, it may be contended that Comelec
would have done greater service to the public interest had it proceeded to
order such opening, as it had announced it had thoughts of doing in its

resolution of August 30, 1978. On the other hand, We cannot really blame
the Commission too much, since the exacting tenor of the guidelines issued
by Us left it with very little elbow room, so to speak, to use its own discretion
independently of what We had ordered. What could have saved matters
altogether would have been a timely move on the part of petitioners on or
before June 3, 1978, as contemplated in Our resolution. After all come to
think of it, that the possible outcome of the opening of the ballot boxes
would favor the petitioners was not a certainty the contents them could
conceivably boomerang against them, such as, for example, if the ballots
therein had been found to be regular and preponderantly for their
opponents. Having in mind that significantly, petitioners filed their motion
for only on January 9, 1979, practically on the eve of the promulgation of the
resolution, We hold that by having adhered to Our guidelines of June 1,
1978, Comelec certainly cannot be held to be guilty of having gravely
abused its discretion, in examining and passing on the returns from the
voting centers reffered to in the second and fourth assignments of error in
the canvass or in denying petitioners' motion for the of the ballot boxes
concerned.
The first, third and sixth assignment of involve related matters and maybe
discussed together. They all deal with the inclusion in or exclusion from the
canvass of returns on the basis of the percentage of voting in specified
voting centers and the corresponding findings of the Comelec on the extent
of substitute voting therein as indicated by the result of either the technical
examination by experts of the signatures and thumb-prints of the voters
threat.
To begin with, petitioners' complaint that the Comelec did not examine and
study 1,694 of the records in an the 2,775 voting centers questioned by
them is hardly accurate. To be more exact, the Commission excluded a total
of 1,267 returns coming under four categories namely: 1,001 under the Diaz,
supra, ruling, 79 because of 90-100 % turnout of voters despite military
operations, 105 palpably manufactured owe and 82 returns excluded by the
board of canvass on other grounds. Thus, 45.45 % of the of the petitioners
were sustained by the Comelec. In contrast, in the board of canvassers, only
453 returns were excluded. The board was reversed as to 6 of these, and
821 returns were excluded by Comelec over and above those excluded by
the board. In other words, the Comelec almost doubled the exclusions by the
board.
Petitioners would give the impression by their third assignment of error that
Comelec refused to consider high percentage of voting, coupled with mass
substitute voting, as proof that the pertinent returns had been
manufactured. That such was not the case is already shown in the above
specifications. To add more, it can be gleaned from the resolution that in t to
the 1,065 voting centers in Lanao del Sur and Marawi City where a high
percentage of voting appeared, the returns from the 867 voting centers
were excluded by the Comelec and only 198 were included a ratio of roughly
78 % to 22 %. The following tabulation drawn from the figures in the
resolution shows how the Comelec went over those returns center by center
and acted on them individually:
90% 100% VOTING
MARAWI CITY AND LANAO DEL SUR
NO. OF V/C THAT V/C WITH 90% to 100%

MUNICIPALITIES FUNCTIONED VOTING

No. of V/C

Exclude
d

Included

Marawi City

151

112

107

Bacolod Grande

28

28

27

Balabagan

53

53

49

Balindong

22

22

15

Bayang

29

20

13

Binidayan

37

33

29

Buadiposo Bunton

41

10

10

Bubong

24

23

21

Bumbaran

21 (All excluded)

Butig

35

33

32

Calanogas

23

21

21

Ditsaan-Ramain

Ganassi

Lumba Bayabao

Lumbatan

Lumbayanague

Madalum

Madamba

Maguing

Malabang

42

39

64

30

37

14

20

57

59

39

38

63

28

33

13

20

55

47

38

23

47

17

28

53

1
Piagapo

39

39

36

Poona-Bayabao

44

44

42

Pualas

23

20

20

Saguiaran

36

32

21

11

Sultan Gumander

35

31

31

Tamparan

24

21

15

Taraka

31

31

31

Tubaran

23

19

19

1,218

1,065

867

198

15

16

11

15

42
TOTALS: Marawi &

Marantao

79

63

41

22
Lanao del Sur

Marugong

37

35

32

Masiu

27

26

24

Pagayawan

15

13

We are convinced, apart from presuming regularity in the performance of its

duties, that there is enough showing in the record that it did examine and
study the returns and pertinent records corresponding to all the 2775 voting
centers subject of petitioners' complaints below. In one part of its resolution
the Comelec states:
The Commission as earlier stated examined on its own the Books of Voters
(Comelec Form No. 1) and the Voters Rewards Comelec Form No. 5) to
determine for itself which of these elections form needed further
examination by the COMELEC-NBI experts. The Commission, aware of the

nature of this pre-proclamation controversy, believes that it can decide,

using common sense and perception, whether the election forms in
controversy needed further examination by the experts based on the
presence or absence of patent signs of irregularity. (Pp. 137-138, Record.)
In the face of this categorical assertion of fact of the Commission, the bare
charge of petitioners that the records pertaining to the 1,694 voting centers
assailed by them should not create any ripple of serious doubt. As We view
this point under discussion, what is more factually accurate is that those
records complained of were not examined with the aid of experts and that
Comelec passed upon the returns concerned "using common sense and
perception only." And there is nothing basically objectionable in this. The
defunct Presidential Senate and House Electoral Tribunals examine passed
upon and voided millions of votes in several national elections without the
assistance of experts and "using" only common sense and perception". No
one ever raised any eyebrows about such procedure. Withal, what we
discern from the resolution is that Comelec preliminary screened the records
and whatever it could not properly pass upon by "using common sense and
perception" it left to the experts to work on. We might disagree with he
Comelec as to which voting center should be excluded or included, were We
to go over the same records Ourselves, but still a case of grave abuse of
discretion would not come out, considering that Comelec cannot be said to
have acted whimsically or capriciously or without any rational basis,
particularly if it is considered that in many respects and from the very nature
of our respective functions, becoming candor would dictate to Us to concede
that the Commission is in a better position to appreciate and assess the vital
circumstances closely and accurately. By and large, therefore, the first, third
and sixth assignments of error of the petitioners are not well taken.
The fifth assignment of error is in Our view moot and academic. The
Identification of the ballot boxes in defective condition, in some instances
open and allegedly empty, is at best of secondary import because, as
already discussed, the records related thereto were after all examined,
studied and passed upon. If at all, deeper inquiry into this point would be of
real value in an electoral protest.
CONCLUSION
Before closing, it may not be amiss to state here that the Court had initially
agreed to dispose of the cases in a minute resolution, without prejudice to
an extended or reasoned out opinion later, so that the Court's decision may
be known earlier. Considering, however, that no less than the Honorable
Chief Justice has expressed misgivings as to the propriety of yielding to the
conclusions of respondent Commission because in his view there are strong
considerations warranting farther meticulous inquiry of what he deems to be
earmarks of seemingly traditional faults in the manner elections are held in
the municipalities and provinces herein involved, and he is joined in this
pose by two other distinguished colleagues of Ours, the majority opted to
ask for more time to put down at least some of the important considerations
that impelled Us to see the matters in dispute the other way, just as the
minority bidded for the opportunity to record their points of view. In this
manner, all concerned will perhaps have ample basis to place their
respective reactions in proper perspective.
In this connection, the majority feels it is but meet to advert to the following
portion of the ratiocination of respondent Board of Canvassers adopted by

respondent Commission with approval in its resolution under question:

First of all this Board was guided by the legal doctrine that canvassing
boards must exercise "extreme caution" in rejecting returns and they may
do so only when the returns are palpably irregular. A conclusion that an
election return is obviously manufactured or false and consequently should
be disregarded in the canvass must be approached with extreme caution,
and only upon the most convincing proof. Any plausible explanation one
which is acceptable to a reasonable man in the light of experience and of
the probabilities of the situation, should suffice to avoid outright nullification,
with the resulting t of those who exercised their right of suffrage. (Anni vs.
Isquierdo et at L-35918, Jude 28,1974; Villavon v. Comelec L-32008, August
31,1970; Tagoranao v. Comelec 22 SCRA 978). In the absence of strong
evidence establishing the spuriousness of the return, the basis rule of their
being accorded prima facie status as bona fide reports of the results of the
count of the votes for canvassing and proclamation purposes must be
applied, without prejudice to the question being tried on the merits with the
presentation of evidence, testimonial and real in the corresponding electoral
protest. (Bashier vs. Comelec L-33692, 33699, 33728, 43 SCRA 238,
February 24, 1972). The decisive factor is that where it has been duly de ed
after investigation and examination of the voting and registration records
hat actual voting and election by the registered voters had taken place in
the questioned voting centers, the election returns cannot be disregarded
and excluded with the resting disenfranchisement of the voters, but must be
accorded prima facie status as bona fide reports of the results of the voting
for canvassing and registration purposes. Where the grievances relied upon
is the commission of irregularities and violation of the Election Law the
proper remedy is election protest. (Anni vs. Isquierdo et al. Supra). (P. 69,
Record, L-49705-09).
The writer of this opinion has taken care to personally check on the citations
to be doubly sure they were not taken out of context, considering that most,
if not all of them arose from similar situations in the very venues of the
actual milieu of the instant cases, and We are satisfied they do fit our chosen
posture. More importantly, they actually came from the pens of different
members of the Court, already retired or still with Us, distinguished by their
perspicacity and their perceptive prowess. In the context of the
constitutional and legislative intent expounded at the outset of this opinion
and evident in the modifications of the duties and responsibilities of the
Commission on Elections vis-a-vis the matters that have concerned Us
herein, particularly the elevation of the Commission as the "sole judge of
pre-proclamation controversies" as well as of all electoral contests, We find
the afore-quoted doctrines compelling as they reveal through the clouds of
existing jurisprudence the pole star by which the future should be guided in
delineating and circumscribing separate spheres of action of the Commission
as it functions in its equally important dual role just indicated bearing as
they do on the purity and sanctity of elections in this country.
In conclusion, the Court finds insufficient merit in the petition to warrant its
being given due course. Petition dismissed, without pronouncement as to
costs. Justices Fernando, Antonio and Guerrero who are presently on official
missions abroad voted for such dismissal.
Fernando, Antonio, Concepcion Jr., Santos Fernandez, and Guerrero, JJ.,
concur.

Teehankee, J. took no part.

Aquino and Abad Santos, Jr., took no part.
Separate Opinions
CASTRO, C.J., dissenting:
1
At the outset I must state that constraints of time effectively prevent me
from writing an extended dissent. Hence, this abbreviated exposition of my
views.
For a clear understanding of the issues, a summary of the essential events
relative to these cases is necessary.
On April 7, 1978, elections of representatives to the Batasang Pambansa
were held throughout the Philippines. The cases at bar concern only the
results of the elections in Region XII (Central Mindanao) which compromises
the p s Of Lanao del Sur, Lanao del Norte, Maguindanao, North Cotabato and
Sultan Kudarat, and the cities of Marawi, Iligan and Cotabato. (The entire
Region had a total of 4,107 voting center but only 3,984 were functions).
On June 11, 1978, the Region Board of Canvassers issued a resolution, Over
the objection of the Konsensiya ng Bayan (KB) candidates d all the eight
Kilusang ng Bagong Lipunan (KBL) candidates elected. Appeal was taken by
the KB candidates to the On January 13, 1979, the Comelec its questioned
resolution KBL can candidates and one KB candidate as having obtained the
first eight places, and ordering the Regional Board of Can to p the winning
candidates. The KB candidate forewith the present petition ; in due time the
respondents filed their comments.
Oral argument was had before the Court for two days, specifically on January
31 and February 1, 1979. Atty. Lino Patajo argued for and in behalf of the KB
candidates, Assemblyman Estanislao Fernandez for the KBL and the private
respondents and Solicitor General Estelito P. Mendoza for the public
respondents. The Court subjected the three counsels to intensive
interrogation. The cases were then sub. muted for decision in the afternoon
of February 1.
2
I have carefully read the entire record, more particularly the Comelec
resolution of January 13, 1979, and I must confess that until now my mind
cannot rest easy on a number of questions sharply in issue, some of which
are hereunder briefly discussed.
a. After the Comelec examined very closely the voting returns, books of
voting and voting records from 1, 116 voting centers protested by the KB
candidates, to the extent of subjecting them to detailed documentary
examination and finger print comparison by Comelec experts, and thereafter
annulled 31.84% of the votes cast, why did it refuse to proceed to subject all
the records of the remaining 1,659 voting centers protested by the KB
candidates to the same manner of close scrutiny?
b. Why did not the Comelec examine, utilizing the same meticulous method,
similar documents and records appertaining to a total of 164 voting centers
in Lanao del Sur and 19 voting centers in Lanao del Nortetwo provinces
where concededly there had been military operationsand an additional
number of voting centers in the other provinces, all of which registered a

100 % turnout of voters? The peace and order conditions in the two cities of
Iligan and Cotabato on the day of the elections were normal and yet the
total percentages of voting were only 73 % and 52 %, lively. How then can
the Comelec explained why and how in many voting centers located in areas
where there had been military operations there was a voting turnout of 100
%? Assuming that the KB candidates did not call the attention of the
Comelecalthough they actually didto the stark improbability of 100 %
vote turnout in the said places, because the peace and order conditions
were far from normal it perforce devolved on the Comelec to conduct, motu
propio, an in-depth and full-blown inquiry into this paradox. The record
shows that there was l00 % voting in the whole of each of three
municipalities, over 99 % viting in each of thirteen other municipalities, and
an average 97 % turnout in five more municipalities. Of inescapable
significance is the fact that most of these municipalities are located in the
provinces of Lanao del Sur and Lanao del Norte, the past election history of
which is replete with the perpetration of massive frauds, terrorism and
scandalous substitutions of voters.
c. Why did the Comelec deny the motion of the KB candidates for the
opening of ballot boxes Pertaining to a total of 408 voting centers the
voting record of which were not available as they had somehow mysteriously
disappeared to determine whether or not the election in each of the said
voting centers was a sham? This remedial measure was resorted to by the
Comelec in 1969 when it Order the opening of a number of ballot boxes in
the pre-proclamation contest inLucman vs. Dimaporo in order to see
whether or not there were ballots, and determine whether there had been an
actual election in each of the disputed precincts. In that case to almost 200
ballot boxes found to be without padlocks?
3
Of incalculable significance is the abscence of any statement in the Comelec
resolution that indicates that, granting that all the questions I have above
raised would be resolved in favor of the KB candidates, the election results
would not be materially altered.Upon the other hand , the KB candidates
state categorically, with benefit of extrapolation, that the election results
would be considerably changed in their favor.
4
The majority of my brethren anchor their denial of the petition on two
principal grounds, namely:
a. The issues raised by the KB candidates would be better and properly
ventilated in an election protest; and
b. No grave abuse of discretion is discernible from the actuations of the
Comelec.
Anent the first ground, it is a notorious fact in the history of Philippine
politics that an election protest not only is usually inordinately protracted
but as well entails heavy and prohibitive expenditure of time, money and
effort on the part of the protestant. More than this, should the protestant in
the end win, very little time or none at all is left for him to assume and
discharge the duties of his office. In the meantime, the person previously
proclaimed elected continues to fraudulently represent the people who had
in law and in fact duly elected someone else to represent them.
Besides, taking a broad view of the fundamental issues raised by the KB
candidates, I am of the opinion that resolution of these issues by the

Comelec would not take more than six months of conscientious laborand
surely this period is short, very short indeed, compared to the time that win
be wasted by the Comelec in deciding a formal electoral protest. Is it not
time the Supreme Court asserted its powers in order to excise completely
the Old Society pernicious evil of "grab the proclamation at all costs"?
Anent the second ground, I squarely traverse the statement that no grave
abuse of discretion can be imputed to the Comelec. The grave misgivings I
have above articulated demonstrate what to my mind constitute the size
and shape of the remissness of the Comelec. And more compelling and overriding a consideration than the overwrought technicality of "grave abuse of
discretion" is the fundamental matter of the faith of the people of Region XII
in the electoral process. There will always be the nagging question in the
minds of the voters in that Region as to the legitimacy of those who will be
proclaimed elected under the Comelec resolution should the Court refuse to
direct that body to continue the meticulous for legitimacy and truth.
5
Upon all the foregoing, it behooves the Court to remand these cases to the
Comelec, with the direction that body immediately convene and within an
unextendible period and as speedily as possible, resolve with definitiveness
all the questions I have above posed, under such unequivocal guidelines as
the Court may prescribe.
For my part, unless and until this is done, I shall continue to enter grave
doubt as to the correctness and validity of the results already reached by the
Comelec, especially when political history, placed in perspective, pointedly
reminds me of the massive frauds, terrorism and scandalous substitutions of
voters that have characterized past elections in the two Lanao provinces.
DE CASTRO, J., concuring:
The present case has afforded Us an early opportunity to examine and
define the extent of the power of judicial review as granted to the Supreme
Court over any decision, order or ruling of the Commission on Elections
under the new Constitution the pertinent provision of which reads:
Section 11. Any decision order or ruling of the on may be brought to the
Supreme Court on certiorari by the party within thirty days from his receipt
of a copy thereof XII, Constitution).
The Commission on Elections has been granted powers under the new
Constitution which, under the old Constitution, belonged either to the
legislative body(Electoral Tribunals) or the courts. This evident from the
provision of the new Constitution which reads:
(2) Be the sole judge of all contents relating to the elections, returns, and
quallifications of all Members of the National Assembly and elective
provincial and city officials. (Section 2, Article XII, Constitution).
The Commission is thus envisioned to exercise exclusive powers on all
electoral matters except the right to vote, such as the enforcement and
administration of laws relative to the conduct of elections deciding
administrative questions affecting elections, except those involving the right
to vote, but also those that heretofore have been agreed as matters for
strictly judicial inquiry, such as the hearing and disposition of election
contests, as is doubtlessly shown by the transfer thereto of the powers
previously conferred upon the Electoral Tribunal of Congress and the Courts.
(see Section 2, par. 2, Article XII, New Constitution). This change may
properly be viewed as having the intention to relieve the Courts, particularly

the Supreme Court, of those burdens placed upon them relating to the
conduct of election and matters incident thereto. It could have been,
likewise, intended to insulate judicial bodies from the baneful effects of
partisan politics, the more deleterious ones being those that could come
from the higher mats of political power, such a those in the Assembly and in
the provincial and city government levels.
It is, therefore, my view that what was intended by the new Constitution is to
limit the intervention of the Supreme Court in the acts of the Commission as
constitutional body like said Court, but with broadened powers, allocating to
it a domain as exclusive as that of the legislative body (which includes the
President or Prime Minister) on matters of lawmaking , to that of "judicial
inquiry". This power is confined to justifiable questions not of political
nature, and always involving alleged violation of constitutional rights or the
constitution itself.. For a controversy of a political character, commonly
referred to as "Political questions", is excluded from the scope of the
Supreme Courts power of judicial inquiry. 1 The exclusive character of the
Power conferred upon the Commission on Elections, and considering that
political rights, as distinguished from civil and personal Or Property rights, 2
are for the most part, if not in their totality, the subject of its authority,
should counsel an expansive intervention by the Supreme Court in the acts
of the Commission on Election. With the confernment of exclusive authority
on the electoral process upon it, the Commission may be said to have been
given hill discretionary authority, the exercise of which would give rise to a
controversy involving a political question. 3
What then is the test or criterion in de whether the Supreme Court may
exercise its power under Article XII, Section 11 of the new Constitution? It is
my humble submission that the aforecited provision is merely a reassertion
of the power of the Supreme Court as guardian of the Constitution and
protector of constitutional rights, of which, under no circumstance, could it
be deprived, if our present Constitution system is to be maintained. For it is
a power constitutionally assigned to it as the essence of the high judicial
power of the Supreme Court, for the orderly and salutary apportionment of
governmental powers among the different b of the government, as well as
the Constitution bodies created to deal more effectively with specific matters
requiring governmental actions.
Examining the instant petition, nothing reveals itself as raising more than
questions merely affecting the conduct of the election held on April 7, 1978,
much less a truly constitutional question, aside perhaps from the alegation
that the COMELEC undertook an examination of election records beyond
those examined during the pendency of the controversy before the Regional
Board of Canvassers, allegedly without notice to the petitioners, thus
intimating a violation of due process. This particular matter, however, can
easily be disposed of by citing the provision of Section 175 of the Electoral
Code of 1978 which reads:
... The Commission shall be the sole judge of all pre-proclamation
controversies and any of its decisions, orders or rulings shall be final and
executory. It may, motu proprio or upon written petition, and after due
notice and heating order the suspension of the proclamation of a candidateelect or annul any proclamation, if one has been made, on any of the
grounds mentioned in Sections 172, 173 and 174 hereof.
If the Commission has the power to suspend motu proprio the proclamation

of a candidate-elect it must have the power to conduct inquiry into the

cause for which it ordains the suspension of the proclamation such as
making its own examination of the integrity of election returns or inquiring
into any relevant matter affecting the purity of the ballot. Notice is required
by the legal provision cited, but this must be notice to the party adversely
affected, the candidate-elect whose proclamation is suspended. The action
taken by the COMELEC in e additional election documents to those
examined by the KB experts during the pendency of the controversy with
the Regional Board of Canvassers was, therefore, one of which petitioners
cannot be heard, nor have any reason, one of which petitioners cannot be
heard, nor have any reason, to complain, for it even resulted in one KB
candidate getting into the winners column. If the COMELEC stopped at a
certain point in its examination, instead of going through all those
questioned by the petitioners, evidently due to time constraint as fixed in
the guidelines, set by this Court, and the character of pre-proclamation
proceedings , it cannot be charged with abuse of discretion, much less a
grave one. it did not have to conduct the additional examination, in the first
place. The controversy which was heard and decided in the first instance, by
the Regional Board of Canvassers, with guidelines set by this Court, was
appealed to the COMELEC. The latter's appellate authority was thus limited
to a review of the decision of the Board on the basis of the evidence
presented before it, rendering its own decision on the basis of the evidence,
and no more. It incorporated the result of its own examination of additional
election returns, and found one KB as one of the candidate, a fact clearly
showing that COMELEC did examine the said documents, otherwise , the
result as previously declared by the Board of Canvassers with a clean sweep
of the KBL candidate would have remained unaltered.
Expounding more on the one circumstance inclining me to the theory that
with the enlarged power and broadened authority of the COMELEC which to
and cover virtually the entire electoral process, as exclusively as the power
of legislation is constitutionally lodged in the law-making body, what is given
to the Supreme Court as its reviewing authority over acts of the COMELEC is
no more than what it could exercise under its power of judicial inquiry with
to acts of the legislative body, which is the transfer to the COMELEC of the
powers pertaining to the Electoral Tribunals and the courts under the old
Constitution over election contests, it must not be hard to concede that with
the composition of the electoral tribunals in which six of the justices of the
Supreme Court sit in said bodies, the Supreme Court crowd no longer
exercise any reviewing authority over the acts of the said electoral tribunals
except possibly when violation of the Constitution or constitution rights are
involved. With this limited concept of this Court's authority over the defunct
electoral tribunals now applied to an equally constitutional body that the
COMELEC is that took over the function of the Election Tribunal would
hesitate to hold that Supreme Court may grant the relief as in prayed for in
the present petition.
If this is so under the law and the Constitution, it should also be upon
consideration of public policy. The last elections were called by the President
as a test or t as to how the vital reforms and changes of political and social
discipline and moral values he has instituted to evolve a new order have
affected the thinking and the attitudes of our Tribunal should be extreme
caution, if not restraint, in any act on our part that might reflect on the

success or failure of that experiment intended, at the time as a big stride in

the way back to normalization. This is specially true in the field of politics
where the ills of the Old Society has been most grave, because our elections
then as a democratic process, have tarnished the image of our country as a
representative democracy. Except on very compelling reasons then, which I
believe do not exist in the case before Us, should we make any
pronouncement that would detract on how successful the last political
exercise had been, as the first election held under the new Constitution. We
must refrain from imputing to the COMELEC which has been enlarged with
fresh mandate and a bigger trust by the Constitution failure in the
performance of its functions either by willfull neglect, official incompetence,
much less by deliberate partiality, in the first real test of its capability.
In the light of the foregoing, I vote, in concurrence with the majority, to
dismiss the petition, first, as to the matter allegedly involving a violation of
the petitioners' right of due process on the ground that there was no denial
thereof, and second, as to the other matters involving no violation of
constitutional rights, on the ground they are purely political questions, and
that in any case, no grave abuse of discretion has been committed by, much
leas is there lack or excess of jurisdiction on the part of, the Commission on
Elections.

[G.R. Nos. 95203-05 : December 18, 1990.]

192 SCRA 363
SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY REGULATORY
BOARD (ERB); MARCELO N. FERNANDO, ALEJANDRO B. AFURONG;
REX V. TANTIONGCO; and OSCAR E. ALA, in their collective official
capacities as Chairman and Members of the Board (ERB),
respectively; CATALINO MACARAIG, in his quadruple official
capacities as Executive Secretary, Chairman of Philippine National
Oil Company; Office of the Energy Affairs, and with MANUEL
ESTRELLA, in their respective official capacities as Chairman and
President of the Petron Corporation; PILIPINAS SHELL PETROLEUM
CORPORATION; with CESAR BUENAVENTURA and REY GAMBOA as
chairman and President, respectively; CALTEX PHILIPPINES with
FRANCIS ABLAN, President and Chief Executive Officer; and the
Presidents of Philippine Petroleum Dealer's Association, Caltex
Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso. of the Phil.,
Liquefied Petroleum Gas Institute of the Phils., any and all
concerned gasoline and petrol dealers or stations; and such other
persons, officials, and parties, acting for and on their behalf; or in
representation of and/or under their authority, Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.]
192 SCRA 363
OLIVER O. LOZANO, Petitioner, vs. ENERGY REGULATORY BOARD
(ERB), PILIPINAS SHELL PETROLEUM CORPORATION, CALTEX (PHIL.),
INC., and PETRON CORPORATION, Respondents.

DECISION

SARMIENTO, J.:

The petitioners pray for injunctive relief, to stop the Energy Regulatory Board
(Board hereinafter) from implementing its Order, dated September 21, 1990,
mandating a provisional increase in the prices of petroleum and petroleum
products, as follows:
PRODUCTS IN PESOS PER LITER
OPSF

Premium Gasoline 1.7700

Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas
Shell Petroleum Corporation, and Petron Corporation proferred separate
applications with the Board for permission to increase the wholesale posted
prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase temporarily such
wholesale posted prices pending further proceedings.:-cralaw
On September 21, 1990, the Board, in a joint (on three applications) Order
granted provisional relief as follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of
Executive Order No. 172, this Board hereby grants herein applicants' prayer
for provisional relief and, accordingly, authorizes said applicants a weighted
average provisional increase of ONE PESO AND FORTY-TWO CENTAVOS
(P1.42) per liter in the wholesale posted prices of their various petroleum
products enumerated below, refined and/or marketed by them locally. 3
The petitioners submit that the above Order had been issued with grave
abuse of discretion, tantamount to lack of jurisdiction, and correctible by
Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was
issued without proper notice and hearing in violation of Section 3, paragraph
(e), of Executive Order No. 172; that the Board, in decreeing an increase,
had created a new source for the Oil Price Stabilization Fund (OPSF), or
otherwise that it had levied a tax, a power vested in the legislature, and/or
that it had "re-collected", by an act of taxation, ad valorem taxes on oil
which Republic Act No. 6965 had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order
was issued without notice and hearing, and hence, without due process of
law.

The intervenor, the Trade Union of the Philippines and Allied Services
(TUPAS/FSM)-W.F.T.U., 6 argues on the other hand, that the increase cannot
be allowed since the respondents oil companies had not exhausted their
existing oil stock which they had bought at old prices and that they cannot
be allowed to charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25,
1990, in which Senator Maceda and his counsel, Atty. Alexander Padilla,
argued. The Solicitor General, on behalf of the Board, also presented his
arguments, together with Board Commissioner Rex Tantiangco. Attys.
Federico Alikpala, Jr. and Joselia Poblador represented the oil firms (Petron
and Caltex, respectively).
The parties were thereafter required to submit their memorandums after
which, the Court considered the cases submitted for resolution.
On November 20, 1990, the Court ordered these cases consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have
overlooked the provisions of Section 8 of Executive Order No. 172, which we
quote:
"SECTION 8. Authority to Grant Provisional Relief . The Board may, upon
the filing of an application, petition or complaint or at any stage thereafter
and without prior hearing, on the basis of supporting papers duly verified or
authenticated, grant provisional relief on motion of a party in the case or on
its own initiative, without prejudice to a final decision after hearing, should
the Board find that the pleadings, together with such affidavits, documents
and other evidence which may be submitted in support of the motion,
substantially support the provisional order: Provided, That the Board shall
immediately schedule and conduct a hearing thereon within thirty (30) days
thereafter, upon publication and notice to all affected parties.: nad
As the Order itself indicates, the authority for provisional increase falls within
the above provision.
There is no merit in the Senator's contention that the "applicable" provision
is Section 3, paragraph (e) of the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any
petroleum product, or when public interest so requires, it may take such
steps as it may consider necessary, including the temporary adjustment of
the levels of prices of petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956 by persons or
entities engaged in the petroleum industry of such amounts as may be
determined by the Board, which will enable the importer to recover its cost
of importation.
What must be stressed is that while under Executive Order No. 172, a
hearing is indispensable, it does not preclude the Board from ordering, ex
parte, a provisional increase, as it did here, subject to its final disposition of
whether or not: (1) to make it permanent; (2) to reduce or increase it

further; or (3) to deny the application. Section 37 paragraph (e) is akin to a

temporary restraining order or a writ of preliminary attachment issued by
the courts, which are given ex parte, and which are subject to the resolution
of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or
otherwise, operate exclusively of the other, in that the Board may resort to
one but not to both at the same time. Section 3(e) outlines the jurisdiction of
the Board and the grounds for which it may decree a price adjustment,
subject to the requirements of notice and hearing. Pending that, however, it
may order, under Section 8, an authority to increase provisionally, without
need of a hearing, subject to the final outcome of the proceeding. The
Board, of course, is not prevented from conducting a hearing on the grant of
provisional authority which is of course, the better procedure however,
it cannot be stigmatized later if it failed to conduct one. As we held in
Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent Board need not
even have conducted formal hearings in these cases prior to issuance of its
Order of 14 August 1987 granting a provisional increase of prices. The
Board, upon its own discretion and on the basis of documents and evidence
submitted by private respondents, could have issued an order granting
provisional relief immediately upon filing by private respondents of their
respective applications. In this respect, the Court considers the evidence
presented by private respondents in support of their applications i.e.,
evidence showing that importation costs of petroleum products had gone up;
that the peso had depreciated in value; and that the Oil Price Stabilization
Fund (OPSF) had by then been depleted as substantial and hence
constitutive of at least prima facie basis for issuance by the Board of a
provisional relief order granting an increase in the prices of petroleum
products. 8
We do not therefore find the challenged action of the Board to have been
done in violation of the due process clause. The petitioners may contest
however, the applications at the hearings proper.
Senator Maceda's attack on the Order in question on premises that it
constitutes an act of taxation or that it negates the effects of Republic Act
No. 6965, cannot prosper. Republic Act No. 6965 operated to lower taxes on
petroleum and petroleum products by imposing specific taxes rather than ad
valorem taxes thereon; it is, not, however, an insurance against an "oil hike",
whenever warranted, or is it a price control mechanism on petroleum and
petroleum products. The statute had possibly forestalled a larger hike, but it
operated no more.: nad
The Board Order authorizing the proceeds generated by the increase to be
deposited to the OPSF is not an act of taxation. It is authorized by
Presidential Decree No. 1956, as amended by Executive Order No. 137, as
follows:
SECTION 8. There is hereby created a Trust Account in the books of
accounts of the Ministry of Energy to be designated as Oil Price Stabilization
Fund (OPSF) for the purpose of minimizing frequent price changes brought
about by exchange rate adjustments and/or changes in world market prices

of crude oil and imported petroleum products. The Oil Price Stabilization
Fund (OPSF) may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under this Decree arising from
exchange rate adjustment, as may be determined by the Minister of Finance
in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment
the resources of the Fund through an appropriate Order that may be issued
by the Board of Energy requiring payment by persons or companies engaged
in the business of importing, manufacturing and/or marketing petroleum
products;
d) Any resulting peso cost differentials in case the actual peso costs paid by
oil companies in the importation of crude oil and petroleum products is less
than the peso costs computed using the reference foreign exchange rates as
fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased
at old rates, suffice it to say that the increase in question was not prompted
alone by the increase in world oil prices arising from tension in the Persian
Gulf. What the Court gathers from the pleadings as well as events of which it
takes judicial notice, is that: (1) as of June 30, 1990, the OPSF has incurred a
deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3)
the country's balance of payments is expected to reach $1 Billion; (4) our
trade deficit is at $2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to
replenish the OPSF as provided by Presidential Decree No. 1956, and hence,
there was no available alternative but to hike existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be
understood to be a funding designed to guarantee oil firms' profits although
as a subsidy, or a trust account, the Court has no doubt that oil firms make
money from it. As we held there, however, the OPSF was established
precisely to protect the consuming public from the erratic movement of oil
prices and to preclude oil companies from taking advantage of fluctuations
occurring every so often. As a buffer mechanism, it stabilizes domestic
prices by bringing about a uniform rate rather than leaving pricing to the
caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent,
with or without trouble in the Gulf, although trouble would have probably
aggravated it.: nad
The Court is not to be understood as having prejudged the justness of an oil
price increase amid the above premises. What the Court is saying is that it
thinks that based thereon, the Government has made out a prima facie case
to justify the provisional increase in question. Let the Court therefore make
clear that these findings are not final; the burden, however, is on the

petitioners' shoulders to demonstrate the fact that the present economic

picture does not warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention
another one impending, which the Court understands has been under
consideration by policy-makers) spells hard(er) times for the Filipino people.
The Court can not, however, debate the wisdom of policy or the logic behind
it (unless it is otherwise arbitrary), not because the Court agrees with policy,
but because the Court is not the suitable forum for debate. It is a question
best judged by the political leadership which after all, determines policy, and
ultimately, by the electorate, that stands to be better for it or worse off,
either in the short or long run.
At this point, the Court shares the indignation of the people over the
conspiracy of events and regrets its own powerlessness, if by this Decision it
has been powerless. The constitutional scheme of things has simply left it
with no choice.

majority says that "the Board Order authorizing the proceeds generated by
the increases" is "authorized by Presidential Decree No. 1456, as amended
by Executive Order No. 137" (See Decision, pp. 7-8). Assuming that such is
authorized by law, still a law, no matter how imperative, cannot prevail over
the Constitution which grants only to Congress the power to tax. And indeed,
there can be no denying the fact that when revenue is earned by the
government from the consuming public (except when only licenses are
concerned) there is an exercise of the taxing power.
I am of course aware of the dangerous economic quagmire to which our
country has been plunged by the sadism precipitating the Middle East crisis,
but certainly one error cannot be corrected by another error. Besides there
are more significant and clear-cut reasons for our economic crisis: namely,
the intentional depreciation (actually, a devaluation) of our already
demeaned currency, our unfortunate liberalization of imports, and our
slavish subservience to the dictates of the IMF.:-cralaw

In fine, we find no grave abuse of discretion committed by the respondent

Board in issuing its questioned Order.
WHEREFORE, these petitions are DISMISSED. No costs.
SO ORDERED.
Narvasa, Gutierrez, Jr ., Cruz, Gancayco, Bidin, Grio Aquino,
Medialdea and Regalado, JJ., concur.
Fernan, C.J., Melencio-Herrera and Padilla, JJ., no part.
Feliciano, J., is on leave.

Separate Opinions
PARAS, J., dissenting:
I dissent.
In fixing the oil prices complained of, the Energy Regulatory Board (ERB)
gravely abused its discretion
(1) in approving the prices without due process of law, and
(2) in exercising the taxing power in gross violation of the 1987 Constitution
which vests such power only in Congress.: nad
With respect to due process, it will be noted that it is Sec. 3(e) (and not Sec.
8) of Ex. Order No. 172 which should apply to the instant case (and therefore
a hearing is essential) 1 for it is Sec. 3(e) that refers to "the temporary
adjustment of the levels of prices of petroleum products" or instances "when
public interest so requires." Sec. 8, which is relied upon by the majority
opinion, does NOT speak of price increases. Additionally it is clear that in the
instant case, "public interest" [also mentioned in Sec. 3 (e)] necessitated a
prior hearing.
Anent the unconstitutional use of the taxing power, the decision of the

G.R. No. 1051

May 19, 1903
THE UNITED STATES, complainant-appellee,
vs.
FRED L. DORR, ET AL., defendants-appellants.
F. G. Waite for appellants.

Solicitor-General Araneta for appellee.

LADD, J.:
The defendants have been convicted upon a complaint charging them with
the offense of writing, publishing, and circulating a scurrilous libel against
the Government of the United States and the Insular Government of the
Philippine Islands. The complaint is based upon section 8 of Act No. 292 of
the Commission, which is as follows:
Every person who shall utter seditious words or speeches, write, publish, or
circulate scurrilous libels against the Government of the United States or the
Insular Government of the Philippine Islands, or which tend to disturb or
obstruct any lawful officer in executing his office, or which tend to instigate
others to cabal or meet together for unlawful purposes, or which suggest or
incite rebellious conspiracies or riots, or which tend to stir up the people
against the lawful authorities, or to disturb the peace of the community, the
safety and order of the Government, or who shall knowingly conceal such
evil practices, shall be punished by a fine not exceeding two thousand
dollars or by imprisonment not exceeding two years, or both, in the
discretion of the court.
The alleged libel was published as an editorial in the issue of the "Manila
Freedom" of April 6, 1902, under the caption of "A few hard facts."
The Attorney-General in his brief indicates the following passages of the
article as those upon which he relies to sustain the conviction:
Sidney Adamson, in a late letter in "Leslie's Weekly," has the following to say
of the action of the Civil Commission in appointing rascally natives to
important Government positions:
"It is a strong thing to say, but nevertheless true, that the Civil Commission,
through its ex-insurgent office holders, and by its continual disregard for the
records of natives obtained during the military rule of the Islands, has, in its
distribution of offices, constituted a protectorate over a set of men who
should be in jail or deported. . . . [Reference is then made to the
appointment of one Tecson as justice of the peace.] This is the kind of foolish
work that the Commission is doing all over the Islands, reinstating
insurgents and rogues and turning down the men who have during the
struggle, at the risk of their lives, aided the Americans."
xxx xxx xxx
There is no doubt but that the Filipino office holders of the Islands are in a
good many instances rascals.
xxx xxx xxx
The commission has exalted to the highest positions in the Islands Filipinos
who are alleged to be notoriously corrupt and rascally, and men of no
personal character.
xxx xxx xxx
Editor Valdez, of "Miau," made serious charges against two of the native
Commissioners charges against Trinidad H. Pardo de Tavera, which, if true,
would brand the man as a coward and a rascal, and with what result? . . .
[Reference is then made to the prosecution and conviction of Valdez for libel
"under a law which specifies that the greater the truth the greater the
libel."] Is it the desire of the people of the United States that the natives
against whom these charges have been made (which, if true, absolutely
vilify their personal characters) be permitted to retain their seats on the Civil
Commission, the executive body of the Philippine Government, without an

investigation?
xxx xxx xxx
It is a notorious fact that many branches of the Government organized by
the Civil Commission are rotten and corrupt. The fiscal system, upon which
life, liberty, and justice depends, is admitted by the Attorney-General himself
to be most unsatisfactory. It is a fact that the Philippine judiciary is far from
being what it should. Neither fiscals nor judges can be persuaded to convict
insurgents when they wish to protect them.
xxx xxx xxx
Now we hear all sorts of reports as to rottenness existing in the province [of
Tayabas], and especially the northern end of it; it is said that it is impossible
to secure the conviction of lawbreakers and outlaws by the native justices,
or a prosecution by the native fiscals.
xxx xxx xxx
The long and short of it is that Americans will not stand for an arbitrary
government, especially when evidences of carpetbagging and rumors of
graft are too thick to be pleasant.
We do not understand that it is claimed that the defendants succeeded in
establishing at the trial the truth of any of the foregoing statements. The
only question which we have considered is whether their publication
constitutes an offense under section 8 of Act No. 292, above cited.
Several allied offenses or modes of committing the same offense are defined
in that section, viz: (1) The uttering of seditious words or speeches; (2) the
writing, publishing, or circulating of scurrilous libels against the Government
of the United States or the Insular Government of the Philippine Islands; (3)
the writing, publishing, or circulating of libels which tend to disturb or
obstruct any lawful officer in executing his office; (4) or which tend to
instigate others to cabal or meet together for unlawful purposes; (5) or
which suggest or incite rebellious conspiracies or riots; (6) or which tend to
stir up the people against the lawful authorities or to disturb the peace of
the community, the safety and order of the Government; (7) knowingly
concealing such evil practices.
The complaint appears to be framed upon the theory that a writing, in order
to be punishable as a libel under this section, must be of a scurrilous nature
and directed against the Government of the United States or the Insular
Government of the Philippine Islands, and must, in addition, tend to some
one of the results enumerated in the section. The article in question is
described in the complaint as "a scurrilous libel against the Government of
the United States and the Insular Government of the Philippine Islands,
which tends to obstruct the lawful officers of the United States and the
Insular Government of the Philippine Islands in the execution of their offices,
and which tends to instigate others to cabal and meet together for unlawful
purposes, and which suggests and incites rebellious conspiracies, and which
tends to stir up the people against the lawful authorities, and which disturbs
the safety and order of the Government of the United States and the Insular
Government of the Philippine Islands." But it is "a well-settled rule in
considering indictments that where an offense may be committed in any of
several different modes, and the offense, in any particular instance, is
alleged to have been committed in two or more modes specified, it is
sufficient to prove the offense committed in any one of them, provided that
it be such as to constitute the substantive offense" (Com. vs. Kneeland, 20

Pick., Mass., 206, 215), and the defendants may, therefore, be convicted if
any one of the substantive charges into which the complaint may be
separated has been made out.
We are all, however, agreed upon the proposition that the article in question
has no appreciable tendency to "disturb or obstruct any lawful officer in
executing his office," or to "instigate" any person or class of persons "to
cabal or meet together for unlawful purposes," or to "suggest or incite
rebellious conspiracies or riots," or to "stir up the people against the lawful
authorities or to disturb the peace of the community, the safety and order of
the Government." All these various tendencies, which are described in
section 8 of Act No. 292, each one of which is made an element of a certain
form of libel, may be characterized in general terms as seditious tendencies.
This is recognized in the description of the offenses punished by this section,
which is found in the title of the act, where they are defined as the crimes of
the "seditious utterances, whether written or spoken."
Excluding from consideration the offense of publishing "scurrilous libels
against the Government of the United States or the Insular Government of
the Philippine Islands," which may conceivably stand on a somewhat
different footing, the offenses punished by this section all consist in inciting,
orally or in writing, to acts of disloyalty or disobedience to the lawfully
constituted authorities in these Islands. And while the article in question,
which is, in the main, a virulent attack against the policy of the Civil
Commission in appointing natives to office, may have had the effect of
exciting among certain classes dissatisfaction with the Commission and its
measures, we are unable to discover anything in it which can be regarded as
having a tendency to produce anything like what may be called disaffection,
or, in other words, a state of feeling incompatible with a disposition to
remain loyal to the Government and obedient to the laws. There can be no
conviction, therefore, for any of the offenses described in the section on
which the complaint is based, unless it is for the offense of publishing a
scurrilous libel against the Government of the of the United States or the
Insular Government of the Philippine Islands.
Can the article be regarded as embraced within the description of "scurrilous
libels against the Government of the United States or the Insular
Government of the Philippine Islands?" In the determination of this question
we have encountered great difficulty, by reason of the almost entire lack of
American precedents which might serve as a guide in the construction of the
law. There are, indeed, numerous English decisions, most of them of the
eighteenth century, on the subject of libelous attacks upon the
"Government, the constitution, or the law generally," attacks upon the
Houses of Parliament, the Cabinet, the Established Church, and other
governmental organisms, but these decisions are not now accessible to us,
and, if they were, they were made under such different conditions from
those which prevail at the present day, and are founded upon theories of
government so foreign to those which have inspired the legislation of which
the enactment in question forms a part, that they would probably afford but
little light in the present inquiry. In England, in the latter part of the
eighteenth century, any "written censure upon public men for their conduct
as such," as well as any written censure "upon the laws or upon the
institutions of the country," would probably have been regarded as a libel
upon the Government. (2 Stephen, History of the Criminal Law of England,

348.) This has ceased to be the law in England, and it is doubtful whether it
was ever the common law of any American State. "It is true that there are
ancient dicta to the effect that any publication tending to "possess the
people with an ill opinion of the Government" is a seditious libel ( per Holt, C.
J., in R. vs. Tuchin, 1704, 5 St. Tr., 532, and Ellenborough, C. J., in R. vs.
Cobbett, 1804, 29 How. St. Tr., 49), but no one would accept that doctrine
now. Unless the words used directly tend to foment riot or rebellion or
otherwise to disturb the peace and tranquility of the Kingdom, the utmost
latitude is allowed in the discussion of all public affairs." (11 Enc. of the Laws
of England, 450.) Judge Cooley says (Const. Lim., 528): "The English
common law rule which made libels on the constitution or the government
indictable, as it was administered by the courts, seems to us unsuited to the
condition and circumstances of the people of America, and therefore never
to have been adopted in the several States."
We find no decisions construing the Tennessee statute (Code, sec. 6663),
which is apparently the only existing American statute of a similar character
to that in question, and from which much of the phraseology of then latter
appears to have been taken, though with some essential modifications.
The important question is to determine what is meant in section 8 of Act No.
292 by the expression "the Insular Government of the Philippine Islands."
Does it mean in a general and abstract sense the existing laws and
institutions of the Islands, or does it mean the aggregate of the individuals
by whom the government of the Islands is, for the time being, administered?
Either sense would doubtless be admissible.
We understand, in modern political science, . . . by the term government,
that institution or aggregate of institutions by which an independent society
makes and carries out those rules of action which are unnecessary to enable
men to live in a social state, or which are imposed upon the people forming
that society by those who possess the power or authority of prescribing
them. Government is the aggregate of authorities which rule a society. By
"dministration, again, we understand in modern times, and especially in
more or less free countries, the aggregate of those persons in whose hands
the reins of government are for the time being (the chief ministers or heads
of departments)." (Bouvier, Law Dictionary, 891.) But the writer adds that
the terms "government" and "administration" are not always used in their
strictness, and that "government" is often used for "administration."
In the act of Congress of July 14, 1798, commonly known as the "Sedition
Act," it is made an offense to "write, print, utter, or published," or to
"knowingly and willingly assist or aid in writing, printing, uttering, or
publishing any false, scandalous, and malicious writing or writings against
the Government of the United States, or either House of the Congress of the
United States, or the President of the United States, with intent to defame
the said Government, or either House of the said Congress, or the said
President, or to bring them, or either of them, into contempt or disrepute, or
to excite against them or either or any of them the hatred of the good
people of the United States," etc. The term "government" would appear to
be used here in the abstract sense of the existing political system, as
distinguished from the concrete organisms of the Government the Houses
of Congress and the Executive which are also specially mentioned.
Upon the whole, we are of the opinion that this is the sense in which the
term is used in the enactment under consideration.

It may be said that there can be no such thing as a scurrilous libel, or any
sort of a libel, upon an abstraction like the Government in the sense of the
laws and institutions of a country, but we think an answer to this suggestion
is that the expression "scurrilous libel" is not used in section 8 of Act No. 292
in the sense in which it is used in the general libel law (Act No. 277) that
is, in the sense of written defamation of individuals but in the wider
sense, in which it is applied in the common law to blasphemous, obscene, or
seditious publications in which there may be no element of defamation
whatever. "The word 'libel' as popularly used, seems to mean only
defamatory words; but words written, if obscene, blasphemous, or seditious,
are technically called libels, and the publication of them is, by the law of
England, an indictable offense." (Bradlaugh vs. The Queen, 3 Q. B. D., 607,
627, per Bramwell L. J. See Com. vs. Kneeland, 20 Pick., 206, 211.)
While libels upon forms of government, unconnected with defamation of
individuals, must in the nature of things be of uncommon occurrence, the
offense is by no means an imaginary one. An instance of a prosecution for
an offense essentially of this nature is Republica vs. Dennie, 4 Yeates (Pa.),
267, where the defendant was indicted "as a factious and seditious person
of a wicked mind and unquiet and turbulent disposition and conversation,
seditiously, maliciously, and willfully intending, as much as in him lay, to
bring into contempt and hatred the independence of the United States, the
constitution of this Commonwealth and of the United States, to excite
popular discontent and dissatisfaction against the scheme of polity
instituted, and upon trial in the said United States and in the said
Commonwealth, to molest, disturb, and destroy the peace and tranquility of
the said United States and of the said Commonwealth, to condemn the
principles of the Revolution, and revile, depreciate, and scandalize the
characters of the Revolutionary patriots and statesmen, to endanger,
subvert, and totally destroy the republican constitutions and free
governments of the said United States and this Commonwealth, to involve
the said United States and this Commonwealth in civil war, desolation, and
anarchy, and to procure by art and force a radical change and alteration in
the principles and forms of the said constitutions and governments, without
the free will, wish, and concurrence of the people of the said United States
and this Commonwealth, respectively," the charge being that "to fulfill,
perfect, and bring to effect his wicked, seditious, and detestable intentions
aforesaid he . . . falsely, maliciously, factiously, and seditiously did make,
compose, write, and publish the following libel, to wit; 'A democracy is
scarcely tolerable at any period of national history. Its omens are always
sinister and its powers are unpropitious. With all the lights or experience
blazing before our eyes, it is impossible not to discover the futility of this
form of government. It was weak and wicked at Athens, it was bad in Sparta,
and worse in Rome. It has been tried in France and terminated in despotism.
it was tried in England and rejected with the utmost loathing and
abhorrence. It is on its trial here and its issue will be civil war, desolation,
and anarchy. No wise man but discerns its imperfections; no good man but
shudders at its miseries; no honest man but proclaims its fraud, and no
brave man but draws his sword against its force. The institution of a scheme
of polity so radically contemptible and vicious is a memorable example of
what the villainy of some men can devise, the folly of others receive, and
both establish, in despite of reason, reflection, and sensation.'"

An attack upon the lawfully established system of civil government in the

Philippine Islands, like that which Dennie was accused of making upon the
republican form of government lawfully established in the United States and
in the State of Pennsylvania would, we think, if couched in scandalous
language, constitute the precise offense described in section 8 of Act No.
292 as a scurrilous libel against the Insular Government of the Philippine
Islands.
Defamation of individuals, whether holding official positions or not, and
whether directed to their public conduct or to their private life, may always
be adequately punished under the general libel law. Defamation of the Civil
Commission as an aggregation, it being "a body of persons definite and
small enough for its individual members to be recognized as such" (Stephen,
Digest of the Criminal Law, art. 277), as well as defamation of any of the
individual members of the Commission or of the Civil Governor, either in his
public capacity or as a private individual, may be so punished. The general
libel law enacted by the Commission was in force when Act No. 292, was
passed. There was no occasion for any further legislation on the subject of
libels against the individuals by whom the Insular Government is
administered against the Insular Government in the sense of the
aggregate of such individuals. There was occasion for stringent legislation
against seditious words or libels, and that is the main if not the sole purpose
of the section under consideration. It is not unreasonable to suppose that
the Commission, in enacting this section, may have conceived of attacks of
a malignant or scurrilous nature upon the existing political system of the
United States, or the political system established in these Islands by the
authority of the United States, as necessarily of a seditious tendency, but it
is not so reasonable to suppose that they conceived of attacks upon the
personnel of the government as necessarily tending to sedition. Had this
been their view it seems probable that they would, like the framers of the
Sedition Act of 1798, have expressly and specifically mentioned the various
public officials and collegiate governmental bodies defamation of which they
meant to punish as sedition.
The article in question contains no attack upon the governmental system of
the United States, and it is quite apparent that, though grossly abusive as
respects both the Commission as a body and some of its individual
members, it contains no attack upon the governmental system by which the
authority of the United States is enforced in these Islands. The form of
government by a Civil Commission and a Civil Governor is not assailed. It is
the character of the men who are intrusted with the administration of the
government that the writer is seeking to bring into disrepute by impugning
the purity of their motives, their public integrity, and their private morals,
and the wisdom of their policy. The publication of the article, therefore, no
seditious tendency being apparent, constitutes no offense under Act No.
292, section 8.
The judgment of conviction is reversed and the defendants are acquitted,
with costs de oficio.
Arellano, C.J. Torres, Willard and Mapa, JJ., concur.

114 U.S. 270

I

U.S. Supreme Court

Poindexter v. Greenhow, 114 U.S. 270 (1885)
Poindexter v. Greenhow
Argued March 20, 23-25
Decided April 20, 1885

N ERROR TO THE HUSTINGS COURT OF THECITY OF RICHMOND, STATE OF

VIRGINIA
Syllabus
In an action of detinue for personal property distrained by the defendant for
delinquent taxes in payment of which the plaintiff had duly tendered
coupons cut from bonds issued by the State of Virginia under the Funding
Act of March 30, 1871,
Held:
1. That, by the terms of that act and the issue of bonds and coupons in
virtue of the same, a contract was made between every coupon holder and
the state that such coupons should "be receivable at and after maturity for
all taxes, debts, dues, and demands due the state," the right of the coupon
holder under which was to have his coupons received for taxes when
offered, and that any act of the state which forbids the receipt of these
coupons for taxes is a violation of the contract, and void as against coupon
holders.
2. The faculty of being receivable in payment of taxes was of the essence of
the right. It constituted a self-executing remedy in the hands of a taxpayer,
and it became thereby the legal duty of every tax collector to receive such
coupons in payment of taxes upon an equal footing and with equal effect, as
though they were money; after a tender of such coupons duly made for that
purpose, the situation and rights of the taxpayer and coupon holder were
precisely what they would have been if he had made a like tender in money.
3. It is well settled by many decisions of this Court that, for the purpose of
affecting proceedings to enforce the payment of taxes, a lawful tender of
payment is equivalent to actual payment, either being sufficient to deprive
the collecting officer of all authority for further action, and making every
subsequent step illegal and void.
4. The coupons in question are not "bills of credit" in the sense of the
Constitution, which forbids the states to "emit bills of credit," because,
although issued by the Virginia on its credit and made receivable in payment
of taxes, and negotiable so as to pass from hand to hand by delivery merely,
they were not intended to circulate as money between individuals and
between government and individuals for the ordinary purposes of society.
5. An action or suit brought by a taxpayer, who has duly tendered such
coupons in payment of his taxes, against the person who, under color of
office as tax collector, and acting in the enforcement of a void law, passed
by the legislature of the state, having refused such tender of coupons,
proceeds by seizure and sale of the property of the plaintiff, to enforce the
collection
Page 114 U. S. 271
of such taxes, is an action or suit against him personally as a wrongdoer,
and not against the state, within the meaning of the Eleventh Amendment to
the Constitution of the United States.
6. Such a defendant, sued as a wrongdoer, who seeks to substitute the state
in his place, or to justify by the authority of the state, or to defend on the

ground that the state has adopted his act and exonerated him, cannot rest
on the bare assertion of his defense, but is bound to establish it, and, as the
state is a political corporate body which can act only through agents and
command only by laws in order to complete his defense, he must produce a
valid law of the state, which constitutes his commission as its agent, and a
warrant for his act.
7. The act of the General Assembly of Virginia of January 26, 1882, "to
provide for the more efficient collection of the revenue to support
government, maintain the public schools, and to pay interest on the public
debt," requiring tax collectors to receive in discharge of the taxes, license
taxes, and other dues gold, silver, United States Treasury notes, national
bank currency, and nothing else, and thereby forbidding the receipt of
coupons issued under the Act of March 30, 1871, in payment therefor,
although it is a legislative act of the government of Virginia, is not a law of
the Virginia, because it impairs the obligation of its contract, and is annulled
by the Constitution of the United States.
8. The state has passed no such law, for it cannot, and what it cannot do, in
contemplation of law, it has not done. The Constitution of the United States,
and its own contract, both irrepealable by any act on its part, are the law of
Virginia, and that law made it the duty o4 the defendant to receive the
coupons tendered in payment of taxes, and declared every step to enforce
the tax thereafter taken to be without warrant of law, and therefore a wrong.
This strips the defendant of his official character, and convicts him of a
personal violation of the plaintiff's rights, for which he must personally
answer.
9. It is no objection to the remedy in such cases that the statute the
application of which in the particular case is sought to be prevented is not
void on its face, but is complained of only because its operation in the
particular instance works a violation of a constitutional right, for the cases
are numerous where the tax laws of a state, which in their general and
proper application are perfectly valid, have been held to become void in
particular cases either as unconstitutional regulations of commerce, or as
violations of contracts prohibited by the Constitution, or because in some
other way they operate to deprive the party complaining of a right secured
to him by the Constitution of the United States.
10. In cases of detinue, the action is purely defensive on the part of the
plaintiff. Its object is merely to resist an attempted wrong and to restore the
status in quo as it was when the right to be vindicated was invaded. It is
analogous to the preventive remedy of injunction in equity when that
jurisdiction is invoked, of which frequent examples occur in cases to prevent
the illegal taxation of national banks by state authorities.
11. The suit authorized by the act of the General Assembly of Virginia of
January
Page 114 U. S. 272
26, 1882, against the collector of taxes refusing to accept a tender of
coupons, to recover back the amount paid under protest, is no remedy at all
for the breach of the contract, which required him to receive the coupons in
payment. The taxpayer and coupon holder has a right to say he will not pay
the amount a second time, and, insisting upon his tender as equivalent to
payment, to resist the further exaction and treat as a wrongdoer the officer
who seizes his property to enforce it.

12. Neither can it be considered an adequate remedy, in view of the

supposed necessity for summary proceedings in matters of revenue and the
convenience of the state, which requires that the prompt collection of taxes
should not be hindered or embarrassed, for the revenue system must yield
to the contract which the state has lawfully made, and the obligation of
which, by the Constitution, it is forbidden to impair.
13. The right to pay in coupons cannot be treated as a mere right of setoff,
which is part of the remedy merely, when given by the general law, and
therefore subject to modification or repeal, because the law which gave it is
also a contract, and therefore cannot be changed without mutual consent.
14. The acts of the General Assembly of Virginia of January 28, 1882, and
the amendatory Act of March 13, 1884, are unconstitutional and void
because they impair the obligation of the contract of the state with the
coupon holder under the Act of March 30, 1871, and that being the main
object of the two acts, the vice which invalidates them pervades them
throughout and in all their provisions. It is not practicable to separate those
parts which repeal and abolish the actions of trespass and trespass on the
case and other particular forms of action as remedies for the taxpayer who
has tendered his coupons in payment of taxes from the main object of the
acts which that prohibition was intended to effectuate, and it follows that the
whole of these and similar statutes must be declared to be unconstitutional,
null and void. It also follows that these statutes cannot be regarded in the
courts of the United States as laws of the state, to be obeyed as rules of
decision in trials at common law, under 721 Rev.Stat. nor as regulating the
practice of those courts under 914 Rev.Stat.
16. The present case is not covered by the decision in Antoni v. Greenhow,
107 U. S. 789, the points now involved being expressly reserved in the
judgment in that case.
Page 114 U. S. 273
MR. JUSTICE MATTHEWS delivered the opinion of the Court.
The plaintiff in error, who was also plaintiff below, brought his action in
detinue on the 26th day of April, 1883, against Samuel C. Greenhow, for the
recovery of specific personal property, to-wit, one office desk of the value of
$30, before a police justice in the City of Richmond, who dismissed the same
for want of Jurisdiction. An appeal was taken by the plaintiff to the Hustings
Court for the City of Richmond, where the facts were found by agreement of
parties to be as follows:
That the plaintiff was a resident of the City of Richmond, in the State of
Virginia; that he owed to the State of Virginia, for taxes on property owned
by him in said city for the year 1882, $12.45, which said taxes were due and
leviable for, under the laws of Virginia, on the first day of December, 1882;
that the defendant, Samuel C. Greenhow, was the Treasurer of the City of
Richmond, and as such is charged by law with the duty of collecting taxes
due to the State of Virginia by all residents of said city; that on the 25th day
of April, 1883, the defendant, as such treasurer and collector of taxes, made
upon the plaintiff demand for the payment of the taxes due by him to the
state as aforesaid; that the plaintiff, when demand was so made for
payment of his taxes, tendered to the defendant in payment thereof fortyfive cents in lawful money of the United States, and coupons issued by the
State of Virginia under the provisions of the act of the General Assembly of
that State of March 30, 1871, entitled "An act to provide for the funding and

payment of the public debt;" that said coupons so tendered by plaintiff were
all due and past maturity, and amounted in the aggregate to twelve dollars,
and were all cut from bonds issued by the said State of Virginia under the
provisions of the said Act of March 30, 1871; that the said coupons and
money so tendered by the plaintiff amounted together to exactly the sum so
due the state by the plaintiff for taxes; that the defendant refused to receive
the said coupons and money so tendered in payment of the plaintiff's taxes;
that the defendant, after said tender was made, as he deemed himself
required to do by the acts of assembly of Virginia, entered the plaintiff's
place of business in said city
Page 114 U. S. 274
and levied upon and took possession of the desk, the property of the plaintiff
now sued for, for the purpose of selling the same to pay the taxes due from
him, and that the said desk is of the value of thirty dollars, and still remains
in possession of the defendant for the purpose aforesaid, he having refused
to return the same to the plaintiff on demand.
The hustings court was of the opinion that the police justice erred in
deciding that he had no jurisdiction, and that the issue in the action might
have been tried by him, and that it should be tried by that court on the
appeal, but it was also of the opinion that in tendering to the defendant, as
part of the tender in payment of the plaintiff's taxes, the coupons mentioned
and described, the plaintiff did not tender what the law required, nor what
the defendant was, as treasurer, obliged to or should have received in
payment of the plaintiff's taxes under the provisions of the Act of the
General Assembly of Virginia, approved January 26, 1882, entitled "An act to
provide for the more efficient collection of the revenue to support
government, maintain the public schools, and to pay interest on the public
debt;" that the plaintiff's remedy for the failure of the defendant, as
treasurer, to receive coupons in payment of taxes, was to be found in the
provisions of said Act of January 26, 1882, and that therefore the defendant
does not unlawfully or wrongfully detain the plaintiff's property levied on by
the defendant, as treasurer of the City of Richmond, for the plaintiff's taxes,
and judgment was accordingly rendered for the defendant.
It appears from the record that there was drawn in question the validity of
the said Act of the General Assembly of Virginia approved January 26, 1882,
and of the eighteenth section of the act of the General Assembly of the State
of Virginia, approved April 1, 1879, which authorizes the collection of
delinquent taxes by distraint of personal property, upon the ground that
these acts are repugnant to Section 10 of Article I of the Constitution of the
United States, which declares that no state shall pass any law impairing the
obligation of contracts, the judgment of the court being in favor of the
validity of said acts and against the rights claimed by the plaintiff under the
Page 114 U. S. 275
Constitution of the United States. The hustings court is the highest court of
the state to which the said cause could be taken.
The Act of January 26, 1882, the validity of which is thus questioned, is as
follows:
"Be it enacted by the General Assembly of the State of Virginia that the
several tax collectors of this commonwealth shall receive, in discharge of the
taxes, license taxes, and other dues, gold, silver, United States Treasury
notes, national bank currency, and nothing else, provided that in all cases in

which an officer charged by law with the collection of revenue due the state,
shall take any steps for the collection of same, claimed to be due from any
citizen or taxpayer, such person against whom such step is taken, if he
conceives the same to be unjust or illegal or against any statute, or to be
unconstitutional, may pay the same under protest, and under such payment
the officer collecting the same shall pay such revenue into the state
Treasury, giving notice at the time of such payment to the treasurer that the
same was paid under protest. The person so paying such revenue may at
any time within thirty days after making such payment, and not longer
thereafter, sue the said officer so collecting such revenue in the court having
jurisdiction of the parties and amounts."
"If it be determined that the same was wrongfully collected, for any reason
going to the merits of the same, then the court trying the case may certify of
record that the same was wrongfully paid and ought to be refunded and
thereupon the auditor of public accounts shall issue his proper warrant for
the same, which shall be paid in preference to other claims on the treasury
except such as have priority by constitutional requirement."
"There shall be no other remedy in any case of the collection of revenue or
the attempt to collect revenues illegally or the attempt to collect revenue in
funds only receivable by said officers under this law, the same being other
and different funds than the taxpayer may tender or claim the right to pay,
than such as are herein provided, and no writ for the prevention of any
revenue claim or to hinder or delay the collection
Page 114 U. S. 276
of the same, shall in any wise issue, either injunction, supersedeas,
mandamus, prohibition, or any other writ or process whatever; but in all
cases, if for any reason any person shall claim that the revenue so collected
of him was wrongfully or illegally collected, the remedy for such person shall
be as above provided, and in no other manner. In all such cases, if the court
certify of record that the officer defendant acted in good faith and diligently
defended the action, the necessary costs incurred by him shall be taxed to
and paid by the state, as in criminal cases. The commonwealth attorney for
the county or corporation in which suit is brought shall appear and represent
the defense. In every case where judgment is rendered for the defendant, a
fee of five dollars shall be taxed in favor of said attorney and against the
plaintiff, and whenever the court shall refuse to certify the good faith and
diligence of the officer defending the case, a like fee of five dollars shall be
taxed against said officer. Any officer charged with the collection of revenue
who shall receive payment thereof in anything other than that hereinbefore
provided shall be deemed guilty of a misdemeanor and fined not less than
one hundred nor more than five hundred dollars, in the discretion of the
court, but nothing herein contained shall be construed to subject any officer
of the state to any suit, other than as hereinbefore provided, for any refusal
on his part to accept in payment of revenue due the state any kind or
description of funds, security, or paper not authorized by this act."
"2. This act shall be in force from and after the first day of December,
eighteen hundred and eighty-two."
18 of the Act of April 1, 1879, Acts 1878-79, p. 318, so far as material, is
that
"It shall be the duty of the treasurer, after the first day of December, to call
upon each person chargeable with taxes and levies, who has not paid the

same prior to that time, or upon the agent of such person resident within the
county or corporation, and, upon failure or refusal of such person or agent to
pay the same, he shall proceed to collect by distress or otherwise."
Goods and chattels distrained by an officer, by provisions of other statutes
then in force, were required to be sold at public sale after due notice, as
prescribed.
Page 114 U. S. 277
The Act of January 26, 1882, was amended by an act which was passed and
took effect March 13, 1884, by the addition of the following sections:
" 2. Whenever any papers, purporting to be coupons cut from bonds of this
state shall be tendered to the collecting officer in payment of any taxes due
to the state by any party desiring to bring a suit under this statute, it shall
be the duty of the collecting officer to place the coupons so tendered in an
envelope, to seal the said envelope, write his name across the seal thereof,
endorse it with the numbers of the coupons enclosed, and return it to the
taxpayer. Upon the trial of any proceeding under this act, the said coupons,
enclosed in the said envelope so sealed and endorsed, must be produced in
evidence to prove the tender. If the court shall certify that the money paid
under protest ought to be refunded, the said coupons shall be delivered to
the auditor of public accounts, to be cancelled simultaneously with the issue
of his warrant."
" 3. No action of trespass or trespass on the case shall be brought or
maintained against any collecting officer for levying upon the property of
any taxpayer who may have tendered in payment, in whole or in part, any
coupon, or paper purporting to be a coupon, cut from bonds of this state for
such taxes, and who shall refuse to pay his taxes in gold, silver, United
States Treasury notes, or national banknotes. The suit contemplated by this
act shall be commenced by a petition filed at rules, upon which a summons
shall be issued to the collecting officer, and the said suit shall be regularly
matured like other actions at law, and the coupons tendered shall be filed
with said petition."
The contract which the plaintiff in error alleges has been violated is with the
State of Virginia, and is contained in the Act of March 30, 1871, known as
the "Funding Act," entitled "An act to provide for the funding and payment of
the public debt," and in the bonds and coupons issued under its authority. It
provided for the funding of two-thirds of the existing state debt, and of twothirds of the interest accrued thereon to July 1, 1871, in new six percent
bonds, to run thirty-four years, the bonds, coupon or registered, payable to
Page 114 U. S. 278
order or bearer, and the coupons to bearer, and declared that the coupons
should be payable semiannually, and "be receivable at and after maturity for
all taxes, debts, dues, and demands due the state," and that this should be
expressed on their face. For the remaining one-third, certificates were to be
issued to the creditors to hold as claims against the State of West Virginia,
that being assumed as her just proportion of the entire debt. "Under this
act," it was said by this Court, in Hartman v. Greenhow, 102 U. S. 672, 102
U. S. 679,
"a large number of the creditors of the state, holding bonds amounting,
including interest thereon, to about thirty millions of dollars, surrendered
them and took new bonds with interest coupons annexed for two-thirds of
their amount, and certificates for the balance. A contract was thus

consummated between the state and the holders of the new bonds and the
holders of the coupons, from the obligation of which she could not, without
their consent, release herself by any subsequent legislation. She thus bound
herself not only to pay the bonds when they became due, but to receive the
interest coupons from the bearer at and after their maturity, to their full
amount, for any taxes or dues by him to the state. This receivability of the
coupons for such taxes and dues was written on their face, and
accompanied them in whatever hands they passed. It constituted their chief
value, and was the main consideration offered to the holders of the old
bonds to surrender them and accept new bonds for two-thirds of their
amount."
The same view had been taken by the Supreme Court of Appeals of Virginia
in the cases of Antoni v. Wright, 22 Grattan 833; Wise v. Rogers, 24 Grattan
169, and Clarke v. Tyler, 30 Grattan 134, in the last of which cases it was
declared to be the settled law of the state. It was repeated by this Court in
Antoni v. Greenhow, 107 U. S. 769, where it was said, p. 107 U. S. 775: "The
right of the coupon holder is to have his coupon received for taxes when
offered," and p. 107 U. S. 771, "any act of the state which forbids the receipt
of these coupons for taxes is a violation of the contract, and void as against
coupon holders." Upon these propositions there was an entire agreement
between the majority and minority of the Court in that case.
Page 114 U. S. 279
The nature and value of this contract right to the coupon holder deserve to
be further explained. It was evidently a part of the consideration on which
the creditors of the state were induced to accept, under the Act of March 30,
1871, from the State of Virginia, new obligations for two-thirds of their claim,
in exchange for the surrender of the original bonds. The latter depended for
their payment, as to both principle and interest, upon the continued good
faith of the state in making, from time to time, necessary appropriations out
of the public treasury to meet its recurring liabilities by positive legislation to
that effect. In case of default, there was no remedy by legal process. The
state itself could not be sued. Its bare promises to pay had no sanction but
the public sense of duty to the public creditors. The only security for their
performance was the public faith.
But immediately on the passage of the Act of March 30, 1871, and
thereafter, occasional or continued default in the payment of interest on the
bonds issued in pursuance of its provisions by reason of failures to provide
by laws necessary appropriations for its payment was met, if not obviated,
by a self-executing remedy lodged by the law in the hands of the creditor
himself. For from that time it became the legal duty of every tax collector to
receive coupons from these bonds, offered for that purpose by taxpayers in
payment of taxes upon an equal footing at an equal value and with equal
effect as though they were gold or silver or legal tender treasury notes. They
were by that act reduced in effect into money, and as between the state and
its taxpayers, were a legal tender as money. And, being not only a law but a
contract, it became, by force of the Constitution of the United States,
irrepealable, and therefore is today what it was when first enacted -- the
unchangeable law of Virginia. After a tender of such coupons by a taxpayer
in payment of taxes and a refusal by a tax collector to receive them, the
situation and rights of the taxpayer and coupon holder were precisely what
they would have been if he had made a like tender in gold coin and it had

been refused. What they would be we shall have occasion presently to

inquire. In the meantime, it is clear that the contract
Page 114 U. S. 280
obligation embodied in the quality imparted by law to these coupons, of
being receivable in payment of taxes, is a distinct, collateral, and real
security, placed in the hands of the creditor, intended to enable him to
collect them without process of law. As long as the annual taxes of the state
are sufficient in amount to absorb all coupons that are overdue and unpaid,
a certain market is created for them which will maintain them at or near
their par value. In the hands of the taxpayer who buys them for tender, they
are practically no longer choses in action, but equal in value and quality to
money, and equivalent to receipts for taxes already paid.
At the time of the passage of the Act of March 30, 1871, there existed a
remedy by mandamus, in case a tax collector refused to receive the
coupons, issued under that act tendered in payment of taxes, to compel him
specifically to do so. The case of Hartman v. Greenhow, 102 U. S. 672, was
one in which that relief was administered, and in Antoni v. Greenhow,107 U.
S. 769, it is stated to have been the settled practice of the Supreme Court of
Appeals of Virginia to entertain suits for similar relief. By an Act of January
14, 1882, the General Assembly of that state modified the proceedings in
mandamus is such cases so as to require the taxpayer first to pay his taxes
in money, and then the coupons gendered having, in another proceeding,
been determined to be genuine, he was entitled to a judgment upon the
mandamus, requiring them to be received in payment of the taxes, and the
money previously paid refunded. The validity of this act became the
question in Antoni v. Greenhow, ubi supra, and it was affirmed on the ground
that, for the purpose of specifically enforcing the right to have the coupons
received in payment of taxes, the new remedy was substantially equivalent
to the old one. The Court was not willing to decide that it was a suit against
the state in which the mode of proceeding could be modified, or the remedy
taken away altogether at the pleasure of the state. And it affirmed the right
of the coupon holder to have his coupon received for taxes when offered.
"The question here," said the Court, "is not as to that right, but as to the
remedy the holder has for its enforcement when denied." "The question,"
Page 114 U. S. 281
said THE CHIEF JUSTICE, delivering the opinion of the Court,
"we are now to consider is not whether, if the coupon tendered is in fact
genuine and such as ought under the contract to be received, and the
tender is kept good, the treasurer can proceed to collect the tax by distraint,
or such other process as the law allows, without making himself personally
responsible for any trespass he may commit, but whether the act of 1882
violates any implied obligation of the state in respect to the remedies that
may be employed for the enforcement of its contract if the collector refuses
to take the coupon."
That was a case in which it was sought by mandamus specifically to enforce
the contract of the state with the coupon holder by compelling by affirmative
action and process of law the collector actually to receive the coupons
tendered in satisfaction of taxes. It left unaffected the right of the coupon
holder and taxpayer, after his tender had been unlawfully refused, to stand
upon his contract and the law in defense of his rights, both of person and
property, against all unlawful assaults and seizures. In the former, he was an

actor, seeking affirmative relief, to compel the specific performance of the

contract. In the latter, he is a defendant, passively resting on his rights and
resisting only demands and exactions sought to be enforced against him in
denial of them. He has himself in all things performed the contract on his
part and obeyed the law, and simply insists that if more is illegally exacted
and taken from him, he shall have the remedy which the law gives to every
other citizen, not himself in default, against the wrongdoer, who, under color
of law, but without law, disturbs or dispossesses him. As we have seen, the
coupon holder, whose tender of genuine coupons in payment of taxes has
been refused, stands upon the same footing in this respect as though he had
tendered gold coin in similar circumstances and with like result.
The question next in order is whether he has any, and, if any, what remedy
for the recovery of property distrained to pay the same tax which he has
thus already offered and attempted to pay in money or its equivalent. It is
well settled by many decisions of this Court that for the purpose of affecting
Page 114 U. S. 282
proceedings to enforce the payment of taxes, a lawful tender of payment is
equivalent to actual payment, either being sufficient to deprive the
collecting officer of all authority for further action, and making every
subsequent step illegal and void. In Woodruff v. Trapnall, 10 How. 190, 51 U.
S. 208, it was held that a tender of the notes of the bank of the State of
Arkansas, by law and a contract with the note holders made receivable in
payment of public dues to the state, was equivalent to payment, in
extinguishing the judgment in satisfaction of which they were offered. The
Court said:
"The law of tender which avoids future interest and costs has no application
in this case. The right to make payment to the state in this paper arises out
of a continuing contract, which is limited in time by the circulation of the
notes to be received. They may be offered in payment of debts due to the
state, in its own right, before or after judgment, and without regard to the
cause of indebtment."
In the case of United States v. Lee, 106 U. S. 196, it was held that a
certificate of a sale of land for taxes, made by commissioners, which by law
was rendered impeachable by proof that the taxes had been paid previous to
sale, was rendered void by proof that the commissioners had refused to
receive the taxes, without proof of an actual tender, where the
commissioners had waived it by a previous notice that they would not
accept it. In the opinion of the Court it is said:
"This Court has in a series of cases established the proposition that where
the commissioners refused to receive such taxes, their action in thus
preventing payment was the equivalent of payment in its effect upon the
certificate of sale,"
citing Bennett v. Hunter, 9 Wall. 326; Taxey v. Irwin, 18 Wall. 549; Atwood v.
Weems, 99 U. S. 183, and Hills v. Exchange Bank,105 U. S. 319.
The case, then, of the plaintiff below is reduced to this: he had paid the
taxes demanded of him by a lawful tender. The defendant had no authority
of law thereafter to attempt to enforce other payment by seizing his
property. In doing so, he ceased to be an officer of the law and became a
private wrongdoer. It is the simple case in which the defendant, a natural
private person, has unlawfully, with force and arms, seized,
Page 114 U. S. 283

taken, and detained the personal property of another. That an action of

detinue will lie in such a case according to the law of Virginia has not been
questioned. The right of recovery would seem to be complete unless this
case can be met and overthrown on some of the grounds maintained in
argument by counsel for the defendant in error. These we proceed now to
examine in their order.
It is objected in the first place that the law and contract by which the quality
of being receivable in payment of taxes to the state is imputed to the
coupons is itself in violation of that clause of the Constitution of the United
States, Art. I, Section 10, which declares that no state shall "emit bills of
credit," and is therefore void. The coupons in question are in the ordinary
form, and one of them reads as follows:
"Receivable at and after maturity for all taxes, debts, and demands due the
state."
"The Commonwealth of Virginia will pay the bearer thirty dollars, interest
due first January, 1884, on bond No. 2,731."
"Coupon No. 20."
"GEO. RYE, Treasurer"
It is contended that this is a bill of credit in the sense of the Constitution
because, being receivable in payment of debts due the state, and negotiable
by delivery merely, it was intended to pass from hand to hand and circulate
as money. The meaning of the term "bills of credit" as used in the
Constitution has been settled by decisions of this Court. By a sound rule of
interpretation it has been construed in the light of the historical
circumstances which are known to have led to the adoption of the clause
prohibiting their emission by the states, and in view of the great public and
private mischiefs experienced during and prior to the period of the war of
independence, in consequence of unrestrained issues by the colonial and
state governments of paper money based alone upon credit. The definition
thus deduced was not founded on the abstract meaning of the words, so as
to include everything in the
Page 114 U. S. 284
nature of an obligation to pay money, reposing on the public faith, and
subject to future redemption, but was limited to those particular forms of
evidences of debt which had been so abused to the detriment of both
private and public interests. Accordingly, Chief Justice Marshall, in Craig v.
Missouri, 4 Pet. 410, 29 U. S. 432, said that
"bills of credit signify a paper medium intended to circulate between
individuals, and between government and individuals, for the ordinary
purposes of society."
This definition was made more exact by merely expressing, however, its
implications, in Briscoe v. Bank of Kentucky, 11 Pet. 257, 36 U. S. 314, where
it was said:
"The definition, then, which does include all classes of bills of credit, emitted
by the colonies or states is a paper issued by the sovereign power
containing a pledge of its faith and designed to circulate as money."
And again, p. 36 U. S. 318:
"To constitute a bill of credit within the Constitution, it must be issued by a
state, on the faith of the state, and be designed to circulate as money. It
must be a paper which circulates on the credit of the state, and is so
received and used in the ordinary business of life."

The definition was repeated in Darrington v. Bank of Alabama, 13 How. 12.

It is very plain to us that the coupons in question are not embraced within
these terms. They are not bills of credit in the sense of this constitutional
prohibition. They are issued by the state, it is true. They are promises to pay
money. Their payment and redemption are based on the credit of the state,
but they were not emitted by the state in the sense in which a government
emits its treasury notes, or a bank its banknotes -- a circulating medium or
paper currency -- as a substitute for money. And there is nothing on the face
of the instruments, nor in their form or nature, nor in the terms of the law
which authorize their issue, nor in the circumstances of their creation or use,
as shown by the record, on which to found an inference that these coupons
were designed to circulate in the common transactions of business as
money, nor that in fact they were so used. The only feature relied on to
show such a design or to prove such a use is that they are made receivable
in payment of taxes and other dues to the state. From this
Page 114 U. S. 285
it is argued that they would obtain such a circulation from hand to hand as
money as the demand for them, based upon such a quality, would naturally
give. But this falls far short of their fitness for general circulation in the
community as a representative and substitute for money in the common
transactions of business, which is necessary to bring them within the
constitutional prohibition against bills of credit. The notes of the Bank of the
State of Arkansas, which were the subject of controversy in Woodruff v.
Trapnall, 10 How. 190, were by law receivable by the state in payment of all
dues to it, and this circumstance was not supposed to make them bills of
credit. It is true, however, that in that case it was held they were not so
because they were not issued by the state and in its name, although the
entire stock of the bank was owned by the state, which furnished the whole
capital and was entitled to all the profits. In this case the coupons were
issued by the State of Virginia and in its name, and were obligations based
on its credit, and which it had agreed, as one mode of redemption, to
receive in payment of all dues to itself in the hands of any holder; but they
were not issued as and for money, nor was this quality impressed upon them
to fit them for use as money or with the design to facilitate their circulation
as such. It was conferred, as is apparent from all the circumstances of their
creation and issue, merely as an assurance, by way of contract with the
holder, of the certainty of their due redemption in the ordinary transactions
between the state treasury and the taxpayers. They do not become
receivable in payment of taxes till they are due, and the design, we are
bound to presume, was that they would be paid at maturity. This necessarily
excludes the idea that they were intended for circulation at all.
It is next objected that the suit of the plaintiff below could not be maintained
because it is substantially an action against the State of Virginia to which it
has not assented. It is said that the tax collector who is sued was an officer
and agent of the state, engaged in collecting its revenue under a valid law,
and that the tax he sought to collect from the plaintiff was lawfully due; that
consequently he was guilty of no personal wrong, but acted only in an
official capacity representing
Page 114 U. S. 286
the state, and, in refusing to receive the coupons tendered, simply obeyed
the commands of his principal whom he was lawfully bound to obey, and

that if any wrong has been done, it has been done by the state in refusing to
perform its contract, and for that wrong the state is alone liable, but is
exempted from suit by the Eleventh Article of Amendment to the
Constitution of the United States, which declares that
"The judicial power of the United States shall not be construed to extend to
any suit in law or equity, commenced or prosecuted against one of the
United States by citizens of another state, or by citizens or subjects of any
foreign state."
This immunity from suit secured to the states is undoubtedly a part of the
Constitution of equal authority with every other, but no greater, and to be
construed and applied in harmony with all the provisions of that instrument.
That immunity, however, does not exempt the state from the operation of
the constitutional provision that no state shall pass any law impairing the
obligation of contracts, for it has long been settled that contracts between a
state and an individual are as fully protected by the Constitution as
contracts between two individuals. It is true that no remedy for a breach of
its contract by a state, by way of damages as compensation or by means of
process to compel its performance, is open under the Constitution in the
courts of the United States by a direct suit against the state itself on the part
of the injured party, being a citizen of another state or a citizen or subject of
a foreign state. But it is equally true that whenever, in a controversy
between parties to a suit of which these courts have jurisdiction, the
question arises upon the validity of a law by a state impairing the obligation
of its contract, the jurisdiction is not thereby ousted, but must be exercised
with whatever legal consequences to the rights of the litigants may be the
result of the determination. The cases establishing these propositions, which
have been decided by this Court since the adoption of the Eleventh
Amendment to the Constitution are numerous. Fletcher v. Peck, 6 Cranch 87;
New Jersey v. Wilson, 7 Cranch 164; Green v. Biddle, 8 Wheat. 1, 21 U. S. 84;
Providence Bank v. Billings, 4 Pet. 514; Woodruff v. Trapnall, 10
Page 114 U. S. 287
How. 190; Wolff v. New Orleans, 103 U. S. 358; Jefferson Branch Bank v.
Skelly, 1 Black 436.
It is also true that the question whether a suit is within the prohibiting of the
Eleventh Amendment is not always determined by reference to the nominal
parties on the record. The provision is to be substantially applied in
furtherance of its intention, and not to be evaded by technical and trivial
subtleties. Accordingly, it was held in New Hampshire v. Louisiana and New
York v. Louisiana, 108 U. S. 76, that although the judicial power of the United
States extends to "controversies between two or more states," it did not
embrace a suit in which, although nominally between two states, the
plaintiff state had merely permitted the use of its name for the benefit of its
citizens in the prosecution of their claims, for the enforcement of which they
could not sue in their own names. So, on the other hand, in Cunningham v.
Macon & Brunswick Railroad Co., 109 U. S. 446, where the State of Georgia
was not nominally a party on the record, it was held that as it clearly
appeared that the state was so interested in the property that final relief
could not be granted without making it a party, the Court was without
jurisdiction.
In that case, the general question was discussed in the light of the
authorities, and the cases in which the Court has taken jurisdiction, when

the objection has been interposed that a state was a necessary party to
enable the Court to grant relief, were examined and classified. The second
head of that classification is thus described:
"Another class of cases is where an individual is sued in tort for some act
injurious to another in regard to person or property, to which his defense is
that he has acted under the orders of the government. In these cases, he is
not sued as, or because he is, the officer of the government, but as an
individual, and the Court is not ousted of jurisdiction because he asserts
authority as such officer. To make out his defense, he must show that his
authority was sufficient in law to protect him."
And in illustration of this principle, reference was made to Mitchell v.
Harmony, 13 How. 115; Bates v. Clark, 95 U. S. 204;Meigs v. McClung's
Lessee, 9 Cranch 11; Wilcox v. Jackson, 13 Pet. 498; Brown v. Huger, 21 How.
315;
Page 114 U. S. 288
Grisar v. McDowell, 6 Wall. 363, and United States v Lee, 106 U. S. 196.
The ratio decidendi in this class of cases is very plain. A defendant sued as a
wrongdoer who seeks to substitute the state in his place or to justify by the
authority of the state or to defend on the ground that the state has adopted
his act and exonerated him cannot rest on the bare assertion of his defense.
He is bound to establish it. The state is a political corporate body, can act
only through agents, and can command only by laws. It is necessary,
therefore, for such a defendant, in order to complete his defense, to produce
a law of the state which constitutes his commission as its agent and a
warrant for his act. This the defendant in the present case undertook to do.
He relied on the Act of January 26, 1882, requiring him to collect taxes in
gold, silver, United States Treasury notes, national bank currency, and
nothing else, and thus forbidding his receipt of coupons in lieu of money.
That, it is true, is a legislative act of the government of Virginia, but it is not
a law of the State of Virginia. The state has passed no such law, for it
cannot, and what it cannot do, it certainly, in contemplation of law, has not
done. The Constitution of the United States, and its own contract, both
irrepealable by any act on its part, are the law of Virginia, and that law made
it the duty of the defendant to receive the coupons tendered in payment of
taxes, and declared every step to enforce the tax thereafter taken to be
without warrant of law, and therefore a wrong. He stands, then, stripped of
his official character, and, confessing a personal violation of the plaintiff's
rights for which he must personally answer, he is without defense.
No better illustration of this principle can be found than that which is
furnished by the case of United States v. Lee, 106 U. S. 196, in which it was
applied to a claim made on behalf of the national government. The action
was one in ejectment to recover possession of lands to which the plaintiff
claimed title. The defendants were natural persons whose defense was that
they were in possession as officers of the United States under the orders of
the government and for its
Page 114 U. S. 289
uses. The Attorney General called this aspect of the case to the attention of
the Court, but without making the United States a party defendant. It was
decided by this Court that to sustain the defense and to defeat the plaintiff's
cause of action it was necessary to show that the defendants were in
possession under the United States, and on their behalf, by virtue of some

valid authority. As this could not be shown, the contrary clearly appearing,
possession of lands, actually in use as a national cemetery, was adjudged to
the plaintiffs. The decision in that case was rested largely upon the authority
of Osborn v. Bank of the United States, 9 Wheat. 738, which was a suit in
equity against an officer of the State of Ohio who sought to enforce one of
her statutes which was in violation of rights secured to the bank by the
Constitution of the United States. The defendants, Osborn and others,
denied the jurisdiction of the court upon the ground that the state was the
real party in interest and could not be sued, and that a suit against her
officers, who were executing her will, was in violation of the Eleventh
Amendment of the Constitution. To this objection Chief Justice Marshall
replied:
"If the State of Ohio could have been made a party defendant, it can
scarcely be denied that this would be a strong case for an injunction. The
objection is that, as the real party cannot be brought before the court, a suit
cannot be sustained against the agents of that party, and cases have been
cited to show that a court of chancery will not make a decree unless all
those who are substantially interested be made parties to the suit. This is
certainly true where it is in the power of the plaintiff to make them parties,
but if the person who is the real principal -- the person who is the true
source of the mischief, by whose power and for whose advantage it is done
-- be himself above the law, be exempt from all judicial process, it would be
subversive of the best-established principles to say that the laws could not
afford the same remedies against the agent employed in doing the wrong
which they would afford against him could his principal be joined in the suit."
This language, it may be observed, was quoted with approval in United
States v. Lee. The principle which it enunciates constitutes
Page 114 U. S. 290
the very foundation upon which the decision in that case rested.
In the discussion of such questions, the distinction between the government
of a state and the state itself is important, and should be observed. In
common speech and common apprehension, they are usually regarded as
identical, and as ordinarily the acts of the government are the acts of the
state, because within the limits of its delegation of power, the government
of the state is generally confounded with the state itself, and often the
former is meant when the latter is mentioned. The state itself is an ideal
person, intangible, invisible, immutable. The government is an agent, and,
within the sphere of the agency, a perfect representative; but outside of
that, it is a lawless usurpation. The constitution of the state is the limit of the
authority of its government, and both government and state are subject to
the supremacy of the Constitution of the United States and of the laws made
in pursuance thereof. So that, while it is true in respect to the government of
a state, as was said in Langford v. United States, 101 U. S. 341, that the
maxim that the King can do no wrong has no place in our system of
government, yet it is also true, in respect to the state itself, that whatever
wrong is attempted in its name is imputable to its government, and not to
the state, for, as it can speak and act only by law, whatever it does say and
do must be lawful. That which therefore is unlawful because made so by the
supreme law, the Constitution of the United States, is not the word or deed
of the state, but is the mere wrong and trespass of those individual persons
who falsely speak and act in its name. It was upon the ground of this

important distinction that this Court proceeded in the case of Texas v. White,
7 Wall. 700, when it adjudged that the acts of secession, which constituted
the civil war of 1861, were the unlawful acts of usurping state governments,
and not the acts of the states themselves, inasmuch as "the Constitution, in
all its provisions, looks to an indestructible Union, composed of
indestructible states," and that consequently the war itself was not a war
between the states, nor a war of the United States against states, but a war
of the United States against
Page 114 U. S. 291
unlawful and usurping governments representing not the states, but a
rebellion against the United States. This is, in substance, what was said by
Chief Justice Chase, delivering the opinion of the Court in Thorington v.
Smith, 8 Wall. 1, 75 U. S. 9, when he declared, speaking of the Confederate
government, that "it was regarded as simply the military representative of
the insurrection against the authority of the United States." The same
distinction was declared and enforced in Williams v. Bruffy, 96 U. S. 176, 96
U. S. 192, and in Horn v. Lockhart, 17 Wall. 570, both of which were referred
to and approved in Keith v. Clark, 97 U. S. 454, 97 U. S. 465.
This distinction is essential to the idea of constitutional government. To deny
it or blot it out obliterates the line of demarcation that separates
constitutional government from absolutism, free self-government based on
the sovereignty of the people from that despotism, whether of the one or the
many, which enables the agent of the state to declare and decree that he is
the state; to say "L'Etat, c'est moi." Of what avail are written constitutions,
whose bills of right for the security of individual liberty have been written too
often with the blood of martyrs shed upon the battlefield and the scaffold, if
their limitations and restraints upon power may be overpassed with impunity
by the very agencies created and appointed to guard, defend, and enforce
them, and that too with the sacred authority of law, not only compelling
obedience, but entitled to respect? And how else can these principles of
individual liberty and right be maintained if, when violated, the judicial
tribunals are forbidden to visit penalties upon individual offenders, who are
the instruments of wrong, whenever they interpose the shield of the state?
The doctrine is not to be tolerated. The whole frame and scheme of the
political institutions of this country, state and federal, protest against it.
Their continued existence is not compatible with it. It is the doctrine of
absolutism, pure, simple, and naked, and of communism, which is its twin,
the double progeny of the same evil birth.
It was said by Chief Justice Chase, speaking for the whole Court in Lane
County v. Oregon, 7 Wall. 71, 74 U. S. 76, that the people,
Page 114 U. S. 292
through the Constitution of the United States,
"established a more perfect union by substituting a national government,
acting, with ample power, directly upon the citizens, instead of the
Confederate government, which acted with powers, greatly restricted, only
upon the states."
In no other way can the supremacy of that Constitution be maintained. It
creates a government in fact as well as in name, because its Constitution is
the supreme law of the land, "anything in the constitution or laws of any
state to the contrary notwithstanding," and its authority is enforced by its
power to regulate and govern the conduct of individuals, even where its

prohibitions are laid only upon the states themselves. The mandate of the
state affords no justification for the invasion of rights secured by the
Constitution of the United States; otherwise, that Constitution would not be
the supreme law of the land.
When, therefore, an individual defendant pleads a statute of a state, which
is in violation of the Constitution of the United States as his authority for
taking or holding property to which the citizen asserts title and for the
protection or possession of which he appeals to the courts, to say that the
judicial enforcement of the supreme law of the land, as between the
individual parties, is to coerce the state ignores the fundamental principles
on which the Constitution rest, as contrasted with the Articles of
Confederation, which it displaced, and practically makes the statutes of the
states the supreme law of the land within their respective limits.
When, therefore, by the Act of March 30, 1871, the contract was made by
which it was agreed that the coupons issued under that act should
thereafter be receivable in payment of taxes, it was the contract of the State
of Virginia, because, though made by the agency of the government, for the
time being, of the state, that government was acting within the scope of its
authority, and spoke with its voice as its true representative, and inasmuch
as, by the Constitution of the United States, which is also the supreme law of
Virginia, that contract, when made, became thereby unchangeable and
irrepealable by the state, the subsequent Act of January 26, 1882, and all
other like acts, which deny the obligation of that contract
Page 114 U. S. 293
and forbid its performance, are not the acts of the State of Virginia. The true
and real commonwealth which contracted the obligation is incapable in law
of doing anything in derogation of it. Whatever having that effect, if
operative, has been attempted or done is the work of its government acting
without authority, in violation of its fundamental law, and must be looked
upon in all courts of justice as if it were not and never had been. The
argument, therefore, which seeks to defeat the present action for the reason
that it is a suit against the State of Virginia, because the nominal defendant
is merely its officer and agent, acting in its behalf, in its name, and for its
interest, and amenable only to it, falls to the ground because its chief
postulate fails. The State of Virginia has done none of these things with
which this defense charges her. The defendant in error is not her officer, her
agent, or her representative in the matter complained of, for he has acted
not only without her authority, but contrary to her express commands. The
plaintiff in error, in fact and in law, is representing her as he seeks to
establish her law, and vindicates her integrity as he maintains his own right.
Tried by every test which has been judicially suggested for the determination
of the question, this cannot be considered to be a suit against the state. The
state is not named as a party in the record; the action is not directly upon
the contract; it is not for the purpose of controlling the discretion of
executive officers, or administering funds actually in the public Treasury, as
was held to be the case in Louisiana v. Junel, 107 U. S. 711; it is not an
attempt to compel officers of the state to do the acts which constitute a
performance of its contract by the state, as suggested by a minority of the
court in Antoni v. Greenhow, 107 U. S. 769, 107 U. S. 783, nor is it a case
where the state is a necessary party, that the defendant may be protected
from liability to it, after having answered to the present plaintiff. For, on this

supposition, if the accounting officers of the state government refuse to

credit the tax collector with coupons received by him in payment of taxes, or
seek to hold him responsible for a failure to execute the void statute, which
required him to refuse coupons in payment of taxes, in any action or
Page 114 U. S. 294
prosecution brought against him in the name of the state, the grounds of the
judgment rendered in favor of the present plaintiff will constitute his perfect
defense. And as that defense made in any cause, though brought in a state
court, would present a question arising under the Constitution and laws of
the United States, it would be within the jurisdiction of this Court to give it
effect, upon a writ of error, without regard to the amount or value in dispute.
In the case of Osborn v. Bank of the United States, 9 Wheat. 738, 22 U. S.
853, Chief Justice Marshall put by way of argument and illustration the very
case we are now considering. He said:
"Controversies respecting boundary have lately existed between Virginia and
Tennessee, between Kentucky and Tennessee, and now exist between New
York and New Jersey. Suppose, while such a controversy is pending, the
collecting officer of one state should seize property for taxes belonging to a
man who supposes himself to reside in the other state and who seeks
redress in the federal court of that state in which the officer resides. The
interest of the state is obvious. Yet it is admitted that in such a case, the
action would lie, because the officer might be treated as a trespasser, and
the verdict and judgment against him would not act directly on the property
of the state. That it would not so act may perhaps depend on circumstances.
The officer may retain the amount of the taxes in his hands, and, on the
proceedings of the state against him, may plead in bar the judgment of a
court of competent jurisdiction. If this plea ought to be sustained, and it is
far from being certain that it ought not, the judgment so pleaded would have
acted directly on the revenue of the state in the hands of its officers. And yet
the argument admits that the action, in such a case, would be sustained. But
suppose in such a case the party conceiving himself to be injured, instead of
bringing an action sounding in damages, should sue for the specific thing
while yet in possession of the seizing officer. It being admitted in argument
that the action sounding in damages would lie, we are unable to perceive
the line of distinction between that and the action of detinue. Yet the latter
action would claim the specific article seized for the tax,
Page 114 U. S. 295
and would obtain it should the seizure be deemed unlawful."
Although the plaintiff below was nominally the actor, the action itself is
purely defensive. Its object is merely to resist an attempted wrong, and to
restore the status in quo as it was when the right to be vindicated was
invaded. In this respect it is upon the same footing with the preventive
remedy of injunction in equity, when that jurisdiction is invoked, and of
which a conspicuous example, constantly followed in the courts of the
United States, was the case of Osborn v. Bank of the United States, ubi
supra. In that case, the taxing power of the state was resisted on the ground
that its exercise threatened to deprive the complainant of a right conferred
by the Constitution of the United States. The jurisdiction has been constantly
exerted by the courts of the United States to prevent the illegal taxation of
national banks by the officers of the states. And in Cummings v. National
Bank, 101 U. S. 153, 101 U. S. 157, it was laid down as a general principle of

equity jurisdiction
"that when a rule or system of valuation is adopted by those whose duty it is
to make the assessment, which is designed to operate unequally and to
violate a fundamental principle of the Constitution, and when this rule is
applied not solely to one individual, but to a large class of individuals or
corporations, equity may properly interfere to restrain the operation of this
unconstitutional exercise of power."
And it is no objection to the remedy in such cases that the statute whose
application in the particular case is sought to be restrained is not void on its
face, but is complained of only because its operation in the particular
instance works a violation of a constitutional right, for the cases are
numerous where the tax laws of a state which in their general and proper
application are perfectly valid have been held to become void in particular
cases either as unconstitutional regulations of commerce or as violations of
contracts prohibited by the Constitution, or because in some other way they
operate to deprive the party complaining of a right secured to him by the
Constitution of the United States. At the present term of this Court, at least
three cases have been decided in which railroad companies
Page 114 U. S. 296
have been complainants in equity seeking to restrain officers of states from
collecting taxes on the ground of an exemption by contract, and no question
of jurisdiction has been raised. The practice has become common, and is
well settled on incontestable principles of equity procedure. Memphis
Railroad v. Railroad Commissioners, 112 U. S. 609; St. Louis &c. Ry. Co. v.
Berry, 113 U. S. 465; Chesapeake & Ohio Railroad Co. v. Miller, ante, 114 U.
S. 176.
It is still urged upon us, however, in argument that notwithstanding all that
has been or can be said, it still remains that the controversy disclosed by the
record is between an individual and the state; that the state alone has any
real interest in its determination; that the practical effect of such
determination is to control the action of the state in the regular and orderly
administration of its public affairs, and that therefore the suit is and must be
regarded as a suit against the state within the prohibition of the Eleventh
Amendment to the Constitution. Omitting for the time being the
consideration already enforced of the fallacy that lies at the bottom of this
objection, arising from the distinction to be kept in view between the
government of a state and the state itself, the premises which it assumes
may all be admitted, but the conclusion would not follow. The same
argument was employed in the name of the United States in the Lee case,
and did not prevail. It was pressed with the greatest force of which it was
susceptible in the case of Osborn v. Bank of the United States, and was met
and overcome by the masterly reasoning of Chief Justice Marshall. It
appeared early in the history of this Court, in 1799, in the case of Fowler v.
Lindsey, 3 Dall. 411, in which that able magistrate Mr. Justice Washington
pronounced his first reported opinion. On a motion to remove the cause by
certiorari from the circuit court on the ground that it was a suit in which a
state was a party, it being an ejectment for lands the title to which was
claimed under grants from different states, he said:
"A case which belongs to the jurisdiction of the Supreme Court on account of
the interest that a state has in the controversy must be a case in which a
state is either nominally or substantially the party.

Page 114 U. S. 297

It is not sufficient that a state may be consequentially affected, for in such
case (as where the grants of different states are brought into litigation), the
circuit court has clearly a jurisdiction. And this remark furnishes an answer
to the suggestions that have been founded on the remote interest of the
state in making retribution to her grantees upon the event of an eviction."
The thing prohibited by the Eleventh Amendment is the exercise of
jurisdiction in a
"suit in law or equity commenced or prosecuted against one of the United
States by citizens of another state, or by citizens or subjects of any foreign
state."
Nothing else is touched, and suits between individuals, unless the state is
the party in a substantial sense, are left untouched, no matter how much
their determination may incidentally and consequentially affect the interests
of a state or the operations of its government. The fancied inconvenience of
an interference with the collection of its taxes by the government of Virginia
by suits against its tax collectors vanishes at once upon the suggestion that
such interference is not possible except when that government seeks to
enforce the collection of its taxes contrary to the law and contract of the
state and in violation of the Constitution of the United States. The immunity
from suit by the state, now invoked, vainly, to protect the individual
wrongdoers, finds no warrant in the Eleventh Amendment to the
Constitution, and is in fact a protest against the enforcement of that other
provision which forbids any state from passing laws impairing the obligation
of contracts. To accomplish that result requires a new amendment which
would not forbid any state from passing laws impairing the obligation of its
own contracts.
What we are asked to do is in effect to overrule the doctrine in Fletcher v.
Peck, 6 Cranch 87, and hold that a state is not under a constitutional
obligation to perform its contracts, for it is equivalent to that to say that it is
not subject to the consequences when that constitutional prohibition is
applied to suits between individuals. We could not stop there. We should be
required to go still further and reverse the doctrine on which that
constitutional provision rests, stated by Chief Justice Marshall
Page 114 U. S. 298
in that case when he said, pages 10 U. S. 135-136:
"When, then, a law is in its nature a contract, when absolute rights have
vested under that contract, a repeal of the law cannot divest those rights,
and the act of annulling them, if legitimate, is rendered so by a power
applicable to the case of every individual in the community. It may well be
doubted whether the nature of society and of government does not
prescribe some limits to the legislative power, and if any be prescribed
where are they to be found if the property of an individual, fairly and
honestly acquired, may be seized without compensation? To the legislature
all legislative power is granted, but the question whether the act of
transferring the property of an individual to the public be in the nature of
legislative power is well worthy of serious reflection."
And in view of such a contention, we may well add the impressive and
weighty words of the same illustrious man, when he said in Marbury v.
Madison, 1 Cranch 137, 5 U. S. 163:
"The government of the United States has been emphatically termed a

government of laws, and not of men. It will certainly cease to deserve this
high appellation if the laws furnish no remedy for the violation of a vested
legal right."
It is contended, however, in behalf of the defendant in error that the Act of
January 26, 1882, under which he justified his refusal of the tender of
coupons, does not impair the obligation of the contract between the coupon
holder and the State of Virginia inasmuch as it secures to him a remedy
equal in legal value to all that it takes away, and that consequently, as the
state may lawfully legislate by changing remedies so that it does not destroy
rights, the remedy thus provided is exclusive, and must defeat the plaintiff's
action. The remedy thus substituted and declared exclusive is one that
requires the taxpayer demanding to have coupons received in payment of
taxes, first, to pay the taxes due from him in money, under protest, when,
within thirty days thereafter, he may sue the officer to recover back the
amount paid, which, on obtaining judgment therefor, shall be refunded by
the auditor of public accounts out of the treasury. By the amendment passed
March 13, 1884, the coupons tendered are required to
Page 114 U. S. 299
be sealed up and marked for identification, filed with the petition at the
commencement of the suit, produced on the trial as evidence of the tender,
and delivered to the auditor of public accounts, to be cancelled when he
issues his warrant for the amount of the judgment.
It is contended that in view of this remedy, the case is ruled by the decision
of this Court in Antoni v. Greenhow, 107 U. S. 769. We have, however,
already shown by extracts from the opinion of the Court in that case that the
question involved in the present proceeding was not covered by that
judgment. In that case, the plaintiff in error was seeking to compel the
officer specifically to receive his coupons in payment of taxes by mandamus
on the ground that he was entitled to that remedy when the contract was
made by the law of March 30, 1871. The law giving that remedy was
subsequently amended, requiring the petitioner to pay the taxes in money in
the first instance, and permitting the writ to issue only after a trial in which
the genuineness of the coupons tendered had been established. The Court
held that he might have been put to the same proof in the former mode of
proceeding, and that the amendment did not destroy the efficiency of the
remedy.
But here the plaintiff did not seek any compulsory process against the officer
to require him specifically to receive the coupons tendered. He offered them
and they were refused. He chose to stand upon the defensive and maintain
his rights as they might be assailed. His right was to have his coupon
received for taxes when offered. That was the contract. To refuse to receive
them was an open breach of its obligation. It is no remedy for this that he
may acquiesce in the wrong, pay his taxes in money which he was entitled
to pay in coupons and bring suit to recover it back. His tender, as we have
already seen, was equivalent to payment, so far as concerns the legality of
all subsequent steps by the collector to enforce payment by distraint of his
property. He has the right to say he will not pay the amount a second time,
even for the privilege of recovering it back. And if he chooses to stand upon
a lawful payment once made, he asks no remedy to recover back taxes
illegally collected, but may resist the exaction, and treat
Page 114 U. S. 300

as a wrongdoer the officer who seizes his property to enforce it.

It is suggested that the right to have coupons received in payment of taxes
is a mere right of setoff, and is itself but a remedy subject to the control of
legislation. Ordinarily, it is true, the right to set off mutual independent
debts, by way of compensation and satisfaction, is dependent on the general
law, does not enter into the contract, although it may be thelex loci
contractus, and is dependent for its enforcement upon the lex fori, when suit
is brought, and consequently may be changed by the legislature without
impairing vested rights. But in such cases, the right is entirely dependent
upon the general law, and changes with it. It is different when, as in many
cases of equitable setoff, it inheres in the transaction, or arises out of the
relations of the parties, and it may in any case, as it was in this, be made the
subject of contract between parties. When this is done, it stands upon the
footing of every other lawful contract, upon valuable consideration, the
obligation of which cannot be impaired by subsequent legislation.
It is urged upon us, however, that in a revenue system, a provision of law
which gives to a party complaining of an illegal exaction of taxes, the right
to recover back the amount in dispute only after previous payment under
protest, as the sole remedy, against either the officer or the government, is
a just and reasonable rule, sufficiently securing private rights, and
convenient, if not necessary, to the interests of the public. We are referred to
the revenue laws of the United States for illustration and example, and the
question is put why a similar provision, as it is assumed to be, should not be
considered adequate as a remedy for the holders of coupons in Virginia, who
have been denied the right to use them in payment of taxes.
The answer is obvious and complete. Virginia, by a contract which the
Constitution of the United States disables her from impairing, has bound
herself that it shall be otherwise. The state has agreed that the coupons cut
from her bonds shall be received in payment of taxes due to her, as though
they were money. When the taxpayer has tendered such coupons, he has
complied with the agreement, and in legal contemplation
Page 114 U. S. 301
has paid the debt he owed the state. So far as that tax is concerned, and
every step taken for enforcing its payment in disregard of that tender, the
coupon holder is with drawn from the power and jurisdiction of the state. He
is free from all further disturbance, and is securely shielded by the
Constitution in his immunity. No proceeding, whatever its pretext, which
does not respect this right can be judicially upheld. The question is not of
the reasonableness of a remedy for a breach of the contract to receive the
tendered coupons in payment of the tax; it is whether the right to have them
so received, and the use of that right as a defense against all further efforts
to exact and compel payment of the tax, in denial and defiance of that right,
can be taken away without a violation of that provision of the Constitution
which prohibits the states from passing laws which impair the obligation of
contracts. Certainly a law which takes from the party his whole contract, and
all the rights which it was intended to confer, must be regarded as a law
impairing its obligation.
Another point remains for consideration. Rev.Stat. 721 provides that
"The laws of the several states, except where the Constitution, treaties, or
statutes of the United States otherwise require or provide, shall be regarded
as rules of decision in trials at common law in the courts of the United

States, in cases where they apply,"

and 914 declares that
"The practice, pleadings, and forms and modes of proceeding in civil causes,
other that equity and admiralty causes, in the circuit and district courts shall
conform as near as may be to the practice, pleadings, and forms and modes
of proceeding existing at the time in like causes in the courts of record of the
state within which such circuit or district courts are held, any rule of court to
the contrary notwithstanding."
Upon these sections it is argued that, admitting the Acts of the General
Assembly of Virginia of January 26, 1882, and the amendment by the Act of
March 13, 1884, to be unconstitutional and void so far as they forbid tax
collectors from receiving coupons in payment of taxes, nevertheless, as the
state has control over the forms of action and modes of proceeding by way
of remedy, and has forbidden, in cases where the tax collector has refused
Page 114 U. S. 302
coupons in payment of taxes, any personal action against him other than the
suit to recover back the tax demanded and paid under protest, the same
law, by force of the Revised Statutes of the United States, must govern in
the courts of the United States.
It is not entirely clear on the face of the Act of January 26, 1882, that it does
forbid actions against the officer for illegally levying upon the property of the
coupon holder for the tax which he has offered to pay. The language of the
act seems to embrace only such suits as are framed with the direct object of
preventing or restraining him from taking steps to collect the tax. And this
uncertainty is not made clear by the Amendatory Act of March 13, 1884,
which, by expressly forbidding actions of trespass or trespass on the case to
be brought or maintained against any collecting officer for levying upon the
property of any taxpayer who may have tendered coupons in payment of the
tax demanded, would seem to have left the action of detinue, which was
authorized in such cases by the previously existing law of Virginia,
untouched by the prohibition.
We shall assume, however, for the purposes of this opinion that these acts of
the General Assembly of Virginia were intended to and do forbid every
action of whatever kind against the collecting officer for the recovery of
specific property taken by distraint or of damages for its caption or
detention, and leaves to the coupon holder, as his sole right of action, the
suit to recover back the money illegally collected from him.
This action, as we have already seen, is no remedy whatever for the loss of
the specific right of paying his taxes with coupons. It does not even profess
so to be. Neither is it a remedy for the loss of the right sought to be
vindicated in this and other personal actions against the collector for
unlawfully taking from the plaintiff his property. And upon the supposition
made, this wrong is without remedy by any law of Virginia.
The direct result, then, of giving effect to these provisions of the act in
question is to defeat entirely the right of the
Page 114 U. S. 303
coupon holder to pay his taxes with his coupons, which we have already said
avoids that part of the acts in question which forbids it in terms, and to take
from him that right as a defense against the wrongs and trespasses
committed upon him and his property in denial and defiance of it. All
persons whose property is unlawfully taken otherwise than to enforce

payment of taxes are secured in their right of action for redress. But the
coupon holder, to whom the Constitution of the United States guarantees
the right, conferred upon him by the law and contract of Virginia, to pay his
taxes in coupons is excepted. The discrimination is made against him in
order to deprive him of that right, and, if permitted, will have the effect of
denying to him all redress for a deprivation of a right secured to him by the
Constitution. To take away all remedy for the enforcement of a right is to
take away the right itself. But that is not within the power of the state.
Rev.Stat. 721, it will be observed, makes an express exception, in
reference to the adoption of state laws as rules of decision, of cases where
the Constitution otherwise requires, which it does wherever the adoption of
the state law deprives a complaining party of a remedy essential to the
vindication of a right and that right is derived from or protected by the
Constitution of the United States. The same exception is implied in 914,
the language of which indeed is not imperative, as the conformity required
in the practice and procedure of the courts of the United States with that of
the state courts needs only to be "as near as may be." No one would
contend that a law of a state forbidding all redress by actions at law for
injuries to property would be upheld in the courts of the United States, for
that would be to deprive one of his property without due process of law. This
is exactly what the statutes in question undertake to do in respect to that
class of persons whose property is taken from them for the offense of
asserting, under the protection of the Constitution, the right to pay their
taxes in coupons. The contract with Virginia was not only that the coupons
should be received in payment of taxes, but, by necessary implication, that
the taxpayer making such a tender should not be molested further, as
though he were a
Page 114 U. S. 304
delinquent, and that for every illegal attempt subsequently to enforce the
collection of the tax by the seizure of property, he should have the remedies
of the law in force when the contract was made for redress, or others equally
effective. "The obligation of a contract," said this Court in McCracken v.
Hayward, 2 How. 608, 43 U. S. 612,
"consists in its binding force on the party who makes it. This depends on the
laws in existence when it is made. These are necessarily referred to in all
contracts, and forming a part of them, as the measure of the obligation to
perform them by the one party and the right acquired by the other. There
can be no other standard by which to ascertain the extent of either than that
which the terms of the contract indicate, according to their settled legal
meaning; when it becomes consummated, the law defines the duty and the
right, compels one party to perform the thing contracted for, and gives the
other a right to enforce the performance by the remedies then in force. If
any subsequent law affect to diminish the duty or to impair the right, it
necessarily bears on the obligation of the contract in favor of one party to
the injury of the other; hence, any law which in its operation amounts to a
denial or obstruction of the rights accruing by a contract, though professing
to act only on the remedy, is directly obnoxious to the prohibition of the
Constitution."
The acts of assembly in question must be taken together, as one is but an
amendment to the other. The scheme of the whole is indivisible. It cannot be
separated into parts. It must stand or fall together. The substantive part of it,

which forbids the tax collector to receive coupons in payment of taxes, as

we have already declared, as, indeed, on all sides is admitted, cannot stand,
because it is not consistent with the Constitution. That which is merely
auxiliary to the main design must also fall with the principal of which it is
merely an incident, and it follows that the acts in question are not laws of
Virginia, and are therefore not within the sections of the Revised Statutes
referred to, nor obligatory upon the courts of the United States.
It is undoubtedly true that there may be cases where one part of a statute
may be enforced as constitutional and another
Page 114 U. S. 305
be declared inoperative and void because unconstitutional, but these are
cases where the parts are so distinctly separable that each can stand alone,
and where the court is able to see and to declare that the intention of the
legislature was that the part pronounced valid should be enforceable even
though the other part should fail. To hold otherwise would be to substitute
for the law intended by the legislature one they may never have been willing
by itself to enact. An illustration of this principle is found in the Trademark
Cases, 100 U. S. 82, where an act of Congress which, it was claimed, would
have been valid as a regulation of commerce with foreign nations and
among the states was held to be void altogether because it embraced all
commerce, including that between citizens of the same state, which was not
within the jurisdiction of Congress, and its language could not be restrained
to that which was subject to the control of Congress. "If we should," said the
Court in that case, p. 100 U. S. 99,
"in the case before us undertake to make by judicial construction a law
which Congress did not make, it is quite probable we should do what, if the
matter were now before that body, it would be unwilling to do."
Indeed, it is quite manifest from the face of the laws themselves that they
are together but parts of a larger whole. By an Act of the General Assembly
of Virginia passed February 14, 1882, the legislature restated the account
between the state and its creditors on a basis of readjustment which
reduced it to the sum of $21,035,377.15, including interest in arrears to July
1, 1882, which was thereby declared to be her equitable share of the debt of
the old and entire state, and on which it was also declared that the state was
not able to pay interest for the future at a larger rate than three percent per
annum. The outstanding debt, of which this was a reduction, was then
classified, and bonds of the state were authorized to be issued, bearing
interest at the rate of three percent per annum, in exchange for outstanding
bonds of the different classes, scaled at rates of fifty-three percent, sixty
percent, sixty-nine percent, sixty-three percent, and, as to one class, as high
as eighty percent, which were to be retired
Page 114 U. S. 306
and cancelled. The coupons on the new bonds were not made receivable in
payment of taxes. To coerce creditors holding bonds issued under the Act of
March 30, 1871, to exchange them for these new bonds at these reduced
rates, and with them to give up their security for the payment of interest
arising out of the receivability of coupons in payment of taxes, is the evident
purpose of the Acts of January 26, 1882, and of March 13, 1884, and all
together form a single scheme the undisguised object of which is to enable
the state to rid itself of a considerable portion of its public debt and to place
the remainder on terms to suit its own convenience, without regard to the

obligation it owes to its creditors.

The whole legislation, in all its parts, as to creditors affected by it and not
consenting to it, must be pronounced null and void. Such is the sentence of
the Constitution itself, the fundamental and supreme law for Virginia, as for
all the states and for all the people, both of the states separately and of the
United States, and which speaks with sovereign and commanding voice,
expecting and receiving ready and cheerful obedience, not so much for the
display of its power, as on account of the majesty of its authority and the
justice of its mandates.
The judgment of the hustings court of the City of Richmond is accordingly
reversed, and the cause will be remanded with directions to render
judgment upon the agreed statement of facts in favor of the plaintiff.
MR. JUSTICE BRADLEY, with whom concurred THE CHIEF JUSTICE, MR.
JUSTICE MILLER, and MR. JUSTICE GRAY dissented. Their dissenting opinion
will be found post, page 114 U. S. 330, after the opinion of the Court in
Marye v. Parsons.

G.R. No. 86695. September 3, 1992. MARIA ELENA MALAGA, doing

business under the name B.E. CONSTRUCTION; JOSIELEEN NAJARRO,
doing business under the name BEST BUILT CONSTRUCTION; JOSE N.
OCCEA, doing business under the name THE FIRM OF JOSE N.
OCCEA; and the ILOILO BUILDERS CORPORATION, petitioners, vs.
MANUEL R. PENACHOS, JR., ALFREDO MATANGGA, ENRICO TICAR
AND TERESITA VILLANUEVA, in their respective capacities as
Chairman and Members of the Pre-qualification Bids and Awards
Committee (PBAC)-BENIGNO PANISTANTE, in his capacity as
President of Iloilo State College of Fisheries, as well as in their
respective personal capacities; and HON. LODRIGIO L. LEBAQUIN,

respondents. Salas, Villareal & Velasco for petitioners. Virgilio A. Sindico for
respondents. SYLLABUS 1. ADMINISTRATIVE LAW; GOVERNMENT
INSTRUMENTALITY, DEFINED. The 1987 Administrative Code defines a
government instrumentality as follows: Instrumentality refers to any agency
of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions, and government-owned or
controlled corporations. (Sec. 2 (5) Introductory Provisions). 2. ID.;
CHARTERED INSTITUTION; DEFINED; APPLICATION IN CASE AT BAR. The
1987 Administrative Code describes a chartered institution thus: Chartered
institution refers to any agency organized or operating under a special
charter, and vested by law with functions relating to specific constitutional
policies or objectives. This term includes the state universities and colleges,
and the monetary authority of the state. (Sec. 2 (12) Introductory
Provisions). It is clear from the above definitions that ISCOF is a chartered
institution and is therefore covered by P.D. 1818. There are also indications
in its charter that ISCOF is a government instrumentality. First, it was created
in pursuance of the integrated fisheries development policy of the State, a
priority program of the government to effect the socioeconomic life of the
nation. Second, the Treasurer of the Republic of the Philippines shall also be
the ex-officio Treasurer of the state college with its accounts and expenses
to be audited by the Commission on Audit or its duly authorized
representative. Third, heads of bureaus and offices of the National
Government are authorized to loan or transfer to it, upon request of the
president of the state college, such apparatus, equipment, or supplies and
even the services of such employees as can be spared without serious
detriment to public service. Lastly, an additional amount of P1.5M had been
appropriated out of the funds of the National Treasury and it was also
decreed in its charter that the funds and maintenance of the state college
would henceforth be included in the General Appropriations Law.
(Presidential Decree No. 1523) 3. ID.; PROHIBITION OF ANY COURT FROM
ISSUING INJUNCTION IN CASES INVOLVING INFRASTRUCTURE PROJECTS OF
GOVERNMENT (P.D. 1818); POWER OF THE COURTS TO RESTRAIN
APPLICATION. In the case of Datiles and Co. vs. Sucaldito, (186 SCRA 704)
this Court interpreted a similar prohibition contained in P.D. 605, the law
after which P.D. 1818 was patterned. It was there declared that the
prohibition pertained to the issuance of injunctions or restraining orders by
courts against administrative acts in controversies involving facts or the
exercise of discretion in technical cases. The Court observed that to allow
the courts to judge these matters would disturb the smooth functioning of
the administrative machinery. Justice Teodoro Padilla made it clear, however,
that on issues definitely outside of this dimension and involving questions of
law, courts could not be prevented by P.D. No. 605 from exercising their
power to restrain or prohibit administrative acts. We see no reason why the
above ruling should not apply to P.D. 1818. There are at least two
irregularities committed by PBAC that justified injunction of the bidding and
the award of the project. 4. ID.; POLICIES AND GUIDELINES PRESCRIBED FOR
GOVERNMENT INFRASTRUCTURE (PD 1594); RULES IMPLEMENTING
THEREOF, NOT SUFFICIENTLY COMPLIED WITH IN CASE AT BAR. Under the

Rules Implementing P.D. 1594, prescribing policies and guidelines for

government infrastructure contracts, PBAC shall provide prospective bidders
with the Notice to Pre-qualification and other relevant information regarding
the proposed work. Prospective contractors shall be required to file their
ARC-Contractors Confidential Application for Registration & Classifications &
the PRE-C2 Confidential Pre-qualification Statement for the Project (prior to
the amendment of the rules, this was referred to as PreC1) not later than the
deadline set in the published Invitation to Bid, after which date no PRE-C2
shall be submitted and received. Invitations to Bid shall be advertised for at
least three times within a reasonable period but in no case less than two
weeks in at least two newspapers of general circulations. (IB 13 1.2-19,
Implementing Rules and Regulations of P.D. 1594 as amended) PBAC
advertised the pre-qualification deadline as December 2, 1988, without
stating the hour thereof, and announced that the opening of bids would be
at 3 o'clock in the afternoon of December 12, 1988. This scheduled was
changed and a notice of such change was merely posted at the ISCOF
bulletin board. The notice advanced the cut-off time for the submission of
pre-qualification documents to 10 o'clock in the morning of December 2,
1988, and the opening of bids to 1 o'clock in the afternoon of December 12,
1988. The new schedule caused the pre-disqualification of the petitioners as
recorded in the minutes of the PBAC meeting held on December 6, 1988.
While it may be true that there were fourteen contractors who were prequalified despite the change in schedule, this fact did not cure the defect of
the irregular notice. Notably, the petitioners were disqualified because they
failed to meet the new deadline and not because of their expired licenses.
(B.E. & Best Built's licenses were valid until June 30, 1989. [Ex. P & O
respectively: both were marked on December 28, 1988]) We have held that
where the law requires a previous advertisement before government
contracts can be awarded, non-compliance with the requirement will, as a
general rule, render the same void and of no effect. (Caltex Phil. v. Delgado
Bros., 96 Phil. 368) The fact that an invitation for bids has been
communicated to a number of possible bidders is not necessarily sufficient
to establish compliance with the requirements of the law if it is shown that
other possible bidders have not been similarly notified. 5. ID.; ID.; ID.;
PURPOSE THEREOF; CASE AT BAR. The purpose of the rules implementing
P.D. 1594 is to secure competitive bidding and to prevent favoritism,
collusion and fraud in the award of these contracts to the detriment of the
public. This purpose was defeated by the irregularities committed by PBAC.
It has been held that the three principles in public bidding are the offer to
the public, an opportunity for competition and a basis for exact comparison
of bids. A regulation of the matter which excludes any of these factors
destroys the distinctive character of the system and thwarts the purpose of
its adoption. (Hannan v. Board of Education, 25 Okla. 372) In the case at bar,
it was the lack of proper notice regarding the pre-qualification requirement
and the bidding that caused the elimination of petitioners B.E. and Best
Built. It was not because of their expired licenses, as private respondents
now claim. Moreover, the plans and specifications which are the contractors'
guide to an intelligent bid, were not issued on time, thus defeating the
guaranty that contractors be placed on equal footing when they submit their
bids. The purpose of competitive bidding is negated if some contractors are
informed ahead of their rivals of the plans and specifications that are to be

the subject of their bids. 6. ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE

THEREOF. It has been held in a long line of cases that a contract granted
without the competitive bidding required by law is void, and the party to
whom it is awarded cannot benefit from it. It has not been shown that the
irregularities committed by PBAC were induced by or participated in by any
of the contractors. Hence, liability shall attach only to the private
respondents for the prejudice sustained by the petitioners as a result of the
anomalies described above. 7. CIVIL LAW; NOMINAL DAMAGES; AWARD
THEREOF, WHEN AVAILABLE. As there is no evidence of the actual loss
suffered by the petitioners, compensatory damage may not be awarded to
them. Moral damages do not appear to be due either. Even so, the Court
cannot close its eyes to the evident bad faith that characterized the conduct
of the private respondents, including the irregularities in the announcement
of the bidding and their efforts to persuade the ISCOF president to award the
project after two days from receipt of the restraining order and before they
moved to lift such order. For such questionable acts, they are liable in
nominal damages at least in accordance with Article 2221 of the Civil Code,
which states: Art. 2221. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant
may be vindicated or, recognized, and not for the purpose of indemnifying
the plaintiff for any loss suffered by him. These damages are to be assessed
against the private respondents in the amount of P10,000.00 each, to be
paid separately for each of petitioners B.E. Construction and Best Built
Construction. D E C I S I O N CRUZ, J: This controversy involves the extent
and applicability of P.D. 1818, which prohibits any court from issuing
injunctions in cases involving infrastructure projects of the government. The
facts are not disputed. The Iloilo State College of Fisheries (henceforth
ISCOF) through its Pre-qualification, Bids and Awards Committee (henceforth
PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the
Western Visayas Daily an Invitation to Bid for the construction of the Micro
Laboratory Building at ISCOF. The notice announced that the last day for the
submission of pre-qualification requirements (PRE C-1) ** was December 2,
1988, and that the bids would be received and opened on December 12,
1988, 3 o'clock in the afternoon. 1 Petitioners Maria Elena Malaga and
Josieleen Najarro, respectively doing business under the name of the B.E.
Construction and Best Built Construction, submitted their pre-qualification
documents at two o'clock in the afternoon of December 2, 1988. Petitioner
Jose Occea submitted his own PRE-C1 on December 5, 1988. All three of
them were not allowed to participate in the bidding because their
documents were considered late, having been submitted after the cut-off
time of ten o'clock in the morning of December 2, 1988. On December 12,
1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo
against the chairman and members of PBAC in their official and personal
capacities. The plaintiffs claimed that although they had submitted their
PRE-C1 on time, the PBAC refused without just cause to accept them. As a
result, they were not included in the list of pre-qualified bidders, could not
secure the needed plans and other documents, and were unable to
participate in the scheduled bidding. In their prayer, they sought the
resetting of the December 12, 1988 bidding and the acceptance of their
PRE-C1 documents. They also asked that if the bidding had already been
conducted, the defendants be directed not to award the project pending

resolution of their complaint. On the same date, Judge Lodrigio L. Lebaquin

issued a restraining order prohibiting PBAC from conducting the bidding and
awarding the project. 2 On December 16, 1988, the defendants filed a
motion to lift the restraining order on the ground that the Court was
prohibited from issued restraining orders, preliminary injunctions and
preliminary mandatory injunctions by P.D. 1818. cdll The decree reads
pertinently as follows: Section 1. No Court in the Philippines shall have
jurisdiction to issue any restraining order, preliminary injunction, or
preliminary infrastructure project, or a mining, fishery, forest or other natural
resource development project of the government, or any public utility
operated by the government, including among others public utilities for the
transport of the goods and commodities, stevedoring and arrastre contracts,
to prohibit any person or persons, entity or government official from
proceeding with, or continuing the execution or implementation of any such
project, or the operation of such public utility, or pursuing any lawful activity
necessary for such execution, implementation or operation. The movants
also contended that the question of the propriety of a preliminary injunction
had become moot and academic because the restraining order was received
late, at 2 o'clock in the afternoon of December 12, 1988, after the bidding
had been conducted and closed at eleven thirty in the morning of that date.
In their opposition of the motion, the plaintiffs argued against the
applicability of P.D. 1818, pointing out that while ISCOF was a state college,
it had its own charter and separate existence and was not part of the
national government or of any local political subdivision. Even if P.D. 1818
were applicable, the prohibition presumed a valid and legal government
project, not one tainted with anomalies like the project at bar. They also
cited Filipinas Marble Corp. vs. IAC, 3 where the Court allowed the issuance
of a writ of preliminary injunction despite a similar prohibition found in P.D.
385. The Court therein stated that: The government, however, is bound by
basic principles of fairness and decency under the due process clauses of
the Bill of Rights. P.D. 385 was never meant to protect officials of
government-lending institutions who take over the management of a
borrower corporation, lead that corporation to bankruptcy through
mismanagement or misappropriation of its funds, and who, after ruining it,
use the mandatory provisions of the decree to avoid the consequences of
their misleads (p. 188, emphasis supplied). On January 2, 1989, the trial
court lifted the restraining order and denied the petition for preliminary
injunction. It declared that the building sought to be construed at the ISCOF
was an infrastructure project of the government falling within the coverage
of P.D. 1818. Even if it were not, the petition for the issuance of a writ of
preliminary injunction would still fail because the sheriff's return showed that
PBAC was served a copy of the restraining order after the bidding sought to
be restrained had already been held. Furthermore, the members of the PBAC
could not be restrained from awarding the project because the authority to
do so was lodged in the President of the ISCOF, who was not a party to the
case. 4 In the petition now before us, it is reiterated that P.D. 1818 does not
cover the ISCOF because of its separate and distinct corporate personality. It
is also stressed again that the prohibition under P.D. 1818 could not apply to
the present controversy because the project was vitiated with irregularities,
to wit: 1. The invitation to bid as published fixed the deadline of submission
of prequalification document on December 2, 1988 without indicating any

time, yet after 10:00 o'clock of the given late, the PBAC already refused to
accept petitioners' documents. 2. The time and date of bidding was
published as December 12, 1988 at 3:00 p.m. yet it was held at 10:00
o'clock in the morning. 3. Private respondents, for the purpose of inviting
bidders to participate, issued a mimeographed "Invitation to Bid" form,
which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain the
particulars of the project subject of bidding for the purpose of. (i) enabling
bidders to make an intelligent and accurate bids; (ii) for PBAC to have a
uniform basis for evaluating the bids; (iii) to prevent collusion between a
bidder and the PBAC, by opening to all the particulars of a project.
Additionally, the Invitation to Bid prepared by the respondents and the
Itemized Bill of Quantities therein were left blank. 5 And although the project
in question was a "Construction," the private respondents used an Invitation
to Bid form for "Materials." 6 The petitioners also point out that the validity
of the writ of preliminary injunction had not yet become moot and academic
because even if the bids had been opened before the restraining order was
issued, the project itself had not yet been awarded. The ISCOF president was
not an indispensable party because the signing of the award was merely a
ministerial function which he could perform only upon the recommendation
of the Award Committee. At any rate, the complaint had already been duly
amended to include him as a party defendant. In their Comment, the private
respondents maintain that since the members of the board of trustees of the
ISCOF are all government officials under Section 7 of P.D. 1523 and since the
operations and maintenance of the ISCOF are provided for in the General
Appropriations Law, it is should be considered a government institution
whose infrastructure project is covered by P.D. 1818. Regarding the schedule
for pre-qualification, the private respondents insist that PBAC posted on the
ISCOF bulletin board an announcement that the deadline for the submission
of pre-qualifications documents was at 10 o'clock of December 2, 1988, and
the opening of bids would be held at 1 o'clock in the afternoon of December
12, 1988. As of ten o'clock in the morning of December 2, 1988, B.E.
construction and Best Built construction had filed only their letters of intent.
At two o'clock in the afternoon, B.E., and Best Built filed through their
common representative, Nenette Garuello, their pre-qualification documents
which were admitted but stamped "submitted late." The petitioners were
informed of their disqualification on the same date, and the disqualification
became final on December 6, 1988. Having failed to take immediate action
to compel PBAC to pre-qualify them despite their notice of disqualification,
they cannot now come to this Court to question the binding proper in which
they had not participated. In the petitioners' Reply, they raise as an
additional irregularity the violation of the rule that where the estimate
project cost is from P1M to P5M, the issuance of plans, specifications and
proposal book forms should made thirty days before the date of bidding. 7
They point out that these forms were issued only on December 2, 1988, and
not at the latest on November 12, 1988, the beginning of the 30-day period
prior to the scheduled bidding. In their Rejoinder, the private respondents
aver that the documents of B.E. and Best Built were received although filed
late and were reviewed by the Award Committee, which discovered that the
contractors had expired licenses. B.E.'s temporary certificate of Renewal of
Contractor's License was valid only until September 30, 1988, while Best
Built's license was valid only up to June 30, 1988. The Court has considered

the arguments of the parties in light of their testimonial and documentary

evidence and the applicable laws and jurisprudence. It finds for the
petitioners. The 1987 Administrative Code defines a government
instrumentality as follows: Instrumentality refers to any agency of the
National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions, and government-owned or
controlled corporations. (Sec. 2 (5) Introductory Provisions). The same Code
describes a chartered institution thus: Chartered institution refers to any
agency organized or operating under a special charter, and vested by law
with functions relating to specific constitutional policies or objectives. This
term includes the state universities and colleges, and the monetary
authority of the state. (Sec. 2 (12) Introductory Provisions). It is clear from
the above definitions that ISCOF is a chartered institution and is therefore
covered by P.D. 1818. There are also indications in its charter that ISCOF is a
government instrumentality. First, it was created in pursuance of the
integrated fisheries development policy of the State, a priority program of
the government of effect the socio-economic life of the nation. Second, the
Treasurer of the Republic of the Philippines also be the ex-officio Treasurer of
the state college with its accounts and expenses to be audited by the
Commission on Audit or its duly authorized representative. Third, heads of
bureaus and offices of the National Government are authorized to loan or
transfer to it, upon request of the president of the state college, such
apparatus, equipment, or supplies and even the services of such employees
as can be spared without serious detriment to public service. Lastly, an
additional amount of P1.5M had been appropriated out of the funds of the
National Treasury and it was also decreed in its charter that the funds and
maintenance of the state college would henceforth be included in the
General Appropriations Law. 8 Nevertheless, it does not automatically follow
that ISCOF is covered by the prohibition in the said decree. In the case of
Datiles and Co. vs. Sucaldito, 9 this Court interpreted a similar prohibition
contained in P.D. 605, the law after which P.D. 1818 was patterned. It was
there declared that the prohibition pertained to the issuance of injunctions
or restraining orders by courts against administrative acts in controversies
involving facts or the exercise of discretion in technical cases. The Court
observed that to allow the courts to judge these matters would disturb the
smooth functioning of the administrative machinery. Justice Teodoro Padilla
made it clear, however, that on issues definitely outside of this dimension
and involving questions of law, courts could not be prevented by P.D. No.
605 from exercising their power to restrain or prohibit administrative acts.
We see no reason why the above ruling should not apply to P.D. 1818. There
are at least two irregularities committed by PBAC that justified injunction of
the bidding and the award of the project. First, PBAC set deadlines for the
filing of the PRE-C1 and the opening of bids and then changed these
deadlines without prior notice to prospective participants. Under the Rules
Implementing P.D. 1594, prescribing policies and guidelines for government
infrastructure contracts, PBAC shall provide prospective bidders with the
Notice of Prequalification and other relevant information regarding the
proposed work. Prospective contractors shall be required to file their ARC-

Contractors Confidential Application for Registration & Classifications & the

PRE-C2 Confidential Pre-qualification Statement for the Project (prior to the
amendment of the rules, this was referred to as PRE-C1) not later than the
deadline set in the published Invitation to Bid, after which date no PRE-C2
shall be submitted and received. Invitations to Bid shall be advertised for at
least three times within a reasonable period but in no case less than two
weeks in at least two newspapers of general circulations. 10 PBAC
advertised the pre-qualification deadline as December 2, 1988, without
stating the hour thereof, and announced that the opening of bids would be
at 3 o'clock in the afternoon of December 12, 1988. This schedule was
changed and a notice of such change was merely posted at the ISCOF
bulletin board. The notice advanced the cut-off time for the submission of
pre-qualification documents to 10 o'clock in the morning of December 2,
1988, and the opening of bids to 1 o'clock in the afternoon of December 12,
1988. The new schedule caused the pre-disqualification of the petitioners as
recorded in the minutes of the PBAC meeting held on December 6, 1988.
While it may be true that there were fourteen contractors who were prequalified despite the change in schedule, this fact did not cure the defect of
the irregular notice. Notably, the petitioners were disqualified because they
failed to meet the new deadline and not because of their expired licenses.
*** We have held that where the law requires a previous advertisement
before government contracts can be awarded, non-compliance with the
requirement will, as a general rule, render the same void and of no effect 11
The facts that an invitation for bids has been communicated to a number of
possible bidders is not necessarily sufficient to establish compliance with the
requirements of the law if it is shown that other public bidders have not
been similarly notified. 12 Second, PBAC was required to issue to prequalified applicants the plans, specifications and proposal book forms for the
project to be bid thirty days before the date of bidding if the estimate project
cost was between P1M and P5M. PBAC has not denied that these forms were
issued only on December 2, 1988, or only ten days before the bidding
scheduled for December 12, 1988. At the very latest, PBAC should have
issued them on November 12, 1988, or 30 days before the scheduled
bidding. It is apparent that the present controversy did not arise from the
discretionary acts of the administrative body nor does it involve merely
technical matters. What is involved here is non-compliance with the
procedural rules on bidding which required strict observance. The purpose of
the rules implementing P.D. 1594 is to secure competitive bidding and to
prevent favoritism, collusion and fraud in the award of these contracts to the
detriment of the public. This purpose was defeated by the irregularities
committed by PBAC. It has been held that the three principles in public
bidding are the offer to the public, an opportunity for competition and a
basis for exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character of the
system and thwarts and purpose of its adoption. 13 In the case at bar, it was
the lack of proper notice regarding the pre-qualification requirement and the
bidding that caused the elimination of petitioners B.E. and Best Built. It was
not because of their expired licenses, as private respondents now claim.
Moreover, the plans and specifications which are the contractors' guide to an
intelligent bid, were not issued on time, thus defeating the guaranty that
contractors be placed on equal footing when they submit their bids. The

purpose of competitive bidding is negated if some contractors are informed

ahead of their rivals of the plans and specifications that are to be the subject
of their bids. P.D. 1818 was not intended to shield from judicial scrutiny
irregularities committed by administrative agencies such as the anomalies
above described. Hence, the challenged restraining order was not
improperly issued by the respondent judge and the writ of preliminary
injunction should not have been denied. We note from Annex Q of the
private respondent's memorandum, however, that the subject project has
already been "100% completed as to the Engineering Standard." This fait
accompli has made the petition for a writ of preliminary injunction moot and
academic. We come now to the liabilities of the private respondents. It has
been held in a long line of cases that a contract granted without the
competitive bidding required by law is void, and the party to whom it is
awarded cannot benefit from it14. It has not been shown that the
irregularities committed by PBAC were induced by or participated in by any
of the contractors. Hence, liability shall attach only to the private
respondents for the prejudice sustained by the petitioners as a result of the
anomalies described above. As there is no evidence of the actual loss
suffered by the petitioners, compensatory damage may not be awarded to
them. Moral damages do not appear to be due either. Even so, the Court
cannot close its eyes to the evident bad faith that characterized the conduct
of the private respondents, including the irregularities in the announcement
of the bidding and their efforts to persuade the ISCOF president to award the
project after two days from receipt of the restraining order and before they
moved to lift such order. For such questionable acts, they are liable in
nominal damages at least in accordance with Article 2221 of the Civil Code,
which states: "Art. 2221. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant
may be vindicated or, recognized, and not for the purpose of indemnifying
the plaintiff for any loss suffered by him. These damages are to assessed
against the private respondents in the amount of P10,000.00 each, to be
paid separately for each of petitioners B.E. Construction and Best Built
Construction. The other petitioner, Occea Builders, is not entitled to relief
because it admittedly submitted its pre-qualification documents on
December 5, 1988, or three days after the deadline. WHEREFORE, judgment
is hereby rendered: a) upholding the restraining order dated December 12,
1988, as not covered by the prohibition in P.D. 1818; b) ordering the
chairman and the members of the PBAC board of trustees, namely Manuel R.
Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to
each pay separately to petitioners Maria Elena Malaga and Josieleen Najarro
nominal damages P10,000.00 each; and c) removing the said chairman and
members from the PBAC board of trustees, or whoever among them is still
incumbent therein, for their malfeasance in office. Costs against PBAC. Let a
copy of this decision be sent to the Office of the Ombudsman. SO ORDERED.
Grio-Aquino, Medialdea and Bellosillo, JJ., concur.

G.R. No. 135945

March 7, 2001
THE UNITED RESIDENTS OF DOMINICAN HILL, INC., represented by
its President RODRIGO S. MACARIO, SR., petitioner,
vs.
COMMISSION ON THE SETTLEMENT OF LAND PROBLEMS,
represented by its Commissioner, RUFINO V. MIJARES; MARIO
PADILAN, PONCIANO BASILAN, HIPOLITO ESLAVA, WILLIAM
LUMPISA, PACITO MOISES, DIONISIO ANAS, NOLI DANGLA,
NAPOLEON BALESTEROS, ELSIE MOISES, SEBIO LACWASAN, BEN
FLORES, DOMINGO CANUTAB, MARCELINO GABRIANO, TINA
TARNATE, ANDREW ABRAZADO, DANNY LEDDA, FERNANDO DAYAO,
JONATHAN DE LA PENA, JERRY PASSION, PETER AGUINSOD, and
LOLITA DURAN, respondents.
DE LEON, JR., J.:
Before us is a petition for prohibition and declaratory relief seeking the
annulment of a status quo order 1 dated September 29, 1998 issued by the
public respondent Commission on the Settlement of Land Problems
(COSLAP, for brevity) in COSLAP Case No. 98-253.
The facts are:
The property being fought over by the parties is a 10.36-hectare property in
Baguio City called Dominican Hills, formerly registered in the name of
Diplomat Hills, Inc. It appeared that the property was mortgaged to the
United Coconut Planters Bank (UCPB) which eventually foreclosed the
mortgage thereon and acquired the same as highest bidder. On April 11,
1983, it was donated to the Republic of the Philippines by UCPB through its
President, Eduardo Cojuangco. The deed of donation stipulated that
Dominican Hills would be utilized for the "priority programs, projects,
activities in human settlements and economic development and
governmental purposes" of the Ministry of Human Settlements.
On December 12, 1986, the then President Corazon C. Aquino issued
Executive Order No. 85 abolishing the Office of Media Affairs and the
Ministry of Human Settlements. All agencies under the latter's supervision as
well as all its assets, programs and projects, were transferred to the
Presidential Management Staff (PMS).2
On October 18, 1988, the PMS received an application from petitioner
UNITED RESIDENTS OF DOMINICAN HILL, INC. (UNITED, for brevity), a
community housing association composed of non-real property owning
residents of Baguio City, to acquire a portion of the Dominican Hills property.
On February 2, 1990, PMS Secretary Elfren Cruz referred the application to
the HOME INSURANCE GUARANTY CORPORATION (HIGC). HIGC consented to
act as originator for UNITED. 3 Accordingly, on May 9, 1990, a Memorandum

of Agreement was signed by and among the PMS, the HIGC, and UNITED.
The Memorandum of Agreement called for the PMS to sell the Dominican
Hills property to HIGC which would, in turn, sell the same to UNITED. The
parties agreed on a selling price of P75.00 per square meter.
Thus, on June 12, 1991, HIGC sold 2.48 hectares of the property to UNITED.
The deed of conditional sale provided that ten (10) per cent of the purchase
price would be paid upon signing, with the balance to be amortized within
one year from its date of execution. After UNITED made its final payment on
January 31, 1992, HIGC executed a Deed of Absolute Sale dated July 1, 1992.
Petitioner alleges that sometime in 1993, private respondents entered the
Dominican Hills property allocated to UNITED and constructed houses
thereon. Petitioner was able to secure a demolition order from the city
mayor.4
Unable to stop the razing of their houses, private respondents, under the
name DOMINICAN HILL BAGUIO RESIDENTS HOMELESS ASSOCIATION
(ASSOCIATION, for brevity) filed an action 5 for injunction docketed as Civil
Case No. 3316-R, in the Regional Trial Court of Baguio City, Branch 4. Private
respondents were able to obtain a temporary restraining order but their
prayer for a writ of preliminary injunction was later denied in an Order dated
March 18, 1996.6
While Civil Case No. 3316-R was pending, the ASSOCIATION, this time
represented by the Land Reform Beneficiaries Association, Inc.
(BENEFICIARIES, for brevity), filed Civil Case No. 3382-R before Branch 61 of
the same court. The complaint 7 prayed for damages, injunction and
annulment of the said Memorandum of Agreement between UNITED and
HIGC. Upon motion of UNITED, the trial court in an Order dated May 27,
1996 dismissed Civil Case No. 3382-R. 8 The said Order of dismissal is
currently on appeal with the Court of Appeals.9
Demolition Order No. 1-96 was subsequently implemented by the Office of
the City Mayor and the City Engineer's Office of Baguio City. However,
petitioner avers that private respondents returned and reconstructed the
demolished structures.
To forestall the re-implementation of the demolition order, private
respondents filed on September 29, 1998 a petition 10 for annulment of
contracts with prayer for a temporary restraining order, docketed as COSLAP
Case No. 98-253, in the Commission on the Settlement of Land Problems
(COSLAP) against petitioner, HIGC, PMS, the City Engineer's Office, the City
Mayor, as well as the Register of Deeds of Baguio City. On the very same
day, public respondent COSLAP issued the contested order requiring the
parties to maintain the status quo.
Without filing a motion for reconsideration from the aforesaid status quo
order, petitioner filed the instant petition questioning the jurisdiction of the
COSLAP.
The issues we are called upon to resolve are:
1
IS THE COMMISSION ON THE SETTLEMENT OF LAND PROBLEMS [COSLAP]
CREATED UNDER EXECUTIVE ORDER NO. 561 BY THE OFFICE OF THE
PHILIPPINES [sic] EMPOWERED TO HEAR AND TRY A PETITION FOR
ANNULMENT OF CONTRACTS WITH PRAYER FOR A TEMPORARY RESTRAINING
ORDER AND THUS, ARROGATE UNTO ITSELF THE POWER TO ISSUE STATUS
QUO ORDER AND CONDUCT A HEARING THEREOF [sic]?

2
ASSUMING THAT THE COMMISSION ON THE SETTLEMENT OF LAND
PROBLEMS [COSLAP] HAS JURISDICTION ON THE MATTER, IS IT EXEMPTED
FROM OBSERVING A CLEAR CASE OF FORUM SHOPPING ON THE PART OF THE
PRIVATE RESPONDENTS?
To the extent that the instant case is denominated as one for declaratory
relief, we initially clarify that we do not possess original jurisdiction to
entertain such petitions.11 Such is vested in the Regional Trial
Courts.12Accordingly, we shall limit our review to ascertaining if the
proceedings before public respondent COSLAP are without or in excess, of its
jurisdiction. In this wise, a recounting of the history of the COSLAP may
provide useful insights into the extent of its powers and functions.
The COSLAP was created by virtue of Executive Order No. 561 dated
September 21, 1979. Its forerunner was the Presidential Action Committee
on Land Problems (PACLAP) founded on July 31, 1970 by virtue of Executive
Order No. 251. As originally conceived, the committee was tasked "to
expedite and coordinate the investigation and resolution of land disputes,
streamline and shorten administrative procedures, adopt bold and decisive
measures to solve land problems, and/or recommend other solutions." It was
given the power to issue subpoenasduces tecum and ad testificandum and
to call upon any department, office, agency or instrumentality of the
government, including government owned or controlled corporations and
local government units, for assistance in the performance of its functions. At
the time, the PACLAP did not exercise quasi-judicial functions.
On March 19, 1971, Executive Order No. 305 was issued reconstituting the
PACLAP.13 The committee was given exclusive jurisdiction over all cases
involving public lands and other lands of the public domain and accordingly
was tasked:
1. To investigate, coordinate, and resolve expeditiously land disputes,
streamline administrative procedures, and in general, to adopt bold and
decisive measures to solve problems involving public lands and lands of the
public domain;
2. To coordinate and integrate the activities of all government agencies
having to do with public lands or lands of the public domain;
3. To study and review present policies as embodied in land laws and
administrative rules and regulations, in relation to the needs for land of the
agro-industrial sector and small farmers, with the end in view to evolving
and recommending new laws and policies and establishing priorities in the
grant of public land, and the simplification of processing of land applications
in order to relieve the small man from the complexities of existing laws,
rules and regulations;
4. To evolve and implement a system for the speedy investigation and
resolution of land disputes;
5. To receive all complaints of settlers and small farmers, involving public
lands or other lands of the public domain;
6. To look into the conflicts between Christians and non-Christians, between
corporations and small settlers and farmers; cause the speedy settlement of
such conflicts in accordance with priorities or policies established by the
Committee; and
7. To perform such other functions as may be assigned to it by the President.
Thereafter, the PACLAP was reorganized pursuant to Presidential Decree No.

832 dated November 27, 1975.14Its jurisdiction was revised thus:

xxx
xxx
xxx
2. Refer for immediate action any land problem or dispute brought to the
attention of the PACLAP, to any member agency having jurisdiction thereof:
Provided, that when the Executive Committee decides to act on a case, its
resolution, order or decision thereon, shall have the force and effect of a
regular administrative resolution, order or decision, and shall be binding
upon the parties therein involved and upon the member agency having
jurisdiction thereof;
xxx
xxx
xxx
Notably, the said Presidential Decree No. 832 did not contain any provision
for judicial review of the resolutions, orders or decisions of the PACLAP.
On September 21, 1979, the PACLAP was abolished and its functions
transferred to the present Commission on the Settlement of Land Problems
by virtue of Executive Order No. 561. This reorganization, effected in line
with Presidential Decree No. 1416, brought the COSLAP directly under the
Office of the President.15 It was only at this time that a provision for judicial
review was made from resolutions, orders or decisions of the said agency, as
embodied in section 3(2) thereof, to wit:
Powers and functions. The Commission shall have the following powers
and functions:
1. Coordinate the activities, particularly the investigation work, of the
various government offices and agencies involved in the settlement of land
problems or disputes, and streamline administrative procedures to relieve
small settlers and landholders and members of cultural minorities of the
expense and time-consuming delay attendant to the solution of such
problems or disputes;
2. Refer and follow-up for immediate action by the agency having
appropriate jurisdiction any land problem or dispute referred to the
Commission: Provided, that the Commission may, in the following cases,
assume jurisdiction and resolve land problems or disputes which are critical
and explosive in nature considering, for instance, the large number of the
parties involved, the presence or emergence of social tension or unrest, or
other similar critical situations requiring immediate action:
(a) Between occupants/squatters and pasture lease agreement holders or
timber concessionaires;
(b) Between occupants/squatters and government reservation grantees;
(c) Between occupants/squatters and public land claimants or applicants;
(d) Petitions for classification, release and/or subdivision of lands of the
public domain; and
(e) Other similar land problems of grave urgency and magnitude.
The Commission shall promulgate such rules of procedure as will insure
expeditious resolution and action on the above cases. The resolution, order
or decision of the Commission on any of the foregoing cases shall have the
force and effect of a regular administrative resolution, order or decision and
shall be binding upon the parties therein and upon the agency having
jurisdiction over the same. Said resolution, order or decision shall become
final and executory within thirty (30) days from its promulgation and shall be
appealable by certiorari only to the Supreme Court.
xxx
xxx
xxx
In the performance of its functions and discharge of its duties, the

Commission is authorized, through the Commission, to issue subpoena and

subpoena duces tecum for the appearance of witnesses and the production
of records, books and documents before it. It may also call upon any
ministry, office, agency or instrumentality of the National Government,
including government-owned or controlled corporations, and local
governments for assistance. This authority is likewise, conferred upon the
provincial offices as may be established pursuant to Section 5 of this
Executive Order.
In Baaga v. Commission on the Settlement of Land Problems,16 we
characterized the COSLAP's jurisdiction as being general in nature, as
follows:
Petitioners also contend in their petition that the COSLAP itself has no
jurisdiction to resolve the protest and counter-protest of the parties because
its power to resolve land problems is confined to those cases "which are
critical and explosive in nature."
This contention is devoid of merit. It is true that Executive Order No. 561
provides that the COSLAP may take cognizance of cases which are "critical
and explosive in nature considering, for instance, the large number of
parties involved, the presence or emergence of social tension or unrest, or
other similar critical situations requiring immediate action." However, the
use of the word "may" does not mean that the COSLAP's jurisdiction is
merely confined to the above mentioned cases. The provisions of the said
Executive Order are clear that the COSLAP was created as a means of
providing a more effective mechanism for the expeditious settlement of land
problems in general, which are frequently the source of conflicts among
settlers, landowners and cultural minorities. Besides, the COSLAP merely
took over from the abolished PACLAP whose functions, including its
jurisdiction, power and authority to act on, decide and resolve land disputes
(Sec. 2, P.D. No. 832) were all assumed by it. The said Executive Order No.
561 containing said provision, being enacted only on September 21, 1979,
cannot affect the exercise of jurisdiction of the PACLAP Provincial Committee
of Koronadal on September 29, 1978. Neither can it affect the decision of the
COSLAP which merely affirmed said exercise of jurisdiction.
Given the facts of the case, it is our view that the COSLAP is not justified in
assuming jurisdiction over the controversy. As matters stand, it is not the
judiciary's place to question the wisdom behind a law; 17 our task is to
interpret the law. We feel compelled to observe, though, that by reason of
the ambiguous terminology employed in Executive Order No. 561, the power
to assume jurisdiction granted to the COSLAP provides an ideal breeding
ground for forum shopping, as we shall explain subsequently. Suffice it to
state at this stage that the COSLAP may not assume jurisdiction over cases
which are already pending in the regular courts.
The reason is simple. Section 3(2) of Executive Order 561 speaks of any
resolution, order or decision of the COSLAP as having the "force and effect of
a regular administrative resolution, order or decision." The qualification
places an unmistakable emphasis on the administrative character of the
COSLAP's determination, amplified by the statement that such resolutions,
orders or decisions "shall be binding upon the parties therein and upon the
agency having jurisdiction over the same." An agency is defined by statute
as "any of the various units of the Government, including a department,
bureau, office, instrumentality, or government-owned or controlled

corporation, or a local government or a distinct unit therein." 18 A

department, on the other hand, "refers to anexecutive department created
by law."19 Whereas, a bureau is understood to refer "to any principal
subdivision of any department."20 In turn, an office "refers, within the
framework of governmental organization, to any major functional unit of a
department or bureau including regional offices. It may also refer to any
position held or occupied by individual persons, whose functions are defined
by law or regulation."21 An instrumentality is deemed to refer "to any agency
of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds and
enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned or
controlled corporations."22 Applying the principle in statutory construction of
ejusdem generis, i.e., "where general words follow an enumeration or
persons or things, by words of a particular and specific meaning, such
general words are not to be construed in their widest extent, but are to be
held as applying only to persons or things of the same kind or class as those
specifically mentioned,"23 section 3(2) of Executive Order 561 patently
indicates that the COSLAP's dispositions are binding on administrative
orexecutive agencies. The history of the COSLAP itself bolsters this view.
Prior enactments enumerated its member agencies among which it was to
exercise a coordinating function.
The COSLAP discharges quasi-judicial functions:
"Quasi-judicial function" is a term which applies to the actions, discretion,
etc. of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, and
draw conclusions from them, as a basis for their official action and to
exercise discretion of a judicial nature."24
However, it does not depart from its basic nature as an administrative
agency, albeit one that exercises quasi-judicial functions. Still, administrative
agencies are not considered courts; they are neither part of the judicial
system nor are they deemed judicial tribunals. 25 The doctrine of separation
of powers observed in our system of government reposes the three (3) great
powers into its three (3) branches the legislative, the executive, and the
judiciary each department being co-equal and coordinate, and supreme in
its own sphere. Accordingly, the executive department may not, by its own
fiat, impose the judgment of one of its own agencies, upon the judiciary.
Indeed, under the expanded jurisdiction of the Supreme Court, it is
empowered "to determine whether or not there has been grave abuse of
discretion amounting to lack of or excess of jurisdiction on the part of any
branch or instrumentality of the Government."26
There is an equally persuasive reason to grant the petition. As an additional
ground for the annulment of the assailed status quo order of COSLAP,
UNITED accuses private respondents of engaging in forum shopping. Forum
shopping exists when a party "repetitively avail[s] of several judicial
remedies in different courts, simultaneously or successively, all substantially
founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either pending
in, or already resolved adversely by some other court." 27 In this connection,
Supreme Court Administrative Circular No. 04-94 dated February 8, 1994

provides:
Revised Circular No. 28-91, dated February 8, 1994, applies to and governs
the filing of petitions in the Supreme Court and the Court of Appeals and is
intended to prevent the multiple filing of petitions or complaints involving
the same issues in other tribunals or agencies as a form of forum shopping.
Complementary thereto and for the same purpose, the following
requirements, in addition to those in pertinent provisions of the Rules of
Court and existing circulars, shall be strictly complied with in the filing of
complaints, petitions, applications or other initiatory pleadings in all courts
and agencies other than the Supreme Court and the Court of Appeals and
shall be subject to the sanctions provided hereunder.
1. The plaintiff, petitioner, applicant or principal part seeking relief in the
complaint, petition, application or other initiatory pleading shall certify under
oath in such original pleading, or in a sworn certification annexed thereto
and simultaneously filed therewith, to the truth of the following facts and
undertakings: (a) he has not theretofore commenced any other action or
proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no
such action or proceedings is pending in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (c) if there is any such action or
proceeding which is either pending or may have been terminated, he must
state the status thereof; and (d) if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court,
the Court of Appeals or any other tribunal or agency, he undertakes to
report that fact within five (5) days therefrom to the court or agency wherein
the original pleading and sworn certification contemplated herein have been
filed.
The complaint and other initiatory pleadings referred to and subject of this
Circular are the original civil complaint, counterclaim, cross-claim, third
(fourth, etc.) party complaint, or complaint-in-intervention, petition, or
application wherein a party asserts his claim for relief.
2. Any violation of this Circular shall be a cause for the dismissal of the
complaint, petition, application or other initiatory pleading, upon motion and
after hearing. However, any clearly willful and deliberate forum shopping by
any other party and his counsel through the filing of multiple complaints or
other initiatory pleadings to obtain favorable action shall be a ground for the
summary dismissal thereof and shall constitute contempt of court.
Furthermore, the submission of a false certification or non-compliance with
the undertakings therein, as provided in Paragraph 1 hereof, shall constitute
indirect contempt of court, without prejudice to disciplinary proceedings
against the counsel and the filing of a criminal action against the part.
[emphasis supplied]
xxx
xxx
xxx
The said Administrative Circular's use of the auxiliary verb "shall" imports
"an imperative obligation . . . inconsistent with the idea of discretion." 28
Hence, compliance therewith is mandatory.29
It bears stressing that there is a material distinction between the
requirement of submission of the certification against forum shopping from
the undertakings stated therein. Accordingly,
x x x [f]ailure to comply with this requirement cannot be excused by the fact
that plaintiff is not guilty of forum shopping. The Court of Appeals, therefore,

erred in concluding that Administrative Circular No. 04-94 did not apply to
private respondent's case merely because her complaint was not based on
petitioner's cause of action. The Circular applies to any complaint, petition,
application, or other initiatory pleading, regardless of whether the party
filing it has actually committed forum shopping. Every party filing a
complaint or any other initiatory pleading is required to swear under oath
that he has not committed nor will he commit forum shopping. Otherwise,
we would have an absurd situation where the parties themselves would be
the judge of whether their actions constitute a violation of said Circular, and
compliance therewith would depend on their belief that they might or might
not have violated the requirement. Such interpretation of the requirement
would defeat the very purpose of Circular 04-94.
Indeed, compliance with the certification against forum shopping is separate
from, and independent of, the avoidance of forum shopping itself. Thus,
there is a difference in the treatment in terms of imposable sanctions
between failure to comply with the certification requirement and violation of
the prohibition against forum shopping. The former is merely a cause for the
dismissal, without prejudice, of the complaint or initiatory pleading, while
the latter is a ground for summary dismissal thereof and constitutes direct
contempt.30
A scrutiny of the pleadings filed before the trial courts and the COSLAP
sufficiently establishes private respondents' propensity for forum shopping.
We lay the premise that the certification against forum shopping must be
executed by the plaintiff or principal party, and not by his counsel. 31 Hence,
one can deduce that the certification is a peculiar personal representation
on the part of the principal party, an assurance given to the court or other
tribunal that there are no other pending cases involving basically the same
parties, issues and causes of action. In the case at bar, private respondents'
litany of omissions range from failing to submit the required certification
against forum shopping to filing a false certification, and then to forum
shopping itself. First, the petition filed before the COSLAP conspicuously
lacked a certification against forum shopping. Second, it does not appear
from the record that the ASSOCIATION informed Branch 4 of the Regional
Trial Court of Baguio City before which Civil Case No. 3316-R was pending,
that another action, Civil Case No. 3382-R, was filed before Branch 61 of the
same court. Another group of homeless residents of Dominican Hill, the
LAND REFORM BENEFICIARIES ASSOCIATION, INC. initiated the latter case.
The aforesaid plaintiff, however, does not hesitate to admit that it filed the
second case in representation of private respondent, as one of its affiliates.
In the same manner, the certification against forum shopping accompanying
the complaint in Civil Case No. 3382-R does not mention the pendency of
Civil Case No. 3316-R. In fact, the opposite assurance was given, that there
was no action pending before any other tribunal. Another transgression is
that both branches of the trial court do not appear to have been notified of
the filing of the subject COSLAP Case No. 98-253.
It is evident from the foregoing facts that private respondents, in filing
multiple petitions, have mocked our attempts to eradicate forum shopping
and have thereby upset the orderly administration of justice. They sought
recourse from three (3) different tribunals in order to obtain the writ of
injunction they so desperately desired. "The willful attempt by private
respondents to obtain a preliminary injunction in another court after it failed

to acquire the same from the original court constitutes grave abuse of the
judicial process."32
In this connection, we expounded on forum shopping in Viva Productions,
Inc. v. Court of Appeals33 that:
Private respondent's intention to engage in forum shopping becomes
manifest with undoubted clarity upon the following considerations. Notably,
if not only to ensure the issuance of an injunctive relief, the significance of
the action for damages before the Makati court would be nil. What damages
against private respondent would there be to speak about if the Paraaque
court already enjoins the performance of the very same act complained of in
the Makati court? Evidently, the action for damages is premature if not for
the preliminary injunctive relief sought. Thus, we find grave abuse of
discretion on the part of the Makati court, being a mere co-equal of the
Paraaque court, in not giving due deference to the latter before which the
issue of the alleged violation of the sub-judice rule had already been raised
and submitted. In such instance, the Makati court, if it was wary of
dismissing the action outrightly under Administrative Circular No. 04-94,
should have, at least, ordered the consolidation of its case with that of the
Paraaque court, which had first acquired jurisdiction over the related case x
x x, or it should have suspended the proceedings until the Paraaque court
may have ruled on the issue x x x.
xxx
xxx
xxx
Thus, while we might admit that the causes of action before the Makati
court and the Paraaque court are distinct, and that private respondent
cannot seek civil indemnity in the contempt proceedings, the same being in
the nature of criminal contempt, we nonetheless cannot ignore private
respondent's intention of seeking exactly identical reliefs when it sought the
preliminary relief of injunction in the Makati court. As earlier indicated, had
private respondent been completely in good faith there would have been no
hindrance in filing the action for damages with the regional trial court of
Paraaque and having it consolidated with the contempt proceedings before
Branch 274, so that the same issue on the alleged violation of the sub judice
rule will not have to be passed upon twice, and there would be no possibility
of having two courts of concurrent jurisdiction making two conflicting
resolutions.
Yet from another angle, it may be said that when the Paraaque court
acquired jurisdiction over the said issue, it excluded all other courts of
concurrent jurisdiction from acquiring jurisdiction over the same. To hold
otherwise would be to risk instances where courts of concurrent jurisdiction
might have conflicting orders. This will create havoc and result in an
extremely disordered administration of justice. Therefore, even on the
assumption that the Makati court may acquire jurisdiction over the subject
matter of the action for damages, without prejudice to the application of
Administrative Circular No. 04-94, it cannot nonetheless acquire jurisdiction
over the issue of whether or not petitioner has violated the sub judice rule.
At best, theMakati court may hear the case only with respect to the alleged
injury suffered by private respondent afterthe Paraaque court shall have
ruled favorably on the said issue.
We also noted several indications of private respondents' bad faith. The
complaint filed in Civil Case No. 3316-R was prepared by the ASSOCIATION's
counsel, Atty. Conrado Villamor Catral, Jr. whereas the complaint filed in Civil

Case No. 3382-R was signed by a different lawyer, Atty. Thomas S. Tayengco.
With regard to the petition filed with the COSLAP, the same was signed by
private respondents individually. As to the latter case, we noted that the
petition itself could not have been prepared by ordinary laymen, inasmuch
as it exhibits familiarity with statutory provisions and legal concepts, and is
written in a lawyerly style.
In the same manner, the plaintiffs in the three (3) different cases were made
to appear as dissimilar: in Civil Case No. 3316-R, the plaintiff was
ASSOCIATION of which private respondent Mario Padilan was head, while the
plaintiff in Civil Case No. 3382-R was the BENEFICIARIES. Before the COSLAP,
private respondents themselves were the petitioners, led again by Padilan. 34
Private respondents also attempted to vary their causes of action: in Civil
Case No. 3382-R and COSLAP Case No. 98-253, they seek the annulment of
the Memorandum of Agreement executed by and among UNITED, the PMS,
and HIGC as well as the transfer certificates of title accordingly issued to
petitioner. All three (3) cases sought to enjoin the demolition of private
respondents' houses.
It has been held that forum shopping is evident where the elements of litis
pendentia or res judicata are present. Private respondents' subterfuge
comes to naught, for the effects of res judicata or litis pendentia may not be
avoided by varying the designation of the parties or changing the form of
the action or adopting a different mode of presenting one's case. 35
In view of the foregoing, all that remains to be done is the imposition of the
proper penalty. A party's willful and deliberate act of forum shopping is
punishable by summary dismissal of the actions filed. 36 The summary
dismissal of both COSLAP Case No. 98-253 and Civil Case No. 3316-R is
therefore warranted under the premises. We shall refrain from making any
pronouncement on Civil Case No. 3382-R, the dismissal of which was
elevated on appeal to the Court of Appeals where it is still pending.
WHEREFORE, the petition is hereby GRANTED. The status quo order dated
September 29, 1998 issued in COSLAP Case No. 98-253 by respondent
Commission On The Settlement Of Land Problems (COSLAP) is hereby SET
ASIDE; and the petition filed in COSLAP Case No. 98-253 and the complaint
in Civil Case No. 3316-R are hereby DISMISSED for lack of jurisdiction and
forum shopping. Costs against private respondents.
SO ORDERED.
G.R. No. 97149 March 31, 1992
FIDENCIO Y. BEJA, SR., petitioner,
vs.
COURT OF APPEALS, HONORABLE REINERIO O. REYES, in his
capacity as Secretary of the Department of Transportation and
Communications; COMMODORE ROGELIO A. DAYAN, in his capacity
as General Manager of the Philippine Ports Authority; DEPARTMENT
OF TRANSPORTATION AND COMMUNICATIONS, ADMINISTRATIVE
ACTION BOARD; and JUSTICE ONOFRE A. VILLALUZ, in his capacity
as Chairman of the Administrative Action Board, DOTC, respondents.
ROMERO, J.:
The instant petition for certiorari questions the jurisdiction of the Secretary
of the Department of Transportation and Communications (DOTC) and/or its
Administrative Action Board (AAB) over administrative cases involving

personnel below the rank of Assistant General Manager of the Philippine

Ports Authority (PPA), an agency attached to the said Department.
Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre
supervisor in 1975. He became Assistant Port Operations Officer in 1976 and
Port Operations Officer in 1977. In February 1988, as a result of the
reorganization of the PPA, he was appointed Terminal Supervisor.
On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed
Administrative Case No. 11-04-88 against petitioner Beja and Hernando G.
Villaluz for grave dishonesty, grave misconduct, willful violation of
reasonable office rules and regulations and conduct prejudicial to the best
interest of the service. Beja and Villaluz allegedly erroneously assessed
storage fees resulting in the loss of P38,150.77 on the part of the PPA.
Consequently, they were preventively suspended for the charges. After a
preliminary investigation conducted by the district attorney for Region X,
Administrative Case No. 11-04-88 was "considered closed for lack of merit."
On December 13, 1988, another charge sheet, docketed as Administrative
Case No. 12-01-88, was filed against Beja by the PPA General Manager also
for dishonesty, grave misconduct, violation of reasonable office rules and
regulations, conduct prejudicial to the best interest of the service and for
being notoriously undesirable. The charge consisted of six (6) different
specifications of administrative offenses including fraud against the PPA in
the total amount of P218,000.00. Beja was also placed under preventive
suspension pursuant to Sec. 41 of P.D. No. 807.
The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and
thereafter, the PPA general manager indorsed it to the AAB for "appropriate
action." At the scheduled hearing, Beja asked for continuance on the ground
that he needed time to study the charges against him. The AAB proceeded
to hear the case and gave Beja an opportunity to present evidence.
However, on February 20, 1989, Beja filed a petition for certiorari with
preliminary injunction before the Regional Trial Court of Misamis Oriental. 2
Two days later, he filed with the AAB a manifestation and motion to suspend
the hearing of Administrative Case No. PPA-AAB-1-049-89 on account of the
pendency of the certiorari proceeding before the court. AAB denied the
motion and continued with the hearing of the administrative case.
Thereafter, Beja moved for the dismissal of the certiorari case below and
proceeded to file before this Court a petition for certiorari with preliminary
injunction and/or temporary restraining order. The case was docketed as
G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et
al." In the en banc resolution of March 30, 1989, this Court referred the case
to the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was
docketed in the Court of Appeals as CA-G.R. SP No. 17270.
Meanwhile, a decision was rendered by the AAB in Administrative Case No.
PPA-AAB-049-89. Its dispositive portion reads:
WHEREFORE, judgment is hereby rendered, adjudging the following, namely:
a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated
from the charge against them;
b) That respondent Fidencio Y. Beja be dismissed from the service;
c) That his leave credits and retirement benefits are declared forfeited;
d) That he be disqualified from re-employment in the government service;
e) That his eligibility is recommended to be cancelled.
Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals

also rendered a decision 4 in CA-G.R. SP No. 17270 dismissing the petition for
certiorari for lack of merit. Hence, Beja elevated the case back to this Court
through an "appeal by certiorari with preliminary injunction and/or
temporary restraining order."
We find the pleadings filed in this case to be sufficient bases for arriving at a
decision and hence, the filing of memoranda has been dispensed with.
In his petition, Beja assails the Court of Appeals for having "decided
questions of substance in a way probably not in accord with law or with the
applicable decisions" of this Court. 5 Specifically, Beja contends that the
Court of Appeals failed to declare that: (a) he was denied due process; (b)
the PPA general manager has no power to issue a preventive suspension
order without the necessary approval of the PPA board of directors; (c) the
PPA general manager has no power to refer the administrative case filed
against him to the DOTC-AAB, and (d) the DOTC Secretary, the Chairman of
the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no
jurisdiction to try the administrative case against him. Simply put, Beja
challenges the legality of the preventive suspension and the jurisdiction of
the DOTC Secretary and/or the AAB to initiate and hear administrative cases
against PPA personnel below the rank of Assistant General Manager.
Petitioner anchors his contention that the PPA general manager cannot
subject him to a preventive suspension on the following provision of Sec. 8,
Art. V of Presidential Decree No. 857 reorganizing the PPA:
(d) the General Manager shall, subject to the approval of the Board, appoint
and remove personnel below the rank of Assistant General Manager.
(Emphasis supplied.)
Petitioner contends that under this provision, the PPA Board of Directors and
not the PPA General Manager is the "proper disciplining authority. 6
As correctly observed by the Solicitor General, the petitioner erroneously
equates "preventive suspension" as a remedial measure with "suspension"
as a penalty for administrative dereliction. The imposition of preventive
suspension on a government employee charged with an administrative
offense is subject to the following provision of the Civil Service Law, P.D. No.
807:
Sec. 41. Preventive Suspension. The proper disciplining authority may
preventively suspend any subordinate officer or employee under his
authority pending an investigation, if the charge against such officer or
employee involves dishonesty, oppression or grave misconduct, or neglect in
the performance of duty, or if there are reasons to believe that the
respondent is guilty of charges which would warrant his removal from the
service.
Imposed during the pendency of an administrative investigation, preventive
suspension is not a penalty in itself. It is merely a measure of precaution so
that the employee who is charged may be separated, for obvious reasons,
from the scene of his alleged misfeasance while the same is being
investigated. 7 Thus, preventive suspension is distinct from the
administrative penalty of removal from office such as the one mentioned in
Sec. 8(d) of P.D. No 857. While the former may be imposed on a respondent
during the investigation of the charges against him, the latter is the penalty
which may only be meted upon him at the termination of the investigation

or the final disposition of the case.

The PPA general manager is the disciplining authority who may, by himself
and without the approval of the PPA Board of Directors, subject a respondent
in an administrative case to preventive suspension. His disciplinary powers
are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted, but also by
Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction to
investigate and decide matters involving disciplinary actions against officers
and employees" in the PPA.
Parenthetically, the period of preventive suspension is limited. It may be
lifted even if the disciplining authority has not finally decided the
administrative case provided the ninety-day period from the effectivity of
the preventive suspension has been exhausted. The employee concerned
may then be reinstated. 8 However, the said ninety-day period may be
interrupted. Section 42 of P.D. No. 807 also mandates that any fault,
negligence or petition of a suspended employee may not be considered in
the computation of the said period. Thus, when a suspended employee
obtains from a court of justice a restraining order or a preliminary injunction
inhibiting proceedings in an administrative case, the lifespan of such court
order should be excluded in the reckoning of the permissible period of the
preventive suspension. 9
With respect to the issue of whether or not the DOTC Secretary and/or the
AAB may initiate and hear administrative cases against PPA Personnel below
the rank of Assistant General Manager, the Court qualifiedlyrules in favor of
petitioner.
The PPA was created through P.D. No. 505 dated July 11, 1974. Under that
Law, the corporate powers of the PPA were vested in a governing Board of
Directors known as the Philippine Port Authority Council. Sec. 5(i) of the
same decree gave the Council the power "to appoint, discipline and remove,
and determine the composition of the technical staff of the Authority and
other personnel."
On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See.
4(a) thereof created the Philippine Ports Authority which would be
"attached" to the then Department of Public Works, Transportation and
Communication. When Executive Order No. 125 dated January 30, 1987
reorganizing the Ministry of Transportation and Communications was issued,
the PPA retained its "attached" status. 10 Even Executive Order No. 292 or
the Administrative Code of 1987 classified the PPA as an agency "attached"
to the Department of Transportation and Communications (DOTC). Sec. 24 of
Book IV, Title XV, Chapter 6 of the same Code provides that the agencies
attached to the DOTC "shall continue to operate and function in accordance
with the respective charters or laws creating them, except when they
conflict with this Code."
Attachment of an agency to a Department is one of the three administrative
relationships mentioned in Book IV, Chapter 7 of the Administrative Code of
1987, the other two being supervision and control and administrative
supervision. "Attachment" is defined in Sec. 38 thereof as follows:
(3) Attachment. (a) This refers to the lateral relationship between the
Department or its equivalent and the attached agency or corporation for
purposes of policy and program coordination. The coordination shall be
accomplished by having the department represented in the governing board

of the attached agency or corporation, either as chairman or as a member,

with or without voting rights, if this is permitted by the charter; having the
attached corporation or agency comply with a system of periodic reporting
which shall reflect the progress of programs and projects; and having the
department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework for the
internal policies of the attached corporation or agency;
(b) Matters of day-to-day administration or all those pertaining to internal
operations shall he left to the discretion or judgment of the executive officer
of the agency or corporation. In the event that the Secretary and the head of
the board or the attached agency or corporation strongly disagree on the
interpretation and application of policies, and the Secretary is unable to
resolve the disagreement, he shall bring the matter to the President for
resolution and direction;
(c) Government-owned or controlled corporations attached to a department
shall submit to the Secretary concerned their audited financial statements
within sixty (60) days after the close of the fiscal year; and
(d) Pending submission of the required financial statements, the corporation
shall continue to operate on the basis of the preceding year's budget until
the financial statements shall have been submitted. Should any
government-owned or controlled corporation incur an operation deficit at the
close of its fiscal year, it shall be subject to administrative supervision of the
department; and the corporation's operating and capital budget shall be
subject to the department's examination, review, modification and approval.
(emphasis supplied.)
An attached agency has a larger measure of independence from the
Department to which it is attached than one which is under departmental
supervision and control or administrative supervision. This is borne out by
the "lateral relationship" between the Department and the attached agency.
The attachment is merely for "policy and program coordination." With
respect to administrative matters, the independence of an attached agency
from Departmental control and supervision is further reinforced by the fact
that even an agency under a Department's administrative supervision is free
from Departmental interference with respect to appointments and other
personnel actions "in accordance with the decentralization of personnel
functions" under the Administrative Code of 1987. 11 Moreover, the
Administrative Code explicitly provides that Chapter 8 of Book IV on
supervision and control shall not apply to chartered institutions attached to
a Department. 12
Hence, the inescapable conclusion is that with respect to the management
of personnel, an attached agency is, to a certain extent, free from
Departmental interference and control. This is more explicitly shown by P.D.
No. 857 which provides:
Sec. 8. Management and Staff. a) The President shall, upon the
recommendation of the Board, appoint the General Manager and the
Assistant General Managers.
(b) All other officials and employees of the Authority shall be selected and
appointed on the basis of merit and fitness based on a comprehensive and
progressive merit system to be established by the Authority immediately
upon its organization and consistent with Civil Service rules and

regulations.The recruitment, transfer, promotion, and dismissal of all

personnel of the Authority, including temporary workers, shall be governed
by such merit system.
(c) The General Manager shall, subject to the approval of the Board,
determine the staffing pattern and the number of personnel of the Authority,
define their duties and responsibilities, and fix their salaries and
emoluments. For professional and technical positions, the General Manager
shall recommend salaries and emoluments that are comparable to those of
similar positions in other government-owned corporations, the provisions of
existing rules and regulations on wage and position classification
notwithstanding.
(d) The General Manager shall, subject to the approval by the Board, appoint
and remove personnel below the rank of Assistant General Manager.
xxx xxx xxx
(emphasis supplied.)
Although the foregoing section does not expressly provide for a mechanism
for an administrative investigation of personnel, by vesting the power to
remove erring employees on the General Manager, with the approval of the
PPA Board of Directors, the law impliedly grants said officials the power to
investigate its personnel below the rank of Assistant Manager who may be
charged with an administrative offense. During such investigation, the PPA
General Manager, as earlier stated, may subject the employee concerned to
preventive suspension. The investigation should be conducted in accordance
with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering
sufficient facts may the PPA General Manager impose the proper penalty in
accordance with law. It is the latter action which requires the approval of the
PPA Board of Directors. 14
From an adverse decision of the PPA General Manager and the Board of
Directors, the employee concerned mayelevate the matter to the
Department Head or Secretary. Otherwise, he may appeal directly to the
Civil Service Commission. The permissive recourse to the Department
Secretary is sanctioned by the Civil Service Law (P.D. No. 807) under the
following provisions:
Sec. 37. Disciplinary Jurisdiction. (a) The Commission shall decide upon
appeal all administrative disciplinary cases involving the imposition of a
penalty of suspension for more than thirty days, or fine in an amount
exceeding thirty days salary, demotion in rank or salary or transfer, removal
or dismissal from office. A complaint may be filed directly with the
Commission by a private citizen against a government official or employee
in which case it may hear and decide the case or it may deputize any
department or agency or official or group of officials to conduct the
investigation. The results of the investigation shall be submitted to the
Commission with recommendation as to the penalty to be imposed or other
action to be taken.
(b) The heads of departments, agencies and instrumentalities, provinces,
cities and municipalities shall have jurisdiction to investigate and decide
matters involving disciplinary action against officers and employees under
their jurisdiction. The decisions shall be final in case the penalty imposed is
suspension for not more than thirty days or fine in an amount not exceeding
thirty days' salary. In case the decision rendered by a bureau or office head

is appealable to the Commission, the same may be initially appealed to the

department and finally to the Commission and pending appeal, the same
shall be executory except when the penalty is removal, in which case the
same shall be executory only after confirmation by the department head.
xxx xxx xxx
(Emphasis supplied.)
It is, therefore, clear that the transmittal of the complaint by the PPA General
Manager to the AAB was premature. The PPA General Manager should have
first conducted an investigation, made the proper recommendation for the
imposable penalty and sought its approval by the PPA Board of Directors. It
was discretionary on the part of the herein petitioner to elevate the case to
the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction of
the case.
The AAB, which was created during the tenure of Secretary Reyes under
Office Order No. 88-318 dated July 1, 1988, was designed to act, decide and
recommend to him "all cases of administrative malfeasance, irregularities,
grafts and acts of corruption in the Department." Composed of a Chairman
and two (2) members, the AAB came into being pursuant to Administrative
Order No. 25 issued by the President on May 25, 1987. 15 Its special nature
as a quasi-judicial administrative body notwithstanding, the AAB is not
exempt from the observance of due process in its proceedings. 16 We are not
satisfied that it did so in this case the respondents protestation that
petitioner waived his right to be heard notwithstanding. It should be
observed that petitioner was precisely questioning the AAB's jurisdiction
when it sought judicial recourse.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it
upholds the power of the PPA General Manager to subject petitioner to
preventive suspension and REVERSED insofar as it validates the jurisdiction
of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1049-89 and rules that due process has been accorded the petitioner.
The AAB decision in said case is hereby declared NULL and VOID and the
case in REMANDED to the PPA whose General Manager shall conduct with
dispatch its reinvestigation.
The preventive suspension of petitioner shall continue unless after a
determination of its duration, it is found that he had served the total of
ninety (90) days in which case he shall be reinstated immediately.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Bidin, GrioAquino, Medialdea, Regalado, Davide, Jr. and Nocon JJ., concur.
Padilla and Bellosillo, JJ., took no part.
Feliciano, J., is on leave.

"WHEREAS, Section 1(1) of Article IX-B provides that the Civil Service shall
be administered by the Civil Service Commission, . . . ";
"WHEREAS, Section 3, Article IX-B of the 1987 Philippine Constitution
provides that 'The Civil Service Commission, as the central personnel agency
of the government, is mandated to establish a career service and adopt
measures to promote morale, efficiency, integrity, responsiveness,
progressiveness and courtesy in the civil service, . . . ';
"WHEREAS, Section 12 (1), Title I, Subtitle A, Book V of the Administrative
Code of 1981 grants the Commission the power, among others, to
administer and enforce the constitutional and statutory provisions on the
merit system for all levels and ranks in the Civil Service;
"WHEREAS, Section 7, Title I, Subtitle A, Book V of the Administrative Code
of 1987 provides, among others, that 'The Career Service shall be
characterized by (1) entrance based on merit and fitness to be determined
as far as practicable by competitive examination, or based on highly
technical qualifications; (2) opportunity for advancement to higher career
positions; and (3) security of tenure;
"WHEREAS, Section 8 (c), Title I, Subtitle A, Book V of the Administrative
Code of 1987 provides that 'The third level shall cover position in the Career
Executive Service';
AIDA D. EUGENIO, Petitioner, v. CIVIL SERVICE COMMISSION,
DAVIDE, JR., HON. TEOFISTO T. GUINGONA. JR. & HON. SALVADOR
ENRIQUEZ, JR., Respondent.

"WHEREAS, the Commission recognizes the imperative need to consolidate,

integrate and unify the administration of all levels of positions in the career
service;

PUNO, J.:

"WHEREAS, the provisions of Section 17, Title I, Subtitle A, Book V of the

Administrative Code of 1987 confers on the Commission the power and
authority to effect changes in its organization as the need arises.

The power of the Civil Service Commission to abolish the Career Executive
Service Board is challenged in this petition for Certiorari and prohibition.

"WHEREAS, Section 5, Article IX-A of the Constitution provides that the Civil
Service Commission shall enjoy fiscal autonomy and the necessary
implications thereof;

DECISION

First the facts. Petitioner is the Deputy Director of the Philippine Nuclear
Research Institute. She applied for a Career Executive Service (CES)
Eligibility and a CESO rank. On August 2, 1993, she was given a CES
eligibility. nadchanroblesvirtuallawlibrary
On September 15, 1993, she Was recommended to the President for a CESO
rank by the Career Executive Service Board. 1
All was not to turn well for petitioner. On October 1, 1993, respondent Civil
Service
Commission
2
passed
Resolution
No.
93-4359,
viz:nadchanroblesvirtualawlibrary

"NOW THEREFORE, foregoing premises considered, the Civil Service

Commission hereby resolves to streamline, reorganize and effect changes in
its organizational structure. Pursuant thereto, the Career Executive Service
Board, shall now be known as the Office for Career Executive Service of the
Civil Service Commission. Accordingly, the existing personnel, budget,
properties and equipment of the Career Executive Service Board shall now
form part of the Office for Career Executive Service."
The above resolution became an impediment to the appointment of
petitioner as Civil Service Officer, Rank IV. In a letter to petitioner, dated June
7, 1994. the Honorable Antonio T. Carpio, Chief Presidential Legal Counsel.
stated:nadchanroblesvirtualawlibrary

RESOLUTION NO. 93-4359

xxx xxx xxx

"On 1 October 1993, the Civil Service Commission issued CSC Resolution No.
93-4359 which abolished the Career Executive Service Board.
nadchanroblesvirtuallawlibrary
"Several legal issues have arisen as a result of the issuance of CSC
Resolution No. 93-4359, including whether the Civil Service Commission has
authority to abolish the Career Executive Service Board. Because these
issues remain unresolved, the Office of the President has refrained from
considering appointments of career service eligibles to career executive
ranks.
xxx xxx xxx
"You may, however, bring a case before the appropriate court to settle the
legal issues arising from the issuance by the Civil Service Commission of
CSC Resolution No. 93-4359, for guidance of all concerned.
"Thank you."
Finding herself bereft of further administrative relief as the Career Executive
Service Board which recommended her CESO Bank IV has been abolished,
petitioner filed the petition at bench to annul, among others, resolution No.
93-4359.
The
petition
is
anchored
on
the
following
arguments:nadchanroblesvirtualawlibrary
"A.
IN VIOLATION OF THE CONSTITUTION, RESPONDENT COMMISSION USURPED
THE LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT ABOLISHED THE CESB,
AN OFFICE CREATED BY LAW, THROUGH THE ISSUANCE OF CSC RESOLUTION
NO. 93-4359;
"B.
ALSO IN VIOLATION OF THE CONSTITUTION, RESPONDENT CSC USURPED
THE LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT ILLEGALLY
AUTHORIZED THE TRANSFER OF PUBLIC MONEY, THROUGH THE ISSUANCE.
OF CSC RESOLUTION NO. 93-4359."
Required to file its Comment, the Solicitor General agreed with the
contentions of petitioner, Respondent Commission, however, chose to
defend
its
ground.
It
posited
the
following
position:nadchanroblesvirtualawlibrary

"II. THE RECOMMENDATION SUBMITTED TO THE PRESIDENT FOR

APPOINTMENT TO A CESO RANK OF PETITIONER EUGENIO WAS A VALID ACT
OF THE CAREER EXECUTIVE SERVICE BOARD OF THE CIVIL SERVICE
COMMISSION AND IT DOES, NOT HAVE ANY DEFECT.
"III. THE OFFICE OF THE PRESIDENT IS ESTOPPED FROM QUESTIONING THE
VALIDITY OF THE RECOMMENDATION OF THE CESB IN FAVOR OF PETITIONER
EUGENIO SINCE THE PRESIDENT HAS PREVIOUSLY APPOINTED TO CESO
RANK FOUR (4) OFFICIALS SIMILARLY SITUATED AS SAID PETITIONER.
FURTHERMORE, LACK OF MEMBERS TO CONSTITUTE A QUORUM ASSUMING
THERE WAS NO QUORUM IS NOT THE FAULT OF PUBLIC RESPONDENT CIVIL
SERVICE COMMISSION BUT OF THE PRESIDENT WHO HAS THE POWER TO
APPOINT THE OTHER MEMBERS OF THE CESB.
"IV. THE INTEGRATION OF THE CESB INTO THE, COMMISSION IS AUTHORIZED
BY LAW (Sec. 12(1), Title I, Subtitle A, Book V of the Administrative (Code of
1987). THIS PARTICULAR ISSUE HAD ALREADY BEEN SETTLED WHEN THE
HONORABLE COURT DISMISSED THE PETITION FILED BY THE HONORABLE
MEMBERS OF THE HOUSE OF REPRESENTATIVES, NAMELY: SIMEON A.
DATUMANONG, FELICIANO R. BELMONTE, JR., RENATO V. DIAZ, AND MANUEL
M. GARCIA IN G.R. NO. 114380. THE AFOREMENTIONED PETITIONERS ALSO
QUESTIONED THE INTEGRATION OF THE CESB WITH THE COMMISSION."
We find merit in the petition. 3
The controlling fact is that the Career Executive Service Board (CESB) was
created by Presidential Decree (P.D.) No 1 on September 1, 1994 4 which
adopted the Integrated Reorganization Plan. Article IV, Chapter I, Part III of
the said Plan provides:nadchanroblesvirtualawlibrary
"Article IV Career Executive Service
"1. A Career Executive Service is created to form a continuing pool of wellselected and development-oriented career administrators who shall provide
competent and faithful service.
"2. A Career Executive Service Board, hereinafter referred to in this Chapter
as the Board, is created to serve as the governing body of the Career
Executive Service. The Board shall consist of the Chairman of the Civil
Service Commission as presiding officer, the Executive Secretary and the
Commissioner of the Budget as ex-officio members and two other members
from the private sector and/or the academic community who are familiar
with the principles and methods of personnel administration.
xxx xxx xxx

"ARGUMENTS FOR PUBLIC RESPONDENT-CSC

"I. THE INSTANT PETITION STATES NO CAUSE OF ACTION, AGAINST THE
PUBLIC RESPONDENT-CSC.

"5. The Board shall promulgate rules, standards and procedures on the
selection, classification, compensation and career development of members
of the Career Executive Service. The Board shall set up the organization and

operation of the service." (Emphasis supplied)

It cannot be disputed, therefore, that as the CESB was created by law, it can
only be abolished by the legislature. This follows an unbroken stream of
rulings that the creation and abolition of public offices is primarily a
legislative function. As aptly summed up in AM JUR 2d on Public Officers and
Employees, 5 viz:nadchanroblesvirtualawlibrary
"Except for such offices as are created by the Constitution, the creation of
public offices is primarily a legislative function. In so far as the legislative
power in this respect is not restricted by constitutional provisions, it is
supreme, and the legislature may decide for itself what offices are suitable,
necessary, or convenient. When in the exigencies of government it is
necessary to create and define duties, the legislative department has the
discretion to determine whether additional offices shall be created, or
whether these duties shall be attached to and become ex-officio duties of
existing offices. An office created by the legislature is wholly within the
power of that body, and it may prescribe the mode of filling the office and
the powers and duties of the incumbent and, if it sees fit, abolish the office."
In the petition at bench, the legislature has not enacted any law authorizing
the abolition of the CESB. On the contrary, in all the General Appropriations
Acts from 1975 to 1993, the legislature has set aside funds for the operation
of CESB. Respondent Commission, however, invokes Section 17, Chapter 3,
Subtitle A, Title I Book V of the Administrative Code of 1987 as the source of
its
power
to
abolish
the
CESB.
Section
17
provides:nadchanroblesvirtualawlibrary

xxx xxx xxx

"(3) The Office of Legal Affairs shall provide the Chairman with legal advice
and assistance; render counselling, services; undertake legal studies and
researches; prepare opinions and ruling in the interpretation and application
of the Civil Service law, rules and regulations; prosecute violations of such
law, rules and regulations; and represent the Commission, before any court
or tribunal.
"(4) The Office of Planning and Management shall formulate development
plans, programs and projects; undertake research and studies on the
different aspects of public personnel management; administer management
improvement programs; and provide fiscal and budgetary services.
"(5) The Central Administrative Office shall provide the Commission with
personnel, financial, logistics and other basic support services.
"(6) The Office of Central Personnel Records shall formulate and implement
policies, standards, rules and regulations pertaining to personnel records
maintenance, security, control and disposal; provide storage and extension
services; and provide and maintain library services.
"(7) The Office of Position Classification and Compensation shall formulate
and implement policies, standards rules and regulations relative to the
administration of position classification and compensation.

"Section 17. Organizational Structure Each office of the Commission shall

be headed by a Director with at least one Assistant Director, and may have
such divisions as are necessary to carry out their respective functions. As an
independent constitutional body, the Commission may effect changes in the
organization as the need arises."

"(8) The Office of Recruitment, Examination and Placement shall provide

leadership and assistance in developing and implementing the overall
Commission programs relating to recruitment, execution and placement, and
formulate policies, standards, rules and regulations for the proper
implementation of the Commission's examination and placement programs.

But, as well pointed out by petitioner and the Solicitor General, Section 17
must be read together with Section 16 of the said Code which enumerates
the
offices
under
the
respondent
Commission,
viz:nadchanroblesvirtualawlibrary

"(9) The Office of Career Systems and Standards shall provide leadership
and assistance in the formulation and evaluation of personnel systems and
standards relative to performance appraisal merit promotion, and employee
incentive benefits and awards.

"Sec. 16. The Office in the Commission. The Commission shall have the
following offices:nadchanroblesvirtualawlibrary

"(10) The Office of Human Resource Development shall provide leadership

and assistance in the development and retention of qualified and efficient
work force in the Civil Service; formulate standards for training and staff
development; administer service-wide scholarship programs; develop
training literature and materials; coordinate and integrate all training
activities and evaluate training programs.

"(1) The Office of the Executive Director headed by an Executive Director,

with a Deputy Executive Director shall implement policies, standards, rules
and regulations promulgated by the Commission; coordinate the programs
of the offices of the Commission and render periodic reports on their
operations, and perform such other functions as may be assigned by the
Commission. nadchanroblesvirtuallawlibrary
"(2) The Merit System Protection Board composed of a Chairman and two (2)
members shall have the following functions:nadchanroblesvirtualawlibrary

"(11) The Office of Personnel Inspection and Relations and Audit shall
develop policies, standards rules and regulations for the effective conduct or
inspection and audit personnel and personnel management programs and
the exercise of delegated authority; provide technical and advisory services
to Civil Service Regional Offices and government agencies in the

implementation of their personnel programs and evaluation systems.

internal policies of the attached corporation or agency."

"(12) The Office of Personnel Relations shall provide leadership and

assistance in the development implementation of policies, standards, rules
and regulations in the accreditation of employee associations or
organizations and in the adjustment and settlement of employee grievances
and management of employee disputes.

Respondent Commission also relies on the case of Datumanong, et al., vs.

Civil Service Commission, G.R. No. 114380 where the petition assailing the
abolition of the CESB was dismissed for lack of cause of action. Suffice to
states that the reliance is misplaced considering that the cited case was
dismissed for lack of standing of the petitioner, hence, the lack of cause of
action.

"(13) The Office of Corporate Affairs shall formulate and implement policies,
standards, wales regulations governing corporate officials and employees in
the areas of recruitment, examination, placement, career development,
merit and awards systems, position classification and compensation,
performing appraisal, employee welfare and benefit, discipline and other
aspects of personnel management on the basis of comparable industry
practices.
"(14) The Office of Retirement Administration shall be responsible for the
enforcement of the constitutional and statutory provisions, relative to
retirement and the regulation for the effective implementation of the
retirement of government officials and employees.
"(15) The Regional and Field Offices. The Commission shall have not less
than thirteen (13) Regional offices each to be headed by a Director, and
such field offices as may be needed, each to be headed by an official with at
least the rank of an Assistant Director.
As read together, the inescapable conclusion is that respondent
Commissions power to reorganize is limited to offices under its control as
enumerated in Section 16, supra. From its inception. the CESB was intended
to be an autonomous entity, albeit administratively attached to respondent
Commission. As conceptualized by the Reorganization Committee "the CESB
shall be autonomous. It is expected to view the problem of building up
executive manpower in the government with a broad and positive outlook."
6 The essential autonomous character of the CESB is not negated by its
attachment to respondent Commission. By said attachment, CESB was not
made to fall within the control of respondent Commission. Under the
Administrative Code of 1987, the purpose of attaching and functionally interrelated government agency to another is to attain "policy and program
coordination." This is clearly etched out in Section 38(3), Chapter 7, Book IV
of the aforecited Code, to wit:nadchanroblesvirtualawlibrary
"(3) Attachment. (a) This refers to the lateral relationship between the
department or its equivalent and the attached agency or corporation for
purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing board
of the attached agency or corporation, either as chairman or as a member,
with or without voting rights, if this is permitted by the charter; having the
attached corporation or agency comply with a system of periodic reporting
which shall reflect the progress of programs and projects: and having the
department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework: for the

IN VIEW WHEREOF, the petition is granted and Resolution No. 93-4359 of the
respondent Commission is hereby annulled and set aside. No costs.
SO ORDERED.
G.R. No. 120319 October 6, 1995
LUZON DEVELOPMENT BANK, petitioner,
vs.
ASSOCIATION OF LUZON DEVELOPMENT BANK EMPLOYEES and ATTY.
ESTER S. GARCIA in her capacity as VOLUNTARY ARBITRATOR,
respondents.
ROMERO, J.:
From a submission agreement of the Luzon Development Bank (LDB) and
the Association of Luzon Development Bank Employees (ALDBE) arose an
arbitration case to resolve the following issue:
Whether or not the company has violated the Collective Bargaining
Agreement provision and the Memorandum of Agreement dated April 1994,
on promotion.
At a conference, the parties agreed on the submission of their respective
Position Papers on December 1-15, 1994. Atty. Ester S. Garcia, in her
capacity as Voluntary Arbitrator, received ALDBE's Position Paper on January
18, 1995. LDB, on the other hand, failed to submit its Position Paper despite
a letter from the Voluntary Arbitrator reminding them to do so. As of May 23,
1995 no Position Paper had been filed by LDB.
On May 24, 1995, without LDB's Position Paper, the Voluntary Arbitrator
rendered a decision disposing as follows:
WHEREFORE, finding is hereby made that the Bank has not adhered to the
Collective Bargaining Agreement provision nor the Memorandum of
Agreement on promotion.
Hence, this petition for certiorari and prohibition seeking to set aside the
decision of the Voluntary Arbitrator and to prohibit her from enforcing the
same.
In labor law context, arbitration is the reference of a labor dispute to an
impartial third person for determination on the basis of evidence and
arguments presented by such parties who have bound themselves to accept
the decision of the arbitrator as final and binding.
Arbitration may be classified, on the basis of the obligation on which it is
based, as either compulsory or voluntary.
Compulsory arbitration is a system whereby the parties to a dispute are
compelled by the government to forego their right to strike and are
compelled to accept the resolution of their dispute through arbitration by a
third party. 1The essence of arbitration remains since a resolution of a
dispute is arrived at by resort to a disinterested third party whose decision is

final and binding on the parties, but in compulsory arbitration, such a third
party is normally appointed by the government.
Under voluntary arbitration, on the other hand, referral of a dispute by the
parties is made, pursuant to a voluntary arbitration clause in their collective
agreement, to an impartial third person for a final and binding resolution.
2
Ideally, arbitration awards are supposed to be complied with by both parties
without delay, such that once an award has been rendered by an arbitrator,
nothing is left to be done by both parties but to comply with the same. After
all, they are presumed to have freely chosen arbitration as the mode of
settlement for that particular dispute. Pursuant thereto, they have chosen a
mutually acceptable arbitrator who shall hear and decide their case. Above
all, they have mutually agreed to de bound by said arbitrator's decision.
In the Philippine context, the parties to a Collective Bargaining Agreement
(CBA) are required to include therein provisions for a machinery for the
resolution of grievances arising from the interpretation or implementation of
the CBA or company personnel policies. 3 For this purpose, parties to a CBA
shall name and designate therein a voluntary arbitrator or a panel of
arbitrators, or include a procedure for their selection, preferably from those
accredited by the National Conciliation and Mediation Board (NCMB). Article
261 of the Labor Code accordingly provides for exclusive original jurisdiction
of such voluntary arbitrator or panel of arbitrators over (1) the interpretation
or implementation of the CBA and (2) the interpretation or enforcement of
company personnel policies. Article 262 authorizes them, but only upon
agreement of the parties, to exercise jurisdiction over other labor disputes.
On the other hand, a labor arbiter under Article 217 of the Labor Code has
jurisdiction over the following enumerated cases:
. . . (a) Except as otherwise provided under this Code the Labor Arbiters shall
have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision
without extension, even in the absence of stenographic notes, the following
cases involving all workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers
may file involving wages, rates of pay, hours of work and other terms and
conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising
from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts;
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee
relations, including those of persons in domestic or household service,
involving an amount exceeding five thousand pesos (P5,000.00) regardless
of whether accompanied with a claim for reinstatement.
xxx xxx xxx
It will thus be noted that the jurisdiction conferred by law on a voluntary
arbitrator or a panel of such arbitrators is quite limited compared to the
original jurisdiction of the labor arbiter and the appellate jurisdiction of the
National Labor Relations Commission (NLRC) for that matter. 4 The state of
our present law relating to voluntary arbitration provides that "(t)he award

or decision of the Voluntary Arbitrator . . . shall be final and executory after

ten (10) calendar days from receipt of the copy of the award or decision by
the parties," 5 while the "(d)ecision, awards, or orders of the Labor Arbiter
are final and executory unless appealed to the Commission by any or both
parties within ten (10) calendar days from receipt of such decisions, awards,
or orders." 6 Hence, while there is an express mode of appeal from the
decision of a labor arbiter, Republic Act No. 6715 is silent with respect to an
appeal from the decision of a voluntary arbitrator.
Yet, past practice shows that a decision or award of a voluntary arbitrator is,
more often than not, elevated to the Supreme Court itself on a petition for
certiorari, 7 in effect equating the voluntary arbitrator with the NLRC or the
Court of Appeals. In the view of the Court, this is illogical and imposes an
unnecessary burden upon it.
In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled premise that
the judgments of courts and awards of quasi-judicial agencies must become
final at some definite time, this Court ruled that the awards of voluntary
arbitrators determine the rights of parties; hence, their decisions have the
same legal effect as judgments of a court. In Oceanic Bic Division (FFW), et
al. v. Romero, et al., 9 this Court ruled that "a voluntary arbitrator by the
nature of her functions acts in a quasi-judicial capacity." Under these rulings,
it follows that the voluntary arbitrator, whether acting solely or in a panel,
enjoys in law the status of a quasi-judicial agency but independent of, and
apart from, the NLRC since his decisions are not appealable to the latter. 10
Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902, provides
that the Court of Appeals shall exercise:
xxx xxx xxx
(B) Exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commissions, including the Securities
and Exchange Commission, the Employees Compensation Commission and
the Civil Service Commission, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the
Judiciary Act of 1948.
xxx xxx xxx
Assuming arguendo that the voluntary arbitrator or the panel of voluntary
arbitrators may not strictly be considered as a quasi-judicial agency, board
or commission, still both he and the panel are comprehended within the
concept of a "quasi-judicial instrumentality." It may even be stated that it
was to meet the very situation presented by the quasi-judicial functions of
the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral
tribunal operating under the Construction Industry Arbitration Commission, 11
that the broader term "instrumentalities" was purposely included in the
above-quoted provision.
An "instrumentality" is anything used as a means or agency. 12 Thus, the
terms governmental "agency" or "instrumentality" are synonymous in the
sense that either of them is a means by which a government acts, or by
which a certain government act or function is performed. 13 The word

"instrumentality," with respect to a state, contemplates an authority to

which the state delegates governmental power for the performance of a
state function. 14 An individual person, like an administrator or executor, is a
judicial instrumentality in the settling of an estate, 15 in the same manner
that a sub-agent appointed by a bankruptcy court is an instrumentality of
the court, 16 and a trustee in bankruptcy of a defunct corporation is an
instrumentality of the state. 17
The voluntary arbitrator no less performs a state function pursuant to a
governmental power delegated to him under the provisions therefor in the
Labor Code and he falls, therefore, within the contemplation of the term
"instrumentality" in the aforequoted Sec. 9 of B.P. 129. The fact that his
functions and powers are provided for in the Labor Code does not place him
within the exceptions to said Sec. 9 since he is a quasi-judicial
instrumentality as contemplated therein. It will be noted that, although the
Employees Compensation Commission is also provided for in the Labor
Code, Circular No. 1-91, which is the forerunner of the present Revised
Administrative Circular No. 1-95, laid down the procedure for the
appealability of its decisions to the Court of Appeals under the foregoing
rationalization, and this was later adopted by Republic Act No. 7902 in
amending Sec. 9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or panel of
arbitrators should likewise be appealable to the Court of Appeals, in line with
the procedure outlined in Revised Administrative Circular No. 1-95, just like
those of the quasi-judicial agencies, boards and commissions enumerated
therein.
This would be in furtherance of, and consistent with, the original purpose of
Circular No. 1-91 to provide a uniform procedure for the appellate review of
adjudications of all quasi-judicial entities 18 not expressly excepted from the
coverage of Sec. 9 of B.P. 129 by either the Constitution or another statute.
Nor will it run counter to the legislative intendment that decisions of the
NLRC be reviewable directly by the Supreme Court since, precisely, the
cases within the adjudicative competence of the voluntary arbitrator are
excluded from the jurisdiction of the NLRC or the labor arbiter.
In the same vein, it is worth mentioning that under Section 22 of Republic
Act No. 876, also known as the Arbitration Law, arbitration is deemed a
special proceeding of which the court specified in the contract or
submission, or if none be specified, the Regional Trial Court for the province
or city in which one of the parties resides or is doing business, or in which
the arbitration is held, shall have jurisdiction. A party to the controversy
may, at any time within one (1) month after an award is made, apply to the
court having jurisdiction for an order confirming the award and the court
must grant such order unless the award is vacated, modified or corrected. 19
In effect, this equates the award or decision of the voluntary arbitrator with
that of the regional trial court. Consequently, in a petition for certiorari from
that award or decision, the Court of Appeals must be deemed to have
concurrent jurisdiction with the Supreme Court. As a matter of policy, this
Court shall henceforth remand to the Court of Appeals petitions of this
nature for proper disposition.
ACCORDINGLY, the Court resolved to REFER this case to the Court of

Appeals.
SO ORDERED.
Padilla, Regalado, Davide, Jr., Bellosillo, Puno, Vitug, Kapunan, Mendoza,
Francisco and Hermosisima, Jr., JJ., concur.
Feliciano, J., concurs in the result.
Narvasa, C.J. and Melo, J. are on leave.

G.R. No. 102976 October 25, 1995

IRON AND STEEL AUTHORITY, petitioner,
vs.
THE COURT OF APPEALS and MARIA CRISTINA FERTILIZER
CORPORATION, respondents.
FELICIANO, J.:
Petitioner Iron and Steel Authority ("ISA") was created by Presidential Decree
(P.D.) No. 272 dated 9 August 1973 in order, generally, to develop and
promote the iron and steel industry in the Philippines. The objectives of the
ISA are spelled out in the following terms:
Sec. 2. Objectives The Authority shall have the following objectives:

(a) to strengthen the iron and steel industry of the Philippines and to expand
the domestic and export markets for the products of the industry;
(b) to promote the consolidation, integration and rationalization of the
industry in order to increase industry capability and viability to service the
domestic market and to compete in international markets;
(c) to rationalize the marketing and distribution of steel products in order to
achieve a balance between demand and supply of iron and steel products
for the country and to ensure that industry prices and profits are at levels
that provide a fair balance between the interests of investors, consumers
suppliers, and the public at large;
(d) to promote full utilization of the existing capacity of the industry, to
discourage investment in excess capacity, and in coordination, with
appropriate government agencies to encourage capital investment in
priority areas of the industry;
(e) to assist the industry in securing adequate and low-cost supplies of raw
materials and to reduce the excessive dependence of the country on imports
of iron and steel.
The list of powers and functions of the ISA included the following:
Sec. 4. Powers and Functions. The authority shall have the following
powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic iron and steel facilities
for subsequent resale and/or lease to the companies involved if it is shown
that such use of the State's power is necessary to implement the
construction of capacity which is needed for the attainment of the objectives
of the Authority;
xxx xxx xxx
(Emphasis supplied)
P.D. No. 272 initially created petitioner ISA for a term of five (5) years
counting from 9 August 1973. 1 When ISA's original term expired on 10
October 1978, its term was extended for another ten (10) years by Executive
Order No. 555 dated 31 August 1979.
The National Steel Corporation ("NSC") then a wholly owned subsidiary of
the National Development Corporation which is itself an entity wholly owned
by the National Government, embarked on an expansion program
embracing, among other things, the construction of an integrated steel mill
in Iligan City. The construction of such a steel mill was considered a priority
and major industrial project of the Government. Pursuant to the expansion
program of the NSC, Proclamation No. 2239 was issued by the President of
the Philippines on 16 November 1982 withdrawing from sale or settlement a
large tract of public land (totalling about 30.25 hectares in area) located in
Iligan City, and reserving that land for the use and immediate occupancy of
NSC.
Since certain portions of the public land subject matter Proclamation No.
2239 were occupied by a non-operational chemical fertilizer plant and
related facilities owned by private respondent Maria Cristina Fertilizer
Corporation ("MCFC"), Letter of Instruction (LOI), No. 1277, also dated 16
November 1982, was issued directing the NSC to "negotiate with the owners
of MCFC, for and on behalf of the Government, for the compensation of
MCFC's present occupancy rights on the subject land." LOI No. 1277 also
directed that should NSC and private respondent MCFC fail to reach an

agreement within a period of sixty (60) days from the date of LOI No. 1277,
petitioner ISA was to exercise its power of eminent domain under P.D. No.
272 and to initiate expropriation proceedings in respect of occupancy rights
of private respondent MCFC relating to the subject public land as well as the
plant itself and related facilities and to cede the same to the NSC. 2
Negotiations between NSC and private respondent MCFC did fail.
Accordingly, on 18 August 1983, petitioner ISA commenced eminent domain
proceedings against private respondent MCFC in the Regional Trial Court,
Branch 1, of Iligan City, praying that it (ISA) be places in possession of the
property involved upon depositing in court the amount of P1,760,789.69
representing ten percent (10%) of the declared market values of that
property. The Philippine National Bank, as mortgagee of the plant facilities
and improvements involved in the expropriation proceedings, was also
impleaded as party-defendant.
On 17 September 1983, a writ of possession was issued by the trial court in
favor of ISA. ISA in turn placed NSC in possession and control of the land
occupied by MCFC's fertilizer plant installation.
The case proceeded to trial. While the trial was ongoing, however, the
statutory existence of petitioner ISA expired on 11 August 1988. MCFC then
filed a motion to dismiss, contending that no valid judgment could be
rendered against ISA which had ceased to be a juridical person. Petitioner
ISA filed its opposition to this motion.
In an Order dated 9 November 1988, the trial court granted MCFC's motion
to dismiss and did dismiss the case. The dismissal was anchored on the
provision of the Rules of Court stating that "only natural or juridical persons
or entities authorized by law may be parties in a civil case." 3 The trial court
also referred to non-compliance by petitioner ISA with the requirements of
Section 16, Rule 3 of the Rules of Court. 4
Petitioner ISA moved for reconsideration of the trial court's Order,
contending that despite the expiration of its term, its juridical existence
continued until the winding up of its affairs could be completed. In the
alternative, petitioner ISA urged that the Republic of the Philippines, being
the real party-in-interest, should be allowed to be substituted for petitioner
ISA. In this connection, ISA referred to a letter from the Office of the
President dated 28 September 1988 which especially directed the Solicitor
General to continue the expropriation case.
The trial court denied the motion for reconsideration, stating, among other
things that:
The property to be expropriated is not for public use or benefit [__] but for
the use and benefit [__] of NSC, a government controlled private corporation
engaged in private business and for profit, specially now that the
government, according to newspaper reports, is offering for sale to the
public its [shares of stock] in the National Steel Corporation in line with the
pronounced policy of the present administration to disengage the
government from its private business ventures. 5 (Brackets supplied)
Petitioner went on appeal to the Court of Appeals. In a Decision dated 8
October 1991, the Court of Appeals affirmed the order of dismissal of the
trial court. The Court of Appeals held that petitioner ISA, "a government

regulatory agency exercising sovereign functions," did not have the same
rights as an ordinary corporation and that the ISA, unlike corporations
organized under the Corporation Code, was not entitled to a period for
winding up its affairs after expiration of its legally mandated term, with the
result that upon expiration of its term on 11 August 1987, ISA was
"abolished and [had] no more legal authority to perform governmental
functions." The Court of Appeals went on to say that the action for
expropriation could not prosper because the basis for the proceedings, the
ISA's exercise of its delegated authority to expropriate, had become
ineffective as a result of the delegate's dissolution, and could not be
continued in the name of Republic of the Philippines, represented by the
Solicitor General:
It is our considered opinion that under the law, the complaint cannot
prosper, and therefore, has to be dismissed without prejudice to the refiling
of a new complaint for expropriation if the Congress sees it fit." (Emphases
supplied)
At the same time, however, the Court of Appeals held that it was premature
for the trial court to have ruled that the expropriation suit was not for a
public purpose, considering that the parties had not yet rested their
respective cases.
In this Petition for Review, the Solicitor General argues that since ISA
initiated and prosecuted the action for expropriation in its capacity as agent
of the Republic of the Philippines, the Republic, as principal of ISA, is entitled
to be substituted and to be made a party-plaintiff after the agent ISA's term
had expired.
Private respondent MCFC, upon the other hand, argues that the failure of
Congress to enact a law further extending the term of ISA after 11 August
1988 evinced a "clear legislative intent to terminate the juridical existence
of ISA," and that the authorization issued by the Office of the President to
the Solicitor General for continued prosecution of the expropriation suit
could not prevail over such negative intent. It is also contended that the
exercise of the eminent domain by ISA or the Republic is improper, since
that power would be exercised "not on behalf of the National Government
but for the benefit of NSC."
The principal issue which we must address in this case is whether or not the
Republic of the Philippines is entitled to be substituted for ISA in view of the
expiration of ISA's term. As will be made clear below, this is really the only
issue which we must resolve at this time.
Rule 3, Section 1 of the Rules of Court specifies who may be parties to a civil
action:
Sec. 1. Who May Be Parties. Only natural or juridical persons or entities
authorized by law may be parties in a civil action.
Under the above quoted provision, it will be seen that those who can be
parties to a civil action may be broadly categorized into two (2) groups:
(a) those who are recognized as persons under the law whether natural, i.e.,
biological persons, on the one hand, or juridical person such as corporations,
on the other hand; and
(b) entities authorized by law to institute actions.
Examination of the statute which created petitioner ISA shows that ISA falls
under category (b) above. P.D. No. 272, as already noted, contains express
authorization to ISA to commence expropriation proceedings like those here

involved:
Sec. 4. Powers and Functions. The Authority shall have the following
powers and functions:
xxx xxx xxx
(j) to initiate expropriation of land required for basic iron and steel facilities
for subsequent resale and/or lease to the companies involved if it is shown
that such use of the State's power is necessary to implement the
construction of capacity which is needed for the attainment of the objectives
of the Authority;
xxx xxx xxx
(Emphasis supplied)
It should also be noted that the enabling statute of ISA expressly authorized
it to enter into certain kinds of contracts "for and in behalf of the
Government" in the following terms:
xxx xxx xxx
(i) to negotiate, and when necessary, to enter into contracts for and in
behalf of the government, for the bulk purchase of materials, supplies or
services for any sectors in the industry, and to maintain inventories of such
materials in order to insure a continuous and adequate supply thereof and
thereby reduce operating costs of such sector;
xxx xxx xxx
(Emphasis supplied)
Clearly, ISA was vested with some of the powers or attributes normally
associated with juridical personality. There is, however, no provision in P.D.
No. 272 recognizing ISA as possessing general or comprehensive juridical
personality separate and distinct from that of the Government. The ISA in
fact appears to the Court to be a non-incorporated agency or instrumentality
of the Republic of the Philippines, or more precisely of the Government of
the Republic of the Philippines. It is common knowledge that other agencies
or instrumentalities of the Government of the Republic are cast in corporate
form, that is to say, are incorporated agencies orinstrumentalities,
sometimes with and at other times without capital stock, and accordingly
vested with a juridical personality distinct from the personality of the
Republic. Among such incorporated agencies or instrumentalities are:
National Power Corporation; 6 Philippine Ports Authority; 7 National Housing
Authority; 8 Philippine National Oil Company; 9 Philippine National Railways; 10
Public Estates Authority; 11 Philippine Virginia Tobacco Administration, 12 and
so forth. It is worth noting that the term "Authority" has been used to
designate
both
incorporated
and
non-incorporated
agencies
or
instrumentalities of the Government.
We consider that the ISA is properly regarded as an agent or delegate of the
Republic of the Philippines. The Republic itself is a body corporate and
juridical person vested with the full panoply of powers and attributes which
are compendiously described as "legal personality." The relevant definitions
are found in the Administrative Code of 1987:
Sec. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, require a different meaning:
(1) Government of the Republic of the Philippines refers to the corporate
governmental entity through which the functions of government are
exercised throughout the Philippines, including, save as the contrary
appears from the context, the various arms through which political authority

is made effective in the Philippines, whether pertaining to the autonomous

regions, the provincial, city, municipal or barangay subdivisions or other
forms of local government.
xxx xxx xxx
(4) Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or a
distinct unit therein.
xxx xxx xxx
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.
xxx xxx xxx
(Emphases supplied)
When the statutory term of a non-incorporated agency expires, the powers,
duties and functions as well as the assets and liabilities of that agency revert
back to, and are re-assumed by, the Republic of the Philippines, in the
absence of special provisions of law specifying some other disposition
thereof such as, e.g., devolution or transmission of such powers, duties,
functions, etc. to some other identified successor agency or instrumentality
of the Republic of the Philippines. When the expiring agency is an
incorporated one, the consequences of such expiry must be looked for, in
the first instance, in the charter of that agency and, by way of
supplementation, in the provisions of the Corporation Code. Since, in the
instant case, ISA is a non-incorporated agency or instrumentality of the
Republic, its powers, duties, functions, assets and liabilities are properly
regarded as folded back into the Government of the Republic of the
Philippines and hence assumed once again by the Republic, no special
statutory provision having been shown to have mandated succession thereto
by some other entity or agency of the Republic.
The procedural implications of the relationship between an agent or
delegate of the Republic of the Philippines and the Republic itself are, at
least in part, spelled out in the Rules of Court. The general rule is, of course,
that an action must be prosecuted and defended in the name of the real
party in interest. (Rule 3, Section 2) Petitioner ISA was, at the
commencement of the expropriation proceedings, a real party in interest,
having been explicitly authorized by its enabling statute to institute
expropriation proceedings. The Rules of Court at the same time expressly
recognize the role of representative parties:
Sec. 3. Representative Parties. A trustee of an expressed trust, a
guardian, an executor or administrator, or a party authorized by statute may
sue or be sued without joining the party for whose benefit the action is
presented or defended; but the court may, at any stage of the proceedings,
order such beneficiary to be made a party. . . . . (Emphasis supplied)
In the instant case, ISA instituted the expropriation proceedings in its
capacity as an agent or delegate or representative of the Republic of the
Philippines pursuant to its authority under P.D. No. 272. The present
expropriation suit was brought on behalf of and for the benefit of the

Republic as the principal of ISA. Paragraph 7 of the complaint stated:

7. The Government, thru the plaintiff ISA, urgently needs the subject parcels
of land for the construction and installation of iron and steel manufacturing
facilities that are indispensable to the integration of the iron and steel
making industry which is vital to the promotion of public interest and
welfare. (Emphasis supplied)
The principal or the real party in interest is thus the Republic of the
Philippines and not the National Steel Corporation, even though the latter
may be an ultimate user of the properties involved should the condemnation
suit be eventually successful.
From the foregoing premises, it follows that the Republic of the Philippines is
entitled to be substituted in the expropriation proceedings as party-plaintiff
in lieu of ISA, the statutory term of ISA having expired. Put a little differently,
the expiration of ISA's statutory term did not by itself require or justify the
dismissal of the eminent domain proceedings.
It is also relevant to note that the non-joinder of the Republic which occurred
upon the expiration of ISA's statutory term, was not a ground for dismissal of
such proceedings since a party may be dropped or added by order of the
court, on motion of any party or on the court's own initiative at any stage of
the action and on such terms as are just. 13 In the instant case, the Republic
has precisely moved to take over the proceedings as party-plaintiff.
In E.B. Marcha Transport Company, Inc. v. Intermediate Appellate Court, 14
the Court recognized that the Republic may initiate or participate in actions
involving its agents. There the Republic of the Philippines was held to be a
proper party to sue for recovery of possession of property although the
"real" or registered owner of the property was the Philippine Ports Authority,
a government agency vested with a separate juridical personality. The Court
said:
It can be said that in suing for the recovery of the rentals, the Republic of
the Philippines acted as principal of the Philippine Ports Authority, directly
exercising the commission it had earlier conferred on the latter as its
agent. . . . 15 (Emphasis supplied)
In E.B. Marcha, the Court also stressed that to require the Republic to
commence all over again another proceeding, as the trial court and Court of
Appeals had required, was to generate unwarranted delay and create
needless repetition of proceedings:
More importantly, as we see it, dismissing the complaint on the ground that
the Republic of the Philippines is not the proper party would result in
needless delay in the settlement of this matter and also in derogation of the
policy against multiplicity of suits. Such a decision would require the
Philippine Ports Authority to refile the very same complaint already proved
by the Republic of the Philippines and bring back as it were to square one. 16
(Emphasis supplied)
As noted earlier, the Court of Appeals declined to permit the substitution of
the Republic of the Philippines for the ISA upon the ground that the action
for expropriation could not prosper because the basis for the proceedings,
the ISA's exercise of its delegated authority to expropriate, had become
legally ineffective by reason of the expiration of the statutory term of the
agent or delegated i.e., ISA. Since, as we have held above, the powers and
functions of ISA have reverted to the Republic of the Philippines upon the

termination of the statutory term of ISA, the question should be addressed

whether fresh legislative authority is necessary before the Republic of the
Philippines may continue the expropriation proceedings initiated by its own
delegate or agent.
While the power of eminent domain is, in principle, vested primarily in the
legislative department of the government, we believe and so hold that no
new legislative act is necessary should the Republic decide, upon being
substituted for ISA, in fact to continue to prosecute the expropriation
proceedings. For the legislative authority, a long time ago, enacted a
continuing or standing delegation of authority to the President of the
Philippines to exercise, or cause the exercise of, the power of eminent
domain on behalf of the Government of the Republic of the Philippines. The
1917 Revised Administrative Code, which was in effect at the time of the
commencement of the present expropriation proceedings before the Iligan
Regional Trial Court, provided that:
Sec. 64. Particular powers and duties of the President of the Philippines. In
addition to his general supervisory authority, the President of the Philippines
shall have such other specific powers and duties as are expressly conferred
or imposed on him by law, and also, in particular, the powers and duties set
forth in this Chapter.
Among such special powers and duties shall be:
xxx xxx xxx
(h) To determine when it is necessary or advantageous to exercise the right
of eminent domain in behalf of the Government of the Philippines; and to
direct the Secretary of Justice, where such act is deemed advisable, to cause
the condemnation proceedings to be begun in the court having proper
jurisdiction. (Emphasis supplied)
The Revised Administrative Code of 1987 currently in force has substantially
reproduced the foregoing provision in the following terms:
Sec. 12. Power of eminent domain. The President shall determine when it
is necessary or advantageous to exercise the power of eminent domain in
behalf of the National Government, anddirect the Solicitor General,
whenever he deems the action advisable, to institute expopriation
proceedings in the proper court. (Emphasis supplied)
In the present case, the President, exercising the power duly delegated
under both the 1917 and 1987 Revised Administrative Codes in effect made
a determination that it was necessary and advantageous to exercise the
power of eminent domain in behalf of the Government of the Republic and
accordingly directed the Solicitor General to proceed with the suit. 17
It is argued by private respondent MCFC that, because Congress after
becoming once more the depository of primary legislative power, had not
enacted a statute extending the term of ISA, such non-enactment must be
deemed a manifestation of a legislative design to discontinue or abort the
present expropriation suit. We find this argument much too speculative; it
rests too much upon simple silence on the part of Congress and casually
disregards the existence of Section 12 of the 1987 Administrative Code
already quoted above.
Other contentions are made by private respondent MCFC, such as, that the
constitutional requirement of "public use" or "public purpose" is not present
in the instant case, and that the indispensable element of just compensation

is also absent. We agree with the Court of Appeals in this connection that
these contentions, which were adopted and set out by the Regional Trial
Court in its order of dismissal, are premature and are appropriately
addressed in the proceedings before the trial court. Those proceedings have
yet to produce a decision on the merits, since trial was still on going at the
time the Regional Trial Court precipitously dismissed the expropriation
proceedings. Moreover, as a pragmatic matter, the Republic is, by such
substitution as party-plaintiff, accorded an opportunity to determine whether
or not, or to what extent, the proceedings should be continued in view of all
the subsequent developments in the iron and steel sector of the country
including, though not limited to, the partial privatization of the NSC.
WHEREFORE, for all the foregoing, the Decision of the Court of Appeals
dated 8 October 1991 to the extent that it affirmed the trial court's order
dismissing the expropriation proceedings, is hereby REVERSED and SET
ASIDE and the case is REMANDED to the court a quo which shall allow the
substitution of the Republic of the Philippines for petitioner Iron and Steel
Authority and for further proceedings consistent with this Decision. No
pronouncement as to costs.
SO ORDERED.
Romero, Melo, Vitug and Panganiban, JJ., concur.

G.R. No. 134990

April 27, 2000
MANUEL M. LEYSON JR., petitioner,
vs.
OFFICE OF THE OMBUDSMAN, TIRSO ANTIPORDA, Chairman, UCPB
and CIIF Oil Mills, and OSCAR A. TORRALBA, President, CIIF Oil Mills,
respondents.
BELLOSILLO, J.:
On 7 February 1996 International Towage and Transport Corporation (ITTC), a
domestic corporation engaged in the lighterage or shipping business,
entered into a one (1)-year contract with Legaspi Oil Company, Inc. (LEGASPI
OIL), Granexport Manufacturing Corporation (GRANEXPORT) and United
Coconut Chemicals, Inc. (UNITED COCONUT), comprising the Coconut
Industry Investment Fund (CIIF) companies, for the transport of coconut oil in
bulk through MT Transasia. The majority shareholdings of these CIIF
companies are owned by the United Coconut Planters Bank (UCPB) as
administrator of the CIIF. Under the terms of the contract, either party could
terminate the agreement provided a three (3)-month advance notice was
given to the other party. However, in August 1996, or prior to the expiration
of the contract, the CIIF companies with their new President, respondent
Oscar A. Torralba, terminated the contract without the requisite advance
notice. The CIIF companies engaged the services of another vessel, MT
Marilag, operated by Southwest Maritime Corporation.
On 11 March 1997 petitioner Manuel M. Leyson Jr., Executive Vice President
of ITTC, filed with public respondent Office of the Ombudsman a grievance
case against respondent Oscar A. Torralba. The following is a summary of the
irregularities and corrupt practices allegedly committed by respondent
Torralba: (a) breach of contract - unilateral cancellation of valid and existing
contract; (b) bad faith - falsification of documents and reports to stop the
operation of MT Transasia; (c) manipulation - influenced their insurance to
disqualify MT Transasia; (d) unreasonable denial of requirement imposed; (e)
double standards and inconsistent in favor of MT Marilag; (f) engaged and
entered into a contract with Southwest Maritime Corp. which is not the
owner of MT Marilag, where liabilities were waived and whose paid-up capital
is only P250,000.00; and, (g) overpricing in the freight rate causing losses of
millions of pesos to Cocochem.1
On 2 January 1998 petitioner charged respondent Tirso Antiporda, Chairman
of UCPB and CIIF Oil Mills, and respondent Oscar A. Torralba with violation of
The Anti-Graft and Corrupt Practices Act also before the Ombudsman
anchored on the aforementioned alleged irregularities and corrupt practices.
On 30 January 1998 public respondent dismissed the complaint based on its
finding that
The case is a simple case of breach of contract with damages which should
have been filed in the regular court. This Office has no jurisdiction to
determine the legality or validity of the termination of the contract entered
into by CIIF and ITTC. Besides the entities involved are private corporations
(over) which this Office has no jurisdiction.2
On 4 June 1998 reconsideration of the dismissal of the complaint was
denied. The Ombudsman was unswayed in his finding that the present
controversy involved breach of contract as he also took into account the

circumstance that petitioner had already filed a collection case before the
Regional Trial Court of Manila-Br. 15, docketed as Civil Case No. 97-83354.
Moreover, the Ombudsman found that the filing of the motion for
reconsideration on 31 March 1998 was beyond the inextendible period of
five (5) days from notice of the assailed resolution on 19 March 1998. 3
Petitioner now imputes grave abuse of discretion on public respondent in
dismissing his complaint. He submits that inasmuch as Philippine Coconut
Producers Federation, Inc. (COCOFED) v. PCGG4 and Republic
v.Sandiganbayan5 have declared that the coconut levy funds are public
funds then, conformably with Quimpo v. Tanodbayan,6 corporations formed
and organized from those funds or whose controlling stocks are from those
funds should be regarded as government owned and/or controlled
corporations. As in the present case, since the funding or controlling interest
of the companies being headed by private respondents was given or owned
by the CIIF as shown in the certification of their Corporate Secretary, 7 it
follows that they are government owned and/or controlled corporations.
Corollarily, petitioner asserts that respondents Antiporda and Torralba are
public officers subject to the jurisdiction of the Ombudsman.
Petitioner alleges next that public respondent's conclusion that his complaint
refers to a breach of contract is whimsical, capricious and irresponsible
amounting to a total disregard of its main point, i. e., whether private
respondents violated The Anti-Graft and Corrupt Practices Act when they
entered into a contract with Southwest Maritime Corporation which was
grossly disadvantageous to the government in general and to the CIIF in
particular. Petitioner admits that his motion for reconsideration was filed out
of time. Nonetheless, he advances that public respondent should have
relaxed its rules in the paramount interest of justice; after all, the delay was
just a matter of days and he, a layman not aware of technicalities,
personally filed the complaint.
Private respondents counter that the CIIF companies were duly organized
and are existing by virtue of the Corporation Code. Their stockholders are
private individuals and entities. In addition, private respondents contend
that they are not public officers as defined under The Anti-Graft and Corrupt
Practices Act but are private executives appointed by the Boards of Directors
of the CIIF companies. They asseverate that petitioner's motion for
reconsideration was filed through the expert assistance of a learned counsel.
They then charge petitioner with forum shopping since he had similarly filed
a case for collection of a sum of money plus damages before the trial court.
The Office of the Solicitor General maintains that the Ombudsman approved
the recommendation of the investigating officer to dismiss the complaint
because he sincerely believed there was no sufficient basis for the criminal
indictment of private respondents.
We find no grave abuse of discretion committed by the Ombudsman.
COCOFED v. PCGG referred to in Republic v. Sandiganbayan reviewed the
history of the coconut levy funds. These funds actually have four (4) general
classes: (a) the Coconut Investment Fund created under R. A. No. 6260; 8 (b)
the Coconut Consumers Stabilization Fund created under P. D. No. 276; 9 (c)
the Coconut Industry Development Fund created under P. D. No. 582; 10 and,
(d) the Coconut Industry Stabilization Fund created under P. D. No. 1841. 11
The various laws relating to the coconut industry were codified in 1976. On
21 October of that year, P. D. No. 961 12 was promulgated. On 11 June 1978 it

was amended by P. D. No. 1468 13 by inserting a new provision authorizing

the use of the balance of the Coconut Industry Development Fund for the
acquisition of "shares of stocks in corporations organized for the purpose of
engaging in the establishment and operation of industries . . . commercial
activities and other allied business undertakings relating to coconut and
other palm oil indust(ries)." 14From this fund thus created, or the CIIF, shares
of stock in what have come to be known as the "CIIF companies" were
purchased.
We then stated in COCOFED that the coconut levy funds were raised by the
State's police and taxing powers such that the utilization and proper
management thereof were certainly the concern of the Government. These
funds have a public character and are clearly affected with public interest.
Quimpo v. Tanodbayan involved the issue as to whether PETROPHIL was a
government owned or controlled corporation the employees of which fell
within the jurisdictional purview of the Tanodbayan for purposes of The AntiGraft and Corrupt Practices Act. We upheld the jurisdiction of the
Tanodbayan on the ratiocination that
While it may be that PETROPHIL was not originally "created" as a
government-owned or controlled corporation, after it was acquired by PNOC,
which is a government-owned or controlled corporation, PETROPHIL became
a subsidiary of PNOC and thus shed-off its private status. It is now funded
and owned by the government as, in fact, it was acquired to perform
functions related to government programs and policies on oil, a vital
commodity in the economic life of the nation. It was acquired not
temporarily but as a permanent adjunct to perform essential government or
government-related functions, as the marketing arm of the PNOC to assist
the latter in selling and distributing oil and petroleum products to assure and
maintain an adequate and stable domestic supply.
But these jurisprudential rules invoked by petitioner in support of his claim
that the CIIF companies are government owned and/or controlled
corporations are incomplete without resorting to the definition of
"government owned or controlled corporation" contained in par. (13), Sec. 2,
Introductory Provisions of the Administrative Code of 1987, i. e., any agency
organized as a stock or non-stock corporation vested with functions relating
to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at
least fifty-one (51) percent of its capital stock. The definition mentions three
(3) requisites, namely, first, any agency organized as a stock or non-stock
corporation; second, vested with functions relating to public needs whether
governmental or proprietary in nature; and, third, owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock.
In the present case, all three (3) corporations comprising the CIIF companies
were organized as stock corporations.1wphi1 The UCPB-CIIF owns 44.10%
of the shares of LEGASPI OIL, 91.24% of the shares of GRANEXPORT, and
92.85% of the shares of UNITED COCONUT. 15 Obviously, the below 51%
shares of stock in LEGASPI OIL removes this firm from the definition of a
government owned or controlled corporation. Our concern has thus been
limited to GRANEXPORT and UNITED COCONUT as we go back to the second

requisite. Unfortunately, it is in this regard that petitioner failed to

substantiate his contentions. There is no showing that GRANEXPORT and/or
UNITED COCONUT was vested with functions relating to public needs
whether governmental or proprietary in nature unlike PETROPHIL in Quimpo.
The Court thus concludes that the CIIF companies are, as found by public
respondent, private corporations not within the scope of its jurisdiction.
With the foregoing conclusion, we find it unnecessary to resolve the other
issues raised by petitioner.
A brief note on private respondents' charge of forum shopping. Executive
Secretary v. Gordon 16 is instructive that forum shopping consists of filing
multiple suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable
judgment. It is readily apparent that the present charge will not prosper
because the cause of action herein, i. e., violation of The Anti-Graft and
Corrupt Practices Act, is different from the cause of action in the case
pending before the trial court which is collection of a sum of money plus
damages.
WHEREFORE, the petition is DISMISSED. The Resolution of public respondent
Office of the Ombudsman of 30 January 1998 which dismissed the complaint
of petitioner Manuel M. Leyson Jr., as well as its Order of 4 June 1998
denying his motion for reconsideration, is AFFIRMED. Costs against
petitioner.1wphi1.nt
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

[G.R. Nos. 147706-07. February 16, 2005]

PEOPLE OF THE PHILIPPINES, petitioner, vs. THE HONORABLE
SANDIGANBAYAN (Fifth Division) and EFREN L. ALAS, respondents.

DECISION

CORONA, J.:
Does the Sandiganbayan have jurisdiction over presidents, directors or
trustees, or managers of government-owned or controlled corporations
organized and incorporated under the Corporation Code for purposes of the
provisions of RA 3019, otherwise known as the Anti-Graft and Corrupt
Practices Act? The petitioner, represented by the Office of the Special
Prosecutor (OSP), takes the affirmative position in this petition for certiorari
under Rule 65 of the Rules of Court. Respondent Efren L. Alas contends
otherwise, together with the respondent court.
Pursuant to a resolution dated September 30, 1999 of the Office of the

Ombudsman, two separate informations [1] for violation of Section 3(e) of RA

3019, otherwise known as the Anti-Graft and Corrupt Practices Act, were
filed with the Sandiganbayan on November 17, 1999 against Efren L. Alas.
The charges emanated from the alleged anomalous advertising contracts
entered into by Alas, in his capacity as President and Chief Operating Officer
of the Philippine Postal Savings Bank (PPSB), with Bagong Buhay Publishing
Company which purportedly caused damage and prejudice to the
government.
On October 30, 2002, Alas filed a motion to quash the informations for
lack of jurisdiction, which motion was vehemently opposed by the
prosecution. After considering the arguments of both parties, the respondent
court ruled that PPSB was a private corporation and that its officers,
particularly herein respondent Alas, did not fall under Sandiganbayan
jurisdiction. According to the Sandiganbayan:
After a careful consideration of the arguments of the accused-movant as
well as of that of the prosecution, we are of the considered opinion that the
instant motion of the accused is well taken. Indeed, it is the basic thrust of
Republic Act as well as (sic) Presidential Decree No. 1606 as amended by
President Decree No. 1486 and Republic Act No. 7975 and Republic Act No.
8249 that the Sandiganbayan has jurisdiction only over public officers unless
private persons are charged with them in the commission of the offenses.
The records disclosed that while Philippine Postal Savings Bank is a
subsidiary of the Philippine Postal Corporation which is a government owned
corporation, the same is not created by a special law. It was organized and
incorporated under the Corporation Code which is Batas Pambansa Blg. 68.
It was registered with the Securities and Exchange Commission under SEC
No. AS094-005593 on June 22, 1994 with a lifetime of fifty (50) years. Under
its Articles of Incorporation the purpose for which said entity is formed was
primarily for business, xxx
Likewise, a scrutiny of the seven (7) secondary purposes of the corporation
points to the conclusion that it exists for business. Obviously, it is not
involved in the performance of a particular function in the exercise of
government power. Thus, its officers and employees are not covered by the
GSIS and are under the SSS law, and actions for reinstatement and
backwages are not within the jurisdiction of the Civil Service Commission but
by the National Labor Relations Commission (NLRC).
The Supreme Court, in the case of Trade Unions of the Philippines and Allied
Services vs. National Housing Corp., 173 SCRA 33, held that the Civil Service
now covers only government owned or controlled corporations with original
or legislative charters, those created by an act of Congress or by special law,
and not those incorporated under and pursuant to a general legislation. The
Highest Court categorically ruled that the Civil Service does not include
government-owned or controlled corporation which are organized as
subsidiaries of government-owned or controlled corporation under the
general corporation law.
In Philippine National Oil Company Energy Development Corporation vs.
Leogardo, 175 SCRA 26, the Supreme Court emphasized that:
The test in determining whether a government-owned or controlled
corporation is subject to the Civil Service Law is the manner of its creation
such that government corporation created by special charter are subject to

its provision while those incorporated under the general corporation law are
not within its coverage.
Likewise in Davao City Water District vs. Civil Service Commission, 201 SCRA
601 it was held that by government-owned or controlled corporation with
original charter we mean government-owned or controlled corporation
created by a special law and not under the Corporation Code of the
Philippines while in Llenes vs. Dicdican, et al., 260 SCRA 207, a public officer
has been ruled, as a person whose duties involve the exercise of discretion
in the performance of the function of government.
Clearly, on the basis of the foregoing pronouncements of the Supreme Court,
the accused herein cannot be considered a public officer. Thus, this Court
may not exercise jurisdiction over his act.[2]
Dissatisfied, the People, through the Office of the Special Prosecutor
(OSP), filed this petition[3] arguing, in essence, that the PPSB was a
government-owned or controlled corporation as the term was defined under
Section 2(13) of the Administrative Code of 1987. [4] Likewise, in further
defining the jurisdiction of the Sandiganbayan, RA 8249 did not make a
distinction as to the manner of creation of the government-owned or
controlled corporations for their officers to fall under its jurisdiction. Hence,
being President and Chief Operating Officer of the PPSB at the time of
commission of the crimes charged, respondent Alas came under the
jurisdiction of the Sandiganbayan.
Quoting at length from the assailed resolution dated February 15, 2001,
respondent Alas, on the other hand, practically reiterated the
pronouncements made by the respondent court in support of his conclusion
that the PPSB was not created by special law, hence, its officers did not fall
within the jurisdiction of the Sandiganbayan.[5]
We find merit in the petition.
Section 2(13) of EO 292[6] defines government-owned or controlled
corporations as follows:
Sec. 2. General Terms Defined Unless the specific words of the text or the
context as a whole or a particular statute, shall require a different meaning:
xxx xxx xxx
(13) government owned or controlled corporations refer to any agency
organized as a stock or non-stock corporation vested with functions relating
to public needs whether governmental or proprietary in nature, and owned
by the government directly or indirectly or through its instrumentalities
either wholly, or where applicable as in the case of stock corporations to the
extent of at least 51% of its capital stock: provided, that government owned
or controlled corporations maybe further categorized by the department of
the budget, the civil service commission and the commission on audit for the
purpose of the exercise and discharge of their respective powers, functions
and responsibilities with respect to such corporations.
From the foregoing, PPSB fits the bill as a government-owned or
controlled corporation, and organized and incorporated under the
Corporation Code as a subsidiary of the Philippine Postal Corporation
(PHILPOST). More than 99% of the authorized capital stock of PPSB belongs

to the government while the rest is nominally held by its incorporators who
are/were themselves officers of PHILPOST. The creation of PPSB was
expressly sanctioned by Section 32 of RA 7354, otherwise known as the
Postal Service Act of 1992, for purposes of, among others, to encourage and
promote the virtue of thrift and the habit of savings among the general
public, especially the youth and the marginalized sector in the countryside
xxx and to facilitate postal service by receiving collections and making
payments, including postal money orders.[7]
It is not disputed that the Sandiganbayan has jurisdiction over
presidents, directors or trustees, or managers of government-owned or
controlled corporations with original charters whenever charges of graft and
corruption are involved. However, a question arises whether the
Sandiganbayan has jurisdiction over the same officers in government-owned
or controlled corporations organized and incorporated under the Corporation
Code in view of the delimitation provided for in Article IX-B Section 2(1) of
the 1987 Constitution which states that:
SEC. 2. (1) The Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the government, including governmentowned or controlled corporations with original charters.
It should be pointed out however, that the jurisdiction of the
Sandiganbayan is separate and distinct from the Civil Service Commission.
The same is governed by Article XI, Section 4 of the 1987 Constitution which
provides that the present anti-graft court known as the Sandiganbayan shall
continue to function and exercise its jurisdiction as now or hereafter may be
provided by law. This provision, in effect, retained the jurisdiction of the antigraft court as defined under Article XIII, Section 5 of the 1973 Constitution
which mandated its creation, thus:
Sec. 5. The Batasang Pambansa shall create a special court, to be known as
Sandiganbayan, which shall have jurisdiction over criminal and civil cases
involving graft and corrupt practices and such other offense committed by
public officers and employees, including those in government-owned or
controlled corporations, in relation to their office as may be determined by
law. (Italics ours)

time of the commission of the offense,

(1) Officials of the executive branch occupying the
positions of regional director, and higher, otherwise classified
as grade 27 and higher, of the Compensation and Position
Classification Act of 1989 (Republic Act No. 6758) specifically
including:
xxx xxx xxx
(g) Presidents, directors or trustees, or
managers of government-owned or controlled
corporations, state universities or educational
institutions or foundations. (Italics ours)
The legislature, in mandating the inclusion of presidents, directors or
trustees, or managers of government-owned or controlled corporations
within the jurisdiction of the Sandiganbayan, has consistently refrained from
making any distinction with respect to the manner of their creation.
The deliberate omission, in our view, clearly reveals the intention of the
legislature to include the presidents, directors or trustees, or managers of
both types of corporations within the jurisdiction of the Sandiganbayan
whenever they are involved in graft and corruption. Had it been otherwise, it
could have simply made the necessary distinction. But it did not.
It is a basic principle of statutory construction that when the law does
not distinguish, we should not distinguish. Ubi lex non distinguit nec nos
distinguere debemos. Corollarily, Article XI Section 12 of the 1987
Constitution, on the jurisdiction of the Ombudsman (the governments
prosecutory arm against persons charged with graft and corruption),
includes officers and employees of government-owned or controlled
corporations, likewise without any distinction.

On March 30, 1995, Congress, pursuant to its authority vested under

the 1987 Constitution, enacted RA 7975 [8] maintaining the jurisdiction of the
Sandiganbayan over presidents, directors or trustees, or managers of
government-owned or controlled corporations without any distinction
whatsoever. Thereafter, on February 5, 1997, Congress enacted RA 8249 [9]
which preserved the subject provision:

In Quimpo v. Tanodbayan,[10] this Court, already mindful of the pertinent

provisions of the 1987 Constitution, ruled that the concerned officers of
government-owned or controlled corporations, whether created by special
law or formed under the Corporation Code, come under the jurisdiction of
the Sandiganbayan for purposes of the provisions of the Anti-Graft and
Corrupt Practices Act. Otherwise, as we emphasized therein, a major policy
of Government, which is to eradicate, or at the very least minimize, the graft
and corruption that has permeated the fabric of the public service like a
malignant social cancer, would be seriously undermined. In fact, Section 1 of
the Anti-Graft and Corrupt Practices Act embodies this policy of the
government, that is, to repress certain acts not only of public officers but
also of private persons constituting graft or corrupt practices or which may
lead thereto.

Section 4, Jurisdiction. The Sandiganbayan shall exercise exclusive original

jurisdiction in all cases involving:
a. Violations of Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices Act, Republic
Act No. 1379, and Chapter II, Section, Title VII, Book II of the
Revised Penal Code, where one or more of the accused are
officials occupying the following positions in the government,
whether in a permanent, acting or interim capacity, at the

The foregoing pronouncement has not outlived its usefulness. On the

contrary, it has become even more relevant today due to the rampant cases
of graft and corruption that erode the peoples faith in government. For
indeed, a government-owned or controlled corporation can conceivably
create as many subsidiary corporations under the Corporation Code as it
might wish, use public funds, disclaim public accountability and escape the
liabilities and responsibilities provided by law. By including the concerned
officers of government-owned or controlled corporations organized and

incorporated under the Corporation Code within the jurisdiction of the

Sandiganbayan, the legislature evidently seeks to avoid just that.
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED
and the assailed resolution dated February 15, 2001 of the respondent court
is hereby REVERSED and SET ASIDE.
SO ORDERED.
Panganiban, (Chairman),
Garcia, JJ., concur.

Sandoval-Gutierrez,

Carpio-Morales,

and

[G.R. Nos. L-10123 & L-10355. April 26, 1957.]

GENARO URSAL, as City Assessor of Cebu, Petitioner, v. COURT OF
TAX APPEALS and JESUSA SAMSON, Respondents.
City Fiscal of Cebu Jose L. Abad for Petitioner.
Francisco M. Alonso for Respondents.
SYLLABUS
1. COURT OF TAX APPEALS; JURISDICTION OF; MATTERS COGNIZABLE;
CONFLICTS OF OPINION BETWEEN ADMINISTRATIVE OFFICERS EXCLUDED.
The Court of Tax Appeals as created by Republic Act No. 1125 is a part of the
judicial system and was not made to decide mere conflicts of opinion
between administrative officers or agencies.
2. ID.; ID.; JURISDICTION OF COURT ON MATTERS ENUMERATED IN THE LAW,
EXCLUSIVE. Republic Act No. 1125 is a complete law by itself and
expressly enumerates the matters which the Court of Tax Appeals may
consider; such enumeration excludes all others by implication.
3. ID.; APPEAL FROM THE RULINGS OF THE BOARD OF ASSESSMENT
APPEALS. The City Assessor may not appeal to the Court of Tax Appeals
from the rulings of the local Board of Assessment Appeals.
DECISION
BENGZON, J.:
In these two cases Genaro Ursal as City Assessor of Cebu challenges the
correctness of the order of the Court of Tax Appeals dismissing his appeals
to that body from two rulings of the Cebu Board of Assessment Appeals.
The record shows that said city assessors in the exercise of his powers
assessed for taxation certain real properties of Consuelo Noel and Jesusa
Samson in the City of Cebu, and that upon protest of the taxpayers, the
Cebu Board of Assessment Appeals reduced the assessments. It also shows
he took the matter to the Court of Tax Appeals insisting on his valuation; but
said Court refused to entertain the appeal saying it was late, and, besides,
the assessor had no personality to bring the matter before it under section
11 of Republic Act No. 1125, which reads as follows:jgc:chanrobles.com.ph
"SEC. 11. Who may appeal; effect of appeal. Any person, association or

corporation adversely affected by a decision or ruling of the Collector of

Internal Revenue, the Collector of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within
thirty days after the receipt of such decision or ruling."cralaw virtua1aw
library
We share the view that the assessor had no personality to resort to the Court
of Tax Appeals. The rulings of the Board of Assessment Appeals did not
"adversely affect" him. At most it was the City of Cebu 1 that had been
adversely affected in the sense that it could not thereafter collect higher
realty taxes from the abovementioned property owners. His opinion, it is
true had been overruled; but the overruling indicted no material damage
upon him or his office. And the Court of Tax Appeals was not created to
decide mere conflicts of opinion between administrative officers or agencies.
Imagine an income tax examiner resorting to the Court of Tax Appeals
whenever the Collector of Internal Revenue modifies, or lower his
assessment on the return of a tax payer!
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it
blanket authority to decide any and all tax disputes. Defining such special
courts jurisdiction, the Act necessarily limited its authority to those matters
enumerated therein. In line with this idea we recently approved said courts
order rejecting an appeal to it by Lopez & Sons from the decision of the
Collector of Customs, because in our opinion its jurisdiction extended only to
a review of the decisions of the Commissioner of Customs, as provided by
the statute and not to decisions of the Collector of Customs. (Lopez &
Sons v. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
The appellant invites attention to the fact that the Court of Tax Appeals is
the successor of the former Central Board of Tax Appeals created by
Commonwealth Act No. 530 and of the Board of Tax Appeals established by
Executive Order No. 401-A, and that said Commonwealth Act No. 530
(section 2) explicitly authorized the city assessor to appeal to the Central
Board of Tax Appeals. Here is precisely another argument against his
position: as Republic Act No. 1125 failed to reenact such express permission,
it is deemed withheld.
Oversight could not have been the cause of such withholding, since there
were proper grounds therefor: (a) discipline and command responsibility in
the executive branches; and (b) instead of being another superior
administrative agency as was the former Board of Tax Appeals 2 the Court of
Tax Appeals as created by Republic Act No. 1125 is a part of the judicial
system presumably to act only on protests of private persons adversely
affected by the tax, custom, or assessment.
There is no merit to the contention that section 2 of Commonwealth Act No.
530 is still in force and justifies Ursals appeal. Apart from the reasons
already advanced, Republic Act No. 1125 is a complete law by itself and
expressly enumerates the matters which the Court of Tax Appeals may
consider; such enumeration excludes all others by implication. Expressio
unius est exclusio alterius.

"parts of an original act which are omitted from the act as revised are to be
considered as annulled and repealed, provided it clearly appears to have
been the intention of the legislature to cover the whole subject by the
revision." (82 C. J. S. p. 501.)
Inasmuch as we agree to the appellants lack of personality before the Court
of Tax Appeals, we find it unnecessary to review the question whether or not
his appeal had been perfected in due time.
Wherefore, the challenge order is hereby affirmed.
G.R. No. 143672
April 24, 2003
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
GENERAL FOODS (PHILS.), INC., respondent.
CORONA, J.:
Petitioner Commissioner of Internal Revenue (Commissioner) assails the
resolution1 of the Court of Appeals reversing the decision 2 of the Court of Tax
Appeals which in turn denied the protest filed by respondent General Foods
(Phils.), Inc., regarding the assessment made against the latter for deficiency
taxes.
The records reveal that, on June 14, 1985, respondent corporation, which is
engaged in the manufacture of beverages such as "Tang," "Calumet" and
"Kool-Aid," filed its income tax return for the fiscal year ending February 28,
1985. In said tax return, respondent corporation claimed as deduction,
among other business expenses, the amount of P9,461,246 for media
advertising for "Tang."
On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the
deduction claimed by respondent corporation. Consequently, respondent
corporation was assessed deficiency income taxes in the amount of P2,635,
141.42. The latter filed a motion for reconsideration but the same was
denied.
On September 29, 1989, respondent corporation appealed to the Court of
Tax Appeals but the appeal was dismissed:
With such a gargantuan expense for the advertisement of a singular
product, which even excludes "other advertising and promotions" expenses,
we are not prepared to accept that such amount is reasonable "to stimulate
the current sale of merchandise" regardless of Petitioners explanation that
such expense "does not connote unreasonableness considering the grave
economic situation taking place after the Aquino assassination characterized
by capital fight, strong deterioration of the purchasing power of the
Philippine peso and the slacking demand for consumer products"
(Petitioners Memorandum, CTA Records, p. 273). We are not convinced with
such an explanation. The staggering expense led us to believe that such
expenditure was incurred "to create or maintain some form of good will for
the taxpayers trade or business or for the industry or profession of which
the taxpayer is a member." The term "good will" can hardly be said to have
any precise signification; it is generally used to denote the benefit arising
from connection and reputation (Words and Phrases, Vol. 18, p. 556 citing

Douhart vs. Loagan, 86 III. App. 294). As held in the case of Welch vs.
Helvering, efforts to establish reputation are akin to acquisition of capital
assets and, therefore, expenses related thereto are not business expenses
but capital expenditures. (Atlas Mining and Development Corp. vs.
Commissioner of Internal Revenue, supra). For sure such expenditure was
meant not only to generate present sales but more for future and
prospective benefits. Hence, "abnormally large expenditures for advertising
are usually to be spread over the period of years during which the benefits
of the expenditures are received" (Mertens, supra, citing Colonial Ice Cream
Co., 7 BTA 154).
WHEREFORE, in all the foregoing, and finding no error in the case appealed
from, we hereby RESOLVE to DISMISS the instant petition for lack of merit
and ORDER the Petitioner to pay the respondent Commissioner the assessed
amount of P2,635,141.42 representing its deficiency income tax liability for
the fiscal year ended February 28, 1985."3
Aggrieved, respondent corporation filed a petition for review at the Court of
Appeals which rendered a decision reversing and setting aside the decision
of the Court of Tax Appeals:
Since it has not been sufficiently established that the item it claimed as a
deduction is excessive, the same should be allowed.
WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is
hereby GRANTED. Accordingly, the Decision, dated 8 February 1994 of
respondent Court of Tax Appeals is REVERSED and SET ASIDE and the letter,
dated 31 May 1988 of respondent Commissioner of Internal Revenue is
CANCELLED.
SO ORDERED.4
Thus, the instant petition, wherein the Commissioner presents for the
Courts consideration a lone issue: whether or not the subject media
advertising expense for "Tang" incurred by respondent corporation was an
ordinary and necessary expense fully deductible under the National Internal
Revenue Code (NIRC).
It is a governing principle in taxation that tax exemptions must be construed
in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority;5 and he who claims an exemption must be able to justify his claim
by the clearest grant of organic or statute law. An exemption from the
common burden cannot be permitted to exist upon vague implications. 6
Deductions for income tax purposes partake of the nature of tax
exemptions; hence, if tax exemptions are strictly construed, then deductions
must also be strictly construed.
We then proceed to resolve the singular issue in the case at bar. Was the
media advertising expense for "Tang" paid or incurred by respondent
corporation for the fiscal year ending February 28, 1985 "necessary and
ordinary," hence, fully deductible under the NIRC? Or was it a capital
expenditure, paid in order to create "goodwill and reputation" for respondent
corporation and/or its products, which should have been amortized over a
reasonable period?
Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:
(A) Expenses.(1) Ordinary and necessary trade, business or professional expenses.(a) In general.- There shall be allowed as deduction from gross income all
ordinary and necessary expenses paid or incurred during the taxable year in

carrying on, or which are directly attributable to, the development,

management, operation and/or conduct of the trade, business or exercise of
a profession.
Simply put, to be deductible from gross income, the subject advertising
expense must comply with the following requisites: (a) the expense must be
ordinary and necessary; (b) it must have been paid or incurred during the
taxable year; (c) it must have been paid or incurred in carrying on the trade
or business of the taxpayer; and (d) it must be supported by receipts,
records or other pertinent papers.7
The parties are in agreement that the subject advertising expense was paid
or incurred within the corresponding taxable year and was incurred in
carrying on a trade or business. Hence, it was necessary. However, their
views conflict as to whether or not it was ordinary. To be deductible, an
advertising expense should not only be necessary but also ordinary. These
two requirements must be met.
The Commissioner maintains that the subject advertising expense was not
ordinary on the ground that it failed the two conditions set by U.S.
jurisprudence: first, "reasonableness" of the amount incurred and second,
the amount incurred must not be a capital outlay to create "goodwill" for the
product and/or private respondents business. Otherwise, the expense must
be considered a capital expenditure to be spread out over a reasonable
time.
We agree.
There is yet to be a clear-cut criteria or fixed test for determining the
reasonableness of an advertising expense. There being no hard and fast rule
on the matter, the right to a deduction depends on a number of factors such
as but not limited to: the type and size of business in which the taxpayer is
engaged; the volume and amount of its net earnings; the nature of the
expenditure itself; the intention of the taxpayer and the general economic
conditions. It is the interplay of these, among other factors and properly
weighed, that will yield a proper evaluation.
In the case at bar, the P9,461,246 claimed as media advertising expense for
"Tang" alone was almost one-half of its total claim for "marketing expenses."
Aside from that, respondent-corporation also claimed P2,678,328 as "other
advertising and promotions expense" and another P1,548,614, for consumer
promotion.
Furthermore, the subject P9,461,246 media advertising expense for "Tang"
was almost double the amount of respondent corporations P4,640,636
general and administrative expenses.
We find the subject expense for the advertisement of a single product to be
inordinately large. Therefore, even if it is necessary, it cannot be considered
an ordinary expense deductible under then Section 29 (a) (1) (A) of the
NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current
sale of merchandise or use of services and (2) advertising designed to
stimulate the future sale of merchandise or use of services. The second type
involves expenditures incurred, in whole or in part, to create or maintain
some form of goodwill for the taxpayers trade or business or for the
industry or profession of which the taxpayer is a member. If the
expenditures are for the advertising of the first kind, then, except as to the
question of the reasonableness of amount, there is no doubt such

expenditures are deductible as business expenses. If, however, the

expenditures are for advertising of the second kind, then normally they
should be spread out over a reasonable period of time.
We agree with the Court of Tax Appeals that the subject advertising expense
was of the second kind. Not only was the amount staggering; the respondent
corporation itself also admitted, in its letter protest 8 to the Commissioner of
Internal Revenues assessment, that the subject media expense was
incurred in order to protect respondent corporations brand franchise, a
critical point during the period under review.
The protection of brand franchise is analogous to the maintenance of
goodwill or title to ones property. This is a capital expenditure which should
be spread out over a reasonable period of time.9
Respondent corporations venture to protect its brand franchise was
tantamount to efforts to establish a reputation. This was akin to the
acquisition of capital assets and therefore expenses related thereto were not
to be considered as business expenses but as capital expenditures. 10
True, it is the taxpayers prerogative to determine the amount of advertising
expenses it will incur and where to apply them. 11 Said prerogative, however,
is subject to certain considerations. The first relates to the extent to which
the expenditures are actually capital outlays; this necessitates an inquiry
into the nature or purpose of such expenditures.12 The second, which must
be applied in harmony with the first, relates to whether the expenditures are
ordinary and necessary. Concomitantly, for an expense to be considered
ordinary, it must be reasonable in amount. The Court of Tax Appeals ruled
that respondent corporation failed to meet the two foregoing limitations.
We find said ruling to be well founded. Respondent corporation incurred the
subject advertising expense in order to protect its brand franchise. We
consider this as a capital outlay since it created goodwill for its business
and/or product. The P9,461,246 media advertising expense for the
promotion of a single product, almost one-half of petitioner corporations
entire claim for marketing expenses for that year under review, inclusive of
other advertising and promotion expenses of P2,678,328 and P1,548,614 for
consumer promotion, is doubtlessly unreasonable.
It has been a long standing policy and practice of the Court to respect the
conclusions of quasi-judicial agencies such as the Court of Tax Appeals, a
highly specialized body specifically created for the purpose of reviewing tax
cases. The CTA, by the nature of its functions, is dedicated exclusively to the
study and consideration of tax problems. It has necessarily developed an
expertise on the subject. We extend due consideration to its opinion unless
there is an abuse or improvident exercise of authority. 13 Since there is none
in the case at bar, the Court adheres to the findings of the CTA.
Accordingly, we find that the Court of Appeals committed reversible error
when it declared the subject media advertising expense to be deductible as
an ordinary and necessary expense on the ground that "it has not been
established that the item being claimed as deduction is excessive." It is not
incumbent upon the taxing authority to prove that the amount of items
being claimed is unreasonable. The burden of proof to establish the validity
of claimed deductions is on the taxpayer.14 In the present case, that burden
was not discharged satisfactorily.
WHEREFORE, premises considered, the instant petition is GRANTED. The
assailed decision of the Court of Appeals is hereby REVERSED and SET

ASIDE. Pursuant to Sections 248 and 249 of the Tax Code, respondent
General Foods (Phils.), Inc. is hereby ordered to pay its deficiency income
tax in the amount of P2,635,141.42, plus 25% surcharge for late payment
and 20% annual interest computed from August 25, 1989, the date of the
denial of its protest, until the same is fully paid.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales, JJ.,
concur.

CARPIO, and
- versus - AZCUNA, JJ.
Promulgated:
COURT OF APPEALS, COURT OF
TAX APPEALS and COMMISSIONER December 9, 2005
OF INTERNAL REVENUE,
Respondents.
x ---------------------------------------------------------------------------------------- x
DECISION
AZCUNA, J.:

This is a Petition for Review on Certiorari assailing the decision of the

Court of Appeals (CA) dated May 7, 1997 in CA-G.R. SP No. 41666.

The CA affirmed in toto the decision of the Court of Tax Appeals

(CTA) dated January 24, 1996 and its resolution of July 31, 1996, dismissing
petitioner Far East Bank and Trust Companys claim for refund of excess
creditable withholding taxes in the aggregate amount of Seven Hundred
Fifty-Five Thousand Seven Hundred and Fifteen Pesos (P755,715) allegedly
paid and remitted to the Bureau of Internal Revenue (BIR) sometime in 1990
and 1991.

The antecedent facts are as follows:

FAR EAST BANK AND TRUST GR No. 129130

COMPANY,
Petitioner, Present:
DAVIDE, JR., C.J. (Chairman),
QUISUMBING,
YNARES-SANTIAGO,

Petitioner is a domestic banking corporation duly organized

and existing under and by virtue of Philippine laws. In the
early part of 1992, the Cavite Development Bank [CDB], also
a domestic banking corporation, was merged with Petitioner
with the latter as its surviving entity [under] the merger.
Petitioner being the surviving entity[, it] acquired all [the]
assets of CDB.
During the period from 1990 to 1991, CDB sold some

acquired assets in the course of which it allegedly withheld

the creditable tax from the sales proceeds which amounted
to P755,715.00.
In said years, CDB filed income tax returns which reflected
that CDB incurred negative taxable income or losses for both
years. Since there was no tax against which to credit or
offset the taxes withheld by CDB, the result was that CDB,
according to petitioner, had excess creditable withholding
tax.
Thus, petitioner, being the surviving entity of the merger,
filed this Petition for Review after its administrative claim for
refund was not acted upon.[1]

In denying petitioners claim, the CA held that the evidence

presented by petitioner consisting of (1) confirmation receipts, payment

1. THE DECISION OF MAY 7,1997 WHEREBY RESPONDENT CA

DISMISSED PETITIONERS APPEAL, AND RESPONDENT
CTAS DECISION DATED JANUARY 24, 1996 AND
RESOLUTION OF JULY 31,1996, ARE NOT BASED ON
THE FACTS AND THE LAW.
2. PETITIONER HAS ADDUCED EVIDENCE A QUO WHICH
SUFFICIENTLY AND SUBSTANTIALLY ESTABLISH[ES]
THE FACT THAT THE CREDITABLE WITHHOLDING TAX
ON THE SALE OF ACQUIRED ASSETS WAS WITHHELD
AND THEN REMITTED TO THE BUREAU OF INTERNAL
REVENUE; AND,
3. THE DISMISSAL OF THE CLAIM FOR REFUND BEFORE
RESPONDENT CTA ARISES FROM AN UNDULY STRICT
APPLICATION OF THE REGULATIONS WHICH IS NOT
WARRANTED IN VIEW OF THE CLEAR PROOFS
ADDUCED BY PETITIONER WHICH ESTABLISH THE
BASIS FOR THE RELIEFS SOUGHT.[5]

orders, and official receipts issued by the Central Bank and the BIR with CDB
as the payor;

[2]

(2) Income Tax Returns for 1990 and 1991 with attached

financial statements filed by petitioner with the BIR;[3] and, (3) a list
prepared by the Accounting Department of petitioner purportedly showing
the CDB schedule of creditable withholding tax applied for refund for 1990
and 1991,[4] all failed to clearly establish that the taxes arising from the sale
of its acquired assets sometime in 1990 and 1991 were properly withheld
and remitted to the BIR. The CA likewise ruled that it was incumbent upon
petitioner to present BIR Form No. 1743.1 as required under Revenue
Regulation 6-85 to conclusively prove its right to the refund. It held that
petitioners failure to do so was fatal to its cause.

Petitioner contends that the confirmation receipts presented by it

constitute competent and irrefutable proof of the fact that taxes were
withheld and remitted to the BIR.[6]It is admitted that the taxes reflected on
the confirmation receipts as well as on the payment orders and official
receipts issued by the BIR were withheld by CDB. Petitioner maintains that
these pertained to the proceeds of the sale of its acquired assets in 1990
and 1991. According to petitioner, CDB took the initiative of paying the
withholding tax accruing thereon notwithstanding the fact that it was the
recipient of the income, to ensure that the correct taxes were remitted to the
BIR. Petitioner further argues that the list prepared by its Accounting
Department identifying the persons to whom the various sales were made

Hence, this Petition.

and indicating the amount of taxes withheld for each transaction should
have been given more weight by the court a quo as this document, when

Petitioner anchors its arguments on the following grounds:

taken with the tax withholding forms, indubitably establishes the fact of

withholding and the basis for the claims for refund. [7] Considering, therefore,

system, possession of the amount that is used to settle the tax liability is

that petitioner had adequately established by other evidence the basis for

acquired by the payor as the withholding agent of the government. [13] For

the grant of the claim for tax refund, petitioner asserts that its failure to

this reason, the Tax Code imposes, among others, certain obligations upon

submit BIR Form No. 1743.1 is not fatal to its cause.

the withholding agent to monitor its compliance with this duty. These include
the filing of the quarterly withholding tax returns, [14] the submission to the

The crucial issue in this case turns on a question of fact, that is,

payee, in respect of his or its receipts during the calendar quarter or year, of

whether petitioner adduced sufficient evidence to prove its entitlement to a

a written statement showing the income or other payments made by the

refund.

withholding agent during such quarter or year and the amount of the tax
deducted and withheld therefrom, [15] and the filing with the BIR of a
The findings of fact of the CTA, a special court exercising particular

reconciliation statement of quarterly payments and a list of payees and

expertise on the subject of tax, are generally regarded as final, binding and

income payments.[16] Codal provisions on withholding tax are mandatory and

conclusive[8] upon this Court, especially if these are substantially similar to

must be complied with by the withholding agent. This is significant in that a

the findings of the CA which is normally the final arbiter of questions of fact.

taxpayer cannot be compelled to answer for the non-performance by the

The findings shall not be reviewed nor disturbed on appeal [10] unless a

withholding agent of its legal duty to withhold unless there is collusion or

party can show that these are not supported by evidence, [11] or when the

bad faith. In addition, the former could not be deemed to have evaded the

judgment is premised on a misapprehension of facts, or when the lower

tax had the withholding agent performed its duty. [17]

[9]

courts failed to notice certain relevant facts which if considered would justify
a different conclusion.[12]

On the other hand, it is incumbent upon the payee to reflect in his or

its own return the income upon which any creditable tax is required to be

Petitioner has not sufficiently presented a case for the application of

an exception from the rule.

withheld at the source. Only when there is an excess of the amount of tax so
withheld over the tax due on the payees return can a refund become
possible.

Firstly, the CA cannot be faulted for not lending credence to

petitioners contention that it withheld, for its own account, the creditable

A taxpayer must thus do two things to be able to successfully make

withholding taxes on the sale of its acquired assets. In our withholding tax

a claim for the tax refund: (a) declare the income payments it received as

veritable doubts on the nature and identity of the taxes

withheld, when it declared, in part, in its Decision (Annex A
of the Petition) that, It can not well be said that the
amounts paid and remitted to the BIR were for CDBs account
and not for the other possible payees of withholding taxes
which CDB may also be liable to remit as a withholding
agent x x x . [20]

part of its gross income and (b) establish the fact of withholding. [18] On this
score, the relevant revenue regulation provides as follows:
Section 10. Claims for tax credit or refund. -- Claims
for tax credit or refund of income tax deducted and withheld
on income payments shall be given due course only when it
is shown on the return that the income payment received
was declared as part of the gross income and the fact of
withholding is established by a copy of the statement duly
issued by the payor to the payee (BIR Form No. 1743.1)
showing the amount paid and the amount of tax withheld
therefrom.[19]

Petitioner, apparently aware of the foregoing deficiency, offered into

evidence a CDB Schedule of Creditable Withholding Tax for the period 1990
to 1991[21] prepared by petitioners representative to show that the taxes
CDB withheld did, indeed, pertain to the taxes accruing on the sale of the

As mentioned, petitioner relies heavily on the confirmation receipts

acquired assets. The CA, however, found the same to be self-serving and

with the corresponding official receipts and payment orders to support its

unverifiable and therefore barren of evidentiary weight. [22] We accord this

case. Standing alone, however, these documents only establish that CDB

finding on an issue of fact the highest respect and we will not set it aside

withheld certain amounts in 1990 and 1991. It does not follow that the

lightly.

payments reflected in the confirmation receipts relate to the creditable

withholding taxes arising from the sale of the acquired properties. The claim

It bears emphasis that questions on whether certain items of

that CDB had excess creditable withholding taxes can only be upheld if it

evidence should be accorded probative value or weight, or rejected as feeble

were clearly and positively shown that the amounts on the various

or spurious, or whether the proofs on one side or the other are clear and

confirmation receipts were the amounts withheld by virtue of the sale of the

convincing and adequate to establish a proposition in issue, are without

acquired assets. On this point, the CA correctly pronounced:

doubt questions of fact. This is true regardless of whether the body of proofs
presented by a party, weighed and analyzed in relation to contrary evidence

The confirmation receipts alone, by themselves, will not

suffice to prove that the taxes reflected in the income tax
returns are the same taxes withheld from CDBs income
payments from the sale of its acquired assets. This is
because a cursory examination of the said Confirmation
Receipts, Payment Orders and Official Receipts will show that
what are reflected therein are merely the names of the
payors and the amount of tax. The nature of the tax paid, or
at the very least, the income payments from which the taxes
paid were withheld are not reflected therein. If these are the
only entries that are found on these proferred documents,
We cannot begrudge the Respondent Court from nurturing

submitted by the adverse party, may be said to be strong, clear and

convincing. Whether certain documents presented by one side should be
accorded full faith and credit in the face of protests as to their spurious
character by the other side; whether inconsistencies in the body of proofs of
a party are of such gravity as to justify refusing to give said proofs weightall
these are issues of fact. Questions like these are not reviewable by us. As a

rule, we confine our review of cases decided by the CA only to questions of

Petitioner also asserts that the confusion or difficulty in the

law raised in the petition and therein distinctly set forth. [23] We note that

implementation of Revenue Memorandum Circular 7-90 [27] was the reason

without the CDB Schedule, no evidence links the Confirmation Receipts,

why CDB took upon itself the task of withholding the taxes arising from the

Payment Orders and Official Receipts to the taxes allegedly withheld by CDB

sale, to ensure accuracy. Assuming this were true, CDB should have,

on the sale of the acquired assets.

nevertheless, accomplished the necessary returns to clearly identify the

nature of the payments made and file the same with the BIR. Section 2 of

As to the annual income tax returns for 1990 and 1991

presented

the circular clearly provides that the amount of withholding tax paid by a

by petitioner, we must stress that the mere admission into the records of

corporation to the BIR during the quarter on sales or exchanges of property

these returns does not automatically make their contents or entries

and which are creditable against the corporations tax liability are evidenced

undisputed and binding facts. Mere allegations by petitioner of the figures in

by Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and

its returns are not a sufficient proof of the amount of its refund entitlement.

1743-B. On the other hand, Revenue Regulation 6-85 states that BIR Form

They do not even constitute evidence adverse to respondent, against whom

No. 1743.1 establishes the fact of withholding. Since no competent evidence

these are being presented.[25]

was adduced by petitioner, the failure to offer these returns as evidence of

[24]

the amount of petitioners entitlement during the trial phase of this case is
Furthermore, we note that in the proceedings below, respondent

fatal to its cause. For its negligence, petitioner cannot be allowed to seek

Commissioner of Internal Revenue (CIR) raised the fact that there was a

refuge in a liberal application of the [r]ules. [28] The liberal interpretation and

discrepancy in the excess creditable withholding tax reflected in the returns

application of rules apply only in proper cases of demonstrable merit and

with the amounts sought to be refunded by petitioner. Whereas the 1990

under justifiable causes and circumstances.[29]

and 1991 Income Tax Returns indicated that CDB had excess creditable
withholding tax in the amounts of P535,310 and P357,511, respectively, the

We must emphasize that tax refunds, like tax exemptions, are

amounts claimed by petitioner as indicated in the CDB Schedule were

construed strictly against the taxpayer and liberally in favor of the taxing

P512,940.50 for 1990 and P242,774.50 for 1991.[26] The records are bereft of

authority.[30] In the event, petitioner has not met its burden of proof in

any explanation for such discrepancy. This further undermines petitioners

establishing the factual basis for its claim for refund and we find no reason

contentions, and its reliance on the CDB Schedule.

to disturb the ruling of the lower courts.

WHEREFORE, the petition is DENIED and the Decision of the Court

of Appeals dated May 7, 1997 in CA-G.R. SP No. 41666 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

[G.R. No. 122605. April 30, 2001]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS and

COMMISSIONER OF INTERNAL REVENUE, respondents.

Claiming that it paid the aforementioned income tax by mistake, a written

claim for refund was filed with the BIR on 15 April 1987. However, before the
said claim for refund could be acted upon by public respondent
Commissioner of Internal Revenue, petitioner-appellant filed a petition for
review with the CTA docketed as CTA Case No. 4149, to judicially pursue its
claim for refund and to stop the running of the two-year prescriptive period
under the then Section 243 of the NIRC.
On 21 February 1995, CTA rendered its decision denying SEA-LANDs claim
for refund of the income tax it paid in 1984.[2]
On March 30, 1995, petitioner appealed the decision of the Court of Tax
Appeals to the Court of Appeals.[3]
After due proceedings, on October 26, 1995, the Court of Appeals
promulgated its decision dismissing the appeal and affirming in toto the
decision of the Court of Tax Appeals.[4]
Hence, this petition.[5]

DECISION

The Issue

PARDO, J.:

The Case

The issue raised is whether or not the income that petitioner derived
from services in transporting the household goods and effects of U. S.
military personnel falls within the tax exemption provided in Article XII,
paragraph 4 of the RP-US Military Bases Agreement.

Appeal via certiorari from the decision of the Court of Appeals affirming
in toto that of the Court of Tax Appeals which denied petitioners claim for tax
credit or refund of income tax paid on its gross Philippine billings for taxable
year 1984, in the amount of P870,093.12.[1]

The Courts Ruling

We deny the petition.

The Facts

The facts, as found by the Court of Appeals, are as follows:

Sea-Land Service Incorporated (SEA-LAND), an American international
shipping company licensed by the Securities and Exchange Commission to
do business in the Philippines entered into a contract with the United States
Government to transport military household goods and effects of U. S.
military personnel assigned to the Subic Naval Base.
From the aforesaid contract, SEA-LAND derived an income for the taxable
year 1984 amounting to P58,006,207.54. During the taxable year in
question, SEA-LAND filed with the Bureau of Internal Revenue (BIR) the
corresponding corporate Income Tax Return (ITR) and paid the income tax
due thereon of 1.5% as required in Section 25 (a) (2) of the National Internal
Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.

The RP-US Military Bases Agreement provides:

No national of the United States, or corporation organized under the laws of
the United States, resident in the United States, shall be liable to pay income
tax in the Philippines in respect of any profits derived under a contract made
in the United States with the government of the United States in connection
with the construction, maintenance, operation and defense of the bases, or
any tax in the nature of a license in respect of any service or work for the
United States in connection with the construction, maintenance, operation
and defense of the bases.[6]
Petitioner Sea-Land Service, Inc. a US shipping company licensed to do
business in the Philippines earned income during taxable year 1984
amounting to P58,006,207.54, and paid income tax thereon of 1.5%
amounting to P870,093.12.
The question is whether petitioner is exempted from the payment of
income tax on its revenue earned from the transport or shipment of

household goods and effects of US personnel assigned at Subic Naval Base.

Laws granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing power. Taxation is
the rule and exemption is the exception. [7] The law does not look with favor
on tax exemptions and that he who would seek to be thus privileged must
justify it by words too plain to be mistaken and too categorical to be
misinterpreted.[8]
Under Article XII (4) of the RPUS Military Bases Agreement, the
Philippine Government agreed to exempt from payment of Philippine income
tax nationals of the United States, or corporations organized under the laws
of the United States, residents in the United States in respect of any profit
derived under a contract made in the United States with the Government of
the United States in connection with the construction, maintenance,
operation and defense of the bases.
It is obvious that the transport or shipment of household goods and
effects of U. S. military personnel is not included in the term construction,
maintenance, operation and defense of the bases. Neither could the
performance of this service to the U. S. government be interpreted as
directly related to the defense and security of the Philippine territories.
When the law speaks in clear and categorical language, there is no reason
for interpretation or construction, but only for application. [9] Any
interpretation that would give it an expansive construction to encompass
petitioners exemption from taxation would be unwarranted.
The avowed purpose of tax exemption is some public benefit or
interest, which the lawmaking body considers sufficient to offset the
monetary loss entailed in the grant of the exemption. [10] The hauling or
transport of household goods and personal effects of U. S. military personnel
would not directly contribute to the defense and security of the Philippines.
We see no reason to reverse the ruling of the Court of Appeals, which
affirmed the decision of the Court of Tax Appeals. The Supreme Court will not
set aside lightly the conclusion reached by the Court of Tax Appeals which,
by the very nature of its function, is dedicated exclusively to the
consideration of tax problems and has necessarily developed an expertise
on the subject, unless there has been an abuse or improvident exercise of
authority.[11]
Hence, the Court of Appeals did not err or gravely abuse its discretion in
dismissing the petition for review. We can not grant the petition.

The Judgment

WHEREFORE, the Court DENIES the petition for lack of merit.

No costs.
SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ.,

concur.

proper mode of judicial review undertaken from decisions of the regional trial
courts resolving the denial of tax protests made by local government
treasurers, pursuant to the Local Government Code. The second is whether a
local government unit can, under the Local Government Code, impel a
condominium corporation to pay business taxes.[1]
While we agree with the City Treasurers position on the first issue,
there ultimately is sufficient justification for the Court to overlook what is
essentially a procedural error. We uphold respondents on the second issue.
Indeed, there are disturbing aspects in both procedure and substance that
attend the attempts by the City of Makati to flex its taxing muscle.
LUZ R. YAMANE, in her G.R. No. 154993
capacity as the CITY
TREASURER OF MAKATI Present:
CITY,
Petitioner, PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus - TINGA, and

Considering that the tax imposition now in question has utterly no basis in
law, judicial relief is imperative. There are fewer indisputable causes for the
exercise of judicial review over the exercise of the taxing power than when
the tax is based on whim, and not on law.
CHICO-NAZARIO, JJ.

BA LEPANTO CONDOMINUM Promulgated:

CORPORATION,
Respondent. October 25, 2005

The facts, as culled from the record, follow.

Respondent BA-Lepanto Condominium Corporation (the Corporation) is a

x-------------------------------------------------------------------x
duly organized condominium corporation constituted in accordance with the
DECISION
TINGA, J.:

Condominium Act,[2]which owns and holds title to the common and limited
common areas of the BA-Lepanto Condominium (the Condominium), situated
in Paseo de Roxas, Makati City. Its membership comprises the various unit

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer),

owners of the Condominium. The Corporation is authorized, under Article V

presents for resolution of this Court two novel questions: one procedural, the

of its Amended By-Laws, to collect regular assessments from its members

other substantive, yet both of obvious significance. The first pertains to the

for operating expenses, capital expenditures on the common areas, and

other special assessments as provided for in the Master Deed with

is defined as trade or commercial activity regularly engaged in as a means

Declaration of Restrictions of the Condominium.

of livelihood or with a view to profit. It was submitted that the Corporation,

as a condominium corporation, was organized not for profit, but to hold title

On 15 December 1998, the Corporation received a Notice of Assessment

over the common areas of the Condominium, to manage the Condominium
dated 14 December 1998 signed by the City Treasurer. The Notice of
for the unit owners, and to hold title to the parcels of land on which the
Assessment stated that the Corporation is liable to pay the correct city
Condominium was located. Neither was the Corporation authorized, under its
business taxes, fees and charges, computed as totaling P1,601,013.77 for
articles of incorporation or by-laws to engage in profit-making activities. The
the years 1995 to 1997.[3] The Notice of Assessment was silent as to the
assessments it did collect from the unit owners were for capital expenditures
statutory basis of the business taxes assessed.
and operating expenses.[5]
Through counsel, the Corporation responded with a written tax
protest dated 12 February 1999, addressed to the City Treasurer. It was
evident in the protest that the Corporation was perplexed on the statutory
The protest was rejected by the City Treasurer in a letter dated 4
basis of the tax assessment.
March 1999. She insisted that the collection of dues from the unit owners
With due respect, we submit that the Assessment has
no basis as the Corporation is not liable for business taxes and
surcharges and interest thereon, under the Makati [Revenue]
Code or even under the [Local Government] Code.

was effected primarily to sustain and maintain the expenses of the common
areas, with the end in view [sic] of getting full appreciative living values [sic]
for the individual condominium

The Makati [Revenue] Code and the [Local

Government] Code do not contain any provisions on which the
Assessment could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code imposes business tax
on owners or operators of any business not specified in the
said code. We submit, however, that this is not applicable to
the Corporation as the Corporation is not an owner or operator
of any business in the contemplation of the Makati [Revenue]
Code and even the [Local Government] Code.[4]

occupants

and to

command better

marketable [sic] prices for those occupants who would in the future sell their
respective units.[6] Thus, she concluded since the chances of getting higher
prices for well-managed common areas of any condominium are better and
more effective that condominiums with poor [sic] managed common areas,
the corporation activity is a profit venture making [sic].[7]
From the denial of the protest, the Corporation filed an Appeal with the

Proceeding from the premise that its tax liability arose from Section
Regional Trial Court (RTC) of Makati. [8] On 1 March 2000, the Makati RTC
3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue
Branch 57 rendered aDecision[9] dismissing the appeal for lack of merit.
that under both the Makati Code and the Local Government Code, business

Accepting the premise laid by the City Treasurer, the RTC acknowledged, in

reversed the RTC and declared that the Corporation was not liable to pay

sadly risible language:

business taxes to the City of Makati. [17] In doing so, the Court of Appeals
delved into jurisprudential definitions of profit, [18]and concluded that the

Herein appellant, to defray the improvements and beautification

of the common areas, collect [sic] assessments from its
members. Its end view is to get appreciate living rules for the
unit owners [sic], to give an impression to outsides [sic] of the
quality of service the condominium offers, so as to allow present
owners to command better prices in the event of sale. [10]

Corporation was not engaged in profit. For one, it was held that the very
statutory concept of a condominium corporation showed that it was not a
juridical entity intended to make profit, as its sole purpose was to hold title to
the common areas in the condominium and to maintain the condominium. [19]

With this, the RTC concluded that the activities of the Corporation fell
squarely under the definition of business under Section 13(b) of the Local
Government Code, and thus subject to local business taxation. [11]

The Court of Appeals likewise cited provisions from the Corporations

Amended Articles of Incorporation and Amended By-Laws that, to its
estimation, established that the Corporation was not engaged in business

From this Decision of the RTC, the Corporation filed a Petition for Review

and the assessment collected from unit owners limited to those necessary to

under Rule 42 of the Rules of Civil Procedure with the Court of Appeals.

defray the expenses in the maintenance of the common areas and

Initially, the petition was dismissed outright [12] on the ground that only

management the condominium.[20]

decisions of the RTC brought on appeal from a first level court could be
elevated for review under the mode of review prescribed under Rule 42. [13]
However, the Corporation pointed out in its Motion for Reconsideration that
under Section 195 of the Local Government Code, the remedy of the
taxpayer on the denial of the protest filed with the local treasurer is to

Upon denial of her Motion for Reconsideration,[21] the City Treasurer

appeal the denial with the court of competent jurisdiction. [14] Persuaded by

elevated the present Petition for Review under Rule 45. It is argued that the

this contention, the Court of Appeals reinstated the petition. [15]

Corporation is engaged in business, for the dues collected from the different
unit owners is utilized towards the beautification and maintenance of the
Condominium, resulting in full appreciative living values for the condominium
units which would command better market prices should they be sold in the

On 7 June 2002, the Court of Appeals Special Sixteenth Division

future. The City Treasurer likewise avers that the rationale for business taxes

rendered the Decision[16] now assailed before this Court. The appellate court

is not on the income received or profit earned by the business, but the

privilege to engage in business. The fact that the

protests by local treasurers, exercises appellate jurisdiction. This position is

Corporation is empowered to acquire, own, hold, enjoy, lease, operate and

anchored on the language of Section 195 of the Local Government Code

maintain, and to convey sell, transfer or otherwise dispose of real or personal

which states that the remedy of the taxpayer whose protest is denied by the

property allegedly qualifies as incident to the fact of [the Corporations] act of

local treasurer is to appeal with the court of competent jurisdiction. [24]

engaging in business.[22]

Apparently though, the Local Government Code does not elaborate on how
such appeal should be undertaken.

The City Treasurer also claims that the Corporation had filed the
wrong mode of appeal before the Court of Appeals when the latter filed its
The other view, as maintained by the City Treasurer, is that the
Petition for Review under Rule 42. It is reasoned that the decision of the
jurisdiction exercised by the RTC is original in character. This is the first time
Makati RTC was rendered in the exercise of original jurisdiction, it being the
that the position has been presented to the court for adjudication. Still, this
first court which took cognizance of the case. Accordingly, with the
argument does find jurisprudential mooring in our ruling in Garcia v. De
Corporation having pursued an erroneous mode of appeal, the RTC Decision
Jesus,[25] where the Court proffered the following distinction between original
is deemed to have become final and executory.
jurisdiction and appellate jurisdiction: Original jurisdiction is the power of the
Court to take judicial cognizance of a case instituted for judicial action for the
First, we dispose of the procedural issue, which essentially boils down
first time under conditions provided by law. Appellate jurisdiction is the
to whether the RTC, in deciding an appeal taken from a denial of a protest by
authority of a Court higher in rank to re-examine the final order or judgment
a local treasurer under Section 195 of the Local Government Code, exercises
of a lower Court which tried the case now elevated for judicial review. [26]
original jurisdiction or appellate jurisdiction. The question assumes a
measure of importance to this petition, for the adoption of the position of the
The quoted definitions were taken from the commentaries of the
City Treasurer that the mode of review of the decision taken by the RTC is
esteemed Justice Florenz Regalado. With the definitions as beacon, the
governed by Rule 41 of the Rules of Civil Procedure means that the decision
review taken by the RTC over the denial of the protest by the local treasurer
of the RTC would have long become final and executory by reason of the
would fall within that courts original jurisdiction. In short, the review is the
failure of the Corporation to file a notice of appeal.[23]
initial judicial cognizance of the matter. Moreover, labeling the said review as
an exercise of appellate jurisdiction is inappropriate, since the denial of the
There are discernible conflicting views on the issue. The first, as
protest is not the judgment or order of a lower court, but of a local
expressed by the Court of Appeals, holds that the RTC, in reviewing denials of

government official.

non-judicial entities.

The stringent concept of original jurisdiction may seemingly be

From these premises, it is evident that the stance of the City

neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which

Treasurer is correct as a matter of law, and that the proper remedy of the

lists a slew of administrative agencies and quasi-judicial tribunals or their

Corporation from the RTC judgment is an ordinary appeal under Rule 41 to

officers whose decisions may be reviewed by the Court of Appeals in the

the Court of Appeals. However, we make this pronouncement subject to two

exercise of its appellate jurisdiction. However, the basic law of jurisdiction,

important qualifications. First, in this particular case there are nonetheless

Batas Pambansa Blg. 129 (B.P. 129), [27] ineluctably confers appellate

significant reasons for the Court to overlook the procedural error and

jurisdiction on the Court of Appeals over final rulings of quasi-judicial

ultimately uphold the adjudication of the jurisdiction exercised by the Court

agencies, instrumentalities, boards or commission, by explicitly using the

of Appeals in this case. Second, the doctrinal weight of the pronouncement is

phrase appellate jurisdiction.[28] The power to create or characterize

confined to cases and controversies that emerged prior to the enactment of

jurisdiction of courts belongs to the legislature. While the traditional notion of

Republic Act No. 9282, the law which expanded the jurisdiction of the Court

appellate jurisdiction connotes judicial review over lower court decisions, it

of Tax Appeals (CTA).

has to yield to statutory redefinitions that clearly expand its breadth to

encompass even review of decisions of officers in the executive branches of
government.

Republic Act No. 9282 definitively proves in its Section 7(a)(3) that
the CTA exercises exclusive appellate jurisdiction to review on appeal
decisions, orders or resolutions of the Regional Trial Courts in local tax cases

Yet significantly, the Local Government Code, or any other statute for

original decided or resolved by them in the exercise of their originally or

that matter, does not expressly confer appellate jurisdiction on the part of

appellate jurisdiction. Moreover, the provision also states that the review is

regional trial courts from the denial of a tax protest by a local treasurer. On

triggered by filing a petition for review under a procedure analogous to that

the other hand, Section 22 of B.P. 129 expressly delineates the appellate

provided for under Rule 42 of the 1997 Rules of Civil Procedure. [29]

jurisdiction of the Regional Trial Courts, confining as it does said appellate

jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit

Republic Act No. 9282, however, would not apply to this case simply

Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not

because it arose prior to the effectivity of that law. To declare otherwise

confer appellate jurisdiction on Regional Trial Courts over rulings made by

would be to institute a jurisdictional rule derived not from express statutory

grant, but from implication. The jurisdiction of a court to take cognizance of a

committed an error that would warrant the reversal or modification of the

case should be clearly conferred and should not be deemed to exist on mere

decision under review.[34] There is no similar requirement of a prima facie

implications,[30] and this settled rule would be needlessly emasculated should

determination of error in the case of ordinary appeal, which is perfected upon

we declare that the Corporations position is correct in law.

the filing of the notice of appeal in due time.[35]

Be that as it may, characteristic of all procedural rules is adherence

Evidently, by employing the Rule 42 mode of review, the Corporation

to the precept that they should not be enforced blindly, especially if

faced a greater risk of having its petition rejected by the Court of Appeals as

mechanical application would defeat the higher ends that animates our civil

compared to having filed an ordinary appeal under Rule 41. This was not an

procedurethe just, speedy and inexpensive disposition of every action and

error that worked to the prejudice of the City Treasurer.

proceeding.[31] Indeed, we have repeatedly upheldand utilized ourselvesthe

discretion of courts to nonetheless take cognizance of petitions raised on an
erroneous mode of appeal and instead treat these petitions in the manner as

We now proceed to the substantive issue, on whether the City of

Makati may collect business taxes on condominium corporations.

they should have appropriately been filed. [32] The Court of Appeals could very
well have treated the Corporations petition for review as an ordinary appeal.

We begin with an overview of the power of a local government unit to impose

business taxes.

Moreover, we recognize that the Corporations error in elevating the

RTC decision for review via Rule 42 actually worked to the benefit of the City
Treasurer. There is wider latitude on the part of the Court of Appeals to refuse
cognizance over a petition for review under Rule 42 than it would have over
an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated

The power of local government units to impose taxes within its territorial

grounds for the dismissal of an ordinary appeal prior to the transmission of

jurisdiction derives from the Constitution itself, which recognizes the power

the case records are when the appeal was taken out of time or when the

of these units to create its own sources of revenue and to levy taxes, fees,

docket fees were not paid. [33] On the other hand, Section 6, Rule 42 provides

and charges subject to such guidelines and limitations as the Congress may

that in order that the Court of Appeals may allow due course to the petition

provide, consistent with the basic policy of local autonomy. [36] These

for review, it must first make aprima facie finding that the lower court has

guidelines and limitations as provided by Congress are in main contained in

the Local Government Code of 1991 (the Code), which provides for

impose taxes on any other businesses not otherwise specified under Section

comprehensive instances when and how local government units may impose

143 which the sanggunian concerned may deem proper to tax.

taxes. The significant limitations are enumerated primarily in Section 133 of

the Code, which include among others, a prohibition on the imposition of

The coverage of business taxation particular to the City of Makati is

income taxes except when levied on banks and other financial institutions. [37]

provided by the Makati Revenue Code (Revenue Code), enacted through

None of the other general limitations under Section 133 find application to

Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of

the case at bar.

this
writing. Article A, Chapter III of the Revenue Code governs business taxes in

The most well-known mode of local government taxation is perhaps the real

Makati, and it is quite specific as to the particular businesses which are

property tax, which is governed by Title II, Book II of the Code, and which

covered by business taxes. To give a sample of the specified businesses

bears no application in this case. A different set of provisions, found under

under the Revenue Code which are not enumerated under the Local

Title I of Book II, governs other taxes imposable by local government units,

Government Code, we cite Section 3A.02(f) of the Code, which levies a gross

including business taxes. Under Section 151 of the Code, cities such as

receipt tax :

Makati are authorized to levy the same taxes fees and charges as provinces
and municipalities. It is in Article II, Title II, Book II of the Code, governing
municipal taxes, where the provisions on business taxation relevant to this
petition may be found.[38]

Section 143 of the Code specifically enumerates several types of business on

which

municipalities

and

cities

may

impose

taxes.

These

include

manufacturers, wholesalers, distributors, dealers of any article of commerce

of whatever nature; those engaged in the export or commerce of essential
commodities; contractors and other independent contractors; banks and
financial institutions; and peddlers engaged in the sale of any merchandise
or article of commerce. Moreover, the local sanggunian is also authorized to

(f) On contractors and other independent contractors

defined in Sec. 3A.01(q) of Chapter III of this Code, and on
owners or operators of business establishments rendering
or offering services such as: advertising agencies; animal
hospitals; assaying laboratories; belt and buckle shops;
blacksmith shops; bookbinders; booking officers for film
exchange; booking offices for transportation on
commission basis; breeding of game cocks and other
sporting
animals
belonging
to
others;
business
management services; collecting agencies; escort
services; feasibility studies; consultancy services; garages;
garbage disposal contractors; gold and silversmith shops;
inspection services for incoming and outgoing cargoes;
interior decorating services; janitorial services; job
placement
or
recruitment
agencies;
landscaping
contractors;
lathe
machine
shops;
management
consultants not subject to professional tax; medical and
dental laboratories; mercantile agencies; messsengerial
services; operators of shoe shine stands; painting shops;
perma press establishments; rent-a-plant services; polo
players; school for and/or horse-back riding academy; real
estate appraisers; real estate brokerages; photostatic,
white/blue printing, Xerox, typing, and mimeographing
services; rental of bicycles and/or tricycles, furniture,

shoes, watches, household appliances, boats, typewriters,

etc.; roasting of pigs, fowls, etc.; shipping agencies;
shipyard for repairing ships for others; shops for shearing
animals; silkscreen or T-shirt printing shops; stables; travel
agencies; vaciador shops; veterinary clinics; video rentals
and/or
coverage
services;
dancing
schools/speed
reading/EDP; nursery, vocational and other schools not
regulated by the Department of Education, Culture and
Sports, (DECS), day care centers; etc.[39]

Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to
what exactly is the precise statutory basis under the Makati Revenue Code
for the levying of the business tax on petitioner. We have examined all of the
pleadings submitted by the City Treasurer in all the antecedent judicial
proceedings, as well as in this present petition, and also the communications
by the City Treasurer to the Corporation which form part of the record.

Other provisions of the Revenue Code likewise subject hotel and

Nowhere therein is there any citation made by the City Treasurer of any

restaurant owners and operators[40], real estate dealers, and lessors of real

provision of the Revenue Code which would serve as the legal authority for

estate[41] to business taxes.

the collection of business taxes from condominiums in Makati.

Should the comprehensive listing not prove encompassing enough,

Ostensibly, the notice of assessment, which stands as the first

there is also a catch-all provision similar to that under the Local Government

instance the taxpayer is officially made aware of the pending tax liability,

Code. This is found in Section 3A.02(m) of the Revenue Code, which

should be sufficiently informative to apprise the taxpayer the legal basis of

provides:

the tax. Section 195 of the Local Government Code does not go as far as to
expressly require that the notice of assessment specifically cite the provision

(m) On owners or operators of any business not specified

above shall pay the tax at the rate of two percent (2%) for 1993,
two and one-half percent (2 %) for 1994 and 1995, and three
percent (3%) for 1996 and the years thereafter of the gross
receipts during the preceding year.[42]

of the ordinance involved but it does require that it state the nature of the
tax, fee or charge, the amount of deficiency, surcharges, interests and
penalties. In this case, the notice of assessment sent to the Corporation did
state that the assessment was for business taxes, as well as the amount of

The initial inquiry is what provision of the Makati Revenue Code does
the assessment. There may have been prima faciecompliance with the
the City Treasurer rely on to make the Corporation liable for business taxes.
requirement under Section 195. However in this case, the Revenue Code
Even at this point, there already stands a problem with the City Treasurers
provides multiple provisions on business taxes, and at varying rates. Hence,
cause of action.
we could appreciate the Corporations confusion, as expressed in its protest,
as to the exact legal basis for the tax. [43] Reference to the local tax ordinance
Our careful examination of the record reveals a highly disconcerting
is vital, for the power of local government units to impose local taxes is
fact. At no point has the City Treasurer been candid enough to inform the

exercised through the appropriate ordinance enacted by the sanggunian, and

not by the Local Government Code alone. [44] What determines tax liability is

Certainly, the City Treasurer has not been helpful in that regard, as

the tax ordinance, the Local Government Code being the enabling law for the

she has been silent all through out as to the exact basis for the tax

local legislative body.

imposition which she wishes that this Court uphold. Indeed, there is only one
thing that prevents this Court from ruling that there has been a due process

Moreover, a careful examination of the Revenue Code shows that

violation on account of the City Treasurers failure to disclose on paper the

while Section 3A.02(m) seems designed as a catch-all provision, Section

statutory basis of the taxthat the Corporation itself does not allege injury

3A.02(f), which provides for a different tax rate from that of the former

arising from such failure on the part of the City Treasurer.

provision, may be construed to be of similar import. While Section 3A.02(f) is

quite exhaustive in enumerating the class of businesses taxed under the

We do not know why the Corporation chose not to put this issue into

provision, the listing, while it does not include condominium-related

litigation, though we can ultimately presume that no injury was sustained

enterprises, ends with the abbreviation etc., or et cetera.

because the City Treasurer failed to cite the specific statutory basis of the
tax. What is essential though is that the local treasurer be required to explain

We do note our discomfort with the unlimited breadth and the

dangerous uncertainty which are the twin hallmarks of the words et cetera.

to the taxpayer with sufficient particularity the basis of the tax, so as to

leave no doubt in the mind of the taxpayer as to the specific tax involved.

Certainly, we cannot be disposed to uphold any tax imposition that derives

In this case, the Corporation seems confident enough in litigating
its authority from enigmatic and uncertain words such as et cetera. Yet we
despite the failure of the City Treasurer to admit on what exact provision of
cannot even say with definiteness whether the tax imposed on the
the Revenue Code the tax liability ensued. This is perhaps because the
Corporation in this case is based on et cetera, or on Section 3A.02(m), or on
Corporation has anchored its central argument on the position that the Local
any other provision of the Revenue Code. Assuming that the assessment
Government Code itself does not sanction the imposition of business taxes
made on the Corporation is on a provision other than Section 3A.02(m), the
against it. This position was sustained by the Court of Appeals, and now
main legal issue takes on a different complexion. For example, if it is based
merits our analysis.
on et cetera under Section 3A.02(f), we would have to examine whether the
Corporation faces analogous comparison with the other businesses listed
under that provision.

As stated earlier, local tax on businesses is authorized under Section

143 of the Local Government Code. The word business itself is defined under

Section 131(d) of the Code as trade or commercial activity regularly engaged

in proportion to the appurtenant interest of their respective

in as a means of livelihood or with a view to profit. [45] This definition of

units.[47] The necessity of a condominium corporation has not gained

business takes on importance, since Section 143 allows local government

widespread acceptance[48], and even is merely permissible under the

units to impose local taxes on businesses other than those specified under

Condominium Act.[49] Nonetheless, the condominium corporation has been

the provision. Moreover, even those business activities specifically named in

resorted to by many condominium projects, such as the Corporation in this

Section 143 are themselves susceptible to broad interpretation. For example,

case.

Section 143(b) authorizes the imposition of business taxes on wholesalers,

In line with the authority of the condominium corporation to manage
distributors, or dealers in any article of commerce of whatever kind or
the condominium project, it may be authorized, in the deed of restrictions, to
nature.
make reasonable assessments to meet authorized expenditures, each
It is thus imperative that in order that the Corporation may be

condominium unit to be assessed separately for its share of such expenses in

subjected to business taxes, its activities must fall within the definition of

proportion (unless otherwise provided) to its owners fractional interest in any

business as provided in the Local Government Code. And to hold that they do

common areas.[50] It is the collection of these assessments from unit owners

is to ignore the very statutory nature of a condominium corporation.

that form the basis of the City Treasurers claim that the Corporation is doing
business.

The creation of the condominium corporation is sanctioned by

Republic Act No. 4726, otherwise known as the Condominium Act. Under the

The

Condominium

Act

imposes

several

limitations

on

the

law, a condominium is an interest in real property consisting of a separate

condominium corporation that prove crucial to the disposition of this case.

interest in a unit in a residential, industrial or commercial building and an

Under Section 10 of the law, the

undivided interest in common, directly or indirectly, in the land on which it is

corporate purposes of a condominium corporation are limited to the holding

located and in other common areas of the building. [46] To enable the orderly

of the common areas, either in ownership or any other interest in real

administration over these common areas which are jointly owned by the

property recognized by law; to the management of the project; and to such

various unit owners, the Condominium Act permits the creation of a

other purposes as may be necessary, incidental or convenient to the

condominium corporation, which is specially formed for the purpose of

accomplishment of such purpose. [51] Further, the same provision prohibits the

holding title to the common area, in which the holders of separate interests

articles of incorporation or by-laws of the condominium corporation from

shall automatically be members or shareholders, to the exclusion of others,

containing any provisions which are contrary to the provisions of the

Condominium Act, the enabling or master deed, or the declaration of

operation of the Condominium Project; (g) to discharge any lien or

restrictions of the condominium project.[52]

encumbrances upon the Condominium Project; (h) to enforce the terms

contained in the Master Deed with Declaration of Restrictions of the Project;

We can elicit from the Condominium Act that a condominium

(i) to levy and
corporation is precluded by statute from engaging in corporate activities
collect those assessments as provided in the Master Deed, in order to defray
other than the holding of the common areas, the administration of the
the costs, expenses and losses of the condominium; (j) to acquire, own, hold,
condominium project, and other acts necessary, incidental or convenient to
enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or
the accomplishment of such purposes. Neither the maintenance of livelihood,
otherwise dispose of real or personal property in connection with the
nor the procurement of profit, fall within the scope of permissible corporate
purposes and activities of the corporation; and (k) to exercise and perform
purposes of a condominium corporation under the Condominium Act.
such other powers reasonably necessary, incidental or convenient to
The Court has examined the particular Articles of Incorporation and

accomplish the foregoing purposes.[53]

By-Laws of the Corporation, and these documents unmistakably hew to the

limitations

contained

in

the

Condominium

Act.

Per

the

Articles

of

Obviously, none of these stated corporate purposes are geared

Incorporation, the Corporations corporate purposes are limited to: (a) owning

towards maintaining a livelihood or the obtention of profit. Even though the

and holding title to the common and limited common areas in the

Corporation is empowered to levy assessments or dues from the unit owners,

Condominium Project; (b) adopting such necessary measures for the

these amounts collected are not intended for the incurrence of profit by the

protection and safeguard of the unit owners and their property, including the

Corporation or its members, but to shoulder the multitude of necessary

power to contract for security services and for insurance coverage on the

expenses that arise from the maintenance of the Condominium Project. Just

entire project; (c) making and adopting needful rules and regulations

as much is confirmed by Section 1, Article V of the Amended By-Laws, which

concerning the use, enjoyment and occupancy of the units and common

enumerate

areas, including the power to fix penalties and assessments for violation of

assessments collected from the unit owners. These would include the

such rules; (d) to provide for the maintenance, repair, sanitation, and

salaries of the employees of the Corporation, and the cost of maintenance

cleanliness of the common and limited common areas; (e) to provide and

and ordinary repairs of the common areas.[54]

the

particular

expenses

to

be

defrayed

by

the

regular

contract for public utilities and other services to the common areas; (f) to
The City Treasurer nonetheless contends that the collection of these
contract for the services of persons or firms to assist in the management and
assessments and dues are with the end view of getting full appreciative

living values for the condominium units, and as a result, profit is obtained

basis of the standard of full appreciative living values, a phrase that defies

once these units are sold at higher prices. The Court cites with approval the

statutory explication, commonsensical meaning, the English language, or

two counterpoints raised by the Court of Appeals in rejecting this contention.

even definition from Google. The exercise of the power of taxation

First, if any profit is obtained by the sale of the units, it accrues not to the

constitutes a deprivation of property under the

corporation but to the unit owner. Second, if the unit owner does obtain profit
from the sale of the corporation, the owner is already required to pay capital
gains tax on the appreciated value of the condominium unit. [55]

due process clause,[56] and the taxpayers right to due process is violated
when arbitrary or oppressive methods are used in assessing and collecting
taxes.[57] The fact that the Corporation did not fall within the enumerated
classes of taxable businesses under either the Local Government Code or the
Makati Revenue Code already forewarns that a clear demonstration is

Moreover, the logic on this point of the City Treasurer is baffling. By

essential on the part of the City Treasurer on why the Corporation should be

this rationale, every Makati City car owner may be considered as being

taxed anyway. Full appreciative living values is nothing but blather in search

engaged in business, since the repairs or improvements on the car may be

of meaning, and to impose a tax hinged on that standard is both arbitrary

deemed oriented towards appreciating the value of the car upon resale.

and oppressive.

There is an evident distinction between persons who spend on repairs and

The City Treasurer also contends that the fact that the Corporation is
improvements on their personal and real property for the purpose of
engaged in business is evinced by the Articles of Incorporation, which
increasing its resale value, and those who defray such expenses for the
specifically empowers the Corporation to acquire, own, hold, enjoy, lease,
purpose of preserving the property. The vast majority of persons fall under
operate and maintain, and to convey, sell, transfer mortgage or otherwise
the second category, and it would be highly specious to subject these
dispose of real or personal property. [58] What the City Treasurer fails to add is
persons to local business taxes. The profit motive in such cases is hardly the
that every corporation
driving factor behind such improvements, if it were contemplated at all. Any
profit that would be derived under such circumstances would merely be
incidental, if not accidental.
organized under the Corporation Code [59] is so specifically empowered.
Besides, we shudder at the thought of upholding tax liability on the

Section 36(7) of the Corporation Code states that every corporation

incorporated under the Code has the power and capacity to purchase,

they are engaged in beyond the legal capacity of the condominium

receive, take or grant, hold, convey, sell, lease, pledge, mortgage and

corporation[62], the principle of estoppel would preclude the corporation or its

otherwise deal with such real and personal property . . . as the transaction of

officers and members from invoking the void nature of its undertakings for

the lawful business of the corporation may reasonably and necessarily

profit as a means of acquitting itself of tax liability.

require . . . .[60] Without this power, corporations, as juridical persons, would

Still, the City Treasurer has not posited the claim that the Corporation
be deprived of the capacity to engage in most meaningful legal relations.
is engaged in business activities beyond the statutory purposes of a
condominium corporation. The assessment appears to be based solely on the
Again, whatever capacity the Corporation may have pursuant to its
Corporations collection of assessments from unit owners, such assessments
power to exercise acts of ownership over personal and real property is
being utilized to defray the necessary expenses for the Condominium Project
limited by its stated corporate purposes, which are by themselves further
and the common areas. There is no contemplation of business, no orientation
limited by the Condominium Act. A condominium corporation, while enjoying
towards profit in this case. Hence, the assailed tax assessment has no basis
such powers of ownership, is prohibited by law from transacting its properties
under the Local Government Code or the Makati Revenue Code, and the
for the purpose of gainful profit.
insistence of the city in its collection of the void tax constitutes an attempt at
deprivation of property without due process of law.
Accordingly, and with a significant degree of comfort, we hold that
condominium corporations are generally exempt from local business taxation
under the Local Government Code, irrespective of any local ordinance that
WHEREFORE, the petition is DENIED. No costs.
seeks to declare otherwise.
SO ORDERED.
Still, we can note a possible exception to the rule. It is not
unthinkable that the unit owners of a condominium would band together to
engage in activities for profit under the shelter of the condominium
corporation.[61] Such activity would be prohibited under the Condominium
Act, but if the fact is established, we see no reason why the condominium
corporation may be made liable by the local government unit for business
taxes. Even though such activities would be considered as ultra vires, since

[G. R. No. 141658. March 18, 2005]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE

PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY,
INC., THE PHILIPPINE AMERICAN ASSURANCE COMPANY,
INC., and THE PHILIPPINE AMERICAN GENERAL INSURANCE
CO., INC., respondents.

such were not subject to the 3% lending investors tax under Section 195A.
The CTA archived respondents case for several years while another
case with a similar issue was pending before the higher courts. When
respondents case was reinstated, the CTA ruled that respondents were
entitled to their refund.

The Ruling of the Court of Tax Appeals

DECISION
CARPIO, J.:

The Case
Before the Court is a petition for review [1] assailing the Decision[2] of 7
January 2000 of the Court of Appeals in CA-G.R. SP No. 36816. The Court
of Appeals affirmed the Decision [3]of 5 January 1995 of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered
the Commissioner of Internal Revenue (petitioner) to refund a total
ofP29,575.02 to respondent companies (respondents).

Antecedent Facts

The CTA held that respondents are not taxable as lending investors
because the term lending investors does not embrace insurance
companies. The CTA traced the history of the tax on lending investors, as
follows:
Originally, a person who was engaged in lending money at interest was
taxed as a money lender. [Sec. 1464(x), Rev. Adm. Code] The term money
lenders was defined as including all persons who make a practice of
lending money for themselves or others at interest. [Sec. 1465(v), id.]
Under this law, an insurance company was not considered a money lender
and was not taxable as such. To quote from an old BIR Ruling:
The lending of money at interest by insurance companies constitutes a
necessary incident of their regular business. For this reason, insurance
companies are not liable to tax as money lenders or real estate brokers for
making or negotiating loans secured by real property. (Ruling, February 28,
1920; BIR 135.2) (The Internal Revenue Law, Annotated, 2nd ed., 1929, by
B.L. Meer, page 143)
The same rule has been applied to banks.

Respondents are domestic corporations licensed to transact insurance

business in the country. From August 1971 to September 1972,
respondents paid the Bureau of Internal Revenue under protest the 3% tax
imposed on lending investors by Section 195-A[4] of Commonwealth Act No.
466 (CA 466), as amended by Republic Act No. 6110 (RA 6110) and other
laws. CA 466 was the National Internal Revenue Code (NIRC) applicable at
the time.
Respondents paid the following amounts: P7,985.25 from Philippine
American (PHILAM) Accident Insurance Company; P7,047.80 from PHILAM
Assurance Company; andP14,541.97 from PHILAM General Insurance
Company. These amounts represented 3% of each companys interest
income from mortgage and other loans. Respondents also paid the taxes
required of insurance companies under CA 466.
On 31 January 1973, respondents sent a letter-claim to petitioner
seeking a refund of the taxes paid under protest. When respondents did
not receive a response, each respondent filed on 26 April 1973 a petition
for review with the CTA. These three petitions, which were later
consolidated, argued that respondents were not lending investors and as

For making investments on salary loans, banks will not be required to pay
the money lenders tax imposed by this subsection, for the reason that
money lending is considered a mere incident of the banking business. [See
Ruling No. 43, (October 8, 1926) 25 Off. Gaz. 1326) (The Internal Revenue
Law, Annotated, id.)
The term money lenders was later changed to lending investors but the
definition of the term remains the same. [Sec. 1464(x), Rev. Adm. Code, as
finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code,
as finally amended by Act No. 3963] The same law is embodied in the
present National Internal Revenue Code (Com. Act No. 466) without
change, except in the amount of the tax. [See Secs. 182(A) (3) (dd) and
194(u), National Internal Revenue Code.]
It is a well-settled rule that an administrative interpretation of a law which
has been followed and applied for a long time, and thereafter the law is reenacted without substantial change, such administrative interpretation is
deemed to have received legislative approval. In short, the administrative
interpretation becomes part of the law as it is presumed to carry out the
legislative purpose.[5]
The CTA held that the practice of lending money at interest is part of

the insurance business. CA 466 already taxes the insurance business. The
CTA pointed out that the law recognizes and even regulates this practice
of lending money by insurance companies.
The CTA observed that CA 466 also treated differently insurance
companies from lending investors in regard to fixed taxes. Under Section
182(A)(3)(gg), insurance companies were subject to the same fixed tax as
banks and finance companies. The CTA reasoned that insurance
companies were grouped with banks and finance companies because the
latters lending activities were also integral to their business. In contrast,
lending investors were taxed at a different fixed tax under Section 182(A)
(3)(dd) of CA 466. The CTA stated that insurance companies xxx had never
been required by respondent [CIR] to pay the fixed tax imposed on lending
investors xxx.[6]
The dispositive portion of the Decision of 5 January 1995 of the Court
of Tax Appeals (CTA Decision) reads:
WHEREFORE, premises considered, petitioners Philippine American
Accident Insurance Co., Philippine American Assurance Co., and Philippine
American General Insurance Co., Inc. are not taxable on their lending
transactions independently of their insurance business. Accordingly,
respondent is hereby ordered to refund to petitioner[s] the sum of
P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and
2516, respectively representing the fixed and percentage taxes when (sic)
paid by petitioners as lending investor from August 1971 to September
1972.
No pronouncement as to cost.
SO ORDERED.[7]
Dissatisfied, petitioner elevated the matter to the Court of Appeals. [8]

The Ruling of the Court of Appeals

The Court of Appeals ruled that respondents are not taxable as
lending investors. In its Decision of 7 January 2000 (CA Decision), the
Court of Appeals affirmed the ruling of the CTA, thus:
WHEREFORE, premises considered, the petition is DISMISSED, hereby
AFFIRMING the decision, dated January 5, 1995, of the Court of Tax
Appeals in CTA Cases Nos. 2514, 2515 and 2516.
SO ORDERED.[9]
Petitioner appealed the CA Decision to this Court.

The Issues

Petitioner raises the sole issue:

WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3%
PERCENTAGE TAX AS LENDING INVESTORS UNDER SECTIONS 182(A)(3)
(DD) AND 195-A, RESPECTIVELY IN RELATION TO SECTION 194(U), ALL OF
THE NIRC.[10]

The Ruling of the Court

The petition lacks merit.

On the Additional Issue Raised by Petitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on
lending investors, depending on their location. [11] The sole question before
the CTA was whether respondents were subject to the percentage tax on
lending investors under Section 195-A. Petitioner raised for the first time
the issue of the fixed tax in the Petition for Review [12] petitioner filed before
the Court of Appeals.
Ordinarily, a party cannot raise for the first time on appeal an issue
not raised in the trial court. [13] The Court of Appeals should not have taken
cognizance of the issue on respondents supposed liability under Section
182(A)(3)(dd). However, we cannot entirely fault the Court of Appeals or
petitioner. Even if the percentage tax on lending investors was the sole
issue before it, the CTA ordered petitioner to refund to the PHILAM
companies the fixed and percentage taxes [t]hen paid by petitioners as
lending investor.[14] Although the amounts for refund consisted only of
what respondents paid as percentage taxes, the CTA Decision also ordered
the refund to respondents of the fixed tax on lending investors.
Respondents in their pleadings deny any liability under Section 182(A)(3)
(dd), on the same ground that they are not lending investors.
The question of whether respondents should pay the fixed tax under
Section 182(A)(3)(dd) revolves around the same issue of whether
respondents are taxable as lending investors. In similar circumstances, the
Court has held that an appellate court may consider an unassigned error if
it is closely related to an error that was properly assigned. [15] This rule
properly applies to the present case. Thus, we shall consider and rule on
the issue of whether respondents are subject to the fixed tax under
Section 182(A)(3)(dd).

Whether Insurance Companies are

Taxable as Lending Investors

Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section

194(u) of CA 466, petitioner argues that insurance companies are subject
to two fixed taxes and two percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to an annual fixed
tax of P500.00 and another P500.00 under Section 182 (A)(3)(dd) and (gg)
of the Tax Code. As an underwriter, an insurance company is subject to the
3% tax of the total premiums collected and another 3% on the gross
receipts as a lending investor under Sections 255 and 195-A, respectively
of the same Code. xxx[16]

insurance companies are lending investors for purposes of taxation.

In this case, petitioner does not dispute that respondents are in the
insurance business. Petitioner merely alleges that the definition of lending
investors under CA 466 is broad enough to encompass insurance companies.
Petitioner insists that because of Section 194(u), the two principal activities
of the insurance business, namely, underwriting and investment, are
separately taxable.[20]
Section 194(u) of CA 466 states:

Petitioner also contends that the refund granted to respondents is in

the nature of a tax exemption, and cannot be allowed unless granted
explicitly and categorically.

(u) Lending investor includes all persons who make a practice of lending
money for themselves or others at interest.
xxx

The rule that tax exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly subject to the tax being
levied against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. [17] Where there is doubt, tax laws
must be construed strictly against the government and in favor of the
taxpayer.[18] This is because taxes are burdens on the taxpayer, and should
not be unduly imposed or presumed beyond what the statutes expressly
and clearly import.[19]

As can be seen, Section 194(u) does not tax the practice of lending per
se. It merely defines what lending investors are. The question is whether the
lending activities of insurance companies make them lending investors for
purposes of taxation.

Section 182(A)(3)(dd) of CA 466 also provides:

Sec. 182. Fixed taxes. (A) On business xxx
xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as
follows, the amount stated being for the whole year, when not
otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five
hundred pesos;
2. In second and third class municipalities, two hundred and
fifty pesos;
3. In fourth and fifth class municipalities and municipal
districts, one hundred and twenty-five pesos; Provided,
That lending investors who do business as such in more
than one province shall pay a tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending investors.
Dealers in securities and lending investors shall pay a tax equivalent to
three per centum on their gross income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance
companies. Section 182(A)(3)(dd) provides for the taxation of lending
investors in different localities. Section 195-A refers to dealers in securities
and lending investors. The burden is thus on petitioner to show that

We agree with the CTA and Court of Appeals that it does not. Insurance
companies cannot be considered lending investors under CA 466, as
amended.

Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad enough to
include the business of insurance companies. The Insurance Code of 1978 [21]
is very clear on what constitutes an insurance company. It provides that an
insurer or insurance company shall include all individuals, partnerships,
associations or corporations xxx engaged as principals in the insurance
business, excepting mutual benefit associations. [22] More specifically,
respondents fall under the category of insurance corporations as defined in
Section 185 of the Insurance Code, thus:
SECTION 185. Corporations formed or organized to save any person or
persons or other corporations harmless from loss, damage, or liability arising
from any unknown or future or contingent event, or to indemnify or to
compensate any person or persons or other corporations for any such loss,
damage, or liability, or to guarantee the performance of or compliance with
contractual obligations or the payment of debts of others shall be known as
insurance corporations.
Plainly, insurance companies and lending investors are different
enterprises in the eyes of the law. Lending investors cannot, for a
consideration, hold anyone harmless from loss, damage or liability, nor
provide compensation or indemnity for loss. The underwriting of risks is the

prerogative of insurers, the great majority of which are incorporated

insurance companies[23] like respondents.

Granting of Mortgage and

other Loans are Investment
Practices that are Part of the
Insurance Business.
True, respondents granted mortgage and other kinds of loans. However,
this was not done independently of respondents insurance business. The
granting of certain loans is one of several means of investment allowed to
insurance companies. No less than the Insurance Code mandates and
regulates this practice.[24]
Unlike the practice of lending investors, the lending activities of
insurance companies are circumscribed and strictly regulated by the State.
Insurance companies cannot freely lend to themselves or others as lending
investors can,[25] nor can insurance companies grant simply any kind of loan.
Even prior to 1978, the Insurance Code prescribed strict rules for the
granting of loans by insurance companies. [26] These provisions on mortgage,
collateral and policy loans were reiterated in the Insurance Code of 1978 and
are still in force today.
Petitioner concedes that respondents investment practices are as much
a part of the insurance business as the task of underwriting. Nevertheless,
petitioner argues that such investment practices are separately taxable
under CA 466.
The CTA and the Court of Appeals found that the investment of
premiums and other funds received by respondents through the granting of
mortgage and other loans was necessary to respondents business and
hence, should not be taxed separately.
Insurance companies are required by law to possess and maintain
substantial legal reserves to meet their obligations to policyholders. [27] This
obviously cannot be accomplished through the collection of premiums alone,
as the legal reserves and capital and surplus insurance companies are
obligated to maintain run into millions of pesos. As such, the creation of
investment income has long been held to be generally, if not necessarily,
essential to the business of insurance.[28]
The creation of investment income in the manner sanctioned by the
laws on insurance is thus part of the business of insurance, and the fruits of
these investments are essentially income from the insurance business. This
is particularly true if the invested assets are held either as reserved funds to
provide for policy obligations or as capital and surplus to provide an extra
margin of safety which will be attractive to insurance buyers. [29]
The Court has also held that when a company is taxed on its main
business, it is no longer taxable further for engaging in an activity or work

which is merely a part of, incidental to and is necessary to its main business.
[30]
Respondents already paid percentage and fixed taxes on their insurance
business. To require them to pay percentage and fixed taxes again for an
activity which is necessarily a part of the same business, the law must
expressly require such additional payment of tax. There is, however, no
provision of law requiring such additional payment of tax.
Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance
companies to pay double percentage and fixed taxes. They merely tax
lending investors, not lending activities. Respondents were not transformed
into lending investors by the mere fact that they granted loans, as these
investments were part of, incidental and necessary to their insurance
business.

Different Tax Treatment of

Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments to
lending investors and insurance companies. The relevant portions of Section
182 state:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows,
the amount stated being for the whole year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities,
five hundred pesos;
2. In second and third class municipalities, two
hundred and fifty pesos;
3. In fourth and fifth class municipalities and
municipal districts, one hundred and twenty-five
pesos; Provided, That lending investors who do
business as such in more than one province shall
pay a tax of five hundred pesos.
xxx
(gg) Banks, insurance companies, finance and investment companies doing
business in the Philippines and franchise grantees, five hundred pesos.
xxx (Emphasis supplied.)
The separate provisions on lending investors and insurance companies
demonstrate an intention to treat these businesses differently. If Congress
intended insurance companies to be taxed as lending investors, there would
be no need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have
been sufficient. That insurance companies were included with banks, finance
and investment companies also supports the CTAs conclusion that insurance
companies had more in common with the latter enterprises than with

lending investors. As the CTA pointed out, banks also regularly lend money
at interest, but are not taxable as lending investors.
We find no merit in petitioners contention that Congress intended to
subject respondents to two percentage taxes and two fixed taxes. Petitioners
argument goes against the doctrine of strict interpretation of tax
impositions.
Petitioners argument is likewise not in accord with existing
jurisprudence. In Commissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc.,[31] the Court ruled that the different tax
treatment accorded to pawnshops and lending investors in the NIRC of 1977
and the NIRC of 1986 showed the intent of Congress to deal with both
subjects differently. The same reasoning applies squarely to the present
case.
Even the current tax law does not treat insurance companies as lending
investors. Under Section 108(A)[32] of the NIRC of 1997, lending investors and
non-life insurance companies, except for their crop insurances, are subject
to value-added tax (VAT). Life insurance companies are exempt from VAT,
but are subject to percentage tax under Section 123 of the NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed
to mention insurance companies already implies the latters exclusion from
the coverage of these provisions. When a statute enumerates the things
upon which it is to operate, everything else by implication must be excluded
from its operation and effect.[33]

Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not dispute that it issued a ruling in 1920 to the effect
that the lending of money at interest was a necessary incident of the
insurance business, and that insurance companies were thus not subject to
the tax on money lenders. Petitioner argues only that the 1920 ruling does
not apply to the instant case because RA 6110 introduced the definition of
lending investors to CA 466 only in 1969.
The subject definition was actually introduced much earlier, at a time
when lending investors were still referred to as money lenders. Sections 45
and 46 of the Internal Revenue Law of 1914[34] (1914 Tax Code) state:
SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be
collected as follows, the amount stated being for the whole year, when not
otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx
SECTION 46. Words and Phrases Defined. In applying the provisions

of the preceding section words and phrases shall be taken in the

sense and extension indicated below:
xxx
Money lender includes all persons who make a practice of lending
money for themselves or others at interest. (Emphasis supplied)
As can be seen, the definitions of money lender under the 1914 Tax
Code and lending investor under CA 466 are identical. The term money
lender was merely changed to lending investor when Act No. 3963 amended
the Revised Administrative Code in 1932. [35] This same definition of lending
investor has since appeared in Section 194(u) of CA 466 and later tax laws.
Note that insurance companies were not included among the
businesses subject to an annual fixed tax under the 1914 Tax Code. [36] That
Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466
bolsters our view that there was no legislative intent to tax insurance
companies as lending investors. If insurance companies were already taxed
as lending investors, there would have been no need for a separate
provision specifically requiring insurance companies to pay fixed taxes.

The Court Accords Great

Weight to the Factual Findings
of the CTA.
Dedicated exclusively to the study and consideration of tax problems,
the CTA has necessarily developed an expertise in the subject of taxation
that this Court has recognized time and again. For this reason, the findings
of fact of the CTA, particularly when affirmed by the Court of Appeals, are
generally conclusive on this Court absent grave abuse of discretion or
palpable error,[37] which are not present in this case.
WHEREFORE, we DENY the instant petition and AFFIRM the Decision of
7 January 2000 of the Court of Appeals in CA-G.R. SP No. 36816.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna,
JJ., concur.

Humphrey's Executor v. United States, 295 U.S. 602 (1935)

Humphrey's Executor v. United States*
No. 637
Argued 1, 1935
Decided May 27, 1935
295 U.S. 602
CERTIFICATE FROM THE COURT OF CLAIMS
Syllabus
1. The Federal Trade Commission Act fixes the terms of the Commissioners
and provides that any Commissioner may be removed by the President for
inefficiency, neglect of duty, or malfeasance in office. Held that Congress
intended to restrict the power of removal to one or more of those causes.
Shurtleff v. United States, 189 U. S. 311, distinguished. Pp. 295 U. S. 621,
295 U. S. 626.
2. This construction of the Act is confirmed by a consideration of the
character of the Commission -- an independent, nonpartisan body of
experts, charged with duties neither political nor executive, but
predominantly quasi-judicial andquasi-legislative, and by the legislative
history of the Act. P. 295 U. S. 624.
3. When Congress provides for the appointment of officers whose functions,
like those of the Federal Trade Commissioners, are of Legislative and judicial
quality, rather than executive, and limits the grounds upon which they may
be removed from office, the President has no constitutional power to remove
them for reasons other than those so specified. Myers v. United States, 272
U. S. 52, limited, and expressions in that opinion in part disapproved. Pp.
295 U. S. 626, 295 U. S. 627.
Page 295 U. S. 603
The Myers case dealt with the removal of a postmaster, an executive officer
restricted to executive functions and charged with no duty at all related to
either the legislative or the judicial power. The actual decision in the Myers
case finds support in the theory that such an officer is merely one of the
units in the executive department, and, hence, inherently subject to the
exclusive and illimitable power of removal by the Chief Executive, whose
subordinate he is. That decision goes no farther than to include purely
executive officers. The Federal Trade Commission, in contrast, is an
administrative body created by Congress to carry into effect legislative
policies embodied in the statute in accordance with the legislative standard
therein prescribed, and to perform other specified duties as a legislative or
as a judicial aid. Such a body cannot in any proper sense be characterized as
an arm or an eye of the executive. Its duties are performed without
executive leave, and, in the contemplation of the statute, must be free from

executive control. To the extent that it exercises any executive function -- as

distinguished from executive power in the constitutional sense -- it does so
in the discharge and effectuation of its quasi-legislative or quasi-judicial
powers, or as an agency of the legislative or judicial departments of the
Government. Pp. 295 U. S. 627-628.
4. The authority of Congress, in creating quasi-legislative or quasi-judicial
agencies, to require them to act in discharge of their duties independently of
executive control cannot well be doubted, and that authority includes, as an
appropriate incident, power to fix the period during which they shall
continue in office, and to forbid their removal except for cause in the
meantime. P. 295 U. S. 629.
5. The fundamental necessity of maintaining each of the three general
departments of government entirely free from the control or coercive
influence, direct or indirect, of either of the others has often been stressed,
and is hardly open to serious question. So much is implied in the very fact of
the separation of the powers of these departments by the Constitution, and
in the rule which recognizes their essential coequality. P. 295 U. S. 629.
6. Whether the power of the President to remove an officer shall prevail over
the authority of Congress to condition the power by fixing a definite term
and precluding a removal except for cause will depend upon the character of
the office. To the extent that, between the decision in the Myers case, which
sustains the unrestrictable power of the President to remove purely
executive officers, and the present decision that such power does not extend
to an office
Page 295 U. S. 604
such as that here involved there shall remain a field of doubt, such cases as
may fall within it are left for future consideration and determination as they
may arise. P. 295 U. S. 631.
7. While the general rule preclude the use of congressional debates to
explain the meaning of the words of a statute, they may be considered as
reflecting light upon its general purposes and the evils which it sought to
remedy. P. 295 U. S. 625.
8. Expressions in an opinion which are beyond the point involved do not
come within the rule of stare decisis. P. 295 U. S. 626.
CERTIFICATE from the Court of Claims, propounding questions arising on a
claim for the salary withheld from the plaintiff's testator, from the time when
the President undertook to remove him from office to the time of his death.
Page 295 U. S. 618
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
Plaintiff brought suit in the Court of Claims against the United States to
recover a sum of money alleged to be due the deceased for salary as a
Federal Trade Commissioner from October 8, 1933, when the President
undertook to remove him from office, to the time of his death on February
14, 1934. The court below has certified to this court two questions (Act of
February 13, 1925, 3(a), c. 229, 43 Stat. 936, 939; 28 U.S.C. 288) in
respect of the power of the President to make the removal. The material
facts which give rise to the questions are as follows:
William E. Humphrey, the decedent, on December 10, 1931, was nominated
by President Hoover to succeed himself as a member of the Federal Trade
Commission, and was confirmed by the United States Senate. He was duly
commissioned for a term of seven years expiring September 25, 1938; and,

after taking the required oath of office, entered upon his duties. On July 25,
1933, President Roosevelt addressed a letter to the commissioner asking for
his resignation, on the ground
"that the aims and purposes of the Administration with respect to the work
of the Commission can be carried out most effectively with personnel of my
own selection,"
but disclaiming any reflection upon the commissioner personally or upon his
services. The commissioner replied, asking time to consult
Page 295 U. S. 619
his friends. After some further correspondence upon the subject, the
President, on August 31, 1933, wrote the commissioner expressing the hope
that the resignation would be forthcoming, and saying:
"You will, I know, realize that I do not feel that your mind and my mind go
along together on either the policies or the administering of the Federal
Trade Commission, and, frankly, I think it is best for the people of this
country that I should have a full confidence."
The commissioner declined to resign, and on October 7, 1933, the President
wrote him:
"Effective as of this date, you are hereby removed from the office of
Commissioner of the Federal Trade Commission."
Humphrey never acquiesced in this action, but continued thereafter to insist
that he was still a member of the commission, entitled to perform its duties
and receive the compensation provided by law at the rate of $10,000 per
annum. Upon these and other facts set forth in the certificate, which we
deem it unnecessary to recite, the following questions are certified:
"1. Do the provisions of section 1 of the Federal Trade Commission Act,
stating that 'any commissioner may be removed by the President for
inefficiency, neglect of duly, or malfeasance in office,' restrict or limit the
power of the President to remove a commissioner except upon one or more
of the causes named?"
"If the foregoing question is answered in the affirmative, then -- "
"2. If the power of the President to remove a commissioner is restricted or
limited as shown by the foregoing interrogatory and the answer made
thereto, is such a restriction or limitation valid under the Constitution of the
United States?"
The Federal Trade Commission Act, c. 311, 38 Stat. 717; 15 U.S.C. 41, 42,
creates a commission of five
Page 295 U. S. 620
members to be appointed by the President by and with the advice and
consent of the Senate, and 1 provides:
"Not more than three of the commissioners shall be members of the same
political party. The first commissioners appointed shall continue in office for
terms of three, four, five, six, and seven years, respectively, from the date of
the taking effect of this Act, the term of each to be designated by the
President, but their successors shall be appointed for terms of seven years,
except that any person chosen to fill a vacancy shall be appointed only for
the unexpired term of the commissioner whom he shall succeed. The
commission shall choose a chairman from its own membership. No
commissioner shall engage in any other business, vocation, or employment.
Any commissioner may be removed by the President for inefficiency, neglect
of duty, or malfeasance in office. . . ."

Section 5 of the act in part provides:

"That unfair methods of competition in commerce are hereby declared
unlawful."
"The commission is hereby empowered and directed to prevent persons,
partnerships, or corporations, except banks, and common carriers subject to
the Acts to regulate commerce, from using unfair methods of competition in
commerce."
In exercising this power, the commission must issue a complaint stating its
charges and giving notice of hearing upon a day to be fixed. A person,
partnership, or corporation proceeded against is given the right to appear at
the time and place fixed and show cause why an order to cease and desist
should not be issued. There is provision for intervention by others interested.
If the commission finds the method of competition is one prohibited by the
act, it is directed to make a report in writing stating its findings as to the
facts, and to issue and cause to be served a cease and desist order. If the
order is disobeyed, the commission may apply to the appropriate circuit
court of
Page 295 U. S. 621
appeals for its enforcement. The party subject to the order may seek and
obtain a review in the circuit court of appeals in a manner provided by the
act.
Section 6, among other things, gives the commission wide powers of
investigation in respect of certain corporations subject to the act and in
respect of other matters, upon which it must report to Congress with
recommendations. Many such investigations have been made, and some
have served as the basis of congressional legislation.
Section 7 provides:
"That in any suit in equity brought by or under the direction of the Attorney
General as provided in the antitrust Acts, the court may, upon the conclusion
of the testimony therein, if it shall be then of opinion that the complainant is
entitled to relief, refer said suit to the commission, as a master in chancery,
to ascertain and report an appropriate form of decree therein. The
commission shall proceed upon such notice to the parties and under such
rules of procedure as the court may prescribe, and upon the coming in of
such report such exceptions may be filed and such proceedings had in
relation thereto as upon the report of a master in other equity causes, but
the court may adopt or reject such report, in whole or in part, and enter such
decree as the nature of the case may in its judgment require."
First. The question first to be considered is whether, by the provisions of 1
of the Federal Trade Commission Act, already quoted, the President's power
is limited to removal for the specific causes enumerated therein. The
negative contention of the government is based principally upon the
decision of this court in Shrutleff v. United States, 189 U. S. 311. That case
involved the power of the President to remove a general appraiser of
merchandise appointed under the Act of June 10, 1890, 26 Stat. 131. Section
12 of the act provided for the appointment by the President, by and with the
advice and consent
Page 295 U. S. 622
of the Senate, of nine general appraisers of merchandise, who "may be
removed from office at any time by the President for inefficiency, neglect of
duty, or malfeasance in office." The President removed Shurtleff without

assigning any cause therefor. The Court of Claims dismissed plaintiff's

petition to recover salary, upholding the President's power to remove for
causes other than those stated. In this court, Shurtleff relied upon the
maxim expressio unius est exclusio alterius, but this court held that, while
the rule expressed in the maxim was a very proper one, and founded upon
justifiable reasoning in many instances, it
"should not be accorded controlling weight when to do so would involve the
alteration of the universal practice of the government for over a century and
the consequent curtailment of the powers of the executive in such an
unusual manner."
What the court meant by this expression appears from a reading of the
opinion. That opinion -- after saying that no term of office was fixed by the
act and that, with the exception of judicial officers provided for by the
Constitution, no civil officer had ever held office by life tenure since the
foundation of the government -- points out that to construe the statute as
contended for by Shurtleff would give the appraiser the right to hold office
during his life or until found guilty of some act specified in the statute, the
result of which would be a complete revolution in respect of the general
tenure of office, effected by implication with regard to that particular office
only.
"We think it quite inadmissible," the court said (pp. 189 U. S. 316, 189 U. S.
318),
"to attribute an intention on the part of Congress to make such an
extraordinary change in the usual rule governing the tenure of office, and
one which is to be applied to this particular office only, without stating such
intention in plain and explicit language, instead of leaving it to be implied
from doubtful inferences. . . . We cannot bring ourselves to the belief that
Congress ever
Page 295 U. S. 623
intended this result while omitting to use language which would put that
intention beyond doubt."
These circumstances, which led the court to reject the maxim as
inapplicable, are exceptional. In the face of the unbroken precedent against
life tenure, except in the case of the judiciary, the conclusion that Congress
intended that, from among all other civil officers, appraisers alone should be
selected to hold office for life was so extreme as to forbid, in the opinion of
the court, any ruling which would produce that result if it reasonably could
be avoided. The situation here presented is plainly and wholly different. The
statute fixes a term of office, in accordance with many precedents. The first
commissioners appointed are to continue in office for terms of three, four,
five, six, and seven years, respectively, and their successors are to be
appointed for terms of seven years -- any commissioner being subject to
removal by the President for inefficiency, neglect of duty, or malfeasance in
office. The words of the act are definite and unambiguous.
The government says the phrase "continue in office" is of no legal
significance, and, moreover, applies only to the first commissioners. We
think it has significance. It may be that, literally, its application is restricted
as suggested; but it nevertheless lends support to a view contrary to that of
the government as to the meaning of the entire requirement in respect of
tenure; for it is not easy to suppose that Congress intended to secure the
first commissioners against removal except for the causes specified, and

deny like security to their successors. Putting this phrase aside, however,
the fixing of a definite term subject to removal for cause, unless there be
some countervailing provision or circumstance indicating the contrary, which
here we are unable to find, is enough to establish the legislative intent that
the term is not to be curtailed in the absence of such cause. But if the
intention of
Page 295 U. S. 624
Congress that no removal should be made during the specified term except
for one or more of the enumerated causes were not clear upon the face of
the statute, as we think it is, it would be made clear by a consideration of
the character of the commission and the legislative history which
accompanied and preceded the passage of the act. The commission is to be
nonpartisan, and it must, from the very nature of its duties, act with entire
impartiality. It is charged with the enforcement of no policy except the policy
of the law. Its duties are neither political nor executive, but
predominantlyquasi-judicial and quasi-legislative. Like the Interstate
Commerce Commission, its members are called upon to exercise the trained
judgment of a body of experts "appointed by law and informed by
experience." Illinois Central R. Co. v. Interstate Commerce Comm'n, 206 U.
S. 441, 206 U. S. 454; Standard Oil Co. v. United States, 283 U. S. 235, 283
U. S. 238-239. The legislative reports in both houses of Congress clearly
reflect the view that a fixed term was necessary to the effective and fair
administration of the law. In the report to the Senate (No. 597, 63d Cong., 2d
Sess., pp. 10-11) the Senate Committee on Interstate Commerce, in support
of the bill which afterwards became the act in question, after referring to the
provision fixing the term of office at seven years, so arranged that the
membership would not be subject to complete change at any one time, said:
"The work of this commission will be of a most exacting and difficult
character, demanding persons who have experience in the problems to be
met -- that is, a proper knowledge of both the public requirements and the
practical affairs of industry. It is manifestly desirable that the terms of the
commissioners shall be long enough to give them an opportunity to acquire
the expertness in dealing with these special questions concerning industry
that comes from experience. "
Page 295 U. S. 625
The report declares that one advantage which the commission possessed
over the Bureau of Corporations (an executive subdivision in the Department
of Commerce which was abolished by the act) lay in the fact of its
independence, and that it was essential that the commission should not be
open to the suspicion of partisan direction. The report quotes (p. 22) a
statement to the committee by Senator Newlands, who reported the bill,
that the tribunal should be of high character and
"independent of any department of the government . . . a board or
commission of dignity, permanence, and ability, independent of executive
authority, except in its selection, and independent in character."
The debates in both houses demonstrate that the prevailing view was that
the commission was not to be "subject to anybody in the government, but . .
. only to the people of the United States"; free from "political domination or
control" or the "probability or possibility of such a thing"; to be "separate
and apart from any existing department of the government -- not subject to
the orders of the President."

More to the same effect appears in the debates, which were long and
thorough, and contain nothing to the contrary. While the general rule
precludes the use of these debates to explain the meaning of the words of
the statute, they may be considered as reflecting light upon its general
purposes and the evils which it sought to remedy. Federal Trade Comm'n v.
Raladam Co., 283 U. S. 643, 283 U. S. 650.
Thus, the language of the act, the legislative reports, and the general
purposes of the legislation as reflected by the debates all combine to
demonstrate the Congressional intent to create a body of experts who shall
gain experience by length of service -- a body which shall be independent of
executive authority except in its selection, and free to exercise its judgment
without the leave or hindrance
Page 295 U. S. 626
of any other official or any department of the government. To the
accomplishment of these purposes it is clear that Congress was of opinion
that length and certainty of tenure would vitally contribute. And to hold that,
nevertheless, the members of the commission continue in office at the mere
will of the President might be to thwart, in large measure, the very ends
which Congress sought to realize by definitely fixing the term of office.
We conclude that the intent of the act is to limit the executive power of
removal to the causes enumerated, the existence of none of which is
claimed here, and we pass to the second question.
Second. To support its contention that the removal provision of 1, as we
have just construed it, is an unconstitutional interference with the executive
power of the President, the government's chief reliance is Myers v. United
States, 272 U. S. 52. That case has been so recently decided, and the
prevailing and dissenting opinions so fully review the general subject of the
power of executive removal, that further discussion would add little of value
to the wealth of material there collected. These opinions examine at length
the historical, legislative and judicial data bearing upon the question,
beginning with what is called "the decision of 1789" in the first Congress and
coming down almost to the day when the opinions were delivered. They
occupy 243 pages of the volume in which they are printed. Nevertheless, the
narrow point actually decided was only that the President had power to
remove a postmaster of the first class without the advice and consent of the
Senate as required by act of Congress. In the course of the opinion of the
court, expressions occur which tend to sustain the government's contention,
but these are beyond the point involved, and, therefore do not come within
the rule of stare decisis. Insofar as they are out of harmony with the views
here set forth, these expressions are disapproved. A like situation was
Page 295 U. S. 627
presented in the case of Cohens v. Virginia, 6 Wheat. 264, 19 U. S. 399, in
respect of certain general expressions in the opinion in Marbury v. Madison,
1 Cranch 137. Chief Justice Marshall, who delivered the opinion in the
Marbury case, speaking again for the court in the Cohens case, said:
"It is a maxim not to be disregarded that general expressions, in every
opinion, are to be taken in connection with the case in which those
expressions are used. If they go beyond the case, they may be respected,
but ought not to control the judgment in a subsequent suit when the very
point is presented for decision. The reason of this maxim is obvious. The
question actually before the Court is investigated with care, and considered

in its full extent. Other principles which may serve to illustrate it are
considered in their relation to the case decided, but their possible bearing on
all other cases is seldom completely investigated."
And he added that these general expressions in the case of Marbury v.
Madison were to be understood with the limitations put upon them by the
opinion in the Cohens case. See also Carroll v. Lessee of Carroll, 16 How.
275, 57 U. S. 286-287; O'Donoghue v. United States, 289 U. S. 516, 289 U. S.
550.
The office of a postmaster is so essentially unlike the office now involved
that the decision in the Myers case cannot be accepted as controlling our
decision here. A postmaster is an executive officer restricted to the
performance of executive functions. He is charged with no duty at all related
to either the legislative or judicial power. The actual decision in theMyers
case finds support in the theory that such an officer is merely one of the
units in the executive department, and, hence, inherently subject to the
exclusive and illimitable power of removal by the Chief Executive, whose
subordinate and aid he is. Putting aside dicta, which may be followed if
sufficiently persuasive but which are not controlling, the necessary reach of
the decision goes far enough to include
Page 295 U. S. 628
all purely executive officers. It goes no farther; much less does it include an
officer who occupies no place in the executive department, and who
exercises no part of the executive power vested by the Constitution in the
President.
The Federal Trade Commission is an administrative body created by
Congress to carry into effect legislative policies embodied in the statute in
accordance with the legislative standard therein prescribed, and to perform
other specified duties as a legislative or as a judicial aid. Such a body cannot
in any proper sense be characterized as an arm or an eye of the executive.
Its duties are performed without executive leave, and, in the contemplation
of the statute, must be free from executive control. In administering the
provisions of the statute in respect of "unfair methods of competition" -- that
is to say, in filling in and administering the details embodied by that general
standard -- the commission acts in part quasi-legislatively and in part quasijudicially. In making investigations and reports thereon for the information of
Congress under 6, in aid of the legislative power, it acts as a legislative
agency. Under 7, which authorizes the commission to act as a master in
chancery under rules prescribed by the court, it acts as an agency of the
judiciary. To the extent that it exercises any executive function -- as
distinguished from executive power in the constitutional sense -- it does so
in the discharge and effectuation of its quasi-legislative or quasi-judicial
powers, or as an agency of the legislative or judicial departments of the
government.*
Page 295 U. S. 629
If Congress is without authority to prescribe causes for removal of members
of the trade commission and limit executive power of removal accordingly,
that power at once becomes practically all-inclusive in respect of civil
officers with the exception of the judiciary provided for by the Constitution.
The Solicitor General, at the bar, apparently recognizing this to be true, with
commendable candor, agreed that his view in respect of the removability of
members of the Federal Trade Commission necessitated a like view in

respect of the Interstate Commerce Commission and the Court of Claims. We

are thus confronted with the serious question whether not only the members
of these quasi-legislative and quasi-judicial bodies, but the judges of the
legislative Court of Claims, exercising judicial power (Williams v. United
States, 289 U. S. 553,289 U. S. 565-567), continue in office only at the
pleasure of the President.
We think it plain under the Constitution that illimitable power of removal is
not possessed by the President in respect of officers of the character of
those just named. The authority of Congress, in creating quasi-legislative or
quasi-judicial agencies, to require them to act in discharge of their duties
independently of executive control cannot well be doubted, and that
authority includes, as an appropriate incident, power to fix the period during
which they shall continue in office, and to forbid their removal except for
cause in the meantime. For it is quite evident that one who holds his office
only during the pleasure of another cannot be depended upon to maintain
an attitude of independence against the latter's will.
The fundamental necessity of maintaining each of the three general
departments of government entirely free from the control or coercive
influence, direct or indirect, of either of the others has often been stressed,
and is hardly open to serious question. So much is implied in
Page 295 U. S. 630
the very fact of the separation of the powers of these departments by the
Constitution, and in the rule which recognizes their essential coequality. The
sound application of a principle that makes one master in his own house
precludes him from imposing his control in the house of another who is
master there. James Wilson, one of the framers of the Constitution and a
former justice of this court, said that the independence of each department
required that its proceedings "should be free from the remotest influence,
direct or indirect, of either of the other two powers." Andrews, The Works of
James Wilson (1896), vol. 1, p. 367. And Mr. Justice Story, in the first volume
of his work on the Constitution, 4th ed., 530, citing No. 48 of the Federalist,
said that neither of the departments in reference to each other "ought to
possess, directly or indirectly, an overruling influence in the administration
of their respective powers." And see O'Donoghue v. United States, supra., at
pp. 289 U. S. 530-531.
The power of removal here claimed for the President falls within this
principle, since its coercive influence threatens the independence of a
commission which is not only wholly disconnected from the executive
department, but which, as already fully appears, was created by Congress as
a means of carrying into operation legislative and judicial powers, and as an
agency of the legislative and judicial departments.
In the light of the question now under consideration, we have reexamined
the precedents referred to in the Myers case, and find nothing in them to
justify a conclusion contrary to that which we have reached. The so-called
"decision of 1789" had relation to a bill proposed by Mr. Madison to establish
an executive Department of Foreign Affairs. The bill provided that the
principal officer was "to be removable from office by the President of the
United States." This clause was changed to read "whenever the principal
officer shall be removed
Page 295 U. S. 631
from office by the President of the United States," certain things should

follow, thereby, in connection with the debates, recognizing and confirming,

as the court thought in the Myers case, the sole power of the President in
the matter. We shall not discuss the subject further, since it is so fully
covered by the opinions in the Myers case, except to say that the office
under consideration by Congress was not only purely executive, but the
officer one who was responsible to the President, and to him alone, in a very
definite sense. A reading of the debates shows that the President's
illimitable power of removal was not considered in respect of other than
executive officers. And it is pertinent to observe that, when, at a later time,
the tenure of office for the Comptroller of the Treasury was under
consideration, Mr. Madison quite evidently thought that, since the duties of
that office were not purely of an executive nature, but partook of the
judiciary quality as well, a different rule in respect of executive removal
might well apply. 1 Annals of Congress, cols. 611-612.
In Marbury v. Madison, supra, pp. 5 U. S. 162, 5 U. S. 165-166, it is made
clear that Chief Justice Marshall was of opinion that a justice of the peace for
the District of Columbia was not removable at the will of the President, and
that there was a distinction between such an officer and officers appointed
to aid the President in the performance of his constitutional duties. In the
latter case, the distinction he saw was that "their acts are his acts," and his
will, therefore, controls; and, by way of illustration, he adverted to the act
establishing the Department of Foreign Affairs, which was the subject of the
"decision of 1789."
The result of what we now have said is this: whether the power of the
President to remove an officer shall prevail over the authority of Congress to
condition the power by fixing a definite term and precluding a removal
except for cause will depend upon the character of the office; the Myers
decision, affirming the power of the President
Page 295 U. S. 632
alone to make the removal, is confined to purely executive officers, and, as
to officers of the kind here under consideration, we hold that no removal can
be made during the prescribed term for which the officer is appointed except
for one or more of the causes named in the applicable statute. To the extent
that, between the decision in the Myers case, which sustains the
unrestrictable power of the President to remove purely executive officers,
and our present decision that such power does not extend to an office such
as that here involved, there shall remain a field of doubt, we leave such
cases as may fall within it for future consideration and determination as they
may arise. In accordance with the foregoing, the questions submitted are
answered.
Question No. 1, Yes. Question No. 2, Yes.
* The docket title of this case is: Rathbun, Executor v. United States.
* The provision of 6(d) of the act which authorizes the President to direct
an investigation and report by the commission in relation to alleged
violations of the antitrust acts is so obviously collateral to the main design of
the act as not to detract from the force of this general statement as to the
character of that body.

20, 1988, 2 reversing its Decision, dated October 24, 1986. 3 The Decision
set aside an Order, dated April 16, 1985, of the Regional Trial Court, 4 as
well as its Order, dated August 21, 1985. The Resolution, dated September
24, 1987 disposed of, and granted, the private respondent Karamfil ImportExport Co., Inc.'s motion for reconsideration of the October 24, 1986
Decision; the Resolution dated May 20, 1988, in turn, denied the petitioner's
own motion for reconsideration.
The facts are not in controversy. We quote:
On March 12, 1985, State Prosecutor Jose B. Rosales, who is assigned with
the Presidential Anti-Dollar Salting Task Force hereinafter referred to as PADS
Task Force for purposes of convenience, issued search warrants Nos. 156,
157, 158, 159, 160 and 161 against the petitioners Karamfil Import-Export
Co., Inc., P & B Enterprises Co., Inc., Philippine Veterans Corporation,
Philippine Veterans Development Corporation, Philippine Construction
Development Corporation, Philippine Lauan Industries Corporation, Intertrade Development (Alvin Aquino), Amelili U. Malaquiok Enterprises and
Jaime P. Lucman Enterprises.
The application for the issuance of said search warrants was filed by Atty.
Napoleon Gatmaytan of the Bureau of Customs who is a deputized member
of the PADS Task Force. Attached to the said application is the affidavit of
Josefin M. Castro who is an operative and investigator of the PADS Task
Force. Said Josefin M. Castro is likewise the sole deponent in the purported
deposition to support the application for the issuance of the six (6) search
warrants involved in this case. The application filed by Atty. Gatmaytan, the
affidavit and deposition of Josefin M. Castro are all dated March 12, 1985. 5
Shortly thereafter, the private respondent (the petitioner below) went to the
Regional Trial Court on a petition to enjoin the implementation of the search
warrants in question. 6 On March 13, 1985, the trial court issued a
temporary restraining order [effective "for a period of five (5) days notice " 7
] and set the case for hearing on March 18, 1985.
In disposing of the petition, the said court found the material issues to be:
1) Competency of this Court to act on petition filed by the petitioners;
2) Validity of the search warrants issued by respondent State Prosecutor;
3) Whether or not the petition has become moot and academic because all
the search warrants sought to be quashed had already been implemented
and executed. 8
G.R. No. 83578 March 16, 1989
THE PRESIDENTIAL ANTI-DOLLAR SALTING TASK FORCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, HONORABLE TEOFILO L, GUADIZ,
JR.,Presiding Judge, REGIONAL TRIAL COURT, Branch 147: NCR
(MAKATI), and KARAMFIL IMPORT-EXPORT CO., INC., respondents.
K. V. Faylona & Associates for respondents.
SARMIENTO, J.:
The petitioner, the Presidential Anti-Dollar Salting Task Force, the President's
arm assigned to investigate and prosecute so-called "dollar salting"
activities in the country (per Presidential Decree No. 1936 as amended by
Presidential Decree No. 2002), asks the Court to hold as null and void two
Resolutions of the Court of Appeals, dated September 24, 1987 1 and May

On April 16, 1985, the lower court issued the first of its challenged Orders,
and held:
WHEREFORE, in view of all the foregoing, the Court hereby declares Search
Warrant Nos. 156, 157, 158, 159, 160, and 161 to be null and void.
Accordingly, the respondents are hereby ordered to return and surrender
immediately all the personal properties and documents seized by them from
the petitioners by virtue of the aforementioned search warrants.
SO ORDERED. 9
On August 21, 1985, the trial court denied reconsideration.
On April 4, 1986, the Presidential Anti-Dollar Salting Task Force went to the
respondent Court of Appeals to contest, on certiorari, the twin Order(s) of

the lower court.

In ruling initially for the Task Force, the Appellate Court held:
Herein petitioner is a special quasi-judicial body with express powers
enumerated under PD 1936 to prosecute foreign exchange violations defined
and punished under P.D. No. 1883.
The petitioner, in exercising its quasi-judicial powers, ranks with the Regional
Trial Courts, and the latter in the case at bar had no jurisdiction to declare
the search warrants in question null and void.
Besides as correctly pointed out by the Assistant Solicitor General the
decision of the Presidential Anti-Dollar Salting Task Force is appealable to the
Office of the President.10
On November 12, 1986, Karamfil Import-Export Co., Inc. sought a
reconsideration, on the question primarily of whether or not the Presidential
Anti-Dollar Salting Task Force is "such other responsible officer'
countenanced by the 1973 Constitution to issue warrants of search and
seizure.
As we have indicated, the Court of Appeals, on Karamfil's motion, reversed
itself and issued its Resolution, dated September 1987, and subsequently,
its Resolution, dated May 20, 1988, denying the petitioner's motion for
reconsideration.
In its petition to this Court, the petitioner alleges that in so issuing the
Resolution(s) above-mentioned, the respondent Court of Appeals
"committed grave abuse of discretion and/or acted in excess of its appellate
jurisdiction," 11 specifically:
a) In deviating from the settled policy and rulings of the Supreme Court that
no Regional Trial Courts may countermand or restrain the enforcement of
lawful writs or decrees issued by a quasi-judicial body of equal and
coordinate rank, like the PADS Task Force;
b) For resorting to judicial legislation to arrive at its erroneous basis for
reconsidering its previous Decision dated October 24, 1986 (see Annex "I")
and thus promulgated the questioned Resolutions (Annexes "A" and "B"),
which violated the constitutional doctrine on separation of powers;
c) In not resolving directly the other important issues raised by the petitioner
in its Petition in CA-G.R. No. 08622-SP despite the fact that petitioner has
demonstrated sufficiently and convincingly that respondent RTC, in issuing
the questioned Orders in Special Proceeding No. M-624 (see Annexes "C"
and 'D"), committed grave abuse of discretion and/or acted in excess of
jurisdiction:
1. In ruling that (a) the description of the things to be seized as stated in the
contested search warrant were too general which allegedly render the
search warrants null and void; (b) the applications for the contested search
warrants actually charged two offenses in contravention of the 2nd
paragraph, Section 3, Rule 126 of the Rules of Court; and (c) this case has
not become moot and academic, even if the contested search warrants had
already been fully implemented with positive results; and
2. In ruling that the petitioner PADS Task Force has not been granted under
PD 1936 'judicial or quasi-judicial jurisdiction. 12

We find, upon the foregoing facts, that the essential questions that confront
us are- (i) is the Presidential Anti-Dollar Salting Task Force a quasi-judicial
body, and one co-equal in rank and standing with the Regional Trial Court,
and accordingly, beyond the latter's jurisdiction; and (ii) may the said
presidential body be said to be "such other responsible officer as may be
authorized by law" to issue search warrants under the 1973 Constitution
questions we take up seriatim.**
In submitting that it is a quasi-judicial entity, the petitioner states that it is
endowed with "express powers and functions under PD No. 1936, to
prosecute foreign exchange violations as defined and punished under PD No.
1883." 13 "By the very nature of its express powers as conferred by the
laws," so it is contended, "which are decidedly quasi-judicial or discretionary
function, such as to conduct preliminary investigation on the charges of
foreign exchange violations, issue search warrants or warrants of arrest, hold
departure orders, among others, and depending upon the evidence
presented, to dismiss the charges or to file the corresponding information in
court of Executive Order No. 934, PD No. 1936 and its Implementing Rules
and Regulations effective August 26, 1984), petitioner exercises quasijudicial power or the power of adjudication ." 14
The Court of Appeals, in its Resolution now assailed, 15 was of the opinion
that "[t]he grant of quasi-judicial powers to petitioner did not diminish the
regular courts' judicial power of interpretation. The right to interpret a law
and, if necessary to declare one unconstitutional, exclusively pertains to the
judiciary. In assuming this function, courts do not proceed on the theory that
the judiciary is superior to the two other coordinate branches of the
government, but solely on the theory that they are required to declare the
law in every case which come before them." 16
This Court finds the Appellate Court to be in error, since what the petitioner
puts to question is the Regional Trial Court's act of assuming jurisdiction over
the private respondent's petition below and its subsequent countermand of
the Presidential Anti-Dollar Salting Task Force's orders of search and seizure,
for the reason that the presidential body, as an entity (allegedly) coordinate
and co-equal with the Regional Trial Court, was (is) not vested with such a
jurisdiction. An examination of the Presidential Anti-Dollar Salting Task
Force's petition shows indeed its recognition of judicial review (of the acts of
Government) as a basic privilege of the courts. Its objection, precisely, is
whether it is the Regional Trial Court, or the superior courts, that may
undertake such a review.
Under the Judiciary Reorganization Act of 1980, 17 the Court of Appeals
exercises:
(3) Exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Court and quasi-judicial
agencies, instrumentalities, boards or commissions, except those falling
within the appellate jurisdiction of the Supreme Court in accordance with the
Constitution, the provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the
Judiciary Act of 1948. 18
xxx xxx xxx

Under the present Constitution, with respect to its provisions on

Constitutional Commissions, it is provided, in part that:
... Unless otherwise provided by this Constitution or by law, any decision,
order, or ruling of each Commission may be brought to the Supreme Court
on certiorari by the aggrieved party within thirty days from receipt of a copy
thereof. 19
On the other hand, Regional Trial Courts have exclusive original jurisdiction:
(6) In all cases not within the exclusive jurisdiction of any court, tribunal,
person or body exercising judicial or quasi-judicial functions. 20
xxx xxx xxx
Likewise:
... The Supreme Court may designate certain branches of the Regional Trial
Court to handle exclusively criminal cases, juvenile and domestic relations
cases, agrarian case, urban land reform cases which do not fall under the
jurisdiction of quasi- judicial bodies and agencies and/or such other special
cases as the Supreme Court may determine in the interest of a speedy and
efficient administration of justice. 21
xxx xxx xxx
Under our Resolution dated January 11, 1983: 22
... The appeals to the Intermediate Appellate Court [now, Court of Appeals]
from quasi-judicial bodies shall continue to be governed by the provisions of
Republic Act No. 5434 insofar as the same is not inconsistent with the
provisions of B.P. Blg. 129. 23
The pertinent provisions of Republic Act No. 5434 are as follows:
SECTION 1. Appeals from specified agencies. Any provision of existing law
or Rule of Court to the contrary notwithstanding, parties aggrieved by a final
ruling, award, order, decision, or judgment of the Court of Agrarian
Relations; the Secretary of Labor under Section 7 of Republic Act Numbered
Six hundred and two, also known as the "Minimum Wage Law"; the
Department of Labor under Section 23 of Republic Act Numbered Eight
hundred seventy-five, also known as the "Industrial Peace Act"; the Land
Registration Commission; the Securities and Exchange Commission; the
Social Security Commission; the Civil Aeronautics Board; the Patent Office
and the Agricultural Inventions Board, may appeal therefrom to the Court of
Appeals, within the period and in the manner herein provided, whether the
appeal involves questions of fact, mixed questions of fact and law, or
questions of law, or all three kinds of questions. From final judgments or
decisions of the Court of Appeals, the aggrieved party may appeal by
certiorari to the Supreme Court as provided in Rule 45 of the Rules of Court.
24

Because of subsequent amendments, including the abolition of various

special courts, 25 jurisdiction over quasi-judicial bodies has to be,
consequently, determined by the corresponding amendatory statutes. Under
the Labor Code, decisions and awards of the National Labor Relations
Commission are final and executory, but, nevertheless, 'reviewable by this
Court through a petition for certiorari and not by way of appeal." 26
Under the Property Registration Decree, decisions of the Commission of Land
Registration, en consults, are appealable to the Court of Appeals. 27
The decisions of the Securities and Exchange Commission are likewise
appealable to the Appellate Court, 28 and so are decisions of the Social
Security Commission.29
As a rule, where legislation provides for an appeal from decisions of certain
administrative bodies to the Court of Appeals, it means that such bodies are
co-equal with the Regional Trial Courts, in terms of rank and stature, and
logically, beyond the control of the latter.
As we have observed, the question is whether or not the Presidential AntiDollar Salting Task Force is, in the first place, a quasi-judicial body, and one
whose decisions may not be challenged before the regular courts, other than
the higher tribunals the Court of Appeals and this Court.
A quasi-judicial body has been defined as "an organ of government other
than a court and other than a legislature, which affects the rights of private
parties through either adjudication or rule making." 30 The most common
types of such bodies have been listed as follows:
(1) Agencies created to function in situations wherein the government is
offering some gratuity, grant, or special privilege, like the defunct Philippine
Veterans Board, Board on Pensions for Veterans, and NARRA, and Philippine
Veterans Administration.
(2) Agencies set up to function in situations wherein the government is
seeking to carry on certain government functions, like the Bureau of
Immigration, the Bureau of Internal Revenue, the Board of Special Inquiry
and Board of Commissioners, the Civil Service Commission, the Central Bank
of the Philippines.
(3) Agencies set up to function in situations wherein the government is
performing some business service for the public, like the Bureau of Posts,
the Postal Savings Bank, Metropolitan Waterworks & Sewerage Authority,
Philippine National Railways, the Civil Aeronautics Administration.
(4) Agencies set up to function in situations wherein the government is
seeking to regulate business affected with public interest, like the Fiber
Inspections Board, the Philippine Patent Office, Office of the Insurance
Commissioner.
(5) Agencies set up to function in situations wherein the government is
seeking under the police power to regulate private business and individuals,
like the Securities & Exchange Commission, Board of Food Inspectors, the
Board of Review for Moving Pictures, and the Professional Regulation
Commission.
(6) Agencies set up to function in situations wherein the government is
seeking to adjust individual controversies because of some strong social
policy involved, such as the National Labor Relations Commission, the Court
of Agrarian Relations, the Regional Offices of the Ministry of Labor, the Social

Security Commission, Bureau of Labor Standards, Women and Minors

Bureau. 31
As may be seen, it is the basic function of these bodies to adjudicate claims
and/or to determine rights, and unless its decision are seasonably appealed
to the proper reviewing authorities, the same attain finality and become
executory. A perusal of the Presidential Anti-Dollar Salting Task Force's
organic act, Presidential Decree No. 1936, as amended by Presidential
Decree No. 2002, convinces the Court that the Task Force was not meant to
exercise quasi-judicial functions, that is, to try and decide claims and
execute its judgments. As the President's arm called upon to combat the
vice of "dollar salting" or the blackmarketing and salting of foreign
exchange, 32 it is tasked alone by the Decree to handle the prosecution of
such activities, but nothing more. We quote:
SECTION 1. Powers of the Presidential Anti-Dollar Salting Task Force.-The
Presidential Anti-Dollar Salting Task Force, hereinafter referred to as Task
Force, shall have the following powers and authority:
a) Motu proprio or upon complaint, to investigate and prosecute all dollar
salting activities, including the overvaluation of imports and the
undervaluation of exports;
b) To administer oaths, summon persons or issue subpoenas requiring the
attendance and testimony of witnesses or the production of such books,
papers, contracts, records, statements of accounts, agreements, and other
as may be necessary in the conduct of investigation;
c) To appoint or designate experts, consultants, state prosecutors or fiscals,
investigators and hearing officers to assist the Task Force in the discharge of
its duties and responsibilities; gather data, information or documents;
conduct hearings, receive evidence, both oral and documentary, in all cases
involving violation of foreign exchange laws or regulations; and submit
reports containing findings and recommendations for consideration of
appropriate authorities;
d) To punish direct and indirect contempts with the appropriate penalties
therefor under Rule 71 of the Rules of Court; and to adopt such measures
and take such actions as may be necessary to implement this Decree.
xxx xxx xxx
f. After due investigation but prior to the filing of the appropriate criminal
charges with the fiscal's office or the courts as the case may be, to impose a
fine and/or administrative sanctions as the circumstances warrant, upon any
person found committing or to have committed acts constituting
blackmarketing or salting abroad of foreign exchange, provided said person
voluntarily admits the facts and circumstances constituting the offense and
presents proof that the foreign exchange retained abroad has already been
brought into the country.
Thereafter, no further civil or criminal action may be instituted against said
person before any other judicial regulatory or administrative body for
violation of Presidential Decree No. 1883.
The amount of the fine shall be determined by the Chairman of the
Presidential Anti- Dollar Salting Task Force and paid in Pesos taking into
consideration the amount of foreign exchange retained abroad, the
exchange rate differentials, uncollected taxes and duties thereon,
undeclared profits, interest rates and such other relevant factors.

The fine shall be paid to the Task Force which shall retain Twenty percent (20
%) thereof. The informer, if any, shall be entitled to Twenty percent (20 %) of
the fine. Should there be no informer, the Task Force shall be entitle to retain
Forty percent (40 %) of the fine and the balance shall accrue to the general
funds of the National government. The amount of the fine to be retained by
the Task Force shall form part of its Confidential Fund and be utilized for the
operations of the Task Force . 33
The Court sees nothing in the aforequoted provisions (except with respect to
the Task Force's powers to issue search warrants) that will reveal a
legislative intendment to confer it with quasi-judicial responsibilities relative
to offenses punished by Presidential Decree No. 1883. Its undertaking, as we
said, is simply, to determine whether or not probable cause exists to warrant
the filing of charges with the proper court, meaning to say, to conduct an
inquiry preliminary to a judicial recourse, and to recommend action "of
appropriate authorities". It is not unlike a fiscal's office that conducts a
preliminary investigation to determine whether or not prima facie evidence
exists to justify haling the respondent to court, and yet, while it makes that
determination, it cannot be said to be acting as a quasi-court. For it is the
courts, ultimately, that pass judgment on the accused, not the fiscal.
It is not unlike the Presidential Commission on Good Government either, the
executive body appointed to investigate and prosecute cases involving "illgotten wealth". It had been vested with enormous powers, like the issuance
of writs of sequestration, freeze orders, and similar processes, but that did
not, on account thereof alone, make it a quasi-judicial entity as defined by
recognized authorities. It cannot pronounce judgement of the accused's
culpability, the jurisdiction to do which is exclusive upon the Sandiganbayan.
34
If the Presidential Anti-Dollar Salting Task Force is not, hence, a quasi-judicial
body, it cannot be said to be co-equal or coordinate with the Regional Trial
Court. There is nothing in its enabling statutes that would demonstrate its
standing at par with the said court.
In that respect, we do not find error in the respondent Court of Appeal's
resolution sustaining the assumption of jurisdiction by the court a quo.
It will not do to say that the fact that the Presidential Task Force has been
empowered to issue warrants of arrest, search, and seizure, makes it, ergo, a
"semi-court". Precisely, it is the objection interposed by the private
respondent, whether or not it can under the 1973 Charter, issue such kinds
of processes.
It must be observed that under the present Constitution, the powers of
arrest and search are exclusive upon judges. 35 To that extent, the case has
become moot and academic. Nevertheless, since the question has been
specifically put to the Court, we find it unavoidable to resolve it as the final
arbiter of legal controversies, pursuant to the provisions of the 1973
Constitution during whose regime the case was commenced.
Since the 1973 Constitution took force and effect and until it was so
unceremoniously discarded in 1986, its provisions conferring the power to
issue arrest and search warrants upon an officer, other than a judge, by fiat
of legislation have been at best controversial. In Lim v. Ponce de Leon, 36 a

1975 decision, this Court ruled that a fiscal has no authority to issue search
warrants, but held in the same vein that, by virtue of the responsible officer"
clause of the 1973 Bill of Rights, "any lawful officer authorized by law can
issue a search warrant or warrant of arrest.37 Authorities, however, have
continued to express reservations whether or not fiscals may, by statute, be
given such a power. 38
Less than a year later, we promulgated Collector of Customs v. Villaluz, 39 in
which we categorically averred: Until now only the judge can issue the
warrant of arrest." 40 "No law or presidential decree has been enacted or
promulgated vesting the same authority in a particular responsible officer ."
41
Apparently, Villaluz had settled the debate, but the same question persisted
following this Courts subsequent rulings upholding the President's alleged
emergency arrest powers .42 [Mr. Justice Hugo Gutierrez would hold,
however, that a Presidential Commitment Order (PCO) is (was) not a species
of "arrest" in its technical sense, and that the (deposed) Chief Executive, in
issuing one, does not do so in his capacity as a "responsible officer" under
the 1973 Charter, but rather, as Commander-in-Chief of the Armed Forces in
times of emergency, or in order to carry out the deportation of undesirable
aliens.43 In the distinguished Justice's opinion then, these are acts that can
be done without need of judicial intervention because they are not,
precisely, judicial but Presidential actions.]
In Ponsica v. Ignalaga,44 however, we held that the mayor has been made a
"responsible officer' by the Local Government Code, 45 but had ceased to
be one with the approval of the 1987 Constitution according judges sole
authority to issue arrest and search warrants. But in the same breath, we did
not rule the grant under the Code unconstitutional based on the provisions
of the former Constitution. We were agreed, though, that the "responsible
officer" referred to by the fundamental law should be one capable of
approximating "the cold neutrality of an impartial judge." 46
In striking down Presidential Decree No. 1936 the respondent Court relied on
American jurisprudence, notably,Katz v. United States, 47 Johnson v. United
States, 48 and Coolidge v. New Hampshire 49 in which the American
Supreme Court ruled that prosecutors (like the petitioner) cannot be given
such powers because of their incapacity for a "detached scrutiny" 50 of the
cases before them. We affirm the Appellate Court.
We agree that the Presidential Anti-Dollar Salting Task Force exercises, or
was meant to exercise, prosecutorial powers, and on that ground, it cannot
be said to be a neutral and detached "judge" to determine the existence of
probable cause for purposes of arrest or search. Unlike a magistrate, a
prosecutor is naturally interested in the success of his case. Although his
office "is to see that justice is done and not necessarily to secure the
conviction of the person accused," 51 he stands, invariably, as the
accused's adversary and his accuser. To permit him to issue search warrants
and indeed, warrants of arrest, is to make him both judge and jury in his own
right, when he is neither. That makes, to our mind and to that extent,
Presidential Decree No. 1936 as amended by Presidential Decree No. 2002,
unconstitutional.
It is our ruling, thus, that when the 1973 Constitution spoke of "responsible
officer" to whom the authority to issue arrest and search warrants may be
delegated by legislation, it did not furnish the legislator with the license to

give that authority to whomsoever it pleased. It is to be noted that the

Charter itself makes the qualification that the officer himself must be
"responsible". We are not saying, of course, that the Presidential Anti-Dollar
Salting Task Force (or any similar prosecutor) is or has been irresponsible in
discharging its duty. Rather, we take "responsibility", as used by the
Constitution, to mean not only skill and competence but more significantly,
neutrality and independence comparable to the impartiality presumed of a
judicial officer. A prosecutor can in no manner be said to be possessed of the
latter qualities.
According to the Court of Appeals, the implied exclusion of prosecutors
under the 1973 Constitution was founded on the requirements of due
process, notably, the assurance to the respondent of an unbiased inquiry of
the charges against him prior to the arrest of his person or seizure of his
property. We add that the exclusion is also demanded by the principle of
separation of powers on which our republican structure rests. Prosecutors
exercise essentially an executive function (the petitioner itself is chaired by
the Minister, now Secretary, of Trade and Industry), since under the
Constitution, the President has pledged to execute the laws. 52 As such,
they cannot be made to issue judicial processes without unlawfully
impinging the prerogative of the courts.
At any rate, Ponsica v. Ignalaga should foreclose all questions on the matter,
although the Court hopes that this disposition has clarified a controversy
that had generated often bitter debates and bickerings.
The Court joins the Government in its campaign against the scourge of
"dollar- salting", a pernicious practice that has substantially drained the
nation's coffers and has seriously threatened its economy. We recognize the
menace it has posed (and continues to pose) unto the very stability of the
country, the urgency for tough measures designed to contain if not
eradicate it, and foremost, the need for cooperation from the citizenry in an
all-out campaign. But while we support the State's efforts, we do so not at
the expense of fundamental rights and liberties and constitutional
safeguards against arbitrary and unreasonable acts of Government. If in the
event that as a result of this ruling, we prove to be an "obstacle" to the vital
endeavour of stamping out the blackmarketing of valuable foreign
exchange, we do not relish it and certainly, do not mean it. The Constitution
simply does not leave us much choice.
WHEREFORE, the petition is DISMISSED. No costs. SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez, Jr., Paras, Gancayco, Padilla, Bidin, GrioAquino, Medialdea and Regalado, JJ., concur.
Cruz, Feliciano and Cortes, JJ. concur in the result.
Melencio-Herrera, J., took no part.

G.R. No. L-57883 March 12, 1982

GUALBERTO J. DE LA LLANA Presiding Judge, Branch II of the City
Court of Olongapo, ESTANISLAO L. CESA, JR., FIDELA Y. VARGAS,
BENJAMIN C. ESCOLANGO, JUANITO C. ATIENZA, MANUEL REYES
ROSAPAPAN, JR., VIRGILIO E. ACIERTO, and PORFIRIO AGUILLON
AGUILA, petitioners,
vs.
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commission on Audit, and RICARDO PUNO, Minister of
Justice, Respondents.

FERNANDO, C.J.:
This Court, pursuant to its grave responsibility of passing upon the validity of
any executive or legislative act in an appropriate cases, has to resolve the
crucial issue of the constitutionality of Batas Pambansa Blg. 129, entitled
"An act reorganizing the Judiciary, Appropriating Funds Therefor and for
Other Purposes." The task of judicial review, aptly characterized as exacting
and delicate, is never more so than when a conceded legislative power, that
of judicial reorganization, 1 may possibly collide with the time-honored
principle of the independence of the judiciary 2 as protected and
safeguarded by this constitutional provision: "The Members of the Supreme
Court and judges of inferior courts shall hold office during good behavior
until they reach the age of seventy years or become incapacitated to
discharge the duties of their office. The Supreme Court shall have the power
to discipline judges of inferior courts and, by a vote of at least eight
Members, order their dismissal." 3 For the assailed legislation mandates that
Justices and judges of inferior courts from the Court of Appeals to municipal
circuit courts, except the occupants of the Sandiganbayan and the Court of
Tax Appeals, unless appointed to the inferior courts established by such Act,
would be considered separated from the judiciary. It is the termination of
their incumbency that for petitioners justifies a suit of this character, it being
alleged that thereby the security of tenure provision of the Constitution has
been ignored and disregarded,
That is the fundamental issue raised in this proceeding, erroneously entitled
Petition for Declaratory Relief and/or for Prohibition 4 considered by this
Court as an action for prohibited petition, seeking to enjoin respondent
Minister of the Budget, respondent Chairman of the Commission on Audit,
and respondent Minister of Justice from taking any action implementing
Batas Pambansa Blg. 129. Petitioners 5 sought to bolster their claim by
imputing lack of good faith in its enactment and characterizing as an undue
delegation of legislative power to the President his authority to fix the
compensation and allowances of the Justices and judges thereafter
appointed and the determination of the date when the reorganization shall
be deemed completed. In the very comprehensive and scholarly Answer of

Solicitor General Estelito P. Mendoza, 6 it was pointed out that there is no

valid justification for the attack on the constitutionality of this statute, it
being a legitimate exercise of the power vested in the Batasang Pambansa
to reorganize the judiciary, the allegations of absence of good faith as well
as the attack on the independence of the judiciary being unwarranted and
devoid of any support in law. A Supplemental Answer was likewise filed on
October 8, 1981, followed by a Reply of petitioners on October 13. After the
hearing in the morning and afternoon of October 15, in which not only
petitioners and respondents were heard through counsel but also the amici
curiae, 7 and thereafter submission of the minutes of the proceeding on the
debate on Batas Pambansa Blg. 129, this petition was deemed submitted for
decision.
The importance of the crucial question raised called for intensive and
rigorous study of all the legal aspects of the case. After such exhaustive
deliberation in several sessions, the exchange of views being supplemented
by memoranda from the members of the Court, it is our opinion and so hold
that Batas Pambansa Blg. 129 is not unconstitutional.
1. The argument as to the lack of standing of petitioners is easily resolved.
As far as Judge de la Llana is concerned, he certainly falls within the
principle set forth in Justice Laurel's opinion in People v. Vera. 8 Thus: "The
unchallenged rule is that the person who impugns the validity of a statute
must have a personal and substantial interest in the case such that he has
sustained, or will sustain, direct injury as a result of its enforcement." 9 The
other petitioners as members of the bar and officers of the court cannot be
considered as devoid of "any personal and substantial interest" on the
matter. There is relevance to this excerpt from a separate opinion in Aquino,
Jr. v. Commission on Elections: 10 "Then there is the attack on the standing of
petitioners, as vindicating at most what they consider a public right and not
protecting their rights as individuals. This is to conjure the specter of the
public right dogma as an inhibition to parties intent on keeping public
officials staying on the path of constitutionalism. As was so well put by Jaffe:
'The protection of private rights is an essential constituent of public interest
and, conversely, without a well-ordered state there could be no enforcement
of private rights. Private and public interests are, both in substantive and
procedural sense, aspects of the totality of the legal order.' Moreover,
petitioners have convincingly shown that in their capacity as taxpayers, their
standing to sue has been amply demonstrated. There would be a retreat
from the liberal approach followed in Pascual v. Secretary of Public
Works,foreshadowed by the very decision of People v. Vera where the
doctrine was first fully discussed, if we act differently now. I do not think we
are prepared to take that step. Respondents, however, would hark back to
the American Supreme Court doctrine in Mellon v. Frothingham with their
claim that what petitioners possess 'is an interest which is shared in
common by other people and is comparatively so minute and indeterminate
as to afford any basis and assurance that the judicial process can act on it.'
That is to speak in the language of a bygone era even in the United States.
For as Chief Justice Warren clearly pointed out in the later case of Flast v.

Cohen, the barrier thus set up if not breached has definitely been
lowered." 11
2. The imputation of arbitrariness to the legislative body in the enactment of
Batas Pambansa Blg. 129 to demonstrate lack of good faith does manifest
violence to the facts. Petitioners should have exercised greater care in
informing themselves as to its antecedents. They had laid themselves open
to the accusation of reckless disregard for the truth, On August 7, 1980, a
Presidential Committee on Judicial Reorganization was organized. 12 This
Executive Order was later amended by Executive Order No. 619-A., dated
September 5 of that year. It clearly specified the task assigned to it: "1. The
Committee shall formulate plans on the reorganization of the Judiciary which
shall be submitted within seventy (70) days from August 7, 1980 to provide
the President sufficient options for the reorganization of the entire Judiciary
which shall embrace all lower courts, including the Court of Appeals, the
Courts of First Instance, the City and Municipal Courts, and all Special
Courts, but excluding the Sandigan Bayan." 13 On October 17, 1980, a Report
was submitted by such Committee on Judicial Reorganization. It began with
this paragraph: "The Committee on Judicial Reorganization has the honor to
submit the following Report. It expresses at the outset its appreciation for
the opportunity accorded it to study ways and means for what today is a
basic and urgent need, nothing less than the restructuring of the judicial
system. There are problems, both grave and pressing, that call for remedial
measures. The felt necessities of the time, to borrow a phrase from Holmes,
admit of no delay, for if no step be taken and at the earliest opportunity, it is
not too much to say that the people's faith in the administration of justice
could be shaken. It is imperative that there be a greater efficiency in the
disposition of cases and that litigants, especially those of modest means
much more so, the poorest and the humblest can vindicate their rights in
an expeditious and inexpensive manner. The rectitude and the fairness in
the way the courts operate must be manifest to all members of the
community and particularly to those whose interests are affected by the
exercise of their functions. It is to that task that the Committee addresses
itself and hopes that the plans submitted could be a starting point for an
institutional reform in the Philippine judiciary. The experience of the
Supreme Court, which since 1973 has been empowered to supervise inferior
courts, from the Court of Appeals to the municipal courts, has proven that
reliance on improved court management as well as training of judges for
more efficient administration does not suffice. I hence, to repeat, there is
need for a major reform in the judicial so stem it is worth noting that it will
be the first of its kind since the Judiciary Act became effective on June 16,
1901." 14 I t went to say: "I t does not admit of doubt that the last two
decades of this century are likely to be attended with problems of even
greater complexity and delicacy. New social interests are pressing for
recognition in the courts. Groups long inarticulate, primarily those
economically underprivileged, have found legal spokesmen and are
asserting grievances previously ignored. Fortunately, the judicially has not
proved inattentive. Its task has thus become even more formidable. For so
much grist is added to the mills of justice. Moreover, they are likewise to be
quite novel. The need for an innovative approach is thus apparent. The
national leadership, as is well-known, has been constantly on the search for

solutions that will prove to be both acceptable and satisfactory. Only thus
may there be continued national progress." 15 After which comes: "To be less
abstract, the thrust is on development. That has been repeatedly stressed
and rightly so. All efforts are geared to its realization. Nor, unlike in the past,
was it to b "considered as simply the movement towards economic progress
and growth measured in terms of sustained increases in per capita income
and Gross National Product (GNP). 16 For the New Society, its implication
goes further than economic advance, extending to "the sharing, or more
appropriately, the democratization of social and economic opportunities, the
substantiation of the true meaning of social justice." 17 This process of
modernization and change compels the government to extend its field of
activity and its scope of operations. The efforts towards reducing the gap
between the wealthy and the poor elements in the nation call for more
regulatory legislation. That way the social justice and protection to labor
mandates of the Constitution could be effectively implemented." 18 There is
likelihood then "that some measures deemed inimical by interests adversely
affected would be challenged in court on grounds of validity. Even if the
question does not go that far, suits may be filed concerning their
interpretation and application. ... There could be pleas for injunction or
restraining orders. Lack of success of such moves would not, even so, result
in their prompt final disposition. Thus delay in the execution of the policies
embodied in law could thus be reasonably expected. That is not conducive
to progress in development." 19 For, as mentioned in such Report, equally of
vital concern is the problem of clogged dockets, which "as is well known, is
one of the utmost gravity. Notwithstanding the most determined efforts
exerted by the Supreme Court, through the leadership of both retired Chief
Justice Querube Makalintal and the late Chief Justice Fred Ruiz Castro, from
the time supervision of the courts was vested in it under the 1973
Constitution, the trend towards more and more cases has continued." 20 It is
understandable why. With the accelerated economic development, the
growth of population, the increasing urbanization, and other similar factors,
the judiciary is called upon much oftener to resolve controversies. Thus
confronted with what appears to be a crisis situation that calls for a remedy,
the Batasang Pambansa had no choice. It had to act, before the ailment
became even worse. Time was of the essence, and yet it did not hesitate to
be duly mindful, as it ought to be, of the extent of its coverage before
enacting Batas Pambansa Blg. 129.
3. There is no denying, therefore, the need for "institutional reforms,"
characterized in the Report as "both pressing and urgent." 21 It is worth
noting, likewise, as therein pointed out, that a major reorganization of such
scope, if it were to take place, would be the most thorough after four
generations. 22 The reference was to the basic Judiciary Act generations .
enacted in June of 1901, 23 amended in a significant way, only twice previous
to the Commonwealth. There was, of course, the creation of the Court of
Appeals in 1935, originally composed "of a Presiding Judge and ten appellate
Judges, who shall be appointed by the President of the Philippines, with the
consent of the Commission on Appointments of the National Assembly, 24 It
could "sit en banc, but it may sit in two divisions, one of six and another of
five Judges, to transact business, and the two divisions may sit at the same
time." 25 Two years after the establishment of independence of the Republic

of the Philippines, the Judiciary Act of 1948 26 was passed. It continued the
existing system of regular inferior courts, namely, the Court of Appeals,
Courts of First Instance, 27 the Municipal Courts, at present the City Courts,
and the Justice of the Peace Courts, now the Municipal Circuit Courts and
Municipal Courts. The membership of the Court of Appeals has been
continuously increased. 28 Under a 1978 Presidential Decree, there would be
forty-five members, a Presiding Justice and forty-four Associate Justices, with
fifteen divisions. 29 Special courts were likewise created. The first was the
Court of Tax Appeals in 1954, 30 next came the Court of Agrarian Relations in
1955, 31 and then in the same year a Court of the Juvenile and Domestic
Relations for Manila in 1955, 32 subsequently followed by the creation of two
other such courts for Iloilo and Quezon City in 1966. 33 In 1967, Circuit
Criminal Courts were established, with the Judges having the same
qualifications, rank, compensation, and privileges as judges of Courts of First
Instance. 34
4. After the submission of such Report, Cabinet Bill No. 42, which later
became the basis of Batas Pambansa Blg. 129, was introduced. After setting
forth the background as above narrated, its Explanatory Note continues:
"Pursuant to the President's instructions, this proposed legislation has been
drafted in accordance with the guidelines of that report with particular
attention to certain objectives of the reorganization, to wit, the attainment of
more efficiency in disposal of cases, a reallocation of jurisdiction, and a
revision of procedures which do not tend to the proper meeting out of
justice. In consultation with, and upon a consensus of, the governmental and
parliamentary leadership, however, it was felt that some options set forth in
the Report be not availed of. Instead of the proposal to confine the
jurisdiction of the intermediate appellate court merely to appellate
adjudication, the preference has been opted to increase rather than diminish
its jurisdiction in order to enable it to effectively assist the Supreme Court.
This preference has been translated into one of the innovations in the
proposed Bill." 35 In accordance with the parliamentary procedure, the Bill
was sponsored by the Chairman of the Committee on Justice, Human Rights
and Good Government to which it was referred. Thereafter, Committee
Report No. 225 was submitted by such Committee to the Batasang
Pambansa recommending the approval with some amendments. In the
sponsorship speech of Minister Ricardo C. Puno, there was reference to the
Presidential Committee on Judicial Reorganization. Thus: "On October 17,
1980, the Presidential Committee on Judicial Reorganization submitted its
report to the President which contained the 'Proposed Guidelines for Judicial
Reorganization.' Cabinet Bill No. 42 was drafted substantially in accordance
with the options presented by these guidelines. Some options set forth in the
aforesaid report were not availed of upon consultation with and upon
consensus of the government and parliamentary leadership. Moreover, some
amendments to the bill were adopted by the Committee on Justice, Human
Rights and Good Government, to which The bill was referred, following the
public hearings on the bill held in December of 1980. The hearings consisted
of dialogues with the distinguished members of the bench and the bar who
had submitted written proposals, suggestions, and position papers on the bill
upon the invitation of the Committee on Justice, Human Rights and Good
Government." 36 Stress was laid by the sponsor that the enactment of such

Cabinet Bill would, firstly, result in the attainment of more efficiency in the
disposal of cases. Secondly, the improvement in the quality of justice
dispensed by the courts is expected as a necessary consequence of the
easing of the court's dockets. Thirdly, the structural changes introduced in
the bill, together with the reallocation of jurisdiction and the revision of the
rules of procedure, are designated to suit the court system to the exigencies
of the present day Philippine society, and hopefully, of the foreseeable
future." 37 it may be observed that the volume containing the minutes of the
proceedings of the Batasang Pambansa show that 590 pages were devoted
to its discussion. It is quite obvious that it took considerable time and effort
as well as exhaustive study before the act was signed by the President on
August 14, 1981. With such a background, it becomes quite manifest how
lacking in factual basis is the allegation that its enactment is tainted by the
vice of arbitrariness. What appears undoubted and undeniable is the good
faith that characterized its enactment from its inception to the affixing of the
Presidential signature.
5. Nothing is better settled in our law than that the abolition of an office
within the competence of a legitimate body if done in good faith suffers from
no infirmity. The ponencia of Justice J.B.L. Reyes in Cruz v. Primicias,
Jr. 38 reiterated such a doctrine: "We find this point urged by respondents, to
be without merit. No removal or separation of petitioners from the service is
here involved, but the validity of the abolition of their offices. This is a legal
issue that is for the Courts to decide. It is well-known rule also that valid
abolition of offices is neither removal nor separation of the incumbents. ...
And, of course, if the abolition is void, the incumbent is deemed never to
have ceased to hold office. The preliminary question laid at rest, we pass to
the merits of the case. As well-settled as the rule that the abolition of an
office does not amount to an illegal removal of its incumbent is the principle
that, in order to be valid, the abolition must be made in good faith." 39 The
above excerpt was quoted with approval in Bendanillo, Sr. v. Provincial
Governor, 40 two earlier cases enunciating a similar doctrine having
preceded it. 41 As with the offices in the other branches of the government,
so it is with the judiciary. The test remains whether the abolition is in good
faith. As that element is conspicuously present in the enactment of Batas
Pambansa Blg. 129, then the lack of merit of this petition becomes even
more apparent. The concurring opinion of Justice Laurel in Zandueta v. De la
Costa 42 cannot be any clearer. This is a quo warranto proceeding filed by
petitioner, claiming that he, and not respondent, was entitled to he office of
judge of the Fifth Branch of the Court of First Instance of Manila. There was a
Judicial Reorganization Act in 1936, 43 a year after the inauguration of the
Commonwealth, amending the Administrative Code to organize courts of
original jurisdiction known as the Courts of First Instance Prior to such
statute, petitioner was the incumbent of such branch. Thereafter, he
received an ad interim appointment, this time to the Fourth Judicial District,
under the new legislation. Unfortunately for him, the Commission on
Appointments of then National Assembly disapproved the same, with
respondent being appointed in his place. He contested the validity of the Act
insofar as it resulted in his being forced to vacate his position This Court did
not rule squarely on the matter. His petition was dismissed on the ground of
estoppel. Nonetheless, the separate concurrence of Justice Laurel in the

result reached, to repeat, reaffirms in no uncertain terms the standard of

good faith to preclude any doubt as to the abolition of an inferior court, with
due recognition of the security of tenure guarantee. Thus: " I am of the
opinion that Commonwealth Act No. 145 in so far as it reorganizes, among
other judicial districts, the Ninth Judicial District, and establishes an entirely
new district comprising Manila and the provinces of Rizal and Palawan, is
valid and constitutional. This conclusion flows from the fundamental
proposition that the legislature may abolish courts inferior to the Supreme
Court and therefore may reorganize them territorially or otherwise thereby
necessitating new appointments and commissions. Section 2, Article VIII of
the Constitution vests in the National Assembly the power to define,
prescribe and apportion the jurisdiction of the various courts, subject to
certain limitations in the case of the Supreme Court. It is admitted that
section 9 of the same article of the Constitution provides for the security of
tenure of all the judges. The principles embodied in these two sections of the
same article of the Constitution must be coordinated and harmonized. A
mere enunciation of a principle will not decide actual cases and
controversies of every sort. (Justice Holmes in Lochner vs. New York, 198
U.S., 45; 49 Law. ed; 937)" 44 justice Laurel continued: "I am not insensible to
the argument that the National Assembly may abuse its power and move
deliberately to defeat the constitutional provision guaranteeing security of
tenure to all judges, But, is this the case? One need not share the view of
Story, Miller and Tucker on the one hand, or the opinion of Cooley, Watson
and Baldwin on the other, to realize that the application of a legal or
constitutional principle is necessarily factual and circumstantial and that
fixity of principle is the rigidity of the dead and the unprogressive. I do say,
and emphatically, however, that cases may arise where the violation of the
constitutional provision regarding security of tenure is palpable and plain,
and that legislative power of reorganization may be sought to cloak an
unconstitutional and evil purpose. When a case of that kind arises, it will be
the time to make the hammer fall and heavily. But not until then. I am
satisfied that, as to the particular point here discussed, the purpose was the
fulfillment of what was considered a great public need by the legislative
department and that Commonwealth Act No. 145 was not enacted purposely
to affect adversely the tenure of judges or of any particular judge. Under
these circumstances, I am for sustaining the power of the legislative
department under the Constitution. To be sure, there was greater necessity
for reorganization consequent upon the establishment of the new
government than at the time Acts Nos. 2347 and 4007 were approved by the
defunct Philippine Legislature, and although in the case of these two Acts
there was an express provision providing for the vacation by the judges of
their offices whereas in the case of Commonwealth Act No. 145 doubt is
engendered by its silence, this doubt should be resolved in favor of the valid
exercise of the legislative power." 45
6. A few more words on the question of abolition. In the above-cited opinion
of Justice Laurel in Zandueta, reference was made to Act No. 2347 46 on the
reorganization of the Courts of First Instance and to Act No. 4007 47 on the
reorganization of all branches of the government, including the courts of first
instance. In both of them, the then Courts of First Instance were replaced by
new courts with the same appellation. As Justice Laurel pointed out, there

was no question as to the fact of abolition. He was equally categorical as to

Commonwealth Act No. 145, where also the system of the courts of first
instance was provided for expressly. It was pointed out by Justice Laurel that
the mere creation of an entirely new district of the same court is valid and
constitutional. such conclusion flowing "from the fundamental proposition
that the legislature may abolish courts inferior to the Supreme Court and
therefore may reorganize them territorially or otherwise thereby
necessitating new appointments and commissions." 48 The challenged
statute creates an intermediate appellate court, 49 regional trial
courts, 50 metropolitan trial courts of the national capital region, 51 and other
metropolitan trial courts, 52 municipal trial courts in cities, 53 as well as in
municipalities, 54 and municipal circuit trial courts. 55 There is even less
reason then to doubt the fact that existing inferior courts were abolished. For
the Batasang Pambansa, the establishment of such new inferior courts was
the appropriate response to the grave and urgent problems that pressed for
solution. Certainly, there could be differences of opinion as to the
appropriate remedy. The choice, however, was for the Batasan to make, not
for this Court, which deals only with the question of power. It bears
mentioning that in Brillo v. Eage 56 this Court, in an unanimous opinion
penned by the late Justice Diokno, citing Zandueta v. De la Costa, ruled: "La
segunda question que el recurrrido plantea es que la Carta de Tacloban ha
abolido el puesto. Si efectivamente ha sido abolido el cargo, entonces ha
quedado extinguido el derecho de recurente a ocuparlo y a cobrar el salario
correspodiente. Mc Culley vs. State, 46 LRA, 567. El derecho de un juez de
desempenarlo hasta los 70 aos de edad o se incapacite no priva al
Congreso de su facultad de abolir, fusionar o reorganizar juzgados no
constitucionales." 57 Nonetheless, such well-established principle was not
held applicable to the situation there obtaining, the Charter of Tacloban City
creating a city court in place of the former justice of the peace court. Thus:
"Pero en el caso de autos el Juzgado de Tacloban no ha sido abolido. Solo se
le ha cambiado el nombre con el cambio de forma del gobierno local." 58 The
present case is anything but that. Petitioners did not and could not prove
that the challenged statute was not within the bounds of legislative
authority.
7. This opinion then could very well stop at this point. The implementation of
Batas Pambansa Blg. 129, concededly a task incumbent on the Executive,
may give rise, however, to questions affecting a judiciary that should be
kept independent. The all-embracing scope of the assailed legislation as far
as all inferior courts from the Courts of Appeals to municipal courts are
concerned, with the exception solely of the Sandiganbayan and the Court of
Tax Appeals 59 gave rise, and understandably so, to misgivings as to its
effect on such cherished Ideal. The first paragraph of the section on the
transitory provision reads: "The provisions of this Act shall be immediately
carried out in accordance with an Executive Order to be issued by the
President. The Court of Appeals, the Courts of First Instance, the Circuit
Criminal Courts, the Juvenile and Domestic Relations Courts, the Courts of
Agrarian Relations, the City Courts, the Municipal Courts, and the Municipal
Circuit Courts shall continue to function as presently constituted and
organized, until the completion of the reorganization provided in this Act as
declared by the President. Upon such declaration, the said courts shall be

deemed automatically abolished and the incumbents thereof shall cease to

hold the office." 60 There is all the more reason then why this Court has no
choice but to inquire further into the allegation by petitioners that the
security of tenure provision, an assurance of a judiciary free from extraneous
influences, is thereby reduced to a barren form of words. The amended
Constitution adheres even more clearly to the long-established tradition of a
strong executive that antedated the 1935 Charter. As noted in the work of
former Vice-Governor Hayden, a noted political scientist, President Claro M.
Recto of the 1934 Convention, in his closing address, in stressing such a
concept, categorically spoke of providing "an executive power which, subject
to the fiscalization of the Assembly, and of public opinion, will not only know
how to govern, but will actually govern, with a firm and steady hand,
unembarrassed by vexatious interferences by other departments, or by
unholy alliances with this and that social group." 61 The above excerpt was
cited with approval by Justice Laurel in Planas v. Gil. 62 Moreover, under the
1981 Amendments, it may be affirmed that once again the principle of
separation of powers, to quote from the same jurist as ponente in Angara v.
Electoral Commission, 63 "obtains not through express provision but by
actual division." 64 The president, under Article VII, shall be the head of state
and chief executive of the Republic of the Philippines." 65Moreover, it is
equally therein expressly provided that all the powers he possessed under
the 1935 Constitution are once again vested in him unless the Batasang
Pambansa provides otherwise." 66 Article VII of the 1935 Constitution speaks
categorically: "The Executive power shall be vested in a President of the
Philippines." 67 As originally framed, the 1973 Constitution created the
position of President as the "symbolic head of state." 68 In addition, there
was a provision for a Prime Minister as the head of government exercising
the executive power with the assistance of the Cabinet 69 Clearly, a modified
parliamentary system was established. In the light of the 1981 amendments
though, this Court in Free Telephone Workers Union v. Minister of
Labor 70 could state: "The adoption of certain aspects of a parliamentary
system in the amended Constitution does not alter its essentially
presidential character." 71 The retention, however, of the position of the
Prime Minister with the Cabinet, a majority of the members of which shall
come from the regional representatives of the Batasang Pambansa and the
creation of an Executive Committee composed of the Prime Minister as
Chairman and not more than fourteen other members at least half of whom
shall be members of the Batasang Pambansa, clearly indicate the evolving
nature of the system of government that is now operative. 72 What is equally
apparent is that the strongest ties bind the executive and legislative
departments. It is likewise undeniable that the Batasang Pambansa retains
its full authority to enact whatever legislation may be necessary to carry out
national policy as usually formulated in a caucus of the majority party. It is
understandable then why in Fortun v. Labang 73 it was stressed that with the
provision transferring to the Supreme Court administrative supervision over
the Judiciary, there is a greater need "to preserve unimpaired the
independence of the judiciary, especially so at present, where to all intents
and purposes, there is a fusion between the executive and the legislative
branches." 74

8. To be more specific, petitioners contend that the abolition of the existing

inferior courts collides with the security of tenure enjoyed by incumbent
Justices and judges under Article X, Section 7 of the Constitution. There was
a similar provision in the 1935 Constitution. It did not, however, go as far as
conferring on this Tribunal the power to supervise administratively inferior
courts. 75 Moreover, this Court is em powered "to discipline judges of inferior
courts and, by a vote of at least eight members, order their
dismissal." 76 Thus it possesses the competence to remove judges. Under
the Judiciary Act, it was the President who was vested with such
power. 77 Removal is, of course, to be distinguished from termination by
virtue of the abolition of the office. There can be no tenure to a non-existent
office. After the abolition, there is in law no occupant. In case of removal,
there is an office with an occupant who would thereby lose his position. It is
in that sense that from the standpoint of strict law, the question of any
impairment of security of tenure does not arise. Nonetheless, for the
incumbents of inferior courts abolished, the effect is one of separation. As to
its effect, no distinction exists between removal and the abolition of the
office. Realistically, it is devoid of significance. He ceases to be a member of
the judiciary. In the implementation of the assailed legislation, therefore, it
would be in accordance with accepted principles of constitutional
construction that as far as incumbent justices and judges are concerned, this
Court be consulted and that its view be accorded the fullest consideration.
No fear need be entertained that there is a failure to accord respect to the
basic principle that this Court does not render advisory opinions. No
question of law is involved. If such were the case, certainly this Court could
not have its say prior to the action taken by either of the two departments.
Even then, it could do so but only by way of deciding a case where the
matter has been put in issue. Neither is there any intrusion into who shall be
appointed to the vacant positions created by the reorganization. That
remains in the hands of the Executive to whom it properly belongs. There is
no departure therefore from the tried and tested ways of judicial power,
Rather what is sought to be achieved by this liberal interpretation is to
preclude any plausibility to the charge that in the exercise of the conceded
power of reorganizing tulle inferior courts, the power of removal of the
present incumbents vested in this Tribunal is ignored or disregarded. The
challenged Act would thus be free from any unconstitutional taint, even one
not readily discernidble except to those predisposed to view it with distrust.
Moreover, such a construction would be in accordance with the basic
principle that in the choice of alternatives between one which would save
and another which would invalidate a statute, the former is to be
preferred. 78 There is an obvious way to do so. The principle that the
Constitution enters into and forms part of every act to avoid any
constitutional taint must be applied Nuez v. Sandiganbayan, 79 promulgated
last January, has this relevant excerpt: "It is true that other Sections of the
Decree could have been so worded as to avoid any constitutional objection.
As of now, however, no ruling is called for. The view is given expression in
the concurring and dissenting opinion of Justice Makasiar that in such a case
to save the Decree from the direct fate of invalidity, they must be construed
in such a way as to preclude any possible erosion on the powers vested in
this Court by the Constitution. That is a proposition too plain to be
committed. It commends itself for approval." 80 Nor would such a step be

unprecedented. The Presidential Decree constituting Municipal Courts into

Municipal Circuit Courts, specifically provides: "The Supreme Court shall
carry out the provisions of this Decree through implementing orders, on a
province-to-province basis." 81 It is true there is no such provision in this Act,
but the spirit that informs it should not be ignored in the Executive Order
contemplated under its Section 44. 82 Thus Batas Pambansa Blg. 129 could
stand the most rigorous test of constitutionality. 83
9. Nor is there anything novel in the concept that this Court is called upon to
reconcile or harmonize constitutional provisions. To be specific, the Batasang
Pambansa is expressly vested with the authority to reorganize inferior courts
and in the process to abolish existing ones. As noted in the preceding
paragraph, the termination of office of their occupants, as a necessary
consequence of such abolition, is hardly distinguishable from the practical
standpoint from removal, a power that is now vested in this Tribunal. It is of
the essence of constitutionalism to assure that neither agency is precluded
from acting within the boundaries of its conceded competence. That is why
it has long been well-settled under the constitutional system we have
adopted that this Court cannot, whenever appropriate, avoid the task of
reconciliation. As Justice Laurel put it so well in the previously cited Angara
decision, while in the main, "the Constitution has blocked out with deft
strokes and in bold lines, allotment of power to the executive, the legislative
and the judicial departments of the government, the overlapping and
interlacing of functions and duties between the several departments,
however, sometimes makes it hard to say just where the one leaves off and
the other begins." 84 It is well to recall another classic utterance from the
same jurist, even more emphatic in its affirmation of such a view, moreover
buttressed by one of those insights for which Holmes was so famous "The
classical separation of government powers, whether viewed in the light of
the political philosophy of Aristotle, Locke, or Motesquieu or of the
postulations of Mabini, Madison, or Jefferson, is a relative theory of
government. There is more truism and actuality in interdependence than in
independence and separation of powers, for as observed by Justice Holmes
in a case of Philippine origin, we cannot lay down 'with mathematical
precision and divide the branches into water-tight compartments' not only
because 'the great ordinances of the Constitution do not establish and divide
fields of black and white but also because 'even the more specific of them
are found to terminate in a penumbra shading gradually from one extreme
to the other.'" 85 This too from Justice Tuazon, likewise expressing with force
and clarity why the need for reconciliation or balancing is well-nigh
unavodiable under the fundamental principle of separation of powers: "The
constitutional structure is a complicated system, and overlappings of
governmental functions are recognized, unavoidable, and inherent
necessities of governmental coordination." 86 In the same way that the
academe has noted the existence in constitutional litigation of right versus
right, there are instances, and this is one of them, where, without this
attempt at harmonizing the provisions in question, there could be a case of
power against power. That we should avoid.

10. There are other objections raised but they pose no difficulty. Petitioners
would characterize as an undue delegation of legislative power to the
President the grant of authority to fix the compensation and the allowances
of the Justices and judges thereafter appointed. A more careful reading of
the challenged Batas Pambansa Blg. 129 ought to have cautioned them
against raising such an issue. The language of the statute is quite clear. The
questioned provisions reads as follows: "Intermediate Appellate Justices,
Regional Trial Judges, Metropolitan Trial Judges, municipal Trial Judges, and
Municipal Circuit Trial Judges shall receive such receive such compensation
and allowances as may be authorized by the President along the guidelines
set forth in Letter of Implementation No. 93 pursuant to Presidential Decree
No. 985, as amended by Presidential Decree No. 1597." 87 The existence of a
standard is thus clear. The basic postulate that underlies the doctrine of nondelegation is that it is the legislative body which is entrusted with the
competence to make laws and to alter and repeal them, the test being the
completeness of the statue in all its terms and provisions when enacted. As
pointed out in Edu v. Ericta: 88 "To avoid the taint of unlawful delegation,
there must be a standard, which implies at the very least that the legislature
itself determines matters of principle and lays down fundamental policy.
Otherwise, the charge of complete abdication may be hard to repel. A
standard thus defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. It is
the criterion by which legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above
guidelines promulgate supplemental rules and regulations. The standard
may be either express or implied. If the former, the non-delegation objection
is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act
considered as a whole." 89 The undeniably strong links that bind the
executive and legislative departments under the amended Constitution
assure that the framing of policies as well as their implementation can be
accomplished with unity, promptitude, and efficiency. There is accuracy,
therefore, to this observation in the Free Telephone Workers Union decision:
"There is accordingly more receptivity to laws leaving to administrative and
executive agencies the adoption of such means as may be necessary to
effectuate a valid legislative purpose. It is worth noting that a highlyrespected legal scholar, Professor Jaffe, as early as 1947, could speak of
delegation as the 'dynamo of modern government.'" 90 He warned against a
"restrictive approach" which could be "a deterrent factor to much-needed
legislation." 91 Further on this point from the same opinion" "The spectre of
the non-delegation concept need not haunt, therefore, party caucuses,
cabinet sessions or legislative chambers." 92 Another objection based on the
absence in the statue of what petitioners refer to as a "definite time frame
limitation" is equally bereft of merit. They ignore the categorical language of
this provision: "The Supreme Court shall submit to the President, within
thirty (30) days from the date of the effectivity of this act, a staffing pattern
for all courts constituted pursuant to this Act which shall be the basis of the
implementing order to be issued by the President in accordance with the
immediately succeeding section." 93 The first sentence of the next section is
even more categorical: "The provisions of this Act shall be immediately

carried out in accordance with an Executive Order to be issued by the

President." 94 Certainly petitioners cannot be heard to argue that the
President is insensible to his constitutional duty to take care that the laws be
faithfully executed. 95 In the meanwhile, the existing inferior courts affected
continue functioning as before, "until the completion of the reorganization
provided in this Act as declared by the President. Upon such declaration, the
said courts shall be deemed automatically abolished and the incumbents
thereof shall cease to hold office." 96 There is no ambiguity. The incumbents
of the courts thus automatically abolished "shall cease to hold office." No
fear need be entertained by incumbents whose length of service, quality of
performance, and clean record justify their being named anew, 97 in legal
contemplation without any interruption in the continuity of their service. 98 It
is equally reasonable to assume that from the ranks of lawyers, either in the
government service, private practice, or law professors will come the new
appointees. In the event that in certain cases a little more time is necessary
in the appraisal of whether or not certain incumbents deserve
reappointment, it is not from their standpoint undesirable. Rather, it would
be a reaffirmation of the good faith that will characterize its implementation
by the Executive. There is pertinence to this observation of Justice Holmes
that even acceptance of the generalization that courts ordinarily should not
supply omissions in a law, a generalization qualified as earlier shown by the
principle that to save a statute that could be done, "there is no canon
against using common sense in construing laws as saying what they
obviously mean." 99 Where then is the unconstitutional flaw
11. On the morning of the hearing of this petition on September 8, 1981,
petitioners sought to have the writer of this opinion and Justices Ramon C.
Aquino and Ameurfina Melencio-Herrera disqualified because the first-named
was the chairman and the other two, members of the Committee on Judicial
Reorganization. At the hearing, the motion was denied. It was made clear
then and there that not one of the three members of the Court had any hand
in the framing or in the discussion of Batas Pambansa Blg. 129. They were
not consulted. They did not testify. The challenged legislation is entirely the
product of the efforts of the legislative body. 100 Their work was limited, as
set forth in the Executive Order, to submitting alternative plan for
reorganization. That is more in the nature of scholarly studies. That the
undertook. There could be no possible objection to such activity. Ever since
1973, this Tribunal has had administrative supervision over interior courts. It
has had the opportunity to inform itself as to the way judicial business is
conducted and how it may be improved. Even prior to the 1973 Constitution,
it is the recollection of the writer of this opinion that either the then
Chairman or members of the Committee on Justice of the then Senate of the
Philippines 101 consulted members of the Court in drafting proposed
legislation affecting the judiciary. It is not inappropriate to cite this excerpt
from an article in the 1975 Supreme Court Review: "In the twentieth century
the Chief Justice of the United States has played a leading part in judicial
reform. A variety of conditions have been responsible for the development of
this role, and foremost among them has been the creation of explicit
institutional structures designed to facilitate reform." 102 Also: "Thus the
Chief Justice cannot avoid exposure to and direct involvement in judicial

reform at the federal level and, to the extent issues of judicial federalism
arise, at the state level as well." 103
12. It is a cardinal article of faith of our constitutional regime that it is the
people who are endowed with rights, to secure which a government is
instituted. Acting as it does through public officials, it has to grant them
either expressly or impliedly certain powers. Those they exercise not for
their own benefit but for the body politic. The Constitution does not speak in
the language of ambiguity: "A public office is a public trust." 104 That is more
than a moral adjuration It is a legal imperative. The law may vest in a public
official certain rights. It does so to enable them to perform his functions and
fulfill his responsibilities more efficiently. It is from that standpoint that the
security of tenure provision to assure judicial independence is to be viewed.
It is an added guarantee that justices and judges can administer justice
undeterred by any fear of reprisal or untoward consequence. Their
judgments then are even more likely to be inspired solely by their knowledge
of the law and the dictates of their conscience, free from the corrupting
influence of base or unworthy motives. The independence of which they are
assured is impressed with a significance transcending that of a purely
personal right. As thus viewed, it is not solely for their welfare. The
challenged legislation Thus subject d to the most rigorous scrutiny by this
Tribunal, lest by lack of due care and circumspection, it allow the erosion of
that Ideal so firmly embedded in the national consciousness There is this
farther thought to consider. independence in thought and action necessarily
is rooted in one's mind and heart. As emphasized by former Chief Justice
Paras in Ocampo v. Secretary of Justice, 105 there is no surer guarantee of
judicial independence than the God-given character and fitness of those
appointed to the Bench. The judges may be guaranteed a fixed tenure of
office during good behavior, but if they are of such stuff as allows them to be
subservient to one administration after another, or to cater to the wishes of
one litigant after another, the independence of the judiciary will be nothing
more than a myth or an empty Ideal. Our judges, we are confident, can be of
the type of Lord Coke, regardless or in spite of the power of Congress we
do not say unlimited but as herein exercised to reorganize inferior
courts." 106 That is to recall one of the greatest Common Law jurists, who at
the cost of his office made clear that he would not just blindly obey the
King's order but "will do what becomes [him] as a judge." So it was pointed
out in the first leading case stressing the independence of the
judiciary, Borromeo v. Mariano, 107 The ponencia of Justice Malcolm Identified
good judges with "men who have a mastery of the principles of law, who
discharge their duties in accordance with law, who are permitted to perform
the duties of the office undeterred by outside influence, and who are
independent and self-respecting human units in a judicial system equal and
coordinate to the other two departments of government." 108 There is no
reason to assume that the failure of this suit to annul Batas Pambansa Blg.
129 would be attended with deleterious consequences to the administration
of justice. It does not follow that the abolition in good faith of the existing
inferior courts except the Sandiganbayan and the Court of Tax Appeals and
the creation of new ones will result in a judiciary unable or unwilling to
discharge with independence its solemn duty or one recreant to the trust
reposed in it. Nor should there be any fear that less than good faith will

attend the exercise be of the appointing power vested in the Executive. It

cannot be denied that an independent and efficient judiciary is something to
the credit of any administration. Well and truly has it been said that the
fundamental principle of separation of powers assumes, and justifiably so,
that the three departments are as one in their determination to pursue the
Ideals and aspirations and to fulfilling the hopes of the sovereign people as
expressed in the Constitution. There is wisdom as well as validity to this
pronouncement of Justice Malcolm in Manila Electric Co. v. Pasay
Transportation Company, 109 a decision promulgated almost half a century
ago: "Just as the Supreme Court, as the guardian of constitutional rights,
should not sanction usurpations by any other department or the
government, so should it as strictly confine its own sphere of influence to the
powers expressly or by implication conferred on it by the Organic Act." 110 To
that basic postulate underlying our constitutional system, this Court remains
committed.
WHEREFORE, the unconstitutionality of Batas Pambansa Blg. 129 not having
been shown, this petition is dismissed. No costs.
Makasiar and Escolin, JJ., concur.
Concepcion, Jr., concur in the result.

Separate Opinions

BARREDO, J., concurring:

I join the majority of my brethren in voting that the Judiciary Reorganization
Act of 1980, Batas Pambansa Blg. 129, is not unconstitutional as a whole nor
in any of its parts.
The issue of unconstitutionality raised by petitioners relates particularly to
Section 44 of the Act which reads as follows:
SEC. 44. Transitory provisions. The provisions of this Act
shall be immediately carried out in accordance with an
Executive Order to be issued by the President. The Court of
Appeals, the Courts of First Instance, the Circuit Criminal
Courts, the Juvenile and Domestic Relations Courts, the
Courts of Agrarian Relations, the City Courts, the Municipal
Courts, and the Municipal Circuit Courts shall continue to

function as presently constituted and organized, until the

completion of the reorganization provided in this Act as
declared by the President. Upon such declaration, the said
courts shall be deemed automatically abolished and the
incumbents thereof shall cease to hold office. The cases
pending in the old Courts shall e transferred to the
appropriate Courts constituted pursuant to this Act, together
with the pertinent functions, records, equipment,. property
and the necessary personnel.
The applicable appropriations shall likewise be transferred to
the appropriate courts constituted pursuant to this Act, to be
augmented as may be necessary from the funds for
organizational changes as provided in Batas Pambansa Blg.
80. Said funding shall thereafter be included in the annual
General Appropriations Act.
It is contended by petitioners that the provision in the above section which
mandates that "upon the declaration upon the President that the
reorganization contemplated in the Act has been completed), the said courts
(meaning the Court of Appeals and all other lower courts, except the
Sandiganbayan and the Court of Tax Appeals) shall be deemed abolished
and the incumbents thereof shall cease to hold office" trenches on all the
constitutional safeguards and guarantees of the independence of the
judiciary, such as the security of tenure of its members (Section 7, Article X
of the Philippine Constitution of 1973), the prerogatives of the Supreme
Court to administratively supervise all courts and the personnel thereof
(Section 6, Id.) and principally, the power of the Supreme Court "to discipline
judges of inferior courts and, by a vote of at least eight Members, order their
dismissal. " (Section 7, Id.)
On the other hand, respondents maintain that thru the above-quoted Section
44. the Batasan did nothing more than to exercise the authority conferred
upon it be Section I of the same Article of the Constitution which provides
that The Judicial power shall be rested in one Supreme Court and in such
inferior courts as may be established by law."In other words, since all inferior
courts are, constitutionally speaking, mere creatures of the law (of the
legislature it follows that it is within the legislature's power to abolish or
reorganize them even if in so doing, it might result in the cessation from
office of the incumbents thereof before the expiration of their respective
constitutionally fixed tenures. Respondents emphasize that the legislative
power in this respect is broad and indeed plenary.
Viewing the problem before Us from the above perspectives, it would appear
that our task is either (1) to reconcile, on the one hand, the parliament's
power of abolition and reorganization with, on the other, the security of
tenure of members of the judiciary and the Supreme Court's authority to
discipline and remove judges or (2) to declare that either the power of the
Supreme Court or of the Batasan is more paramount than that of the other. I
believe. however, that such a manner of looking at the issue that confronts

Us only confuses and compounds the task We are called upon to perform.
For how can there be a satisfactory and rational reconciliation of the
pretended right of a judge to continue as such, when the position occupied
by him no longer exists? To suggest, as some do, that the solution is for the
court he is sitting in not to be deemed abolished or that he should in some
way be allowed to continue to function as judge until his constitutional
tenure expires is obviously impractical, if only because we would then have
the absurd spectacle of a judiciary with old and new courts functioning
under distinct set-ups, such as a district court continuing as such in a region
where the other judges are regional judges or of judges exercising powers
not purely judicial which is offensive to the Constitution. The other
suggestion that the incumbent of the abolished court should be deemed
appointed to the corresponding new court is even worse, since it would
deprive the appointing authority, the president, of the power to make his
own choices and would, furthermore, amount to an appointment by
legislation which is a Constitutional anachronism. more on this point later .
Inasmuch as pursuant to the analysis of the majority of the Members of this
Court, in fact and in law, the structure of judicial system created by Batas
Pambansa 129 is substantially different from that under the Judiciary Act of
1948, as amended, hence the courts now existing are actually being
abolished, why do We have to indulge in any reconciliation or feel bound to
determine whose power, that of the Batasang Pambansa or that of this
Court, should be considered more imperious? It being conceded that the
power to create or establish carries with it the power to abolish, and it is a
legal axiom, or at least a pragmatic reality that the tenure of the holder of
an office must of necessity end when his office no longer exists, as I see it,
be have no alternative than to hold that petitioners' invocation of the
independence of the judiciary principle of the Constitution is unavailing ill
the cases at bar. It is as simple as that. I might hasten to add, in this
connection, that to insist that what Batas Pambansa 129 is doing is just a
renaming and not a substantial and actual modification or alteration of the
present judicial structure or system assuming a close scrutiny might
somehow support such a conclusion, is pure wishful thinking, it being
explicitly and unequivocally provided in the section in question that said
courts are deemed abolished" and further, as if to make it most
unmistakably emphatic, that "the incumbents thereat shall cease to hold
office." Dura les, sed les. As a matter of fact, I cannot conceive of a more
emphatic way of manifesting and conveying the determined legislative
intent about it.
Now, why am I yielding to the above reasoning and conclusion? Why don't I
insist on championing the cause of the independence of the judiciary by
maintaining that the constitutional safeguards thereof I have already
enumerated earlier must be respected in any reorganization ordained by the
parliament My answer is simple. Practically all the Members of the Court
concede that what is contemplated is not only general reorganization but
abolition in other words, not only a rearrangement or remodelling of the
old structure but a total demolition thereof to be followed by the building of
a new and different one. I am practically alone in contemplating a different

view. True, even if I should appear as shouting in the wilderness, I would still
make myself a hero in the eyes of man justices and judges, members of the
bar and concerned discerning citizens, all lovers of the judicial
independence, but understandably, I should not be, as I am not, disposed to
play such a role virtually at the expense not only of my distinguished
colleagues but of the Batasang Pambansa that framed the law and, most of
all, the President who signed and, therefore, sanctioned the Act as it is,
unless I am absolutely sure that my position is formidable, unassailable and
beyond all possible contrary ratiocination, which I am not certain of, as I
shall demonstrate anon.
To start with, the jurisprudence, here and abroad, touching on the question
now before Us cannot be said to be clear and consistent, much less
unshakeable and indubitably definite either way. None of the local
cases 1 relied upon and discussed by the parties and by the Members of the
Court during the deliberations, such as
Borromeo, 2 Ocampo, 3Zandueta, 4 Brillo, 5 etc. can, to my mind, really serve
as reliable pole stars that could lead me to certainty of correctness.
Of course, my instinct and passion for an independent judiciary are
uncompromising and beyond diminution. Indeed, my initial reactions,
publicly known, about Batas Pambansa 129 explaining academically its
apparent tendency to invade the areas of authority of the Supreme Court,
not to speak of its dangerously impairing the independence of the judiciary,
must have, I imagine, created the impression that I would vote to declare
the law unconstitutional. But, during the deliberations of the Court, the
combined wisdom of my learned colleagues was something I could not
discount or just brush aside. Pondering and thinking deeper about all
relevant factors, I have come to the conviction that at least on this day and
hour there are justifiable grounds to uphold the Act, if only to try how it will
operate so that thereby the people may see that We are one with the
President and the Batasan in taking what appear to be immediate steps
needed to relieve the people from a fast spreading cancer in the judiciary of
our country.
Besides, the Philippines has somehow not yet returned to complete
normalcy The improved national discipline so evident during the earlier days
of martial law, has declined at a quite discernible degree. Different sectors of
society are demanding urgent reforms in their respective field And about the
most vehement and persistent, loud and clear, among their gripes, which as
a matter of fact is common to all of them is that about the deterioration in
the quality of performance of the judges manning our courts and the slow
and dragging pace of pending judicial proceedings. Strictly speaking, this is,
to be sure, something that may not necessarily be related to lack of
independence of the judiciary. It has more to do with the ineptness and/or
corruption among and corruptibility of the men sitting in the courts in some
parts of the country And what is worse, while in the communities concerned
the malady is known to factually exist and is actually graver and
widespread, very few, if any individuals or even associations and organized
groups, truly incensed and anxious to be of help, have the courage and

possess the requisite legal evidence to come out and file the corresponding
charges with the Supreme Court, And I am not vet referring to similar
situations that are not quite openly known but nevertheless just as
deleterious. On the other hand, if all these intolerable instances should
actually be formally brought to the Supreme Court, it would be humanly
impossible for the Court to dispose of them with desirable dispatch, what
with the thousands of other cases it has to attend to and the rather
cumbersome strict requirements of procedural due process it has to observe
in each and every such administrative case all of which are time consulting.
Verily, under the foregoing circumstances, it may be said that there is
justification for the patience of the people about the possibility of early
eradication of this disease or evil in our judiciary pictured above to be
nearing the breaking point.
Withal, we must bear in mind that judicial reorganization becomes urgent
and inevitable not alone because of structural inadequacies of the system or
of the cumbersomeness and technicality-peppered and dragging procedural
rules in force, but also when it becomes evident that a good number of
those occupying positions in the judiciary, make a mockery of justice and
take advantage of their office for selfish personal ends and yet, as already
explained, those in authority cannot expeditiously cope with the situation
under existing laws and rules. It is my personal assessment of the present
situation in our judiciary that its reorganization has to be of necessity twopronged, as I have just indicated, for the most Ideal judicial system with the
most perfect procedural rules cannot satisfy the people and the interests of
justice unless the men who hold positions therein possess the character,
competence and sense of loyalty that can guarantee their devotion to duty
and absolute impartiality, nay, impregnability to an temptations of graft and
corruption, including the usual importunings and the fearsome albeit
improper pressures of the powers that be. I am certain that the Filipino
people feel happy that Batas Pambansa 129 encompasses both of these
objectives, which indeed are aligned with the foundation of the principle of
independence of the judiciary.
The above premises considered, I have decided to tackle our problem from
the viewpoint of the unusual situation in which our judiciary is presently
perilously situated. Needless to say, to all of us, the Members of the Court,
the constitutional guarantees of security of tenure and removal only by the
Supreme Court, among others, against impairment of the independence of
the judiciary, which is one of the bedrock's and, therefore, of the essence in
any "democracy under a regime of justice, peace, liberty and equality
(Preamble of the 1973 Constitution), are priceless and should be defended,
most of all by the Supreme Court, with all the wisdom and courage God has
individually endowed to each of Us. Withal, we are all conscious of the fact
that those safeguards have never been intended to place the person of the
judge in a singular position of privilege and untouchability, but rather, that
they are essentially part and parcel of what is required of an independent
judiciary where judges can decide cases and do justice to everyone before
them ruat caelum. However, We find Ourselves face to face with a situation,
in our judiciary which is of emergency proportions and to insist on

rationalizing how those guarantees should be enforced under such a

circumstance seem to be difficult, aside from being controversial. And so, in
a real sense, We have to make a choice between adhering to the strictly
legalistic reasoning pursued by petitioners, on the one hand, and the
broader and more practical approach, which as I have said is within the spirit
at least of the Constitution.
My concept of the Constitution is that it is not just a cluster of high sounding
verbiages spelling purely Idealism and nobility in the recognition of human
dignity, protection of individual liberties and providing security and
promotion of the general welfare under a government of laws. With all
emphasis and vehemence, I say that the fundamental law of the land is a
living instrument which translates and adapts itself to the demands of
obtaining circumstances. It is written for all seasons, except for very unusual
instances that human ratiocination cannot justify to be contemplated by its
language even if read in its broadest sense and in the most liberal way.
Verily, it is paramount and supreme in peace and in war, but even in peace
grave critical situations arise demanding recourse to extraordinary solutions.
Paraphrasing the Spanish adage, "Grandes males, grandes remedios ", such
in ordinary problems justify exceptional remedies. And so, history records
that in the face of grave crises and emergencies, the most constitutionally
Idealistic countries have, at one time or another, under the pressure of
pragmatic considerations, adopted corresponding realistic measures, which
perilously tether along the periphery of their Charters, to the extent of
creating impressions, of course erroneous, that the same had been
transgressed, although in truth their integrity and imperiousness remained
undiminished and unimpaired.
The Philippines has but recently had its own experience of such
constitutional approach. When martial law was proclaimed here in 1972,
there were those who vociferously shouted not only that the President had
acted arbitrarily and without the - required factual bases contemplated in
the Commander-in-Chief clause of the 1935 Constitution, but more, that he
had gone beyond the traditional and universally recognized intent of said
clause by utilizing his martial law powers not only to maintain peace and
tranquility and preserve and defend the integrity and security of the state
but to establish a New Society The critics contended that martial law is only
for national security, not for the imposition of national discipline under a
New Society.
Due to its relevancy to Our present discussion, it is well for everyone to bear
in mind that in this jurisdiction, this concept of martial law has already been
upheld several times by this Court. 1, for one, accepted such a construction
because I firmly believe that to impose martial law for the sole end of
suppressing an insurrection or rebellion without coincidentally taking
corresponding measures to eradicate the root causes of the uprising is utter
folly, for the country would still continue to lay open to its recurrence.
I have made the foregoing discourse, for it is fundamentally in the fight of
this Court's doctrines about the imposition of martial law as I have stated

that I prefer to base this concurrence. To put it differently, if indeed there

could be some doubt as to the correctness of this Court's judgment that
Batas Pambansa 129 is not unconstitutional, particularly its Section 44, I am
convinced that the critical situation of our judiciary today calls for solutions
that may not in the eyes of some conform strictly with the letter of the
Constitution but indubitably justified by its spirit and intent. As 1 have earlier
indicated, the Charter is not just a construction of words to whose literal
iron-clad meanings we must feel hidebound without regard to every
Constitution's desirable inherent nature of adjustability and adaptability to
prevailing situations so that the spirit and fundamental intent and objectives
of the framers may remain alive. Batas Pambansa 129 is one such
adaptation that comes handy for the attainment of the transcendental
objectives it seeks to pursue While, to be sure, it has the effect of factually
easing out some justices and judges before the end of their respective
constitutional tenure sans the usual administrative investigation, the
desirable end is achieved thru means that, in the light of the prevailing
conditions, is constitutionally permissible.
Before closing, it may not be amiss for me to point out that Batas Pambansa
Blg. 129, aside from what has been discussed about its effect on the
guarantees of judicial independence, also preempts, in some of its
provisions, the primary rule-making power of the Supreme Court in respect
to procedure, practice and evidence. With the pardon of my colleagues, I
would just like to say that the Court should not decry this development too
much. After all, the legislature is expressly empowered by the Charter to do
so, (Section 5(5), Article X of the Constitution of 1973) so much so, that I
doubt if the Court has any authority to alter or modify any rule the Batasang
Pambansa enunciates. Truth to tell, as Chairman of the Committee on the
Revision of the Rules of Court, for one reason or another, principally the lack
of a clear consensus as to what some of my colleagues consider very radical
proposals voiced by me or my committee, We have regrettably
procrastinated long enough in making our procedural rules more practical
and more conducive to speedier disposal and termination of controversies
by dealing more with substantial justice.
So also have We, it must be confessed, failed to come up to expectations of
the framers of the Constitution in our ways of disposing of administrative
complaints against erring and misconducting judges. Of course, We can
excuse Ourselves with the explanation that not only are We overloaded with
work beyond human capability of its being performed expeditiously, but that
the strict requisites of due process which are time consuming have
precluded Us from being more expeditious and speedy.
I feel I must say all of these, because if the above-discussed circumstances
have not combined to create a very critical situation in our judiciary that is
making the people lose its faith and confidence in the administration of
justice by the existing courts, perhaps the Court could look with more
sympathy at the stand of petitioners. I want all the sundry to know, however,
that notwithstanding this decision, the independence of the judiciary in the
Philippines is far from being insubstantial, much less meaningless and dead.

Batas Pambansa 129 has precisely opened our eyes to how, despite doubts
and misgivings, the Constitution can be so construed as to make it possible
for those in authority to answer the clamor of the people for an upright
judiciary and overcome constitutional roadblocks more apparent than real.
To those justices, judges, members of the bar and concerned citizens whose
eyes may be dimming with tears of disappointment and disenchantment
because of the stand I have chosen to adopt in these cases, may I try to
assuage them by joining their fervent prayers that some other day,
hopefully in the near future, Divine Providence may dictate to another
constitutional convention to write the guarantees of judicial independence
with ink of deeper hue and words that are definite, clear, unambiguous and
unequivocal, in drawing the line of demarcation between the Parliament and
the Judiciary in the manner that in His Infinite wisdom would most promote
genuine and impartial justice for our people, free, not only from graft,
corruption, ineptness and incompetence but even from the tentacles of
interference and insiduous influence of the political powers that be.
Presently, I am constrained from going along with any other view than that
the Constitution allows abolition of existing courts even if the effect has to
be the elimination of any incumbent judge and the consequent cutting of his
constitutional tenure of office.
I cannot close this concurrence without referring to the apprehensions in
some quarters about the choice that will ultimately be made of those who
will be eased out of the judiciary in the course of the implementation of
Batas Pambansa 129. By this decision, the Court has in factual effect albeit
not in constitutional conception yielded generally to the Batasang
Pambansa, and more specifically to the President, its own constitutionally
conferred power of removal of judges. Section 44 of the Batasan's Act
declares that all of them shall be deemed to have ceased to hold office,
leaving it to the President to appoint those whom he may see fit to occupy
the new courts. Thus, those who will not be appointed can be considered as
"ceasing to hold their respective offices", or, as others would say they would
be in fact removed. How the President will make his choices is beyond Our
power to control. But even if some may be eased out even without being
duly informed of the reason therefor, much less being given the opportunity
to be heard the past actuations of the President on all matters of deep public
interest shouted serve as sufficient assurance that when lie ultimately acts,
he will faithfully adhere to his solemn oath "to do justice to every man
hence, lie will equip himself first with the fullest reliable information before
acts. This is not only my individual faith founded on my personal
acquaintance with the character and sterling qualities of President Ferdinand
E. Marcos. I dare say this is the faith of the nation in a man who has led it
successfully through crises and emergencies, with justice to all, with malice
towards none. I am certain, the President will deal with each and every
individual to be affected by this reorganization with the best light that God
will give him every moment he acts in each individual case as it comes for
his decision

AQUINO, J., concurring:

I concur in the result. The petitioners filed this petition for declaratory relief
and prohibition "to declare the Judiciary Reorganization Act of 1980 (Batas
Pambansa Blg. 129) unconstitutional".
The petition should have been dismissed outright because this Court has no
jurisdiction to grant declaratory relief and prohibition is not the proper
remedy to test the constitutionality of the law. the petition is premature. No
jurisdictional question is involved.
There is no justiciable controversy wherein the constitutionality of the said
law is in issue. It is presumed to be constitutional. The lawmaking body
before enacting it looked into the constitutional angle.
Seven of the eight petitioners are practising lawyers. They have no
personality to assail the constitutionality of the said law even as taxpayers.
The eighth petitioner, Gualberto J. de la Llana, a city judge (who in 1977 filed
a petition for declaratory relief assailing Presidential Decree No. 1229, which
called for a referendum. De la Llana his Comelec, 80 SCRA 525), has no
cause of action for prohibition. He is not being removed from his position.
The Judiciary Reorganization Law was enacted in utmost good faith and not
"to cloak an unconstitutional and evil purpose As ably expounded by the
Chief Justice, in enacting the said law, the lawmaking body acted within the
scope of its constitutional powers and prerogatives.

GUERRERO, J., concurring:

I concur with my distinguished and learned colleagues in upholding the
constitutionality of the Judiciary Reorganization Act of 1980. For the record,
however, I would like to state my personal convictions and observations on
this case, a veritable landmark case, for whatever they may be worth.
The legal basis of the Court's opinion rendered by our esteemed Chief Justice
having been exhaustively discussed and decisively justified by him, a highlyrespected expert and authority on constitutional law, it would be an exercise
in duplication to reiterate the same cases and precedents. I am then
constrained to approach the problem quite differently, not through the
classic methods of philosophy, history and tradition, but following what the
well-known jurist, Dean Pound, said that "the most significant advance in the
modern science of law is the change from the analytical to the functional
attitude." 1 And in pursuing this direct

ion, I must also reckon with and rely on the ruling that "another guide to the
meaning of a statute is found in the evil which it is designed to remedy, and
for this the court properly looks at contemporaneous events, the situation as
it existed, and as it was pressed upon the attention of the legislative body." 2
I have no doubt in my mind that the institutional reforms and changes
envisioned by the law are clearly conducive to the promotion of national
interests. The objectives of the legislation namely: (a) An institutional
restructuring by the creation of an Intermediate Appellate Court, thirteen (I
3) Regional Trial Courts, Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts: (b) A reappointment of jurisdiction geared
towards greater efficiency: (c) A simplification of procedures and (d) The
abolition of the inferior courts created by the Judiciary Act of 1948 and other
statutes, as approved by the Congress of the Philippines 3 are undoubtedly
intended to improve the regime of justice and thereby enhance public good
and order. Indeed, the purpose of the Act as further stated in the
Explanatory Note, which is "to embody reforms in the structure, organization
and composition of the Judiciary, with the aim of improving the
administration of justice, of decongesting judicial dockets, and coping with
the more complex problems on the present and forseeable future cannot but
"promote the welfare of society, since that is the final cause of law. 4
Hence, from the standpoint of The general utility and functional value of the
Judiciary Reorganization Act, there should be no difficulty, doubt or disbelief
in its legality and constitutionality. That there are ills and evils plaguing the
judicial system is undeniable. The notorious and scandalous congestion of
court dockets as too well-known to be ignored as are the causes which
create and produce such anomaly. Evident is the need to look for devices
and measures that are more practical, workable and economical. 5
From the figures alone (301,497 pending cases in 1976; 351, 943 in 1977;
404, 686 in 1978; 426, 911 in 1979; 441, 332 in 1980; and 450, 063 as of
February 3, 1982) 6 the congested character of court dockets rising year
after year is staggering and enormous, looming like a legal monster.
But greater than the need to dispense justice speedily and promptly is the
necessity to have Justices and Judges who are fair and impartial, honest and
incorruptible, competent and efficient. The general clamor that the prestige
of the Judiciary today has deteriorated and degenerated to the lowest ebb in
public estimation is not without factual basis. Records in the Supreme Court
attest to the unfitness and incompetence, corruption and immorality of
many dispensers of justice. According to the compiled data, the total
number of Justices and Judges against whom administrative charges have
been filed for various offenses, misconduct, venalities and other
irregularities reaches 322. Of this total, 8 are Justices of the Court of
Appeals, 119 CFI Judges, 2 Criminal Circuit Judges, 8 CAR Judges, 1 Juvenile
& Domestic Relations Court Judge, 38 City Judges, and 146 Municipal Judges.

The Supreme Court has found 102 of them guilty and punished them with
either suspension, admonition, reprimand or fine. The number includes 1 CA
Justice, 35 CFI Judges, 1 CCC Judge, 3 CAR Judges, 1 JDRC Judge, 9 City
Judges and 53 Municipal Judges.
Seventeen (17) Judges have been ordered dismissed and separated from the
service. And these are 3 CFI, 1 CAR, 1 City Judge and 12 Municipal Judges.
Going over these administrative proceedings, it took an average of two-year
period from the filing of the charge to the dismissal of the respondent. In one
case, the proceedings were terminated after seven years. How long the
pending administrative cases will be disposed of, only time will tell as an
increasing number of administrative cases are being filed by victims of
judicial misconduct, abuse and arbitrariness.
Excepting those who have been punished and dismissed from the service,
there are many who have been castigated and censured in final judgments
of the Supreme Court upon appeal or review of the decisions, orders and
other acts of the respondent courts, Justices and Judges. To cite a few cases,
Our decisions have categorically pronounced respondents' actuations, thus:
"deplorable, giving no credit to the Judiciary" 7; applicable rules. The whole
proceedings looked no more than a pre-arranged compromise between the
accused and the Judge to flaunt the law and every norm of propriety and
procedure" 8; "there was a deliberate failure of respondent Judge to respect
what is so clearly provided in the Rules of Court" 9; "It is unfortunate that
respondent Judge failed to acquaint himself with, 01' misinterpreted, those
controlling provisions and doctrines" 10; "The failure of the respondent
Municipal Judge to yield obedience to authoritative decisions of the Supreme
Court and of respondent Court of First Instance Judge and his deplorable
insistence on procedural technicalities was called down in L-49828, July 25,
1981. For peremptorily dismissing the third party complaint on the ground
that the motion to dismiss was 'well-taken' and respondent Judge did not
elaborate, the Court remarked: "May his tribe vanish." 11 In one case, We
noted "There is here so something unusual, but far from palliating the
gravity of the error incurred, it merely exacerbated it. ... it did render the
due process requirement nugatory, for instead of a fair and impartial trial,
there was an Idle form, a useless ceremony." 12
It is dishonorable enough to be publicly and officially rebuked but to allow
these Judges and their ilk to remain and continue to preside in their
courtrooms is a disgrace to the Judiciary. It is to be deplored that the
Supreme Court has not found time to exercise its power and authority in the
premises, for no charges or proceedings have been instituted against them.
We have a list of these crooked Judges whose actuations have been found to
be patiently wrong and manifestly in-defeasible. There ought to be no
objection or compunction in weeding them out from the service. If they are
not booted out now, it will take from here to eternity to clean this Augean
stable.

Candidly, one reason for writing this concurring opinion is to call attention to
these evils, abuses and wrongs which are surreptitiously but surely
destroying the trust and faith of the people in the integrity of the entire
Judiciary. Some members of the Court felt that these revelations would be
like washing dirty linen in public. But these facts are of public and official
record nay court cases, and sooner or later, Truth will come out.
In the light of these known evils and infirmities of the judiciary system, it
would be absurd and unreasonable to claim that the legislators did not act
upon them in good faith and honesty of purpose and with legitimate ends. It
is presumed that official duty has been regularly performed. 13 The
presumption of regularity is not confined to the acts of the individual officers
but also applies to the acts of boards, such as administrative board or
bodies, and to acts of legislative bodies. 14 Good faith is always to be
presumed in the absence of proof to the contrary, of which there is none in
the case at bar. It could not be otherwise if We are to accord as We must, full
faith and credit to the lawmakers' deep sense of public service and the
judicious exercise of their high office as the duly-elected representatives of
the people.
It is conceded that the abolition of an office is legal if attendant with good
faith. 15 The question of good faith then is the crux of the conflict at bar.
Good faith in the enactment of the law does not refer to the wisdom of the
measure, the propriety of the Act, or to its expediency. The questions raised
by petitioners and amicus curiae for their cause, viz: Why abolish all the
courts Why legislate out the judges Why not amend the Rules of Court only
Is abolition of all courts the proper remedy to weed out corrupt and misfits in
our Judiciary? may not be inquired into by Us. "It is not the province of the
courts to supervise legislation and keep it within the bounds of propriety and
common sense. That is primarily and exclusively a legislative
concern." 16 The Courts "are not supposed to override legitimate policy
and ... never inquire into the wisdom of the law." 17 Chief Justice Fernando
who penned the Morfe decision, writes that while "(i)t is thus settled, to
paraphrase Chief Justice Concepcion in Gonzales v. Commission on
Elections, that only congressional power or competence, not the wisdom of
the action taken, may be the basis for declaring a statute invalid," 18 he adds
that it is "useful to recall what was so clearly stated by Laurel that 'the
Judiciary in the determination of actual cases and controversies must reflect
the wisdom and justice of the people as expressed through their
representatives in the executive and legislative departments of the
government.'" 19In any case, petitioners have not shown an iota of proof of
bad faith. There is no factual foundation of bad faith on record. And I do not
consider the statement in the sponsorship speech for Cabinet Bill No. 42 of
Minister of Justice Ricardo J. Puno that the Bill would be a more efficient
vehicle of "eliminating incompetent and unfit Judges as indicative of
impermissible legislative motive. 20
It may be true that while the remedy or solution formulated by the
legislation will eradicate hopefully or at least minimize the evils and ills that
infect and pester the judicial body, it will result in the actual removal of the

Justices of the Court of Appeals and Judges of the lower courts. It is also true
that whether it is termed abolition of office or removal from office, the endresult is the same termination of the services of these incumbents.
Indeed, the law may be harsh, but that is the law. Dura lex sed lex.
The Justices and Judges directly affected by the law, being lawyers, should
know or are expected to know the nature and concept of a public office. It is
created for the purpose of effecting the ends for which government has
been instituted, which are for the common good, and not the profit, honor or
private interest of any one man, family or class of men. In our form of
government, it is fundamental that public offices are public trust, and that
the person to be appointed should be selected solely with a view to the
public welfare. 21 In the last analysis, a public office is a privilege in the gift
of the State. 22
There is no such thing as a vested interest or an estate in an office, or even
an absolute right to hold office. Excepting constitutional offices which
provide for special immunity as regards salary and tenure, no one can be
said to have any vested right in an office or its salary. When an office is
created by the Constitution, it cannot be abolished by the legislature, but
when created by the State under the authority of the Constitution, it may be
abolished by statute and the incumbent deprived of his office. 23 Acceptance
of a judicial appointment must be deemed as adherence to the rule that
"when the court is abolished, any unexpired term is abolished also. The
Judge of such a court takes office with that encumbrance and
knowledge." 24 "The Judge's right to his full term and his full salary are not
dependent alone upon his good conduct, but also upon the contingency that
the legislature may for the public good, in ordaining and establishing the
courts, from time to time consider his office unnecessary and abolish it." 25
The removal from office of the incumbent then is merely incidental to the
valid act of abolition of the office as demanded by the superior and
paramount interest of the people. The bad and the crooked Judges must be
removed. The good and the straight, sober Judges should be reappointed but
that is the sole power and prerogative of the President who, I am certain, will
act according to the best interest of the nation and in accordance with his
solemn oath of office "to preserve and defend its Constitution, execute its
laws, do justice to everyone ... " There and then the proper balance between
the desire to preserve private interest and the desideratum of promoting the
public good shall have been struck. 26
The Supreme Court has been called the conscience of the Constitution. It
may be the last bulwark of constitutional government. 27 It Must, however,
be remembered "that legislatures are ultimate guardians of the liberties and
welfare of the people in quite as great a degree as courts." 28 The
responsibility of upholding the Constitution rests not on the courts alone but
on the legislatures as well. It adheres, therefore, to the well-settled principle
that "all reasonable doubts should be resolved in favor of the
constitutionality of a statute" for which reason it will not set aside a law as
violative of the Constitution "except in a clear case." 29

Finally, I view the controversy presented to Us as a conflict of opinions on

judicial independence, whether impaired or strengthened by the law; on
reorganization of the courts, whether abolition of office or removal
therefrom, and on delegation of legislative power, whether authorized or
unauthorized. Without detracting from the merits, the force and brilliance of
their advocacies based on logic, history and precedents, I choose to stand
on the social justification and the functional utility of the law to uphold its
constitutionality. In the light of contemporaneous events from which the New
Republic emerged and evolved new Ideals of national growth and
development, particularly in law and government, a kind or form of judicial
activism, perhaps similar to it, is necessary to justify as the ratio
decidendi of Our judgment.
This is the time and the moment to perform a constitutional duty to affix my
imprimatur and affirmance to the law, hopefully an act of proper judicial
statesmanship.

ABAD SANTOS, J., concurring:

I agree with the learned Chief Justice of the Philippines that Batas Pambansa
Blg. 129 is not unconstitutional. Unlike Oscar Wilde, I choose not to yield to
temptation by embellishing my concurrence lest I be accrued of bringing
coal to Newcastle. Accordingly, I will simply vote to dismiss the petition
However, I cannot agree with the Chief Justice when he says:
... In the implementation of the assailed legislation, therefore
it should be in accordance with accepted principles of
constitutional construction that as far as incumbent justices
and judges are concerned, this Court be consulted and that
its view be accorded the fullest consideration. There would
be no plausibility then to the allegation that there is an
unconstitutional taint to the challenged Act. Moreover, such
a construction would be in accordance with the basic
principle that in the choice of alternatives between one
which would save and another which would invalidate a
statute, the former is to be preferred.
It has already been ruled that the statute does not suffer from any
constitutional infirmity because the abolition of certain judicial offices was
done in good faith. This being the case, I believe that the Executive is
entitled to exercise its constitutional power to fill the newly created judicial
positions without any obligation to consult with this Court and to accord its
views the fullest consideration. To require consultation will constitute an
invasion of executive territory which can be resented and even repelled. The
implicit suggestion that there could be an unconstitutional implementation

of the questioned legislation is not congruent with the basic conclusion that
it is not unconstitutional.

DE CASTRO, J., concurring:

I concur in the declaration that the law is not unconstitutional.
May I, however, submit this separate opinion more to avoid being
misunderstood by my brethren in the judiciary as not feeling for them as
much concern as I should for their security of tenure which is raised as the
main argument against the constitutionality of the law, than by way of
giving added force or support to the main opinion so well-written by Our
learned Chief Justice in his usual scholarly fashion. I, therefore, limit myself
to a discussion that the assailed statue is not unconstitutional without
having to suggest how it may be implemented in order that it could stand
the most rigid test of constitutionality, for in that area, what is involved is
purely an executive act of the President in whose wisdom, patriotism and
sense of justice We should trust in how he would fulfill his sworn duties to
see that the laws are faithfully executed and to do justice to every man.
Moreover, while I also concur in the dismissal of the petition, I do so on the
additional ground that petitioners have not fulfilled all the requisites for the
exercise by this Court of its power of judicial inquiry the power to declare
a law unconstitutional.
I
The creation and organization of courts inferior to the Supreme Court is a
constitutional prerogative of the legislature. This prerogative is plenary and
necessarily implies the power to reorganize said courts, and in the process,
abolish them to give way to new or substantially different ones. To contend
otherwise would be to forget a basic doctrine of constitutional law that no
irrepealable laws shall be passed. 1
The power to create courts and organize them is necessarily the primary
authority from which would thereafter arise the security of tenure of those
appointed to perform the functions of said courts. in the natural order of
things, therefore, since the occasion to speak of security of tenure of judges
arises only after the courts have first been brought into being, the right to
security of tenure takes a secondary position to the basic and primary power
of creating the courts to provide for a fair and strong judicial system. If the
legislature, in the exercise of its authority, deems it wise and urgent to
provide for a new set of courts, and in doing so, it feels the abolition of the
old courts would conduce more to its objective of improving the judiciary
and raising its standard, the matter involved is one of policy and wisdom
into which the courts, not even the Supreme Court, cannot inquire, much

less interfere with. By this secondary position it has to the primary power of
the legislature to create courts, the security of tenure given to the
incumbents should not be a legal impediment to the exercise of that basic
power of creating the statutory courts which, by necessary implication,
includes the power to abolish them in order to create new ones. This primary
legislative power is a continuing one, and the resultant right of security of
tenure of those appointed to said courts could not bring about the
exhaustion of that power. Unquestionably, the legislature can repeal its own
laws, and that power can never be exhausted without, as a consequence,
violating a fundamental precept of constitutional and representative
government that no irrepealable laws shall be passed.
If the creation of courts is a legislative prerogative their abolition is,
therefore, a matter of legislative intent. it involves the exercise of legislative
power, an act of legislation which generally concerns policy in the formation
of which the courts have no say Initially, when the legislature creates the
courts, it suffers from no limitation arising from the necessity or respecting
the security of tenure of judges who are not yea there. This inherent
character of fullness and plenitude of the power to create and abolish courts
does not change when that same power is once more exercised thereafter,
as the need therefor is felt. Which only goes to show that when done in good
faith and motivated solely by the good and the well-being of the people, the
exercise of the power is not meant to be restricted, curtailed, much less
exhausted by the so-called judicial security of tenure.
The passage of the Judiciary Reorganization Act of 1980 is no more than the
exercise of the power vested by the Constitution on the legislative body of
the Republic as described above. That power carries with it the duty and
responsibility of providing the people with the most effective and efficient
system of administration of justice. This is by far of more imperative and
transcedental importance than the security of tenure of judges which,
admittedly, is one of the factors that would conduce to independence of the
judiciary but first of all, a good, efficient and effective judiciary. A judiciary
wanting in these basic qualities does not deserve the independence that is
meant only for a judiciary that can serve best the interest and welfare of the
people which is the most primordial and paramount consideration, not a
judiciary in which the people's faith has been eroded, a condition which the
security of tenure, in some instances, may even be contributory.
In enacting the Judiciary Reorganization Act of 1980, the legislature is
presumed to have been motivated by no other objective than to provide the
people the kind of judicial machinery that would best serve their interest and
welfare, in its belief that the present machinery is falling short of that
measure of public service. It should, likewise, be presumed that it has been
led to this low estimate of the utility and effectiveness of the present set-up
of the judiciary after informing itself, with the facilities at its command, such
as the power of legislative investigation, of the actual condition of the
courts, particularly as to whether they continue to enjoy the trust, faith and
confidence of the public, and what the cause or causes are of their erosion, if
not loss, as is the keenly perceptible feeling of the people in general.

Responsibility for this more or less extensive slowdown of the delivery of

judicial service can be laid on no other than either of the two components of
a court the procedural laws or rules that govern the workings of the
courts, or the persons executing or applying them or both.
When two interests conflict as what had given rise to the present
controversy the duty of the legislature to provide society with a fair, efficient
and effective judicial system, on one hand, and the right of judges to
security of tenure, on the other, the latter must of necessity yield to the
former. One involves public welfare and interest more directly and on a
greater magnitude than the right of security of tenure of the judges which is,
as is easily discernible, more of a personal benefit to just a few, as indeed
only the judge affected could seek judicial redress of what he conceives to
be its violation.
Herein lies the propriety of the exercise of "police power" of the State, if this
concept which underlies even the Constitution, has to be invoked as a
constitutional justification of the passage of the Act in question. That is, if a
conflict between the primary power of the legislature to create courts, and
mere consequential benefit accorded to judges and justices after the
creation of the courts is indeed perceivable, which the writer fails to see, or,
at least, would disappear upon a reconciliation of the two apparently
conflicting interests which, from the above disquisition is not hard to find. It
is, without doubt, in the essence of the exercise of police power that a right
assertable by individuals may be infringed in the greater interest of the
public good and general welfare. This is demonstrated in how the rights and
freedoms enumerated in the Bill of Rights enjoyable by The entire people,
not just by a handful in comparison, are made subject to the lawful exercise
of the police power of the State.
Viewed, therefore, from the above-mentioned perspective, the general
revamp of the judiciary involving both its components the court as an
office or institution, and the judges and justices that man them should not
find any legal obstacle in the security of tenure of judges. This security, after
all, is no more than as provided for all other officials and employees in the
civil service of the government in Section 3, Article XII-B of the Constitution
which provides:
No officer or employees in the civil service shall be
suspended or dismissed except for cause as provided by law.
The provision of Article XVII, Section 10 of the Constitution gives to judicial
officials no more than a guarantee that their retirement age as fixed in the
Constitution shall not be alterable at mere legislative pleasure. The
equivalent provision in the 1935 Constitution was inserted for the first time
because the retirement age before then was provided merely by statute not
by the Constitution. If it comes to their removal or suspension, what gives
them constitutional protection is the aforequoted provision which does not
contemplate abolition of office when done in good faith, for removal implies

the existence of the office, not when it is abolished. Admittedly, as has been
held, abolition of office for no reason related to public welfare or for the good
of the service, let alone when done in bad faith, amounts to an unlawful
removal. 2 The abolition of the courts as declared in the Act as a result of a
reorganization of the judiciary, as the Title of the law curtly but announces,
can by no means, from any viewpoint, be so branded. And whether by said
reorganization, the present would be deemed abolished, as the law
expresses such an unmistakable intent, the matter is one for the sole and
exclusive determination of the legislature. It rests entirely on its discretion
whether by the nature and extent of the changes it has introduced, it has
done enough to consider them abolished. To give the Supreme Court the
power to determine the extent or nature of the changes as to their structure,
distribution and jurisdiction, before the clear intent to abolish them, or to
declare them so abolished, is given effect, would be to allow undue
interference in the function of legislation. This would be contrary to the
primary duty of courts precisely to give effect to the legislative intent as
expressed in the law or as my be discovered therefrom.
From the above observation, it would be futile to insist that the present
courts would not effectively be abolished by the Act in question. it might be
to arrogate power for Us to say that the changes the law brings to the
present judicial system, do not suffice for this Court to give effect to the
clear intent of the legislative body. Where would the agrarian courts, the
circuit criminal courts, the JDRC's be in the judicial structure as envisioned
by the law? Are they not abolished by merger with the regional trial courts,
which by such merger, and by the other changes introduced by the law,
would make said courts different from the present Courts of First Instance
which, as a consequence, may then be considered abolished Integrated as
the present courts are supposed to be, changes somewhere in the judicial
machinery would necessarily affect the entire system.
The fact that the Supreme Court may specially assign courts to function as
the special courts just mentioned, does not mean that the changes wrought
are only superficial or "cosmetic" as this term has been used so often in the
oral argument. Without the new law, these courts will remain fixed and
permanent where they are at present. Yet in the course of time, the need for
their independent existence may disappear, or that by changed conditions,
where they are needed at present at a certain place, the need for them may
be somewhere else in later years, if maximum benefit at the least expense is
to be achieved, as always should be a most desirable goal and objective of
government.
Demonstrably then, the abolition of the courts is a matter of legislative
intent into which no judicial inquiry is proper, except perhaps if they intent is
so palpably tainted with constitutional repugnancy, which is not so in the
instant case. We have, therefore, no occasion, as earlier intimated, to speak
of removal of judges when the reorganization of the judiciary would result in
the abolition of the courts other than the Supreme Court and the Court of
Tax Appeals. Hence, the provision of the Constitution giving to the Supreme
Court power to dismiss a judge by a vote of eight justices does not come

into the vortex of the instant controversy. Its possible violation by the
assailed statute cannot happen, and may, therefore, not constitute an
argument against the constitutionality of the law.
Former Justice Barrera, in a speech before the Philippine Bar
Association, 3 impliedly indorsed the judicial revamp when he enumerated
the qualities of a good judge that the appointing power should consider in
making new appointments to the judiciary upon its reorganization pursuant
to the questioned Act. The words of the eminent jurist may well reflect the
favorable reaction of the public in general to what the Act aim to achieve in
the name of good and clean government. The present judicial incumbents,
who have not in any way, by their acts and behavior while in office,
tarnished the good image that the judiciary should have, therefore, have no
cause for apprehension that what they are entitled to under the Constitution
by way of security of tenure wig be denied them, considering the publicly
known aim and purpose of the massive judicial revamp, specially as
cherished with deep concern by the President who initiated the move when
he created the Judiciary Reorganization Committee to recommend needed
and appropriate judicial reforms.
If the only obstacle to a verdict in favor of constitutionality of the law is its
possible effect of impairing the security of tenure of the incumbents, We
may have the following facts to consider:
1. Under the 1973 Constitution all incumbent judges and justices may
continue in office until replaced or reappointed by the President. As to those
judicial officials, no security of tenure, in the traditional concept, attaches to
their incumbency which is, in a real sense, only a holdover tenure. How the
President has exercised this immense power with admirable restraint should
serve as the strongest guarantee of how justice and fairness will be his sole
guide in implementing the law.
2. As to the rest of the incumbents, they are all appointees of Our present
President, and he should feel concerned more than anyone else to protect
whatever rights they may rightfully claim to maintain their official standing
and integrity. They need have no fear of being ignored for no reason at all,
much less for mere spirit of vindictiveness or lack of nobility of heart.
From the foregoing, it would become apparent that only in the
implementation of the law may there possibly be a taint of constitutional
repugnancy as when a judge of acknowledged honesty, industry and
competence is separated, because an act of arbitrariness would thereby be
committed, but the abolition of the courts as decreed by the law is not by
itself or per se unconstitutional.
Consequently, the law, the result of serious and concerned study by a highly
competent committee, deserves to be given a chance to prove its worth in
the way of improving the judiciary. If in its implementation, any one, if at all,
feels aggrieved, he can always seek judicial redress, if he can make out a

case of violation of his right of security of tenure with uncontrovertible

clarity, as when the separation is very arbitrary in the peculiar
circumstances of his case, for an act of arbitrariness, under any constitution,
is unpardonable.
This petition should also be dismissed for being premature, as is the stand of
Justice Aquino. The petition asks this Court to exercise its power of judicial
inquiry, the power to declare a law unconstitutional when it conflicts with the
fundamental law (People vs. Vera, 65 Phil. 56). This power has well-defined
limits, for it can be exercised only when the following requisites are present,
to wit: (1) There must be an actual case or controversy; (2) The question of
constitutionality must be raised by the proper party; (3) He should do so at
the earliest opportunity, and (4) The determination of the constitutionality of
the statute must be necessary to a final determination of the case.
I am of the opinion that the petition does not present an actual controversy
nor was it filed by the proper parties.
The main ground for which the constitutionality of the Judiciary
Reorganization Act of 1980 is assailed is that it is violative of the security of
tenure of justices and judges. The only persons who could raise the question
of constitutionality of the law are, therefore, the actual incumbents of the
courts who would be separated from the service upon the abolition of the
courts affected by the law, on the theory as advanced by petitioners that
their judicial security of tenure would be violated. Olongapo City Judge de la
Llana, the only judge among the petitioners, has not been separated from
the service. Nor is his separation already a certainty, for he may be
appointed to the court equivalent to his present court, or even promoted to
a higher court. Only when it has become certain that his tenure has been
terminated will an actual controversy arise on his allegation of a fact that
has become actual, not merely probable or hypothetical.
The present petition may neither be allowed as a taxpayer suit. A taxpayer
may bring an action to raise the question of constitutionality of a statute
only when no one else can more appropriately bring the suit to defend a
right exclusively belonging to him, and. therefore, would localize the actual
injury to his person, and to no other. For a "proper party" to invoke the
power of judicial inquiry, as one of the requisites in the exercise of such
power, does not mean one having no better right, one more personalized,
than what he has as a member of the public in general. With the incumbent
judges undoubtedly being the ones under petitioners' theory, who would
suffer direct and actual injury, they should exclude mere taxpayers who
cannot be said to suffer as "direct" and "actual" an injury as the judges and
justices by the enforcement of the assailed statute, from the right to bring
the suit.
The validity of the foregoing observation becomes more evident when We
consider that only after the fate of the present incumbents is known,
whether they have been actually separated or not, would the present courts

be declared abolished. For the law clearly continues their existence until all
the new courts have been filled up with new appointments, or at least such
number as would be equal to the number of actual incumbents, and they are
the very courts to which they may lay claim to the right to continue therein,
so that the status of each and everyone of them has thereby been made
certain. Only then, upon the actual abolition of the courts, may there
possibly be a violation of the security of tenure, as contented, that would
give rise to an "actual controversy" in which the 6 improper party" can be no
other than the judges who feel aggrieved by their non- appointment to the
new courts.
It would, therefore, not be proper to declare the law void at this stage,
before it has even been given a chance to prove its worth, as the legislature
itself and an those who helped by their exhaustive and scholarly study, felt it
to be an urgent necessity, and before any of the proper parties who could
assail its constitutionality would know for a fact, certain and actual, not
merely probable or hypothetical, that they have a right violated by what
they could possibly contend to be an unconstitutional enforcement of the
law, not by a law that is unconstitutional unto itself.
I am, therefore, for giving the law a chance to be put into application so as
not to douse great popular expectations for the courts to regain their highest
level of efficiency had reputation for probity. Inevitably, this is to be so since
only when the law is fully implemented will all the courts affected be
declared abolished, undoubtedly to avoid an interregnum when the country
is without any court, except the Supreme Court, the Court of Tax Appeals
and the Sandigan. Only then will it be known whether an actual controversy
would arise because any of the incumbents have been left out in the
restructured judiciary.
There would then be also a proper party to assail the constitutionality of the
law, conformably to the conditions requisite for the exercise of the power of
judicial inquiry which by their stringent character, together with the
constitutional prescription of a comparatively higher vote to declare a law
unconstitutional, reveal a salutary principle of government that a law should,
by all reasonable intendment and feasible means, be saved from the doom
of unconstitutionality, the rule corollary thereto being that if a law is
susceptible to two interpretations, one of which would make it constitutional,
that interpretation should be adopted that will not kill the law.
It is to adhere to the above principles that the submission is made herein,
that while in the implementation of the law, constitutional repugnancy may
not entirely be ruled out, a categorical ruling hereon not being necessary or
desirable at the moment, the law itself is definitely not
unconstitutional. 4 Any of the incumbent judges who feel injured after the
law shall have been implemented has adequate remedy in law, with full
relief as would be proper. But surely, the benefits envisioned by the law in
the discharge of one of the basic duties of government to the people the
administration of justice should not be sacrificed, as it would be, if the law
is, as sought in the present petition, declared void right now, on the claim of

a few of being allegedly denied a right, at best of doubtful character, for the
claim would seem to rest on an unsupportable theory that they have a
vested right to a public office.
Just one more point. The law in question is not self-executing in the sense
that upon its effectivity, certain judges and justices cease to be so by direct
action of the law. This is what distinguishes the Act in question from R.A. No.
1186 involved in the Ocampo case, 5 which by its direct action, no act of
implementation being necessary, all the judges whose positions were
abolished, automatically ceased as such. The Act in question, therefore, is
not as exposed to the same vulnerability to constitutional attack as R.A. No.
1186 was. Yet by the operation of the Constitution with its wise provision on
how a law may be declared unconstitutional, R.A. No. 1186 stood the test for
it to be enforced to the fullness of its intent, which was, as in the law under
consideration, Identified with public interest and general welfare, through a
more efficient and effective judicial system as the Judiciary Reorganization
Act of 1980 seeks to establish.
Hence, the constitutionality of the law should not be assailed, and the law
itself, striken down, on the ground that some judges or justices may be
removed or separated in violation of their security of tenure. The law does
not directly operate with Chat effect. It is in how the law would be
implemented that this feared eventuality may or may not occur. We would
then be killing the law on a mere speculation if We do so at this stage. This
would be an injudicious act done in reckless disregard of the safeguards built
around a law to defend it when its constitutionality is attacked; first the
presumption that a law is constitutional; second when a law is susceptible to
two interpretations one that would make it constitutional, the other,
unconstitutional, the former should be adopted; and third, the Constitution
itself which ordains that a law may not be declared unconstitutional except
on the vote of at least ten (10) members of the Supreme Court, more than
what is required for an ordinary decision of the Court en banc. This is not to
mention the stringent requisites for the exercise of the power of judicial
inquiry as already adverted to, all designed to save the law from the dire
fate of unconstitutionality.
To the writer, the question before this Court is a simple matter of choosing
between protecting some judges from possible separation, as the
implementation of the law to achieve its primary purpose of improving the
judiciary may have to result in, or serving the interest of the entire society
through an honest, efficient and effective judiciary. For, it is unthinkable that
what is for the good of the people as a whole could have been meant by the
Constitution to be sacrificed for the sake of only the few. The greatest good
for the greatest number is an unwritten rule, more firm and enduring than
any of the postulates spread in our written Constitution. This, I might say, is
the main theme of this separate opinion, otherwise expressed in the wellknown and time-honored maxim "Salus populi establish suprema lex."

MELENCIO-HERRERA, J., concurring:

There is unqualified adherence on my part to the dismissal of the Petition
filed in this case. If I am writing this separate concurrence, it is merely to
state certain views I entertain in regards to the constitutionality of Batas
Pambansa Blg. 129.
The controversy in this case involves two constitutional provisions. Article X,
Section 1, of the Organic law provides that the legislative has the power to
establish inferior Courts by law. Section 7 of the same Article reads:
SEC, 7. The Members of the Supreme Court and judges of
inferior courts shall hold office during good behavior until
they reach the age of seventy years or become
incapacitated to discharge the duties of their office. The
Supreme Court shall have the power to discipline judges of
inferior courts and, by a vote of at least eight Members order
their dismissal.
There should be no conflict Between the two provisions. Both should be
harmonized.
1. a) It is a fundamental proposition that the legislative power to create
Courts ordinarily includes the power to organize and to reorganize them, and
that the power to abolish Courts is generally coextensive with the power to
create them. The power to abolish was not intended to be qualified by the
permanence of tenure (Opinion of Chief Justice Ricardo Paras in Ocampo vs.
Secretary of Justice, 51 O.G. 147 [1955], citing McCulley vs. State, 53 SW
134; Halsey vs. Gaines 2 Lea 316). The right of Judges to hold office during
good behavior until they reach the age of 70 years, or become incapacitated
to discharge the duties of their office, does not deprive Congress of its power
to abolish, organize or reorganize inferior Courts (Brillo vs. Enage, 94 Phil.
732, 735, citing Zandueta vs. de la Costa, 66 Phil. 615; 42 Am. Jur., Pub.
Officer, 904-5). Judges of those Courts take office with that encumbrance
and knowledge.
The legislative power to create a court carries with it the
power to abolish it. When the court is abolished any
unexpired term is abolished also. The judge of such court
takes office with that encumbrance and knowledge. Perkins
v. Corbin, 45 Ala 103, 6 Am. Rep. 698; State, ex rel. Thomas
v. Gunter, 170 Ala. 165, 54 So 283, et al."
The importance and the imperative of maintaining the independence of the
Judiciary is undisputed. At the same time, the power of Congress under the
Constitution cannot be abridged. For, in the last analysis, it is not the
security of tenure per se that is the only safeguard to the independence of
the Judiciary. It is the character and the mettle of the Judges who sit on the
Bench. Has not the impression been created in the public and that there are

those who have abused the prerogatives of their judicial position knowing
that they are untouchables by virtue of the permanence of their tenure
b) A distinction should be made between tenure of Judges and tenure of
Courts. Section 1 heretofore mentioned refers to the "Judiciary" as a
fundamental department of Government. Section 7 quoted above refers to
the tenure of office of "individual" Judges (inclusive of Justices of inferior
Courts that is to say, tenure of office is a matter concerning the individual
Judge. This "individuality" character of Section 7 is supported by the clause
that the Supreme Court has the power to discipline individual judges of
inferior Courts.
A legislature is not bound to give security of tenure to Courts. Courts can be
abolished. In fact, the entire judicial system can be changed. If that system
can no longer admit of change, woe to the wheels of progress and the
imperatives of growth in the development of the Judiciary. To hold that
tenure of Judges is superior to the legislative power to reorganize is to
render impotent the exercise of that power.
It may even be stated that, under Section 7, supra, Judges are entailed to
their Courts, from which they cannot be separated before retirement age
except as a disciplinary action for bad behavior. Under Section 1, Courts are
not entailed to their Judges, because the power of the legislative to establish
inferior Courts presupposes the power to abolish those Courts. If an inferior
Court is abolished, the Judge presiding that Court will necessarily have to
lose his position because the abolished Court is not entailed to him.
c) The constitutional guarantee of tenure of Judges applies only as their
Courts exist. As long as those Courts exist, the Judges cannot be ousted
without just cause; that is the extent of the constitutional provision relative
to security of tenure of Judges. Upon declaration of the completion of the
reorganization as provided for in the Reorganization Act, the affected Courts
"shall be deemed automatically abolished There being no Courts, there are
no offices for which tenure of Judges may be claimed. By the abolition of
those offices, the rights to them are necessarily extinguished (Manalang vs.
Quitoriano, 94 Phil. 903 [1954]).
2. I am satisfied that the challenged law was enacted by the Batasang
Pambansa in response to an urgent and pressing public need and not for the
purpose of affecting adversely the security of tenure of all Judges or
legislating them out to the detriment of judicial independence. It should riot
be said of the Batasang Pambansa that its power of abolition of Courts has
been used to disguise an unconstitutional and evil purpose to defeat the
security of tenure of Judges. The Judiciary Reorganization Act of 1981
sufficiently complies with the bona fide rule in the abolition of public office,
as clearly explained in the main opinion. Besides, every presumption of good
faith in its actuations must be accorded a coordinate and coequal branch of
government, supreme within the limits of its own sphere, until that
presumption is clearly overcome. There is no showing that the

Reorganization Act was motivated for personal or political reasons as to

justify the interference by the Court (Garvey vs. Lowell, 199 Mass, 47, 85
N.E. 182, 127 A.S.R. 468; State vs. Eduards, 40 Mont. 287; 106 Pac. 695, 19
R.C.L. 236; Llanto vs. Dimaporo, 16 SCRA 599 [1966]). Public interest and
public good, as the legislative body views it, must be balanced with tenure
of Judges, which is an individual right. Reverting to Section 1 and Section
7, supra, the former is the weightier, because the "Judiciary" is of more
importance to the welfare of the country than the tenure of office of an
individual Judge. If a Judge is removed without cause there can be damage
to the public welfare to some extent, but maintenance of a Court that does
not meet the requirements of progressive Government, can cause
incalculable prejudice to the people.
3. Nor does a conflict exist with the power of discipline vested in the
Supreme Court by the present Constitution reading: the Supreme Court shall
have the power "to discipline Judges of inferior Courts, and, by a vote of at
least 8 members, order their dismissal Absent the Court, it would be futile to
speak of the Supreme Court's power to discipline. Thus, where the
legislature has willed that the Courts be abolished, the power to discipline
cannot pose an obstacle to the abolition. The power to discipline can come
into play only when there is removal from an existing judicial office but not
when that it office is abolished. The reorganization of the judicial system
with the abolition of certain Courts is not an exercise of the power to
discipline the Judges of the abolished Courts.
It is of significance to note that the power to dismissal vested in the
Supreme Court by the 1973 Constitution is delimited by its power to
discipline. Absent any need for discipline and the power to dismiss does not
exist. Being circumscribed in scope, it may well be asked: does the grant of
the power of discipline and dismissal in the Supreme Court deprive the
executive of the power of removal? Is it not more in keeping with the
allocation of powers in our government to state that the Supreme Court
shares its power to dismiss with the executive power of removal? For is not
the power of removal basically executive in nature, as an incident to the
power of appointment, which is the prerogative of the Chief Executive alone
As in the case of appointments, Section 5 (6), Article X of the Constitution
provides that the Supreme Court shall appoint its officials and employees.
However, is not this power shared with the power of appointment of the
executive who appoints some of the Court officials These questions could
lend themselves to an in-depth study in the proper case.
4. The abolition would be no deprivation either of due process of law. A
public office cannot be regarded as the "property " of the incumbent. A
public office is not a contract (Segovia vs. Noel, 47 Phil. 543 [1925]). A
public office is a public trust (Section 1, Article XIII. 1973 Constitution). It is a
privilege in the gift of the State (Brown vs. Russell, 166 Mass. 14, 43 NE
1005, 32 LRA, 253 cited also in Taada & Carreon, Political Law of the
Philippines, Vol. 2, p. 537). The officers are the servants of the people and
not their rulers (22 R.C.L. 378-379, cited in Martin, Administrative Law, Law

on Public Officers and Election Law, p. 112, 1970 ed.). Besides, it bears
stressing that there is no removal from office but abolition of the office itself.
5. The questioned statute is in keeping with major reforms in other
departments of government. "The thrust is on development." It is "the first
major reorganization after four generations." It does not provide for a
piecemeal change, which could be ineffective. It goes to the roots and does
not just scratch the surface of our judicial system. Its main objectives are an
improved administration of justice, the "attainment of more efficiency in the
disposal of cases, a reallocation of jurisdiction, and a revision of procedures
which do not tend to the proper meting out of justice." These aims are policy
matters of necessity in the pursuit of developmental goals within the
Judiciary.
6. The Reorganization Act reorganizing the entire judicial system excluding
the Supreme Court, which is the only constitutional Court, and the
Sandiganbayan. It envisages institutional reforms in the Philippine judiciary.
It does not simply change the names of the Courts. The facts herein are
dissimilar from those in Brillo vs. Enage (94 Phil. 732 [1954]) where the
position of Justice of the Peace, although ostensibly abolished, was merely
changed to Municipal Judge after the municipality of Tacloban was converted
into a city with its own charter.
Significant among the institutional changes and procedural reforms are:
The Intermediate Appellate Court
This Court is now constituted into ten (10) divisions instead of fifteen (15),
five members composing each division, and a majority vote of three
members being needed for a decision. This obviates the cumbersome
procedure, in case of dissent, of assigning two other members to compose a
"division of five". It also allows flexibility in that any three members of a
division, arriving at unanimity, can promulgate a decision. Now provided for
is specialization into four (4) Civil Cases Divisions, two (2) Criminal Cases
Divisions and four (4) Special Cases Divisions. The specialization is expected
to contribute to the expeditious disposal of cases. The Court has been given
original jurisdiction to issue Writs of mandamus, prohibition, certiorari,
habeas corpus, quo warranto and auxiliary writs or processes whether or not
in aid of its appellate jurisdiction. This would undoubtedly ease the burden of
the Supreme Court where numerous such cases are filed daily.
It has exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of quasi-judicial agencies, instrumentalities,
boards or commissions, except those falling within the exclusive appellate
jurisdiction of the Supreme Court in accordance with the Constitution.
The Intermediate Appellate Court would now have the power to try cases
and conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues raised in cases falling within its original

and appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings (Sec. 9). This does away with the delays
attendant to the remand of cases to the lower trial Courts.
Regional Trial Courts

a) The confusing and illogical areas of concurrent jurisdiction between trial

Courts have been entirely eliminated.
b) Under Section 39, there is a uniform period for appeal of fifteen (15) days
counted from the notice of the final order, resolution, award, judgment, or
decision appealed from.

There are now thirteen (13) Judicial Regions, the same as the present
administrative and Batasang Pambansa Regions, instead of sixteen (16)
Judicial Districts.

A record on appeal is no longer required to take an appeal. The entire

original record is now to be transmitted.

A Judge is appointed to a region, which is his official station. This ensures

mobility since a Judge may be assigned anywhere within the Region without
applying the constitutional limitation of six months. Additionally, -it can
remedy temporary inequalities of caseloads in trial Courts.

c) Under Section 40, in deciding appealed cases, adoption by reference of

findings of fact and conclusions of law as set forth in the decision, order, or
resolution appealed from, is also provided for. This will expedite the rendition
of decisions in appealed cases.

Specialized Courts are integrated into the Regional Trial Courts. Thus,
Regional Trial Courts would try all cases within its jurisdiction unless special
cases are assigned to them, in which case, they remain as Branches of
Regional Trial Courts. Special procedures and technical rules governing
special Courts will continue to remain applicable in Branches assigned those
special cases.

d) Section 42 provides for "a monthly longevity pay equivalent to 5% of the

monthly basic pay for Justices and

Metropolitan Trial Courts

There is one Metropolitan Trial Court with several Branches for large urban
areas. The appointment of Judges would be to a Metropolitan Trial Court
although a Judge may be assigned by the Supreme Court to any Branch of
the Metropolitan Trial Court as demanded by the exigencies of the service.
The Supreme Court may designate certain Branches of said Courts to
exercise special jurisdiction over certain cases, unlike the present set-up
where special jurisdiction applies only to cases of traffic violations.
Municipal Trial Courts/Municipal Circuit Trial Courts
Municipal Trial Courts may now be designated by the Supreme Court to
exercise special jurisdiction over certain cases, thereby resulting in overall
flexibility. They can also be circuitized with those in cities not forming part of
metropolitan areas.
One notable change between the old and the new set up is that Judges of
these Courts will now be Presidential appointees unlike presently where the
incumbent Judges are merely designated by the Supreme Court in an
Administrative Order to sit in existing Municipal Courts and Municipal Circuit
Courts.
7. There are innovative features in the Act that commend themselves:

Judges of the courts herein created for each five years of continuous,
efficient, and meritorious service rendered in the Judiciary, Provided that, in
no case shall the total salary of each Justice or Judge concerned, after this
longevity pay is added, exceed the salary of the Justice or Judge next in
rank." Thus, Justices and Judges who may not reach the top, where
unfortunately there is not enough room for all, may have the satisfaction of
at least approximating the salary scale of those above him depending on his
length of service,
8. But while the law itself as written is constitutional, the manner in which it
will be administered should not be tainted with unconstitutionality (Myles
Salt Co. vs. Board of Commrs., 239 US 478, 60 L. Ed. 392, 36 Sct 204). To
obviate the possibility of an unconstitutional exercise of power the following
safeguards are recommended and/or expected to be undertaken:
a) The President can be expected to indicate a reasonable time frame for the
completion of the reorganization provided for in the Act and the issuance of
the corresponding implementing Order.
b) Appointments and their effectivity should be simultaneous with, or as
close as possible, to the declaration by the President of the completion of
the reorganization under Section 44 to avoid any detriment to the smooth
and continuous functioning of the judicial machinery.
c) The services of those not separated should be deemed uninterrupted, as
recommended by the Committee on Judicial Reorganization (Article XI of its
Report).
9. For the speedy implementation of the law, the Supreme Court can be
expected to submit to the President within thirty (30) days from the date of

finality of its Decision the staffing pattern for all Courts required by Section
43.
I am constrained to disagree with the suggestion of one of the amici
curiae that the staffing pattern be made to include the names of Judges. The
staffing pattern for Judges is already clearly and explicitly provided in the
law itself which enumerates the various Judges and Justices in their
hierarchical order. Furthermore, to include the superior positions of Judges
would depart from the traditional concept of a staffing pattern, which refers
more to personnel organization and corresponding salaries of inferior
employees. It is also constitutionally objectionable in that it would interfere
with the prerogative of appointment intrinsically executive in nature
(Guevara vs. Inocentes, 16 SCRA 379 [1966]; Government of the Philippines
vs. Springer, 50 Phil. 259 [1927]). The President may not be deprived of, nor
be limited in, the full use of his discretion in the appointment of persons to
any public office. Nothing should so trench upon executive choice as to be,
in effect, judicial designation.
10. A word of explanation. If I had resolved not to inhibit myself in this case
upon motion filed by petitioners, it was because the Committee on Judicial
Reorganization, of which I was privileged to be a member, confined its work
to the recommendation of options and guidelines in the task of
reorganization. The Committee had no part whatsoever in the drafting of the
bill nor in the public hearings conducted. In fact, some of its
recommendations like the circuitization or regionalization of the
Intermediate Appellate Court, the appellation of members of the Judiciary,
the confinement of the jurisdiction of the Intermediate Appellate Court
merely to appellate jurisdiction, the adoption of the system found in the
United Kingdom and in Commonwealth countries of having a Court of
general jurisdiction with trial and appellate divisions, were not availed of in
the final Act.
11. Lastly, but by no means the least, I entertain no doubt that reliance can
be placed on the good faith of the President that all the deserving, upon
considerations of "efficiency, integrity, length of service and other relevant
factors shall be appointed to a strengthened and revitalized judicial system
in the interest of public service; that appointments will not be unduly
delayed; and that appointees will be evaluated thoroughly to ensure quality
and impartiality in the men and women who will keep vigil over our judicial
ramparts.

The Constitution grants to the Batasang Pambansa the power to create

courts inferior to the Supreme Court (Article X, Section 1). All existing
inferior courts were created by law. No law is irrepealable. The power to
create an office includes the power to abolish the same. (Urgelio vs. Osmea
9 SCRA 317; Maza vs. Ochave, 20 SCRA 142)
Security of tenure cannot be invoked when there is no removal of a public
officer or employee but an abolition of his office. (Manalang vs. Quitoriano,
94 Phil. 903; Cruz vs. Primicias, 23 SCRA 998; Baldoz vs. Office of the
President, 78 SCRA 354, 362) A distinction should be made between removal
from office and abolition of an office. Removal implies that the office subsists
after ouster, while, in abolition, the office no longer exists thereby
terminating the right of the incumbent to exercise the rights and duties of
the office. (Canonigo vs. Ramiro, 31 SCRA 278)
The power of the legislative branch of the government to abolish courts
inferior to the Supreme Court has long been established. (Ocampo vs.
Secretary of Justice, 51 O.G. 147). What is only needed is that the abolition
passes the test of good faith. it need only be shown that said abolition of the
courts is merely incidental to a bona fide reorganization. (Urgelio vs.
Osmea supra.)
It is unthinkable to impute bad faith to the Presidential Committee on Judicial
Reorganization composed of four (4) distinguished members of the Supreme
Court, the Minister of Justice and the Deputy Minister of Justice, and to the
members of the Batasang Pambansa whose combined efforts after a careful
study and deliberation resulted to the enactment of a bill now signed into
law as Batasang Pambansa Blg. 129. In his sponsorship speech, Justice
Ricardo C. Puno declared the objectives of the Judiciary Reorganization Law
to be the following: (1) the attainment of more efficiency in the disposal of
cases; (2) the improvement in the quality of decisions by the courts that will
result from the easing of court dockets; and (3) structural changes to meet
the exigencies of present day Philippine Society and of the foreseeable
future.
Admittedly, in the implementation of the law, some Judges and Justices may
be adversely affected. But in a conflict between public interest and the
individual interest of some Judges and Justices, the public weal must prevail.
The welfare of the people is the supreme law.

ERICTA, J., concurring:

The implementation of the law will entail appointments to the new courts.
The power of appointment is the exclusive prerogative of the President. The
implementation of the law should be left exclusively to the wisdom,
patriotism and statesmanship of the President.

I concur in the view that the Judiciary reorganization law is not

unconstitutional. It does not violate the principle of security of tenure of
judges.

PLANA, J., concurring:

As the lawmaking body has the power to create inferior courts and define,
prescribe and apportion their jurisdiction, so it has the power to abolish or
replace them with other courts as long as the act is done in good faith and
not for the purpose of attaining an unconstitutional end. Good faith has thus
become the crucial issue in the case at bar.
Upon an examination of the legislative history of Batas Pambansa 129, as
has been done in the main opinion, it is manifest that actual, not merely
presumed good faith attended its enactment. On this basis, I concur in the
opinion penned by the learned Chief Justice, qualified only by the following
observations:
1. Executive consultation with the Supreme Court. I believe the President
is under no obligation to consult with the Supreme Court; and the Supreme
Court as such is not called upon to give legal advice to the President.
Indeed, as the Supreme Court itself has said, it cannot give advisory
opinions (Bacolod Murcia Planters' Asso., Inc. vs. Bacolod Murcia milling
Co., 30 SCRA 67; NWSA vs. Court of Industrial Relations, 90 SCRA 629) even
to the President.
In the drafting of the present Constitution, there was an attempt to vest the
Supreme Court with the function of giving advisory opinions. The framers of
the Constitution, however, did not see fit to adopt the proposal.
If the President should consult the Supreme Court on the implementation of
Batas Pambansa 129 and the Supreme Court should give its advice (leaving
aside the question of procedure), I believe the President would be free to
follow or disregard the advice; but, in either case, there would be no
guarantee that the implementing action would be upheld in one case or
stricken down in the other.

however radically changed the constitutional set-up. There is now a

commingling or fusion of executive and legislative powers in the hands of
the same group of officials. Cabinet members play a leading role in the
legislative process, and members of the Batasan actively discharge
executive functions. The Prime Minister indeed must come from its ranks.
Under the circumstances, there is really not much sense in rigidly upholding
the principle of non-delegation of legislative power, at least vis-a-vis the
Executive Department. In a very real sense, the present Constitution has
significantly eroded the hoary doctrine of non-delegation of legislative
power, although it has retained some provisions of the old Constitution
which were predicated on the principle of non-delegation, this time perhaps
not so much to authorize shifting of power and thereby correspondingly
reduce the incidence of "undue" delegation of legislative power, as to avert
the abdication thereof.
In times of war or other national emergency, the Batasang
Pambansa may by law authorize the President for a limited
period and subject to such restrictions as it may prescribe, to
exercise powers necessary and proper to carry out a
declared national policy. Unless sooner withdrawn by
resolution of the Batasang Pambansa, such powers shall
cease upon its next adjournment. (Art. VIII, Sec. 15.)
The Batasang Pambansa may by law authorize the President
to fix within specified this and subject to such stations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts. [Ibid, Sec. 17(2).]

2. Undue delegation of legislative powers.

TEEHANKEE, J., dissenting:

The petitioners have also assailed the constitutionality of Batas Pambansa

129 on the ground that a provision thereof (regarding fixing of compensation
and allowances for members of the Judiciary) constitutes an undue
delegation unto the President of legislative power.

Undoubtedly, no more crucial and transcendental issue of such magnitude

has confronted the Philippine judiciary than in the present case. The
challenged Act, Batas Pambansa Blg. 129 by its title would reorganize all
existing courts (except the nine-member Sandiganbayan 1 and the threemember Court of Tax Appeals) and upon declaration by the President of the
completion of the reorganization would unprecedentedly deem all the said
courts "automatically abolished en masse and "the incumbents thereof shall
cease to hold office." 2 The total abolition involves a total of 1,663 judicial
positions with 1,180 incumbent judges and 483 vacancies) as of January 26,
1982 and the Act would effect an increase of 230 judicial positions raising
the total of judicial positions to be filled by new appointments to 1,893.
Notwithstanding the great deference due to enactments of the Batasan, I
regretably find myself unable to join the ranks of my esteemed colleagues in
the majority who uphold the constitutionality of the Act and have voted to
dismiss the petition, for the following main considerations and reasons:

As pointed out in the main opinion, the legislature has provided ample
standards or guidelines for the implementation of the delegated power,
which makes the delegation inoffensive. I would like to add however some
observations on the doctrine of undue delegation of legislative power.
Under the old Constitution, when the abiding rule was separation of
legislative and executive powers, there was good reason to maintain the
doctrine of non-delegation of legislative power. Otherwise, the principle
of separation of governmental powers could be negated via
unbridled delegation of legislative power. The 1973 Constitution has

1. I go by the ruling of the numerical majority of seven Justices (namely,

Pablo, Cesar Bengzon, Montemayor, Jugo, Bautista, Roberto Concepcion and
J.B.L. Reyes, JJ.) in the leading 1955 case of Ocampo 3 who fell short by one
vote to reach the constitutionally required 2/3 majority (at the time 8 out of
an 11-member Supreme Court) to declare unconstitutional and invalid
section 3 of Republic Act 1186 abolishing the positions of 18 judges-at-large
and 15 cadastral judges and removing or legislating out the incumbent
judges from office as against the contrary vote of a minority of 4 Justices
(namely, then Chief Justice Paras and Padilla, Alex Reyes and Labrador, JJ.)
with the paradoxical situation that the last three named Justices voted for
the validity of the Act as a remedial measure that abolished said positions
without permanent station which subjected them to a rigodon de
jueces without the consent of the Supreme Court, which they considered as
"repulsive to an independent judiciary" and violative of an express
prohibitory provision of the 1935 Constitution while Justice Alex Reyes
conceded that otherwise he would go with the majority that "Congress may
not, as a general rule, abolish a judicial post without allowing the incumbent
to finish his term of office."
2. As then Associate, later Chief Justice Cesar Bengzon remarked in his
separate opinion "(T)he [adverse] outcome of this litigation [sanctioning
the ouster from office of the ten petitioners who were presiding different
Courts of First Instance, some as judges-at-large, others as cadastral judges,
upon the enactment on June 19, 1954 of R.A. 1186 abolishing the positions
of judges-at large and cadastral judges] is apt to revive the speculation
whether wittingly or unwittingly the Constitution has further weakened the
usually weak judicial department because of its 'innovative' requirement of a
2/3 majority vote of the Supreme Court to declare a statute unconstitutional,
and 'never in our history has such a number of judges of first instance
[totalling 33 positions] been ousted through judicial reorganization.
His rationale that the express constitutional guaranty of security of tenure of
judges "during good behavior until they reach the age of seventy years or
become incapacitated to discharge the duties of their office" 4 must prevail
over the implied constitutional authority to abolish courts and to oust the
judges despite their constitutionally-secured tenure bears repeating thus:
A careful analysis will perceive that whereas petitioners
invoke an express guaranty or positivedefinition of their
term of office, the respondents rely on implied authority to
abolish courts and the positions of the respective judges.
Accurately stated, respondents' defense rests on
a second inference deduced from such implied power,
because they reason out thusly: Congress has express power
to establish courts; therefore it has implicit power to abolish
courts and the positions of judges of such abolished courts
(first inference); and therefore (second inference) Congress
likewise has power to eject the judges holding such
positions.

Resulting juridical situation. The implied authority invoked by

respondents collides with the expressguaranty of tenure
protecting the petitioners. Which shall prevail Obviously the
express guaranty must override the implied authority.
"Implications can never be permitted to contradict the
expressed intent or to defeat its purpose."
xxx xxx xxx
But the collision may he should be avoided, and both
sections given validity, if one be considered a proviso or
exception to the other. In other words, under the
Constitution the Congress may abolish existing courts,
provided it does not thereby remove the incumbent judges;
such abolition to take effect upon termination of their
incumbent The fundamental provisions on the matter are
thereby coordinated and harmonized' as Justice Laurel
suggested in his concurring opinion in Zandueta v. De la
Costa. To bring about reconciliations is the great work of
jurists. (Cardozo, Paradoxes of Legal Science, p. 6) 5
3. This reasoning that the express guaranty of tenure protecting incumbent
judges during good behavior unless removed from office after hearing and
due process or upon reaching the compulsory retirement age of seventy
years must override the implied authority of removing by legislation the
judges has been further strengthened and placed beyond doubt by the new
provisions of the 1973 Constitution that transferred the administrative
supervision over all courts and their personnel from the Chief Executive
through the then Secretary of Justice to the Supreme Court 6 and vested in
the Supreme Court exclusively "the power to discipline judges of inferior
courts and, by a vote of at least eight members, order their
dismissal," 7 Which power was formerly lodged by the Judiciary Act in the
Chief Executive.
As former Chief Justice Bengzon stressed in his opinion in Ocampo, the 1934
Constitutional Convention "frowned on removal of judges of first instance
through abolition of their offices or reorganization," citing Professor Jose
Aruego's observation that the security of judges' tenure provision was
intended to "help secure the independence of the judiciary" in that "during
good behavior, they may not be legislated out of office by the law-making
body nor removed by the Chief Executive for any reason and under the guise
of any pretense whatsoever; they may stay in office until they reach the age
of seventy years, or become incapacitated to discharge the duties of their
office. (Aruego, The Framing of the Philippine Constitution, Vol. 11, pp. 718719)" He further cited Aruego's report that a proposed amendment to the
effect that the prohibition against transfers of judges to another district
without the approval of the Supreme Court 8 "should not be applicable to a
reorganization of tribunals of justice or of districts, but the amendment was
defeated easily without debate" 9 and logically concluded that "(N)ow,
there . before, having vetoed the transfer of judges thru a re-organization,

the Convention evidently could not have permitted the removal of judges
thru re-organization.
Now, if the framers of the 1973 Constitution wished to dispel the strong
doubts, to say the least in the light of the 7 to 4 vote in the Ocampo case
against removal of incumbent judges through legislative action by abolition
of their courts, then they would have so clearly provided for such form of
removal in the 1973 Constitution, but on the contrary as already stated they
ruled out such removal or ouster of judges by legislative action by vesting
exclusively in the Supreme Court the power of discipline and removal of
judges of all inferior courts.
4. This being so, the fundamental point emphasized by former Chief Justice
Bengzon that abolition of the 33 judicial positions in the Ocampo case was
"merely an indirect manner of removing the petitioners-judges" while the
"positions [that] were eliminated . . . were in fact substituted or replaced by
other positions of judges" applies with greater force in the case at bar which
involves an unprecedented total "abolition," thus: "(C)all it reorganization, or
legislation or removal or abolition, this law disregards the constitutional
assurance that these judges, once appointed, shall hold office during good
behavior ... [unless incapacitated and until retirement].
The abolition of their offices was merely an indirect manner of removing
these petitioners. Remember that on June 19, 1954, there were 107 judges
of first instance, district judges, judges at-large and cadastral judges (Rep.
Act 296). After the passage of Republic Act No. 1186 there were 114
positions of judges of first instance. There was no reduction there was
increase in the number of judges, nor in the number of courts. The
positions of Judges-at-Large and Cadastral Judges were eliminated; but they
were in fact substituted or replaced by other positions of judges; or if you
please, there was a mere change of designation from 'Cadastral Judge or
Judge at large to district judge Hence it should be ruled that as their
positions had not been 'abolished' de facto, but actually retained with
another name, these petitioners are entitled to remain in the service. (Brillo
v. Enage, G.R. No. L-7115, March 30, 1954.) For it is not permissible to effect
the removal of one judge thru the expediency of abolishing his office even
as the office with same power is created with another name. (Brillo v. Enage,
Malone v. Williams, 118 tenn. 391, Gibbe's Case 4 A.L.R. p. 211). In this view
of the picture, we believe, Congress could have, and should haveas
suggested by Secretary Tuazon during the hearings in Congress directed in
said Republic Act No. 1186 that 'the present judges-at-large and cadastral
judges shall become district judges presiding such districts as may be fixed
by the President with the consent of the Commission on Appointments or by
the Secretary of Justice, as originally proposed by Senator Laurel in
connection with the same bill. Something similar was done before, and it
would not be objectionable as an encroachment on the President's
prerogative of appointment, because such judges had already been
appointed to the judiciary before the passage of the act, and the provision
may be construed in the light of mere change of official designation plus
increase in salary."

5. Concededly, the questioned Act effects certain changes and procedural

reforms with more specific delineation of jurisdiction as mentioned
particularly in the majority opinion, but they do not change the basic
structure of the existing courts. The present Municipal Courts, Municipal
Circuit Courts and City Courts are restructured and redesignated as
Municipal Trial Courts and Municipal Circuit Trial Courts and Metropolitan Trial
Courts in the challenged Act. The Courts of First Instance, Circuit Criminal
Courts, Juvenile & Domestic Relations Courts and Courts of Agrarian
Relations are all restructured and redesignated to be known by the common
name of Regional Trial Courts with provision for certain branches thereof "to
handle exclusively criminal cases, juvenile and domestic relations cases,
agrarian cases, urban land reform cases . . . . and/or such other special
cases as the Supreme Court may determine in the interest of a speedy and
efficient administration of justice" 10 and the Court of Appeals is restructured
and redesignated as the Intermediate Appellate Court with an increase in
the number of Appellate Justices from the present 45 to 50 but with a
reduction of the number of divisions from 15 (composed of 3 Justices each)
to 10 (composed of 5 members each) such that it is feared that there is
created a bottleneck at the appellate level in the important task discharged
by such appellate courts as reviewers of facts.
In my view, the "candid admission" by the Chief Justice in his opinion for the
Court "that he entertained doubts as to whether the intermediate court of
appeals provided for is a new tribunal" 10a is equally applicable to all the
other above mentioned courts provided for in the challenged Act as "new
courts". And the best proof of this is the plain and simple transitory provision
in section 44 thereof that upon the President's declaration of completion of
the reorganization (whereby the "old courts" shall "be deemed automatically
abolished and the incumbents thereof shall cease to hold office "(T)he cases
pending in the old Courts shall be transferred to the appropriate Courts
constituted pursuant to this Act, together with the pertinent functions,
records, equipment, property and the necessary personnel together with the
"applicable appropriations." This could not have been possible without a
specification and enumeration of what specific cases of the "old courts"
would be transferred to the particular "new courts," had these "new courts"
not been manifestly and substantially the "old courts" with a change of
name or as described by Justice Barredo to have been his first view, now
discarded, in his separate opinion: "just a renaming, and not a substantial
and actual modification or alteration of the present judicial structure or
system" or "a rearrangement or remodeling of the old structure." 11
6. I do not subscribe to the test of good faith or bad faith in the abolition of
the courts and consequent ouster of the incumbent judges from office as
expounded by the late eminent Justice Jose P. Laurel in his separate
concurring opinion in the pre-war case of Zandueta 12 wherein the Court
dismissed the petition for quo warranto on the ground of petitioner
Zandueta's estoppel and abandonment of office. 13 Realistically viewed from
the basis of the established legal presumptions of validity and
constitutionality of statutes (unless set aside by a 2/3 majority of 10
members of the Supreme Court) and of good faith in their enactment, one is

hard put to conjure a case where the Court could speculate on the good or
bad motives behind the enactment of the Act without appearing to be
imprudent and improper and declare that "the legislative power of
reorganization (is) sought to cloak an unconstitutional and evil purpose." The
good faith in the enactment of the challenged Act must needs be granted.
What must be reconciled is the legislative power to abolish courts as implied
from the power to establish them with the express constitutional guaranty of
tenure of the judges which is essential for a free and independent judiciary.
Adherents of the Rule of Law are agreed that indispensable for the
maintenance of the Rule of Law is a free and independent judiciary, sworn to
protect and enforce. it without fear or favor "free, not only from graft,
corruption, ineptness and incompetence but even from the tentacles of
interference and insiduous influence of the political powers that be to quote
again from Justice Barredo's separate concurring opinion. 14 Hence, my
adherence to the 7-member majority opinion of former Chief Justice Bengzon
in the Ocampo case, supra, as restated by the Philippine Association of Law
Professors headed by former Chief Justice Roberto Concepcion that "any
reorganization should at least snow the incumbents of the existing courts to
remain in office [the appropriate counterpart 'new courts'] unless they are
removed for cause."
7. The "judges' broader and stronger guarantees of tenure than ordinary civil
servants" as stressed by former Chief Justice Bengzon in Ms majority opinion
in Ocampo is based on the judiciary's status as a coequal and coordinate
branch of government, whereas the long line of Philippine cases upholding
the legislative power to abolish offices refers to officers or employees in the
executive branch of government and "the underlying consideration must be
borne in mind that Manalang [the aggrieved petitioner] belonged to the
Executive Department and because the President approved the law no
question or encroachment by one branch on the other could be
apprehended or alleged. 15 This is not a matter of personal privilege for the
incumbent judges but as aptly stated by former U.P. Law Dean Irene Cortez
in her memorandum as amicus curiae, "for the judiciary whose
independence is not only eroded but is in grave danger of being completely
destroyed." Dean Cortez aptly stressed that "judicial independence is not a
guarantee intended for the Supreme Court alone, it extends to the entire
court system and is even more vital to the courts at the lowest levels
because there are more of them and they operate closest to the people,"
and "(P)articularly under the present form of modified parliamentary
government with legislative and executive functions overlapping and in
certain areas merging, the judiciary is left to perform the checking function
in the performance of which its independence assumes an even more vital
importance. "
The extensive memoranda filed by Dean Cortez and other amici curiae such
as former Senator Jose W. Diokno who strongly urges the Court to strike
down the Act "to prevent further destruction of judicial independence,"
former Senator Lorenzo Sumulong, president of the Philippine Constitution
Association who advocates for the Court's adoption of the B Bengzon
majority opinion in the Ocampo case so as to abide by "the elementary rule

in the interpretation of constitutions that effect should be given to all parts

of the Constitution" and that the judges' security of tenure guaranty should
not be rendered meaningless and inoperative" former Solicitor General
Arturo A. Alafriz, president of the Philippine Lawyers' Association who
submits that the total abolition of all courts below the Supreme Court
(except the Sandiganbayan and the Court of Tax Appeals) and the removal
of the incumbent Justices and Judges "violates the independence of the
judiciary, their security of tenure and right to due process guaranteed them
by the Constitution" and Atty. Raul M. Gonzales, president of the National
Bar Association of the Philippines who invokes the Declaration of Delhi at the
ICJ Conference in 1959, that "The principles of unremovability of the
Judiciary and their Security of Tenure until death or until a retiring age fixed
by statute is reached, is an important safeguard of the Rule of Law" have
greatly helped in fortifying my views.
8. I had submitted in my memo of September 4, 1980 to the Presidential
Committee on Judicial Reorganization that "(W)hatever reorganization plans
the committee may recommend to meet the worldwide problem of
congested court dockets, and to improve judicial services in the public
interest, it should be borne in mind that the members of the judiciary as the
weakest branch of government, yet called upon to safeguard the people's
rights and protect them oppression, official and otherwise, are entitled to
security of tenure as guaranteed by the Constitution. Even though the lower
courts may be reshuffled or abolished in the process, the mandate and spirit
of the Constitution guaranteeing their security of tenure and maintaining the
independence of the judiciary should be respected, and they should be
retained in the new courts."
In the same vein, Dean Cortez warned of the dire consequences of giving the
questioned provisions of the Act the "absolutist sense which they appear to
have at first blush" thus: "(T)o accept legislative power to abolish courts
asserted under Batas Pambansa Blg. 129 which sweeps through practically
the entire judiciary would be to open the door to future court abolitions in
the guise of reorganization. At this stage of our political development, the
process of embarking upon a modified parliamentary system may well usher
in a situation where despite guarantees of judicial tenure, each ruling party
in the legislature or any alliance that can command a majority vote may
periodically undertake complete reorganization and remove judges, thus
making of the judiciary a veritable straw in the political wind and
"(F)urthermore, what can result in the modified parliamentary system from
the close working relationship between executive and legislature is made
manifest in Batas Pambansa Blg. 129. If the sweeping revamp provided were
to be carried out the President would appoint all of the justices and judges of
the courts affected and the whole membership in the judiciary from the
highest to the lowest courts would be his appointees. It is relevant to point
out that it is precisely a situation like this that the Constitution seeks to
avoid when it provides staggered terms for the chairman and members of
the constitutional commissions which like the judiciary are guaranteed
independence."

9. The judges' security of tenure was rendered nugatory by the Transitory

Provisions of the 1973 Constitution which granted the incumbent President
the unlimited power to remove and replace all judges and officials 16 (as
against the limited one-year period for the exercise of such power granted
President Quezon in the 1935 Constitution upon establishment of the
Philippine Commonwealth Upon the declaration of martial law in September,
1972, justices and judges of all courts, except the Supreme Court, had been
required to hand in their resignations. There is listed a total of 53 judges who
were replaced or whose resignations were accepted by the President during
the period from September, 1972 to April, 1976. The power to replace even
the judges appointed after the effectivity on January 17, 1973 of the 1973
Constitution is yet invoked on behalf of the President in the pending case
of Tapucar vs. Famador 17 notwithstanding the generally held view that such
post-1973 Constitution appointed judges are not subject to the Replacement
Clause of the cited Transitory Provision. (In this case, petitioner judge
appointed on January 30, 1976 as judge of the Court of First Instance of
Agusan del Norte and Butuan City, Branch 1, invoked his constitutional
security of tenure and questioned the appointment extended on February
26, 1980 to respondent to replace him, although he had not been removed
or otherwise dismissed from his position nor had be resigned therefrom. The
Court per its March 27, 1980 resolution ordered both to refrain from
discharging the functions of the questioned office And now comes this total
abolition of 1,663 judicial positions (and thousands of personnel positions)
unprecedented in its sweep and scope. The urgent need is to strengthen the
judiciary with the restoration of the security of tenure of judges, which is
essential for a free and independent judiciary as mandated by the
Constitution, not to make more enfeebled an already feeble judiciary,
possessed neither of the power of the sword nor the purse, as decried by
former Chief Justice Bengzon in his Ocampo majority opinion:
Shall we have judges of the type of Lord Coke Or judges,
who, in his place, would have answered 'I'll do what his
majesty pleases,' judges who, afraid of ouster thru a
judiciary reshuffle, would rather serve the interests of the
party in power or of the political boss, than the interests of
justice?
As it is, the Judicial Department is feeble enough. Shall we
render it feebler with judges precariously occupying their
official seats Judges performing their duties under the sword
of Damocles of future judicial reorganizations
10. The Chief Justice, in his opinion for the Court, equally stressed that "what
is equally apparent is that the strongest ties bind the executive and
legislative departments. It is likewise undeniable that the Batasang
Pambansa retains its full authority to enact whatever legislation may be
necessary to carry out national policy as usually formulated in a caucus of
the majority party. It is understandable then why in Fortun vs. Labang 18 it as
stressed that with the provision transferring to the Supreme Court
administrative supervision over the Judiciary, there is a greater need 'to

preserve unimpaired the independence of the judiciary, especially so at

present, where to all intends and purposes, there is a fusion between the
executive and the legislative branches,'" 19 with the further observation that
"many are the ways by which such independence could be eroded." In the
cited case of Judge Fortun (likewise penned by the Chief Justice for the
Court), the Court issued a writ of prohibition and certiorari ordering the
dismissal of the criminal complaint filed with respondent fiscal Labang by
"disgruntled members of the bar with a record of losing cases" in the judge's
court and imposed the penalty of censure on each and everyone of the
private respondents-lawyers for the "unseemly haste" with which they filed
the criminal complaint, abetted by "the appearance of sheer vindictiveness
or oppressive exercise of state authority." The Court marked the "violation of
the cardinal principles of fairness and due process that underlie the Rule of
Law. Petitioner-Judge was not heard; he was denied the opportunity to
defend himself against the accusation. There was, on the part of private
respondents then, a failure to abide by a Resolution of the Integrated Bar
stressing that precisely integration could shield 'the judiciary which
traditionally cannot defend itself except within its own forum, from the
assaults that politics and self-interest may level at it, and assist it to
maintain its integrity, impartiality and independence,' " and that such
subjection of a judge to public "harassment and humiliation . . . can diminish
public confidence in the courts."
11. This brings us to the allegedly underlying need for B.P. Blg. 129
discussed in the course of committee hearings of Cabinet Bill No. 42 and the
deliberation on second reading in the Batasang Pambansa to rid the judiciary
of incompetent and corrupt judges and to restore confidence in the integrity
of the courts. The purge has been the constant subject of headlines and
editorials, with the Ministry of Justice's Integrity Council reportedly screening
and conducting "integrity tests as to new applicants and the incumbent
judges 20 and seeking "confidential information on corrupt and incompetent
judges to help the government purge the judiciary." 21 Prime Minister Cesar
Virata was quoted as saying that "there will be a purge of the corrupt and
the misfits' when the Judiciary Reorganization Act is signed into law by
President Marcos and implemented in coordination with the Supreme
Court." 22 The public respondents' answer sidesteps the issue of such purge
contravening the rudiments of a fair hearing and due process and submits
that "no term of office is sacrosanct when demanded before the altar of the
public good." The metropolitan papers reported the "anxiety gripping the
judiciary as the Ministry of Justice has reportedly been asked to collate
information 'on the performance of the judges and on the qualifications of
those slated to take over the positions of the incompetent, the inefficient or
those involved in irregularities. As stated in an editorial, 'Somehow, the
uncertainty that now hovers over the judiciary has unduly subjected the
judges to mental torture since they do not know when or whether the axe
will fall on them. Worse, the sword of Damocles hanging over their heads
could provoke them into seeking the help of people claiming to have
influence with the powers that be." 23

But Dean Cortez in her memorandum states that "However, nowhere on

public record is there hard evidence on this. The only figures given in the
course of the committee hearings were to the effect that out of some 1,700
members of the judiciary, between 10 to 15 were of the undesirable
category, i.e. misfit, incompetent or corrupts. (Barredo, J., before the
Committee on Justice, human Rights and Good Government, December 4,
1980)," and that "(I)f this be the case, the unprecedented, sweeping and
wholesale abolition of judicial offices becomes an arbitrary act, the effect of
which is to assert the power to remove all the incumbents guilty or innocent
without due process of law." Now would it be of any avail to beg the question
and assert that due process is not available in mass abolitions of courts.
Justice Barredo, however, without citing any hard evidence, refers in his
separate concurrence to twin objectives of getting rid of " structural
inadequacies of the system or of the cumbersomeness and technicalitypeppered and dragging procedural rules in force and of "a good number of
those occupying positions in the judiciary (who') make a mockery of justice
and take advantage of their office for personal ends He adds that "it is my
personal assessment of the present situation in our judiciary that its
reorganization has to be of necessity two-pronged, as I have just indicated,
for the most Ideal judicial system with the most perfect procedural rules
cannot satisfy the people and the interests of justice unless the men who
hold positions therein possess the character, competence and sense of
loyalty that can guarantee their devotion to duty and absolute impartiality,
nay, impregnability to all temptations of graft and corruption, including the
usual importunings and the fearsome albeit improper pressures of the
powers that be," 24 and invokes the adage of "grandes males, grandes
remedios" to now uphold the validity of the Act.
Former Senator Diokno in his memorandum anticipates the argument that
"great ills demand drastic cures" thus: "Drastic, yes but not unfair nor
unconstitutional. One does not improve courts by abolishing them, any more
than a doctor cures a patient by killing him. The ills the judiciary suffers from
were caused by impairing its independence; they will not be cured by totally
destroying that independence. To adopt such a course would only breed
more perversity in the administration of justice, just as the abuses of martial
rule have bred more subversion."
12. Finally, as stated by the 19-i 5 integrated Bar of the Philippines 2nd
House of Delegates, "It would, indeed, be most ironical if Judges who are
called upon to give due process cannot count it on themselves. Observance
of procedural due process in the separation of misfits from (he Judiciary is
the right way to attain a laudable objective. '
As stressed by the Chief Justice in the Fortun case, judges are entitled to the
cardinal principles of fairness and due process and the opportunity to be
heard and defend themselves against the accusations made against their
and not to be subjected to harassment and humiliation, and the Court will
repudiate the "oppressive exercise of legal authority." More so, are judges
entitled to such due process when what is at stake is their constitutionally

guaranteed security of tenure and non-impairment of the independence of

the judiciary and the proper exercise of the constitutional power exclusively
vested in the Supreme Court to discipline and remove judges after fair
hearing.
In sum, I see no reason to change the stand submitted by me to the
Presidential Committee on Judicial Reorganization that
Judges of inferior courts should not be summarily removed and branded for
life in such reorganization on the basis of confidential adverse reports as to
their performance, competence or integrity, save those who may voluntarily
resign from office upon being confronted with such reports against them.
The trouble with such ex-parte reports, without due process or hearing, has
been proven from our past experience where a number of honest and
competent judges were summarily removed while others who were generally
believed to be basket cases have remained in the service; and
The power of discipline and dismissal of judges of all inferior courts, from the
Court of Appeals down, has been vested by the 1973 Constitution in the
Supreme Court, and if the judiciary is to be strengthened, it should be left to
clean its own house upon complaint and with the cooperation of the as
grieved parties and after due process and hearing.
The constitutional confrontation and conflict may wen be avoided by holding
that since the changes and provisions of the challenged Act do not
substantially change the nature and functions of the "new courts" therein
provided as compared to the "abolished old courts" but provide for
procedural changes, fixed delineation of jurisdiction and increases in the
number of courts for a more effective and efficient disposition of court cases,
-the incumbent judges guaranteed security of tenure require that they be
retained in the corresponding "new courts."
Fernandez, J., concur.

[G.R. No. 152845. August 5, 2003]

DRIANITA BAGAOISAN, FELY MADRIAGA, SHIRLY TAGABAN, RICARDO

SARANDI, SUSAN IMPERIAL, BENJAMIN DEMDEM, RODOLFO
DAGA, EDGARDO BACLIG, GREGORIO LABAYAN, HILARIO
JEREZ, and MARIA CORAZON CUANANG, petitioners, vs.
NATIONAL TOBACCO ADMINISTRATION, represented by
ANTONIO DE GUZMAN and PERLITA BAULA, respondents.
DECISION
VITUG, J.:
President Joseph Estrada issued on 30 September 1998 Executive Order
No. 29, entitled Mandating the Streamlining of the National Tobacco
Administration (NTA), a government agency under the Department of
Agriculture. The order was followed by another issuance, on 27 October
1998, by President Estrada of Executive Order No. 36, amending Executive
Order No. 29, insofar as the new staffing pattern was concerned, by
increasing from four hundred (400) to not exceeding seven hundred fifty
(750) the positions affected thereby. In compliance therewith, the NTA
prepared and adopted a new Organization Structure and Staffing Pattern
(OSSP) which, on 29 October 1998, was submitted to the Office of the
President.
On 11 November 1998, the rank and file employees of NTA Batac,
among whom included herein petitioners, filed a letter-appeal with the Civil
Service Commission and sought its assistance in recalling the OSSP. On 04
December 1998, the OSSP was approved by the Department of Budget and
Management (DBM) subject to certain revisions. On even date, the NTA
created a placement committee to assist the appointing authority in the
selection and placement of permanent personnel in the revised OSSP. The
results of the evaluation by the committee on the individual qualifications of
applicants to the positions in the new OSSP were then disseminated and
posted at the central and provincial offices of the NTA.
On 10 June 1996, petitioners, all occupying different positions at the
NTA office in Batac, Ilocos Norte, received individual notices of termination of

their employment with the NTA effective thirty (30) days from receipt
thereof. Finding themselves without any immediate relief from their
dismissal from the service, petitioners filed a petition for certiorari,
prohibition andmandamus, with prayer for preliminary mandatory injunction
and/or temporary restraining order, with the Regional Trial Court (RTC) of
Batac, Ilocos Norte, and prayed 1) that a restraining order be immediately issued enjoining the respondents
from enforcing the notice of termination addressed individually to the
petitioners and/or from committing further acts of dispossession and/or
ousting the petitioners from their respective offices;
2) that a writ of preliminary injunction be issued against the respondents,
commanding them to maintain the status quo to protect the rights of the
petitioners pending the determination of the validity of the implementation
of their dismissal from the service; and
3) that, after trial on the merits, judgment be rendered declaring the notice
of termination of the petitioners illegal and the reorganization null and void
and ordering their reinstatement with backwages, if applicable, commanding
the respondents to desist from further terminating their services, and
making the injunction permanent.[1]
The RTC, on 09 September 2000, ordered the NTA to appoint petitioners
in the new OSSP to positions similar or comparable to their respective
former assignments. A motion for reconsideration filed by the NTA was
denied by the trial court in its order of 28 February 2001. Thereupon, the
NTA filed an appeal with the Court of Appeals, raising the following issues:
I. Whether or not respondents submitted evidence as proof that
petitioners, individually, were not the best qualified and
most deserving among the incumbent applicant-employees.
II. Whether or not incumbent permanent employees, including
herein petitioners, automatically enjoy a preferential right
and the right of first refusal to appointments/reappointments
in the new Organization Structure And Staffing Pattern
(OSSP) of respondent NTA.
III. Whether or not respondent NTA in implementing the mandated
reorganization pursuant to E.O. No. 29, as amended by E.O.
No. 36, strictly adhere to the implementing rules on
reorganization, particularly RA 6656 and of the Civil Service
Commission Rules on Government Reorganization.
IV. Whether or not the validity of E.O. Nos. 29 and 36 can be put in
issue in the instant case/appeal.[2]
On 20 February 2002, the appellate court rendered a decision reversing and
setting aside the assailed orders of the trial court.
Petitioners went to this Court to assail the decision of the Court of
Appeals, contending that I. The Court of Appeals erred in making a finding that went beyond
the issues of the case and which are contrary to those of the
trial court and that it overlooked certain relevant facts not
disputed by the parties and which, if properly considered,

would justify a different conclusion;

II. The Court of Appeals erred in upholding Executive Order Nos. 29
and 36 of the Office of the President which are mere
administrative issuances which do not have the force and
effect of a law to warrant abolition of positions and/or
effecting total reorganization;
III. The Court of Appeals erred in holding that petitioners removal
from the service is in accordance with law;
IV. The Court of Appeals erred in holding that respondent NTA was
not guilty of bad faith in the termination of the services of
petitioners; (and)
V. The Court of Appeals erred in ignoring case law/jurisprudence in
the abolition of an office.[3]
In its resolution of 10 July 2002, the Court required the NTA to file its
comment on the petition. On 18 November 2002, after the NTA had filed its
comment of 23 September 2002, the Court issued its resolution denying the
petition for failure of petitioners to sufficiently show any reversible error on
the part of the appellate court in its challenged decision so as to warrant the
exercise by this Court of its discretionary appellate jurisdiction. A motion for
reconsideration filed by petitioners was denied in the Courts resolution of 20
January 2002.
On 21 February 2003, petitioners submitted a Motion to Admit Petition
For En Banc Resolution of the case allegedly to address a basic question, i.e.,
the legal and constitutional issue on whether the NTA may be reorganized by
an executive fiat, not by legislative action.[4] In their Petition for an En Banc
Resolution petitioners would have it that 1. The Court of Appeals decision upholding the reorganization of the National
Tobacco Administration sets a dangerous precedent in that:
a) A mere Executive Order issued by the Office of the President and procured
by a government functionary would have the effect of a blanket authority to
reorganize a bureau, office or agency attached to the various executive
departments;
b) The President of the Philippines would have the plenary power to
reorganize the entire government Bureaucracy through the issuance of an
Executive Order, an administrative issuance without the benefit of due
deliberation, debate and discussion of members of both chambers of the
Congress of the Philippines;
c) The right to security of tenure to a career position created by law or
statute would be defeated by the mere adoption of an Organizational
Structure and Staffing Pattern issued pursuant to an Executive Order which
is not a law and could thus not abolish an office created by law;
2. The case law on abolition of an office would be disregarded, ignored and
abandoned if the Court of Appeals decision subject matter of this Petition
would remain undisturbed and untouched. In other words, previous doctrines
and precedents of this Highest Court would in effect be reversed and/or
modified with the Court of Appeals judgment, should it remain unchallenged.
3. Section 4 of Executive Order No. 245 dated July 24, 1987 (Annex D,
Petition), issued by the Revolutionary government of former President
Corazon Aquino, and the law creating NTA, which provides that the

governing body of NTA is the Board of Directors, would be rendered

meaningless, ineffective and a dead letter law because the challenged NTA
reorganization which was erroneously upheld by the Court of Appeals was
adopted and implemented by then NTA Administrator Antonio de Guzman
without the corresponding authority from the Board of Directors as
mandated therein. In brief, the reorganization is an ultra vires act of the NTA
Administrator.
4. The challenged Executive Order No. 29 issued by former President Joseph
Estrada but unsigned by then Executive Secretary Ronaldo Zamora would in
effect be erroneously upheld and given legal effect as to supersede, amend
and/or modify Executive Order No. 245, a law issued during the Freedom
Constitution of President Corazon Aquino. In brief, a mere executive order
would amend, supersede and/or render ineffective a law or statute. [5]
In order to allow the parties a full opportunity to ventilate their views on
the matter, the Court ultimately resolved to hear the parties in oral
argument. Essentially, the core question raised by them is whether or not
the President, through the issuance of an executive order, can validly carry
out the reorganization of the NTA.
Notwithstanding the apparent procedural lapse on the part of petitioner
to implead the Office of the President as party respondent pursuant to
Section 7, Rule 3, of the 1997 Revised Rules of Civil Procedure, [6] this Court
resolved to rule on the merits of the petition.
Buklod ng Kawaning EIIB vs. Zamora[7] ruled that the President, based
on existing laws, had the authority to carry out a reorganization in any
branch or agency of the executive department. In said case, Buklod ng
Kawaning EIIB challenged the issuance, and sought the nullification, of
Executive Order No. 191 (Deactivation of the Economic Intelligence and
Investigation Bureau) and Executive Order No. 223 (Supplementary
Executive Order No. 191 on the Deactivation of the Economic Intelligence
and Investigation Bureau and for Other Matters) on the ground that they
were issued by the President with grave abuse of discretion and in violation
of their constitutional right to security of tenure. The Court explained:
The general rule has always been that the power to abolish a public office is
lodged with the legislature. This proceeds from the legal precept that the
power to create includes the power to destroy. A public office is either
created by the Constitution, by statute, or by authority of law. Thus, except
where the office was created by the Constitution itself, it may be abolished
by the same legislature that brought it into existence.
The exception, however, is that as far as bureaus, agencies or offices in the
executive department are concerned, the Presidents power of control may
justify him to inactivate the functions of a particular office, or certain laws
may grant him the broad authority to carry out reorganization measures.
The case in point is Larin v. Executive Secretary [280 SCRA 713]. In this
case, it was argued that there is no law which empowers the President to
reorganize the BIR. In decreeing otherwise, this Court sustained the following
legal basis, thus:
`Initially, it is argued that there is no law yet which empowers the President
to issue E.O. No. 132 or to reorganize the BIR.

`We do not agree.

`x x x x x x
`Section 48 of R.A. 7645 provides that:
``Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the
Executive Branch. The heads of departments, bureaus and offices and
agencies are hereby directed to identify their respective activities which are
no longer essential in the delivery of public services and which may be
scaled down, phased out or abolished, subject to civil service rules and
regulations. x x x. Actual scaling down, phasing out or abolition of the
activities shall be effected pursuant to Circulars or Orders issued for the
purpose by the Office of the President.
`Said provision clearly mentions the acts of `scaling down, phasing out and
abolition of offices only and does not cover the creation of offices or transfer
of functions. Nevertheless, the act of creating and decentralizing is included
in the subsequent provision of Section 62 which provides that:
``Sec. 62. Unauthorized organizational changes. Unless otherwise created
by law or directed by the President of the Philippines, no organizational unit
or changes in key positions in any department or agency shall be authorized
in their respective organization structures and be funded from
appropriations by this Act.
`The foregoing provision evidently shows that the President is authorized to
effect organizational changes including the creation of offices in the
department or agency concerned.
`x x x x x x
`Another legal basis of E.O. No. 132 is Section 20, Book III of E.O. No. 292
which states:
``Sec. 20. Residual Powers. Unless Congress provides otherwise, the
President shall exercise such other powers and functions vested in the
President which are provided for under the laws and which are not
specifically enumerated above or which are not delegated by the President
in accordance with law.
`This provision speaks of such other powers vested in the President under
the law. What law then gives him the power to reorganize? It is Presidential
Decree No. 1772 which amended Presidential Decree No. 1416. These
decrees expressly grant the President of the Philippines the continuing
authority to reorganize the national government, which includes the power
to group, consolidate bureaus and agencies, to abolish offices, to transfer
functions, to create and classify functions, services and activities and to
standardize salaries and materials. The validity of these two decrees are
unquestionable. The 1987 Constitution clearly provides that `all laws,
decrees, executive orders, proclamations, letter of instructions and other
executive issuances not inconsistent with this Constitution shall remain
operative until amended, repealed or revoked. So far, there is yet no law
amending or repealing said decrees.
Now, let us take a look at the assailed executive order.
In the whereas clause of E.O. No. 191, former President Estrada anchored his
authority to deactivate EIIB on Section 77 of Republic Act 8745 (FY 1999
General Appropriations Act), a provision similar to Section 62 of R.A. 7645

quoted in Larin, thus:

`Sec. 77. Organized Changes. Unless otherwise provided by law or directed
by the President of the Philippines, no changes in key positions or
organizational units in any department or agency shall be authorized in their
respective organizational structures and funded from appropriations
provided by this Act.
We adhere to the x x x ruling in Larin that this provision recognizes the
authority of the President to effect organizational changes in the department
or agency under the executive structure. Such a ruling further finds support
in Section 78 of Republic Act No. 8760. Under this law, the heads of
departments, bureaus, offices and agencies and other entities in the
Executive Branch are directed (a) to conduct a comprehensive review of this
respective mandates, missions, objectives, functions, programs, projects,
activities and systems and procedures; (b) identify activities which are no
longer essential in the delivery of public services and which may be scaled
down, phased-out or abolished; and (c) adopt measures that will result in the
streamlined organization and improved overall performance of their
respective agencies. Section 78 ends up with the mandate that the actual
streamlining and productivity improvement in agency organization and
operation shall be effected pursuant to Circulars or Orders issued for the
purpose by the Office of the President. The law has spoken clearly. We are
left only with the duty to sustain.
But of course, the list of legal basis authorizing the President to reorganize
any department or agency in the executive branch does not have to end
here. We must not lose sight of the very source of the power that which
constitutes an express grant of power. Under Section 31, Book III of
Executive Order No. 292 (otherwise known as the Administrative Code of
1987), the President, subject to the policy in the Executive Office and in
order to achieve simplicity, economy and efficiency, shall have the
continuing authority to reorganize the administrative structure of the Office
of the President. For this purpose, he may transfer the functions of other
Departments or Agencies to the Office of the President. In Canonizado vs.
Aguirre [323 SCRA 312], we ruled that reorganization involves the reduction
of personnel, consolidation of offices, or abolition thereof by reason of
economy or redundancy of functions. It takes place when there is an
alteration of the existing structure of government offices or units therein,
including the lines of control, authority and responsibility between them. The
EIIB is a bureau attached to the Department of Finance. It falls under the
Office of the President. Hence, it is subject to the Presidents continuing
authority to reorganize.
It having been duly established that the President has the authority to carry
out reorganization in any branch or agency of the executive department,
what is then left for us to resolve is whether or not the reorganization is
valid. In this jurisdiction, reorganizations have been regarded as valid
provided they are pursued in good faith. Reorganization is carried out in
`good faith if it is for the purpose of economy or to make bureaucracy more
efficient. Pertinently, Republic Act No. 6656 provides for the circumstances
which may be considered as evidence of bad faith in the removal of civil
service employees made as a result of reorganization, to wit: (a) where there
is a significant increase in the number of positions in the new staffing
pattern of the department or agency concerned; (b) where an office is

abolished and another performing substantially the same functions is

created; (c) where incumbents are replaced by those less qualified in terms
of status of appointment, performance and merit; (d) where there is a
classification of offices in the department or agency concerned and the
reclassified offices perform substantially the same functions as the original
offices, and (e) where the removal violates the order of separation.[8]
The Court of Appeals, in its now assailed decision, has found no
evidence of bad faith on the part of the NTA; thus In the case at bar, we find no evidence that the respondents committed bad
faith in issuing the notices of non-appointment to the petitioners.
Firstly, the number of positions in the new staffing pattern did not increase.
Rather, it decreased from 1,125 positions to 750. It is thus natural that ones
position may be lost through the removal or abolition of an office.
Secondly, the petitioners failed to specifically show which offices were
abolished and the new ones that were created performing substantially the
same functions.
Thirdly, the petitioners likewise failed to prove that less qualified employees
were appointed to the positions to which they applied.
x x x x x x x x x.
Fourthly, the preference stated in Section 4 of R.A. 6656, only means that
old employees should be considered first, but it does not necessarily follow
that they should then automatically be appointed. This is because the law
does not preclude the infusion of new blood, younger dynamism, or
necessary talents into the government service, provided that the acts of the
appointing power are bonafide for the best interest of the public service and
the person chosen has the needed qualifications.[9]
These findings of the appellate court are basically factual which this Court
must respect and be held bound.
It is important to emphasize that the questioned Executive
Orders No. 29 and No. 36 have not abolished the National Tobacco
Administration but merely mandated its reorganization through the
streamlining or reduction of its personnel. Article VII, Section 17,[10] of
the Constitution, expressly grants the President control of all executive
departments, bureaus, agencies and offices which may justify an executive
action to inactivate the functions of a particular office or to carry out
reorganization measures under a broad authority of law.[11]Section 78 of the
General Provisions of Republic Act No. 8522 (General Appropriations Act of
FY 1998) has decreed that the President may direct changes in the
organization and key positions in any department, bureau or agency
pursuant to Article VI, Section 25, [12] of the Constitution, which grants to the
Executive Department the authority to recommend the budget necessary for
its operation. Evidently, this grant of power includes the authority to
evaluate each and every government agency, including the determination of
the most economical and efficient staffing pattern, under the Executive
Department.
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D.

Zamora, in his capacity as the Executive Secretary, et al.,[13] this Court has
had occasion to also delve on the Presidents power to reorganize the Office
of the President under Section 31(2) and (3) of Executive Order No. 292 and
the power to reorganize the Office of the President Proper. The Court has
there observed:
x x x. Under Section 31(1) of EO 292, the President can reorganize the Office
of the President Proper by abolishing, consolidating or merging units, or by
transferring functions from one unit to another. In contrast, under Section
31(2) and (3) of EO 292, the Presidents power to reorganize offices outside
the Office of the President Proper but still within the Office of the President is
limited to merely transferring functions or agencies from the Office of the
President to Departments or Agencies, and vice versa.
The provisions of Section 31, Book III, Chapter 10, of Executive Order No.
292 (Administrative Code of 1987), above-referred to, reads thusly:
SEC. 31. Continuing Authority of the President to Reorganize his Office. The
President, subject to the policy in the Executive Office and in order to
achieve simplicity, economy and efficiency, shall have continuing authority
to reorganize the administrative structure of the Office of the President. For
this purpose, he may take any of the following actions:
(1) Restructure the internal organization of the Office of the President
Proper, including the immediate Offices, the Presidential Special
Assistants/Advisers System and the Common Staff Support System, by
abolishing, consolidating or merging units thereof or transferring functions
from one unit to another;
(2) Transfer any function under the Office of the President to any other
Department or Agency as well as transfer functions to the Office of the
President from other Departments and Agencies; and
(3) Transfer any agency under the Office of the President to any other
department or agency as well as transfer agencies to the Office of the
President from other departments and agencies.
The first sentence of the law is an express grant to the President of a
continuing authority to reorganize the administrative structure of
the Office of the President. The succeeding numbered paragraphs are
not in the nature of provisos that unduly limit the aim and scope of the grant
to the President of the power to reorganize but are to be viewed in
consonance therewith. Section 31(1) of Executive Order No. 292 specifically
refers to the Presidents power to restructure the internal organization of the
Office of the President Proper, by abolishing, consolidating or merging units
hereof or transferring functions from one unit to another, while Section 31(2)
and (3) concern executive offices outside the Office of the President
Properallowing the President to transfer any function under the Office of the
President to any other Department or Agency and vice-versa, and the
transfer of any agency under the Office of the President to any other
department or agency and vice-versa.[14]
In the present instance, involving neither an abolition nor transfer of
offices, the assailed action is a mere reorganization under the general
provisions of the law consisting mainly ofstreamlining the NTA in the
interest of simplicity, economy and efficiency. It is an act well within the

authority of President motivated and carried out, according to the findings of

the appellate court, in good faith, a factual assessment that this Court could
only but accept.[15]
In passing, relative to petitioners Motion for an En Banc Resolution of
the Case, it may be well to remind counsel, that the Court En Banc is not an
appellate tribunal to which appeals from a Division of the Court may be
taken. A Division of the Court is the Supreme Court as fully and veritably as
the Court En Banc itself and a decision of its Division is as authoritative and
final as a decision of the Court En Banc. Referrals of cases from a Division to
the Court En Banc do not take place as just a matter of routine but only on
such specified grounds as the Court in its discretion may allow. [16]
WHEREFORE, the Motion to Admit Petition for En Banc resolution and
the Petition for an En Banc Resolution are DENIED for lack of merit. Let entry
of judgment be made in due course. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
concur.

The DENR hereby adopts a policy to establish at least one Community

Environment and Natural Resources Office (CENRO) or Administrative Unit
per Congressional District except in the Autonomous Region of Muslim
Mindanao (ARMM) and the National Capital Region (NCR). The Regional
Executive Directors (REDs) are hereby authorized to realign/relocate existing
CENROs and implement this policy in accordance with the attached
distribution list per region which forms part of this Order. Likewise, the
following realignment and administrative arrangements are hereby adopted:
xxxxxxxxx
1.6. The supervision of the Provinces of South Cotabato and Sarangani shall
be transferred from Region XI to XII.[4]

[G.R. No. 149724. August 19, 2003]

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES,

represented herein by its Secretary, HEHERSON T. ALVAREZ,
petitioner, vs. DENR REGION 12 EMPLOYEES, represented by
BAGUIDALI KARIM, Acting President of COURAGE (DENR
Region 12 Chapter), respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Resolutions dated May 31,
2000[1] of the Court of Appeals which dismissed the petition for certiorari in
CA-G.R. SP No. 58896, and its Resolution dated August 20, 2001 [2], which
denied the motion for reconsideration.
The facts are as follows:
On November 15, 1999, Regional Executive Director of the Department
of Environment and Natural Resources for Region XII, Israel C. Gaddi, issued
a Memorandum[3] directing the immediate transfer of the DENR XII Regional
Offices from Cotabato City to Koronadal (formerly Marbel), South Cotabato.
The Memorandum was issued pursuant to DENR Administrative Order No.
99-14, issued by then DENR Secretary Antonio H. Cerilles, which reads in
part:
Subject: Providing for the Redefinition of Functions and Realignment
of Administrative Units in the Regional and Field Offices:
Pursuant to Executive Order No. 192, dated June 10, 1987 and as an interim
administrative arrangement to improve the efficiency and effectiveness of
the Department of Environment and Natural Resources (DENR) in delivering
its services pending approval of the government-wide reorganization by
Congress, the following redefinition of functions and realignment of
administrative units in the regional and field offices are hereby promulgated:
Section 1. Realignment of Administrative Units:

Respondents, employees of the DENR Region XII who are members of

the employees association, COURAGE, represented by their Acting President,
Baguindanai A. Karim, filed with the Regional Trial Court of Cotabato, a
petition for nullity of orders with prayer for preliminary injunction.
On December 8, 1999, the trial court issued a temporary restraining
order enjoining petitioner from implementing the assailed Memorandum.
The dispositive portion of the Order reads:
WHEREFORE, defendants DENR Secretary Antonio H. Cerilles and Regional
Executive Director Israel C. Gaddi are hereby ordered to cease and desist
from doing the act complained of, namely, to stop the transfer of DENR
[Region] 12 offices from Cotabato City to Korandal (Marbel), South Cotabato.
xxx xxx xxx.
SO ORDERED.[5]
Petitioner filed a Motion for Reconsideration with Motion to Dismiss,
raising the following grounds:
I.
The power to transfer the Regional Office of the Department of Environment
and Natural Resources (DENR) is executive in nature.
II.
The decision to transfer the Regional Office is based on Executive Order No.
429, which reorganized Region XII.
III.
The validity of EO 429 has been affirmed by the Honorable Supreme Court in
the Case of Chiongbian vs. Orbos (1995) 245 SCRA 255.
IV.
Since the power to reorganize the Administrative Regions is Executive in
Nature citing Chiongbian, the Honorable Court has no jurisdiction to
entertain this petition.[6]
On January 14, 2000, the trial court rendered judgment, the dispositive
portion of which reads:

CONSEQUENTLY, order is hereby issued ordering the respondents herein to

cease and desist from enforcing their Memorandum Order dated November
15, 1999 relative to the transfer of the DENR Regional Offices from Region
12 to Region 11 at Koronadal, South Cotabato for being bereft of legal basis
and issued with grave abuse of discretion amounting to lack or excess of
jurisdiction on their part, and they are further ordered to return back the
seat of the DENR Regional Offices 12 to Cotabato City.
SO ORDERED.[7]
Petitioners motion for reconsideration was denied in an Order dated
April 10, 2000. A petition for certiorari under Rule 65 was filed before the
Court of Appeals, docketed as CA-G.R. SP No. 58896. The petition was
dismissed outright for: (1) failure to submit a written explanation why
personal service was not done on the adverse party; (2) failure to attach
affidavit of service; (3) failure to indicate the material dates when copies of
the orders of the lower court were received; (4) failure to attach certified
true copy of the order denying petitioners motion for reconsideration; (5) for
improper verification, the same being based on petitioners knowledge and
belief, and (6) wrong remedy of certiorari under Rule 65 to substitute a lost
appeal.[8]
The motion for reconsideration was denied in a resolution dated August
20, 2001.[9] Hence, this petition based on the following assignment of errors:
I
RULES OF PROCEDURE CAN NOT BE USED TO DEFEAT THE ENDS OF
SUBSTANTIAL JUSTICE
II
THE DECISION OF THE LOWER COURT DATED 14 JANUARY 2000 WHICH WAS
AFFIRMED IN THE QUESTIONED RESOLUTIONS OF THE COURT OF APPEALS
DATED 31 MAY 2000 AND 20 AUGUST 2001 IS PATENTLY ILLEGAL AND
SHOULD BE NULLIFIED, CONSIDERING THAT:
A. RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST
PETITIONER AS THEY HAVE NO RIGHT TO CAUSE THE
DENR REGION 12 OFFICE TO REMAIN IN COTABATO
CITY.
B. THE STATE DID NOT GIVE ITS CONSENT TO BE SUED.
C. THE DECISION OF THE LOWER COURT DATED 14 JANUARY
2000 IS CONTRARY TO THE RULE OF PRESUMPTION
OF REGULARITY IN THE PERFORMANCE OF OFFICIAL
FUNCTIONS.
D. IN ANY EVENT, THE DECISION OF THE LOWER COURT
DATED 14 JANUARY 2000 IS CONTRARY TO THE
LETTER AND INTENT OF EXECUTIVE ORDER NO. 429
AND REPUBLIC ACT NO. 6734.
E. THE DETERMINATION OF THE PROPRIETY AND PRACTICALITY
OF THE TRANSFER OF REGIONAL OFFICES IS
INHERENTLY EXECUTIVE, AND THEREFORE, NONJUSTICIABLE.[10]

In essence, petitioner argues that the trial court erred in enjoining it

from causing the transfer of the DENR XII Regional Offices, considering that
it was done pursuant to DENR Administrative Order 99-14.
The issues to be resolved in this petition are: (1) Whether DAO-99-14
and the Memorandum implementing the same were valid; and (2) Whether
the DENR Secretary has the authority to reorganize the DENR.
Prefatorily, petitioner prays for a liberal application of procedural rules
considering the greater interest of justice.
This Court is fully aware that procedural rules are not to be simply
disregarded for these prescribed procedures ensure an orderly and speedy
administration of justice. However, it is equally true that litigation is not
merely a game of technicalities. Time and again, courts have been guided
by the principle that the rules of procedure are not to be applied in a very
rigid and technical manner, as rules of procedure are used only to help
secure and not to override substantial justice. [11] Thus, if the application of
the Rules would tend to frustrate rather than promote justice, it is always
within the power of this Court to suspend the rules, or except a particular
case from its operation.[12]
Despite the presence of procedural flaws, we find it necessary to
address the issues because of the demands of public interest, including the
need for stability in the public service and the serious implications this case
may cause on the effective administration of the executive department.
Although no appeal was made within the reglementary period to appeal,
nevertheless, the departure from the general rule that the extraordinary writ
of certiorari cannot be a substitute for the lost remedy of appeal is justified
because the execution of the assailed decision would amount to an
oppressive exercise of judicial authority.[13]
Petitioner maintains that the assailed DAO-99-14 and the implementing
memorandum were valid and that the trial court should have taken judicial
notice of Republic Act No. 6734, otherwise known as An Organic Act for the
Autonomous Region in Muslim Mindanao, and its implementing Executive
Order 429,[14] as the legal bases for the issuance of the assailed DAO-99-14.
Moreover, the validity of R.A. No. 6734 and E.O. 429 were upheld in the case
of Chiongbian v. Orbos.[15] Thus, the respondents cannot, by means of an
injunction, force the DENR XII Regional Offices to remain in Cotabato City, as
the exercise of the authority to transfer the same is executive in nature.
It is apropos to reiterate the elementary doctrine of qualified political
agency, thus:
Under this doctrine, which recognizes the establishment of a single
executive, all executive and administrative organizations are adjuncts of the
Executive Department, the heads of the various executive departments are
assistants and agents of the Chief Executive, and, except in cases where the
Chief Executive is required by the Constitution or law to act in person or the
exigencies of the situation demand that he act personally, the multifarious
executive and administrative functions of the Chief Executive are performed
by and through the executive departments, and the acts of the Secretaries

of such departments, performed and promulgated in the regular course of

business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive.[16]
This doctrine is corollary to the control power of the President as
provided for under Article VII, Section 17 of the 1987 Constitution, which
reads:
Sec. 17. The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.
However, as head of the Executive Department, the President cannot
be expected to exercise his control (and supervisory) powers personally all
the time. He may delegate some of his powers to the Cabinet members
except when he is required by the Constitution to act in person or the
exigencies of the situation demand that he acts personally. [17]
In Buklod ng Kawaning EIIB v. Zamora, [18] this Court upheld the
continuing authority of the President to carry out the reorganization in any
branch or agency of the executive department. Such authority includes the
creation, alteration or abolition of public offices.[19] The Chief Executives
authority to reorganize the National Government finds basis in Book III,
Section 20 of E.O. No. 292, otherwise known as the Administrative Code of
1987, viz:
Section 20. Residual Powers. Unless Congress provides otherwise, the
President shall exercise such other powers and functions vested in the
President which are provided for under the laws and which are not
specifically enumerated above or which are not delegated by the President
in accordance with law.
Further, in Larin v. Executive Secretary, [20] this Court had occasion to
rule:
This provision speaks of such other powers vested in the President under the
law. What law then gives him the power to reorganize? It is Presidential
Decree No. 1772 which amended Presidential Decree No. 1416. These
decrees expressly grant the President of the Philippines the continuing
authority to reorganize the national government, which includes the power
to group, consolidate bureaus and agencies, to abolish offices, to transfer
functions, to create and classify functions, services and activities and to
standardize salaries and materials. The validity of these two decrees is
unquestionable. The 1987 Constitution clearly provides that all laws,
decrees, executive orders, proclamations, letters of instructions and other
executive issuances not inconsistent with this Constitution shall remain
operative until amended, repealed or revoked. So far, there is yet no law
amending or repealing said decrees.
Applying the doctrine of qualified political agency, the power of the
President to reorganize the National Government may validly be delegated
to his cabinet members exercising control over a particular executive
department. Thus, in DOTC Secretary v. Mabalot,[21] we held that the
President through his duly constituted political agent and alter ego, the

DOTC Secretary may legally and validly decree the reorganization of the
Department, particularly the establishment of DOTC-CAR as the LTFRB
Regional Office at the Cordillera Administrative Region, with the concomitant
transfer and performance of public functions and responsibilities
appurtenant to a regional office of the LTFRB.
Similarly, in the case at bar, the DENR Secretary can validly reorganize
the DENR by ordering the transfer of the DENR XII Regional Offices from
Cotabato City to Koronadal, South Cotabato. The exercise of this authority by
the DENR Secretary, as an alter ego, is presumed to be the acts of the
President for the latter had not expressly repudiated the same.
The trial court should have taken judicial notice of R.A. No. 6734, as
implemented by E.O. No. 429, as legal basis of the Presidents power to
reorganize the executive department, specifically those administrative
regions which did not vote for their inclusion in the ARMM. It is axiomatic
that a court has the mandate to apply relevant statutes and jurisprudence in
determining whether the allegations in a complaint establish a cause of
action. While it focuses on the complaint, a court clearly cannot disregard
decisions material to the proper appreciation of the questions before it. [22] In
resolving the motion to dismiss, the trial court should have taken cognizance
of the official acts of the legislative, executive, and judicial departments
because they are proper subjects of mandatory judicial notice as provided
by Section 1 of Rule 129 of the Rules of Court, to wit:
A court shall take judicial notice, without the introduction of evidence, of the
existence and territorial extent of states, their political history, forms of
government and symbols of nationality, the law of nations, the admiralty
and maritime courts of the world and their seals, the political constitution
and history of the Philippines, the official acts of the legislative,
executive and judicial departments of the Philippines, the laws of
nature, the measure of time, and the geographical divisions. (Emphasis
supplied)
Article XIX, Section 13 of R.A. No. 6734 provides:
SECTION 13. The creation of the Autonomous Region in Muslim Mindanao
shall take effect when approved by a majority of the votes cast by the
constituent units provided in paragraph (2) of Sec. 1 of Article II of this Act in
a plebiscite which shall be held not earlier than ninety (90) days or later
than one hundred twenty (120) days after the approval of this Act: Provided,
That only the provinces and cities voting favorably in such plebiscite shall be
included in the Autonomous Region in Muslim Mindanao. The provinces and
cities which in the plebiscite do not vote for inclusion in the Autonomous
Region shall remain in the existing administrative regions: Provided,
however, That the President may, by administrative determination, merge
the existing regions.
Pursuant to the authority granted by the aforequoted provision, then
President Corazon C. Aquino issued on October 12, 1990 E.O. 429, Providing
for the Reorganization of the Administrative Regions in Mindanao. Section 4
thereof provides:

SECTION 4. REGION XII, to be known as CENTRAL MINDANAO, shall include

the following provinces and cities:
Provinces
Sultan Kudarat
Cotabato
South Cotabato
Cities
Cotabato
General Santos
The Municipality of Koronadal (Marinduque) in South Cotabato shall serve as
the regional center.
In Chiongbian v. Orbos, this Court stressed the rule that the power of
the President to reorganize the administrative regions carries with it the
power to determine the regional centers. In identifying the regional centers,
the President purposely intended the effective delivery of the field services
of government agencies.[23] The same intention can be gleaned from the
preamble of the assailed DAO-99-14 which the DENR sought to achieve, that
is, to improve the efficiency and effectiveness of the DENR in delivering its
services.
It may be true that the transfer of the offices may not be timely
considering that: (1) there are no buildings yet to house the regional offices
in Koronadal, (2) the transfer falls on the month of Ramadan, (3) the children
of the affected employees are already enrolled in schools in Cotabato City,
(4) the Regional Development Council was not consulted, and (5) the
Sangguniang Panglungsond, through a resolution, requested the DENR
Secretary to reconsider the orders. However, these concern issues
addressed to the wisdom of the transfer rather than to its legality. It is basic
in our form of government that the judiciary cannot inquire into the wisdom
or expediency of the acts of the executive or the legislative department, [24]
for each department is supreme and independent of the others, and each is
devoid of authority not only to encroach upon the powers or field of action
assigned to any of the other department, but also to inquire into or pass
upon the advisability or wisdom of the acts performed, measures taken or
decisions made by the other departments.[25]
The Supreme Court should not be thought of as having been tasked
with the awesome responsibility of overseeing the entire bureaucracy.
Unless there is a clear showing of constitutional infirmity or grave abuse of
discretion amounting to lack or excess of jurisdiction, the Courts exercise of
the judicial power, pervasive and limitless it may seem to be, still must
succumb to the paramount doctrine of separation of powers. [26] After a
careful review of the records of the case, we find that this jurisprudential
element of abuse of discretion has not been shown to exist.
WHEREFORE, in view of the foregoing, the petition for review is
GRANTED. The resolutions of the Court of Appeals in CA-G.R. SP No. 58896
dated May 31, 2000 and August 20, 2001, as well as the decision dated
January 14, 2000 of the Regional Trial Court of Cotabato City, Branch 15, in
Civil Case No 389, are REVERSED and SET ASIDE. The permanent injunction,
which enjoined the petitioner from enforcing the Memorandum Order of the

DENR XII Regional Executive Director, is LIFTED.

SO ORDERED.
Vitug, (Acting Chairman), Carpio, and Azcuna, JJ., concur.
Davide, Jr., C.J., (Chairman), abroad, on official business.
[G.R. Nos. L-8895 & L-9191. April 30, 1957.]
SALVADOR ARANETA, ETC., ET AL., Petitioners, v. THE HON. MAGNO
S. GATMAITAN, ETC., ET AL., Respondents. EXEQUIEL SORIANO, ET
AL., Petitioners-Appellees, v. SALVADOR ARANETA, ETC., ET AL.,
Respondents-Appellants.
Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose
G. Bautista and Solicitor Troadio T. Quiazon, for Petitioners.
San Juan, Africa & Benedicto for Respondents.
SYLLABUS
1.
PLEADING
AND
PRACTICE;
ACTIONS;
DECLARATORY
RELIEF;
CONSTITUTIONALITY OF EXECUTIVE ORDER PROPER SUBJECT OF ACTION.
The constitutionality of an executive order can be ventilated in a declaratory
relief proceeding. (Hilado v. De la Costa, 83 Phil., 471).
2. ID.; APPEALS; EFFECT ON EXECUTION OF JUDGMENT; EXCEPTION. It is
an elementary rule of procedure that an appeal stays the execution of a
judgment. However in injunction, receivership and patent accounting cases,
a judgment shall not be stayed after its rendition and before an appeal is
taken or during the pendency of an appeal unless otherwise ordered by the
court. (Sec. 4, Rule 39, Rules of Court).
3. ID.; ID.; ID.; INJUNCTION; ISSUANCE RESTS IN SOUND DISCRETION OF
COURT; CASE AT BAR. The States counsel contends that while judgment
could be stayed in injunction, receivership and patent accounting cases, the
present complaint, although styled "Injunction and/or Declaratory Relief with
Preliminary Injunction," is one for declaratory relief, there being no
allegation sufficient to convince the Court that the plaintiffs intended it to be
one for injunction. But aside from the title of the complaint, plaintiffs pray for
the declaration of the nullity of Executive Orders Nos. 22, 66 and 80; the
issuance of a writ of preliminary injunction, and for such other relief as may
be deemed just and equitable. This Court has already held that there are
only two requisites to be satisfied if an injunction is to issue, namely, the
existence of the right sought to be protected, and that the acts against
which the injunction is to be directed are violative of said right (North Negros
Sugar Co., Inc. v. Serafin Hidalgo, 63 Phil., 664). There is no question that in
the case at bar, at least 11 of the complaining trawl operators were duly
licensed to operate in any of the national waters of the Philippines, and it is

undeniable that the executive enactments sought to be annulled are

detrimental to their interests. And considering further that the granting or
refusal of an injunction, whether temporary or permanent, rests in the sound
discretion of the Court, taking into account the circumstances and the facts
of the particular case (Rodulfa v. Alfonso, 42 Off. Gaz., 2439), the trial Court
committed no abuse of discretion when it treated the complaint as one for
injunction and declaratory relief and executed the judgment pursuant to the
provisions of section 4 of Rule 39 of the Rules of Court.

Order No. 80 absolutely prohibiting fishing by means of trawls in all waters

comprised within the San Miguel Bay, he did nothing but show an anxious
regard for the welfare of the inhabitants of said coastal province and dispose
of issues of general concern (Section 63, Revised Administrative Code) which
were in consonance and strict conformity with the law. The exercise of such
authority did not, therefore, constitute an undue delegation of the powers of
Congress.

4. ID.; ID.; ACTION AGAINST GOVERNMENT OFFICIALS IS ONE AGAINST

GOVERNMENT; BOND REQUIREMENT. An Action against Government
officials sued in their official capacity, is essentially one against the
Government, and to require these officials to file a bond would be indirectly
a requirement against the Government, for as regards bonds or damages
that may be proved, if any, the real party in interest would be the Republic
of the Philippines (L. S. Moom and Co. v. Harrison, 43 Phil., 39; Salgado v.
Ramos, 64 Phil., 724-727, and others). The reason for this pronouncement is
understandable; the State undoubtedly is always solvent (Tolentino v. Carlos,
66 Phil., 140; Government of the P. I. v. Judge of First Instance of Iloilo, 34
Phil., 157, cited in Joaquin Gutierrez Et. Al. v. Camus Et. Al., 96 Phil., 114).

DECISION

5. FISHERIES LAW; TRAWL FISHING; WHO MAY BAN OR RESTRICT TRAWL

FISHING; POWER OF PRESIDENT THROUGH EXECUTIVE ORDERS, TO BAN
TRAWL FISHING. Under sections 75 and 83 of the Fisheries Law, the
restriction and banning of trawl fishing from all Philippine waters come
within the powers of the Secretary of Agriculture and Natural Resources,
who, in compliance with his duties may even cause the criminal prosecution
of those who in violation of his instructions, regulations or orders are caught
fishing with trawls in Philippine waters. However, as the Secretary of
Agriculture and Natural Resources exercises its functions subject to the
general supervision and control of the President of the Philippines (Section
75, Revised Administrative Code), the President can exercise the same
power and authority through executive orders, regulations, decrees and
proclamations upon recommendation of the Secretary concerned (Section
79-A, Revised Administrative Code). Hence, Executive Orders Nos. 22, 66
and 80, series of 1954, restricting and banning of trawl fishing from San
Miguel Bay (Camarines) are valid and issued by authority of law.
6. ID.; ID.; ID.; ID.; EXERCISE OF AUTHORITY BY THE PRESIDENT DOES NOT
CONSTITUTE UNDUE DELEGATION OF LEGISLATIVE POWERS. For the
protection of fry or fish eggs and small and immature fishes, Congress
intended with the promulgation of Act No. 4003, to prohibit the use of any
fish net or fishing device like trawl nets that could endanger and deplete the
supply of sea food, and to that end authorized the Secretary of Agriculture
and Natural Resources to provide by regulations such restrictions as he
deemed necessary in order to preserve the aquatic resources of the land. In
so far as the protection of fish fry or fish eggs is concerned the Fisheries Act
is complete in itself leaving only to the Secretary of Agriculture & Natural
Resources the promulgation of rules and regulations to carry into effect the
legislative intent. Consequently, when the President, in response to the
clamor of the people and authorities of Camarines Sur issued Executive

FELIX, J.:
San Miguel Bay, located between the provinces of Camarines Norte and
Camarines Sur, a part of the National waters of the Philippines with an
extension of about 250 square miles and an average depth of approximately
6 fathoms (Otter trawl explorations in Philippine waters p. 21, Exh. B), is
considered as the most important fishing area in the Pacific side of the Bicol
region. Sometime in 1950, trawl 1 operators from Malabon, Navotas and
other places migrated to this region most of them settling at Sabang,
Calabanga, Camarines Sur, for the purpose of using this particular method of
fishing in said bay. On account of the belief of sustenance fishermen that the
operation of this kind of gear caused the depletion of the marine resources
of that area, there arose a general clamor among the majority of the
inhabitants of coastal towns to prohibit the operation of trawls in San Miguel
Bay. This move was manifested in the resolution of December 18, 1953 (Exh.
F), passed by the Municipal Mayors League condemning the operation of
trawls as the cause of the wanton destruction of the shrimp specie and
resolving to petition the President of the Philippines to regulate fishing in
San Miguel Bay by declaring it closed for trawl fishing at a certain period of
the year. In another resolution dated March 27, 1954, the same League of
Municipal Mayors prayed the President to protect them and the fish
resources of San Miguel Bay by banning the operation of trawls therein (Exh.
4). The Provincial Governor also made proper representations to this effect
and petitions in behalf of the non-trawl fishermen were likewise presented to
the President by social and civic organizations as the NAMFREL (National
Movement for Free Elections) and the COMPADRE (Committee for Philippine
Action in Development, Reconstruction and Education), recommending the
cancellation of the licenses of trawl operators after investigation, if such
inquiry would substantiate the charges that the operation of said fishing
method was detrimental to the welfare of the majority of the inhabitants
(Exh. 2).
In response to these pleas, the President issued on April 5, 1954, Executive
Order No. 22 (50 Off. Gaz., 1421) prohibiting the use of trawls in San Miguel
Bay, but said executive order was amended by Executive Order No. 66,
issued on September 23, 1954 (50 Off. Gaz., 4037), apparently in answer to
a resolution of the Provincial Board of Camarines Sur recommending the
allowance of trawl fishing during the typhoon season only. On November 2,

1954, however, Executive Order No. 80 (50 Off. Gaz., 5198) was issued
reviving Executive Order No. 22, to take effect after December 31, 1954.
A group of Otter trawl operators took the matter to the court by filing a
complaint for injunction and/or declaratory relief with preliminary injunction
with the Court of First Instance of Manila, docketed as Civil Case No. 24867,
praying that a writ of preliminary injunction be issued to restrain the
Secretary of Agriculture and Natural Resources and the Director of Fisheries
from enforcing said executive order; to declare the same null and void, and
for such other relief as may be just and equitable in the premises.
The Secretary of Agriculture and Natural Resources and the Director of
Fisheries, represented by the Legal Adviser of said Department and a Special
Attorney of the Office of the Solicitor General, answered the complaint
alleging, among other things, that of the 18 plaintiffs (Exequiel Soriano,
Teodora Donato, Felipe Concepcion, Venancio Correa, Santo Gaviana, Alfredo
General, Constancio Gutierrez, Arsenio de Guzman, Pedro Lazaro, Porfirio
Lazaro, Deljie de Leon, Jose Nepomuceno, Bayani Pingol, Claudio Salgado,
Porfirio San Juan, Luis Sioco, Casimiro Villar and Enrique Voluntad), only 11
were issued licenses to operate fishing boats for the year 1954 (Annex B,
petition L-8895); that the executive orders in question were issued in
accordance with law; that the encouragement by the Bureau of Fisheries of
the use of Otter trawls should not be construed to mean that the general
welfare of the public could be disregarded, and set up the affirmative
defenses that since plaintiffs question the validity of the executive orders
issued by the President, then the Secretary of Agriculture and Natural
Resources and the Director of Fisheries were not the real parties in interest;
that said executive orders do not constitute a deprivation of property
without due process of law, and therefore prayed that the complaint be
dismissed (Exh. B, petition, L-8895).
During the trial of the case, the Governor of Camarines Sur appearing for the
municipalities of Siruma, Tinambac, Calabanga, Cabusao and Sipocot, in said
province, called the attention of the Court that the Solicitor General had not
been notified of the proceeding. To this manifestation, the Court ruled that in
view of the circumstances of the case, and as the Solicitor General would
only be interested in maintaining the legality of the executive orders sought
to be impugned, Section 4 of Rule 66 could be interpreted to mean that the
trial could go on and the Solicitor General could be notified before judgment
is entered.
After the evidence for both parties was submitted and the Solicitor General
was allowed to file his memorandum, the Court rendered decision on
February
2,
1955,
the
last
part
of
which
reads
as
follows:jgc:chanrobles.com.ph
"The power to close any definite area of the Philippine waters, from the fact
that Congress has seen fit to define under what conditions it may be done
by the enactment of the sections cited, in the mind of Congress must be of
transcendental significance. It is primarily within the fields of legislation not
of execution; for it goes far and says who can and who can not fish in

definite territorial waters. The court can not accept that Congress had
intended to abdicate its inherent right to legislate on this matter of national
importance. To accept respondents view would be to sanction the exercise
of legislative power by executive decrees. If it is San Miguel Bay now, it may
be Davao Gulf tomorrow, and so on. That may be done only by Congress.
This being the conclusion, there is hardly need to go any further. Until the
trawler is outlawed by legislative enactment, it cannot be banned from San
Miguel Bay by executive proclamation. The remedy for respondents and
population of the coastal towns of Camarines Sur is to go to the Legislature.
The result will be to issue the writ prayed for, even though this be to strike
at public clamor and to annul the orders of the President issued in response
therefor. This is a task unwelcome and unpleasant; unfortunately, courts of
justice use only one measure for both the rich and poor, and are not bound
by the more popular cause when they give judgments.
"IN VIEW WHEREOF, granted; Executive Order Nos. 22, 66 and 80 are
declared invalid; the injunction prayed for is ordered to issue; no
pronouncement as to costs."
Petitioners immediately filed an ex-parte motion for the issuance of a writ of
injunction which was opposed by the Solicitor General and after the parties
had filed their respective memoranda, the Court issued an order dated
February 19, 1955, denying respondents motion to set aside judgment and
ordering them to file a bond in the sum of P30,000 on or before March 1,
1955, as a condition for the non- issuance of the injunction prayed for by
petitioners pending appeal. The Solicitor General filed a motion for
reconsideration which was denied for lack of merit, and the Court, acting
upon the motion for new trial filed by respondents, issued another order on
March 3, 1955, denying said motion and granting the injunction prayed for
by petitioners upon the latters filing a bond for P30,000 unless respondents
could secure a writ of preliminary injunction from the Supreme Court on or
before March 15, 1955. Respondents, therefore, brought the matter to this
Court in a petition for prohibition and certiorari with preliminary injunction,
docketed as G. R. No. L-8895, and on the same day filed a notice to appeal
from the order of the lower court dated February 2, 1955, which appeal was
docketed in this Court as G. R. No. L-9191.
In the petition for prohibition and certiorari, petitioners (respondents therein)
contended among other things, that the order of the respondent Judge
requiring petitioners Secretary of Agriculture and Natural Resources and the
Director of Fisheries to post a bond in the sum of P30,000 on or before March
1, 1955, had been issued without jurisdiction or in excess thereof, or at the
very least with grave abuse of discretion, because by requiring the bond, the
Republic of the Philippines was in effect made a party defendant and
therefore transformed the suit into one against the Government which is
beyond the jurisdiction of the respondent Judge to entertain; that the failure
to give the Solicitor General the opportunity to defend the validity of the
challenged executive orders resulted in the receipt of objectionable matters
at the hearing; that Rule 66 of the Rules of Court does not empower a court
of law to pass upon the validity of an executive order in a declaratory relief
proceeding; that the respondent Judge did not have the power to grant the

injunction as Section 4 of Rule 39 does not apply to declaratory relief

proceedings but only to injunction, receivership and patent accounting
proceedings; and prayed that a writ of preliminary injunction be issued to
enjoin the respondent Judge from enforcing its order of March 3, 1955, and
for such other relief as may be deem just and equitable in the premises. This
petition was given due course and the hearing on the merits was set by this
Court for April 12, 1955, but no writ of preliminary injunction was issued.
Meanwhile, the appeal (G. R. No. L-9191) was heard on October 3, 1956,
wherein respondents-appellants ascribed to the lower court the commission
of the following errors:chanrob1es virtual 1aw library
1. In ruling that the President has no authority to issue Executive Orders
Nos. 22, 66 and 80 banning the operation of trawls in San Miguel Bay;
2. In holding that the power to declare a closed area for fishing purposes has
not been delegated to the President of the Philippines under the Fisheries
Act;
3. In not considering Executive Orders Nos. 22, 66 and 80 as declaring a
closed season pursuant to Section 7, Act 4003, as amended, otherwise
known as the Fisheries Act;

resources of the area, I, RAMON MAGSAYSAY, President of the Philippines, by

virtue of the powers vested in me by law, do hereby order
that:jgc:chanrobles.com.ph
"1. Fishing by means of trawls (utase, otter and/or perenzella) of any kind, in
the waters comprised within San Miguel Bay, is hereby prohibited.
"2. Trawl shall mean, for the purpose of this Order, a fishing net made in the
form of a bag with the mouth kept open by a device, the whole affair being
towed, dragged, trailed or trawled on the bottom of the sea to capture
demersal, ground or bottom species.
"3. Violation of the provisions of this Order shall subject the offender to the
penalty provided under Section 83 of Act 4993, or a fine of not more than
two hundred pesos, or imprisonment for not more than six months, or both,
in the discretion of the Court.
"Done in the City of Manila, this 5th day of April, nineteen hundred and fiftyfour and of the Independence of the Philippines, the eighth." (50 Off. Gaz.
1421).
"EXECUTIVE ORDER NO. 66

4. In holding that to uphold the validity of Executive Orders Nos. 22 and 80

would be to sanction the exercise of legislative power by executive decrees;

"AMENDING EXECUTIVE ORDER NO. 22, DATED APRIL 5, 1954, ENTITLED

PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY

5. In its suggestion that the only remedy for respondents and the people of
the coastal towns of Camarines Sur and Camarines Norte is to go to the
Legislature; and

"By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY,

President of the Philippines, do hereby amend Executive Order No. 22, dated
April 5, 1954, so as to allow fishing by means of trawls, as defined in said
Executive Order, within that portion of San Miguel Bay north of a straight
line drawn from Tacubtacuban Hill in the Municipality of Tinambac, Province
of Camarines Sur. Fishing by means of trawls south of said line shall still be
absolutely prohibited.

6. In declaring Executive Orders Nos. 22, 66 and 80 invalid and in ordering

the injunction prayed for to issue.
As Our decision in the prohibition and certiorari case (G. R. No. L-8895)
would depend, in the last analysis, on Our ruling in the appeal of the
respondents in case G. R. No. L-9191, We shall first proceed to dispose of the
latter case.

"Done in the City of Manila, this 23rd day of September, in the year of our
Lord, nineteen hundred and fifty-four, and of the Independence of the
Philippines, the ninth." (50 Off. Gaz. 4037).

It is indisputable that the President issued Executive Orders Nos. 22, 66 and
80 in response to the clamor of the inhabitants of the municipalities along
the coastline of San Miguel Bay. They read as follows:chanrob1es virtual 1aw
library

"EXECUTIVE ORDER NO. 80

EXECUTIVE ORDER NO. 22

"By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY,

President of the Philippines, do hereby amend Executive Order No. 66, dated
September 23, 1954, so as to allow fishing by means of trawls, as defined in
Executive Order No. 22, dated April 5, 1954, within that portion of San
Miguel Bay north of a straight line drawn from Tacubtacuban Hill in the
Municipality of Mercedes, Province of Camarines Norte to Balocbaloc Point in
the Municipality of Tinambac, Province of Camarines Sur, until December 31,
1954, only.

"PROHIBITING THE USE OF TRAWLS IN

SAN MIGUEL BAY"
"In order to effectively protect the municipal fisheries of San Miguel Bay,
Camarines Norte and Camarines Sur, and to conserve fish and other aquatic

"FURTHER AMENDING EXECUTIVE ORDER NO. 22, DATED APRIL 5, 1954, AS

AMENDED BY EXECUTIVE ORDER NO. 66, DATED SEPTEMBER 23, 1954

Thereafter, the provisions of said Executive Order No. 22 absolutely

prohibiting fishing by means of trawls in all the waters comprised within the
San Miguel Bay shall be revived and given full force and effect as originally
provided therein.
"Done in the City of Manila, this 2nd day of November, in the year of Our
Lord, nineteen hundred and fifty-four and of the Independence of the
Philippines, the ninth." (50 Off. Gaz. 5198)
It is likewise admitted that petitioners assailed the validity of said executive
orders in their petition for a writ of injunction and/or declaratory relief filed
with the Court of First Instance of Manila, and that the lower court, upon
declaring Executive Orders Nos. 22, 66 and 80 invalid, issued an order
requiring the Secretary of Agriculture and Natural Resources and the
Director of Fisheries to post a bond for P30,000 if the writ of injunction
restraining them from enforcing the executive orders in question must be
stayed.
The Solicitor General avers that the constitutionality of an executive order
cannot be ventilated in a declaratory relief proceeding. We find this
untenable, for this Court taking cognizance of an appeal from the decision of
the lower court in the case of Hilado v. De la Costa Et. Al., 83 Phil., 471,
which involves the constitutionality of another executive order presented in
an action for declaratory relief, in effect accepted the propriety of such
action.
This question being eliminated, the main issues left for Our determination
with respect to defendants appeal (G. R. No. L-9191), are:chanrob1es virtual
1aw library
(1) Whether the Secretary of an Executive Department and the Director of a
Bureau, acting in their capacities as such Government officials, could
lawfully be required to post a bond in an action against them;
(2) Whether the President of the Philippines has authority to issue Executive
Orders Nos. 22, 66 and 80, banning the operation of trawls in San Miguel
Bay, or, said in other words, whether said Executive Orders Nos. 22, 66 and
80 were issued in accordance with law; and
(3) Whether Executive Orders Nos. 22, 66 and 80 were valid, for the
issuance thereof was not in the exercise of legislative powers unduly
delegated to the President.
Counsel for both parties presented commendable exhaustive defenses in
support of their respective stands. Certainly, these cases deserve such
efforts, not only because the constitutionality of an act of a coordinate
branch in our tripartite system of Government is in issue, but also because
of the number of inhabitants, admittedly classified as "subsistence
fishermen", that may be affected by any ruling that We may promulgate
herein.

I. As to the first proposition, it is an elementary rule of procedure that an

appeal stays the execution of a judgment. An exception is offered by section
4 of Rule 39 of the Rules of Court, which provides that:jgc:chanrobles.com.ph
"SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT
STAYED. Unless otherwise ordered by the court, a judgment in an action
for injunction or in a receivership action, or a judgment or order directing an
accounting in an action for infringement of letter patent, shall not be stayed
after its rendition and before an appeal is taken or during the pendency of
an appeal. The trial court, however, in its discretion, when an appeal is taken
from a judgment granting, dissolving or denying an injunction, may make an
order suspending, modifying, restoring, or granting such injunction during
the pendency of an appeal, upon such terms as to bond or otherwise as it
may consider proper for the security of the rights of the adverse
party."cralaw virtua1aw library
This provision was the basis of the order of the lower court dated February
19, 1955, requiring the filing by the respondents of a bond for P30,000 as a
condition for the non-issuance of the injunction prayed for by plaintiffs
therein, and which the Solicitor General charged to have been issued in
excess of jurisdiction. The States counsel, however, alleges that while
judgment could be stayed in injunction, receivership and patent accounting
cases and although the complaint was styled "Injunction and/or Declaratory
Relief with Preliminary Injunction", the case is necessarily one for
declaratory relief, there being no allegation sufficient to convince the Court
that the plaintiffs intended it to be one for injunction. But aside from the title
of the complaint, We find that plaintiffs pray for the declaration of the nullity
of Executive Order Nos. 22, 66 and 80; the issuance of a writ of preliminary
injunction, and for such other relief as may be deemed just and equitable.
This Court has already held that there are only two requisites to be satisfied
if an injunction is to issue, namely, the existence of the right sought to be
protected, and that the acts against which the injunction is to be directed
are violative of said right (North Negros Sugar Co., Inc. v. Serafin Hidalgo, 63
Phil., 664). There is no question that at least 11 of the complaining trawl
operators were duly licensed to operate in any of the national waters of the
Philippines, and it is undeniable that the executive enactments sought to be
annulled are detrimental to their interests. And considering further that the
granting or refusal of an injunction, whether temporary or permanent, rests
in the sound discretion of the Court, taking into account the circumstances
and the facts of the particular case (Rodulfa v. Alfonso, 76 Phil., 225, 42 Off.
Gaz., 2439), We find no abuse of discretion when the trial Court treated the
complaint as one for injunction and declaratory relief and executed the
judgment pursuant to the provisions of section 4 of Rule 39 of the Rules of
Court.
On the other hand, it shall be remembered that the party defendants in Civil
Case No. 24867 of the Court of First Instance of Manila are Salvador Araneta,
as Secretary of Agriculture and Natural Resources, and Deogracias Villadolid,
as Director of Fisheries, and were sued in such capacities because they were
the officers charged with duty of carrying out the statutes, orders and

regulations on fishing and fisheries. In its order of February 19, 1955, the
trial court denied defendants motion to set aside judgment and they were
required to file a bond for P30,000 to answer for damages that plaintiffs
were allegedly suffering at the time, as otherwise the injunction prayed for
by the latter would be issued.
Because of these facts, We agree with the Solicitor General when he says
that the action, being one against herein petitioners as such Government
officials, is essentially one against the Government, and to require these
officials to file a bond would be indirectly a requirement against the
Government, for as regards bonds or damages that may be proved, if any,
the real party in interest would be the Republic of the Philippines (L. S. Moon
and Co. v. Harrison, 43 Phil., 39; Salgado v. Ramos, 64 Phil., 724-727, and
others). The reason for this pronouncement is understandable; the State
undoubtedly is always solvent (Tolentino v. Carlos, 66 Phil., 140; Government
of the P. I. v. Judge of the Court of First Instance of Iloilo, 34 Phil., 157, cited
in Joaquin Gutierrez Et. Al. v. Camus Et. Al. * G. R. No. L-6725, promulgated
October 30, 1954). However, as the records show that herein petitioners
failed to put up the bond required by the lower court, allegedly due to
difficulties encountered with the Auditor Generals Office (giving the
impression that they were willing to put up said bond but failed to do so for
reasons beyond their control), and that the orders subjects of the prohibition
and certiorari proceedings in G. R. No. L-8895, were enforced, if at all, 1 in
accordance with section 4 of Rule 39, which We hold to be applicable to the
case at bar, the issue as to the regularity or adequacy of requiring herein
petitioners to post a bond, becomes moot and academic.
II. Passing upon the question involved in the second proposition, the trial
judge extending the controversy to the determination of which between the
Legislative and Executive Departments of the Government had "the power
to close any definite area of the Philippine waters" instead of limiting the
same to the real issue raised by the enactment of Executive Orders Nos. 22,
66 and 80, specially the first and the last "absolutely prohibiting fishing by
means of trawls in all the waters comprised within the San Miguel Bay",
ruled in favor of Congress, and as the closing of any definite area of the
Philippine waters is, according to His Honor, primarily within the fields of
legislation and Congress had not intended to abdicate its power to legislate
on the matter, he maintained, as stated before, that "until the trawler is
outlawed by legislative enactment, it cannot be banned from San Miguel Bay
by executive proclamation", and that "the remedy for respondents and
population of the coastal towns of Camarines Sur is to go to the Legislature,"
and thus declared said Executive Orders Nos. 22, 66 and 80 invalid."
The Solicitor General, on the contrary, asserts that the President is
empowered by law to issue the executive enactments in question.
Sections 6, 13 and 75 of Act No. 4003, known as the Fisheries Law, the latter
two sections as amended by section 1 of Commonwealth Act No. 471, read
as follows:jgc:chanrobles.com.ph
"SEC. 6. WORDS AND PHRASES DEFINED. Words and terms used in this

Act shall be construed as follows:chanrob1es virtual 1aw library

x

TAKE or TAKING, includes pursuing, shooting, killing, capturing, trapping,

snaring, and netting fish and other aquatic animals, and all lesser acts, such
as disturbing, wounding, stupefying, or placing, setting, drawing, or using
any net or other device commonly used to take or collect fish and other
aquatic animals, whether they result in taking or not, and includes every
attempt to take and every act of assistance to every other person in taking
or attempting to take or collect fish and other aquatic animals: PROVIDED,
That whenever taking is allowed by law, reference is had to taking by lawful
means and in lawful manner.
x

"SEC. 13. PROTECTION OF FRY OR FISH EGGS. Except for scientific or

educational purpose or for propagation, it shall be unlawful to take or catch
fry or fish eggs and the small fish, not more than three (3) centimeters long,
known as siliniasi, in the territorial waters of the Philippines. Towards this
end, the Secretary of Agriculture and Commerce shall be authorized to
provide by regulations such restrictions as may be deemed necessary to be
imposed on THE USE OF ANY FISHING NET OR FISHING DEVICE FOR THE
PROTECTION OF FRY OR FISH EGGS; Provided, however, That the Secretary
of Agriculture and Commerce shall permit the taking of young of certain
species of fish known as hipon under such restrictions as may be deemed
necessary.
"SEC. 75. FISH REFUGES AND SANCTUARIES. Upon the recommendation
of the officer or chief of the bureau, office or service concerned, the
Secretary of Agriculture and Commerce may set aside and establish fishery
reservation or fish refuges and sanctuaries to be administered in the manner
to be prescribed by him. All streams, ponds, and waters within the game
refuge, birds sanctuaries, national parks, botanical gardens, communal
forests and communal pastures are hereby declared fishing refuges and
sanctuaries. It shall be unlawful for any person, to take, destroy or kill in any
of the places aforementioned, or in any manner disturb or drive away or
take therefrom, any fish fry or fish eggs."cralaw virtua1aw library
Act No. 4003 further provides as follows:jgc:chanrobles.com.ph
"SEC. 83. OTHER VIOLATIONS. Any other violation of the provisions of this
Act or any rules and regulations promulgated thereunder shall subject the
offender to a fine of not more than two hundred pesos, or imprisonment for
not more than six months, or both, in the discretion of the Court."cralaw
virtua1aw library
As may be seen from the just quoted provisions, the law declares unlawful
and fixes the penalty for the taking (except for scientific or educational

purposes or for propagation), destroying or killing of any fish fry or fish eggs,
and the Secretary of Agriculture and Commerce (now the Secretary of
Agriculture and Natural Resources) is authorized to promulgate regulations
restricting the use of any fish net or fishing device (which includes the net
used by trawl fishermen) for the protection of fry or fish eggs, as well as to
set aside and establish fishery reservations or fish refuges and sanctuaries
to be administered in the manner prescribed by him, from which no person
could lawfully take, destroy or kill in any of the places aforementioned, or in
any manner disturb or drive away or take therefrom any small or immature
fish, fry or fish eggs. It is true that said section 75 mentions certain streams,
ponds and waters within the game refuges, . . . communal forests, etc.,
which the law itself declares fish refuges and sanctuaries, but this
enumeration of places does not curtail the general and unlimited power of
the Secretary of Agriculture and Natural Resources in the first part of section
75, to set aside and establish fishery reservations or fish refuges and
sanctuaries, which naturally include seas or bays, like the San Miguel Bay in
Camarines.
From the resolution passed at the Conference of Municipal Mayors held at
Tinambac, Camarines Sur, on December 18, 1953 (Exh. F), the following
manifestation is made:jgc:chanrobles.com.ph
"WHEREAS, the continuous operation of said trawls even during the close
season as specified in said Executive Order No. 20 caused the wanton
destruction of the mother shrimps laying their eggs and the millions of eggs
laid and the inevitable extermination of the shrimps specie; in order to save
the shrimps specie from eventual extermination and in order to conserve the
shrimps specie for posterity;"
In the brief submitted by the NAMFREL and addressed to the President of the
Philippines (Exh. 2), in support of the petition of San Miguel Bay fishermen
(allegedly 6,175 in number), praying that trawlers be banned from operating
in San Miguel Bay, it is also stated that:jgc:chanrobles.com.ph
"The trawls ram and destroy the fish corrals. The heavy trawl nets dig deep
into the ocean bed. They destroy the fish food which lies below the ocean
floor. Their daytime catches net millions of shrimps scooped up from the
mud. In their nets they bring up the life of the sea: algea, shell fish and star
fish . . .
"The absence of some species or the apparent decline in the catch of some
fishermen operating in the bay may be due to several factors, namely: the
indiscriminate catching of fry and immature sizes of fishes, the wide spread
use of explosives inside as well as at the mouth and approaches of the bay,
and the extensive operation of the trawls." (p. 9, Report of Santos B.
Rasalan, Exh. A).
Extensive Operation of Trawls: The strenuous effect of the operations of
the 17 TRAWLS of the demersal fisheries of San Miguel Bay is better
appreciated when we consider the fact that out of its about 850 square
kilometers area, only about 350 square kilometers of 5 fathoms up could be

trawled. With their continuous operation, coupled with those of the

numerous fishing methods, the fisheries is greatly strained. This is shown by
the fact that in view of the non- observance of the close season from May to
October, each year, majority of their catch are immature. If their operation
would continue unrestricted, the supply would be greatly depleted." (p. 11,
Report of Santos B. Rasalan, Exh. A).
San Miguel Bay can sustain 3 to 4 small trawlers (Otter Trawl Explorations
in Philippine Waters, Research Report 25 of the Fish and Wildlife Service,
United States Department of the Interior, p. 9, Exhibit B).
According to Annex A of the complaint filed in the lower court in Civil Case
No. 24867 G. R. No. L 9191 (Exh. D, p. 53 of the folder of Exhibits), the
18 plaintiffs-appellees operate 29 trawling boats, and their operation must
be in a big scale considering the investments plaintiffs have made therefor,
amounting to P387,000 (Record on Appeal, p. 16-17).
In virtue of the aforementioned provisions of law and the manifestations just
copied, We are of the opinion that with or without said Executive Orders, the
restriction and banning of trawl fishing from all Philippine waters come,
under the law, within the powers of the Secretary of Agriculture and Natural
Resources, who in compliance with his duties may even cause the criminal
prosecution of those who in violation of his instructions, regulations or orders
are caught fishing with trawls in Philippine waters.
Now, if under the law the Secretary of Agriculture and Natural Resources has
authority to regulate or ban the fishing by trawl which, it is claimed, is
obnoxious for it carries away fish eggs and frys which should be preserved,
can the President of the Philippines exercise that same power and authority?
Section 10(1), Article VII of the Constitution of the Philippines
prescribes:jgc:chanrobles.com.ph
"SEC. 10(1). The President shall have control of all the executive
departments, bureaus or offices, exercises general supervision over all local
governments as may be provided by law, and take care that the laws be
faithfully executed."cralaw virtua1aw library
Section
63
of
the
Revised
follows:jgc:chanrobles.com.ph

Administrative

Code

reads

as

"SEC. 63. EXECUTIVE ORDERS AND EXECUTIVE PROCLAMATION.

Administrative acts and commands of the President of the Philippines
touching the organization or mode of operation of the Government or
rearranging or readjusting any of the districts, divisions, parts or ports of the
Philippines, and all acts and commands governing the general performance
of duties by public employees or disposing of issues of general concern shall
be made in executive orders."cralaw virtua1aw library
x

Regarding department organization Section 74 of the Revised Administrative

Code also provides that:jgc:chanrobles.com.ph
"All executive functions of the Government of the Republic of the Philippines
shall be directly under the Executive Department subject to the supervision
and control of the President of the Philippines in matters of general policy.
The Departments are established for the proper distribution of the work of
the Executive, for the performance of the functions expressly assigned to
them by law, and in order that each branch of the administration may have
a chief responsible for its direction and policy. Each Department Secretary
shall assume the burden of, and responsibility for, all activities of the
Government under his control and supervision.
For administrative purposes the President of the Philippines shall be
considered the Department Head of the Executive Office.." . . .
One of the executive departments is that of Agriculture and Natural
Resources which by law is placed under the direction and control of the
Secretary, who exercises its functions subject to the general supervision and
control of the President of the Philippines (Sec. 75, R. A. C.) . Moreover,
"executive orders, regulations, decrees and proclamations relative to
matters under the supervision or jurisdiction of a Department, the
promulgation whereof is expressly assigned by law to the President of the
Philippines, shall as a general rule, be issued upon proposition and
recommendation of the respective Department" (Sec. 79-A, R.A.C.) , and
there can be no doubt that the promulgation of the questioned Executive
Orders was upon the proposition and recommendation of the Secretary of
Agriculture and Natural Resources and that is why said Secretary, who was
and is called upon to enforce said executive Orders, was made a party
defendant in one of the cases at bar (G. R. No. L-9191).
For the foregoing reasons We do not hesitate to declare that Executive
Orders Nos. 22, 66 and 80, series of 1954, of the President, are valid and
issued by authority of law.
III. But does the exercise of such authority by the President constitute an
undue delegation of the powers of Congress?
As already held by this Court, the true distinction between delegation of the
power to legislate and the conferring of authority or discretion as to the
execution of the law consists in that the former necessarily involves a
discretion as to what the law shall be, while in the latter the authority or
discretion as to its execution has to be exercised under and in pursuance of
the law. The first cannot be done; to the latter no valid objection can be
made (Cruz v. Youngberg, 56 Phil., 234, 239. See also Rubi, Et. Al. v. The
Provincial Board of Mindoro, 39 Phil., 660).
In the case of U. S. v.
held:jgc:chanrobles.com.ph

Ang

Tang

Ho.,

43

Phil.

1,

We

also

"THE POWER TO DELEGATE. The Legislature cannot delegate legislative

power to enact any law. If Act No. 2868 is a law unto itself, and within itself,
and it does nothing more than to authorize the Governor-General to make
rules and regulations to carry it into effect, then the Legislature created the
law. There is no delegation of power and it is valid. On the other hand, if the
act within itself does not define a crime and is not complete, and some
legislative act remains to be done to make it a law or a crime, the doing of
which is vested in the Governor-General, the act is a delegation of legislative
power, is unconstitutional and void."cralaw virtua1aw library
From the provisions of Act No. 4003 of the Legislature, as amended by
Commonwealth Act No. 471, which have been aforequoted, We find that
Congress (a) declared it unlawful "to take or catch fry or fish eggs in the
territorial waters of the Philippines; (b) towards this end, it authorized the
Secretary of Agriculture and Natural Resources to provide by the regulations
such restrictions as may be deemed necessary to be imposed on the use of
any fishing net or fishing device for the protection of fish fry or fish eggs
(Sec. 13); (c) it authorized the Secretary of, Agriculture and Natural
Resources to set aside and establish fishery reservations or fish refuges and
sanctuaries to be administered in the manner to be prescribed by him and
declared it unlawful for any person to take, destroy or kill in any of said
places, or in any manner disturb or drive away or take therefrom, any fish
fry or fish eggs (Sec. 75); and (d) it penalizes the execution of such acts
declared unlawful and in violation of this Act (No. 4003) or of any rules and
regulations promulgated thereunder, making the offender subject to a fine of
not more than P200, or imprisonment for not more than 6 months, or both,
in the discretion of the court (Sec. 83).
From the foregoing it may be seen that in so far as the protection of fish fry
or fish egg is concerned, the Fisheries Act is complete in itself, leaving to the
Secretary of Agriculture and Natural Resources the promulgation of rules and
regulations to carry into effect the legislative intent. It also appears from the
exhibits on record in these cases that fishing with trawls causes "a wanton
destruction of the mother shrimps laying their eggs and the millions of eggs
laid and the inevitable extermination of the shrimps specie" (Exh. F), and
that "the trawls ram and destroy the fish corrals. The heavy trawl nets dig
deep into the ocean bed. They destroy the fish food which lies below the
ocean floor. Their daytime catches net millions of shrimps scooped up from
the mud. In their nets they bring up the life of the sea" (Exh. 2).
In the light of these facts it is clear to Our mind that for the protection of fry
or fish eggs and small and immature fishes, Congress intended with the
promulgation of Act No. 4003, to prohibit the use of any fish net or fishing
device like trawl nets that could endanger and deplete our supply of sea
food, and to that end authorized the Secretary of Agriculture and Natural
Resources to provide by regulations such restrictions as he deemed
necessary in order to preserve the aquatic resources of the land.
Consequently, when the President, in response to the clamor of the people
and authorities of Camarines Sur issued Executive Order No. 80 absolutely
prohibiting fishing by means of trawls in all waters comprised within the San
Miguel Bay, he did nothing but show an anxious regard for the welfare of the
inhabitants of said coastal province and dispose of issues of general concern

(Sec. 63, R.A.C.) which were in consonance and strict conformity with the
law.
Wherefore, and on the strength of the foregoing considerations We render
judgment, as follows:chanrob1es virtual 1aw library
(a) Declaring that the issues involved in case G. R. No. L-8895 have become
moot, as no writ of preliminary injunction has been issued by this Court
enjoining the respondent Judge of the Court of First Instance of Manila,
Branch XIV, from enforcing his order of March 3, 1955; and
(b) Reversing the decision appealed from in case G. R. No. L- 9191;
dissolving the writ of injunction prayed for in the lower court by plaintiffs, if
any has been actually issued by the court a quo; and declaring Executive
Orders Nos. 22, 66 and 80, series of 1954, valid for having been issued by
authority of the Constitution, the Revised Administrative Code and the
Fisheries Act.
Without pronouncement as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L. and Endencia,JJ., concur.

G.R. No. L-27811

November 17, 1967
LACSON-MAGALLANES CO., INC., plaintiff-appellant,
vs.
JOSE PAO, HON. JUAN PAJO, in his capacity as Executive Secretary,
and HON. JUAN DE G. RODRIGUEZ, in his capacity as Secretary of
Agriculture and Natural Resources, defendants-appellees.
Leopoldo M. Abellera for plaintiff-appellant.
Victorio Advincula for defendant Jose Pao.
Office of the Solicitor General for defendant Secretary of Agriculture and
Natural Resources and Executive Secretary.
SANCHEZ, J.:
The question May the Executive Secretary, acting by authority of the
President, reverse a decision of the Director of Lands that had been affirmed
by the Executive Secretary of Agriculture and Natural Resources yielded
an affirmative answer from the lower court. 1
Hence, this appeal certified to this Court by the Court of Appeals upon the
provisions of Sections 17 and 31 of the Judiciary Act of 1948, as amended.
The undisputed controlling facts are:
In 1932, Jose Magallanes was a permittee and actual occupant of a 1,103hectare pasture land situated in Tamlangon, Municipality of Bansalan,
Province of Davao.
On January 9, 1953, Magallanes ceded his rights and interests to a portion
(392,7569 hectares) of the above public land to plaintiff.
On April 13, 1954, the portion Magallanes ceded to plaintiff was officially
released from the forest zone as pasture land and declared agricultural land.
On January 26, 1955, Jose Pao and nineteen other claimants 2 applied for
the purchase of ninety hectares of the released area.
On March 29, 1955, plaintiff corporation in turn filed its own sales application
covering the entire released area. This was protested by Jose Pao and his
nineteen companions upon the averment that they are actual occupants of
the part thereof covered by their own sales application.
The Director of Lands, following an investigation of the conflict, rendered a
decision on July 31, 1956 giving due course to the application of plaintiff
corporation, and dismissing the claim of Jose Pao and his companions. A
move to reconsider failed.

On July 5, 1957, the Secretary of Agriculture and Natural Resources on

appeal by Jose Pao for himself and his companions held that the appeal
was without merit and dismissed the same.
The case was elevated to the President of the Philippines.
On June 25, 1958, Executive Secretary Juan Pajo, "[b]y authority of the
President" decided the controversy, modified the decision of the Director of
Lands as affirmed by the Secretary of Agriculture and Natural Resources,
and (1) declared that "it would be for the public interest that appellants, who
are mostly landless farmers who depend on the land for their existence, be
allocated that portion on which they have made improvements;" and (2)
directed that the controverted land (northern portion of Block I, LC Map
1749, Project No. 27, of Bansalan, Davao, with Latian River as the dividing
line) "should be subdivided into lots of convenient sizes and allocated to
actual occupants, without prejudice to the corporation's right to
reimbursement for the cost of surveying this portion." It may be well to
state, at this point, that the decision just mentioned, signed by the Executive
Secretary, was planted upon the facts as found in said decision.
Plaintiff corporation took the foregoing decision to the Court of First Instance
praying that judgment be rendered declaring: (1) that the decision of the
Secretary of Agriculture and Natural Resources has full force and effect; and
(2) that the decision of the Executive Secretary is contrary to law and of no
legal force and effect.
And now subject of this appeal is the judgment of the court a quo dismissing
plaintiff's case.
1. Plaintiff's mainstay is Section 4 of Commonwealth Act 141. The precept
there is that decisions of the Director of Lands "as to questions of facts shall
be conclusive when approved" by the Secretary of Agriculture and Natural
Resources. Plaintiff's trenchment claim is that this statute is controlling not
only upon courts but also upon the President.
Plaintiff's position is incorrect. The President's duty to execute the law is of
constitutional origin.3 So, too, is his control of all executive departments. 4
Thus it is, that department heads are men of his confidence. His is the power
to appoint them; his, too, is the privilege to dismiss them at pleasure.
Naturally, he controls and directs their acts. Implicit then is his authority to
go over, confirm, modify or reverse the action taken by his department
secretaries. In this context, it may not be said that the President cannot rule
on the correctness of a decision of a department secretary.
Particularly in reference to the decisions of the Director of Lands, as affirmed
by the Secretary of Agriculture and Natural Resources, the standard practice
is to allow appeals from such decisions to the Office of the President. 5This
Court has recognized this practice in several cases. In one, the decision of
the Lands Director as approved by the Secretary was considered superseded
by that of the President's appeal. 6 In other cases, failure to pursue or resort
to this last remedy of appeal was considered a fatal defect, warranting
dismissal of the case, for non-exhaustion of all administrative remedies. 7
Parenthetically, it may be stated that the right to appeal to the President
reposes upon the President's power of control over the executive
departments.8 And control simply means "the power of an officer to alter or
modify or nullify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former for
that of the latter."9

This unquestionably negates the assertion that the President cannot undo an
act of his department secretary.
2. Plaintiff next submits that the decision of the Executive Secretary herein is
an undue delegation of power. The Constitution, petitioner asserts, does not
contain any provision whereby the presidential power of control may be
delegated to the Executive Secretary. It is argued that it is the constitutional
duty of the President to act personally upon the matter.
It is correct to say that constitutional powers there are which the President
must exercise in person.10 Not as correct, however, is it so say that the Chief
Executive may not delegate to his Executive Secretary acts which the
Constitution does not command that he perform in person. 11 Reason is not
wanting for this view. The President is not expected to perform in person all
the multifarious executive and administrative functions. The Office of the
Executive Secretary is an auxiliary unit which assists the President. The rule
which has thus gained recognition is that "under our constitutional setup the
Executive Secretary who acts for and in behalf and by authority of the
President has an undisputed jurisdiction to affirm, modify, or even reverse
any order" that the Secretary of Agriculture and Natural Resources, including
the Director of Lands, may issue.12
3. But plaintiff underscores the fact that the Executive Secretary is equal in
rank to the other department heads, no higher than anyone of them. From
this, plaintiff carves the argument that one department head, on the pretext
that he is an alter ego of the President, cannot intrude into the zone of
action allocated to another department secretary. This argument betrays
lack of appreciation of the fact that where, as in this case, the Executive
Secretary acts "[b]y authority of the President," his decision is that of the
President's. Such decision is to be given full faith and credit by our courts.
The assumed authority of the Executive Secretary is to be accepted. For,
only the President may rightfully say that the Executive Secretary is not
authorized to do so. Therefore, unless the action taken is "disapproved or
reprobated by the Chief Executive,"13 that remains the act of the Chief
Executive, and cannot be successfully assailed. 14 No such disapproval or
reprobation is even intimated in the record of this case.
For the reasons given, the judgment under review is hereby affirmed. Costs
against plaintiff. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar,
Castro and Angeles, JJ., concur.
Separate Opinions
FERNANDO, J., concurring:
The learned opinion of Justice Sanchez possesses merit and inspires assent.
A further observation may not be amiss concerning that portion thereof
which speaks of "the standard practice" allowing appeals from [decisions of
Secretary of Natural Resources affirming the action taken by the Director of
Lands] to the Office of the President. That for me is more than a "standard
practice." It is sound law. The constitutional grant to the President of the
power of control over all executive departments, bureaus and offices yields
that implication.1
If this were all, there would be no need for an additional expression of my
views. I feel constrained to do so however in order to emphasize that the
opinion of the Court appears to me to reflect with greater fidelity the

constitutional intent as embodied in the above provision vesting the power

of control in the Presidency.
The question asked in the opening paragraph of the opinion "May the
Executive Secretary, acting by authority of the President, reverse a decision
of the Director of Lands that had been affirmed by the Secretary of
Agriculture and Natural Resources [?]" merits but one answer. It must be
in the unqualified affirmative. So the Court holds. That is as it should be. Any
other view would be highly unorthodox.
Nonetheless, the thought seems to lurk in the opinion of a respectable
number of members of the bar that a provision as that found in the Public
Land Act to the effect that decisions of Director of Lands on questions of
facts shall be conclusive when approved by the Secretary of Agriculture and
Natural Resources2 constitute a limitation of such power of control. This view
might have gained plausibility in the light of Ang-Angco vs. Castillo,3 where
the procedure set forth in the Civil Service Act in 1959 was held binding in so
far as the President is concerned in the case of disciplinary action taken
against non-presidential appointees.
The argument that what the then Executive Secretary acting for the
President did was justified by the constitutional grant of control elicited no
favorable response. The Court apparently was not receptive to a more
expansive view of such executive prerogative. This is not to say that what
was there decided was entirely lacking in justification. It is merely to suggest
that it may contain implications not in conformity with the broad grant of
authority constitutionally conferred on the President.
It is well-worth emphasizing that the President unlike any other official in the
Executive Department is vested with both "constitutional and legal
authority"4 as Justice Laurel noted. Care is to be taken then lest by a too
narrow interpretation what could reasonably be included in such
competence recognized by the Constitution be unduly restricted. If my
reading of the opinion of Justice Sanchez is correct, then there is a more
hospitable scope accorded such power of control. For me this is more in
keeping with the fundamental law. Moreover there would be a greater
awareness on the part of all of the broad range of authority the President
possesses by virtue of such a provision.
Reference to the words of Justice Laurel, who was himself one of the leading
framers of the Constitution and thereafter, as a member of this Court, one of
its most authoritative expounders in the leading case of Villena vs.
Secretary of Interior,5 is not inappropriate. Their reverberating clang, to
paraphrase Justice Cardozo, should drown all weaker sounds. Thus: "After
serious reflection, we have decided to sustain the contention of the
government in this case on the broad proposition, albeit not suggested, that
under the presidential type of government which we have adopted and
considering the departmental organization established and continued in
force by paragraph 1, section 12, Article VII, of our Constitution, all executive
and administrative organizations are adjuncts of the Executive Department,
the heads of the various executive departments are assistants and agents of
the Chief Executive, and except in cases where the Chief Executive is
required by the Constitution or the law to act in person or the exigencies of
the situation demand that he act personally, the multifarious executive and
administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such

departments, performed and promulgated in the regular course of business,

are, unless disapproved or reprobated by the Chief Executive, presumptively
the acts of the Chief Executive. (Runkle vs. United States [1887], 122 U.S.,
543; 30 Law. ed., 1167; 7 Sup. St. Rep. 1141; see also U.S. vs. Eliason
[1839], 16 Pet., 291; 10 Law. ed., 968; Jones vs. U.S. [1890], 137 U.S. 202;
34 Law. ed., 691; 11 Sup. Ct. Rep. 80; Wolsey vs. Chapman [1880], 101 U.S.
775; 25 Law. ed. 915; Wilcox vs. Jackson [1836], 13 Pet. 498; 10 Law. ed.
264.)"
The opinion of Justice Laurel continues: "Fear is expressed by more than one
member of this court that the acceptance of the principle of qualified
political agency in this and similar cases would result in the assumption of
responsibility by the President of the Philippines for acts of any member of
his cabinet, however illegal, irregular or improper may be these acts. The
implications, it is said, are serious. Fear, however, is no valid argument
against the system once adopted, established and operated. Familiarity with
the essential background of the type of govenment established under our
Constitution, in the light of certain well-known principles and practices that
go with the system, should offer the necessary explanation. With reference
to the Executive Department of the government, there is one purpose which
is crystal clear and is readily visible without the projection of judicial
searchlight, and that is, the establishment of a single, not plural, Executive.
The first section of Article VII of the Constitution, dealing with the Executive
Department, begin with the enunciation of the principle that 'The executive
power shall be vested in a President of the Philippines.' This means that the
President of the Philippines is the Executive of the Government of the
Philippines, and no other. The heads of the executive departments occupy
political positions and hold office in an advisory capacity, and, in the
language of Thomas Jefferson, 'should be of the President's bosom
confidence' (7 Writings, Ford ed., 498), and, in the language of AttorneyGeneral Cushing, (7 Op., Attorney-General, 453), 'are subject to the direction
of the President.' Without minimizing the importance of the heads of the
various departments, their personality is in reality but the projection of that
of the President. Stated otherwise, and as forcibly characterized by Chief
Justice Taft of the Supreme Court of the United States, 'each head of a
department is, and must be the President's alter ego in the matters of that
department where the President is required by law to exercise authority'
(Myers vs. United States, 47 Sup. Ct. Rep. 21 at 30; 272 U.S. 52 at 133; 71
Law. ed., 160). Secretaries of departments, of course, exercise certain
powers under the law but the law cannot impair or in any way affect the
constitutional power of control and direction of the President. As a matter of
executive policy, they may be granted departmental autonomy as to certain
matters but this is by mere concession of the executive, in the absence of
valid legislation in the particular field. If the President, then, is the authority
in the Executive Department, he assumes the corresponding responsibility.
The head of a department is a man of his confidence; he controls and directs
his acts; he appoints him and can remove him at pleasure; he is the
executive, not any of his secretaries. It is therefore logical that he, the
President, should be answerable for the acts of administration of the entire
Executive Department before his own conscience no less than before that
undefined power of public opinion which, in the language of Daniel Webster,
is the last repository of popular government. These are the necessary

corollaries of the American presidential type of government, and if there is

any defect, it is attributable to the system itself. We cannot modify the
system unless we modify the Constitution, and we cannot modify the
Constitution by any subtle process of judicial interpretation or construction."
Concepcion, C.J. and Castro, J., concur.

[G.R. No. L-10759. May 20, 1957.]

LEONARDO MONTES, Petitioner-Appellant, v. THE CIVIL SERVICE
BOARD OF APPEALS and THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, Respondents-Appellees.

care), the Commissioner of Civil Service exonerated him, on the basis of

findings made by a committee. But the Civil Service Board of Appeals
modified the decision, finding petitioner guilty of contributory negligence in
not pumping the water from the bilge, and ordered that he be considered
resigned effective his last day of duty with pay, without prejudice to
reinstatement at the discretion of the appointing officer.

Gonzalo U. Garcia for Appellant.

Solicitor General Ambrosio Padilla and Solicitor Eriberto D. Ignacio
for Appellees.

Petitioner filed an action in the Court of First Instance of Manila to review the
decision, but the said court dismissed the action on a motion to dismiss, on
the ground that petitioner had not exhausted all his administrative remedies
before he instituted the action. The case is now before us on appeal against
the order of dismissal.

SYLLABUS
The law which was applied by the lower court is Section 2 of Commonwealth
Act No. 598, which provides:jgc:chanrobles.com.ph
1. CIVIL SERVICE BOARD OF APPEALS; DECISION OF, REVIEWABLE BY THE
PRESIDENT; JUDICIAL REVIEW OF PRESIDENTS DECISION DOES NOT MAKE
EXECUTIVE SUBORDINATE TO COURTS. When a presidential act is
challenged before the courts of justice, it is not to be implied therefrom that
the Executive is being made subject and subordinate to the courts. The
legality of his acts are under judicial review, not because the executive is
inferior to the courts, but because the law is above the Chief Executive
himself, and the courts seek only to interpret, apply or implement the law. A
judicial review of the Presidents decision on a case of an employee decided
by the Civil Service Board of Appeals should be viewed in this light and the
bringing of the case to the courts should be governed by the same principles
as govern the judicial review of all administrative acts of all administrative
officers.
2. ID.; APPEAL FROM DECISION OF; EXHAUST ALL ADMINISTRATIVE
REMEDIES FIRST BEFORE RESOLVING TO COURTS. The doctrine of
exhaustion of administrative remedies requires that where an administrative
remedy is provided by statute, relief must be sought by exhausting this
remedy before the courts will act. If, as in this case, the President, under
whom the Civil Service directly falls in our administrative system as head of
the executive department may be able to grant the remedy that petitioner
pursues, reasons of comity and orderly procedure demand that resort be
made to him before recourse can be had to the courts.
DECISION
LABRADOR, J.:
Petitioner-appellant was on and before January, 1953, a watchman of the
Floating Equipment Section, Ports and Harbors Division, Bureau of Public
Works. In Administrative Case No. R-8182 instituted against him for
negligence in the performance of duty (Dredge No. 6 under him had sunk
because of water in the bilge, which he did not pump out while under his

"The Civil Service Board of Appeals shall have the power and authority to
hear and decide all administrative cases brought before it on appeal, and its
decisions in such cases shall be final, unless revised or modified by the
President of the Philippines."cralaw virtua1aw library
It is urged on the appeal that there is no duty imposed on a party against
whom a decision has been rendered by the Civil Service Board of Appeals to
appeal to the President, and that the tendency of courts has been not to
subject the decision of the President to judicial review. It is further argued
that if decisions of the Auditor General may be appealed to the courts, those
of the Civil Service Board of Appeals need not be acted upon by the
President also, before recourse may be had to the courts. It is also argued
that if a case is appealed to the President, his action should be final and not
reviewable by the courts because such a course of action would be
derogatory to the high office of the President.
The objection to a judicial review of a Presidential act arises from a failure to
recognize the most important principle in our system of government, i.e.,
the separation of powers into three co-equal departments, the executive,
the legislative and the judicial, each supreme within its own assigned powers
and duties. When a presidential act is challenged before the courts of
justice, it is not to be implied therefrom that the Executive is being made
subject and subordinate to the courts. The legality of his acts are under
judicial review, not because the Executive is inferior to the courts, but
because the law is above the Chief Executive himself, and the courts seek
only to interpret, apply or implement it (the law). A judicial review of the
Presidents decision on a case of an employee decided by the Civil Service
Board of Appeals should be viewed in this light and the bringing of the case
to the courts should be governed by the same principles as govern the
judicial review of all administrative acts of all administrative officers.
The doctrine of exhaustion of administrative remedies requires that where
an administrative remedy is provided by statute, as in this case, relief must
be sought by exhausting this remedy before the courts will act. (42 Am. Jur.
580-581.) The doctrine is a device based on considerations of comity and

convenience. If a remedy is still available within the administrative

machinery, this should be resorted to before resort can be made to the
courts, not only to give the administrative agency opportunity to decide the
matter by itself correctly, but also to prevent unnecessary and premature
resort to the courts. (Ibid.)
Section 2 of Commonwealth Act No. 598 above-quoted is a clear expression
of the policy or principle of exhaustion of administrative remedies. If the
President, under whom the Civil Service directly falls in our administrative
system as head of the executive department, may be able to grant the
remedy that petitioner pursues, reasons of comity and orderly procedure
demand that resort be made to him before recourse can be had to the
courts. We have applied this same rule in De la Paz v. Alcaraz, Et Al., 99 Phil.,
130, 52 Off. Gaz., 3037, Miguel, Et. Al. v. Reyes, Et Al., 93 Phil., 542, and
especially in Ang Tuan Kai & Co. v. The Import Control Commission, 91 Phil.,
143, and we are loathe to deviate from the rule we have consistently
followed, especially in view of the express provision of the law (section 2,
Commonwealth Act No. 598).
The judgment appealed from is affirmed, with costs against Appellant.
Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion,
Reyes, J.B.L., Endencia and Felix, JJ., concur.

G.R. No. L-54554 March 30, 1981

EUSTAQUIO M. MEDALLA, JR., petitioner,
vs.
THE HONORABLE MARCELINO N. SAYO, Judge of the CFI of Rizal,
Branch XXXIII and HONORATO G. MACKAY, acting Hospital
Administrator of the Caloocan City General Hospital and the CITY
MAYOR OF CALOOCAN, respondents.
MELENCIO-HERRERA, J.:
In this Petition for "Certiorari, mandamus and Prohibition", seeking the
dismissal of Civil Case No. C-7770 below, we have, as factual background,
the following:
Petitioner, Dr. Eustaquio M. Medalla, Jr., is the Chief of Clinics of the Caloocan
City General Hospital, Caloocan City. Private respondent,, Dr. Honorato G.
Mackay was the Resident Physician thereat.
When the position of Assistant, hospital Administrator of the Caloocan City
General Hospital became vacant upon the resignation of the incumbent,
former Caloocan City Mayor Alejandro A. Fider designated and subsequently
appointed, as Assistant Hospital Administrator private respondent Dr.
Mackay, a Resident Physician in said hospital. Petitioner, Dr. Medalla, Jr.,
protested Dr. Mackay's designation and subsequent appointment alleging
among others that, as Chief of Clinics, he (Medalla) was next-in-rank. The
then Acting City Mayor Virgilio P. Robles, who succeeded former Mayor, now
Assemblyman Alejandro A. Fider, in his 4th Indorsement dated September
20, 1978, sustained Mackay's appointment stating:
... as of April 18, 1978 when Dr. Honorato G. Mackay was promoted to
Assistant Hospital Administrator from his previous position of Resident
Physician, he was next in rank to the said higher position by reason of his
having completed all academic requirements for the Certificate in Hospital
Administration ... contrary to the claim of Dr. Eustaquio Medalla, Jr. in his
letter of May 2, 1978.
xxx xxx xxx
Dissatisfied, Medalla elevated his case to the Civil Service Commission on
appeal. On December 29, 1978, the Civil Service Merit Systems Board issued
Resolution No. 49 sustaining Medalla's appeal and revoking Mackay's

appointment as Assistant Hospital Administrator. The pertinent portion of the

aforestated Resolution reads:
A perusal of the records shows that appellant Medalla is the Chief of Clinics
of the Caloocan City General Hospital; he is a holder of the Degree of Doctor
of Medicine; he has completed the requirements in Hospital Administration
and is recommended for the title of Certificate in Hospital Administration; he
is also a candidate of a Masters degree in Hospital Administration He
possesses the First Grade eligibility (BA 1080) and had undergone relevant
training in Hospital Administration. His performance rating is 'Very
Satisfactory'.
On the other hand, appellee Mackay had been a Resident Physician, the
position he held prior to his promotion to the contested position. He is a
holder of the degree of Doctor of Medicine and is a First Grade eligible (BA
1080-Medical Board). He is a graduate student in Hospital Administration
and as completed all academic requirements for a certificate in Hospital
Administration. His performance rating is "Very Satisfactory".
A perusal of the organizational chart of the Ospital ng Caloocan approved by
the Hospital Administrator would show that the Chief of Clinics is the next
lower position to the Assistant Hospital Administrator. The Resident
Physician is not a next lower position to the Assistant Hospital Administrator.
Therefore, Medalla and not Mackay is the person next in rank who may be
promoted to the position involved.
Moreover, even on the basis of competence and qualifications to perform
the duties of the position, the records show that Dr. Medalla is more
competent and qualified than Dr. Mackay. The qualification relied upon by
the Acting City Mayor in justifying the appointment of Dr. Mackay which is
his having completed the academic requirements for the Certificate in
Hospital Administration does not give Dr. Mackay the advantage inasmuch
as Dr. Medalla has also completed the academic requirements for a
certificate in Hospital Administration and is recommended for a title of
Certificate in Hospital Administration apart from being also a candidate for a
Masters degree in Hospital Administration. 1
xxx xxx xxx
Upon automatic review by the Office of the President, pursuant to section
19(6), PD No. 807, Presidential Executive Assistant Jacobo C. Clave rendered
a Decision on April 24, 1979 declaring that:
WHEREFORE, premises considered, and as recommended by Civil Service
Commission, the appointment of Dr. Honorato G. Mackay as Assistant
Hospital Administrator in the Caloocan City General Hospital is hereby
revoked and the position awarded in favor of appellant Dr. Eustaquio M.
Medalla. 2
The Acting City Mayor, on behalf of Mackay, moved for reconsideration.
On May 7, 1979, totally disregarding the Decision of the Office of the
President, the same Acting City Mayor appointed Mackay, this time as
Hospital Administrator, and designated Dr. Tantoco as his Assistant, thereby
again completely bypassing Medalla. Mackay took his oath of office on May
7, 1979.

On June 27, 1979, however, the Civil Service Commission, acting on

Medalla's protest, and besides calling attention to the penal provision of P.D.
No. 807, disapproved Mackay's appointment as follows:
Wherefore, premises considered and finding the protest of Dr. Medalla in
order, the appointment of Dr. Mackay as hospital Administrator at P26,388
per annum effective May 7, 1979 is hereby disapproved. it is hereby ordered
that Dr. Medalla be appointed to the position of Hospital Administrator of the
Caloocan City General Hospital. 3
On July 20, 1979, Mackay moved for reconsideration asserting 1) denial of
due process of law inasmuch as the contested Resolution/Decisions were
issued ex-parte, and 2) that the Civil Service Commission can not ignore nor
overrule an appointment made by a City Executive.
Without awaiting the resolution of his Motion for Consideration- Mackay filed,
on July 23, 1979, before tile Court of First Instance of Rizal, Caloocan City,
presided by respondent, Judge, a Petition for "Certiorari, Prohibition and
mandamus with Preliminary Injunction and Damages" civil Case No. C7770)
against Hon. Jacobo Clave, the Civil Service Commission, the Acting City
Mayor, the City Treasurer, and Medalla, praying that said respondents be
restrained from implementing the Decision of Hon. Jacobo Clave of April 24,
1979, the Resolution No. 49 of the Merit Systems Board dated December 29,
1978, and the Decision of the Civil Service Commission of June 27, 1979. The
Court a quo issued the Restraining Order prayed for on July 25, 1979
enjoining implementation of the aforestated Resolution/Decisions.
On August 2, 1979, Medalla moved to dissolve the Restraining Order and to
dismiss the Petition alleging mainly that Mackay had not exhausted his
administrative remedies and that the latter's right to a Writ of Preliminary
Injunction was not only dubious or debatable but was clearly non-existent.
Hon. Jacobo Clave and the Civil Service Commission likewise filed a Motion
to Dismiss on the same ground of failure to exhaust administrative
remedies.
On August 13, 1979, Mackay moved to suspend proceedings pending final
resolution by the Civil Service Commission of his Motion for the
reconsideration of the Decision of said Commission dated June 27, 1979.
On September 24, 1979, the Trial Court denied both Motions to Dismiss filed
by Medalla, on the one hand, and Hon. Clave and the Civil Service
Commission, on the other, holding that Mackay's failure to await resolution
of his Motions for Reconsideration pending before the Office of the President
and the Civil Service Commission did not deprive him of a cause of action
besides the fact that according to the respective Manifestations of the said
Offices, the Motions for Reconsideration had already been resolved
adversely against Mackay.
Acting on Medalla's Motion for Reconsideration thereof as well as his Motion
to Lift Restraining Order, the Court a quo, in its Order of July 15, 1980,
denied reconsideration but lifted the Restraining Order "there being no
showing that petitioner is entitled to the issuance of a Writ of Preliminary
Injunction. " Respondent Judge then set the case for hearing.
At this juncture, Medalla instituted this Petition before us praying that the
Court a quo be restrained from proceeding with the hearing and that
judgment be rendered as follows:
1. Ordering the Honorable Marcelino N. Sayo, Judge of the Court of First

Instance of Rizal Branch XXXIII, Caloocan City, to dismiss respondent

Mackay's petitions, on the ground of lack of jurisdiction and/or nonexhaustion of administrative remedies resulting to a lack of cause of action;
2. Declaring the decision of the Office of the President (Annex "C") and the
Merit Systems Board (Annex "E") as valid and enforceable. 4

We issued a Restraining Order on August 27, 1980 enjoining respondents

from proceeding with the case below.
On November 7, 1980, we required petitioner Medalla to implead the Mayor
of Caloocan City as party-respondent, and the latter to comment on the
Petition and to state whether he is ready to issue an appointment to Medalla
as Hospital Administrator, Medalla's rights thereto having been upheld by
the Civil Service Merit Systems Board and by the Office of the President.
In his Compliance, Medalla included an additional prayer that the City Mayor
of Caloocan be ordered to immediately appoint him as Hospital
Administrator and to pay him salary differentials.
In his Comment, the City Mayor of Caloocan invoked the privilege of an
appointing authority to determine who can best fulfill the functions of an
office citing the case of Aguilar vs. Nieva, Jr. 5 to that effect. And as to the
matter of his readiness to issue an appointment to Medalla, he manifested
his preference to withhold action pending Mackay's unresolved Motion for
Reconsideration of the Decision of June 27, 1979 of the Civil Service Merit
Systems Board.
Petitioner Medalla submits that the Trial Court erred in not dismissing
Mackay's Petition before it, there being a clear showing of non-exhaustion of
administrative remedies, and that said Court was devoid of jurisdiction in
reviewing on certiorari decisions of the Office of the President and of the
Civil service Commission rendered in the exercise of their quasi-judicial
functions.
Private respondent Mackay takes the contrary view and prays, instead, that
the contested Decisions/Resolution be declared null and void and
respondent Judge ordered to proceed with the hearing of the case below.
Although Mackay's Motions for Reconsideration were, in fact, still pending
resolution by Hon. Jacobo C. Clave and the Civil Service Commission,
respectively, at the time private respondent Mackay filed the Petition below,
dismissal of said Petition can no longer be anchored on the ground of nonexhaustion of administrative remedies, as Medalla prays, considering that
Manifestations dated August 17 and 23, 1979 filed by the said parties before
the Court a quo show that they had resolved the incidents adversely against
Mackay. 6 That issue, therefore, has become moot and academic.
In so far as jurisdiction of the Court below to review by certiorari decisions
and/or resolutions of the Civil Service Commission and of the Presidential
Executive Assistant is concerned, there should be no question but that the
power of judicial review should be upheld. The following rulings buttress this
conclusion:
The objection to a judicial review of a Presidential act arises from a failure to
recognize the most important principle in our system of government, i.e.,
the separation of powers into three coequal departments, the executive, the
legislative and the judicial, each supreme within its own assigned powers

and duties. When a presidential act is challenged before the courts of

justice, it is not to be implied therefrom that the Executive is being made
subject and subordinate to the courts. The legality of his acts are under
judicial review, not because the Executive is inferior to the courts, but
because the law is above the Chief Executive himself, and the courts seek
only to interpret, apply or implement it (the law). A judicial review of the
President's decision on a case of an employee decided by the Civil Service
Board of Appeals should be viewed in this light and the bringing of the case
to the Courts should be governed by the same principles as govern the
judicial review of all administrative acts of all administrative officers. 7
The courts may always examine into the exercise of power by a ministerial
officer to the extent of determining whether the particular power has been
granted to the officer, whether it is a legal power that could have been
granted to him, and whether it has been exercised in a legal manner. This
jurisdiction does not depend upon an act of the legislature authorizing it, but
inheres in the courts of general jurisdiction as an essential function of the
judicial department (State Racing Commission v. Latonia Agri. Asso. 123 SW
68 1). 8 (emphasis supplied).
For the speedy determination of the controversy, however, and considering
that the position involved is infused with public interest, rather than remand
the case to the Court below for further proceedings, we hold that grave
abuse of discretion on the part of Hon. Jacobo C. Clave and the Civil Service
Merit Systems Board is absent.
To start with, under the Revised Charter of the City of Caloocan RA No.
5502), it is clear that the power of appointment by the City Mayor of heads
of offices entirely paid out of city funds is subject to Civil Service law, rules
and regulations (ibid., section 19). The Caloocan City General Hospital is one
of the city departments provided for in the said law (ibid., sec. 17). The
Hospital Administrator is appointed by the City Mayor (ibid., section 66-B).
The Hospital Administrator is the head of the City General Hospital
empowered to administer, direct, and coordinate all activities of the hospital
to carry out its objectives as to the care of the sick and the injured (ibid.).
Under section 19 (3) of the Civil Service Decree (PD No. 807, effective on
October 6, 1975), the recruitment or selection of employees for promotions
is drawn from the next-in-rank.
SEC. 19. Recruitment and Selection of Employees.
xxx xxx xxx
(3) When a vacancy occurs in a position in the second level of the Career
Service as defined in Section 7, the employees in the government service
who occupy the next lower positions i the occupational group under which
the vacant position is classified and in other functionally related
occupational groups and who are competent, qualified and with the
appropriate civil service eligibility shall be considered for promotion.
Section 19 (6) of the same Decree provides for the administrative procedure
by an aggrieved employee in case of non-observance by the appointing
authority of the next-in-rank rule, thus:
Sec. 19(6) A qualified next-in-rank employee shall have the right to appeal
initially, to the department head and finally to the Office of the President an
appointment made ... (2. in favor of one who is not next-in-rank, ... if the
employee making the appeal is not satisfied with the written special reason

or reasons given by the appointing authority for such appointment: ... Before
deciding a contested appointment the Office of the President shall consult
the Civil Service Commission. For purposes of this Section, .qualified next-inrank' refers to an employee appointed on a permanent basis to a position
previously determined to be next-in- rank to the vacancy proposed to be
filled and who meets the requisites for appointment thereto as previously
determined by the appointing authority and approved by the Commission.
The prescribed procedure has been followed by petitioner Medalla He had
appealed to the department head and from thence, in view of the latter's
unfavorable action, to the Civil Service Commission and thereafter to the
Office of the President. Resolution No. 49 of the Civil Service Merit Systems
Board its Decision of June 27, 1979, and the Decision of the presidential
Executive Assistant dated April 24, 1979, were all rendered in Medalla's
favor. The special reason given by the Acting City Mayor for Mackay's
appointment, which is, that lie had completed all academic requirements for
the Certificate of Hospital Administration, is not tenable, since Medalla
himself was found to be in possession of the same qualification. But while
the qualifications of both petitioner Medalla and private respondent Mackay
are at par, yet, it is clear that the position of Chief of Clinics is the next lower
position to I hospital Administrator under the organizational line-up of the
hospital. Consequently, at the time of Mackays appointment as Assistant
Hospital Administrator and subsequently hospital Administrator, Medalla
outranked Mackay who was only a Resident Physician and, therefore, as the
next-in rank, Medalla is entitled to appointment as Hospital Administrator.
Respondent Mackay's urging that he was denied due process deserves scant
consideration considering that subsequent developsments in the case
establish that he was heardon his Motions for Reconsideration by both the
Civil Service Commission and the office of the President.
It is true that, as the respondent City Mayor alleges, a local executive should
be allowed the choice of men of his confidence, provided they are qualified
and elligible, who in his best estimation are possesses of the requisite
reputation, integrity, knowledgeability, energy and judgement. 9 However,
as reproduced heretofore, the Decision of the Civil Service Merit Systems
Board, upheld by the Office of the President, contains a judicious assessment
of the qualifications of both petitioner Medalla and private respondent
Mackay for the contested position, revealing a careful study of the
controversy between the parties, which cannot be ignored. The revocation of
Mackay's appointment reveals no arbitrariness nor grave abuse of
discretion.
WHEREFORE, 1) the appointment extended to private respondent, Dr.
Honorato C. Mackay, as Hospital Administrator is hereby declared null and
void; 2) respondent City Mayor of Caloocan City is hereby ordered to extend
an appointment to petitioner, Dr. Eustaquio M. Medalla, as Hospital
Administrator of the Caloocan City General Hospital immediately upon notice
of this Decision; 3) petitioner, Dr. Eustaquio M. Medalla, shall receive all
compensation and emoluments appertaining to said position thenceforth,
but without entitlement to salary differentials; and 4) respondent Judge is
hereby permanently enjoined from further proceeding with Civil Case No.
7770.
This Decision is immediately executory. No costs.
SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur,.

G.R. No. L-30637

July 16, 1987
LIANGA BAY LOGGING, CO., INC., petitioner, vs.
HON. MANUEL LOPEZ ENAGE, in his capacity as Presiding Judge of
Branch II of the Court of First, Instance of Agusan, and AGO TIMBER
CORPORATION, respondents.
TEEHANKEE, C.J.:
The Court grants the petition for certiorari and prohibition and holds that
respondent judge, absent any showing of grave abuse of discretion, has no
competence nor authority to review anew the decision in administrative
proceedings of respondents public officials (director of forestry, secretary of
agriculture and natural resources and assistant executive secretaries of the
Office of the President) in determining the correct boundary line of the
licensed timber areas of the contending parties. The Court reaffirms the
established principle that findings of fact by an administrative board or
agency or official, following a hearing, are binding upon the courts and will
not be disturbed except where the board, agency and/or official(s) have
gone beyond their statutory authority, exercised unconstitutional powers or
clearly acted arbitrarily and without regard to their duty or with grave abuse
of discretion.
The parties herein are both forest concessionaries whose licensed areas are
adjacent to each other. The concession of petitioner Lianga Bay Logging
Corporation Co., Inc. (hereinafter referred to as petitioner Lianga) as
described in its Timber License Agreement No. 49, is located in the
municipalities of Tago, Cagwait, Marihatag and Lianga, all in the Province of
Surigao, consisting of 110,406 hectares, more or less, while that of
respondent Ago Timber Corporation (hereinafter referred to as respondent
Ago) granted under Ordinary Timber License No. 1323-60 [New] is located at
Los Arcos and San Salvador, Province of Agusan, with an approximate area
of 4,000 hectares. It was a part of a forest area of 9,000 hectares originally
licensed to one Narciso Lansang under Ordinary Timber License No. 584-'52.
Since the concessions of petitioner and respondent are adjacent to each
other, they have a common boundary-the Agusan-Surigao Provincial
boundary-whereby the eastern boundary of respondent Ago's concession is
petitioner Lianga's western boundary. The western boundary of petitioner
Lianga is described as "... Corner 5, a point in the intersection of the AgusanSurigao Provincial boundary and Los Arcos-Lianga Road; thence following
Agusan-Surigao Provincial boundary in a general northerly and northwesterly
and northerly directions about 39,500 meters to Corner 6, a point at the
intersection of the Agusan-Surigao Provincial boundary and Nalagdao
Creek ..." The eastern boundary of respondent Ago's concession is described
as "... point 4, along the Agusan-Surigao boundary; thence following AgusanSurigao boundary in a general southeasterly and southerly directions about
12,000 meters to point 5, a point along Los Arcos-Lianga Road; ..." 1
Because of reports of encroachment by both parties on each other's
concession areas, the Director of Forestry ordered a survey to establish on
the ground the common boundary of their respective concession areas.

Forester Cipriano Melchor undertook the survey and fixed the common
boundary as "Corner 5 of Lianga Bay Logging Company at Km. 10.2 instead
of Km. 9.7 on the Lianga-Arcos Road and lines N900E, 21,000 meters; N12
W, 21,150 meters; N40 W, 3,000 meters; N31 W, 2,800 meters; N50 W,
1,700 meters" which respondent Ago protested claiming that "its eastern
boundary should be the provincial boundary line of Agusan-Surigao as
described in Section 1 of Art. 1693 of the Philippine Commission as indicated
in the green pencil in the attached sketch" of the areas as prepared by the
Bureau of Forestry. 2 The Director of Forestry, after considering the evidence,
found:
That the claim of the Ago Timber Corporation portrays a line (green line) far
different in alignment with the line (red) as indicated in the original License
Control Map of this Office;
That the claim of the Ago Timber Corporation (green line does not conform
to the distance of 6,800 meters from point 3 to point 4 of the original
description of the area of Narciso Lansang but would project said line to a
distance of approximately 13,800 meters;
That to follow the claim of the Ago Timber Corporation would increase the
area of Narciso Lansang from 9,000 to 12,360 hectares;
That to follow the claim of the Ago Timber Corporation would reduce the
area of the Lianga Bay Logging, Co., Inc. to 107,046 hectares instead of the
area granted which is 110,406 hectares.
and ruled that "the claim of the Ago Timber Corporation runs counter to the
intentions of this Office is granting the license of Mr. Narciso Lansang; and
further, that it also runs counter to the intentions of this Office in granting
the Timber License Agreement to the Lianga Bay Logging Co., Inc. The
intentions of this Office in granting the two licenses (Lansang and Lianga
Bay Logging Co., Inc.) are patently manifest in that distances and bearings
are the controlling factors. If mention was ever made of the Agusan-Surigao
boundary, as the common boundary line of both licensees, this Office could
not have meant the Agusan-Surigao boundary as described under Section 1
of Act 1693 of the Philippine Commission for were it so it could have been so
easy for this Office to mention the distance from point 3 to point 4 of Narciso
Lansang as approximately 13,800 meters. This cannot be considered a
mistake considering that the percentage of error which is more or less 103%
is too high an error to be committed by an Office manned by competent
technical men. The Agusan-Surigao boundary as mentioned in the technical
descriptions of both licensees, is, therefore, patently an imaginary line based
on B.F. License Control Map. Such being the case, it is reiterated that
distance and bearings control the description where an imaginary line exists.
3
The decision fixed the common boundary of the licensed areas of the Ago
Timber Corporation and Lianga Bay Logging Co., Inc. as that indicated in red
pencil of the sketch attached to the decision.
In an appeal interposed by respondent Ago, docketed in the Department of
Agriculture and Natural Resources as DANR Case No. 2268, the then Acting
Secretary of Agriculture and Natural Resources Jose Y. Feliciano, in a decision
dated August 9, 1965 set aside the appealed decision of the Director of
Forestry and ruled that "(T)he common boundary line of the licensed areas
of the Ago Timber Corporation and the Lianga Bay Logging Co., Inc., should
be that indicated by the green line on the same sketch which had been
made an integral part of the appealed decision." 4

Petitioner elevated the case to the Office of the President, where in a

decision dated June 16, 1966, signed by then Assistant Executive Secretary
Jose J. Leido, Jr., the ruling of the then Secretary of Agriculture and Natural
Resources was affirmed. 5 On motion for reconsideration, the Office of the
President issued another decision dated August 9, 1968 signed by then
Assistant Executive Secretary Gilberto Duavit reversing and overturning the
decision of the then Acting Secretary of Agriculture and Natural Resources
and affirming in toto and reinstating the decision, dated March 20, 1961, of
the Director of Forestry. 6
Respondent Ago filed a motion for reconsideration of the decision dated
August 9, 1968 of the Office of the President but after written opposition of
petitioner Lianga, the same was denied in an order dated October 2, 1968,
signed by then Assistant Executive Secretary Jose J. Leido, Jr. 7
On October 21, 1968, a new action was commenced by Ago Timber
Corporation, as plaintiff, in the Court of First Instance of Agusan, Branch II,
docketed thereat as Civil Case No. 1253, against Lianga Bay Logging Co.,
Inc., Assistant Executive Secretaries Jose J. Leido, Jr. and Gilberto M. Duavit
and Director of Forestry, as defendants, for "Determination of Correct
Boundary Line of License Timber Areas and Damages with Preliminary
Injunction" reiterating once more the same question raised and passed upon
in DANR Case No. 2268 and insisting that "a judicial review of such divergent
administrative decisions is necessary in order to determine the correct
boundary fine of the licensed areas in question." 8
As prayed for, respondent judge issued a temporary restraining order on
October 28, 1968, on a bond of P20,000, enjoining the defendants from
carrying out the decision of the Office of the President. The corresponding
writ was issued the next day, or on October 29, 1968. 9
On November 10, 1968, defendant Lianga (herein petitioner) moved for
dismissal of the complaint and for dissolution of the temporary restraining
order on grounds that the complaint states no cause of action and that the
court has no jurisdiction over the person of respondent public officials and
respondent corporation. It also submitted its opposition to plaintiff's (herein
respondent prayer for the issuance of a writ of preliminary injunction. 10 A
supplemental motion was filed on December 6, 1968. 11
On December 19, 1968, the lower court issued an order denying petitioner
Lianga's motion to dismiss and granting the writ of preliminary injunction
prayed for by respondent Ago. 12 Lianga's Motion for Reconsideration of the
Order was denied on May 9, 1969. 13 Hence, this petition praying of the
Court (a) to declare that the Director of Forestry has the exclusive
jurisdiction to determine the common boundary of the licensed areas of
petitioners and respondents and that the decision of the Office of the
President dated August 9, 1968 is final and executory; (b) to order the
dismissal of Civil Case No. 1253 in the Court of First Instance of Agusan; (c)
to declare that respondent Judge acted without jurisdiction or in excess of
jurisdiction and with grave abuse of discretion, amounting to lack of
jurisdiction, in issuing the temporary restraining order dated October 28,
1968 and granting the preliminary injunction per its Order dated December
19, 1968; and (d) to annul the aforementioned orders.
After respondent's comments on the petition and petitioner's reply thereto,
this Court on June 30, 1969 issued a restraining order enjoining in turn the
enforcement of the preliminary injunction and related orders issued by the

respondent court in Civil Case No. 1253. 14

The Court finds merit in the petition.
Respondent Judge erred in taking cognizance of the complaint filed by
respondent Ago, asking for the determination anew of the correct boundary
fine of its licensed timber area, for the same issue had already been
determined by the Director of Forestry, the Secretary of Agriculture and
Natural Resources and the Office of the President, administrative officials
under whose jurisdictions the matter properly belongs. Section 1816 of the
Revised Administrative Code vests in the Bureau of Forestry, the jurisdiction
and authority over the demarcation, protection, management, reproduction,
reforestation, occupancy, and use of all public forests and forest reserves
and over the granting of licenses for game and fish, and for the taking of
forest products, including stone and earth therefrom. The Secretary of
Agriculture and Natural Resources, as department head, may repeal or in the
decision of the Director of Forestry when advisable in the public interests, 15
whose decision is in turn appealable to the Office of the President. 16
In giving due course to the complaint below, the respondent court would
necessarily have to assess and evaluate anew all the evidence presented in
the administrative proceedings, 17 which is beyond its competence and
jurisdiction. For the respondent court to consider and weigh again the
evidence already presented and passed upon by said officials would be to
allow it to substitute its judgment for that of said officials who are in a better
position to consider and weigh the same in the light of the authority
specifically vested in them by law. Such a posture cannot be entertained, for
it is a well-settled doctrine that the courts of justice will generally not
interfere with purely administrative matters which are addressed to the
sound discretion of government agencies and their expertise unless there is
a clear showing that the latter acted arbitrarily or with grave abuse of
discretion or when they have acted in a capricious and whimsical manner
such that their action may amount to an excess or lack of jurisdiction. 18
A doctrine long recognized is that where the law confines in an
administrative office the power to determine particular questions or matters,
upon the facts to be presented, the jurisdiction of such office shall prevail
over the courts. 19
The general rule, under the principles of administrative law in force in this
jurisdiction, is that decisions of administrative officers shall not be disturbed
by the courts, except when the former have acted without or in excess of
their jurisdiction, or with grave abuse of discretion. Findings of
administrative officials and agencies who have acquired expertise because
their jurisdiction is confined to specific matters are generally accorded not
only respect but at times even finality of such findings are supported by
substantial evidence. 20 As recently stressed by the Court, "in this era of
clogged court dockets, the need for specialized administrative boards or
commissions with the special knowledge, experience and capability to hear
and determine promptly disputes on technical matters or essentially factual
matters, subject to judicial review in case of grave abuse of discretion, has
become well nigh indispensable." 21
The facts and circumstances in the instant case are similar to the earlier
case of Pajo, et al. v. Ago, et al. 22(where therein respondent Pastor Ago is
the president of herein respondent Ago Timber Corporation). In the said
case, therein respondent Pastor Ago, after an adverse decision of the

Director of Forestry, Secretary of Agriculture and Natural Resources and

Executive Secretary in connection with his application for renewal of his
expired timber licenses, filed with the Court of First instance of Agusan a
petition for certiorari, prohibition and damages with preliminary injunction
alleging that the rejection of his application for renewal by the Director of
Forestry and Secretary of Agriculture and Natural Resources and its
affirmance by the Executive Secretary constituted an abuse of discretion and
was therefore illegal. The Court held that "there can be no question that
petitioner Director of Forestry has jurisdiction over the grant or renewal of
respondent Ago's timber license (Sec. 1816, Rev. Adm. Code); that petitioner
Secretary of Agriculture and Natural Resources as department head, is
empowered by law to affirm, modify or reject said grant or renewal of
respondent Ago's timber license by petitioner Director of Forestry (Sec.
79[c], Rev. Adm. Code); and that petitioner Executive Secretary, acting for
and in behalf and by authority of the President has, likewise, jurisdiction to
affirm, modify or reverse the orders regarding the grant or renewal of said
timber license by the two aforementioned officials." The Court went on to
say that, "(I)n the case of Espinosa, et al. v. Makalintal, et al. (79 Phil. 134;
45 Off. Gaz. 712), we held that the powers granted to the Secretary of
Agriculture and Commerce (Natural Resources) by law regarding the
disposition of public lands such as granting of licenses, permits, leases, and
contracts or approving, rejecting, reinstating, or cancelling applications or
deciding conflicting applications, are all executive and administrative in
nature. It is a well-recognized principle that purely administrative and
discretionary functions may not be interfered with by the courts. In general,
courts have no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true with
respect to acts involving the exercise of judgment or discretion, and findings
of act. Findings of fact by an administrative board, agency or official,
following a hearing, are binding upon the courts and will not be disturbed
except where the board, agency or official has gone beyond his statutory
authority, exercised unconstitutional powers or clearly acted arbitrarily and
without regard to his duty or with grave abuse of discretion. And we have
repeatedly held that there is grave abuse of discretion justifying the
issuance of the writ of certiorari only when there is capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. (Abad Santos v.
Province of Tarlac, 67 Phil. 480; Tan vs. People, 88 Phil. 609)"
Respondent Ago contends that the motion filed by petitioner Lianga for
reconsideration of the decision of the Office of the President was denied in
an alleged "decision" dated August 15, 1966, allegedly signed by then
Assistant Executive Secretary Jose J. Leido, Jr. that, "however, for some
mysterious, unknown if not anomalous reasons and/or illegal considerations,
the "decision" allegedly dated August 15, 1966(Annex "D") was never
released" and instead a decision was released on August 9, 1968, signed by
then Assistant Executive Secretary Gilberto M. Duavit, which reversed the
findings and conclusions of the Office of the President in its first decision
dated June 16, 1966 and signed by then Assistant Executive Secretary Leido.
It is elementary that a draft of a decision does not operate as judgment on a
case until the same is duly signed and delivered to the clerk for filing and
promulgation. A decision cannot be considered as binding on the parties
until its promulgation. 23 Respondent should be aware of this rule. In still

another case of Ago v. Court of Appeals,24 (where herein respondent Ago was
the petitioner) the Court held that, "While it is to be presumed that the
judgment that was dictated in open court will be the judgment of the court,
the court may still modify said order as the same is being put into writing.
And even if the order or judgment has already been put into writing and
signed, while it has not yet been delivered to the clerk for filing, it is stin
subject to amendment or change by the judge. It is only when the judgment
signed by the judge is actually filed with the clerk of court that it becomes a
valid and binding judgment. Prior thereto, it could still be subject to
amendment and change and may not, therefore, constitute the real
judgment of the court."
Respondent alleges "that in view of the hopelessly conflicting decisions of
the administrative bodies and/or offices of the Philippine government, and
the important questions of law and fact involved therein, as well as the wellgrounded fear and suspicion that some anomalous, illicit and unlawful
considerations had intervened in the concealment of the decision of August
15, 1966 (Annex "D") of Assistant Executive Secretary Gilberto M. Duavit, a
judicial review of such divergent administrative decisions is necessary in
order to determine the correct boundary line of the licensed areas in
question and restore the faith and confidence of the people in the actuations
of our public officials and in our system of administration of justice."
The mere suspicion of respondent that there were anomalies in the nonrelease of the Leido "decision" allegedly denying petitioner's motion for
reconsideration and the substitution thereof by the Duavit decision granting
reconsideration does not justify judicial review. Beliefs, suspicions and
conjectures cannot overcome the presumption of regularity and legality of
official actions. 25 It is presumed that an official of a department performs his
official duties regularly. 26 It should be noted, furthermore, that as
hereinabove stated with regard to the case history in the Office of the
President, Ago's motion for reconsideration of the Duavit decision dated
August 9, 1968 was denied in the Order dated October 2, 1968 and signed
by Assistant Executive Secretary Leido himself (who thereby joined in the
reversal of his own first decision dated June 16, 1966 and signed by himself).
The Ordinary Timber License No. 1323-'60[New] which approved the transfer
to respondent Ago of the 4,000 hectares from the forest area originally
licensed to Narciso Lansang, stipulates certain conditions, terms and
limitations, among which were: that the decision of the Director of Forestry
as to the exact location of its licensed areas is final; that the license is
subject to whatever decision that may be rendered on the boundary conflict
between the Lianga Bay Logging Co. and the Ago Timber Corporation; that
the terms and conditions of the license are subject to change at the
discretion of the Director of Forestry and the license may be made to expire
at an earlier date. Under Section 1834 of the Revised Administrative Code,
the Director of Forestry, upon granting any license, may prescribe and insert
therein such terms, conditions, and limitations, not inconsistent with law, as
may be deemed by him to be in the public interest. The license operates as
a contract between the government and respondent. Respondent, therefore,
is estopped from questioning the terms and stipulation thereof.
Clearly, the injunctive writ should not have been issued. The provisions of
law explicitly provide that Courts of First Instance shall have the power to
issue writ of injunction, mandamus, certiorari, prohibition, quo warranto and

habeas corpus in their respective places, 27 if the petition filed relates to the
acts or omissions of an inferior court, or of a corporation, board, officer or
person, within their jurisdiction. 28
The jurisdiction or authority of the Court of First Instance to control or
restrain acts by means of the writ of injunction is limited only to acts which
are being committed within the territorial boundaries of their respective
provinces or districts 29 except where the sole issue is the legality of the
decision of the administrative officials. 30
In the leading case of Palanan Lumber Plywood Co., Inc. v. Arranz 31 which
involved a petition for certiorari and prohibition filed in the Court of First
Instance of Isabela against the same respondent public officials as here and
where the administrative proceedings taken were similar to the case at bar,
the Court laid down the rule that: "We agree with the petitioner that the
respondent Court acted without jurisdiction in issuing a preliminary
injunction against the petitioners Executive Secretary, Secretary of
Agriculture and Natural Resources and the Director of Forestry, who have
their official residences in Manila and Quezon City, outside of the territorial
jurisdiction of the respondent Court of First Instance of Isabela. Both the
statutory provisions and the settled jurisdiction of this Court unanimously
affirm that the extraordinary writs issued by the Court of First Instance are
limited to and operative only within their respective provinces and districts."
A different rule applies only when the point in controversy relates solely to a
determination of a question of law whether the decision of the respondent
administrative officials was legally correct or not. 32 We thus declared
inDirector of Forestry v. Ruiz. 33 "In Palanan Lumber & Plywood Co., Inc.,
supra, we reaffirmed the rule of non-jurisdiction of courts of first instance to
issue injunctive writs in order to control acts outside of their premises or
districts. We went further and said that when the petition filed with the
courts of first instance not only questions the legal correctness of the
decision of administrative officials but also seeks to enjoin the enforcement
of the said decision, the court could not validly issue the writ of injunction
when the officials sought to be restrained from enforcing the decision are
not stationed within its territory.1avvphi1
"To recapitulate, insofar as injunctive or prohibitory writs are concerned, the
rule still stands that courts of first instance have the power to issue writs
limited to and operative only within their respective provinces or districts. "
The writ of preliminary injunction issued by respondent court is furthermore
void, since it appears that the forest area described in the injunctive writ
includes areas not licensed to respondent Ago. The forest area referred to
and described therein comprises the whole area originally licensed to
Narciso Lansang under the earlier Ordinary Timber License No. 58452. Only
a portion of this area was in fact transferred to respondent Ago as described
in its Ordinary Timber License No. 1323-'60[New].
It is abundantly clear that respondent court has no jurisdiction over the
subject matter of Civil Case No. 1253 of the Court of First Instance of Agusan
nor has it jurisdiction to decide on the common boundary of the licensed
areas of petitioner Lianga and respondent Ago, as determined by
respondents public officials against whom no case of grave abuse of
discretion has been made. Absent a cause of action and jurisdiction,
respondent Judge acted with grave abuse of discretion and excess, if not
lack, of jurisdiction in refusing to dismiss the case under review and in

issuing the writ of preliminary injunction enjoining the enforcement of the

final decision dated August 9, 1968 and the order affirming the same dated
October 2, 1968 of the Office of the President.
ACCORDINGLY, the petition for certiorari and prohibition is granted. The
restraining order heretofore issued by the Court against enforcement of the
preliminary injunction and related orders issued by respondent judge is the
case below is made permanent and the respondent judge or whoever has
taken his place is hereby ordered to dismiss Civil Case No. 1253. SO
ORDERED.
[G.R. No. L-4269. April 27, 1951.]
ENRIQUE TAN, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.
Manuel C. Briones and Victoriano Salazar, for Petitioner.
SYLLABUS
1. APPEALS; CERTIORARI UNDER RULE 67; APPEAL BY CERTIORARI
DISTINGUISHED THEREFROM. If the petition filed with the Supreme Court
against the Court of Appeals prays that the judgment be set aside and a new
trial ordered, without asking for the revision of the judgment of the Court of
Appeals or the acquittal of the accused, the Supreme Court will consider and
pass upon the petition as a special civil action of certiorari under Rule 67 of
the Rules of Court. Whereas if the petition raises the question that, under
the facts found by the Court of Appeals, the crime committed was not
qualified theft, but merely a civil liability or at most misappropriation of
public funds; and prays that the Supreme Court grant the accused such
other relief as it may deem proper besides a new trial, the petition will be
classified as an appeal by certiorari.
2. CRIMINAL PROCEDURE; NEW TRIAL; NEWLY-DISCOVERED EVIDENCE.
The granting or denial of a motion for new trial in a criminal case lies in the
sound discretion of the court to which such motion is submitted. By grave
abuse of discretion is meant such capricious and whimsical exercise of
discretion as is equivalent to acting without or in excess of jurisdiction.
Affidavits which are merely cumulative, corroborate or impeaching are not
newly-discovered evidence as would probably change the judgment.
RESOLUTION
FERIA, J.:
Petitioner filed on November 2, 1950, a petition for certiorari on two
grounds: (1) that the Court of Appeals acted with grave abuse of discretion
in denying the motion for new trial presented by the petitioner based on
newly discovered evidence after said Court has rendered its decision

affirming the judgment of the lower court which convicted the petitioner of
the crime of qualified theft, and (2) the facts found by the Court of Appeals
in its decision do not constitute the offense of qualified theft, because even
assuming that the petitioner was responsible for the disappearance of the
materials deposited on the yard of his house, he is not criminally liable for
the crime of theft, but only civilly liable, or guilty of the crime of
misappropriation of public funds. And he prayed in his petition that, after a
due consideration of the case, (1) the judgment of the Court of Appeals, and
not only the order denying the motion for new trial, be set aside and a new
trial ordered; (2) that the question of law he raises to the effect that the
facts proven do not constitute the offense of qualified theft with which the
petitioner was charged be decided, and (3) that this Supreme Court grant
the petitioner such other relief as it may deem proper.
This Court, in view of the grounds on which the petitioner for certiorari was
based and the relief prayed for in the petition, properly considered the
petition as appeal by certiorari filed in time, that is, within ten days after the
entry of first judgment of the Court of Appeals on October 26, 1950, and
dismissed the petition on the ground that the question therein raised were
factual.
Now a motion for reconsideration was filed by the petitioner in which he
states that the petition forcertiorari filed by him, was not an appeal by
certiorari, but a special civil action of certiorari under Rule 67 of the Rules of
Court, because what the petitioner prayed for in his petitions was, not that
this Court revise the judgment of the Court of Appeals and absolve the
defendant, but only that the judgment of the Court be set aside and a new
trial ordered. If this allegation were correct, this Court would have
considered and passed upon the petition as a special civil action of certiorari
under Rule 67 of the Rules of Court, but, as already stated, the petitioner
also raised the question of law whether the facts found by the Court of
Appeals constituted qualified theft, or merely a civil liability, or at most a
misappropriation of public funds, and prayed this Court to grant the
petitioner such other relief as it may deem proper besides the granting of his
motion for new trial. It is to be observed that, although appeal does not lie
from a resolution rendered in the exercise of the Courts discretion, abuse of
discretion of the lower court may be corrected by the Superior Court on
appeal from an appealable order or decision.
But considering now the petition for certiorari as filed under Rule 63 of the
Rules of Court, the same must also be dismissed. It is true that the granting
or denial of a motion for new trial on any of the grounds specified in section
2 of Rule 117, relating to new trial in criminal cases, lies in the sound
discretion of the court to which such motion is submitted (U. S. v. Visguera, 4
Phil., 380). By grave abuse of discretion is meant such capricious and
whimsical exercise of discretion as is equivalent to acting without or in
excess of jurisdiction (Abad Santos v. Province of Tarlac, * 38 Off. Gaz 830);
but a mere perusal of the testimonies of Jose S. Catbagan, Catalina
Calagnara and Severino Lucea whose affidavits are attached to the petition
as part thereof, will show that they are merely cumulative, corroborative or
impeaching, and the Court of Appeals did not exercise capriciously and

whimsically its discretion but acted correctly in denying the motion for new
trial filed by the petitioner, because the so called newly discovered
evidence, if admitted, would not probably change the judgment of the lower
court.
Jose S. Catbagan states in his affidavit that, during the incumbency of the
petitioner as warehouseman of the Surplus Property Commission, Guian,
Samar, he was one of the boarders of the petitioner in the quonset hut of the
latter, and he had not seen any G. I. sheet, Celotex nor Plywood that was
stored in their house. The testimony of this witness is merely corroborative
of that denial of the accused petitioner and cannot be a newly discovered
evidence because the petitioner ought to know such testimony before the
trial if the affiant was really living with the accused at the time the offense is
alleged to have been committed.
Catalina Calagnara says in her affidavit that, on or about the 30th of July,
1949, she was invited by Mrs. Cabaas to live with her at the residence of
the petitioner who was then in Manila, and on that day Mrs. Valdomero
visited Mrs. Cabaas and threatened her with having her arrested and
prosecuted for having bought parachutes from some Americans from the U.
S. Navy at Tubabao, Guian, Samar, and sold them, if she did not sign the
papers he was taking with him, which, he explained to Mrs. Cabaas, were
about Mr. Tan storing quonset hut materials in his residence, and that
although Mrs. Cabaas contended that there were no quonset hut materials
stored in the petitioners residence, Mrs. Cabaas signed the papers for fear
that Mr. Valdomero will have her arrested. This testimony or evidence, aside
from being merely impeaching, is not worthy of credence, not only because
it is highly incredible that Valdomero had made such threat to Mrs. Cabaas
in the presence of the affiant, but because of the following findings of the
lower court.
In an attempt to discredit the testimony of Soledad Cabaas, the defense
presented in evidence her affidavit, Exhibit 1, dated November 22, 1947,
wherein she alleged that she did not know anything about the crime at bar
but that Aquilino Valdomero threatened and forced her to be a witness in the
instant case. But the circumstances under which said affidavit was executed,
to wit: that the affiant was taken at nighttime from her house by the
defendant herein and not Capt. Sakay and brought to the house of Justice of
the Peace Ilao, where she signed her said affidavit about midnight after the
said accused had impressed her, by touching meaningfully his revolver, that
something would happen to her were she to refuse to sign it, lead the Court
to believe that she did not execute it of her own free will, as she claims.
And Severino Lucea testifies in his affidavit that, during the petitioners
residence at Guian, Samar, as warehouseman of the Surplus Property
Commission, the affiant was one of the boarders in the house of the
petitioner, and during that period he had not seen any galvanized iron sheet,
celotex nor plywood in the quonset hut Mr. Tan was occupying, dismantled
from any building or quonset hut. That the affiant was an inventory clerk of
the Surplus Property Commission at the Samar Naval Base, Guian, Samar,
and Mr. Valdomero, "who was the Chief of all Inventory team, and as such

the immediate superior of all inventory clerks and of all laborers detailed to
work with the Inventory Clerk," on one occasion confided to him that he was
aspiring to be appointed as Base Superintendent, and Mr. Tans aspiration to
the same position was an obstacle to his appointment, and so Valdomero
"proposed to me to help eliminate Mr. Tan by using me and the laborers
working directly, under me, Messrs. Vicente Ogaro and Felix Yape as
witnesses." That Valdomero told him that "he planned to order Messrs.
Ogaro and Yape to dismantle a certain building and later upon being
questioned for their act of dismantling to impute Mr. Tan as the person who
ordered them to dismantle the building and consequently a charge will be
filed against Mr. Tan that may lead to his suspension and probable
dismissal." That to convince the affiant to agree to be a witness against Mr.
Tan Valdomero "repeated his plan before Messrs. Ogaro and Yape and made
it evident to me that these laborers were amenable to follow to the letter
and execute his plan," but the affiant "did not agree to Mr. Valdomeros
request because it was contrary to his conscience," and "the witness did not
inform Mr. Tan about Mr. Valdomeros intended machination at first, nor did
he inform him upon its consummation, because the witness was still under
Mr. Valdomero, and he feared that the latter may make him a victim of his
revenge."cralaw virtua1aw library
The testimony of this affiant, which tends only to impeach the veracity of
three of the witnesses for the prosecution, Valdomero, Ogaro and Yape,
cannot affect the weight of the latters testimony, because it is incredible
that Valdomero would confide to the affiant his nefarious plan to utilize the
services of Ogaro and Yape against the petitioner without any necessity, for
Valdomero was the chief not only of the affiant but also of said Ogaro and
Yape according to the affiant himself, and not only that, but Valdomero had
to give afterwards his instructions to said Ogaro and Yape about what they
would do in the presence of the affiant. The theory of the defense in this
motion for new trial had already been presented as petitioners defense and
rejected by the lower Court in the following findings of the Court of Appeals
decision:chanrob1es virtual 1aw library
As a matter of fact the accused had admitted that he did not know of any
personal motive which could have prompted any of said government
witnesses to testify falsely against him, except that they might have been
instigated to do so by certain envious officials in the Guian Base to prevent
him, Accused, from being appointed Base Superintendent therein, as it was
then of common knowledge, according to the accused, that he would be
named to that position. But this is a mere supposition and has not gone
beyond it. Besides, if the accuseds alleged appointment as Base
Superintendent were really impending then, said two laborers of the Base
Ogaro and Yape, would have thought twice, for obvious reasons, before
testifying against him. More so, if they were perjured witnesses, as the
accused insinuates. It is clear, therefore, that if they implicated the accused
with the theft at bar it is because they were actuated by truth and
conscience.
In view of the foregoing, petitioners petition for certiorari under Rule 67 of
the Rules of Court is dismissed. So ordered.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Jugo and Bautista
Angelo, JJ., concur.

G.R. No. 151908

August 12, 2003
SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE
CORPORATION (PILTEL), petitioners,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondent.
x---------------------------------------------------------x
G.R. No. 152063 August 12, 2003
GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO.,
INC. (ISLACOM), petitioners,
vs.
COURT OF APPEALS (The Former 6th Division) and the NATIONAL
TELECOMMUNICATIONS COMMISSION, respondents.

YNARES-SANTIAGO, J.:
Pursuant to its rule-making and regulatory powers, the National
Telecommunications Commission (NTC) issued on June 16, 2000
Memorandum Circular No. 13-6-2000, promulgating rules and regulations on
the billing of telecommunications services. Among its pertinent provisions
are the following:
(1) The billing statements shall be received by the subscriber of the
telephone service not later than 30 days from the end of each billing cycle.
In case the statement is received beyond this period, the subscriber shall
have a specified grace period within which to pay the bill and the public
telecommunications entity (PTEs) shall not be allowed to disconnect the
service within the grace period.
(2) There shall be no charge for calls that are diverted to a voice mailbox,
voice prompt, recorded message or similar facility excluding the customer's
own equipment.
(3) PTEs shall verify the identification and address of each purchaser of
prepaid SIM cards. Prepaid call cards and SIM cards shall be valid for at least
2 years from the date of first use. Holders of prepaid SIM cards shall be
given 45 days from the date the prepaid SIM card is fully consumed but not
beyond 2 years and 45 days from date of first use to replenish the SIM card,
otherwise the SIM card shall be rendered invalid. The validity of an invalid
SIM card, however, shall be installed upon request of the customer at no
additional charge except the presentation of a valid prepaid call card.
(4) Subscribers shall be updated of the remaining value of their cards before
the start of every call using the cards.
(5) The unit of billing for the cellular mobile telephone service whether
postpaid or prepaid shall be reduced from 1 minute per pulse to 6 seconds
per pulse. The authorized rates per minute shall thus be divided by 10. 1
The Memorandum Circular provided that it shall take effect 15 days after its
publication in a newspaper of general circulation and three certified true
copies thereof furnished the UP Law Center. It was published in the
newspaper, The Philippine Star, on June 22, 2000. 2 Meanwhile, the provisions
of the Memorandum Circular pertaining to the sale and use of prepaid cards
and the unit of billing for cellular mobile telephone service took effect 90
days from the effectivity of the Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile
telephone service (CMTS) operators which contained measures to minimize
if not totally eliminate the incidence of stealing of cellular phone units. The
Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the
presentation and verification of the identity and addresses of prepaid SIM
card customers;
b. require all your respective prepaid SIM cards dealers to comply with
Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid
customers using stolen cellphone units or cellphone units registered to
somebody other than the applicant when properly informed of all
information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS
operators in order to prevent the use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and

present valid identification cards.3

This was followed by another Memorandum dated October 6, 2000
addressed to all public telecommunications entities, which reads:
This is to remind you that the validity of all prepaid cards sold on 07 October
2000 and beyond shall be valid for at least two (2) years from date of first
use pursuant to MC 13-6-2000.
In addition, all CMTS operators are reminded that all SIM packs used by
subscribers of prepaid cards sold on 07 October 2000 and beyond shall be
valid for at least two (2) years from date of first use. Also, the billing unit
shall be on a six (6) seconds pulse effective 07 October 2000.
For strict compliance.4
On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino
Telephone Corporation filed against the National Telecommunications
Commission, Commissioner Joseph A. Santiago, Deputy Commissioner
Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for
declaration of nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing
Circular) and the NTC Memorandum dated October 6, 2000, with prayer for
the issuance of a writ of preliminary injunction and temporary restraining
order. The complaint was docketed as Civil Case No. Q-00-42221 at the
Regional Trial Court of Quezon City, Branch 77.5
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no
jurisdiction to regulate the sale of consumer goods such as the prepaid call
cards since such jurisdiction belongs to the Department of Trade and
Industry under the Consumer Act of the Philippines; that the Billing Circular
is oppressive, confiscatory and violative of the constitutional prohibition
against deprivation of property without due process of law; that the Circular
will result in the impairment of the viability of the prepaid cellular service by
unduly prolonging the validity and expiration of the prepaid SIM and call
cards; and that the requirements of identification of prepaid card buyers and
call balance announcement are unreasonable. Hence, they prayed that the
Billing Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications,
Inc. filed a joint Motion for Leave to Intervene and to Admit Complaint-inIntervention.6 This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order
enjoining the NTC from implementing Memorandum Circular No. 13-6-2000
and the Memorandum dated October 6, 2000.7
In the meantime, respondent NTC and its co-defendants filed a motion to
dismiss the case on the ground of petitioners' failure to exhaust
administrative remedies.
Subsequently, after hearing petitioners' application for preliminary injunction
as well as respondent's motion to dismiss, the trial court issued on
November 20, 2000 an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the defendants' motion to dismiss is
hereby denied for lack of merit. The plaintiffs' application for the issuance of
a writ of preliminary injunction is hereby granted. Accordingly, the
defendants are hereby enjoined from implementing NTC Memorandum
Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000,
pending the issuance and finality of the decision in this case. The plaintiffs
and intervenors are, however, required to file a bond in the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.

SO ORDERED.8
Defendants filed a motion for reconsideration, which was denied in an Order
dated February 1, 2001.9
Respondent NTC thus filed a special civil action for certiorari and prohibition
with the Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On
October 9, 2001, a decision was rendered, the decretal portion of which
reads:
WHEREFORE, premises considered, the instant petition for certiorari and
prohibition is GRANTED, in that, the order of the court a quo denying the
petitioner's motion to dismiss as well as the order of the court a quo
granting the private respondents' prayer for a writ of preliminary injunction,
and the writ of preliminary injunction issued thereby, are hereby ANNULLED
and SET ASIDE. The private respondents' complaint and complaint-inintervention below are hereby DISMISSED, without prejudice to the referral
of the private respondents' grievances and disputes on the assailed
issuances of the NTC with the said agency.
SO ORDERED.10
Petitioners' motions for reconsideration were denied in a Resolution dated
January 10, 2002 for lack of merit.11
Hence, the instant petition for review filed by Smart and Piltel, which was
docketed as G.R. No. 151908, anchored on the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
THE NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE
REGULAR COURTS HAS JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING
THAT THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE
ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL
AND CONTRARY TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT
THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION. 12
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No.
152063, assigning the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE
DOCTRINES
OF
PRIMARY
JURISDICTION
AND
EXHAUSTION
OF
ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS FOR
LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF
LAW) OF A PURELY ADMINISTRATIVE REGULATION PROMULGATED BY AN
AGENCY IN THE EXERCISE OF ITS RULE MAKING POWERS AND INVOLVES
ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE
DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY
WHEN THE QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE
DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY

WHERE THE ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN

THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER
GRAVE AND IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE
PETITIONERS IN FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES
AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS
QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A
CLEAR RIGHT TO AN INJUNCTION.13
The two petitions were consolidated in a Resolution dated February 17,
2003.14
On March 24, 2003, the petitions were given due course and the parties
were required to submit their respective memoranda.15
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and
quasi-judicial or administrative adjudicatory powers. Quasi-legislative or
rule-making power is the power to make rules and regulations which results
in delegated legislation that is within the confines of the granting statute
and the doctrine of non-delegability and separability of powers. 16
The rules and regulations that administrative agencies promulgate, which
are the product of a delegated legislative power to create new and
additional legal provisions that have the effect of law, should be within the
scope of the statutory authority granted by the legislature to the
administrative agency. It is required that the regulation be germane to the
objects and purposes of the law, and be not in contradiction to, but in
conformity with, the standards prescribed by law. 17 They must conform to
and be consistent with the provisions of the enabling statute in order for
such rule or regulation to be valid. Constitutional and statutory provisions
control with respect to what rules and regulations may be promulgated by
an administrative 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 case of conflict between a statute
and an administrative order, the former must prevail.18
Not to be confused with the quasi-legislative or rule-making power of an
administrative agency is its quasi-judicial or administrative adjudicatory
power. This is the power to hear and determine questions of fact to which
the legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the
same law. The administrative body exercises its quasi-judicial power when it
performs in a judicial manner an act which is essentially of an executive or
administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial
functions, the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of
discretion in a judicial nature.19
In questioning the validity or constitutionality of a rule or regulation issued
by an administrative agency, a party need not exhaust administrative

remedies before going to court. This principle applies only where the act of
the administrative agency concerned was performed pursuant to its quasijudicial function, and not when the assailed act pertained to its rule-making
or quasi-legislative power. In Association of Philippine Coconut Dessicators v.
Philippine Coconut Authority,20 it was held:
The rule of requiring exhaustion of administrative remedies before a party
may seek judicial review, so strenuously urged by the Solicitor General on
behalf of respondent, has obviously no application here. The resolution in
question was issued by the PCA in the exercise of its rule- making or
legislative power. However, only judicial review of decisions of administrative
agencies made in the exercise of their quasi-judicial function is subject to
the exhaustion doctrine.
Even assuming arguendo that the principle of exhaustion of administrative
remedies apply in this case, the records reveal that petitioners sufficiently
complied with this requirement. Even during the drafting and deliberation
stages leading to the issuance of Memorandum Circular No. 13-6-2000,
petitioners were able to register their protests to the proposed billing
guidelines. They submitted their respective position papers setting forth
their objections and submitting proposed schemes for the billing circular. 21
After the same was issued, petitioners wrote successive letters dated July 3,
200022 and July 5, 2000,23 asking for the suspension and reconsideration of
the so-called Billing Circular. These letters were not acted upon until October
6, 2000, when respondent NTC issued the second assailed Memorandum
implementing certain provisions of the Billing Circular. This was taken by
petitioners as a clear denial of the requests contained in their previous
letters, thus prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the
administrative agency exercises its quasi-judicial or adjudicatory function.
Thus, in cases involving specialized disputes, the practice has been to refer
the same to an administrative agency of special competence pursuant to the
doctrine of primary jurisdiction. The courts will not determine a controversy
involving a question which is within the jurisdiction of the administrative
tribunal prior to the resolution of that question by the administrative
tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and services of the
administrative tribunal to determine technical and intricate matters of fact,
and a uniformity of ruling is essential to comply with the premises of the
regulatory statute administered. The objective of the doctrine of primary
jurisdiction is to guide a court in determining whether it should refrain from
exercising its jurisdiction until after an administrative agency has
determined some question or some aspect of some question arising in the
proceeding before the court. It applies where the claim is originally
cognizable in the courts and comes into play whenever enforcement of the
claim requires the resolution of issues which, under a regulatory scheme,
has been placed within the special competence of an administrative body; in
such case, the judicial process is suspended pending referral of such issues
to the administrative body for its view. 24
However, where what is assailed is the validity or constitutionality of a rule
or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon
the same. The determination of whether a specific rule or set of rules issued

by an administrative agency contravenes the law or the constitution is

within the jurisdiction of the regular courts. Indeed, the Constitution vests
the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts. 25
This is within the scope of judicial power, which includes the authority of the
courts to determine in an appropriate action the validity of the acts of the
political departments.26 Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government. 27
In the case at bar, the issuance by the NTC of Memorandum Circular No. 136-2000 and its Memorandum dated October 6, 2000 was pursuant to its
quasi-legislative or rule-making power. As such, petitioners were justified in
invoking the judicial power of the Regional Trial Court to assail the
constitutionality and validity of the said issuances. In Drilon v. Lim,28 it was
held:
We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general
definition of the judicial power to determine what are the valid and binding
laws by the criterion of their conformity to the fundamental law. Specifically,
B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in
which the subject of the litigation is incapable of pecuniary estimation, even
as the accused in a criminal action has the right to question in his defense
the constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill of
Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the
Supreme Court appellate jurisdiction over final judgments and orders of
lower courts in all cases in which the constitutionality or validity of any
treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question. 29
In their complaint before the Regional Trial Court, petitioners averred that
the Circular contravened Civil Code provisions on sales and violated the
constitutional prohibition against the deprivation of property without due
process of law. These are within the competence of the trial judge. Contrary
to the finding of the Court of Appeals, the issues raised in the complaint do
not entail highly technical matters. Rather, what is required of the judge who
will resolve this issue is a basic familiarity with the workings of the cellular
telephone service, including prepaid SIM and call cards and this is judicially
known to be within the knowledge of a good percentage of our population
and expertise in fundamental principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case
No. Q-00-42221. The Court of Appeals erred in setting aside the orders of
the trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions are
GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 64274
dated October 9, 2001 and its Resolution dated January 10, 2002 are
REVERSED and SET ASIDE. The Order dated November 20, 2000 of the
Regional Trial Court of Quezon City, Branch 77, in Civil Case No. Q-00-42221
is REINSTATED. This case is REMANDED to the court a quo for continuation of

the proceedings.
SO ORDERED.
Davide, Jr., C.J., Vitug, and Carpio, JJ., concur.
Azcuna, J., took no part.

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION,respondents.
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated
31 March 1995, of respondent Court of Appeals 1 affirming the 10th August
1994 decision and the 11th October 1994 resolution of the Court of Tax
Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of
Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the
manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope,"
and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister
Ramon Diaz of the Presidential Commission on Good Government, "the initial
position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as

foreign brands since they were listed in the World Tobacco Directory as
belonging to foreign companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category. Proof was also
submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an
original Fortune Tobacco Corporation register and therefore a local brand." 3
Ad Valorem taxes were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on
10 June 1993, by the legislature and signed into law, on 14 June 1993, by the
President of the Philippines. The new law became effective on 03 July 1993.
It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC")
to read; as follows:
Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed and
collected on cigarettes packed by machine a tax at the rates prescribed
below based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and
taxed at fifty-five percent (55%) or the exportation of which is not
authorized by contract or otherwise, fifty-five (55%) provided that the
minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%)
provided that the minimum tax shall not be less than Three Pesos (P3.00)
per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual
manufacturer's wholesale price whichever is higher of existing brands of
cigarettes, including the amounts intended to cover the taxes, of cigarettes
packed in twenties does not exceed Four Pesos and eighty centavos (P4.80)

per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity of
RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was
issued by the BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1, 1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION"
cigarettes which are locally manufactured are appropriately considered as
locally manufactured cigarettes bearing a foreign brand, this Office is
compelled to review the previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No.
6956, provides:
On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. Whenever it has to be determined whether or not
a cigarette bears a foreign brand, the listing of brands manufactured in
foreign countries appearing in the current World Tobacco Directory shall
govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on
cigarettes is that the locally manufactured cigarettes bear a foreign brand
regardless of whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer. The brand must
be originally owned by a foreign manufacturer or producer. If ownership of
the cigarette brand is, however, not definitely determinable, ". . . the listing
of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a)
Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed
in the said directory as being manufactured by: (a) Fills de Julia Reig,
Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) RettigStrenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds,
Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds,
Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said
directory as being manufactured by (a) Commonwealth Bangladesh; (b)
Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e)
Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it
follows that the same shall be considered foreign brand for purposes of
determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24,
1988, "in cases where it cannot be established or there is dearth of evidence
as to whether a brand is foreign or not, resort to the World Tobacco Directory
should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE,"

"MORE" and "CHAMPION" being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD) LIWAYWAY VINZONS-CHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A.
Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it
was addressed to no one in particular. On 15 July 1993, Fortune Tobacco
received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR,
Fortune Tobacco requested for a review, reconsideration and recall of RMC
37-93. The request was denied on 29 July 1993. The following day, or on 30
July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency
amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.
8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and
adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the
brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being
manufactured by Fortune Tobacco Corporation as locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes is found to be defective, invalid and unenforceable, such that
when R.A. No. 7654 took effect on July 3, 1993, the brands in question were
not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)
(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still
classified as other locally manufactured cigarettes and taxed at 45% or 20%
as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner
Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from
collecting the deficiency tax assessment made and issued on petitioner in
relation to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit
the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals,
questioning the CTA's 10th August 1994 decision and 11th October 1994
resolution. On 31 March 1993, the appellate court's Special Thirteenth
Division affirmed in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That
I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL
REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF
RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND
PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND

ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 3793 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY
MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND
"CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING
"HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY
OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO
ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS
OR PROPRIETY; RMC 37-93 IS CORRECT. 10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of

the BIR which can thus become effective without any prior need for notice
and hearing, nor publication, and that its issuance is not discriminatory since
it would apply under similar circumstances to all locally manufactured
cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the
issuance of rulings for the effective implementation of the provisions of the
National Internal Revenue Code. Let it be made clear that such authority of
the Commissioner is not here doubted. Like any other government agency,
however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances a
legislative rule and aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of
Finance Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details thereof . In the
same way that laws must have the benefit of public hearing, it is generally
required that before a legislative rule is adopted there must be hearing. In
this connection, the Administrative Code of 1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as
far as practicable, publish or circulate notices of proposed rules and afford
interested parties the opportunity to submit their views prior to the adoption
of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative
rules are designed to provide guidelines to the law which the administrative
agency is in charge of enforcing. 12
It should be understandable that when an administrative rule is merely
interpretative in nature, its applicability needs nothing further than its bare
issuance for it gives no real consequence more than what the law itself has

already prescribed. When, upon the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially adds to or
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 that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under
which it has been issued, convinces us that the circular cannot be viewed
simply as a corrective measure (revoking in the process the previous
holdings of past Commissioners) or merely as construing Section 142(c)(1)
of the NIRC, as amended, but has, in fact and most importantly, been made
in order to place "Hope Luxury," "Premium More" and "Champion" within the
classification of locally manufactured cigarettes bearing foreign brands and
to thereby have them covered by RA 7654. Specifically, the new law would
have its amendatory provisions applied to locally manufactured cigarettes
which at the time of its effectivity were not so classified as bearing foreign
brands. Prior to the issuance of the questioned circular, "Hope Luxury,"
"Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad
valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would
have had no new tax rate consequence on private respondent's products.
Evidently, in order to place "Hope Luxury," "Premium More," and "Champion"
cigarettes within the scope of the amendatory law and subject them to an
increased tax rate, the now disputed RMC 37-93 had to be issued. In so
doing, the BIR not simply intrepreted the law; verily, it legislated under its
quasi-legislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance
with Internal Revenue Tax rules and regulations is lack or insufficiency of due
notice to the tax paying public. Unless there is due notice, due compliance
therewith may not be reasonably expected. And most importantly, their
strict enforcement could possibly suffer from legal infirmity in the light of the
constitutional provision on "due process of law" and the essence of the Civil
Code provision concerning effectivity of laws, whereby due notice is a basic
requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).
In order that there shall be a just enforcement of rules and regulations, in
conformity with the basic element of due process, the following procedures
are hereby prescribed for the drafting, issuance and implementation of the
said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue
Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and
Revenue Memorandum Orders bearing on internal revenue tax rules and
regulations.
(2) Except when the law otherwise expressly provides, the aforesaid internal
revenue tax issuances shall not begin to be operative until after due notice
thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after the
following procedures have been taken;

xxx xxx xxx

(5) Strict compliance with the foregoing procedures is
enjoined. 13

Nothing on record could tell us that it was either impossible or impracticable

for the BIR to observe and comply with the above requirements before
giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of
taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity requires that all subjects or
objects of taxation, similarly situated, are to be treated alike or put on equal
footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds
of property of the same class must be taxed at the same rate 15 and the tax
must operate with the same force and effect in every place where the
subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More"
and "Champion" cigarettes and, unless petitioner would be willing to
concede to the submission of private respondent that the circular should, as
in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his
separate opinion, be considered adjudicatory in nature and thus violative of
due process following the Ang Tibay 16 doctrine, the measure suffers from
lack of uniformity of taxation. In its decision, the CTA has keenly noted that
other cigarettes bearing foreign brands have not been similarly included
within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea
(Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan
(Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh
(Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden
(Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia
(Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia
and Brown and Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh;
Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan;
Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17

The court quoted at length from the transcript of the hearing conducted on
10 August 1993 by the Committee on Ways and Means of the House of
Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone.
You don't have specific information on other tobacco manufacturers. Now,
there are other brands which are similarly situated. They are locally
manufactured bearing foreign brands. And may I enumerate to you all these
brands, which are also listed in the World Tobacco Directory . . . Why were
these brand not reclassified at 55 if your want to give a level playing filed to
foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue
Memorandum Circular that was supposed to come after RMC No. 37-93
which have really named specifically the list of locally manufactured
cigarettes bearing a foreign brand for excise tax purposes and includes all
these brands that you mentioned at 55 percent except that at that time,
when we had to come up with this, we were forced to study the brands of
Hope, More and Champion because we were given documents that would
indicate the that these brands were actually being claimed or patented in
other countries because we went by Revenue Memorandum Circular 1488
and we wanted to give some rationality to how it came about but we
couldn't find the rationale there. And we really found based on our own
interpretation that the only test that is given by that existing law would be
registration in the World Tobacco Directory. So we came out with this
proposed revenue memorandum circular which we forwarded to the
Secretary of Finance except that at that point in time, we went by the
Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed
at 55 percent. So we were saying that when this law took effect in July 3 and
if we are going to come up with this revenue circular thereafter, then I think
our action would really be subject to question but we feel that . . .
Memorandum Circular Number 37-93 would really cover even similarly
situated brands. And in fact, it was really because of the study, the short
time that we were given to study the matter that we could not include all
the rest of the other brands that would have been really classified as foreign
brand if we went by the law itself. I am sure that by the reading of the law,
you would without that ruling by Commissioner Tan they would really have
been included in the definition or in the classification of foregoing brands.
These brands that you referred to or just read to us and in fact just for your
information, we really came out with a proposed revenue memorandum
circular for those brands. (Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is
why I felt that we . . . I wanted to come up with a more extensive coverage
and precisely why I asked that revenue memorandum circular that would
cover all those similarly situated would be prepared but because of the lack
of time and I came out with a study of RA 7654, it would not have been
possible to really come up with the reclassification or the proper
classification of all brands that are listed there. . .(emphasis supplied)
(Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this
Revenue Memorandum Circular No. 37-93, the other brands came about the
would have also clarified RMC 37-93 by I was saying really because of the
fact that I was just recently appointed and the lack of time, the period that
was allotted to us to come up with the right actions on the matter, we were
really caught by the July 3 deadline. But in fact, We have already prepared a
revenue memorandum circular clarifying with the other . . . does not yet,
would have been a list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes which would include all the other brands that
were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit
"FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93
has fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the
Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concurs.

Separate Opinions
BELLOSILLO, J.: separate opinion:
RA 7654 was enacted by Congress on 10 June 1993, signed into law by the
President on 14 June 1993, and took effect 3 July 1993. It amended partly
Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine.
There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below based on the constructive
manufacturer's wholesale price or the actual manufacturer's wholesale price,
whichever is higher.
(1) On locally manufactured cigarettes which are currently classified and
taxed at fifty-five percent (55%) or the exportation of which is not
authorized by contract or otherwise, fifty-five percent (55%) provided that
the minimum tax shall not be less than Five Pesos (P5.00) per pack
(emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%)
provided that the minimum tax shall not be less than Three Pesos (P3.00)
per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium
More and Champion were considered local brands subjected to an ad
valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days
before RA 7654 took effect, petitioner Commissioner of Internal Revenue
issued RMC 37-93 reclassifying "Hope,More and Champion being
manufactured by Fortune Tobacco Corporation . . . . (as) locally
manufactured cigarettes bearing a foreign brand subject to the 55% ad

valorem tax on cigarettes." 1 RMC 37-93 in effect subjectedHope Luxury,

Premium More and Champion cigarettes to the provisions of Sec. 142, par.
(c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these
cigarette brands an ad valorem tax of "fifty-five percent (55%) provided that
the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours
before the effectivity of RA 7654, a copy of RMC 37-93 with a cover letter
signed by Deputy Commissioner Victor A. Deoferio of the Bureau of Internal
Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a
copy of RMC 37-93 did not immediately come to the knowledge of private
respondent as it was addressed to no one in particular. It was only when the
reclassification of respondent corporation's cigarette brands was reported in
the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the
president of respondent corporation learned of the matter, prompting him to
inquire into its veracity and to request from petitioner a copy of RMC 37-93.
On 15 July 1993 respondent corporation received by ordinary mail a certified
machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC
37-93 but was forthwith denied by the Appellate Division of the Bureau of
Internal Revenue. As a consequence, on 30 July 1993 private respondent
was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition
for review.
On 10 August 1994, after due hearing, the CTA found the petition
meritorious and ruled
Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: Hope, Moreand Champion being manufactured by Fortune
Tobacco Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found to be
defective, invalid and unenforceable . . . . Accordingly, the deficiency ad
valorem tax assessment issued on petitioner Fortune Tobacco Corporation in
the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby
cancelled for lack of legal basis. 2
The CTA held that petitioner Commissioner of Internal Revenue failed to
observe due process of law in issuing RMC 37-93 as there was no prior
notice and hearing, and that RMC 37-93 was in itself discriminatory. The
motion to reconsider its decision was denied by the CTA for lack of merit. On
31 March 1995 respondent Court of Appeals affirmed in toto the decision of
the CTA. 3 Hence, the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93
reclassifying Hope Luxury, Premium Moreand Champion as locally
manufactured cigarettes bearing brands is merely an interpretative ruling
which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary. 4 It
maintains that neither is the assailed revenue memorandum circular
discriminatory as it merely "lays down the test in determining whether or not
a locally manufactured cigarette bears a foreign brand using (only) the
cigarette brands Hope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a
mere interpretative ruling but is adjudicatory in nature where prior notice
and hearing are mandatory, and that Misamis Oriental Association of Coco
Traders, Inc. v. Department of Finance Secretary on which the Solicitor
General relies heavily is not applicable. Respondent Fortune Tobacco
Corporation also argues that RMC 37-93 discriminates against its cigarette
brands since those of its competitors which are similarly situated have not
been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an
interpretative rule the issuance of which needs no prior notice and hearing,
or an adjudicatory ruling which calls for the twin requirements of prior notice
and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may
be instructive.
Administrative agencies posses quasi-legislative or rule making powers and
quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule
making power is the power to make rules and regulations which results in
delegated legislation that is within the confines of the granting statute and
the doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule
making powers of an administrative agency (the other two being
supplementary or detailed legislation, and contingent legislation), is
promulgated by the administrative agency to interpret, clarify or explain
statutory regulations under which the administrative body operates. The
purpose or objective of an interpretative rule is merely to construe the
statute being administered. It purports to do no more than interpret the
statute. Simply, the rule tries to say what the statute means. Generally, it
refers to no single person or party in particular but concerns all those
belonging to the same class which may be covered by the said interpretative
rule. It need not be published and neither is a hearing required since it is
issued by the administrative body as an incident of its power to enforce the
law and is intended merely to clarify statutory provisions for proper
observance by the people. In Taada v. Tuvera, 6 this Court expressly said
that "[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the
power of the administrative agency to adjudicate the rights of persons
before it. It is the power to hear and determine questions of fact to which
the legislative policy is to apply and to decide in accordance with the
standards laid down by the law itself in enforcing and administering the
same law. 7 The administrative body exercises its quasi-judicial power when
it performs in a judicial manner an act which is essentially of an executive or
administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. 8 In carrying out their quasi-judicial
functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official action and exercise of
discretion in a judicial nature. Since rights of specific persons are affected it
is elementary that in the proper exercise of quasi-judicial power due process
must be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the

rule that no person shall be deprived of life, liberty or property without due
process of law. Thus when an administrative proceeding is quasi-judicial in
character, notice and fair open hearing are essential to the validity of the
proceeding. The right to reasonable prior notice and hearing embraces not
only the right to present evidence but also the opportunity to know the
claims of the opposing party and to meet them. The right to submit
arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with
government in a quasi-judicial proceeding aimed at the control of their
activities are entitled to be fairy advised of what the government proposes
and to be heard upon its proposal before it issues its final command.
There are cardinal primary rights which must be respected in administrative
proceedings. The landmark case ofAng Tibay v. The Court of Industrial
Relations 9 enumerated these rights: (1) 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; (2) the tribunal must consider the
evidence presented; (3) the decision must have something to support itself;
(4) the evidence must be substantial; (5) 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; (6) the tribunal or any of its judges
must act on its or his own independent consideration of the law and facts of
the controversy, and not simply accept the views of a subordinate in arriving
at a decision; and, (7) the tribunal should in all controversial questions
render its decision in such manner that the parties to the proceeding may
know the various issues involved and the reasons for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which
requires no prior notice and hearing, or an adjudicatory rule which demands
the observance of due process, a close examination of RMC 37-93 is in order.
Noticeably, petitioner Commissioner of Internal Revenue at first interprets
Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No.
6956, provides: On locally manufactured cigarettes bearing a foreign brand,
fifty-five percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. Whenever it has to be
determined whether or not a cigarette bears a foreign brand, the listing of
brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on
cigarettes is that the locally manufactured cigarettes bear a foreign brand
regardless of whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer. The brand must
be originally owned by a foreign manufacturer or producer. If ownership of
the cigarette brand is, however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury),
(Premium) More and Champion are manufactured by other foreign
manufacturers
Hope is listed in the World Tobacco Directory as being manufactured by (a)

Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in
the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra;
(b) Rothmans, Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg,
Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New
Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j)
R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and
(m) R.J. Reynolds, USA. "Champion" is registered in the said directory as
being manufactured by: (a) Commonwealth Bangladesh; (b) Sudan, Brazil;
(c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar,
Sudan; and (f) Tabac Reunies, Switzerland.
From this finding, petitioner thereafter formulates an inference that since it
cannot be determined who among the manufacturers are the real owners of
the brands in question, then these cigarette brands should be considered
foreign brands
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it
follows that the same shall be considered foreign brand for purposes of
determining the ad valorem tax pursuant to Section 142 of the National
Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24,
1988, "in cases where it cannot be established or there is dearth of evidence
as to whether a brand is foreign or not, resort to the World Tobacco Directory
should be made."
Finally, petitioner caps RMC 37-93 with a disposition specifically directed at
respondent corporation reclassifying its cigarette brands as locally
manufactured bearing foreign brands
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More
and Champion being manufactured by Fortune Tobacco Corporation are
hereby considered locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
It is evident from the foregoing that in issuing RMC 37-93 petitioner
Commissioner of Internal Revenue was exercising her quasi-judicial or
administrative adjudicatory power. She cited and interpreted the law, made
a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently
prior notice and hearing are required. It must be emphasized that even the
text alone of RMC 37-93 implies that reception of evidence during a hearing
is appropriate if not necessary since it invokes BIR Ruling No. 410-88, dated
August 24, 1988, which provides that "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or
not . . . ." Indeed, it is difficult to determine whether a brand is foreign or not
if it is not established by, or there is dearth of, evidence because no hearing
has been called and conducted for the reception of such evidence. In fine, by
no stretch of the imagination can RMC 37-93 be considered purely as an
interpretative rule requiring no previous notice and hearing and simply
interpreting, construing, clarifying or explaining statutory regulations being
administered by or under which the Bureau of Internal Revenue operates.
It is true that both RMC 47-91 in Misamis Oriental Association of Coco
Traders v. Department of Finance Secretary, and RMC 37-93 in the instant
case reclassify certain products for purposes of taxation. But the similarity
between the two revenue memorandum circulars ends there. For in properly

determining whether a revenue memorandum circular is merely an

interpretative rule or an adjudicatory rule, its very tenor and text, and the
circumstances surrounding its issuance will have no to be considered.
We quote RMC 47-91 promulgated 11 June 1991
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated
August 17, 1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention: Ms. Esmyrna E. Reyes
Vice President Finance

Sirs:
This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of BIR
Ruling dated January 8, 1988 which considered copra as an agricultural food
product in its original state. In this connection, you request for a
confirmation of your opinion as aforestated.
In reply, please be informed that copra, being an agricultural non-food
product, is exempt from VAT only if sale is made by the primary producer
pursuant to Section 103 (a) of the Tax Code, as amended. Thus as a trading
company and a subsequent seller, your sale of copra is already subject to
VAT pursuant to Section 9(b) (1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very truly yours,
(Sgd.) JOSE U. ONG
Commissioner of Internal Revenue
As a clarification, this is the present and official stand of this Office unless
sooner revoked or amended. All revenue officials and employees are
enjoined to give this Circular as wide a publicity as possible.
(Sgd.) JOSE U. ONG
Commissioner of Internal Revenue
Quite obviously, the very text of RMC 47-91 itself shows that it is merely an
interpretative rule as it simply quotes a VAT Ruling and reminds those
concerned that the ruling is the present and official stand of the Bureau of
Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power,
in RMC 47-91 there were no factual findings, no application of laws to a
given set of facts, no conclusions of law, and no dispositive portion directed
at any particular party.

Another difference is that in the instant case, the issuance of the assailed
revenue memorandum circular operated to subject the taxpayer to the new
law which was yet to take effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to restate and then clarify the
prevailing position and ruling of the administrative agency, and no new law
yet to take effect was involved. It merely interpreted an existing law which
had already been in effect for some time and which was not set to be
amended. RMC 37-93 is thus prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is
that RMC 37-93 was ostensibly issued to subject the cigarette brands of
respondent corporation to a new law as it was promulgated two days before
the expiration of the old law and a few hours before the effectivity of the
new law. That RMC 37-93 is particularly aimed only at respondent
corporation and its three (3) cigarette brands can be seen from the
dispositive portion of the assailed revenue memorandum circular
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are
hereby considered locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
Thus the argument of the Solicitor General that RMC 37-93 is not
discriminatory as "[i]t merely lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the
cigarette brandsHope, More and Champion as specific examples," cannot be
accepted, much less sustained. Without doubt, RMC 37-93 has a tremendous
effect on respondent corporation and solely on respondent corporation
as its deficiency ad valorem tax assessment on its removals of Hope,
Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time
respondent corporation was supposed to have received the facsimile
message sent by Deputy Commissioner Victor A. Deoferio, until twelve
o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose
except to state and declare what has been the official stand of the
administrative agency on the specific subject matter, and was
indiscriminately directed to all copra traders with no particular individual in
mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is
not attempted to be disputed; hence, we do not question the wisdom of her
act in reclassifying the cigarettes. Neither do we deny her the exercise of her
quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers
and ascertain whether petitioner has gone beyond the legitimate bounds of
her authority.
In the final analysis, the issue before us in not the expertise, the authority to
promulgate rules, or the wisdom of petitioner as Commissioner of Internal
Revenue is reclassifying the cigarettes of private respondents. It is simply
the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection
of the laws. This is what distresses me no end the manner and the
circumstances under which the cigarettes of private respondent were

reclassified and correspondingly taxed under RMC 37-93, and adjudicatory

rule which therefore requires reasonable notice and hearing before its
issuance. It should not be confused with RMC 47-91, which is a mere
interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same
opposing interests, I also voted to uphold the constitutional right of the
taxpayer concerned to due process and equal protection of the laws. By a
vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a
nightmarish episode. The strong ripples whipped up by my opinion
expressed therein and of the majority have yet to varnish when we are
again in the imbroglio of a similar dilemma. The unpleasant experience
should be reason enough to simply steer clear of this controversy and surf
on a pretendedloss of judicial objectivity. Such would have been an easy
way out, a gracious exit, so to speak, albeit lame. But to camouflage my
leave with a sham excuse would be to turn away from a professional vow I
keep at all times; I would not be true to myself, and to the people I am
committed to serve. Thus, as I have earlier expressed, if placed under
similar circumstances in some future time, I shall have to brave again the
prospect of anothervilification and a tarnished image if only to show proudly
to the whole world that under the present dispensation judicial
independence in our country is a true component of our democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as
well as the effect of such issuance. For it cannot be denied that the
circumstances clearly demonstrate that it was hastily issued without prior
notice and hearing, and singling out private respondent alone when two
days before a new tax law was to take effect petitioner reclassified and
taxed the cigarette brands of private respondent at a higher rate. Obviously,
this was to make it appear that even before the anticipated date of
effectivity of the statute which was undeniably priorly known to petitioner
these brands were already currently classified and taxed at fifty-five
percent (55%), thus shoving them into the purview of the law that was to
take effect two days after!
For sure, private respondent was not properly informed before the issuance
of the questioned memorandum circular that its cigarette brands Hope
Luxury, Premium More and Champion were being reclassified and subjected
to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on
the old, lower tax rate. Had there been previous notice and hearing, as
claimed by private respondent, it could have very well presented its side,
either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The
reclassification and the ensuing imposition of a tax rate increase therefore
could not be anything but confiscatory if we are also to consider the claim of
private respondent that the new tax is even higher than the cost of its
cigarettes.
Accordingly, I vote to deny the petition.
HERMOSISIMA, JR., J.: dissenting
Private respondent Fortune Tobacco Corporation in the instant case disputes
its liability for deficiency ad valoremexcise taxes on its removals of "Hope,"

"More," and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight of July
2, 1993, in the total amount of P9,598,334.00. It claims that the circular,
upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in
violation of the equal protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the
Circular in question, in the first place, did not give prior notice and hearing,
and so, it could not have been valid and effective. It proceeds to affirm the
factual findings of the Court of Tax Appeals, which findings were considered
correct by respondent Court of Appeals, to the effect that the petitioner
Commissioner of Internal Revenue had indeed blatantly failed to comply with
the said twin requirements of notice and hearing, thereby rendering the
issuance of the questioned Circular to be in violation of the due process
clause of the Constitution. It is also its dominant opinion that the questioned
Circular discriminates against private respondent Fortune Tobacco
Corporation insofar as it seems to affect only its "Hope," "More," and
"Champion" cigarettes, to the exclusion of other cigarettes apparently of the
same kind or classification as these cigarettes manufactured by private
respondent.
With all due respect, I disagree with the majority in its disquisition of the
issues and its resulting conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:
Sec. 245. Authority of Secretary of Finance to promulgate rules and
regulations. The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the
effective enforcement of the provisions of this Code . . . without prejudice to
the power of the Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the provisions of internal
revenue laws, including rulings on the classification of articles for sales tax
and similar purposes.
The subject of the questioned Circular is the reclassification of cigarettes
subject to excise taxes. It was issued in connection with Section 142 (c) (1)
of the National Internal Revenue Code, as amended, which imposes ad
valorem excise taxes on locally manufactured cigarettes bearing a foreign
brand. The same provision prescribes the ultimate criterion that determines
which cigarettes are to be considered "locally manufactured cigarettes
bearing a foreign brand." It provides:
. . . Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.
There is only one World Tobacco Directory for a given current year, and the
same is mandated by law to be the BIR Commissioner's controlling basis for
determining whether or not a particular locally manufactured cigarette is
one bearing a foreign brand. In so making a determination, petitioner should
inquire into the entries in the World Tobacco Directory for the given current
year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette
manufacturers, and it is doubtlessly not desirable nor managerially sound to

court dispute thereon when the law does not, in the first place, require
debate or hearing thereon. Petitioner may make such a determination
because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative
powers entrusted to it by the legislature in recognition of its more
encompassing and unequalled expertise in the field of taxation.
The vesture of quasi-legislative and quasi-judicial powers in administrative
bodies is not unconstitutional, unreasonable and oppressive. It has been
necessitated by "the growing complexity of the modern society" (Solid
Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative
bodies are necessary to help in the regulation of society's ramified activities.
"Specialized in the particular field assigned to them, they can deal with the
problems thereof with more expertise and dispatch than can be expected
from the legislature or the courts of justice" . . . 1
Statutorily empowered to issue rulings or opinions embodying the proper
determination in respect to classifying articles, including cigarettes, for
purposes of tax assessment and collection, petitioner was acting well within
her prerogatives when she issued the questioned Circular. And in the
exercise of such prerogatives under the law, she has in her favor the
presumption of regular performance of official duty which must be overcome
by clearly persuasive evidence of stark error and grave abuse of discretion
in order to be overturned and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the
passing of Republic Act No. 7654 2on petitioner's power to classify
cigarettes. Although the decisions assailed and sought to be reviewed, as
well as the pleadings of private respondent, are replete with alleged
admissions of our legislators to the effect that the said Act was intended to
freeze the current classification of cigarettes and make the same an integral
part of the said Act, certainly the repeal, if any, of petitioner's power to
classify cigarettes must be reckoned from the effectivity of the said Act and
not before. Suffice it to say that indisputable is the plain fact that the
questioned Circular was issued on July 1, 1993, while the said Act took effect
on July 3, 1993.
The contents of the questioned circular have not
been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National
Internal Revenue Code, as amended, levies the following ad valorem taxes
on cigarettes in accordance with their predetermined classifications as
established by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of whether or
not the right to use or title to the foreign brand was sold or transferred by its
owner to the local manufacturer. Whenever it has to be determined whether
or not a cigarette bears a foreign brand, the listing of brands manufactured
in foreign countries appearing in the current World Tobacco Directory shall
govern.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid
by private respondent as ad valoremexcise taxes on their removals of
"Hope," "More," and "Champion" cigarettes were amounts based on
paragraph (2) above, i.e., the tax rate made applicable on the said
cigarettes was 45% at the most. The reason for this is that apparently,
petitioner's predecessors have all made determinations to the effect that the
said cigarettes were to be considered "other locally manufactured
cigarettes" and not "locally manufactured cigarettes bearing a foreign
brand." Even petitioner, until her issuance of the questioned Circular,
adhered to her predecessors' determination as to the proper classification of
the above-mentioned cigarettes for purposes of ad valorem excise taxes.
Apparently, the past determination that the said cigarettes were to be
classified as "other locally manufactured cigarettes" was based on private
respodnent's convenient move of changing the names of "Hope" to "Hope
Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and,
therefore, a local brand. Having registered these brands with the Philippine
Patent Office and with corresponding evidence to the effect, private
respondent paid ad valorem excise taxes computed at the rate of not more
than 45% which is the rate applicable to cigarettes considered as locally
manufactured brands.
How these past determinations pervaded notwithstanding their erroneous
basis is only tempered by their innate quality of being merely errors in
interpretative ruling, the formulation of which does not bind the government.
Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and
rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent is proof
only that it is the exclusive owner thereof in the Philippines; it does not
necessarily follow, however, that it is the exclusive owner thereof in the
whole world. Assuming arguendo that private respondent is the exclusive
owner of said brands in the Philippines, it does not mean that they are local.
Otherwise, they would not have been listed in the WTD as international
brands manufactured by different entities in different countries. Moreover, it
cannot be said that the brands registered in the names of private
respondent are not the same brands listed in the WTD because private
respondent is one of the manufacturers of said brands listed in the WTD. 3
Private respondent attempts to cast doubt on the determination made by
petitioner in the questioned Circular that Japan is a manufacturer of "Hope"
cigarettes. Private respondent's own inquiry into the World Tobacco Directory
reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous
and makes such error the principal proof of its claim that the nature of the
determination embodied in the questioned Circular requires a hearing on the
facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private
respondent is, however, apparently only eager to show error on the part of
petitioner for acting with grave abuse of discretion. Private respondent

conveniently forgets that petitioner, equipped with the expertise in taxation,

recognized in that expertise by the legislature that vested in her the power
to make rules respecting classification of articles for taxation purposes, and
presumed to have regularly exercised her prerogatives within the scope of
her statutory power to issue determinations specifically under Section 142
(c) (1) in relation to Section 245 of the National Internal Revenue Code, as
amended, simply followed the law as she understood it. Her task was to
determine which cigarette brands were foreign, and she was directed by the
law to look into the World Tobacco Directory. Foreign cigarette brands were
legislated to be taxed at higher rates because of their more extensive public
exposure and international reputation; their competitive edge against local
brands may easily be checked by imposition of higher tax rates. Private
respondent makes a mountain of the mole hill circumstance that "Hope" is
listed, not as being "manufactured" by Japan but as being "used" by Japan.
Whether manufactured or used by Japan, however, "Hope" remains a
cigarette brand that can not be said to be limited to local manufacture in the
Philippines. The undeniable fact is that it is a foreign brand the sales in the
Philippines of which are greatly boosted by its international exposure and
reputation. The petitioner was well within her prerogatives, in the exercise of
her rule-making power, to classify articles for taxation purposes, to interpret
the laws which she is mandated to administer. In interpreting the same,
petitioner must, in general, be guided by the principles underlying taxation,
i.e., taxes are the lifeblood of Government, and revenue laws ought to be
interpreted in favor of the Government, for Government can not survive
without the funds to underwrite its varied operational expenses in pursuit of
the welfare of the society which it serves and protects.
Private respondent claims that its business will be destroyed by the
imposition of additional ad valorem taxes as a result of the effectivity of the
questioned Circular. It claims that under the vested rights theory, it cannot
now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after
all, being its sole concern. What private respondent fails to see is the loss of
revenue by the Government which, because of erroneous determinations
made by its past revenue commissioners, collected lesser taxes than what it
was entitled to in the first place. It is every citizen's duty to pay the correct
amount of taxes. Private respondent will not be shielded by any vested
rights, for there are not vested rights to speak of respecting a wrong
construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or
overrule the same. 4
The Questioned Circular embodies an interpretative
ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal
Revenue, through its Commissioner, has grown to be a typical administrative
agency vested with a fusion of different governmental powers: the power to
investigate, initiate action and control the range of investigation, the power
to promulgate rules and regulations to better carry out statutory policies,
and the power to adjudicate controversies within the scope of their
activities. 5In the realm of administrative law, we understand that such an

empowerment of administrative agencies was evolved in response to the

needs of a changing society. This development arose as the need for broad
social control over complex conditions and activities became more and more
pressing, and such complexity could no longer be dealt with effectivity and
directly by the legislature or the judiciary. The theory which underlies the
empowerment of administrative agencies like the Bureau of Internal
Revenue, is that the issues with which such agencies deal ought to be
decided by experts, and not be a judge, at least not in the first instance or
until the facts have been sifted and arranged. 6
One of the powers of administrative agencies like the Bureau of Internal
Revenue, is the power to make rules. The necessity for vesting
administrative agencies with this power stems from the impracticability of
the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation. 7
The rules that administrative agencies may promulgate may either be
legislative or interpretative. The former is a form of subordinate legislation
whereby the administrative agency is acting in a legislative capacity,
supplementing the statute, filling in the details, pursuant to a specific
delegation of legislative power. 8
Interpretative rules, on the other hand, are "those which purport to do no
more than interpret the statute being administered, to say what it means." 9
There can be no doubt that there is a distinction between an administrative
rule or regulation and an administrative interpretation of a law whose
enforcement is entrusted to an administrative body. When an administrative
agency promulgates rules and regulations, it "makes" a new law with the
force and effect of a valid law, while when it renders an opinion or gives a
statement of policy, it merely interprets a pre-existing law (Parker,
Administrative Law, p. 197; Davis Administrative Law, p. 194). Rules and
regulations when promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction
provided in the law. This is so because statutes are usually couched in
general terms, after expressing the policy, purposes, objectives, remedies
and sanctions intended by the legislature. The details and the manner of
carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional
legal provisions that have the effect of law. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its
promulgation is followed and its scope is within the statutory authority
granted by the legislature, even if the courts are not in agreement with the
policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On
the other hand, administrative interpretation of the law is at best merely
advisory, for it is the courts that finally determine what the law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative

regulations depends upon whether the statute places specific 'sanctions'
behind the regulations authorized, as for example, by making it a criminal
offense to disobey them, or by making conformity with their provisions a
condition of the exercise of legal privileges." 11 This is because interpretative
regulations are by nature simply statutory interpretations, which have
behind them no statutory sanction. Such regulations, whether so expressly
authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are
always subject to judicial determination as to whether they are erroneous or
not, even when their issuance is authorized by statute.
The questioned Circular has undisputedly been issued by petitioner in
pursuance of her rule-making powers under Section 245 of the National
Internal Revenue Code, as amended. Exercising such powers, petitioner reclassified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously
explained, is the correct interpretation of Section 142 (c) (1) of the said
Code. The said legal provision is not accompanied by any penal sanction,
and no detail had to be filled in by petitioner. The basis for the classification
of cigarettes has been provided for by the legislature, and all petitioner has
to do, on behalf of the government agency she heads, is to proceed to make
the proper determination using the criterion stipulated by the lawmaking
body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed
in favor of the Government whose survival depends on the contributions that
taxpayers give to the public coffers that finance public services and other
governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government
agency charged with the enforcement of the laws pertinent to this case and
so, the opinion of the Commissioner of Internal Revenue, in the absence of a
clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section
142 (c) (1) may not abruptly be cut by a new interpretation of the said
section, but precisely the said section is subject to various and changing
construction, and hence, any ruling issued by petitioner thereon is
necessarily interpretative and not legislative. Private respondent insists that
the questioned circular is adjudicatory in nature because it determined the
rights of private respondent in a controversy involving his tax liability. It also
asseverates that the questioned circular involved administrative action that
is particular and immediate, thereby rendering it subject to the requirements
of notice and hearing in compliance with the due process clause of the
Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as
mandated by the aforecited provisions in the National Internal Revenue
Code, as amended. Such determination was an interpretation by petitioner
of the said legal provisions. If in the course of making the interpretation and
embodying the same in the questioned circular which the petitioner
subsequently issued after making such a determination, private
respondent's cigarettes products, by their very nature of being foreign
brands as evidenced by their enlistment in the World Tobacco Directory,

which is the controlling basis for the proper classification of cigarettes as

stipulated by the law itself, have come to be classified as locally
manufactured cigarettes bearing foreign brands and as such subject to a tax
rate higher than what was previously imposed thereupon based on past
rulings of other revenue commissioners, such a situation is simply a
consequence of the performance by petitioner of here duties under the law.
No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in
accordance with law may not be used by private respondent in arguing that
the questioned circular is in fact adjudicatory in nature. Such an exercise in
driving home a point is illogical as it is fallacious and misplaced.
Private respondent concedes that under general rules of administrative law,
"a ruling which is merely 'interpretative' in character may not require prior
notice to affected parties before its issuance as well as a hearing" and "for
this reason, in most instances, interpretative regulations are not given the
force of law." 12Indeed, "interpretative regulations and those merely internal
in nature
. . . need not be published." 13 And it is now settled that only legislative
regulations and not interpretative rulings must have the benefit of public
hearing. 14
Because (1) the questioned circular merely embodied an interpretation or a
way of reading and giving meaning to Section 142 (c) (1) of the National
Internal Revenue Code, as amended; (2) petitioner did not fill in any details
in the aforecited section but only classified cigarettes on the basis of the
World Tobacco Directory in the light of the paramount principle of construing
revenue laws in favor of the Government to the end that Government
collects as much tax money as it is entitled to in order to fulfill its public
purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the
questioned circular; and (4) a similar circular declassifying copra from being
an agricultural food to non-food product for purposes of the value added tax
laws, resulting in the revocation of an exemption previously enjoyed by
copra traders, has been ruled by us to be merely an interpretative ruling and
not a legislative, much less, an adjudicatory, action on the part of the
revenue commissioner, 15 this Court must not be blind to the fact that the
questioned Circular is indeed an interpretative ruling not subject to notice
and hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights
upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More"
and "Champion," are mentioned in the questioned circular. Because only the
cigarettes that they manufacture are enumerated in the questioned circular,
private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A
scrutiny of the questioned Circular, however, will show that it is undisputedly
one of general application for all cigarettes that are similarly situated as
private respondent's brands. The new interpretation of Section 142 (1) (c)
has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular.

Significantly, indicated as the subject of the questioned circular is the

"reclassification of cigarettes subject to excise taxes." The reclassification
resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private
respondent's own action of conveniently changing its brand names to avoid
falling under a classification that would subject it to higher ad valorem tax
rates. This caused then Commissioner Bienvenido Tan to depart from his
initial determination that private respondent's cigarette brands are foreign
brands. The consequent specific mention of such brands in the questioned
Circular, does not change the fact that the questioned Circular has always
been intended for and did cover, all cigarettes similarly situated as "Hope,"
"More" and "Champion." Petitioner is thus correct in stating that:
. . . RMC 37-93 is not discriminatory. It lays down the test in determining
whether or not a locally manufactured cigarette bears a foreign brand using
the cigarette brands "Hope," More and "Champion" as specific examples.
Such test applies to all locally manufactured cigarette brands similarly
situated as the cigarette brands aforementioned. While it is true that only
"Hope," "More" and "Champion" cigarettes are actually determined as locally
manufactured cigarettes bearing a foreign brand, RMC 37-93 does not state
that ONLY cigarettes fall under such classification to the exclusion of other
cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude
the coverage of other cigarettes similarly situated. Otherwise stated, RMC
37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself,
RMC 37-93 is not discriminatory. 16
Both the respondent Court of Appeals and the Court of Tax Appeals held that
the questioned Circular reclassifying "Hope," "More" and "Champion"
cigarettes, is defective, invalid and unenforceable and has rendered the
assessment against private respondent of deficiency ad valorem excise
taxes to be without legal basis. The majority agrees with private respondent
and respondent Courts. As the foregoing opinion chronicles the fatal flaws in
private respondent's arguments, it becomes more apparent that the
questioned Circular is in fact a valid and subsisting interpretative ruling that
the petitioner had power to promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the
Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate
the decision of petitioner Commissioner of Internal Revenue denying private
respondent's request for a review, reconsideration and recall of Revenue
Memorandum Circular No. 37-93 dated July 1, 1993.

JUAN B. AMANTE, FRANCISCO L. ANDAL, LUCIA ANDAL,

ANDREA P. AYENDE, LETICIA P. BALAT, FILOMENA B. BATINO,
ANICETO A. BURGOS, JAIME A. BURGOS, FLORENCIA
CANUBAS, LORETO A. CANUBAS, MAXIMO A. CANUBAS,
REYNALDO CARINGAL, QUIRINO C. CASALME, BENIGNO A.
CRUZAT, ELINO A. CRUZAT, GREGORIO F. CRUZAT, RUFINO C.
CRUZAT, SERGIO CRUZAT, SEVERINO F. CRUZAT, VICTORIA DE
SAGUN, SEVERINO DE SAGUN, FELICISIMO A. GONZALES,
FRANCISCO A. GONZALES, GREGORIO A. GONZALES,
LEODEGARIO N. GONZALES, PASCUAL P. GONZALES,
ROLANDO A. GONZALES, FRANCISCO A. JUANGCO, GERVACIO
A. JUANGCO, LOURDES U. LUNA, ANSELMO M. MANDANAS,
CRISANTO MANDANAS, EMILIO M. MANDANAS, GREGORIO A.
MANDANAS, MARIO G. MANDANAS, TEODORO MANDANAS,
CONSTANCIO B. MARQUEZ, EUGENIO B. MARQUEZ, ARMANDO
P. MATIENZO, DANIEL D. MATIENZO, MAXIMINO MATIENZO,
PACENCIA P. MATIENZO, DOROTEA L. PANGANIBAN, JUANITO
T. PEREZ, MARIANITO T. PEREZ, SEVERO M. PEREZ,
INOCENCIA S. PASQUIZA, BIENVENIDO F. PETATE, IGNACIO F.
PETATE, JUANITO PETATE, PABLO A. PLATON, PRECILLO V.
PLATON, AQUILINO B. SUBOL, CASIANO T. VILLA, DOMINGO
VILLA, JUAN T. VILLA, MARIO C. VILLA, NATIVIDAD B. VILLA,
JACINTA S. ALVARADO, RODOLFO ANGELES, DOMINGO A.
CANUBAS, EDGARDO L. CASALME, QUIRINO DE LEON,
LEONILO M. ENRIQUEZ, CLAUDIA P. GONZALES, FELISA R.
LANGUE, QUINTILLANO LANGUE, REYNALDO LANGUE, ROMEO
S. LANGUE, MARIANITO T. PEREZ, INOCENCIA S. PASQUIZA,
AQUILINO B. SUBOL, BONIFACIO VILLA, ROGELIO AYENDE,
ANTONIO B. FERNANDEZ, ZACARIAS HERRERA, REYNARIO U.
LAZO, AGAPITO MATIENZO, DIONISIO F. PETATE, LITO G.
REYES, JOSE M. SUBOL, CELESTINO G. TOPI NO, ROSA C.
AMANTE, SOTERA CASALME, REMIGIO M. SILVERIO, THE
COURT OF APPEALS, THE SECRETARY OF AGRARIAN REFORM,
DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD,
LAND BANK OF THE PHILIPPINES, REGISTER OF DEEDS OF
LAGUNA, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES REGIONAL EXECUTIVE DIRECTOR FOR REGION IV
and REGIONAL AGRARIAN REFORM OFFICER FOR REGION IV.,
respondents.

[G.R. No. 118838. March 16, 2005]

[G.R. No. 112526. March 16, 2005]

STA. ROSA REALTY DEVELOPMENT CORPORATION, petitioner, vs.

JUAN B. AMANTE, IGNACIO PETATE, DOMINGO CANUBAS, FLORENCIO

CANUBAS,
CRESENCIO
AMANTE,
QUIRINO
CASALME,
LEODEGARIO GONZALES, DOMINGO VILLA, JAIME BURGOS,
NICOMEDES
PETATE,
MAXIMINO
MATIENZO,
MAXIMO

CANUBAS, ELINO CRUZAT, RUFINO CRUZAT, FELICISIMO

GONZALES, QUINTILLANO LANGUE, TEODORO MANDANAS,
SERGIO CRUZAT, AGAPITO MATIENZO and SEVERINO DE
SAGUM, petitioners, vs. LUIS YULO, JESUS MIGUEL YULO, C-J
YULO & SONS, INC., STA. ROSA REALTY DEVELOPMENT
CORPORATION,
JOSE
LAMBATIN,
LAUREANO
LAUREL,
GALICANO MAILOM, JR., REYNALDO OPENA, AGAPITO
PRECILLA, DANILO SUMADSAD, ALFREDO SUMADSAD, JUAN
CANTAL, INIGO MENDOZA, ALEJANDRO SANCHEZ, SENADOR
RODRIGUEZ, VICTOR MOLINAR, DANILO CANLOBO, RESTING
CARAAN, IGNACIO VERGARA, HANDO MERCADO, FAUSTINO
MAILOM, CONRADO BARRIENTOS, RENATO VISAYA, DANTE
BATHAN, SERAPIO NATIVIDAD, HONESTO TENORIO, NESTOR
MERCADO, BIENVENIDO OLFATO, RENE LIRAZAN, RUDY
CANLOBO,
BASIOLIO
MULINGTAPANG,
ITO
GONZALES,
RENATO RINO, TINOY MABAGA, PACIO PADILLA, JOHNNY
REAMILLO, ROLANDO CARINGAL, IGNOY VILLAMAYOR, ROMEO
TANTENGCO, LODRING CARAAN, FREDO MERCADO, TOMMY
MENDOZA, RAFAEL ONTE, REY MANAIG, DICK GASPAR,
ANTONIO MALLARI, ALFREDO ANIEL, BARIT, ALBERTO
MANGUE, AGATON LUCIDO, ONYONG CANTAL, BAYANI
LACSON, ISKO CABILION, MANGUIAT, IGME OPINA, VILARETE,
PEDRO BENEDICTO, HECTOR BICO, RUFO SANCHEZ, LARRY DE
LEON,
BARIVAR
SAMSON
and
ROMEO
NAVARRO,
respondents.
AMENDEDDECISION
AUSTRIA-MARTINEZ, J.:
By virtue of the En Banc Resolution issued on January 13, 2004, the
Court authorized the Special First Division to suspend the Rules so as to
allow it to consider and resolve the second Motion for Reconsideration of
respondents,[1] after the motion was heard on oral arguments on August 13,
2003. On July 9, 2004, [2] the Court resolved to submit for resolution the
second Motion for Reconsideration in G.R. No. 112526 together with G.R.
No. 118338 in view of the Resolution of the Court dated January 15, 2001
issued in G.R. No. 118838,[3]consolidating the latter case with G.R. No.
112526, the issues therein being interrelated. [4] Hence, the herein Amended
Decision.
The factual background of the two cases is as follows:
The Canlubang Estate in Laguna is a vast landholding previously titled
in the name of the late Speaker and Chief Justice Jose Yulo, Sr. Within this
estate are two parcels of land (hereinafter referred to as the subject
property) covered by TCT Nos. 81949 and 84891 measuring 254.766
hectares and part of Barangay Casile, subsequently titled in the name of Sta.
Rosa Realty Development Corporation (SRRDC), the majority stockholder of
which is C.J. Yulo and Sons, Inc.

The subject property was involved in civil suits and administrative

proceedings that led to the filing of G.R. Nos. 112526 and 118838, thus:

Injunction Case Filed by Amante, et al.

On December 6, 1985, Amante, et al., who are the private respondents
in G.R. No. 112526 and petitioners in G.R. No. 118838, instituted an
action for injunction with damages in the Regional Trial Court of Laguna
(Branch 24) against Luis Yulo, SRRDC, and several SRRDC security
personnel, docketed as Civil Case No. B-2333. Amante, et al. alleged that:
they are residents of Barangay Casile, Cabuyao, Laguna, which covers an
area of around 300 hectares; in 1910, their ancestors started occupying the
area, built their houses and planted fruit-bearing trees thereon, and since
then, have been peacefully occupying the land; some time in June 3, 1985,
SRRDCs security people illegally entered Bgy. Casile and fenced the area;
SRRDCs men also entered the barangay on November 4, 1985, cut down the
trees, burned their huts, and barred the lone jeepney from entering the
Canlubang Sugar Estate; as a result of these acts, Amante, et al. were
deprived of possession and cultivation of their lands. Thus, they claimed
damages, sought the issuance of permanent injunction and proposed that a
right of way be declared.[5]
In their Answer, the defendants denied the allegations and disclaimed
any control and supervision over its security personnel. Defendant SRRDC
also alleged that as the real owner of the property, it was the one that
suffered damages due to the encroachment on the property.[6]
A writ of preliminary injunction was issued by the trial court on August
17, 1987,[7] but this was subsequently dissolved by the Court of Appeals (CA)
on April 22, 1988 in its decision in CA-G.R. SP No. 13908. [8]
After trial on the merits, the trial court, on January 20, 1992, rendered a
decision ordering Amante, et al. to vacate the property, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the defendants and against the plaintiffs hereby dismissing the complaint
and amended complaint.
The plaintiffs are hereby ordered to vacate the parcels of land belonging to
the defendants Luis Yulo and Sta. Rosa Realty. They are likewise enjoined
from entering the subject parcels of land.
Although attorneys fees and expenses of litigation are recoverable in case of
a clearly unfounded civil action against the plaintiff (Enervida vs. De la Torre,
55 SCRA 339), this Court resolves not to award attorneys fees etc. in favor of
the defendants because the plaintiffs appear to have acted in good faith in
filing the present civil action (Salao vs. Salao, 70 SCRA 65) and that it would
not be just and equitable to award the same in the case at bar. (Liwanag vs.
Court of Appeals, 121 SCRA 354) Accordingly, the other reliefs prayed for by
the defendants are hereby dismissed.

SO ORDERED.[9]
Amante, et al. appealed the aforesaid decision to the CA, docketed as
CA-G.R. CV No. 38182.

HAVE UNLAWFULLY AND ILLEGALLY DISTURBED PETITIONERS PEACEFUL AND

CONTINUOUS POSSESSION.[15]

On June 28, 1994, the CA affirmed with modification the decision of the
trial court in the injunction case. The dispositive portion of the appellate
courts decision[10] reads as follows:

Ejectment Cases Filed by SRRDC

WHEREFORE, the judgment herein appealed from is hereby AFFIRMED, with

the modification that the defendants-appellees are hereby ordered, jointly
and severally, to pay the plaintiffs-appellants nominal damages in the
amount of P5,000.00 per plaintiff. No pronouncement as to costs.
SO ORDERED.[11]

Between October 1986 and August 1987, after the injunction case was
filed by Amante, et al., SRRDC filed with the Municipal Trial Court (MTC) of
Cabuyao, Laguna, several complaints for forcible entry with preliminary
injunction and damages against Amante, et al., docketed as Civil Cases Nos.
250, 258, 260, 262 and 266. SRRDC alleged that some time in July 1987,
they learned that Amante, et al., without their authority and through stealth
and strategy, were clearing, cultivating and planting on the subject property;
and that despite requests from SRRDCs counsel, Amante, et al. refused to
vacate the property, prompting them to file the ejectment cases. [16] Amante,
et al. denied that SRRDC are the absolute owners of the property, stating
that they have been in peaceful possession thereof, through their
predecessors-in-interest, since 1910.[17]

Nominal damages were awarded by the CA because it found that

SRRDC violated Amante, et al.s rights as possessors of the subject property.
[12]

Amante, et al. filed a motion for reconsideration thereof, pointing out

the DARABs decision placing the property under compulsory acquisition, and
the CA decision in CA-G.R. SP No. 27234, affirming the same.[13] The CA,
however, denied the motion, with the modification that only SRRDC and the
defendants-security guards should be held jointly and severally liable for the
nominal damages awarded. It also made the clarification that the decision
should not preempt any judgment or prejudice the right of any party in the
agrarian reform case pending before the Supreme Court (G.R. No. 112526).
[14]

Thus, Amante, et al. filed on March 2, 1995, herein petition, docketed as

G.R. No. 118838 on the following grounds:
4.1. THE COURT OF APPEALS DECIDED THE CASE CONTRARY TO LAW OR
APPLICABLE SUPREME COURT DECISIONS BECAUSE:
4.1.1 FIRST, PETITIONERS MAY NOT BE LAWFULLY EVICTED FROM THEIR
LANDHOLDINGS CONSIDERING THAT:
-- (A) PETITIONERS ARE ALREADY THE REGISTERED OWNERS UNDER THE
TORRENS SYSTEM OF THE PROPERTIES IN QUESTION SINCE FEBRUARY 26,
1992 BY VIRTUE OF RA 6657 OR THE COMPREHENSIVE AGRARIAN REFORM
LAW;
-- (B) THE COURT OF APPEALS HAS AFFIRMED THE REGIONAL TRIAL COURT
OF LAGUNAS DISMISSAL OF THE EJECTMENT CASES FILED BY RESPONDENT
SRRDC AGAINST PETITIONERS; AND
-- (C) ASSUMING FOR THE SAKE OF ARGUMENT ONLY THAT PETITIONERS ARE
NOT YET THE REGISTERED OWNERS OF THE PROPERTIES IN QUESTION,
RESPONDENTS MAY NOT RAISE THE ISSUE OF OWNERSHIP IN THIS CASE FOR
INJUNCTION WITH DAMAGES, THE SAME TO BE VENTILATED IN A SEPARATE
ACTION, NOT IN THIS CASE BROUGHT TO PREVENT RESPONDENTS FROM
COMMITTING FURTHER ACTS OF DISPOSSESSION [BACAR V. DEL ROSARIO ET
AL., 171 SCRA 451 (1989)].
4.1.2 SECOND, PETITIONERS ARE ENTITLED TO MORAL, EXEMPLARY
DAMAGES AND ATTORNEYS FEES, INSTEAD OF MERE NOMINAL DAMAGES,
CONSIDERING THAT THE COURT OF APPEALS FOUND RESPONDENTS TO

On May 24, 1991, the MTC-Cabuyao rendered its decision in favor of

SRRDC. Amante, et al. were ordered to surrender possession and vacate the
subject property. The decision was appealed to the Regional Trial Court of
Bian, Laguna (Assisting Court).
On February 18, 1992, the RTC dismissed the ejectment cases on the
ground that the subject property is an agricultural land being tilled by
Amante, et al., hence it is the Department of Agrarian Reform (DAR), which
has jurisdiction over the dispute.[18] The RTCs dismissal of the complaints was
brought to the CA via a petition for review, docketed as CA-G.R. SP No.
33382.[19] In turn, the CA dismissed the petition per its Decision dated
January 17, 1995 on the ground that SRRDC failed to show any prior physical
possession of the subject property that would have justified the filing of the
ejectment cases.[20] Also, the CA did not sustain the RTCs finding that the
subject properties are agricultural lands and Amante, et al. are
tenant/farmers thereof, as the evidence on record does not support such
finding. The parties did not file any motion for reconsideration from the
Court of Appeals dismissal, hence, it became final and executory. [21]

Administrative Proceedings
While the injunction and ejectment cases were still in process, it
appears that in August, 1989, the Municipal Agrarian Reform Office (MARO)
issued a Notice of Coverage to SRRDC, informing petitioners that the
property covered by TCT Nos. T-81949, T-84891 and T-92014 is scheduled for
compulsory acquisition under the Comprehensive Agrarian Reform Program
(CARP).[22] SRRDC filed its Protest and Objection with the MARO on the
grounds that the area was not appropriate for agricultural purposes, as it

was rugged in terrain with slopes of 18% and above, and that the occupants
of the land were squatters, who were not entitled to any land as
beneficiaries.[23] Thereafter, as narrated in the Decision of the Court dated
October 12, 2001 in G.R. No. 112526, the following proceedings ensued:
On August 29, 1989, the farmer beneficiaries together with the BARC
chairman answered the protest and objection stating that the slope of the
land is not 18% but only 5-10% and that the land is suitable and
economically viable for agricultural purposes, as evidenced by the
Certification of the Department of Agriculture, municipality of Cabuyao,
Laguna.
On September 8, 1989, MARO Belen dela Torre made a summary
investigation report and forwarded the Compulsory Acquisition Folder
Indorsement (CAFI) to the Provincial Agrarian Reform Officer (hereafter,
PARO).
On September 21, 1989, PARO Durante Ubeda forwarded his endorsement of
the compulsory acquisition to the Secretary of Agrarian Reform.
On November 23, 1989, Acting Director Eduardo C. Visperas of the Bureau of
Land Acquisition and Development, DAR forwarded two (2) Compulsory
Acquisition Claim Folders covering the landholding of SRRDC, covered by
TCT Nos. T-81949 and T-84891 to the President, Land Bank of the Philippines
for further review and evaluation.
On December 12, 1989, Secretary of Agrarian Reform Miriam
Defensor Santiago sent two (2) notices of acquisition to petitioner,
stating that petitioners landholdings covered by TCT Nos. T-81949
and T-84891, containing an area of 188.2858 and 58.5800 hectares,
valued at P4,417,735.65 and P1,220,229.93, respectively, had been
placed under the Comprehensive Agrarian Reform Program.
On February 6, 1990, petitioner SRRDC in two letters separately addressed
to Secretary Florencio B. Abad and the Director, Bureau of Land Acquisition
and Distribution, sent its formal protest, protesting not only the amount of
compensation offered by DAR for the property but also the two (2) notices of
acquisition.
On March 17, 1990, Secretary Abad referred the case to the DARAB
for summary proceedings to determine just compensation under
R.A. No. 6657, Section 16.
On March 23, 1990, the LBP returned the two (2) claim folders previously
referred for review and evaluation to the Director of BLAD mentioning its
inability to value the SRRDC landholding due to some deficiencies.
On March 28, 1990, Executive Director Emmanuel S. Galvez wrote
the Land Bank President Deogracias Vistan to forward the two (2)
claim folders involving the property of SRRDC to the DARAB for it to
conduct summary proceedings to determine the just compensation
for the land.
On April 6, 1990, petitioner sent a letter to the Land Bank of the Philippines
stating that its property under the aforesaid land titles were exempt from
CARP coverage because they had been classified as watershed area and
were the subject of a pending petition for land conversion.
On May 10, 1990, Director Narciso Villapando of BLAD turned over the two
(2) claim folders (CACFs) to the Executive Director of the DAR Adjudication
Board for proper administrative valuation. Acting on the CACFs, on

September 10, 1990, the Board promulgated a resolution asking the

office of the Secretary of Agrarian Reform (DAR) to first resolve two
(2) issues before it proceeds with the summary land valuation
proceedings.
The issues that need to be threshed out were as follows: (1) whether the
subject parcels of land fall within the coverage of the Compulsory Acquisition
Program of the CARP; and (2) whether the petition for land conversion of the
parcels of land may be granted.
On December 7, 1990, the Office of the Secretary, DAR, through the
Undersecretary for Operations (Assistant Secretary for Luzon
Operations) and the Regional Director of Region IV, submitted a
report answering the two issues raised. According to them, firstly,
by virtue of the issuance of the notice of coverage on August 11,
1989, and notice of acquisition on December 12, 1989, the property
is covered under compulsory acquisition. Secondly, Administrative
Order No. 1, Series of 1990, Section IV D also supports the DAR
position on the coverage of the said property. During the
consideration of the case by the Board, there was no pending
petition for land conversion specifically concerning the parcels of
land in question.
On February 19, 1991, the Board sent a notice of hearing to all the parties
interested, setting the hearing for the administrative valuation of the subject
parcels of land on March 6, 1991. However, on February 22, 1991, Atty. Ma.
Elena P. Hernandez-Cueva, counsel for SRRDC, wrote the Board requesting
for its assistance in the reconstruction of the records of the case because
the records could not be found as her co-counsel, Atty. Ricardo Blancaflor,
who originally handled the case for SRRDC and had possession of all the
records of the case was on indefinite leave and could not be contacted. The
Board granted counsels request and moved the hearing on April 4, 1991.
On March 18, 1991, SRRDC submitted a petition to the Board for the
latter to resolve SRRDCs petition for exemption from CARP
coverage before any administrative valuation of their landholding
could be had by the Board.
On April 4, 1991, the initial DARAB hearing of the case was held and
subsequently, different dates of hearing were set without objection from
counsel of SRRDC. During the April 15, 1991 hearing, the subdivision plan of
subject property at Casile, Cabuyao, Laguna was submitted and marked as
Exhibit 5 for SRRDC. At the hearing on April 23, 1991, the Land Bank asked
for a period of one month to value the land in dispute.
At the hearing on April 23, 1991, certification from Deputy Zoning
Administrator Generoso B. Opina was presented. The certification issued on
September 8, 1989, stated that the parcels of land subject of the case were
classified as Industrial Park per Sangguniang Bayan Resolution No. 45-89
dated March 29, 1989.
To avert any opportunity that the DARAB might distribute the lands to the
farmer beneficiaries, on April 30, 1991, petitioner filed a petition with DARAB
to disqualify private respondents as beneficiaries. However, DARAB refused
to address the issue of beneficiaries.[24]
...
On December 19, 1991, the DARAB promulgated a decision, affirming

the dismissal of the protest of SRRDC against the compulsory coverage of

the property covered by TCT Nos. 81949 and 84891. The decretal portion of
the decision reads:
WHEREFORE, based on the foregoing premises, the Board hereby orders:
1. The dismissal for lack of merit of the protest against the
compulsory coverage of the landholdings of Sta. Rosa Realty
Development Corporation (Transfer Certificates of Title Nos.
81949 and 84891 with an area of 254.766 hectares) in
Barangay Casile, Municipality of Cabuyao, Province of Laguna
under the Comprehensive Agrarian Reform Program is hereby
affirmed;
2. The Land Bank of the Philippines (LBP) to pay Sta. Rosa Realty
Development Corporation the amount of Seven Million Eight
Hundred Forty-One Thousand, Nine Hundred Ninety Seven
Pesos and Sixty-Four centavos (P7,841,997.64) for its
landholdings covered by the two (2) Transfer Certificates of Title
mentioned above. Should there be a rejection of the payment
tendered, to open, if none has yet been made, a trust account
for said amount in the name of Sta. Rosa Realty Development
Corporation;
3. The Register of Deeds of the Province of Laguna to cancel with
dispatch Transfer Certificate of Title Nos. 84891 and 81949 and
new one be issued in the name of the Republic of the
Philippines, free from liens and encumbrances;
4. The Department of Environment and Natural Resources either
through its Provincial Office in Laguna or the Regional Office,
Region IV, to conduct a final segregation survey on the lands
covered by Transfer Certificate of Title Nos. 84891 and 81949 so
the same can be transferred by the Register of Deeds to the
name of the Republic of the Philippines;
5. The Regional Office of the Department of Agrarian Reform
through its Municipal and Provincial Agrarian Reform Office to
take immediate possession on the said landholding after Title
shall have been transferred to the name of the Republic of the
Philippines, and distribute the same to the immediate issuance
of Emancipation Patents to the farmer-beneficiaries as
determined by the Municipal Agrarian Reform Office of
Cabuyao, Laguna.[25]
On July 11, 1991, DAR Secretary Benjamin T. Leong issued a
memorandum directing the Land Bank of the Philippines (LBP) to open a
trust account in favor of SRRDC, forP5,637,965.55, as valuation for the
SRRDC property.
The titles in the name of SRRDC were cancelled and
corresponding TCTs were issued in the name of the Republic of the
Philippines on February 11, 1992, [26] after which Certificates of Land

Ownership Award (CLOA) were issued in the name of the farmersbeneficiaries on February 26, 1992.[27]
In the meantime, SRRDC had filed with the CA a petition for review of
the DARABs decision, docketed as CA-G.R. SP No. 27234.
On November 5, 1993, the CA affirmed the decision of DARAB, to wit:
WHEREFORE, premises considered, the DARAB decision dated December 19,
1991 is AFFIRMED, without prejudice to petitioner Sta. Rosa Realty
Development Corporation ventilating its case with the Special Agrarian Court
on the issue of just compensation.[28]
Hence, SRRDC filed on November 24, 1993, herein petition, docketed as
G.R. No. 112526 on the following grounds:
I
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT
THE SRRDC PROPERTIES, DESPITE THE UNDISPUTED FACT OF THEIR NONAGRICULTURAL CLASSIFICATION PRIOR TO RA 6657, ARE COVERED BY THE
CARP CONTRARY TO THE NATALIA REALTY DECISION OF THIS HONORABLE
COURT.
i. The SRRDC properties have been zoned and approved as
PARK since 1979.
ii. The SRRDC properties form part of a watershed area.
II
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DISREGARDING
ECOLOGICAL CONSIDERATIONS AS MANDATED BY LAW.
III
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN AFFIRMING THE
DISTRIBUTION OF THE SRRDC PROPERTIES TO PRIVATE RESPONDENTS WHO
HAVE BEEN JUDICIALLY DECLARED AS SQUATTERS AND THEREFORE ARE NOT
QUALIFIED BENEFICIARIES PURSUANT TO THE CENTRAL MINDANAO
UNIVERSITY DECISION OF THIS HONORABLE COURT.
i. The acquisition of the SRRDC properties cannot be valid for
future beneficiaries.
ii. Section 22 of RA 6657 insofar as it expands the coverage of
the CARP to landless residents is unconstitutional.
IV
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN HOLDING THAT
THE DARAB HAS JURISDICTION TO PASS UPON THE ISSUE OF WHETHER THE
SRRDC PROPERTIES ARE SUBJECT TO CARP COVERAGE. [29]
On October 12, 2001, the Court rendered its Decision in G.R. No.

112526 only, setting aside the decision of the CA in CA-G.R. SP No. 27234
and ordering the remand of the case to the DARAB for re-evaluation and
determination of the nature of the land. The dispositive portion of the
Decision reads as follows:
IN VIEW WHEREOF, the Court SETS ASIDE the decision of the Court of
Appeals in CA-G.R. SP No. 27234.
In lieu thereof, the Court REMANDS the case to the DARAB for re-evaluation
and determination of the nature of the parcels of land involved to resolve
the issue of its coverage by the Comprehensive Land Reform Program.
In the meantime, the effects of the CLOAs issued by the DAR to supposed
farmer beneficiaries shall continue to be stayed by the temporary restraining
order issued on December 15, 1993, which shall remain in effect until final
decision on the case.
No costs.
SO ORDERED.[30]
It is the opinion of the Court in G.R. No. 112526, that the property is
part of a watershed, and that during the hearing at the DARAB, there was
proof that the land may be excluded from the coverage of the CARP because
of its high slopes.[31] Thus, the Court concluded that a remand of the case to
the DARAB for re-evaluation of the issue of coverage is appropriate in order
to resolve the true nature of the subject property.[32]
In their Memorandum, Amante, et al. argues that there exist compelling
reasons to grant the second motion for reconsideration of the assailed
decision of the Court, to wit:
2.1 Only QUESTIONS OF LAW are admittedly and undeniably at issue; yet
the Honorable Court reviewed the findings of facts of the Court of Appeals
and the DARAB although the case does not fall into any of the wellrecognized exceptions to conduct a factual review. Worse, the 12 October
2001 Decision assumed facts not proven before any administrative, quasijudicial or judicial bodies;
2.2 The DARAB and the Court of Appeals already found the land to be
CARPable; yet the Honorable Court remanded the case to DARAB to reevaluate if the land is CARPable;
2.3 The Decision did not express clearly and distinctly the facts and the law
on which it is based;
2.4 The Decision renewed the Temporary Restraining Order issued on 15
December 1993, issuance of which is barred by Sec. 55 of R.A. 6657; and
2.5 This Honorable Court denied private respondents Motion for
Reconsideration although issues raised therein were never passed upon in
the 12 October 2001 Decision or elsewhere.[33]
The DAR and the DARAB, through the Office of the Solicitor General, did
not interpose any objection to the second motion for reconsideration. It also
maintained that if SRRDCs claim that the property is watershed is true, then
it is the DENR that should exercise control and supervision in the disposition,
utilization, management, renewal and conservation of the property. [34]
SRRDC meanwhile insists that there are no compelling reasons to give
due course to the second motion for reconsideration.[35]

At the outset, the Court notes that petitioner designated its petition in
G.R. No. 112526 as one for review on certiorari of the decision of the CA. In
the same breath, it likewise averred that it was also being filed as a special
civil action for certiorari as public respondents committed grave abuse of
discretion.[36] Petitioner should not have been allowed, in the first place, to
pursue such remedies simultaneously as these are mutually exclusive. [37]
It is SRRDCs claim that the CA committed grave abuse of discretion in
holding that the subject property is agricultural in nature. In support of its
contention, it argued, among others, that the subject property had already
been classified as park since 1979 under the Zoning Ordinance of Cabuyao,
as approved by the Housing and Land Use Regulatory Board (HLURB); that it
forms part of a watershed; and that the CA disregarded ecological
considerations.[38] SRRDC also claimed that Amante, et al. are not qualified
beneficiaries.[39]
Clearly, these issues are factual in nature, which the Court, as a rule,
should not have considered in this case. However, there are recognized
exceptions, e.g., when the factual inferences of the appellate court are
manifestly mistaken; the judgment is based on a misapprehension of facts;
or the CA manifestly overlooked certain relevant and undisputed facts that,
if properly considered, would justify a different legal conclusion. [40] The
present cases fall under the above exceptions.
Thus, in order to finally set these cases to rest, the Court shall resolve
the substantive matters raised, which in effect comes down to the issue of
the validity of the acquisition of the subject property by the Government
under Republic Act (R.A.) No. 6657, or the Comprehensive Agrarian Reform
Law of 1988 (CARL).
As noted earlier, the DARAB made its finding regarding the nature of
the property in question, i.e., the parcels of land are agricultural and may be
the subject of compulsory acquisition for distribution to farmer-beneficiaries,
thus:
Ocular inspections conducted by the Board show that the subject
landholdings have been under the possession and tillage of the DAR
identified potential beneficiaries which they inherited from their forebears
(workers of the Yulo Estate). They are bonafide residents and registered
voters (DARAB Exhibits C and J) of Barangay Casile, Cabuyao, Laguna. There
is a barangay road leading toward the barangay school and sites and the
settlement has a barangay hall, church, elementary school buildings (DARAB
Exhibit Q), Comelec precincts (DARAB Exhibits J-1 and J-2), and other
structures extant in progressive communities. The barangay progressive
development agencies, like the DECS, DA, COMELEC, DAR and Support
Services of Land Bank, DPWH, DTI and the Cooperative Development
Authority have extended support services to the community (DARAB Exhibits
I, K to K-3, L, M, N, O, P to P-6). More importantly, subject landholdings
are suitable for agriculture. Their topography is flat to undulating 315% slope. (Testimony of Rosalina Jumaquio, Agricultural Engineer,
DAR, TSN, June 21, 1991, DARAB Exhibits F and H). Though some
portions are over 18% slope, nevertheless, clearly visible thereat
are fruit-bearing trees, like coconut, coffee, and pineapple

plantations, etc. (see Petitioners Exhibits A to YYY and DARAB

Exhibits A to S, Records). In other words, they are already
productive and fully developed.
...
As the landholdings of SRRDC subject of the instant proceedings
are already developed not only as a community but also as an
agricultural farm capable of sustaining daily existence and growth,
We find no infirmity in placing said parcels of land under
compulsory coverage. They do not belong to the exempt class of
lands. The claim that the landholding of SRRDC is a watershed;
hence, belonging to the exempt class of lands is literally throwing
punches at the moon because the DENR certified that the only
declared watershed in Laguna Province and San Pablo City is the
Caliraya-Lumot Rivers (Petitioners Exhibit A). A sensu contrario, the
landholdings subject herein are not.[41] (Emphasis supplied)
The evidence on record supports these findings, to wit:
1. Certification dated January 16, 1989 by the OIC Provincial
Environment and Natural Resources Office of Laguna that the
only declared watershed in the Laguna province and San Pablo
City is the Caliraya-Lumot Rivers No. 1570 dated September 1,
1976;[42]
2. Map prepared by Agricultural Engineer Rosalina H. Jumaquio
showing that: a) the topography of the property covered by TCT
No. T-84891 topography is flat to undulating with a 5 to 10%
slope; (b) it is suitable to agricultural crops; and (c) the land is
presently planted with diversified crops;[43]
3. Certification dated August 28, 1989 by APT Felicito Buban of the
Department of Agriculture of Laguna that, per his ocular
inspection, the subject property is an agricultural area, and that
the inhabitants main occupation is farming;[44]
4. Pictures taken by MARO Belen La Torre of Cabuyao, Laguna,
showing that the property is cultivated and inhabited by the
farmer-beneficiaries;[45]
SRRDC however, insists that the property has already been classified as
a municipal park and beyond the scope of CARP. To prove this, SRRDC
submitted the following:
1. Certification dated March 1, 1991 by the Municipality of
Cabuyao, Laguna that the entire barangay of Casile is
delineated as Municipal Park;[46]
2. Certification dated March 11, 1991 by the Housing and Land Use
Regulatory Board that the parcels of land located in Barangay
Casile are within the Municipal Park, based on the municipalitys
approved General Land Use Plan ratified by the Housing and
Land Use Regulatory Board as per Resolution No. 38-2 dated
June 25, 1980;[47]

3. Photocopies of pictures taken by Mr. Ernesto Garcia, Officer-inCharge of the Special Project Section of CJ Yulo and Sons, Inc.,
of portions of Barangay Casile;[48]
The Court recognizes the power of a local government to reclassify and
convert lands through local ordinance, especially if said ordinance is
approved by the HLURB.[49] Municipal Ordinance No. 110-54 dated November
3, 1979, enacted by the Municipality of Cabuyao, divided the municipality
into residential, commercial, industrial, agricultural and institutional districts,
and districts and parks for open spaces. [50] It did not convert, however,
existing agricultural lands into residential, commercial, industrial, or
institutional. While it classified Barangay Casile into a municipal park, as
shown in its permitted uses of land map, the ordinance did not provide for
the retroactivity of its classification. In Co vs. Intermediate Appellate Court,
[51]
it was held that an ordinance converting agricultural lands into residential
or light industrial should be given prospective application only, and should
not change the nature of existing agricultural lands in the area or the legal
relationships existing over such lands. Thus, it was stated:
A reading of Metro Manila Zoning Ordinance No. 81-01, series of 1981, does
not disclose any provision converting existing agricultural lands in the
covered area into residential or light industrial. While it declared that after
the passage of the measure, the subject area shall be used only for
residential or light industrial purposes, it is not provided therein that it shall
have retroactive effect so as to discontinue all rights previously acquired
over lands located within the zone which are neither residential nor light
industrial in nature. This simply means that, if we apply the general
rule, as we must, the ordinance should be given prospective
operation only. The further implication is that it should not change
the nature of existing agricultural lands in the area or the legal
relationships existing over such lands [52] (Emphasis supplied)
Under Section 3 (c) of R.A. No. 6657, agricultural land is defined as land
devoted to agricultural activity and not classified as mineral, forest,
residential, commercial or industrial land. Section 3 (b) meanwhile defines
agricultural activity as the cultivation of the soil, planting of crops, growing
of fruit trees, raising of livestock, poultry or fish, including the harvesting of
such products, and other farm activities, and practices performed by a
farmer in conjunction with such farming operations done by persons whether
natural or juridical.
Before Barangay Casile was classified into a municipal park by the local
government of Cabuyao, Laguna in November 1979, it was part of a vast
property popularly known as the Canlubang Sugar Estate. SRRDC claimed
that in May 1979, the late Miguel Yulo allowed the employees of the Yulo
group of companies to cultivate a maximum area of one hectare each
subject to the condition that they should not plant crops being grown by the
Canlubang Sugar Estate, like coconuts and coffee, to avoid confusion as to
ownership of crops.[53] The consolidation and subdivision plan surveyed for
SRRDC on March 10-15, 1984[54] also show that the subject property is sugar
land. Evidently, the subject property is already agricultural at the time the
municipality of Cabuyao enacted the zoning ordinance, and such ordinance

should not affect the nature of the land. More so since the municipality
of Cabuyao did not even take any step to utilize the property as a
park.
SRRDC cites the case of Natalia Realty, Inc. vs. DAR,[55] wherein it was
ruled that lands not devoted to agricultural activity and not classified as
mineral or forest by the DENR and its predecessor agencies, and not
classified in town plans and zoning ordinances as approved by the HLURB
and its preceding competent authorities prior to the enactment of R.A. No.
6657 on June 15, 1988, are outside the coverage of the CARP. Said ruling,
however, finds no application in the present case. As previously stated,
Municipal Ordinance No. 110-54 of the Municipality of Cabuyao did not
provide for any retroactive application nor did it convert existing agricultural
lands into residential, commercial, industrial, or institutional. Consequently,
the subject property remains agricultural in nature and therefore within the
coverage of the CARP.
Only on March 9, 2004, SRRDC filed with the Court a Manifestation
pointing out DAR Order No. (E)4-03-507-309 dated February 17, 2004,
exempting from CARP coverage two parcels of land owned by SRRDC and
covered by TCT Nos. T-85573 and T-92014. [56] The DAR found that these
properties have been re-classified into Municipal Parks by the Municipal
Ordinance of Cabuyao, Laguna, and are part of the Kabangaan-Casile
watershed, as certified by the DENR.[57]
The Court notes however that the said DAR Order has absolutely no
bearing on these cases. The herein subject property is covered by TCT Nos.
81949 and 34891, totally different, although adjacent, from the property
referred to in said DAR Order.
SRRDC also contends that the property has an 18% slope and over and
therefore exempt from acquisition and distribution under Section 10 of R.A.
No. 6657. What SRRDC opted to ignore is that Section 10, as implemented
by DAR Administrative Order No. 13 dated August 30, 1990, also provides
that those with 18% slope and over but already developed for
agricultural purposes as of June 15, 1988, may be allocated to
qualified occupants.[58] Hence, even assuming that the property has an
18% slope and above, since it is already developed for agricultural purposes,
then it cannot be exempt from acquisition and distribution. Moreover, the
topography maps prepared by Agricultural Engineer Rosalina H. Jumaquio
show that the property to be acquired has a 5-10% flat to undulating scope;
[59]
that it is suitable to agricultural crops;[60] and it is in fact already planted
with diversified crops.[61]
Also, the Certification dated July 1, 1991 by Geodetic Engineer Conrado
R. Rigor that the top portion of Barangay Casile has a 0 to 18% slope while
the side of the hill has a 19 to 75% slope, [62] was presented by SRRDC only
during the proceedings before the CA which had no probative value in a
petition for review proceedings. The Court notes that SRRDC had been given
ample time and opportunity by the DARAB to prove the grounds for its
protest and objection but miserably failed to take advantage of such time
and opportunity[63] in the DARAB proceedings.

SRRDC also contends that the property is part of a watershed, citing as

evidence, the Certification dated June 26, 1991 by the Laguna Lake
Development Authority that Barangay Casile is part of the watershed area of
the Laguna Lake Basin,[64] and the Final Report for Watershed Area
Assessment Study for the Canlubang Estate dated July 1991 undertaken by
the Engineering & Development Corporation of the Philippines. [65] It must be
noted, however, that these pieces of evidence were likewise brought to
record only when petitioner filed its petition for review with the CA. The
DARAB never had the opportunity to assess these pieces of evidence.
The DARAB stated:
Noting the absence of evidence which, in the nature of things, should have
been submitted by landowner SRRDC and to avoid any claim of deprivation
of its right to prove its claim to just compensation (Uy v. Genato, 57 SCRA
123). We practically directed its counsel in not only one instance, during the
series of hearings conducted, to do so. We even granted continuances to
give it enough time to prepare and be ready with the proof and documents.
To Our dismay, none was submitted and this constrained Us to take the
failure/refusal of SRRDC to present evidence as a waiver or, at least, an
implied acceptance of the valuation made by the DAR.[66]
The same goes with the CA, which did not have the discretion to
consider evidence in a petition for certiorari or petition for review on
certiorari outside than that submitted before the DARAB. The CA noted
petitioners failure to present evidence in behalf of its arguments, thus:
. . . It must be recalled that petitioner Sta. Rosa Realty itself had asked the
DARAB in a petition dated March 18, 1991 to allow it to adduce evidence in
support of its position that the subject parcels of land are not covered by the
CARP beginning on the scheduled hearing dated April 4, 1991. And DARAB
obliged as in fact the petitioner commenced to introduce evidence. If
petitioner failed to complete the presentation of evidence to support its
claim of exemption from CARP coverage, it has only itself to blame for which
DARAB cannot be accused of not being impartial.[67]
Consequently, there is no need to order the remand of the case to the
DARAB for re-evaluation and determination of the nature of the parcels of
land involved. It runs contrary to orderly administration of justice and would
give petitioner undue opportunity to present evidence in support of its
stance, an opportunity it already had during the DARAB proceedings, and
which opportunity it regrettably failed to take advantage of.
More significantly however, it is the DAR Secretary that
originally declared the subject property as falling under the
coverage of the CARP.
Moreover, DAR Administrative Order No. 13, Series of 1990 (Rules and
Procedure Governing Exemption of Lands from CARP Coverage under Section
10, R.A. No. 6657) provides:
I. LEGAL MANDATE
The general policy under CARP is to cover as much lands suitable for

agriculture as possible. However, Section 10, RA 6657 excludes and exempts

certain types of lands from the coverage of CARP, to wit:
A. Lands actually, directly and exclusively used and found to be
necessary for parks, wildlife, forest reserves, reforestation, fish
sanctuaries and breeding grounds, watersheds and mangroves,
national defense, school sites and campuses including
experimental farm stations operated by public or private schools
for educational purposes, seeds and seedlings research and pilot
production centers, church sites and convents appurtenant
thereto, mosque sites and Islamic centers appurtenant thereof,
communal burial grounds and cemeteries, penal colonies and
penal farms actually worked by the inmates, government and
private research and quarantine centers; and
...
II. POLICIES
In the application of the aforecited provision of law, the following guidelines
shall be observed:
A. For an area in I.A to be exempted from CARP coverage, it must
be actually, directly and exclusively used and found to be
necessary for the purpose so stated.
...
C. Lands which have been classified or proclaimed, and/or actually directly
and exclusively used and found to be necessary for parks, wildlife, forest
reserves, fish sanctuaries and breeding grounds, and watersheds and
mangroves shall be exempted from the coverage of CARP until Congress,
taking into account ecological, developmental and equity considerations,
shall have determined by law, the specific limits of public domain, as
provided for under Sec. 4(a) of RA 6657, and a reclassification of the said
areas or portions thereof as alienable and disposable has been approved.
(Emphasis supplied)

found to be necessary for educational purposes.

In the present case, the property is agricultural and was not actually
and exclusively used for watershed purposes. As records show, the subject
property was first utilized for the purposes of the Canlubang Sugar Estate. [71]
Later, petitioner claimed that the occupants were allowed to cultivate the
area so long as they do not plant crops being grown by the Canlubang Sugar
Estate in order to avoid confusion as to ownership thereof. [72] Thus, based on
its own assertions, it appears that it had benefited from the fruits of the land
as agricultural land. Now, in a complete turnaround, it is claiming that the
property is part of a watershed.
Furthermore, in a belated attempt to prove that the subject property is
part of a watershed that must be environmentally protected, SRRDC
submitted before the Court a Final Report dated February 1994 undertaken
by the Ecosystems Research and Development Bureau (ERDB) of the DENR
entitled, Environmental Assessment of the Casile and Kabanga-an River
Watersheds.[73] The study, according to SRRDC, was made pursuant to a
handwritten instruction issued by then President Fidel V. Ramos. The study
noted that, the continuing threat of widespread deforestation and unwise
land use practices have resulted in the deteriorating condition of the
watersheds.[74] But the Court also notes the Memorandum for the President
dated September 1993 by then DENR Secretary Angel C. Alcala that, after a
field inspection conducted by the DENRs Regional Executive Director and the
Provincial and Community Natural Resource Officers, it was found that:
...
2. Many bankal trees were found growing in the watershed/CARP
areas, including some which have been coppiced, and that
water conduits for domestic and industrial uses were found
installed at the watershed area claimed by the Yulos. Records
further show that in the 1970s, a Private Land Timber Permit
was issued to Canlubang Sugar Estate thru its marketing arm,
the Sta. Rosa Realty Devpt. Corp.

In order to be exempt from coverage, the land must have been

classified or proclaimed and actually, directly and exclusively used and
found to be necessary for watershed purposes.[68] In this case, at the time
the DAR issued the Notices of Coverage up to the time the DARAB rendered
its decision on the dispute, the subject property is yet to be officially
classified or proclaimed as a watershed and has in fact long been used for
agricultural purposes. SRRDC relies on the case of Central Mindanao
University (CMU) vs. DARAB,[69] wherein the Court ruled that CMU is in the
best position to determine what property is found necessary for its use.
SRRDC claims that it is in the best position to determine whether its
properties are necessary for development as park and watershed area. [70]

Evidently, SRRDC had a hand in the degradation of the area, and now
wants to put the entire blame on the farmer-beneficiaries. It is reasonable to
conclude that SRRDC is merely using ecological considerations to avert any
disposition of the property adverse to it.

But SRRDCs reliance on the CMU case is flawed. In the CMU case, the
subject property from the very beginning was not alienable and disposable
because Proclamation No. 476 issued by the late President Carlos P. Garcia
already reserved the property for the use of the school. Besides, the subject
property in the CMU case was actually, directly and exclusively used and

SRRDC also objects to the identification of Amante, et al. as

beneficiaries of the subject property. Suffice it to say that under Section 15
of R.A. No. 6657, the identification of beneficiaries is a matter involving
strictly the administrative implementation of the CARP, a matter which is
exclusively vested in the Secretary of Agrarian Reform, through its

3. Resident farmers denied that they have been cutting bankal

trees and volunteered the information that one of the Estates
security guards was dismissed for cutting and transporting
bankal trees. The trees cut by the dismissed security guard
were found stacked adjacent to the Canlubang Security
Agencys headquarters.[75]

authorized offices. Section 15 reads:

SECTION 15. Registration of Beneficiaries. The DAR in coordination with the
Barangay Agrarian Reform Committee (BARC) as organized in this Act, shall
register all agricultural lessees, tenants and farmworkers who are qualified
to be beneficiaries of the CARP. These potential beneficiaries with the
assistance of the BARC and the DAR shall provide the following data:
(a) names and members of their immediate farm household;
(b) owners or administrators of the lands they work on and the
length of tenurial relationship;
(c) location and area of the land they work;
(d) crops planted; and
(e) their share in the harvest or amount of rental paid or wages received.
A copy of the registry or list of all potential CARP beneficiaries in the
barangay shall be posted in the barangay hall, school or other public
buildings in the barangay where it shall be open to inspection by the public
at all reasonable hours.
Meanwhile, Administrative Order No. 10 (Rules and Procedures
Governing the Registration of Beneficiaries), Series of 1989, provides:
SUBJECT: I. PREFATORY STATEMENT
Pursuant to Section 15, Chapter IV, of the Comprehensive Agrarian Reform
Law of 1988, the DAR, in coordination with the Barangay Agrarian Reform
Committee (BARC), as organized pursuant to RA 6657, shall register all
agricultural lessees, tenants and farmworkers who are qualified beneficiaries
of the CARP. This Administrative Order provides the Implementing Rules and
Procedures for the said registration.
...
B. Specific
1. Identify the actual and potential farmer-beneficiaries of the CARP.
In Lercana vs. Jalandoni,[76] the Court categorically stated that:
the identification and selection of CARP beneficiaries are matters involving
strictly the administrative implementation of the CARP, a matter exclusively
cognizable by the Secretary of the Department of Agrarian Reform, and
beyond the jurisdiction of the DARAB.[77]
The farmer-beneficiaries have already been identified in this case. Also,
the DAR Secretary has already issued Notices of Coverage and Notices of
Acquisition pertaining to the subject property. It behooves the courts to
exercise great caution in substituting its own determination of the issue,
unless there is grave abuse of discretion committed by the administrative
agency,[78] which in these cases the Court finds none.
SRRDC questions the constitutionality of Section 22 of R.A. No. 6657,
which reads in part:
SECTION 22. Qualified Beneficiaries. The lands covered by the CARP shall be
distributed as much as possible to landless residents of the same barangay,
or in the absence thereof, landless residents of the same municipality in the

following order of priority.

(a) agricultural lessees and share tenants;
(b) regular farmworkers;
(c) seasonal farmworkers;
(d) other farmworkers;
(e) actual tillers or occupants of public lands;
(f) collectives or cooperatives of the above beneficiaries; and
(g) others directly working on the land.
...
SRRDC argues that Section 22 sweepingly declares landless residents
as beneficiaries of the CARP (to mean also squatters), in violation of Article
XIII, Section 4 of the Constitution, which aims to benefit only the landless
farmers and regular farmworkers.[79]
The Court cannot entertain such constitutional challenge. The
requirements before a litigant can challenge the constitutionality of a law
are well-delineated, viz.:
(1) The existence of an actual and appropriate case;
(2) A personal and substantial interest of the party raising the
constitutional question;
(3) The exercise of judicial review is pleaded at the earliest
opportunity; and
(4) The constitutional question is the lis mota of the case.[80]
(Emphasis supplied)
Earliest opportunity means that the question of unconstitutionality of
the act in question should have been immediately raised in the proceedings
in the court below,[81] in this case, the DAR Secretary. It must be pointed out
that all controversies on the implementation of the CARP fall under the
jurisdiction of the DAR, even though they raise questions that are also
legal or constitutional in nature.[82] The earliest opportunity to raise a
constitutional issue is to raise it in the pleadings before a competent court
that can resolve the same, such that, if it is not raised in the pleadings, it
cannot be considered at the trial, and, if not considered at the trial, it cannot
be considered on appeal.[83] Records show that SRRDC raised such
constitutional challenge only before this Court despite the fact that it had
the opportunity to do so before the DAR Secretary. The DARAB correctly
refused to deal on this issue as it is the DAR Secretary who, under the law,
has the authority to determine the beneficiaries of the CARP. This Court will
not entertain questions on the invalidity of a statute where that issue was
not specifically raised, insisted upon, and adequately argued [84] in the DAR.
Likewise, the constitutional question raised by SRRDC is not the very lis
mota in the present case. Basic is the rule that every law has in its favor the
presumption of constitutionality, and to justify its nullification, there must be
a clear and unequivocal breach of the Constitution, and not one that is
doubtful, speculative or argumentative. [85] The controversy at hand is
principally anchored on the coverage of the subject property under the

CARP, an issue that can be determined without delving into the

constitutionality of Section 22 of R.A. No. 6657. While the identification of
Amante, et al. as farmer-beneficiaries is a corollary matter, yet, the same
may be resolved by the DAR.
SRRDC questions the DARABs jurisdiction to entertain the question of
whether the subject property is subject to CARP coverage.
According to SRRDC, such authority is vested with the DAR Secretary
who has the exclusive prerogative to resolve matters involving the
administrative implementation of the CARP and agrarian laws and
regulations.[86]
There is no question that the power to determine whether a property is
subject to CARP coverage lies with the DAR Secretary. Section 50 of R.A. No.
6657 provides that:
SEC. 50. Quasi-Judicial Powers of the DAR. - The DAR is hereby vested with
primary jurisdiction to determine and adjudicate agrarian reform matters
and shall have exclusive original jurisdiction over all matters involving the
implementation of agrarian reform, except those falling under the exclusive
jurisdiction of the Department of Agriculture (DA) and the Department of
Environment and Natural Resources (DENR).
...
The DARs jurisdiction under Section 50 of R.A. No. 6657 is two-fold. The
first is essentially executive and pertains to the enforcement and
administration of the laws, carrying them into practical operation and
enforcing their due observance, while the second is judicial and involves the
determination of rights and obligations of the parties. [87]
Pursuant to its judicial mandate of achieving a just, expeditious and
inexpensive determination of every action or proceeding before it, [88] the
DAR adopted the DARAB Revised Rules, Rule II (Jurisdiction of the
Adjudication Board) of which provides:
SECTION 1. Primary, Original and Appellate Jurisdiction. The Agrarian Reform
Adjudication Board shall have primary jurisdiction, both original and
appellate, to determine and adjudicate all agrarian disputes, cases,
controversies, and matters or incidents involving the implementation of the
Comprehensive Agrarian Reform Program under Republic Act No. 6657,
Executive Order Nos. 229, 228 and 129-A, Republic Act No. 3844 as
amended by Republic Act No. 6389, Presidential Decree No. 27 and other
agrarian laws and their implementing rules and regulations.
Specifically, such jurisdiction shall extend over but not be limited to the
following:
a) Cases involving the rights and obligations of persons engaged in the
cultivation and use of agricultural land covered by the Comprehensive
Agrarian Reform Program (CARP) and other agrarian laws;
b) Cases involving the valuation of land, and determination and payment of
just compensation, fixing and collection of lease rentals, disturbance
compensation, amortization payments, and similar disputes concerning the
functions of the Land Bank;

c) Cases involving the annulment or cancellation of orders or decisions of

DAR officials other than the Secretary, lease contracts or deeds of sale or
their amendments under the administration and disposition of the DAR and
LBP;
d) Cases arising from, or connected with membership or representation in
compact farms, farmers cooperatives and other registered farmers
associations or organizations, related to land covered by the CARP and other
agrarian laws;
e) Cases involving the sale, alienation, mortgage, foreclosure, pre-emption
and redemption of agricultural lands under the coverage of the CARP or
other agrarian laws;
f) Cases involving the issuance of Certificate of Land Transfer (CLT),
Certificate of Land Ownership Award (CLOA) and Emancipation Patent (EP)
and the administrative correction thereof;
g) And such other agrarian cases, disputes, matters or concerns referred to
it by the Secretary of the DAR.
Provided, however, that matters involving strictly the
administrative implementation of the CARP and other agrarian laws
and regulations, shall be the exclusive prerogative of and
cognizable by the Secretary of the DAR. (Emphasis supplied)
On the other hand, Administrative Order No. 06-00, [89] which provides
for the Rules of Procedure for Agrarian Law Implementation (ALI) Cases,
govern the administrative function of the DAR. Under said Rules of
Procedure, the DAR Secretary has exclusive jurisdiction over classification
and identification of landholdings for coverage under the CARP, including
protests or oppositions thereto and petitions for lifting of coverage. Section 2
of the said Rules specifically provides, inter alia, that:
SECTION 2. Cases Covered. - These Rules shall govern cases falling within
the exclusive jurisdiction of the DAR Secretary which shall include the
following:
(a) Classification and identification of landholdings for coverage
under the Comprehensive Agrarian Reform Program (CARP),
including protests or oppositions thereto and petitions for lifting of
coverage;
(b) Identification, qualification or disqualification of potential
farmer-beneficiaries;
(c) Subdivision surveys of lands under CARP;
(d) Issuance, recall or cancellation of Certificates of Land Transfer (CLTs) and
CARP Beneficiary Certificates (CBCs) in cases outside the purview of
Presidential Decree (PD) No. 816, including the issuance, recall or
cancellation of Emancipation Patents (EPs) or Certificates of Land Ownership
Awards (CLOAs) not yet registered with the Register of Deeds;
(e) Exercise of the right of retention by landowner; . . . (Emphasis supplied)
Thus, the power to determine whether a property is agricultural and
subject to CARP coverage together with the identification, qualification or
disqualification of farmer-beneficiaries lies with the DAR Secretary. [90]
Significantly, the DAR had already determined that the
properties are subject to expropriation under the CARP and has

distributed the same to the farmer-beneficiaries.

Initially, the LBP forwarded the two Compulsory Acquisition Claim
Folders (CACF) covering the subject properties to the DARAB for summary
proceedings for the sole purpose of determining just compensation. SRRDC
then sent a letter to the LBP claiming that the subject properties were
exempt from CARP coverage and subject of a pending petition for land
conversion. As a consequence, the DARAB asked the DAR Secretary to first
resolve the issues raised by SRRDC before it can proceed with the land
valuation proceedings. In response, the DAR, through the Undersecretary for
Operations and the Regional Director of Region IV, submitted its report
stating that: (1) the property is subject to compulsory acquisition by virtue
of the Notice of Coverage issued on August 11, 1989, and Notice of
Acquisition issued on December 12, 1989, and that it was subject to CARP
coverage per Section IV D of DAR Administrative Order No. 1, Series of 1990;
and (2) there was no pending petition for land conversion involving the
subject property. When SRRDC petitioned the DARAB to resolve the issue of
exemption from coverage, it was only then that the DARAB took cognizance
of said issue.[91]
As the DARAB succinctly pointed out, it was SRRDC that initiated and
invoked the DARABs jurisdiction to pass upon the question of CARP
coverage. As stated by the DARAB:
4.5.2.2. The ISSUE ON CARP COVERAGE was initiated and incorporated in
said proceeding, at the instance of petitioner itself, by filing a petition
dated March 18, 1991, Prayed therein were that DARAB:
1. Take cognizance and assume jurisdiction over the question of CARP
coverage of the subject parcels of land;
2. Defer or hold in abeyance the proceedings for administrative valuation of
the subject properties pending determination of the question of CARP
coverage;
3. Allow respondent SRRDC to adduce evidence in support of its position that
the subject parcels of land are not covered by the CARP beginning on the
scheduled hearing date of April 4, 1991 (p.3; emphasis and underscoring
supplied).
Upon persistent request of petitioner SRRDC, it was accommodated by
DARAB and a counsel of SRRDC even took the witness stand. Its lawyers
were always in attendance during the scheduled hearings until it was time
for SRRDC to present its own evidence.
4.5.2.3. But, as earlier stated, despite the open session proddings by DARAB
for SRRDC to submit evidence and the rescheduling for, allegedly, they are
still collating the evidence, nay, the request that it be allowed to adduce
evidence, none was adduced and this constrained public respondent to
declare SRRDC as having waived its right to present evidence. And, after the
remaining parties were heard, the hearing was formally terminated.
...
4.5.3. Needless to state, the jurisdictional objection (CARP
coverage), now being raised herein was not one of the original
matters in issue. Principally, DARAB was called upon under Section
16 of Republic Act No. 6657 to resolve a land valuation case. But
SRRDC itself insisted that DARAB should take cognizance thereof in

the same land valuation proceeding. And, SRRDC, through its

lawyers, actively participated in the hearings conducted.
4.5.4. It was only when an adverse decision was rendered by DARAB
that the jurisdictional issue was raised in the petition for review it
filed with the Honorable Court of Appeals. It was also only then that
petitioner presented proof/evidence.
...
4.5.6. Public respondents (DAR/DARAB) are not unmindful of the rule that
matter of jurisdiction may be raised at any stage of the proceeding. But for
two serious considerations, the applicability thereof in the case at bar should
not be allowed.
4.5.6.1. The fact [part (municipal/industrial) and/or watershed] upon which
the jurisdictional issue interchangeably hinges were not established during
the hearing of the case. No proof was adduced. That the matter of CARP
coverage is strictly administrative implementation of CARP and, therefore,
beyond the competence of DARAB, belonging, as it does, to the DAR
Secretary, was not even alleged, either before DARAB or the Honorable
Court of Appeals, the numerous petitions/incidents filed notwithstanding. Be
it that as it may, the records of the case show that initially DARAB refused to
take cognizance thereof and, in fact, forwarded the issue of CARP coverage
to the office of the DAR Secretary. It was only when it was returned to DARAB
by said office that proceedings thereon commenced pursuant to Section 1(g)
of Rule II of the DARAB Revised Rules of Procedure.
4.5.6.2. Petitioner is now estopped from assailing the jurisdiction of
DARAB. First, it expressly acknowledged the same, in fact invoked
it, when it filed its petition (Annex 4); and, second, during the
scheduled hearings, SRRDC, through its counsel, actively
participated, one of its counsel (sic) even testifying. It may not now
be allowed to impugn the jurisdiction of public respondent [92]
(Emphasis supplied)
In CA-G.R. SP No. 27234, the CA likewise found that it was SRRDC that
called upon the DARAB to determine the issue and it, in fact, actively
participated in the proceedings before it. [93] It was SRRDCs own act of
summoning the DARABs authority that cured whatever jurisdictional defect it
now raises. It is elementary that the active participation of a party in a case
pending against him before a court or a quasi-judicial body, is tantamount to
a recognition of that courts or bodys jurisdiction and a willingness to abide
by the resolution of the case and will bar said party from later on impugning
the courts or bodys jurisdiction.[94]
Moreover, the issue of jurisdiction was raised by SRRDC only before the
CA. It was never presented or discussed before the DARAB for obvious
reasons, i.e., it was SRRDC itself that invoked the latters jurisdiction. As a
rule, when a party adopts a certain theory, and the case is tried and decided
upon that theory in the court below, he will not be permitted to change his
theory on appeal.[95] Points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and ordinarily will
not be, considered by a reviewing court, as these cannot be raised for the
first time at such late stage. [96] To permit SRRDC to change its theory on
appeal would not only be unfair to Amante, et al. but would also be offensive
to the basic scales of fair play, justice and due process. [97]

Finally, the Court notes that then DAR Secretary Benjamin T. Leong
issued a Memorandum on July 11, 1991, ordering the opening of a trust
account in favor of SRRDC. In Land Bank of the Philippines vs. Court of
Appeals, this Court struck down as void DAR Administrative Circular No. 9,
Series of 1990, providing for the opening of trust accounts in lieu of the
deposit in cash or in bonds contemplated in Section 16 (e) of R.A. No. 6657.
As a result, the DAR issued Administrative Order No. 2, Series of 1996,
converting trust accounts in the name of landowners into deposit accounts.
[98]
Thus, the trust account opened by the LBP per instructions of DAR
Secretary Benjamin T. Leong should be converted to a deposit account, to be
retroactive in application in order to rectify the error committed by the DAR
in opening a trust account and to grant the landowners the benefits
concomitant to payment in cash or LBP bonds prior to the ruling of the Court
in Land Bank of the Philippines vs. Court of Appeals. The account shall earn
a 12% interest per annum from the time the LBP opened a trust account up
to the time said account was actually converted into cash and LBP bonds
deposit accounts.
Given the foregoing conclusions, the petition filed in G.R. No. 118838,
which primarily rests on G.R. No. 112526, should be granted.
The judgments of the trial court in the injunction case (Civil Case No. B2333) and the CA in CA-G.R. SP No. 38182 were premised on SRRDCs
transfer certificates of title over the subject property. The trial court and the
CA cannot be faulted for denying the writ of injunction prayed for by
Amante, et al. since at the time the trial court rendered its decision in the
injunction case on January 20, 1992, SRRDC was still the holder of the titles
covering the subject property. The titles in its name were cancelled and
corresponding TCTs were issued in the name of the Republic of the
Philippines on February 11, 1992, and CLOAs were issued to the farmerbeneficiaries on February 26, 1992. When Amante, et al., in their motion for
reconsideration filed in CA-G.R. SP No. 38182, brought to the CAs attention
the issuance of the CLOAs, the CA, per Resolution dated January 19, 1995,
reiterated its ruling that whether or not the subject property is covered by
the Comprehensive Agrarian Reform Law (R.A. No. 6657) is the subject
matter of a separate case, and we cannot interfere with the same at the
present time. The CA further stated that (O)ur present decision is, therefore,
not intended to preempt any judgment or prejudice the right of any party in
the said case.[99] It must be noted that at that juncture, the DARAB Decision
and the CA decision in CA-G.R. SP No. 27234, finding the subject property
covered by the CARP Law, is yet to be finally resolved by this Court inG.R.
No. 112526 and in fact, a temporary restraining order was issued by the
Court on December 15, 1993, enjoining the DARAB from enforcing the
effects of the CLOAs. Amante, et al. was likewise restrained from further
clearing the subject property.[100] Hence, the decision of the trial court and
the CA denying the writ of injunction was warranted.
Nevertheless, considering that the subject property is agricultural and
may be acquired for distribution to farmer-beneficiaries identified by the
DAR under the CARP, the transfer certificates of title issued in the name of
the Republic of the Philippines and the CLOAs issued by the DAR in the
names of Amante, et al., [101] are valid titles and therefore must be upheld.By

virtue thereof, Amante, et al. who have been issued CLOAs are now
the owners of the subject property. Consequently, the decisions of the
trial court in the injunction case and the CA in CA-G.R. SP No. 38182 must
now be set aside, insofar as it orders Amante, et al. to vacate and/or enjoins
them from entering the subject property.
The Court, however, agrees with the CA that Amante, et al. is not
entitled to actual, moral and exemplary damages, as well as attorneys fees.
SRRDCs right of possession over the subject property was predicated on its
claim of ownership, and it cannot be sanctioned in exercising its rights or
protecting its interests thereon. As was ruled by the CA, Amante, et al. is
merely entitled to nominal damages as a result of SRRDCs acts. [102]
All is not lost in this case. In its Memorandum dated September 29,
1993, to the DAR Secretary, the DENR manifested that:
. . . the farmers themselves could be tapped to undertake watershed
management and protection. This community-based approach in natural
resource management, is in fact, being used in numerous watershed
management projects nationwide. Adopting the same approach in the area
is deemed the best possible solution to the case since it will not prejudice
the CLOAs issued to the farmer-beneficiaries. They should, however, be
required to undertake the necessary reforestation and other watershed
management/rehabilitation measures in the area.
In view of the foregoing, we recommend that a watershed management plan
for the area espousing the community-based approach be drawn-up jointly
by the DAR and DENR. . . .[103]
If SRRDC sincerely wants to preserve the property for ecological
considerations, it can be done regardless of who owns it. After all, we are all
stewards of this earth, and it rests on all of us to tend to it.
WHEREFORE, the Second Motion for Reconsideration is GRANTED. The
Courts Decision dated October 12, 2001 in G.R. No. 112526 is SET ASIDE and
the Decision of the Court of Appeals dated November 5, 1993 in CA-G.R. SP
No. 27234 is AFFIRMED with MODIFICATION, in that the Land Bank of the
Philippines is ordered to convert the trust account in the name of Sta. Rosa
Realty Development Corporation to a deposit account, subject to a 12%
interest per annum from the time the LBP opened a trust account up to the
time said account was actually converted into cash and LBP bonds deposit
accounts. The temporary restraining order issued by the Court on December
15, 1993, is LIFTED.
The petition filed by Amante, et al. in G.R. No. 118838 is GRANTED in
that Sta. Rosa Realty Development Corporation is hereby ENJOINED from
disturbing the peaceful possession of the farmer-beneficiaries with CLOAs.
The Decision of the Court of Appeals dated June 28, 1994 in CA-G.R. CV No.
38182 is AFFIRMED insofar as the award of nominal damages is concerned.
The Department of Environment and Natural Resources and the
Department of Agrarian Reform, in coordination with the farmer-beneficiaries
identified by the DAR, are URGED to formulate a community-based
watershed plan for the management and rehabilitation of Barangay Casile.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and CarpioMorales, JJ., concur.

on September 30, 1991, Department Circular No. 91-260, with the purpose
of minimizing or eliminating situations wherein multiple operators provide
local exchange service in a given area. Pursuant thereto, the National
Telecommunications Commission (NTC) was tasked to define the boundaries
of local exchange areas and authorize only one franchised local exchange
carrier to provide local exchange service within such areas.
Thereafter, on July 12, 1993, then President Fidel V. Ramos issued
Executive Order No. 109 entitled Local Exchange Carrier Service. Section 2
thereof provides that all existing International Gateway Facility (IGF)
operators[2] are required to provide local exchange carrier services in
unserved and underserved areas, including Metro Manila, thereby promoting
universal access to basic telecommunications service.

[G.R. No. 135992. July 23, 2004]

EASTERN
TELECOMMUNICATIONS
PHILIPPINES,
INC.
and
TELECOMMUNICATIONS TECHNOLOGIES, INC., petitioners, vs.
INTERNATIONAL
COMMUNICATION
CORPORATION,
respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The role of the telecommunications industry in Philippine progress and
development cannot be understated. Time was when the industry was
dominated by a few -- an oligarchy of sorts where the elite made the
decisions and serfdom had no choice but acquiesce. Sensing the need to
abrogate their dominion, the government formulated policies in order to
create an environment conducive to the entry of new players. Thus, in
October 1990, the National Telecommunications Development Plan 19912010 (NTDP) was formulated and came into being. Designed by the
Department of Transportation and Communications (DOTC), the NTDP
provides for the framework of government policies, objectives and strategies
that will guide the industrys development for the next 20 years. As
expected, with it came the increase in the demand for telecommunications
services, especially in the area of local exchange carrier service (LECS). [1]
Concomitantly, the DOTC issued guidelines for the rationalization of
local exchange telecommunications service. In particular, the DOTC issued

The NTC promulgated Memorandum Circular No. 11-9-93 on September

17, 1993 implementing the objectives of E.O. No. 109. [3] Section 3 of the
Circular mandates existing IGF operators to file a petition for the issuance of
Certificate of Public Convenience and Necessity (CPCN) to install, operate
and maintain local exchange carrier services within two years from
effectivity thereof. Section 4 further requires IGF operators to provide a
minimum of 300 local exchange lines per one international switch
termination and a minimum of 300,000 local exchange lines within three
years from grant of authority.
To cap the governments efforts, Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines, was
enacted on March 23, 1995. With regard to local exchange service, Section
10 thereof mandates an international carrier to comply with its obligation to
provide local exchange service in unserved or underserved areas within
three years from the grant of authority as required by existing regulations.
On September 25, 1995, the NTC issued the Implementing Rules and
Regulations for R.A. No. 7925 per its NTC MC No. 8-9-95.
Taking advantage of the opportunities brought about by the passage of
these laws, several IGF operators applied for CPCN to install, operate and
maintain local exchange carrier services in certain areas. Respondent
International Communication Corporation, now known as Bayan
Telecommunications Corporation or Bayantel, [4] applied for and was given by
the NTC a Provisional Authority (PA)[5] on March 3, 1995, to install, operate
and provide local exchange service in Quezon City, Malabon and Valenzuela,
Metro Manila, and the entire Bicol region. Meanwhile, petitioner
Telecommunications Technologies Philippines, Inc. (TTPI), as an affiliate of
petitioner Eastern Telecommunications Philippines, Inc. (ETPI), was granted
by the NTC a PA on September 25, 1996, to install, operate and maintain a
local exchange service in the Provinces of Batanes, Cagayan Valley, Isabela,
Kalinga-Apayao, Nueva Vizcaya, Ifugao, Quirino, the cities of Manila and
Caloocan, and the Municipality of Navotas, Metro Manila.
It appears, however, that before TTPI was able to fully accomplish its
rollout obligation, ICC applied for and was given a PA by the NTC on
November 10, 1997, to install, operate and maintain a local exchange
service in Manila and Navotas, [6] two areas which were already covered by
TTPI under its PA dated September 25, 1996.

Aggrieved, petitioners filed a petition for review with the Court of

Appeals with application for a temporary restraining order and a writ of
preliminary injunction, docketed as CA-G.R. SP No. 46047, arguing that the
NTC committed grave abuse of discretion in granting a provisional authority
to respondent ICC to operate in areas already assigned to TTPI.
On April 30, 1998, the Court of Appeals dismissed [7] the petition for
review on the ground that the NTC did not commit any grave abuse of
discretion in granting the PA to TTPI. It sustained the NTCs finding that ICC is
legally and financially competent and its network plan technically feasible.
The Court of Appeals also ruled that there was no violation of the equal
protection clause because the PA granted to ICC and TTPI were given under
different situations and there is no point of comparison between the two. [8]
Hence, the present petition for review on certiorari, raising the following
issues:
I
Whether or not the Honorable Court of Appeals committed a serious error of
law in upholding the Order of the NTC granting a PA to Respondent to
operate LEC services in Manila and Navotas which are areas already
assigned to petitioner TTPI under a prior and subsisting PA.
II
Whether or not Petitioner is entitled to a Writ of Preliminary Injunction to
restrain Respondent from installing LEC services in the areas granted to it by
the Order under review.[9]
In support thereof, petitioners posit the following arguments:
(1) The assignment to ICC of areas already allocated to TTPI violates the
Service Area Scheme (SAS), which is the guidepost of the laws and
issuances governing local exchange service;
(2) ICC did not make any showing that an existing operator, TTPI in this
case, failed to comply with the service performance and technical standards
prescribed by the NTC, and that the area is underserved, as required under
Section 23 of MC No. 11-9-93;
(3) The facts and figures cited by the NTC, i.e., ICCs alleged remarkable
performance in fulfilling its rollout obligation and the growth rate in the
installation of telephone lines in Manila and Navotas, do not justify the grant
of the PA in favor of ICC, nor are they supported by the evidence on record
as these were not presented during the proceedings before the NTC;
(4) ICC did not comply with the requirement of prior consultation with
the NTC before it filed its application, in violation of Sections 3 and 3.1 of MC
11-9-93;
(5) ICC did not comply with Section 27 of MC 11-9-93 requiring that an
escrow deposit be made equivalent to 20% and a performance bond
equivalent to 10% of the investment required for the first two years of the
project;

(6) ICC is not financially and technically capable of undertaking the

project;
(7) The grant of a PA in favor of ICC to operate in areas covered by TTPI
will render it difficult for the latter to cross-subsidize its operations in less
profitable areas covered by it and will threaten its viability to continue as a
local exchange operator.[10]
After a review of the records of this case, the Court finds no grave
abuse of discretion committed by the Court of Appeals in sustaining the
NTCs grant of provisional authority to ICC.
The power of the NTC to grant a provisional authority has long been
settled. As the regulatory agency of the national government with
jurisdiction over all telecommunications entities, it is clothed with authority
and given ample discretion to grant a provisional permit or authority. [11] It
also has the authority to issue Certificates of Public Convenience and
Necessity (CPCN) for the installation, operation, and maintenance of
communications facilities and services, radio communications systems,
telephone and telegraph systems, including the authority to determine the
areas of operations of applicants for telecommunications services. [12] In this
regard, the NTC is clothed with sufficient discretion to act on matters solely
within its competence.[13]
In granting ICC the PA to operate a local exchange carrier service in the
Manila and Navotas areas, the NTC took into consideration ICCs financial and
technical resources and found them to be adequate. The NTC also noted
ICCs performance in complying with its rollout obligations under the previous
PA granted to it, thus:
With the proven track record of herein applicant as one of the pacesetters in
carrying out its landlines commitment in its assigned areas, applicant can
best respond to public demand for faster installation of telephone lines in
Manila and Navotas.
The grant of this application is, therefore, a fitting recognition that should be
accorded to any deserving applicant, such as herein applicant ICC whose
remarkable performance in terms of public service as mandated by
Executive Order 109 and Republic Act No. 7925 has persuaded this
Commission to affix the stamp of its approval.[14]
The Court will not interfere with these findings of the NTC, as these are
matters that are addressed to its sound discretion, being the government
agency entrusted with the regulation of activities coming under its special
and technical forte.[15] Moreover, the exercise of administrative discretion is
a policy decision and a matter that can best be discharged by the
government agency concerned, and not by the courts.[16]
Petitioner insists compliance with the service area scheme (SAS)
mandated by DOTC Dept. Circular No. 91-260, to wit:
1. The National Telecommunications Commission (NTC) shall define
the boundaries of local exchange areas, and shall
henceforth authorize only one franchised Local Exchange

Carrier (LEC) to provide LEC service within such areas.

The Court is not persuaded. Said department circular was issued by the
DOTC in 1991, before the advent of E.O. No. 109 and R.A. No. 7925. When
E.O. No. 109 was promulgated in 1993, and R.A. No. 7925 enacted in 1995,
the service area scheme was noticeably omitted therefrom. Instead, E.O. No.
109 and R.A. No. 7925 adopted a policy of healthy competition among the
local exchange carrier service providers.
The need to formulate new policies is dictated by evolving goals and
demands in telecommunications services. Thus, E.O. No. 109 acknowledges
that there is a need to promulgate new policy directives to meet the targets
of Government through the National Telecommunications Development Plan
(NTDP) of the Department of Transportation and Communications (DOTC),
specifically:
(1)
to
ensure
the
orderly
development
of
the
telecommunications sector through the provision of service to all areas of
the country; (2) to satisfy the unserviced demand for telephones; and (3) to
provide healthy competition among authorized service providers. Likewise,
one of the national policies and objectives of R.A. No. 7925 is to foster the
improvement and expansion of telecommunications services in the country
through a healthy competitive environment, 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. [17]
Recently, in Pilipino Telephone Corporation vs. NTC,[18] the Court
had occasion to rule on a case akin to the present dispute, involving the
same respondent ICC, and the Pilipino Telephone Corporation (Piltel). In the
Piltel case, ICC applied for a provisional authority to operate a local
exchange service in areas already covered by Piltel, which includes Misamis
Occidental, Zamboanga del Sur, Davao del Sur, South Cotabato and
Saranggani. Piltel opposed ICCs application but the NTC denied it, and
granted ICCs application. The Court of Appeals dismissed Piltels petition for
review, and on certiorari before this Court, we affirmed the dismissal. The
Court found that the NTC did not commit any grave abuse of discretion when
it granted the ICC a provisional authority to operate in areas covered by
Piltel. We held:
We will not disturb the factual findings of the NTC on the technical and
financial capability of the ICC to undertake the proposed project. We
generally accord great weight and even finality to factual findings of
administrative bodies such as the NTC, if substantial evidence supports the
findings as in this case. The exception to this rule is when the administrative
agency arbitrarily disregarded evidence before it or misapprehended
evidence to such an extent as to compel a contrary conclusion had it
properly appreciated the evidence. PILTEL gravely failed to show that this
exception applies to the instant case. Moreover, the exercise of
administrative discretion, such as the issuance of a PA, is a policy decision
and a matter that the NTC can best discharge, not the courts.
PILTEL contends that the NTC violated Section 23 of NTC Memorandum
Circular No. 11-9-93, otherwise known as the Implementing Guidelines on
the Provisions of EO 109 which states:

Section 23. No other company or entity shall be authorized to provide local

exchange service in areas where the LECs comply with the relevant
provisions of MTC MC No. 10-17-90 and NTC MC No. 10-16-90 and that the
local exchange service area is not underserved. (Emphasis supplied)
Section 23 of EO 109 does not categorically state that the issuance of a PA is
exclusive to any telecommunications company. Neither Congress nor the
NTC can grant an exclusive franchise, certificate, or any other form of
authorization to operate a public utility. In Republic v. Express
Telecommunications Co., the Court held that the Constitution is quite
emphatic that the operation of a public utility shall not be exclusive. Section
11, Article XII of the Constitution provides:
Sec. 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when
the common good so requires. xxx (Emphasis supplied)
Thus, in Radio Communications of the Philippines, Inc. v. National
Telecommunications Commission, the Court ruled that the Constitution
mandates that a franchise cannot be exclusive in nature.
...
Among the declared national policies in Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines, is the
healthy competition among telecommunications carriers, to wit:
Obviously, the need for a healthy competitive environment in
telecommunications is sufficient impetus for the NTC to consider all those
applicants, who are willing to offer competition, develop the market and
provide the environment necessary for greater public service.
Furthermore, free competition in the industry may also provide the answer
to a much-desired improvement in the quality and delivery of this type of
public utility, to improved technology, fast and handy mobil[e] service, and
reduced user dissatisfaction.
PILTELs contention that the NTC Order amounts to a confiscation of property
without due process of law is untenable. Confiscation means the seizure of
private property by the government without compensation to the owner. A
franchise to operate a public utility is not an exclusive private property of
the franchisee. Under the Constitution, no franchisee can demand or acquire
exclusivity in the operation of a public utility. Thus, a franchisee of a public
utility cannot complain of seizure or taking of property because of the
issuance of another franchise to a competitor. Every franchise, certificate or
authority to operate a public utility is, by constitutional mandate, nonexclusive. PILTEL cannot complain of a taking of an exclusive right that it
does not own and which no franchisee can ever own.
Likewise, PILTELs argument that the NTC Order violates PILTELs rights as a
prior operator has no merit. The Court resolved a similar question in
Republic v. Republic Telephone Company, Inc. In striking down Retelcos
claim that it had a right to be protected in its investment as a franchiseholder and prior operator of a telephone service in Malolos, Bulacan, the

Court held:
RETELCOs foremost argument is that such operations and maintenance of
the telephone system and solicitation of subscribers by [petitioners]
constituted an unfair and ruinous competition to the detriment of [RETELCO
which] is a grantee of both municipal and legislative franchises for the
purpose. In effect, RETELCO pleads for protection from the courts on the
assumption that its franchises vested in it an exclusive right as prior
operator. There is no clear showing by RETELCO, however, that its franchises
are of an exclusive character. xxx At any rate, it may very well be pointed
out as well that neither did the franchise of PLDT at the time of the
controversy confer exclusive rights upon PLDT in the operation of a
telephone system. In fact, we have made it a matter of judicial notice that all
legislative franchises for the operation of a telephone system contain the
following provision:
It is expressly provided that in the event the Philippine Government should
desire to maintain and operate for itself the system and enterprise herein
authorized, the grantee shall surrender his franchise and will turn over to the
Government said system and all serviceable equipment therein, at cost, less
reasonable depreciation.[19]
Similarly in this case, the grant of a PA to ICC to operate in areas
covered by TTPI is not tainted with any grave abuse of discretion as it was
issued by the NTC after taking into account ICCs technical and financial
capabilities, and in keeping with the policy of healthy competition fostered
by E.O. No. 109 and R.A. No. 7925.
In addition, Section 6 of R.A. No. 7925 specifically limits the DOTC from
exercising any power that will tend to influence or effect a review or a
modification of the NTCs quasi-judicial functions, to wit:
Section 6. Responsibilities of and Limitations to Department Powers. -- The
Department of Transportation and Communications (Department) shall not
exercise any power which will tend to influence or effect a review or a
modification of the Commissions quasi-judicial function.
The power of the NTC in granting or denying a provisional authority to
operate a local exchange carrier service is a quasi-judicial function, [20] a
sphere in which the DOTC cannot intrude upon. If at all, the service area
scheme provided in DOTC Dept. Circular No. 91-260 is only one of the
factors, but should not in any way, tie down the NTC in its determination of
the propriety of a grant of a provisional authority to a qualified applicant for
local exchange service.
True, NTC MC No. 11-9-93 requires prior consultation with the NTC of the
proposed service areas. As petitioners themselves argue, prior consultation
allows the NTC to assess the impact of the proposed application on the
viability of the local exchange operator in the area desired by the would-be
applicant and on the viability of the entire telecommunications industry as
well as rationalize the plans to minimize any adverse impact. [21] In this case,
prior consultation was substantially complied with and its purpose
accomplished, when ICC filed its application and the NTC was given the
opportunity to assess ICCs viability to render local exchange service in the
Manila and Navotas areas, and its impact on the telecommunications

industry.
It is also true that NTC MC No. 8-9-95 allows a duly enfranchised entity
to maintain a local exchange network if it is shown that an existing
authorized local exchange operator fails to satisfy the demand for local
exchange service.[22] In this case, the NTC noted the increasing rate in the
demand for local lines within the Manila and Navotas areas, and in order for
these areas to catch up with its neighboring cities, installation of lines must
be sped up.[23] This, in fact, is tantamount to a finding that the existing local
exchange operator failed to meet the growing demand for local lines.
ICCs technical and financial capabilities, as well as the growth rate in
the number of lines in particular areas, are matters within NTCs competence
and should be accorded respect. The NTC is given wide latitude in the
evaluation of evidence and in the exercise of its adjudicative functions, and
this includes the authority to take judicial notice of facts within its special
competence.[24]
TTPI anticipates that allowing ICC to enter its service areas will make it
difficult for it to cross-subsidize its operations in the less profitable areas.
Such argument, however, is futile. The cross-subsidy approach is apparently
the governments response to the foreseen situation wherein given its policy
of universal access, a local exchange provider will find itself operating in
areas where the demand and the publics capacity to subscribe will be lesser
than in other areas, making these areas more of a liability than an asset.
Thus, Section 4 of E.O. No. 109 provides:
SEC. 4. Cross-Subsidy. Until universal access to basic
telecommunications is achieved, and such service is
priced to reflect actual costs, local exchange service
shall continue to be cross-subsidized by other
telecommunications services within the same
company.
Meanwhile, NTC MC No. 8-9-95 provides:
ACCESS CHARGES
GENERAL
(a) Until the local exchange service is priced reflecting actual costs,
the local exchange service shall be cross-subsidized by
other telecommunications services.
(c) The subsidy need by the LE service operator to earn a rate of
return at parity with other segments of telecommunications
industry shall be charged against the international and
domestic toll and CMTS interconnect services.[25]
Both issuances allow a local exchange operator to cross-subsidize its
operations from its other telecommunications services, and not solely on the
revenues derived from the operators local exchange service.
Notably, R.A. No. 7617, as amended by R.A. No. 7674, grants TTPI the
legislative franchise to install, operate and maintain telecommunications
systems throughout the Philippines but not limited to the operations of local

exchange service or public switched network, public-calling stations, interexchange carrier or national toll transmission, value-added or enhanced
services intelligent networks, mobile or personal communications services,
international gateway facility, and paging services, among others. [26] From
these services, TTPI has other sources of revenue from which it may crosssubsidize its local exchange operations.
The Court, however, agrees with petitioners that the NTC erred when it
failed to require ICC to make an escrow deposit and a performance bond.
Section 27 of NTC MC No. 11-9-93 specifically provides:
SEC. 27. Authorized public telecommunications carriers shall be
required to deposit in escrow in a reputable bank
20% of the investment required for the first two
years of the implementation of the proposed
project.
In addition to escrow, the authorized public
telecommunications carriers shall be required to
post a performance bond equivalent to 10% of
the investment required for the first two years of the
approved project but not to exceed P500 Million.
The performance bond shall be forfeited in favor of
the government in the event that the authorized PTC
fail to comply with the terms and conditions of the
authority granted. (Emphases Ours)
The escrow deposit and the posting of a performance bond are required in
each proposed and approved project of a local exchange operator. Project
refers to a planned undertaking.[27]ICCs project for local exchange service in
the Manila and Navotas areas is separate and distinct from its projects in
other areas; hence, the NTC should have directed ICC to submit such
requirements. Evidently, the escrow deposit is required to ensure that there
is available money on hand to defray ICCs expenditures for its project, while
the performance bond will answer for the faithful compliance and
performance of ICCs rollout obligation and to compensate the government
for any damages incurred in case of ICCs default. Without these, the
government will be left holding an empty bag in the event ICC reneges in its
rollout obligation.
Section 27 of NTC MC No. 11-9-93 is silent as to whether the posting of
an escrow deposit and performance bond is a condition sine qua non for the
grant of a provisional authority. While the provision uses the term shall, said
directive pertains to the NTC, which shall require the public
telecommunications carrier to make such deposit and posting. In any event,
records show that as of May 20, 2004, ICC has been granted an extension of
its provisional authority up to November 10, 2006. [28] Records also show that
ICC has already been providing local exchange carrier service in the areas
concerned, having installed 16,000 lines in the City of Manila, 12,000 of
which have already been subscribed, 624 lines in Caloocan City, all of which
have been subscribed, while the roll-out plan for facilities and provisioning in
the City of Navotas is being finalized. [29] Hence, so as not to disrupt ICCs
rollout plan compliance, it would be more judicious for the Court to merely

require ICC to comply with Section 27 of NTC MC No. 11-9-93, within such
period to be determined by the NTC.
Furthermore, it is well to stress that petitioner TTPI cannot claim any
exclusive right to render telecommunications service in areas which the NTC
considers to be in need of additional providers. R.A. No. 7925 is quite
emphatic on this score, viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry. Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso factobecome part of
previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises:
Provided, however, That the foregoing shall neither apply to nor affect
provisions of telecommunications franchises concerning territory
covered by the franchise, the life span of the franchise, or the type of
service authorized by the franchise. (Emphasis Ours)
More than anything else, public service should be the primordial
objective of local exchange operators. The entry of another provider in areas
covered by TTPI should pose as a challenge for it to improve its quality of
service. Ultimately, it will be the public that will benefit. As pointed out in
Republic of the Phils. vs. Rep. Telephone Co, Inc.:[30]
Free competition in the industry may also provide the answer to a muchdesired improvement in the quality and delivery of this type of public utility,
to improved technology, fast and handy mobil service, and reduced user
dissatisfaction. After all, neither PLDT nor any other public utility has a
constitutional right to a monopoly position in view of the Constitutional
proscription that no franchise certificate or authorization shall be exclusive
in character or shall last longer than fifty (50) years (ibid., Section 11; Article
XIV, Section 5, 1973 Constitution; Article XIV, Section 8, 1935 Constitution).
WHEREFORE, the petition for review on certiorari is PARTIALLY
GRANTED. The Order of the National Telecommunications Commission dated
November 10, 1997 in NTC Case No. 96-195 is AFFIRMED with the following
modifications:
Respondent International Communication Corporation, in accordance
with Section 27 of NTC MC No. 11-9-93, is required to:
(1) Deposit in escrow in a reputable bank 20% of the investment
required for the first two years of the implementation of the
proposed project; and
(2) Post a performance bond equivalent to 10% of the investment
required for the first two years of the approved project but
not to exceed P500 Million.
within such period to be determined by the National Telecommunications
Commission.
No pronouncement as to costs.
SO ORDERED.

Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

[G.R. No. 101974*. July 12, 2001]

VICTORIA P. CABRAL, petitioner, vs. THE HONORABLE COURT OF

APPEALS, HON. ELIGIO P. PACIS, REGIONAL DIRECTOR,
REGION III, DEPARTMENT OF AGRARIAN REFORM, FLORENCIO
ADOLFO, GREGORIO LAZARO, GREGORIA ADOLFO and ELIAS
POLICARPIO, respondents.
DECISION
KAPUNAN, J.:

On January 16, 1990, petitioner Victoria Cabral filed a petition before

the Barangay Agrarian Reform Council (BARC) for the cancellation of the
Emancipation Patents and Torrens Titles issued in favor of private
respondents. The patents and titles covered portions of the property owned
and registered in the name of petitioner.

(a) THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT

THE DAR REGIONAL DIRECTOR OF REGION III ACTED WITH
JURISDICTION WHEN IT TOOK COGNIZANCE OF AND RESOLVED
THE CONVERSION APPLICATION AND/OR CANCELLATION OF
CLT/EP PETITION OF PETITIONER-APPELLANT;

Petitioner alleged therein that she was the registered owner of several
parcels of land covered by Original Certificate of Title (OCT) No. 0-1670 of
the Registry of Deeds of Bulacan, [1] among which is a parcel of land
described therein as Lot 4 of Plan Psu-164390. The petition further averred
that as early as July 1973, petitioner applied with the Department of
Agrarian Reform (DAR) for the reclassification or conversion of the land for
residential, commercial or industrial purposes. The application for
conversion, however, was not acted upon. Instead, on April 25, 1988,
Emancipation Patents, and, thereafter, Transfer Certificates of Title, were
issued in favor of private respondents.

(b) THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING

THAT OUTSIDE OF THE BARANGAY AGRARIAN REFORM
COMMITTEE (BARC), IT IS THE DEPARTMENT OF AGRARIAN
REFORM
ADJUDICATION
BOARD
(DARAB)
THAT
HAS
JURISDICTION OVER AGRARIAN REFORM CASES, DISPUTES OR
CONTROVERSIES;

Petitioner sought the cancellation of the TCTs on the grounds that:

petitioner had a pending application for conversion and reclassification; the
lots covered by the emancipation patents included areas not actually tilled
by private respondents; private respondents had illegally transferred their
rights over the parcels of land covered by the emancipation patents; private
respondents are deemed to have abandoned their rights over the properties;
and the subject property was taken without just compensation.
On January 19, 1990, petitioner filed with the DAR itself another petition
for the cancellation of the same Emancipation Patents and Torrens Titles.
On January 29, 1990, petitioner received a letter from the Municipal
Agrarian Reform Office (MARO) of Sta. Maria, Bulacan, stating, among other
things, that in order that your petition be given due process by this Office,
your petition will be forwarded to the legal section of this office for legal
action.
On February 11, 1990, Regional Director Eligio Pacis issued an order
dismissing the petition[2] for cancellation of Emancipation Patents, thus:
WHEREFORE, premises considered, this Office hereby orders the DISMISSAL
of the petition of Victoria P. Cabral for lack of legal and factual basis likewise,
this office request[s] that the annotation of the notice of lis pendens on the
original copies of Emancipation Patents issued to petitioners covering the
subject landholdings be CANCELLED by the Office of the Register of Deeds
concerned.
SO ORDERED.[3]
The Regional Director likewise denied petitioners motion for
reconsideration dated July 11, 1990. Consequently, petitioner filed a petition
for certiorari in the Court of Appeals questioning the jurisdiction of the
Regional Director and claiming denial of due process. On January 8, 1991,
the appellate court dismissed the petition for lack of merit. Petitioners
motion for reconsideration was likewise denied, prompting petitioner to turn
to this Court for relief, alleging that:

(c) THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER WAS NOT DENIED DUE PROCESS AS ALLEGEDLY
SHE LOST HER OPPORTUNITY TO BE HEARD AFTER THE JUNE 27,
1990 HEARING.[4]On April 21, 1993, petitioner filed with this Court an urgent motion for
the issuance of a temporary restraining order. Petitioner alleged that private
respondent Gregoria Adolfo had conveyed the land awarded to her to the
Aqualand Development Corporation and the Sta. Rita Steel Resources
Corporation. These corporations, in turn,
x x x converted the parcel of land from agricultural to commercial and
industrial and have constructed high adobe stone walls[,] commenced the
construction of a steel finishing plant and other structures for the
manufacture of steel products[,] and are putting in place more installations
to complete all facilities necessary for their business. As a matter of fact,
they have just applied for a building permit for the construction of a two (2)
storey office condominium/business office building. xxx [5]
In a Resolution dated May 17, 1993, the Court issued the temporary
restraining order prayed for. The Court enjoined Sta. Rita Steel Resources
and Aqualand Development Corporation, its officers, agents, representatives
and/or persons acting in their place or stead from continuing the
construction of building and the like on the landholding of petitioner,
pending final resolution of the petition.[6]
Petitioner contended before the Court of Appeals that jurisdiction over
the case pertained to the Department of Agrarian Reform Agrarian Board
(DARAB), not the Regional Director. Addressing this argument, the Court of
Appeals held in its Decision:
Relevant to the issue raised is Ministry Administrative Order No. 2-85, Series
of 1985, effective July 24, 1985 (Annex 2, Comment) which empowers all
DAR Regional Directors to hear and decide cases which include the issuance
of Decisions/Resolutions, the recall and cancellation of Certificates of Land
Transfers (CLTs) if such is the necessary consequence of the facts and
circumstances of the case.
A later directive, DAR Memo Cir. No. 5, Series of 1987 (Annex 3, Comment),
clothed the Regional Directors as titular regional heads, with powers to hear
and resolve cases involving lands in their respective jurisdiction in order to

achieve the expanded and comprehensive agrarian reform program of the

present administration, and to tackle the issue of huge number and
increasing backlog or unresolved cases in the DAR Central Office.
Additionally, a memorandum dated September 14, 1987 (Annex 4,
Comment) addressed to the Director, Bureau of Land Acquisition
Development, by the then Director, Bureau of Agrarian Legal Assistance,
contains a decisive opinion regarding the question on order of cancellation
issued by the Regional Director, DAR Region III, to wit:
The Regional Director is now authorized to hear/investigate and hereby
resolve cases arising from the implementation of CLT pursuant to PD 27 and
amendatory and related decrees and letter of instructions, rules and
regulations as well as conflict of claim in landed estates and resettlement
areas and such other lands as have been placed under the administration
and disposition of this Department.[7]
In its Resolution dated September 17, 1991, the Court of Appeals also
made reference to Section 13 of Executive Order No. 129-A, which
authorized the delegation of the adjudication of agrarian reform cases to
regional offices. It further cited certain provisions of the DARAB Revised
Rules of Procedure providing for, among others, delegated jurisdiction, and
concluded that:

Reorganizing and Strengthening Department of Agrarian Reform and for

other purposes)[10] subsequently provided for the creation of the Agrarian
Reform Adjudicatory Board, granting it the powers and functions with
respect to the adjudication of agrarian reform cases:
SECTION 13. Agrarian Reform Adjudication Board. There is hereby created an
Agrarian Reform Adjudication Board under the Office of the Secretary. The
Board shall be composed of the Secretary as Chairman, two (2)
Undersecretaries as may be designated by the Secretary, the Assistant
Secretary for Legal Affairs, and three (3) others to be appointed by the
President upon recommendation of the Secretary as members. A Secretariat
shall be constituted to support the Board. The Board shall assume the
powers and functions with respect to the adjudication of agrarian reform
cases under Executive Order No. 229 and this Executive Order. These
powers and functions may be delegated to the regional office of the
Department in accordance with the rules and regulations promulgated by
the Board.
Congress substantially reiterated Section 17 of E.O. No. 229 in Republic
Act No. 6657, otherwise known as the Comprehensive Agrarian Law of 1988
(CARL).[11] Section 50 thereof states:

x x x the Regional Director cannot be faulted with assuming jurisdiction over

the case, considering that the powers and functions of the DARAB may be
delegated to the regional office x x x.
While it is true that the jurisdiction is vested with the DARAB, the Regional
Director took cognizance of the instant case invoking the delegated powers
and functions upon him.[8]

Section 50. Quasi-Judicial Powers of the DAR. The DAR is hereby vested with
primary jurisdiction to determine and adjudicate agrarian reform matters
and shall have exclusive original jurisdiction over all matters involving the
implementation of agrarian reform, except those falling under the exclusive
jurisdiction of the Department of Agriculture (DA) and the Department of
Environment and Natural Resources (DENR).

Evidently, the DARAB, in the Court of Appeals view, had concurrent

jurisdiction with the Regional Director over the case. Petitioner, on the other
hand, maintains that the jurisdiction of the DARAB isexclusive of the DAR
Regional Director.

xxx
CARL took effect on June 15, 1988, after it was published in two newspapers
of general circulation.

Petitioner is correct. Whatever jurisdiction the Regional Director may

have had over the cancellation of emancipation patents, it lost with the
passage of subsequent laws.

In order to achieve a just, expeditious and inexpensive determination of

every action or proceeding before it, the DAR is mandated to adopt a
uniform rule of procedure (Second par., Section 50, R.A. No. 6657), which is,
at present, the DARAB Revised Rules.[12] The Rules were promulgated on
December 26, 1988.

Section 17 of Executive Order No. 229 (Providing for the Mechanism for
the Implementation of the Comprehensive Agrarian Reform Program) [9]
granted DAR quasi-judicial powers to adjudicate agrarian reform matters,
thus:
Section 50. Quasi-Judicial Powers of the DAR. The DAR is hereby vested with
quasi-judicial powers to determine and adjudicate agrarian reform matters,
and shall have exclusive original jurisdiction over all matters involving
implementation of agrarian reform, except those falling under the exclusive
jurisdiction of the Department of Agriculture (DA) and the Department of
Environment and Natural Resources (DENR).
xxx
Executive Order No. 129-A (Modifying Executive Order No. 129

The provisions of Rule II (Jurisdiction of the Adjudication Board) of the

Revised Rules read:
SECTION 1. Primary, Original and Appellate Jurisdiction. The Agrarian Reform
Adjudication Board shall have primary jurisdiction, both original and
appellate, to determine and adjudicate all agrarian disputes, cases,
controversies, and matters or incidents involving the implementation of the
Comprehensive Agrarian Reform Program under Republic Act No. 6657,
Executive Order Nos. 229, 228 and 129-A, Republic Act No. 3844 as
amended by Republic Act No. 6389, Presidential Decree No. 27 and other
agrarian laws and their implementing rules and regulations.
Specifically, such jurisdiction shall extend over but not be limited to the
following:

a) Cases involving the rights and obligations of persons engaged in the

cultivation and use of agricultural land covered by the Comprehensive
Agrarian Reform Program (CARP) and other agrarian laws;
b) Cases involving the valuation of land, and determination and payment of
just compensation, fixing and collection of lease rentals, disturbance
compensation, amortization payments, and similar disputes concerning the
function of the Land Bank;
c) Cases involving the annulment or cancellation of orders or decisions of
DAR officials other than the Secretary, lease contracts or deeds of sale or
their amendments under the administration and disposition of the DAR and
LBP;
d) Cases arising from, or connected with membership or representation in
compact farms, farmers cooperatives and other registered farmers
associations or organizations, related to land covered by the CARP and other
agrarian laws;
e) Cases involving the sale, alienation, mortgage, foreclosure, pre-emption
and redemption of agricultural lands under the coverage of the CARP or
other agrarian laws;
f) Cases involving the issuance of Certificate of Land Transfer (CLT),
Certificate of Land Ownership Award (CLOA) and Emancipation Patent (EP)
and the administrative correction thereof;
g) And such other agrarian cases, disputes, matters or concerns referred to
it by the Secretary of the DAR.
Provided, however, that matters involving strictly the administrative
implementation of the CARP and other agrarian laws and regulations, shall
be the exclusive prerogative of and cognizable by the Secretary of the DAR.
SECTION 2. Delegated Jurisdiction. The Regional Agrarian Reform
Adjudicators (RARAD) and the Provincial Agrarian Reform Adjudicators
(PARAD) are empowered and authorized to receive, hear, determine and
adjudicate all agrarian cases and disputes, and incidents in connection
therewith, arising within their respective territorial jurisdiction.
SECTION 3. Functional Relationships. The Board shall exercise functional
supervision over the RARADs; and the PARADs. For administrative purposes,
however, the RARADs and the PARADs are deemed to form part of the DAR
Regional Office where they are stationed, and as such, shall be given
administrative support by their respective Regional and Provincial offices, in
terms of office space, personal services, equipment and supply, and other
facilities.
SECTION 4. Role of the RARAD. The RARAD shall be the Executive
Adjudicator in his region directly responsible to the Board. As such, he shall
coordinate and monitor the work of the PARADs in his region and see to it
that their dockets do not remain clogged. He shall receive, hear, and
adjudicate the following cases:
a) Cases that cannot be handled by the PARAD on account of inhibition or
disqualification;
b) Cases brought directly before him which for some cogent reason, cannot
be properly handled by the PARAD concerned;
c) Cases of such complexity and sensitivity that the decision thereof would
constitute an important precedent affecting regional or national interest; and
d) Such other cases which the Board may assign to him.
SECTION 5. Appellate Jurisdiction. The Board shall have exclusive appellate

jurisdiction to review, reverse, modify, alter or affirm resolutions, orders,

decisions, and other dispositions of its RARAD and PARAD.
SECTION 6. Enforcement Powers. The members of the Board and its RARADs
and PARADs are empowered to summon witnesses, administer oaths, take
testimony, require submission of reports, compel production of books and
documents and answers to interrogatories, and to issue subpoena,
subpoena duces tecum, writs of possession, writs of execution and other
writs to enforce its orders and decisions thru sheriffs or duly deputized
officers.
For such purpose, whenever necessary, it may call upon the police and
military authorities for assistance in the enforcement and execution of its
decisions, orders, writs and other processes.
In Department of Agrarian Reform Adjudication Board vs. Court of
Appeals,[13] this Court observed that:
x x x the DARs exclusive original jurisdiction [as set forth in Section 50 of the
CARL] is exercised through hierarchically arranged agencies, namely, the
DARAB, RARAD and PARAD. The latter two exercise delegated authority,
while the first exercises appellate jurisdiction over resolutions, orders,
decisions and other dispositions of the RARAD and the PARAD.
On the other hand, Executive Order 129-A, in Section 24 thereof,
defines the functions of the Regional Offices as follows:
SECTION 24. Regional Offices. The Department shall have twelve (12)
Regional Offices. Each Regional Office shall be headed by a Regional Director
who shall be assisted by an Assistant Regional Director for Operations and
an Assistant Regional Director for Administration.
The Regional Offices shall be responsible for the implementation of laws,
policies, plans, programs, projects, rules and regulations of the Department
in its administrative region. For such purposes, it shall have the following
functions.
a) Prepare and submit plans and programs for the regions on:
1)
2)
3)
4)

Land acquisition and distribution;

Information and education;
Land use management and land development;
Agrarian reform beneficiaries development;
b) Provide technical assistance to Provincial Offices and Municipal
Agrarian Reform Offices in the implementation of approved
plans and programs;
c) Conduct operations research and evaluation of agrarian reform
implementation within the region;
d) Coordinate with other government and private agencies and
farmers and farm workers organizations at the regional level, to
carry out programs/projects for the general welfare of agrarian
reform beneficiaries;
e) Maintain an information system in coordination with the

established monitoring system;

f) Review and evaluate reports and other documents submitted by
the Provincial Offices and Municipal Agrarian Reform Offices and
agrarian reform clientele;
g) Submit periodic feedback as may be necessary in the service of
the Departments clientele.
In addition, the Revised Administrative Code of 1987, in Chapter 5 (Field
Offices), Book IV (The Executive Branch) thereof, provides:
SEC. 26. Functions of a Regional Office. (1) A regional office shall:
(a) Implement laws, policies, plans, programs, rules and regulations of the
department or agency in the regional area;
(b) Provide economical, efficient and effective service to the people in the
area;
(c) Coordinate with regional offices of other departments, bureaus and
agencies in the area;
(d) Coordinate with local government units in the area; and
(e) Perform such other functions as may be provided by law.
(2) x x x
SEC. 27. Duties of a Regional Director. The Regional Director shall:
(1) Implement laws, policies, rules and regulations within the responsibility
of the agency;
(2) Implement agency programs in the region;
(3) Exercise the management functions of planning, organizing, directing
and controlling;
(4) Appoint personnel to positions in the first level and casual and seasonal
employees; and exercise disciplinary actions over them in accordance with
the Civil Service Law;
(5) Approve sick, vacation and maternity leaves of absence with or without
pay, for a period not beyond one year;
(6) Prepare and submit budget proposals for the region to the central office,
administer the budget of the regional office, authorize disbursement of funds
pursuant to approved financial and work programs, and administer the
budget control machinery in the region;
(7) Approve requisition for supplies, materials and equipment, as well as
books and periodicals, and other items for the region, in accordance with the
approved supply procurement program;
(8) Negotiate and enter into contracts for services or furnishing supplies,
materials and equipment to the regional office involving an amount not
exceeding fifty thousand pesos (P50,000.00) within a given quarter,
provided that authority in excess of fifty thousand pesos (P50,000.00) may
be further authorized by the proper department or agency head;
(9) Approve claims for benefits under existing laws;
(10) Approve requests for overtime services;
(11) Promote coordination among regional offices, and between his regional
office and local government units in the region;
(12) Provide housekeeping services for the regional office;
(13) Approve application of personnel for permission to teach, exercise a
profession, or engage in business outside of office hours, in accordance with

standards and guidelines of the Civil Service Commission;

(14) Issue travel vouchers authorizing employees to travel on official days
within the region for a period not exceeding thirty days;
(15) Approve attendance of personnel in conferences, seminars, and nondegree training programs within the region;
(16) Authorize the allocation of funds to provincial/district offices; and
(17) Perform such other duties and functions as may be provided by law or
further delegated by the head of agency or other proper authorities
concerned.
Title XI of Book IV of the same Code, dealing specifically with the
Department of Agrarian Reform, provides:
SEC. 18. Regional Office. The Regional Office shall be responsible for
supporting the field units and supervising program implementation of the
Department within the region. It shall:
(1) Implement laws, policies, plans, rules and regulations of the Department
in the regional area;
(2) Develop and implement a regional personnel management program;
(3) Prepare, submit, execute and control the budget of the region;
(4) Prepare and properly maintain books of accounts;
(5) Pay salaries and wages and other approved vouchers;
(6) Provide administrative services to the regional and provincial offices;
(7) Prepare and submit plans and programs for the region on:
a. land tenure development
b. information and education
c. land use management and land development
d. legal services
e. agrarian reform beneficiaries development
(8) Provide technical assistance to the provincial offices and agrarian reform
teams in the implementation of approved plans and programs;
(9) Extend effective legal assistance, advice or service to agrarian reform
beneficiaries;
(10) Conduct operations research and evaluation of agrarian reform program
implementation within the region;
(11) Coordinate with other government and private agencies and farmer
organizations at the Regional level through the Agrarian Reform
Coordinating Council, to carry out programs/projects for the general welfare
of the agrarian reform beneficiaries;
(12) Coordinate para-legal services;
(13) Maintain a data-based information system in coordination with the
established monitoring system;
(14) Review documents submitted by the Provincial and Team Offices or by
the clientele;
(15) Submit periodic feedback and recommend policy changes and/or
modification of procedures on program implementation; and
(16) Perform such other functions as may be necessary in the service of the
clientele.
The foregoing provisions were already in effect when petitioner filed her
petition in the BARC in 1990. And it is amply clear from these provisions that
the function of the Regional Office concerns theimplementation of agrarian

reform laws while that of the DARAB/RARAD/PARAD is the adjudication of

agrarian reform cases.
The first is essentially executive. It pertains to the enforcement and
administration of the laws, carrying them into practical operation and
enforcing their due observance.[14] Thus, the Regional Director is primarily
tasked with "[i]mplement[ing] laws, policies, rules and regulations within the
responsibility of the agency, as well as the agency program in the region. [15]
The second is judicial in nature, involving as it does the determination
of rights and obligations of the parties. To aid the DARAB in the exercise of
this function, the Rules grant the Board and Adjudicators the powers to issue
subpoenas[16] and injunctions,[17] to cite and punish for contempt, [18] and to
order the execution of its orders and decision, [19] among other powers. The
Rules also contain very specific provisions to ensure the orderly procedure
before the DARAB, RARADs and PARADs. These provisions govern the
commencement of actions, venue and cause of action, [20] the service of
pleadings,[21] the presentation of evidence,[22] motions,[23] appeals[24] and
judicial review.[25] Notable are provisions intended to prevent multiplicity of
suits such as the rules on one suit for one cause of action, [26] the joinder of
causes of action,[27] and the assignment of all incidents of a case to the
Adjudicator to whom the case is assigned. [28] No such powers were granted
or provisions adopted when the purported delegation was made to the
Regional Director or since. The DARAB Rules grant broader powers to the
Board and the Adjudicators and contain more detailed rules on procedure
than those provided by the orders, circulars, memoranda and opinions cited
by the Court of Appeals delegating jurisdiction to the Regional Director.
The Court of Appeals has underscored the fact that Section 13 of E.O.
No. 129-A authorizes the DARAB to delegate its powers and functions to the
regional office in accordance with the rules and regulations promulgated by
the Board. The authority purportedly provides additional justification for the
Regional Offices jurisdiction over the case. Precisely, however, the DARAB,
through its Revised Rules, has delegated such powers and functions to the
RARADs and the PARADs, which, under Section 3 of the Rules, are deemed to
form part of the DAR Regional Office where they are stationed.
It is evident from the foregoing that the DAR, like most administrative
agencies, is granted with a fusion of governmental powers, in this case, a
commingling of the quasi-judicial and the executive. The growing complexity
of modern life, the multiplication of the subjects of governmental regulation
and the increased difficulty of administering the laws have impelled this
constantly growing tendency toward such delegation.[29]
In delegating these powers, it would hardly seem practical to allow a
duplication of functions between agencies. Duplication results in confusion
between the various agencies upon whom these powers are reposed, and in
the public that the agencies are supposed to serve. It divides the agencies
resources and prevents them from devoting their energy to similarly
important tasks. The intention to avoid this very situation is evident in the
various laws distinct delineation of the functions of the DARAB/RARAD/PARAD
and the DAR Regional Office. Accordingly, the Court must reject the theory
of concurrent jurisdiction between the former and the latter. We hold that

the DAR Regional Office has no jurisdiction over the subject case.
In view of this conclusion, we need not resolve the issue of deprivation
of due process allegedly suffered by petitioner in the proceedings before the
Regional Director.
WHEREFORE, the petition is given DUE COURSE and GRANTED. The
Decision and Resolution of the Court of Appeals is REVERSED and SET
ASIDE. The restraining order issued per this Courts Resolution dated May 17,
1993 is hereby made permanent.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ.,
concur.

[G.R. No. 152574. November 17, 2004]

FRANCISCO ABELLA JR., petitioner, vs. CIVIL SERVICE COMMISSION,

respondent.
DECISION
PANGANIBAN, J.:
Both the appointing authority and the appointee are the real parties in
interest, and both have legal standing, in a suit assailing a Civil Service
Commission (CSC) order disapproving an appointment. Despite having legal
interest and standing, herein petitioner unsuccessfully challenges the
constitutionality of the CSC circular that classifies certain positions in the
career service of the government. In sum, petitioner was appointed to a
Career Executive Service (CES) position, but did not have the corresponding
eligibility for it; hence, the CSC correctly disapproved his appointment.

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
challenging the November 16, 2001 Decision [2] and the March 8, 2002
Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 58987. The
Assailed Decision disposed as follows:
WHEREFORE, the petition for review is DENIED for lack of merit.[4]
The
challenged
Reconsideration.

Resolution

denied

petitioners

Motion

for

The Facts
The CA narrates the factual antecedents in this wise:
Petitioner Francisco A. Abella, Jr., a lawyer, retired from the Export Processing
Zone Authority (EPZA), now the Philippine Economic Zone Authority (PEZA),
on July 1, 1996 as Department Manager of the Legal Services Department.
He held a civil service eligibility for the position of Department Manager,
having completed the training program for Executive Leadership and
Management in 1982 under the Civil Service Academy, pursuant to CSC
Resolution No. 850 dated April 16, 1979, which was then the required
eligibility for said position.

It appears, however, that on May 31, 1994, the Civil Service Commission
issued Memorandum Circular No. 21, series of 1994, the pertinent provisions
of which read:
1. Positions Covered by the Career Executive Service
xxxxxxxxx
(b) In addition to the above identified positions and other
positions of the same category which had been previously
classified and included in the CES, all other third level
positions of equivalent category in all branches and
instrumentalities of the national government, including
government owned and controlled corporations with original
charters are embraced within the Career Executive Service
provided that they meet the following criteria:
1. the position is a career position;
2. the position is above division chief level
3. the duties and responsibilities of the position require
the performance of executive or managerial
functions.
4. Status of Appointment of Incumbents of Positions Included
Under the Coverage of the CES. Incumbents of positions which
are declared to be Career Executive Service positions for the
first time pursuant to this Resolution who hold permanent
appointments thereto shall remain under permanent status in
their respective positions. However, upon promotion or
transfer to other Career Executive Service (CES) positions,
these incumbents shall be under temporary status in said
other CES positions until they qualify.
Two years after his retirement, petitioner was hired by the Subic Bay
Metropolitan Authority (SBMA) on a contractual basis. On January 1, 1999,
petitioner was issued by SBMA a permanent employment as Department
Manager III, Labor and Employment Center. However, when said
appointment was submitted to respondent Civil Service Commission
Regional Office No. III, it was disapproved on the ground that petitioners
eligibility was not appropriate. Petitioner was advised by SBMA of the
disapproval of his appointment. In view thereof, petitioner was issued a
temporary appointment as Department Manager III, Labor and Employment
Center, SBMA on July 9, 1999.
Petitioner appealed the disapproval of his permanent appointment by
respondent to the Civil Service Commission, which issued Resolution No.
000059, dated January 10, 2000, affirming the action taken by respondent.
Petitioners motion for reconsideration thereof was denied by the CSC in
Resolution No. 001143 dated May 11, 2000.
xxxxxxxxx
Undaunted, petitioner filed with [the CA] a petition for review seeking the
reversal of the CSC Resolutions dated January 10, 2000 and May 11, 2000 on
the ground that CSC Memorandum Circular No. 21, s. 1994 is
unconstitutional as it rendered his earned civil service eligibility ineffective
or inappropriate for the position of Department Manager [III][5]

Ruling of the Court of Appeals

The CA shunned the issue of constitutionality, arguing that a
constitutional question should not be passed upon if there are other grounds
upon which the case may be decided. [6] Citing CSC Memorandum Circular 40,
s. 1998 and Mathay v. Civil Service Commission,[7] the appellate court ruled
that only the appointing officer may request reconsideration of the action
taken by the CSC on appointments. Thus, it held that petitioner did not have
legal standing to question the disapproval of his appointment. [8]
On reconsideration, the CA added that petitioner was not the real party
in interest, as his appointment was dependent on the CSCs approval.
Accordingly, he had no vested right in the office, since his appointment was
disapproved.[9]
Unsatisfied, petitioner brought this recourse to this Court. [10]

The Issues
Petitioner raises the following issues for our consideration:
A. Whether or not Respondent Court committed grave abuse of
discretion amounting to lack of jurisdiction in ruling that petitioner
lacks the personality to question the disapproval by respondent
office of petitioners appointment as Department Manager III, Labor
and Employment Center, SBMA.
B. Whether or not Respondent Court committed grave abuse of
discretion amounting to lack of jurisdiction in ruling that petitioner
is not the real party in interest to question the disapproval by
respondent office of petitioners appointment as Department
Manager III, Labor and Employment Center, SBMA.
C. Whether or not Respondent Court committed grave abuse of
discretion amounting to lack of jurisdiction, in dismissing
petitioners appeal on a mere technicality considering that
petitioner is questioning the constitutionality of respondent office
issuance of Section 4 of CSC Memorandum Circular No. 21, s.
1994, which deprived petitioner his property right without due
process of law.[11]

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Who May File Reconsideration or Appeal

Preliminary Observation
Petitioner imputes to the CA grave abuse of discretion amounting to
lack of jurisdiction for ruling that he had no legal standing to contest the
disapproval of his appointment.[12] Grave abuse of discretion is a ground for a
petition for certiorari under Rule 65 of the Rules of Court. Nevertheless, this
Court resolved to grant due course to the Petition and to treat it
appropriately as a petition for review on certiorari under Rule 45 of the Rules
of Court. The grounds shall be deemed reversible errors, not grave abuse of
discretion.

Approval Required for

Permanent Appointment
A permanent appointment in the career service is issued to a person
who has met the requirements of the position to which the appointment is
made in accordance with the provisions of law, the rules and the standards
promulgated pursuant thereto.[13] It implies the civil service eligibility of the
appointee.[14] Thus, while the appointing authority has the discretion to
choose whom to appoint, the choice is subject to the caveat that the
appointee possesses the required qualifications.[15]
To make it fully effective, an appointment to a civil service position
must comply with all legal requirements. [16] Thus, the law requires the
appointment to be submitted to the CSC which will ascertain, in the main,
whether the proposed appointee is qualified to hold the position and
whether the rules pertinent to the process of appointment were observed. [17]
The applicable provision of the Civil Service Law reads:
SECTION 9. Powers and Functions of the Commission. The Commission shall
administer the Civil Service and shall have the following powers and
functions:
xxxxxxxxx
(h) Approve all appointments, whether original or promotional, to positions
in the civil service, except those of presidential appointees, members of the
Armed Forces of the Philippines, police forces, firemen, and jailguards, and
disapprove those where the appointees do not possess the appropriate
eligibility or required qualifications. An appointment shall take effect
immediately upon issue by the appointing authority if the appointee
assumes his duties immediately and shall remain effective until it is
disapproved by the Commission, if this should take place, without prejudice
to the liability of the appointing authority for appointments issued in
violation of existing laws or rules: Provided, finally, That the Commission

shall keep a record of appointments of all officers and employees in the civil
service. All appointments requiring the approval of the Commission as
herein provided, shall be submitted to it by the appointing authority within
thirty days from issuance, otherwise, the appointment becomes ineffective
thirty days thereafter.[18]
The appointing officer and the CSC acting together, though not
concurrently but consecutively, make an appointment complete. [19] In acting
on the appointment, the CSC determines whether the appointee possesses
the appropriate civil service eligibility or the required qualifications. If the
appointee does, the appointment must be approved; if not, it should be
disapproved.[20] According to the appellate court, only the appointing
authority had the right to challenge the CSCs disapproval. It relied on
Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 (Omnibus
Rules on Appointment and Other Personal Actions), which provides:
Section 2. Request for Reconsideration of, or appeal from, the disapproval of
an appointment may be made by the appointing authority and submitted to
the Commission within fifteen (15) calendar days from receipt of the
disapproved appointment.

Appointing Authoritys Right to

Challenge CSC Disapproval
While petitioner does not challenge the legality of this provision, he now
claims that it is merely a technicality, which does not prevent him from
requesting reconsideration.
We clarify. The power of appointment necessarily entails the exercise of
judgment and discretion.[21] Luego v. Civil Service Commission[22] declared:
Appointment is an essentially discretionary power and must be performed
by the officer in which it is vested according to his best lights, the only
condition being that the appointee should possess the qualifications required
by law. If he does, then the appointment cannot be faulted on the ground
that there are others better qualified who should have been preferred. This
is a political question involving considerations of wisdom which only the
appointing authority can decide.[23]
Significantly, the selection of the appointee -- taking into account the
totality of his qualifications, including those abstract qualities that define his
personality -- is the prerogative of the appointing authority. [24] No tribunal,
not even this Court,[25] may compel the exercise of an appointment for a
favored person.[26]
The CSCs disapproval of an appointment is a challenge to the exercise
of the appointing authoritys discretion. The appointing authority must have
the right to contest the disapproval. Thus, Section 2 of Rule VI of CSC
Memorandum Circular 40, s. 1998 is justified insofar as it allows the
appointing authority to request reconsideration or appeal.

In Central Bank v. Civil Service Commission,[27] this Court has affirmed

that the appointing authority stands to be adversely affected when the CSC
disapproves an appointment. Thus, the said authority can defend its
appointment since it knows the reasons for the same. [28] It is also the act of
the appointing authority that is being questioned when an appointment is
disapproved.[29]

Appointees Legal Standing to

Challenge the CSC Disapproval
While there is justification to allow the appointing authority to challenge
the CSC disapproval, there is none to preclude the appointee from taking the
same course of action. Aggrieved parties, including the Civil Service
Commission, should be given the right to file motions for reconsideration or
to appeal.[30] On this point, the concepts of legal standing and real party in
interest become relevant.
Although commonly directed towards ensuring that only certain parties
can maintain an action, legal standing and real party in interest are different
concepts. Kilosbayan v. Morato[31]explained:
The difference between the rule on standing and real party-in-interest has
been noted by authorities thus: It is important to note . . . that standing
because of its constitutional and public policy underpinnings, is very
different from questions relating to whether a particular plaintiff is the real
party-in-interest or has capacity to sue. Although all three requirements are
directed towards ensuring that only certain parties can maintain an action,
standing restrictions require a partial consideration of the merits, as well as
broader policy concerns relating to the proper role of the judiciary in certain
areas. (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases
suits are brought not by parties who have been personally injured by the
operation of a law or by official action taken, but by concerned citizens,
taxpayers or voters who actually sue in the public interest. Hence the
question in standing is whether such parties have alleged such a personal
stake in the outcome of the controversy to assure that concrete adverseness
which sharpens the presentation of issues upon which the court so largely
depends for illumination of difficult constitutional questions. (Baker v. Carr,
369 U.S. 186, 7 L. Ed. 2d 633 (1962))
xxxxxxxxx
On the other hand, the question as to real party-in-interest is whether he is
the party who would be [benefited] or injured by the judgment, or the party
entitled to the avails of the suit. (Salonga v. Warner Barnes & Co., Ltd., 88
Phil. 125, 131 [1951])[32]
If legal standing is granted to challenge the constitutionality or validity
of a law or governmental act despite the lack of personal injury on the
challengers part, then more so should petitioner be allowed to contest the
CSC Order disapproving his appointment. Clearly, he was prejudiced by the

disapproval, since he could not continue his office.

Although petitioner had no vested right to the position, [33] it was his
eligibility that was being questioned. Corollary to this point, he should be
granted the opportunity to prove his eligibility. He had a personal stake in
the outcome of the case, which justifies his challenge to the CSC act that
denied his permanent appointment.

The Appointee a Real

Party in Interest
A real party in interest is one who would be benefited or injured by the
judgment, or one entitled to the avails of the suit. [34] Interest within the
meaning of the rule means material interest or an interest in issue and to be
affected by the decree, as distinguished from mere interest in the question
involved or a mere incidental interest. [35] Otherwise stated, the rule refers to
a real or present substantial interest as distinguished from a mere
expectancy; or from a future, contingent, subordinate, or consequential
interest.[36] As a general rule, one who has no right or interest to protect
cannot invoke the jurisdiction of the court as a party-plaintiff in an action. [37]
Although the earlier discussion demonstrates that the appointing
authority is adversely affected by the CSCs Order and is a real party in
interest, the appointee is rightly a real party in interest too. He is also injured
by the CSC disapproval, because he is prevented from assuming the office in
a permanent capacity. Moreover, he would necessarily benefit if a favorable
judgment is obtained, as an approved appointment would confer on him all
the rights and privileges of a permanent appointee.

Appointee Allowed
Procedural Relief
Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 should not
be interpreted to restrict solely to the appointing authority the right to move
for a reconsideration of, or to appeal, the disapproval of an appointment. PD
807 and EO 292, from which the CSC derives the authority to promulgate its
rules and regulations, are silent on whether appointees have a similar right
to file motions for reconsideration of, or appeals from, unfavorable decisions
involving appointments. Indeed, there is no legislative intent to bar
appointees from challenging the CSCs disapproval.
The view that only the appointing authority may request
reconsideration or appeal is too narrow. The appointee should have the
same right. Parenthetically, CSC Resolution 99-1936 [38]recognizes the right of
the adversely affected party to appeal to the CSC Regional Offices prior to
elevating a matter to the CSC Central Office. [39] The adversely affected party

necessarily includes the appointee.

This judicial pronouncement does not override Mathay v. Civil Service
Commission,[40] which the CA relied on. The Court merely noted in passing -by way of obiter -- that based on a similar provision, [41] only the appointing
officer could request reconsideration of actions taken by the CSC on
appointments.
In that case, Quezon City Mayor Ismael A. Mathay Jr. sought the
nullification of CSC Resolutions that recalled his appointment of a city
government officer. He filed a Petition assailing the CA Decision, which had
previously denied his Petition for Certiorari for being the wrong remedy and
for being filed out of time. We observed then that the CSC Resolutions were
already final and could no longer be elevated to the CA. [42] Furthermore,
Mathays Petition for Certiorari filed with the CA was improper, because there
was an available remedy of appeal. And the CSC could not have acted
without jurisdiction, considering that it was empowered to recall an
appointment initially approved.[43]
The right of the appointee to seek reconsideration or appeal was not
the main issue in Mathay. At any rate, the present case is being decided en
banc, and the ruling may reverse previous doctrines laid down by this Court.
[44]

Second Issue:
Constitutionality of
Section 4, CSC Memorandum
Circular 21, Series of 1994
Alleging that his civil service eligibility was rendered ineffective and
that he was consequently deprived of a property right without due process,
[45]
petitioner challenges the constitutionality of CSC Memorandum Circular
21, s. 1994.[46] The pertinent part of this Circular reads:
1. Positions Covered by the Career Executive Service.
(a) The Career Executive Service includes the positions of
Undersecretary, Assistant Secretary, Bureau Director,
Assistant Bureau Director, Regional Director
(department-wide and bureau-wide), Assistant
Regional Director (department-wide and bureau-wide)
and Chief of Department Service[.]
(b) In addition to the above identified positions and other
positions of the same category which had been
previously classified and included in the CES, all other
third level positions in all branches and
instrumentalities of the national government, including
government-owned or controlled corporations with
original charters are embraced within the Career
Executive Service provided that they meet the

following criteria:
1. the position is a career position;
2. the position is above division chief level;
3. the duties and responsibilities of the position require
the performance of executive or managerial
functions.
xxxxxxxxx
4. Status of Appointment of Incumbents of Positions Under the Coverage of
the CES. Incumbents of positions which are declared to be Career Executive
Service positions for the first time pursuant to this Resolution who hold
permanent appointments thereto shall remain under permanent status in
their respective positions. However, upon promotion or transfer to other
Career Executive Service (CES) positions, these incumbents shall be under
temporary status in said other CES positions until they qualify.
Petitioner argues that his eligibility, through the Executive Leadership
and Management (ELM) training program, could no longer be affected by a
new eligibility requirement. He claims that he was eligible for his previous
position as department manager of the Legal Services Department, PEZA;
hence, he should retain his eligibility for the position of department manager
III, Labor and Employment Center, SBMA, notwithstanding the classification
of the latter as a CES position.

CSC Authorized to Issue

Rules and Regulations
The Constitution mandates that, as the central personnel agency of the
government,[47] the CSC should establish a career service and adopt
measures to promote the morale, efficiency, integrity, responsiveness,
progressiveness, and courtesy in the Civil Service. [48] It further requires that
appointments in the civil service be made only through merit and fitness to
be determined by competitive examination. [49] Civil Service laws have
expressly empowered the CSC to issue and enforce rules and regulations to
carry out its mandate.
In the exercise of its authority, the CSC deemed it appropriate to clearly
define and identify positions covered by the Career Executive Service. [50]
Logically, the CSC had to issue guidelines to meet this objective, specifically
through the issuance of the challenged Circular.

Career Service
Classified by Levels
Positions in the career service, for which appointments require
examinations, are grouped into three major levels:

(a) The first level shall include clerical, trades, crafts, and custodial service
positions which involve non-professional or sub[-]professional work in a nonsupervisory or supervisory capacity requiring less than four years of
collegiate studies;
(b) The second level shall include professional, technical, and scientific
positions which involve professional, technical, or scientific work in a nonsupervisory or supervisory capacity requiring at least four years of college
work up to Division Chief level; and
(c) The third level shall cover positions in the Career Executive Service. [51]
Entrance to the different levels requires the corresponding civil service
eligibility. Those in the third level (CES positions) require Career Service
Executive Eligibility (CSEE) as a requirement for permanent appointment. [52]
The challenged Circular did not revoke petitioners ELM eligibility. He
was appointed to a CES position; however, his eligibility was inadequate.
Eligibility must necessarily conform to the requirements of the position,
which in petitioners case was a CSEE.

Rights Protected
The challenged Circular protects the rights of incumbents as long as
they remain in the positions to which they were previously appointed. They
are allowed to retain their positions in a permanent capacity,
notwithstanding the lack of CSEE. Clearly, the Circular recognizes the rule of
prospectivity of regulations;[53] hence, there is no basis to argue that it is an
ex post facto law[54] or a bill of attainder.[55] These terms, which have settled
meanings in criminal jurisprudence, are clearly inapplicable here.
The government service of petitioner ended when he retired in 1996;
thus, his right to remain in a CES position, notwithstanding his lack of
eligibility, also ceased. Upon hisreemployment[56] years later as department
manager III at SBMA in 2001, it was necessary for him to comply with the
eligibility prescribed at the time for that position.

Security of Tenure
Not Impaired
The argument of petitioner that his security of tenure is impaired is
unconvincing. First, security of tenure in the Career Executive Service -except in the case of first and second level employees in the civil service -pertains only to rank, not to the position to which the employee may be
appointed.[57] Second, petitioner had neither rank nor position prior to his
reemployment. One cannot claim security of tenure if one held no tenure
prior to appointment.

Due Process
Not Violated
Petitioner contends that his due process rights, as enunciated in Ang
Tibay v. Court of Appeals,[58] were violated.[59] We are not convinced. He
points in particular to the CSCs alleged failure to notify him of a hearing
relating to the issuance of the challenged Circular.
The classification of positions in career service was a quasi-legislative,
not a quasi-judicial, issuance. This distinction determines whether prior
notice and hearing are necessary.
In exercising its quasi-judicial function, an administrative body
adjudicates the rights of persons before it, in accordance with the standards
laid down by the law.[60] The determination of facts and the applicable law, as
basis for official action and the exercise of judicial discretion, are essential
for the performance of this function. [61] On these considerations, it is
elementary that due process requirements, as enumerated in Ang Tibay,
must be observed. These requirements include prior notice and hearing. [62]
On the other hand, quasi-legislative power is exercised by
administrative agencies through the promulgation of rules and regulations
within the confines of the granting statute and the doctrine of nondelegation of certain powers flowing from the separation of the great
branches of the government.[63] Prior notice to and hearing of every affected
party, as elements of due process, are not required since there is no
determination of past events or facts that have to be established or
ascertained. As a general rule, prior notice and hearing are not essential to
the validity of rules or regulations promulgated to govern future conduct. [64]
Significantly, the challenged Circular was an internal matter addressed
to heads of departments, bureaus and agencies. It needed no prior
publication, since it had been issued as an incident of the administrative
bodys power to issue guidelines for government officials to follow in
performing their duties.[65]

Final Issue:
Disapproval of Appointment
Since petitioner had no CES eligibility, the CSC correctly denied his
permanent appointment. The appointee need not have been previously
heard, because the nature of the action did not involve the imposition of an
administrative disciplinary measure. [66] The CSC, in approving or
disapproving an appointment, merely examines the conformity of the
appointment with the law and the appointees possession of all the minimum
qualifications and none of the disqualification.[67]
In sum, while petitioner was able to demonstrate his standing to appeal
the CSC Resolutions to the courts, he failed to prove his eligibility to the

position he was appointed to.

WHEREFORE, the Petition is GRANTED insofar as it seeks legal
standing for petitioner, but DENIED insofar as it prays for the reversal of the
CSC Resolutions disapproving his appointment as department manager III of
the Labor and Employment Center, Subic Bay Metropolitan Authority. Costs
against petitioner.
SO ORDERED.

G.R. No. 110120 March 16, 1994

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, HON. MANUEL JN. SERAPIO, Presiding Judge
RTC, Branch 127, Caloocan City, HON. MACARIO A. ASISTIO, JR., City
Mayor of Caloocan and/or THE CITY GOVERNMENT OF
CALOOCAN,respondents.
Alberto N. Hidalgo and Ma. Teresa T. Oledan for petitioner.
The City Legal Officer & Chief, Law Department for Mayor Macario A. Asistio,
Jr. and the City Government of Caloocan.
ROMERO, J.:
The clash between the responsibility of the City Government of Caloocan to
dispose off the 350 tons of garbage it collects daily and the growing concern
and sensitivity to a pollution-free environment of the residents of Barangay
Camarin, Tala Estate, Caloocan City where these tons of garbage are
dumped everyday is the hub of this controversy elevated by the
protagonists to the Laguna Lake Development Authority (LLDA) for
adjudication.
The instant case stemmed from an earlier petition filed with this Court by
Laguna Lake Development Authority (LLDA for short) docketed as G.R.
No. 107542 against the City Government of Caloocan, et al. In the Resolution
of November 10, 1992, this Court referred G.R. No. 107542 to the Court of
Appeals for appropriate disposition. Docketed therein as CA-G.R. SP
No. 29449, the Court of Appeals, in a decision 1 promulgated on January 29,
1993 ruled that the LLDA has no power and authority to issue a cease and
desist order enjoining the dumping of garbage in Barangay Camarin, Tala
Estate, Caloocan City. The LLDA now seeks, in this petition, a review of the
decision of the Court of Appeals.
The facts, as disclosed in the records, are undisputed.
On March 8, 1991, the Task Force Camarin Dumpsite of Our Lady of Lourdes
Parish, Barangay Camarin, Caloocan City, filed a letter-complaint 2 with the
Laguna Lake Development Authority seeking to stop the operation of the
8.6-hectare open garbage dumpsite in Tala Estate, Barangay Camarin,
Caloocan City due to its harmful effects on the health of the residents and
the possibility of pollution of the water content of the surrounding area.
On November 15, 1991, the LLDA conducted an on-site investigation,
monitoring and test sampling of the leachate 3 that seeps from said
dumpsite to the nearby creek which is a tributary of the Marilao River. The
LLDA Legal and Technical personnel found that the City Government of

Caloocan was maintaining an open dumpsite at the Camarin area without

first securing an Environmental Compliance Certificate (ECC) from the
Environmental Management Bureau (EMB) of the Department of
Environment and Natural Resources, as required under Presidential Decree
No. 1586, 4 and clearance from LLDA as required under Republic Act No.
4850, 5 as amended by Presidential Decree No. 813 and Executive Order No.
927, series of 1983. 6
After a public hearing conducted on December 4, 1991, the LLDA, acting on
the complaint of Task Force Camarin Dumpsite, found that the water
collected from the leachate and the receiving streams could considerably
affect the quality, in turn, of the receiving waters since it indicates the
presence of bacteria, other than coliform, which may have contaminated the
sample during collection or handling. 7 On December 5, 1991, the LLDA
issued a Cease and Desist Order 8 ordering the City Government of
Caloocan, Metropolitan Manila Authority, their contractors, and other
entities, to completely halt, stop and desist from dumping any form or kind
of garbage and other waste matter at the Camarin dumpsite.
The dumping operation was forthwith stopped by the City Government of
Caloocan. However, sometime in August 1992 the dumping operation was
resumed after a meeting held in July 1992 among the City Government of
Caloocan, the representatives of Task Force Camarin Dumpsite and LLDA at
the Office of Environmental Management Bureau Director Rodrigo U. Fuentes
failed to settle the problem.
After an investigation by its team of legal and technical personnel on August
14, 1992, the LLDA issued another order reiterating the December 5, 1991,
order and issued an Alias Cease and Desist Order enjoining the City
Government of Caloocan from continuing its dumping operations at the
Camarin area.
On September 25, 1992, the LLDA, with the assistance of the Philippine
National Police, enforced its Alias Cease and Desist Order by prohibiting the
entry of all garbage dump trucks into the Tala Estate, Camarin area being
utilized as a dumpsite.
Pending resolution of its motion for reconsideration earlier filed on
September 17, 1992 with the LLDA, the City Government of Caloocan filed
with the Regional Trial Court of Caloocan City an action for the declaration of
nullity of the cease and desist order with prayer for the issuance of writ of
injunction, docketed as Civil Case No. C-15598. In its complaint, the City
Government of Caloocan sought to be declared as the sole authority
empowered to promote the health and safety and enhance the right of the
people in Caloocan City to a balanced ecology within its territorial
jurisdiction. 9
On September 25, 1992, the Executive Judge of the Regional Trial Court of
Caloocan City issued a temporary restraining order enjoining the LLDA from
enforcing its cease and desist order. Subsequently, the case was raffled to
the Regional Trial Court, Branch 126 of Caloocan which, at the time, was
presided over by Judge Manuel Jn. Serapio of the Regional Trial Court, Branch
127, the pairing judge of the recently-retired presiding judge.
The LLDA, for its part, filed on October 2, 1992 a motion to dismiss on the
ground, among others, that under Republic Act No. 3931, as amended by

Presidential Decree No. 984, otherwise known as the Pollution Control Law,
the cease and desist order issued by it which is the subject matter of the
complaint is reviewable both upon the law and the facts of the case by the
Court of Appeals and not by the Regional Trial Court. 10
On October 12, 1992 Judge Manuel Jn. Serapio issued an order consolidating
Civil Case No. C-15598 with Civil Case No. C-15580, an earlier case filed by
the Task Force Camarin Dumpsite entitled "Fr. John Moran, et al. vs. Hon.
Macario Asistio." The LLDA, however, maintained during the trial that the
foregoing cases, being independent of each other, should have been treated
separately.
On October 16, 1992, Judge Manuel Jn. Serapio, after hearing the motion to
dismiss, issued in the consolidated cases an order 11 denying LLDA's motion
to dismiss and granting the issuance of a writ of preliminary injunction
enjoining the LLDA, its agent and all persons acting for and on its behalf,
from enforcing or implementing its cease and desist order which prevents
plaintiff City of Caloocan from dumping garbage at the Camarin dumpsite
during the pendency of this case and/or until further orders of the court.
On November 5, 1992, the LLDA filed a petition for certiorari, prohibition and
injunction with prayer for restraining order with the Supreme Court,
docketed as G.R. No. 107542, seeking to nullify the aforesaid order dated
October 16, 1992 issued by the Regional Trial Court, Branch 127 of Caloocan
City denying its motion to dismiss.
The Court, acting on the petition, issued a Resolution 12 on November 10,
1992 referring the case to the Court of Appeals for proper disposition and at
the same time, without giving due course to the petition, required the
respondents to comment on the petition and file the same with the Court of
Appeals within ten (10) days from notice. In the meantime, the Court issued
a temporary restraining order, effective immediately and continuing until
further orders from it, ordering the respondents: (1) Judge Manuel Jn.
Serapio, Presiding Judge, Regional Trial Court, Branch 127, Caloocan City to
cease and desist from exercising jurisdiction over the case for declaration of
nullity of the cease and desist order issued by the Laguna Lake Development
Authority (LLDA); and (2) City Mayor of Caloocan and/or the City
Government of Caloocan to cease and desist from dumping its garbage at
the Tala Estate, Barangay Camarin, Caloocan City.
Respondents City Government of Caloocan and Mayor Macario A. Asistio, Jr.
filed on November 12, 1992 a motion for reconsideration and/or to
quash/recall the temporary restraining order and an urgent motion for
reconsideration alleging that ". . . in view of the calamitous situation that
would arise if the respondent city government fails to collect 350 tons of
garbage daily for lack of dumpsite (i)t is therefore, imperative that the issue
be resolved with dispatch or with sufficient leeway to allow the respondents
to find alternative solutions to this garbage problem."
On November 17, 1992, the Court issued a Resolution 13 directing the Court
of Appeals to immediately set the case for hearing for the purpose of
determining whether or not the temporary restraining order issued by the
Court should be lifted and what conditions, if any, may be required if it is to
be so lifted or whether the restraining order should be maintained or
converted into a preliminary injunction.
The Court of Appeals set the case for hearing on November 27, 1992, at

10:00 in the morning at the Hearing Room, 3rd Floor, New Building, Court of
Appeals. 14 After the oral argument, a conference was set on December 8,
1992 at 10:00 o'clock in the morning where the Mayor of Caloocan City, the
General Manager of LLDA, the Secretary of DENR or his duly authorized
representative and the Secretary of DILG or his duly authorized
representative were required to appear.
It was agreed at the conference that the LLDA had until December 15, 1992
to finish its study and review of respondent's technical plan with respect to
the dumping of its garbage and in the event of a rejection of respondent's
technical plan or a failure of settlement, the parties will submit within 10
days from notice their respective memoranda on the merits of the case,
after which the petition shall be deemed submitted for resolution. 15
Notwithstanding such efforts, the parties failed to settle the dispute.
On April 30, 1993, the Court of Appeals promulgated its decision holding
that: (1) the Regional Trial Court has no jurisdiction on appeal to try, hear
and decide the action for annulment of LLDA's cease and desist order,
including the issuance of a temporary restraining order and preliminary
injunction in relation thereto, since appeal therefrom is within the exclusive
and appellate jurisdiction of the Court of Appeals under Section 9, par. (3), of
Batas Pambansa Blg. 129; and (2) the Laguna Lake Development Authority
has no power and authority to issue a cease and desist order under its
enabling law, Republic Act No. 4850, as amended by P.D. No. 813 and
Executive Order
No. 927, series of 1983.
The Court of Appeals thus dismissed Civil Case No. 15598 and the
preliminary injunction issued in the said case was set aside; the cease and
desist order of LLDA was likewise set aside and the temporary restraining
order enjoining the City Mayor of Caloocan and/or the City Government of
Caloocan to cease and desist from dumping its garbage at the Tala Estate,
Barangay Camarin, Caloocan City was lifted, subject, however, to the
condition that any future dumping of garbage in said area, shall be in
conformity with the procedure and protective works contained in the
proposal attached to the records of this case and found on pages 152-160 of
the Rollo, which was thereby adopted by reference and made an integral
part of the decision, until the corresponding restraining and/or injunctive
relief is granted by the proper Court upon LLDA's institution of the necessary
legal proceedings.
Hence, the Laguna Lake Development Authority filed the instant petition for
review on certiorari, now docketed as G.R. No. 110120, with prayer that the
temporary restraining order lifted by the Court of Appeals be re-issued until
after final determination by this Court of the issue on the proper
interpretation of the powers and authority of the LLDA under its enabling
law.
On July, 19, 1993, the Court issued a temporary restraining order 16 enjoining
the City Mayor of Caloocan and/or the City Government of Caloocan to cease
and desist from dumping its garbage at the Tala Estate, Barangay Camarin,
Caloocan City, effective as of this date and containing until otherwise
ordered by the Court.
It is significant to note that while both parties in this case agree on the need
to protect the environment and to maintain the ecological balance of the
surrounding areas of the Camarin open dumpsite, the question as to which

agency can lawfully exercise jurisdiction over the matter remains highly
open to question.
The City Government of Caloocan claims that it is within its power, as a local
government unit, pursuant to the general welfare provision of the Local
Government Code, 17 to determine the effects of the operation of the
dumpsite on the ecological balance and to see that such balance is
maintained. On the basis of said contention, it questioned, from the
inception of the dispute before the Regional Trial Court of Caloocan City, the
power and authority of the LLDA to issue a cease and desist order enjoining
the dumping of garbage in the Barangay Camarin over which the City
Government of Caloocan has territorial jurisdiction.
The Court of Appeals sustained the position of the City of Caloocan on the
theory that Section 7 of Presidential Decree No. 984, otherwise known as the
Pollution Control law, authorizing the defunct National Pollution Control
Commission to issue an ex-parte cease and desist order was not
incorporated in Presidential Decree No. 813 nor in Executive Order No. 927,
series of
1983. The Court of Appeals ruled that under Section 4, par. (d), of Republic
Act No. 4850, as amended, the LLDA is instead required "to institute the
necessary legal proceeding against any person who shall commence to
implement or continue implementation of any project, plan or program
within the Laguna de Bay region without previous clearance from the
Authority."
The LLDA now assails, in this partition for review, the abovementioned ruling
of the Court of Appeals, contending that, as an administrative agency which
was granted regulatory and adjudicatory powers and functions by Republic
Act No. 4850 and its amendatory laws, Presidential Decree No. 813 and
Executive Order No. 927, series of 1983, it is invested with the power and
authority to issue a cease and desist order pursuant to Section 4 par. (c), (d),
(e), (f) and (g) of Executive Order No. 927 series of 1983 which provides,
thus:
Sec. 4. Additional Powers and Functions. The authority shall have the
following powers and functions:
xxx xxx xxx
(c) Issue orders or decisions to compel compliance with the provisions of this
Executive Order and its implementing rules and regulations only after proper
notice and hearing.
(d) Make, alter or modify orders requiring the discontinuance of pollution
specifying the conditions and the time within which such discontinuance
must be accomplished.
(e) Issue, renew, or deny permits, under such conditions as it may determine
to be reasonable, for the prevention and abatement of pollution, for the
discharge of sewage, industrial waste, or for the installation or operation of
sewage works and industrial disposal system or parts thereof.
(f) After due notice and hearing, the Authority may also revoke, suspend or
modify any permit issued under this Order whenever the same is necessary
to prevent or abate pollution.
(g) Deputize in writing or request assistance of appropriate government
agencies or instrumentalities for the purpose of enforcing this Executive
Order and its implementing rules and regulations and the orders and
decisions of the Authority.

The LLDA claims that the appellate court deliberately suppressed and totally
disregarded the above provisions of Executive Order No. 927, series of 1983,
which granted administrative quasi-judicial functions to LLDA on pollution
abatement cases.
In light of the relevant environmental protection laws cited which are
applicable in this case, and the corresponding overlapping jurisdiction of
government agencies implementing these laws, the resolution of the issue of
whether or not the LLDA has the authority and power to issue an order
which, in its nature and effect was injunctive, necessarily requires a
determination of the threshold question: Does the Laguna Lake
Development Authority, under its Charter and its amendatory laws, have the
authority to entertain the complaint against the dumping of garbage in the
open dumpsite in Barangay Camarin authorized by the City Government of
Caloocan which is allegedly endangering the health, safety, and welfare of
the residents therein and the sanitation and quality of the water in the area
brought about by exposure to pollution caused by such open garbage
dumpsite?
The matter of determining whether there is such pollution of the
environment that requires control, if not prohibition, of the operation of a
business establishment is essentially addressed to the Environmental
Management Bureau (EMB) of the DENR which, by virtue of Section 16 of
Executive Order No. 192, series of 1987, 18 has assumed the powers and
functions of the defunct National Pollution Control Commission created
under Republic Act No. 3931. Under said Executive Order, a Pollution
Adjudication Board (PAB) under the Office of the DENR Secretary now
assumes the powers and functions of the National Pollution Control
Commission with respect to adjudication of pollution cases. 19
As a general rule, the adjudication of pollution cases generally pertains to
the Pollution Adjudication Board (PAB), except in cases where the special law
provides for another forum. It must be recognized in this regard that the
LLDA, as a specialized administrative agency, is specifically mandated under
Republic Act No. 4850 and its amendatory laws to carry out and make
effective the declared national policy 20 of promoting and accelerating the
development and balanced growth of the Laguna Lake area and the
surrounding provinces of Rizal and Laguna and the cities of San Pablo,
Manila, Pasay, Quezon and Caloocan 21 with due regard and adequate
provisions for environmental management and control, preservation of the
quality of human life and ecological systems, and the prevention of undue
ecological disturbances, deterioration and pollution. Under such a broad
grant and power and authority, the LLDA, by virtue of its special charter,
obviously has the responsibility to protect the inhabitants of the Laguna
Lake region from the deleterious effects of pollutants emanating from the
discharge of wastes from the surrounding areas. In carrying out the
aforementioned declared policy, the LLDA is mandated, among others, to
pass upon and approve or disapprove all plans, programs, and projects
proposed by local government offices/agencies within the region, public
corporations, and private persons or enterprises where such plans, programs
and/or projects are related to those of the LLDA for the development of the
region. 22

In the instant case, when the complainant Task Force Camarin Dumpsite of
Our Lady of Lourdes Parish, Barangay Camarin, Caloocan City, filed its lettercomplaint before the LLDA, the latter's jurisdiction under its charter was
validly invoked by complainant on the basis of its allegation that the open
dumpsite project of the City Government of Caloocan in Barangay Camarin
was undertaken without a clearance from the LLDA, as required under
Section 4, par. (d), of Republic Act. No. 4850, as amended by P.D. No. 813
and Executive Order No. 927. While there is also an allegation that the said
project was without an Environmental Compliance Certificate from the
Environmental Management Bureau (EMB) of the DENR, the primary
jurisdiction of the LLDA over this case was recognized by the Environmental
Management Bureau of the DENR when the latter acted as intermediary at
the meeting among the representatives of the City Government of Caloocan,
Task Force Camarin Dumpsite and LLDA sometime in July 1992 to discuss the
possibility of
re-opening the open dumpsite.
Having thus resolved the threshold question, the inquiry then narrows down
to the following issue: Does the LLDA have the power and authority to issue
a "cease and desist" order under Republic Act No. 4850 and its amendatory
laws, on the basis of the facts presented in this case, enjoining the dumping
of garbage in Tala Estate, Barangay Camarin, Caloocan City.
The irresistible answer is in the affirmative.
The cease and desist order issued by the LLDA requiring the City
Government of Caloocan to stop dumping its garbage in the Camarin open
dumpsite found by the LLDA to have been done in violation of Republic Act
No. 4850, as amended, and other relevant environment laws, 23 cannot be
stamped as an unauthorized exercise by the LLDA of injunctive powers. By
its express terms, Republic Act No. 4850, as amended by P.D. No. 813 and
Executive Order No. 927, series of 1983, authorizes the LLDA to "make, alter
or modify order requiring the discontinuance or pollution." 24(Emphasis
supplied) Section 4, par. (d) explicitly authorizes the LLDA to make whatever
order may be necessary in the exercise of its jurisdiction.
To be sure, the LLDA was not expressly conferred the power "to issue and
ex-parte cease and desist order" in a language, as suggested by the City
Government of Caloocan, similar to the express grant to the defunct
National Pollution Control Commission under Section 7 of P.D. No. 984 which,
admittedly was not reproduced in P.D. No. 813 and E.O. No. 927, series of
1983. However, it would be a mistake to draw therefrom the conclusion that
there is a denial of the power to issue the order in question when the power
"to make, alter or modify orders requiring the discontinuance of pollution" is
expressly and clearly bestowed upon the LLDA by Executive Order No. 927,
series of 1983.
Assuming arguendo that the authority to issue a "cease and desist order"
were not expressly conferred by law, there is jurisprudence enough to the
effect that the rule granting such authority need not necessarily be
express.25 While it is a fundamental rule that an administrative agency has
only such powers as are expressly granted to it by law, it is likewise a settled
rule that an administrative agency has also such powers as are necessarily
implied in the exercise of its express powers. 26 In the exercise, therefore, of
its express powers under its charter as a regulatory and quasi-judicial body
with respect to pollution cases in the Laguna Lake region, the authority of

the LLDA to issue a "cease and desist order" is, perforce, implied. Otherwise,
it may well be reduced to a "toothless" paper agency.
In this connection, it must be noted that in Pollution Adjudication Board v.
Court of Appeals, et al., 27 the Court ruled that the Pollution Adjudication
Board (PAB) has the power to issue an ex-parte cease and desist order when
there is prima facie evidence of an establishment exceeding the allowable
standards set by the anti-pollution laws of the country. Theponente,
Associate Justice Florentino P. Feliciano, declared:
Ex parte cease and desist orders are permitted by law and regulations in
situations like that here presented precisely because stopping the
continuous discharge of pollutive and untreated effluents into the rivers and
other inland waters of the Philippines cannot be made to wait until
protracted litigation over the ultimate correctness or propriety of such orders
has run its full course, including multiple and sequential appeals such as
those which Solar has taken, which of course may take several years. The
relevant pollution control statute and implementing regulations were
enacted and promulgated in the exercise of that pervasive, sovereign power
to protect the safety, health, and general welfare and comfort of the public,
as well as the protection of plant and animal life, commonly designated as
the police power. It is a constitutional commonplace that the ordinary
requirements of procedural due process yield to the necessities of protecting
vital public interests like those here involved, through the exercise of police
power. . . .
The immediate response to the demands of "the necessities of protecting
vital public interests" gives vitality to the statement on ecology embodied in
the Declaration of Principles and State Policies or the 1987 Constitution.
Article II, Section 16 which provides:
The State shall protect and advance the right of the people to a balanced
and healthful ecology in accord with the rhythm and harmony of nature.
As a constitutionally guaranteed right of every person, it carries the
correlative duty of non-impairment. This is but in consonance with the
declared policy of the state "to protect and promote the right to health of
the people and instill health consciousness among them." 28 It is to be borne
in mind that the Philippines is party to the Universal Declaration of Human
Rights and the Alma Conference Declaration of 1978 which recognize health
as a fundamental human right. 29
The issuance, therefore, of the cease and desist order by the LLDA, as a
practical matter of procedure under the circumstances of the case, is a
proper exercise of its power and authority under its charter and its
amendatory laws. Had the cease and desist order issued by the LLDA been
complied with by the City Government of Caloocan as it did in the first
instance, no further legal steps would have been necessary.
The charter of LLDA, Republic Act No. 4850, as amended, instead of
conferring upon the LLDA the means of directly enforcing such orders, has
provided under its Section 4 (d) the power to institute "necessary legal
proceeding against any person who shall commence to implement or
continue implementation of any project, plan or program within the Laguna
de Bay region without previous clearance from the LLDA."
Clearly, said provision was designed to invest the LLDA with sufficiently
broad powers in the regulation of all projects initiated in the Laguna Lake

region, whether by the government or the private sector, insofar as the

implementation of these projects is concerned. It was meant to deal with
cases which might possibly arise where decisions or orders issued pursuant
to the exercise of such broad powers may not be obeyed, resulting in the
thwarting of its laudabe objective. To meet such contingencies, then the
writs of mandamus and injunction which are beyond the power of the LLDA
to issue, may be sought from the proper courts.
Insofar as the implementation of relevant anti-pollution laws in the Laguna
Lake region and its surrounding provinces, cities and towns are concerned,
the Court will not dwell further on the related issues raised which are more
appropriately addressed to an administrative agency with the special
knowledge and expertise of the LLDA.
WHEREFORE, the petition is GRANTED. The temporary restraining order
issued by the Court on July 19, 1993 enjoining the City Mayor of Caloocan
and/or the City Government of Caloocan from dumping their garbage at the
Tala Estate, Barangay Camarin, Caloocan City is hereby made permanent.
SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.

[G.R. No. 160215. November 10, 2004]

HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner, vs.

NATIONAL IRRIGATION ADMINISTRATION, respondent.
DECISION
YNARES-SANTIAGO, J.:
Challenged in this petition for review on certiorari under Rule 45 is the
Decision of the Court of Appeals [1] dated October 29, 2002 and its Resolution
dated September 24, 2003[2] in CA-G.R. SP No. 44527,[3] reversing the
judgment of the Construction Industry Arbitration Commission (CIAC) dated
June 10, 1997[4] in CIAC Case No. 14-98 in favor of petitioner Hydro
Resources Contractors Corporation.
The facts are undisputed and are matters of record.
In a competitive bidding conducted by the National Irrigation
Administration (NIA) sometime in August 1978, Hydro Resources Contractors
Corporation (Hydro) was awarded Contract MPI-C-2 [5] involving the main civil

work of the Magat River Multi-Purpose Project. The contract price for the
work was pegged at P1,489,146,473.72 with the peso component thereof
amounting to P1,041,884,766.99 and the US$ component valued at
$60,657,992.37 at the exchange rate of P7.3735 to the dollar or
P447,361,706.73.
On November 6, 1978, the parties signed Amendment No. 1 [6] of the
contract whereby NIA agreed to increase the foreign currency allocation for
equipment financing from US$28,000,000.00 for the first and second years
of the contract to US$38,000,000.00, to be made available in full during the
first year of the contract to enable the contractor to purchase the needed
equipment and spare parts, as approved by NIA, for the construction of the
project. On April 9, 1980, the parties entered into a Memorandum of
Agreement[7] (MOA) whereby they agreed that Hydro may directly avail of
the foreign currency component of the contract for the sole purpose of
purchasing necessary spare parts and equipment for the project. This was
made in order for the contractor to avoid further delays in the procurement
of the said spare parts and equipment.
A few months after the MOA was signed, NIA and Hydro entered into a
Supplemental Memorandum of Agreement (Supplemental MOA) to include
among the items to be financed out of the foreign currency portion of the
Contract construction materials, supplies and services as well as equipment
and materials for incorporation in the permanent works of the Project. [8]
Work on the project progressed steadily until Hydro substantially
completed the project in 1982 and the final acceptance was made by NIA on
February 14, 1984.[9]
During the period of the execution of the contract, the foreign exchange
value of the peso against the US dollar declined and steadily deteriorated.
Whenever Hydros availment of the foreign currency component exceeded
the amount of the foreign currency payable to Hydro for a particular period,
NIA charged interest in dollars based on the prevailing exchange rate
instead of the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro
received payments from NIA in Philippine Pesos, NIA made deductions from
Hydros foreign currency component at the fixed exchange rate of P7.3735 to
US$1.00 instead of the prevailing exchange rate.
Upon completion of the project, a final reconciliation of the total
entitlement of Hydro to the foreign currency component of the contract was
made. The result of this final reconciliation showed that the total entitlement
of Hydro to the foreign currency component of the contract exceeded the
amount of US dollars required by Hydro to repay the advances made by NIA
for its account in the importation of new equipment, spare parts and tools.
Hydro then requested a full and final payment due to the underpayment of
the foreign exchange portion caused by price escalations and extra work
orders. In 1983, NIA and Hydro prepared a joint computation denominated
as the MPI-C-2 Dollar Rate Differential on Foreign Component of Escalation.
[10]
Based on said joint computation, Hydro was still entitled to a foreign
exchange differential of US$1,353,771.79 equivalent to P10,898,391.17.
Hydro then presented its claim for said foreign exchange differential to

NIA on August 12, 1983[11] but the latter refused to honor the same. Hydro
made several[12] demands to recover its claim until the same was turned
down with finality by then NIA Administrator Federico N. Alday, Jr. on January
6, 1987.[13]
On December 7, 1994, Hydro filed a request for arbitration with the
Construction Industry Arbitration Commission (CIAC). [14] In the said request,
Hydro nominated six (6) arbitrators. The case was docketed as CIAC Case
No. 18-94.
NIA filed its Answer with Compulsory Counterclaim[15] raising laches,
estoppel and lack of jurisdiction by CIAC as its special defenses. NIA also
submitted its six (6) nominees to the panel of arbitrators. After appointment
of the arbitrators, both parties agreed on the Terms of Reference [16] as well
as the issues submitted for arbitration.
On March 13, 1995, NIA filed a Motion to Dismiss [17] questioning CIACs
jurisdiction to take cognizance of the case. The latter, however, deferred
resolution of the motion and set the case for hearing for the reception of
evidence.[18] NIA moved[19] for reconsideration but the same was denied by
CIAC in an Order dated April 25, 1995.[20]
Dissatisfied, NIA filed a petition for certiorari and prohibition with the
Court of Appeals where the same was docketed as CA-G.R. SP No. 37180, [21]
which dismissed the petition in a Resolution dated June 28, 1996. [22]
NIA challenged the resolution of the Court of Appeals before this Court
in a special civil action for certiorari, docketed as G.R. No. 129169. [23]
Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor
of Hydro.[24] NIA filed a Petition for Review on Appeal before the Court of
Appeals, which was docketed as CA-G.R. SP No. 44527. [25]
During the pendency of CA-G.R. SP No. 44527 before the Court of
Appeals, this Court dismissed special civil action for certiorari docketed as
G.R. No. 129169 on the ground that CIAC had jurisdiction over the dispute
and directed the Court of Appeals to proceed with reasonable dispatch in the
disposition of CA-G.R. SP No. 44527. NIA did not move for reconsideration of
the said decision, hence, the same became final and executory on
December 15, 1999.[26]
Thereafter, the Court of Appeals rendered the challenged decision in
CA-G.R. SP No. 44527, reversing the judgment of the CIAC on the grounds
that: (1) Hydros claim has prescribed; (2) assuming that Hydro was entitled
to its claim, the rate of exchange should be based on a fixed rate; (3) Hydros
claim is contrary to R.A. No. 529;[27] (4) NIAs Certification of Non-ForumShopping was proper even if the same was signed only by counsel and not
by NIAs authorized representative; and (5) NIA did not engage in forumshopping.
Hydros Motion for Reconsideration was denied in Resolution of
September 24, 2003.
Hence, this petition.

Addressing first the issue of prescription, the Court of Appeals, in ruling

that Hydros claim had prescribed, reasoned thus:
Nevertheless, We find good reason to apply the principle of prescription
against HRCC. It is well to note that Section 25 of the General Conditions of
the subject contract provides (CIAC Decision, p. 15, Rollo, p. 57):
Any controversy or dispute arising out of or relating to this Contract which
cannot be resolved by mutual agreement shall be decided by the
Administrator within thirty (30) calendar days from receipt of a written
notice from Contractor and who shall furnish Contractor a written copy of
this decision. Such decision shall be final and conclusive unless within thirty
(30) calendar days from the date of receipt thereof, Contractor shall deliver
to NIA a written notice addressed to the Administrator that he desires that
the dispute be submitted to arbitration. Pending decision from arbitration,
Contractor shall proceed diligently with the performance of the Contract and
in accordance with the decision of the Administrator. (Emphasis and
Underscoring Ours)
Both parties admit the existence of this provision in the Contract (Petition, p.
4; Comment, p. 16; Rollo, pp. 12 and 131). Apropos, the following matters
are clear: (1) any controversy or dispute between the parties arising from
the subject contract shall be governed by the provisions of the contract; (2)
upon the failure to arrive at a mutual agreement, the contractor shall submit
the dispute to the Administrator of NIA for determination; and (3) the
decision of the Administrator shall become final and conclusive, unless
within thirty (30) calendar days from the date of receipt thereof, the
Contractor shall deliver to NIA a written notice addressed to the
Administrator that he desires that the dispute be submitted for arbitration.
Prescinding from the foregoing matters, We find that the CIAC erred in
granting HRCCs claim considering that the latters right to make such
demand had clearly prescribed. To begin with, on January 7, 1986, Cesar L.
Tech (NIAs Administrator at the time) informed HRCC in writing that after a
review of the additional points raised by the latter, NIA confirms its original
recommendation not to allow the said claim (Annex F; Rollo, p. 81; CIAC
Decision, p. 11; Rollo, p. 53). This should have propelled private respondent
to notify and signify to NIA of intention to submit the dispute to arbitration
pursuant to the provision of the contract. Yet, it did not. Instead it persisted
to send several letters to NIA reiterating the reason for its rejected claim
(CIAC Decision, p. 11; Rollo, p. 53).[28]
We disagree for the following reasons:
First, the appellate court clearly overlooked the fact that NIA, through
then Administrator Fedrico N. Alday, Jr., denied with finality Hydros claim
only on January 6, 1987 in a letter bearing the same date[29] which reads:
This refers to your letter dated November 7, 1986 requesting
reconsideration on your claim for payment of the Dollar Rate Differential of
Price Escalation in Contract No. MPI-C-2.
We have reviewed the relevant facts and issues as presented and the
additional points raised in the abovementioned letter in the context of the
Contract Documents and we find no strong and valid reason to reverse the
earlier decision of NIAs previous management denying your claim.

Therefore, we regret that we have to reiterate the earlier official stand of NIA
under its letter dated January 7, 1986, that confirms the original
recommendation which had earlier been presented in our 4th Indorsement
dated February 5, 1985 to your office.
In view hereof, we regret to say with finality that the claim cannot be
given favorable consideration. (Emphasis and italics supplied)
Hydro received the above-mentioned letter on January 27, 1987. [30]
Pursuant to Section 25 of the Contracts General Conditions (GC-25), Hydro
had thirty (30) days from receipt of said denial, or until February 26, 1987,
within which to notify NIA of its desire to submit the dispute to arbitration.
On February 18, 1987, Hydro sent a letter [31] to NIA, addressed to then
NIA Administrator Federico N. Alday, Jr., manifesting its desire to submit the
dispute to arbitration. The letter was received by NIA on February 19, 1987,
which was within the thirty-day prescriptive period.
Moreover, a circumspect scrutiny of the wording of GC-25 with regard to
the thirty-day prescriptive period shows that said proviso is intended to
apply to disputes which arose during theactual construction of the project
and not for controversies which occured after the project is completed. The
rationale for such a stipulation was aptly explained thus by the CIAC in its
Decision in CIAC Case No. 18-94:
In construction contracts, there is invariably a provision for interim
settlement of disputes. The right to settle disputes is given to the owner or
his representative, either an architect or engineer, designated as owners
representative, only for the purpose of avoiding delay in the completion of
the project. In this particular contract, that right was reserved to the NIA
Administrator. The types of disputes contemplated were those which may
have otherwise affected the progress of the work. It is very clear that this is
the purpose of the limiting periods in this clause that the dispute shall be
resolved by the Administrator within 30 days from receipt of a written notice
from the Contractor and that the Contractor may submit to arbitration this
dispute if it does not agree with the decision of the Administrator, and
Pending decision from arbitration, Contractor shall proceed diligently with
the performance of the Contract and in accordance with the decision of the
Administrator.
In this case, the dispute had arisen after completion of the Project. The
reason for the 30-day limitation no longer applies, and we find no legal basis
for applying it. Moreover, in Exhibit B, NIA Administrator Cesar L. Tech had,
instead of rendering an adverse decision, by signing the document with
HRCCs Onofre B. Banson, implicitly approved the payment of the foreign
exchange differential, but this payment could not be made because of the
opinion of Auditor Saldua and later of the Commission on Audit. [32]
Second, as early as April 1983, Hydro and NIA, through its Administrator
Cesar L. Tech, prepared the Joint Computation which shows that Hydro is
entitled to the foreign currency differential.[33] As correctly found by the CIAC,
this computation constitutes a written acknowledgment of the debt by the
debtor under Article 1155 of the Civil Code, which states:
ART. 1155. The prescription of actions is interrupted when they are filed

before the court, when there is a written extrajudicial demand by the

creditors, and when there is any written acknowledgment of the debt
by the debtor. (Emphasis and italics supplied)
Instead of upholding the CIACs findings on this point, the Court of
Appeals ruled that Cesar L. Techs act of signing the Joint Computation was
an ultra vires act. This again is patent error. It must be noted that the
Administrator is the highest officer of the NIA. Furthermore, Hydro has been
dealing with NIA through its Administrator in all of its transactions with
respect to the contract and subsequently the foreign currency differential
claim. The NIA Administrator is empowered by the Contract to grant or deny
foreign currency differential claims. It would be preposterous for the NIA
Administrator to have the power of granting claims without the authority to
verify the computation of such claims. Finally, the records of the case will
show that NIA itself never disputed its Administrators capacity to sign the
Joint Computation because it knew that the Administrator, in fact, had such
capacity.

a) On January 6, 1995, NIA voluntarily filed its written appearance, readily

submitted its Answer and asserted its own Counterclaims;
b) In the Compliance which accompanied the Answer, NIA also submitted its
six nominees to the Arbitral Tribunal to be constituted, among of which one
was eventually appointed to the tribunal;
c) NIA also actively participated in the deliberations for and the formulation
of the Terms of Reference during the preliminary conference set by CIAC;
and
d) For the purpose of obviating the introduction of testimonial evidence on
the authenticity and due execution of its documentary evidence, NIA even
had examined, upon prior request to Hydro, all of the documents which the
latter intended to present as evidentiary exhibits for the said arbitration
case.
We now come to the issue of whether or not the provisions of R.A. No.
529, otherwise known as an Act To Assure Uniform Value to Philippine Coin
And Currency, is applicable to Hydros claim.

Even assuming for the sake of argument that the Administrator had no
authority to bind NIA, the latter is already estopped after repeatedly
representing to Hydro that the Administrator had such authority. A
corporation may be held in estoppel from denying as against third persons
the authority of its officers or agents who have been clothed by it with
ostensible or apparent authority.[34] Indeed

The Contract between NIA and Hydro is an internationally tendered

contract considering that it was funded by the International Bank for
Reconstruction and Development (IBRD). As a contract funded by an
international organization, particularly one recognized by the Philippines, [37]
the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100
amended the provisions of R.A. 529 thus:

. . . The rule is of course settled that [a]lthough an officer or agent acts

without, or in excess of, his actual authority if he acts within the scope of an
apparent authority with which the corporation has clothed him by holding
him out or permitting him to appear as having such authority, the
corporation is bound thereby in favor of a person who deals with him in
good faith in reliance on such apparent authority, as where an officer is
allowed to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable time.. . .

SECTION 1. Section one of Republic Act Numbered Five hundred and twentynine, entitled An Act to Assure Uniform Value of Philippine Coin and
Currency, is hereby amended to read as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which
provisions purports to give the obligee the right to require payment in gold
or in a particular kind of coin or currency other than Philippine currency or in
an amount of money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) transactions
where the funds involved are the proceeds of loans or investments
made directly or indirectly, through bona fide intermediaries or agents,
by foreign governments, their agencies and instrumentalities, and
international financial and banking institutions so long as the funds
are identifiable, as having emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds; (c)
forward exchange transaction entered into between banks or between banks
and individuals or juridical persons; (d) import-export and other international
banking, financial investment and industrial transactions. With the exception
of the cases enumerated in items (a), (b), (c) and (d) in the foregoing
provisions, in which bases the terms of the parties agreement shall apply,
every other domestic obligation heretofore or hereafter incurred, whether or
not any such provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin or currency

[35]

Third, NIA has clearly waived the prescriptive period when it continued
to entertain Hydros claim regarding new matters raised by the latter in its
letters to NIA and then issuing rulings thereon. In this regard, Article 1112 of
the Civil Code provides that:
ART. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the
right acquired. (Emphasis and italics supplied)
Certainly, when a party has renounced a right acquired by prescription
through its actions, it can no longer claim prescription as a defense. [36]
Fourth, even assuming that NIA did not waive the thirty-day prescriptive
period, it clearly waived the effects of such period when it actively
participated in arbitration proceedings through the following acts:

which at the time of payment is legal tender for public and private debts:
Provided,That if the obligation was incurred prior to the enactment of this
Act and required payment in a particular kind of coin or currency other than
Philippine currency, it shall be discharged in Philippine currency measured at
the prevailing rates of exchange at the time the obligation was incurred,
except in case of a loan made in a foreign currency stipulated to be payable
in the same currency in which case the rate of exchange prevailing at the
time of the stipulated date of payment shall prevail. All coin and currency,
including Central Bank notes, heretofore and hereafter issued and declared
by the Government of the Philippines shall be legal tender for all debts,
public and private.
SECTION 2. This Act shall take effect upon its approval. (Emphasis and italics
supplied)

instances like these, NIA actually charged Hydro interest in foreign currency
computed at the prevailing exchange rate and not at the fixed rate. NIA now
insists that the exchange rate should be computed according to the fixed
rate and not the escalating rate it actually charged Hydro.

Even assuming ex gratia argumenti that R.A. No. 529 is applicable, it is

still erroneous for the Court of Appeals to deny Hydros claim because
Section 1 of R.A. No. 529 states that only the stipulation requiring payment
in foreign currency is void, but not the obligation to make payment. This can
be gleaned from the provision that every other domestic obligation
heretofore or hereafter incurred shall be discharged upon payment in any
coin and currency which at the time is legal tender for public and private
debts. In Republic Resources and Development Corporation v. Court of
Appeals,[38] it was held:

. . . A principle of equity and natural justice, this is expressly adopted under

Article 1431 of the Civil Code, and pronounced as one of the conclusive
presumptions under Rule 131, Section 3(a) of the Rules of Court, as follows:
Whenever a party has, by his own declaration, act or omission, intentionally
and deliberately led another to believe a particular thing to be true, and to
act upon such a belief he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it.
Petitioner, having performed affirmative acts upon which the respondents
based their subsequent actions, cannot thereafter refute his acts or renege
on the effects of the same, to the prejudice of the latter. To allow him to do
so would be tantamount to conferring upon him the liberty to limit his
liability at his whim and caprice, which is against the very principles of
equity and natural justice[44]

. . . it is clear from Section 1 of R.A. No. 529 that what is declared null and
void is the provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provision
purports to give the obligee the right to require payment in gold or in a
particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby and not the
contract or agreement which contains such proscribed provision.
(Emphasis supplied)
More succinctly, we held in San Buenaventura v. Court of Appeals [39]
that
It is to be noted under the foregoing provision that while an agreement to
pay an obligation in a currency other than Philippine currency is null and
void as contrary to public policy, what the law specifically prohibits is
payment in currency other than legal tender but does not defeat a
creditors claim for payment. A contrary rule would allow a person to
profit or enrich himself inequitably at anothers expense. (Emphasis supplied)
It is thus erroneous for the Court of Appeals to disallow petitioners claim
for foreign currency differential because NIAs obligation should be converted
to Philippine Pesos which was legal tender at the time. [40]
The next issue to be resolved is whether or not Hydros claim should be
computed at the fixed rate of exchange.
When the MOA[41] and the Supplemental MOA[42] were in effect, there
were instances when the foreign currency availed of by Hydro exceeded the
foreign currency payable to it for that particular Progress Payment. In

Suffice it to state that this flip-flopping stance of NIA of adopting and

discarding positions to suit its convenience cannot be countenanced. A
person who, by his deed or conduct has induced another to act in a
particular manner, is barred from adopting an inconsistent position, attitude
or course of conduct that thereby causes loss or injury to another. [43] Indeed,
the application of the principle of estoppel is proper and timely in heading
off NIAs efforts at renouncing its previous acts to the prejudice of Hydro
which had dealt with it honestly and in good faith.

NIA is, therefore, estopped from invoking the contractual stipulation

providing for the fixed rate to justify a lower computation than that claimed
by Hydro. It cannot be allowed to hide behind the very provision which it
itself continuously violated. [45] An admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as
against the person relying thereon. [46] A party may not go back on his own
acts and representations to the prejudice of the other party who relied upon
them.[47]
NIA was guilty of forum-shopping. Forum-shopping refers to the act of
availing oneself of several judicial remedies in different courts, either
simultaneously or successively, substantially founded on the same
transaction and identical material facts and circumstances, raising basically
the like issues either pending in, or already resolved by, some other court. [48]
It has been characterized as an act of malpractice that is prohibited and
condemned as trifling with the courts and abusing their processes. It
constitutes improper conduct which tends to degrade the administration of
justice. It has also been described as deplorable because it adds to the
congestion of the heavily burdened dockets of the courts. [49] The test in
determining the presence of this pernicious practice is whether in the two or
more cases pending, there is identity of: (a) parties; (b) rights or causes of
action; and (c) reliefs sought.[50]
Applying the foregoing yardstick to the instant case, it is clear that NIA

violated the prohibition against forum-shopping. Besides filing CA-G.R. SP

No. 44527 wherein the Court of Appeals decision is the subject of appeal in
this proceeding, NIA previously filed CA-G.R. SP No. 37180 and G.R. No.
129169 which is a special civil action for certiorari. In all three cases, the
parties are invariably Hydro and NIA. In all three petitions, NIA raised
practically the same issues [51] and in all of them, NIAs prayer was the same:
to nullify the proceedings commenced at the CIAC.
It must be pointed out in this regard that the first two petitions namely,
CA-G.R. SP No. 37180 and G.R. No. 129169 are both original actions. Since
NIA failed to file a petition for review on certiorari under Rule 45 of the Rules
of Court challenging the decision of the appellate court in CA-G.R. SP No.
37180 dismissing its petition, it opted to file an original action for certiorari
under Rule 65 with this Court where the same was docketed as G.R. No.
129169. For its failure to appeal the judgments in CA-G.R. SP No. 37180 and
G.R. No. 129169, NIA is necessarily bound by the effects of those decisions.
The filing of CA-G.R. SP No. 44527, which raises the issues already passed
upon in both cases is a clear case of forum-shopping which merits outright
dismissal.
The issue of whether or not the Certification of Non-Forum Shopping is
valid despite that it was signed by NIAs counsel must be answered in the
negative. Applicable is the ruling inMariveles Shipyard Corp. v. Court of
Appeals, et al.:[52]
It is settled that the requirement in the Rules that the certification of nonforum shopping should be executed and signed by the plaintiff or the
principal means that counsel cannot sign said certification unless clothed
with special authority to do so. The reason for this is that the plaintiff or
principal knows better than anyone else whether a petition has previously
been filed involving the same case or substantially the same issues. Hence,
a certification signed by counsel alone is defective and constitutes
a valid cause for dismissal of the petition. In the case of natural
persons, the Rule requires the parties themselves to sign the certificate of
non-forum shopping. However, in the case of the corporations, the physical
act of signing may be performed, on behalf of the corporate entity, only by
specifically authorized individuals for the simple reason that
corporations, as artificial persons, cannot personally do the task themselves.
. . It cannot be gainsaid that obedience to the requirements of
procedural rule[s] is needed if we are to expect fair results
therefrom. Utter disregard of the rules cannot justly be rationalized
by harking on the policy of liberal construction. (Emphasis and italics
supplied)
In this connection, the lawyer must be specifically authorized in order to
validly sign the certification.[53]
In closing, we restate the rule that the courts will not interfere in
matters which are addressed to the sound discretion of government
agencies entrusted with the regulation of activities coming under the special
technical knowledge and training of such agencies. [54]
An action by an administrative agency may be set aside by the judicial

department only if there is an error of law, abuse of power, lack of

jurisdiction or grave abuse of discretion clearly conflicting with the letter and
spirit of the law.[55] In the case at bar, there is no cogent reason to depart
from the general rule because the action of the CIAC conforms rather than
conflicts with the governing statutes and controlling case law on the matter.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 44527 dated October 29, 2002 and the Resolution
dated September 24, 2003 are REVERSED and SET ASIDE. The Decision of
the Construction Industry Arbitration Commission dated June 10, 1997 in
CIAC Case No. 18-94 is REINSTATED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ.,
concur.

DECISION
CARPIO MORALES, J.:
Being assailed via petition for review on certiorari under Rule 45 of the
Rules of Court is the August 28, 2002 Decision [1] of the Court of Appeals (CA)
in CA-G.R. SP No. 49406 which dismissed the petition for review of Liberty
Ayo-Alburo (petitioner).
The controversy in the case at bar involves a parcel of private
agricultural land primarily devoted to rice with an area of 1.787 hectares
situated at Barangay San Pedro, Alangalang, Leyte (the property) which was
owned by Dr. Victoria Marave-Tiu.
On October 21, 1972, then President Marcos issued Presidential Decree
No. 27 (P.D. 27),[2] otherwise known as the Tenant Emancipation Decree,
which transfers to qualified tenant-farmers the ownership of the lands they
till. The Decree is applicable to agricultural lands primarily devoted to rice
and corn.
As the property was covered by Operation Land Transfer pursuant to
P.D. 27, Dr. Marave-Tiu submitted to the Department of Agrarian Reform
(DAR) a list of the names of her farmer-tenants including petitioners
adoptive father Estanislao Ayo (Estanislao) who was also administrator of the
property.
The property was eventually awarded to Estanislao who, being at that
time already old and sickly, requested that it be instead registered in the
name of petitioner. The request was granted.[3]
Certificate of Land Transfer No. D-038564[4] covering the property was
thus issued in petitioners name on April 23, 1984. And Emancipation Patent
No. A-025173[5] with the corresponding Transfer Certificate of Title (TCT) No.
TE-775[6] covering the property was subsequently issued in petitioners favor
on March 5, 1987.
The Department of Agrarian Reform, represented by the Provincial
Agrarian Reform Officer of Leyte and its Regional Director for Region VIII, and
Uldarico Matobato (respondent) later filed a Petition dated April 2, 1996
before the Provincial Agrarian Reform Adjudicator (PARAD) of Tanghas,
Tolosa, Leyte, docketed as DARAB Case No. R-0801-0016-96, for the
cancellation of the Certificate of Land Transfer and Emancipation Patent
issued in petitioners favor and for the issuance of a new certificate and
patent in respondents name.
[G. R. No. 155181. April 15, 2005]

LIBERTY AYO-ALBURO,
respondent.

petitioner,

vs.

ULDARICO

MATOBATO,

Respondent alleged that since 1966 until the filing of the petition before
the PARAD, he had been cultivating the property and giving shares of the
harvest as rentals to petitioner; and that the Certificate of Land Transfer and
Emancipation Patent had been issued to petitioner due to a possible
oversight, inadvertence and excusable neglect, she not having ever been
engaged in the actual cultivation and tillage of the property.
As of April 20, 1996, petitioner had fully paid to the Land Bank the

amortization for the property.[7]

In her Answer
dated May 25, 1996, petitioner countered that
respondent, whose farm lot was adjacent to the property, had indeed
planted rice seedlings on the property but that was only in 1985 and only
upon tolerance by her family, respondent having pleaded to her uncle,
Mauricio Ayo, to allow him to plant his excess rice seedlings thereon.
[8]

By Decision[9] of September 25, 1996, the PARAD found in respondents

favor. The dispositive portion of the decision reads, quoted verbatim:
WHEREFORE, premises considered dicision (sic) is hereby rendered in favor
of the private petitioner and against the private respondent:
1. Ordering the Register of Deeds of Leyte to cancell (sic) TCT NO. TE-775
with Emancipation Patent No. A-025173 containg (sic) an area of 17,870
square meters located at Barangay San Pedro, Alangalang, Leyte in the
name of Liberty Ayo;
2. Declaring the said title null and void;
3. Ordering the DAR Provincial Office, Tanghas, Tolosa, Leyte, Attention:
Operations Division to process the reallocation of the land covered by TCT
No. TE 775, EP No. A-025173 registered in the name of Liberty Ayo in favor
of Uldarico Matobato;
4. Ordering the Register of Deeds Province of Leyte in coordination with the
DAR Provincial Office, Tanghas, Tolosa, Leyte to issue a new title and register
covering subject landholding in favor of Uldarico Matobato as reallocatee
and;
5. Ordering the forfieture (sic) of the land amortization payment paid in the
name of Liberty Ayo in favor of the reallocatee Uldarico Matobato.
(Underscoring supplied)
SO ORDERED.[10]
In finding for respondent, the PARAD reasoned:
From 1985 up to the present, it is the private petitioner who tilled the land
and gave shares to the private respondent. He also paid the land
amortization with the Land Bank in 1985 and 1986. In effect private
respondent has taken the shoes of a landlord, an inimical practice the
Agrarian Reform Program among others is designed to abolish if not
eradicate. Having tolerated private petitioner in the cultivation of the land in
question and received shares for the past eleven (11) years is no different at
all from having installed a tenant. Farmer beneficiaries are prohibited from
installing tenants on the land they acquired under P.D. 27. xxx even a
transfer of the right to use or cultivate the land constitutes a grave violation
of P.D. 27 and its implementing rules and regulation. xxx
xxx the sanction is not limited to cancellation of the Emancipation Patent
(EP) and Certificate of Landownership (CLOA) but among others reallocation
of the land to qualified beneficiary.
A perusal of the evidence on record does not show of any disqualification on
the part of private petitioner as reallocatee of the land in question. The only
issue raised against him is that he is not a tenant of the Maraves Estate. But
it is fact that in 1985, private respondent and her uncle, Mauricio Ayo have
allowed private petitioner to cultivate the land continuously up to 1996,
when the relationship of the parties became estranged. In 1986 when

private petitioner did not give shares private respondent through her uncle,
Mauricio Ayo moved to get back the land. Nevertheless, private petitioner
continued the cultivation because of their friendship, lack of funds on the
part of private respondent to operate the cultivation, assurance of her share
every harvest and the payment of the land amortization with Land Bank by
the private petitioner. It maybe posed therefore who now deserves the land
under P.D. 27? Admittedly, Estanislao Ayo, the administrator-tenant had it
registered in the name of private respondent during the land distribution in
1981 a short cut to succession because Estanislao Ayo was already sickly in
fact he died on February 5, 1985 after the CLT was issued to private
respondent in April of 1984. Perhaps, for humanitarian reason the DAR
Officials of Alangalang, Leyte, Oscar Ripalda and Romulo Bacale did not
consider the identification of private respondent irregular on the honest
belief that upon the death of Estanislao Ayo, private respondent, assuming
that she is the only heir, would succeed (sic) the land anyway. Nevertheless,
the stubborn fact remains that from 1985 continuously up to the present it is
private petitioner who cultivated the land as tenant with private respondent
as landlord.[11]
Petitioner filed a Motion for Reconsideration [12] of the PARAD decision
but it was denied for lack of merit by Order [13] of November 7, 1996 in this
wise:
In the case at bar, it has been established that [respondent] has for long a
period been in cultivation of the land in question and have (sic) shared
produce with [petitioner].
Finally, cancellation of Emancipation Patent and its reallocation to other
beneficiary is governed by PD 27, Executive Order No. 228 and its
implementing rules and regulation. Acquisition of land under PD 27 is
distinct from other system of titling of alienable and disposable land in that
under PD 27 the title may be cancelled even after one (1) year from
issuance of title if it (sic) shown that the beneficiary has transferred its use
to another person before full payment of its land value.[14] (Underscoring
supplied)
On appeal by petitioner to the Department of Agrarian Reform
Adjudication Board (DARAB), the DARAB, by Decision [15] of June 29, 1998,
affirmed in toto the September 25, 1996 PARAD Decision.
Petitioner thus filed before the CA a Petition for Review [16] which, by
Decision of August 28, 2002, denied the same.
Apart from echoing the ratiocination of the DARAB, the CA explained:
Even assuming that the Emancipation Patent issued to the petitioner is valid,
a careful perusal of the case shows that she had committed a violation of
the terms and conditions of the Land Title xxx
Markedly absent in the case of the petitioner is the element of personal
cultivation. Both the PARAD and the DARAB found that the petitioner herself
did not actually cultivate the land, nor did her immediate family or farm
household. Instead, she permitted and actually engaged the service of the
private respondent to do the farm work in exchange for the payment of the
land amortization and shares in the produce of the land.

In Administrative Order No. 3, Series of 1990, the Municipal Agrarian Reform

Officer (MARO) or the duly designated official covering the area is authorized
to cancel the Order of Award (OA)/Certificate of Land Transfer (CLT) and issue
to qualified/actual cultivator/occupant if the applicant (beneficiary), with
Order of Award/Certificate of Land Transfer, is not the actual cultivator
occupant of the land in question.
Likewise, Administrative Order No. 02, Series of 1994, provides that:
The decision of the DARAB may include cancellation of registered EP/CLOA,
reimbursement of lease rental as amortization to ARBs (Agrarian Reform
Beneficiaries), forfeiture of amortization, ejectment of ARB, reallocation of
the land to qualified beneficiary, perpetual disqualification to become an
ARB, reimbursement of amortization payment and value of improvements,
and other ancillary matters related to the cancellation of the EP or CLOA. [17]
(Underscoring supplied)

COURSE OF PROCEEDINGS, OR SO FAR SANCTIONED SUCH DEPARTURE BY

THE DEPARTMENT OF AGRARIAN REFORM AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION WHEN IT AFFIRMED THE DECISION OF THE
LATTER BASED ON ISSUES AND FACTS NOT DULY RAISED IN THE COMPLAINT
BELOW.[19]

Hence, the present petition for review on certiorari [18] faulting the CA as
follows:

With the emancipation of farmer-tenants, they were deemed owners of

the land they were tilling and were granted the right to possess, cultivate
and enjoy the landholding for themselves.[23]

I
THE COURT OF APPEALS HAD DECIDED THE INSTANT CASE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISIONS OF
THE SUPREME COURT WHEN IT SET ASIDE THE EMANCIPATION PATENT OF
PETITIONER AFTER IT HAD LONG BEEN ISSUED
II
THE COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF PROCEEDINGS, OR SO FAR SANCTIONED SUCH DEPARTURE BY
THE DEPARTMENT OF AGRARIAN REFORM AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION WHEN IT AFFIRMED THAT PETITIONER WAS
GUILTY OF VIOLATING THE TERMS AND CONDITIONS OF THE CERTIFICATE OF
LAND TRANSFER AND EMANCIPATION PATENT.
III
THE COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF PROCEEDINGS, OR SO FAR SANCTIONED SUCH DEPARTURE BY
THE DEPARTMENT OF AGRARIAN REFORM AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION WHEN IT AFFIRMED THE AWARD OF THE
PROPERTY IN FAVOR OF PRIVATE RESPONDENT.
IV
THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT
THERETOFORE DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT
IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE
DECISIONS OF THE SUPREME COURT WHEN IT ORDERED THE FORFEITURE
OF THE AMORTIZATION PAID BY PETITIONER IN FAVOR OF PRIVATE
RESPONDENT.
V
THE COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL

P.D. 27 was anchored upon the fundamental objective of addressing

valid and legitimate grievances of land ownership giving rise to violent
conflict and social tension in the countryside. [20] It called for reformation to
start with the emancipation of the tiller from the bondage of the soil [21] and
encourage a more productive agricultural base of the countrys economy. To
achieve this end, the decree laid down a system for the purchase by small
farmers, long recognized as the backbone of the economy, of the lands they
were tilling.[22]

Petitioner thus argues that since an emancipation patent and a TCT had
been issued to her, her ownership of the property had become conclusive
and no longer open to doubt or controversy.[24] Petitioners argument fails.
The mere issuance of an emancipation patent does not put the
ownership of the agrarian reform beneficiary beyond attack and scrutiny. [25]
Emancipation patents may be cancelled for violations of agrarian laws, rules
and regulations. Section 12(g) of P.D. 946[26] (issued on June 17, 1976)
vested the then Court of Agrarian Relations with jurisdiction over cases
involving the cancellation of emancipation patents issued under P.D. 266. [27]
Exclusive jurisdiction over such cases was later lodged with the DARAB
under Section 1 of Rule II of the DARAB Rules of Procedure.
Aside from ordering the cancellation of emancipation patents, the
DARAB may order reimbursement of lease rental as amortization to agrarian
reform beneficiaries, forfeiture of amortization, ejectment of beneficiaries,
reallocation of the land to qualified beneficiaries, perpetual disqualification
to become agrarian reform beneficiaries, reimbursement of amortization
payment and value of improvements, and other ancillary matters related to
the cancellation of emancipation patents.[28]
Petitioner nevertheless goes on to argue that the CA, DARAB and PARAD
erred in finding her guilty of violating the terms and conditions of the
certificate of land transfer and emancipation patent, she asserting that
private respondent was not a bona fide tenant of the property and thus
praying for an assessment of the evidence.
Only questions of law, however, can be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. Findings of fact by the CA are
final and conclusive and cannot be reviewed on appeal to the Supreme
Court, more so if the factual findings of the appellate court coincide with
those of the DARAB, an administrative body with expertise on matters within
its specific and specialized jurisdiction. [29] This Court is not thus duty-bound
to analyze and weigh all over again the evidence already considered in the

proceedings below, subject to certain exceptions.[30]

Costs against petitioner.

At all events, petitioner has not shown that her case falls under any of
the recognized instances when the factual findings of the CA may be
reviewed and set aside.

SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ.,
concur.

By admittedly allowing respondent to cultivate the property and

receiving the owners share of the produce, petitioner implicitly recognized
respondent as tenant. There thus arose between them an implied contract of
tenancy.
As Felizardo v. Fernandez[31] held:
A tenancy relationship may be established either verbally or in writing,
expressly or impliedly xxx
Although petitioners did not expressly give their consent to a leasehold
relation with respondent, in our view petitioners consented to the tenancy
albeit impliedly by allowing respondent to cultivate the landholding in
question and by receiving from him the landowners share of the harvest
over a considerable length of time.[32]
Petitioner furthermore argues that the amortization payments she made
to the Land Bank in the amount of P9,825.80 should not have been forfeited
in favor of respondent. On this score, the Court finds for petitioner. While the
DARAB has jurisdiction to order forfeiture of amortizations paid by an
agrarian reform beneficiary,[33] forfeiture should be made in favor of the
government and not to the reallocatee of the landholding.
Finally, petitioner argues that the CA erred when it affirmed the
decisions of the PARAD and DARAB which resolved to cancel petitioners
emancipation patent for violation of the terms and conditions on the patent
whereas respondents bases of filing of the complaint before the PARAD were
inadvertence, oversight or excusable neglect.
Petitioners argument is bereft of merit. It is the material allegations of
fact in the complaint, not the legal conclusion or the prayer made therein,
that determines the relief to which the plaintiff is entitled. [34]
Significantly, the power of adjudication, vested then in the now defunct
Court of Agrarian Relations and now in the DARAB, is not restricted to the
specific relief claimed or demands made by the parties to the dispute, but
may include in the order or decision any matter or determination which may
be deemed necessary and expedient for the purpose of settling the dispute
or preventing further disputes, provided said matter for determination has
been established by competent evidence during the hearing. [35] And the
DARAB is not bound by technical rules of procedure and evidence, to the end
that agrarian reform disputes and other issues will be adjudicated in a just,
expeditious and inexpensive proceeding.[36]
WHEREFORE, the assailed Decision of the Court of Appeals dated
August 28, 2002 is AFFIRMED WITH the MODIFICATION, in accordance with
the foregoing discussion, that the land amortization payments in the amount
of P9,828.50 made by petitioner, Liberty Ayo-Alburo, are forfeited in favor of
the government.

[G.R. No. 124293. September 24, 2003]

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS,

COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS,
INC., respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a
shipyard is a public utility whose capitalization must be sixty percent (60%)

owned by Filipinos. Our resolution of this issue will determine the fate of the
shipbuilding and ship repair industry. It can either spell the industrys demise
or breathe new life to the struggling but potentially healthy partner in the
countrys bid for economic growth. It can either kill an initiative yet in its
infancy, or harness creativity in the productive disposition of government
assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development
Corporation (NIDC), a government corporation, entered into a Joint Venture
Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) for the construction, operation and management of the Subic
National Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC
and KAWASAKI will contribute P330 million for the capitalization of PHILSECO
in the proportion of 60%-40% respectively.[1] One of its salient features is the
grant to the parties of the right of first refusal should either of them
decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [PHILSECO] to any third party without giving the other under the same
terms the right of first refusal. This provision shall not apply if the transferee
is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI
affiliate.[2]
On November 25, 1986, NIDC transferred all its rights, title and interest
in PHILSECO to the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to,
and possession of, conserve, manage and dispose of non-performing assets
of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT
wherein the latter was named the trustee of the National Governments
share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Governments
shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%.[3]
In the interest of the national economy and the government, the COP
and the APT deemed it best to sell the National Governments share in
PHILSECO to private entities. After a series of negotiations between the APT
and KAWASAKI, they agreed that the latters right of first refusal under the
JVA be exchanged for the right to top by five percent (5%) the highest bid for
the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the
right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI) would exercise its right to top. [4]
At the pre-bidding conference held on September 18, 1993, interested
bidders were given copies of the JVA between NIDC and KAWASAKI, and of

the Asset Specific Bidding Rules (ASBR) drafted for the National
Governments 87.6% equity share in PHILSECO. [5] The provisions of the ASBR
were explained to the interested bidders who were notified that the bidding
would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Governments equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECOs
outstanding capital stock), which will be sold as a whole block in accordance
with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Governments 87.67% equity in
PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees
at its regular meeting following the bidding, for the purpose of determining
whether or not it should be endorsed by the APT Board of Trustees to the
COP, and the latter approves the same. The APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the
highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their Option to Top the Highest Bid by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
exercise their Option to Top the Highest Bid, they shall so notify the APT
about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%)
thereof within the thirty (30)-day period mentioned in paragraph 6.0 above.
APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. declaring them as the preferred bidder and they
shall have a period of ninety (90) days from the receipt of the APTs notice
within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
fail to exercise their Option to Top the Highest Bid within the thirty (30)-day
period, APT will declare the highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with appropriate
care these rules, the official bid forms, including any addenda or
amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and all
conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidders proposal. Failure on the part of the bidder to so examine
and inform itself shall be its sole risk and no relief for error or omission will
be given by APT or COP. . ..[6]

At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc. submitted a bid of Two Billion and Thirty Million Pesos
(P2,030,000,000.00) with an acknowledgement of KAWASAKI/Philyards right
to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to
thirty (30) days to act on APTs recommendation based on the result of this
bidding. Should the COP approve the highest bid, APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the
highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their Option to Top the Highest Bid by offering a bid
equivalent to the highest bid plus five (5%) percent thereof. [7]
As petitioner was declared the highest bidder, the COP approved the
sale on December 3, 1993 subject to the right of Kawasaki Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the
bidding rules.[8]
On December 29, 1993, petitioner informed APT that it was protesting
the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group,
ICTSI and Insular Life violated the ASBR because the last four (4) companies
were the losing bidders thereby circumventing the law and prejudicing the
weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c)
giving the same option to top to PHI constituted unwarranted benefit to a
third party; (d) no right of first refusal can be exercised in a public bidding or
auction sale; and (e) the JG Summit consortium was not estopped from
questioning the proceedings.[9]
On February 2, 1994, petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7, 1994,
the APT notified petitioner that PHI had exercised its option to top the
highest bid and that the COP had approved the same on January 6, 1994. On
February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.
[10]
Consequently, petitioner filed with this Court a Petition for Mandamus
under G.R. No. 114057. On May 11, 1994, said petition was referred to the
Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for
lack of merit. It ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right of first refusal
and the right to top that was exercised by KAWASAKI/PHI, and that the
matter must be brought by the proper party in the proper forum at the
proper time and threshed out in a full blown trial. The Court of Appeals
further ruled that the right of first refusal and the right to top are prima facie
legal and that the petitioner, by participating in the public bidding, with full
knowledge of the right to top granted to KASAWASAKI/Philyards is . .
.estopped from questioning the validity of the award given to Philyards after
the latter exercised the right to top and had paid in full the purchase price of
the subject shares, pursuant to the ASBR. Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging grave

abuse of discretion on the part of the appellate court.[11]

On November 20, 2000, this Court rendered the now assailed Decision
ruling among others that the Court of Appeals erred when it dismissed the
petition on the sole ground of the impropriety of the special civil action of
mandamus because the petition was also one of certiorari.[12] It further ruled
that a shipyard like PHILSECO is a public utility whose capitalization must be
sixty percent (60%) Filipino-owned. [13] Consequently, the right to top
granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted
for the sale of the 87.67% equity of the National Government in PHILSECO is
illegal---not only because it violates the rules on competitive bidding--- but
more so, because it allows foreign corporations to own more than 40%
equity in the shipyard.[14] It also held that although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding, it
cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof.[15] Thus, this Court voided the transfer of the
national governments 87.67% share in PHILSECO to Philyard Holdings, Inc.,
and upheld the right of JG Summit, as the highest bidder, to take title to the
said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The
assailed Decision and Resolution of the Court of Appeals are REVERSED
and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two
Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid deposit plus
interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid
deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates
of stocks representing 87.6% of PHILSECOs total
capitalization;
(d) return to private respondent PHGI the amount of Two
Billion One Hundred Thirty-One Million Five Hundred
Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to
PHI.
SO ORDERED.[16]
In separate Motions for Reconsideration,[17] respondents submit three
basic issues for our resolution: (1) Whether PHILSECO is a public utility; (2)
Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal
only up to 40% of the total capitalization of PHILSECO; and (3) Whether the
right to top granted to KAWASAKI violates the principles of competitive
bidding.

I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold

that PHILSECO is not a public utility for the following reasons:

First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying
the public with some commodity or service of public consequence such as
electricity, gas, water, transportation, telephone or telegraph service. [18] To
constitute a public utility, the facility must be necessary for the maintenance
of life and occupation of the residents. However, the fact that a business
offers services or goods that promote public good and serve the interest of
the public does not automatically make it a public utility. Public use is not
synonymous with public interest. As its name indicates, the term public
utility implies public use and service to the public. The principal
determinative characteristic of a public utility is that of service to, or
readiness to serve, an indefinite public or portion of the public as such which
has a legal right to demand and receive its services or commodities. Stated
otherwise, the owner or person in control of a public utility must have
devoted it to such use that the public generally or that part of the public
which has been served and has accepted the service, has the right to
demand that use or service so long as it is continued, with reasonable
efficiency and under proper charges.[19] Unlike a private enterprise which
independently determines whom it will serve, a public utility holds out
generally and may not refuse legitimate demand for service. [20] Thus, in
Iloilo Ice and Cold Storage Co. vs. Public Utility Board, [21] this Court
defined public use, viz:
Public use means the same as use by the public. The essential feature of the
public use is that it is not confined to privileged individuals, but is open to
the indefinite public. It is this indefinite or unrestricted quality that gives it
its public character. In determining whether a use is public, we must look not
only to the character of the business to be done, but also to the proposed
mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of
jurisdiction of the public utility commission. There must be, in general, a
right which the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is
not synonymous with public interest. The true criterion by which to
judge the character of the use is whether the public may enjoy it by
right or only by permission.[22] (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal
clear that a shipyard cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired. [23]
Its nature dictates that it serves but a limited clientele whom it may choose
to serve at its discretion. While it offers its facilities to whoever may wish to
avail of its services, a shipyard is not legally obliged to render its
services indiscriminately to the public. It has no legal obligation to
render the services sought by each and every client. The fact that it publicly
offers its services does not give the public a legal right to demand that such
services be rendered.
There can be no disagreement that the shipbuilding and ship repair

industry is imbued with public interest as it involves the maintenance of the

seaworthiness of vessels dedicated to the transportation of either persons or
goods. Nevertheless, the fact that a business is affected with public interest
does not imply that it is under a duty to serve the public. While the business
may be regulated for public good, the regulation cannot justify the
classification of a purely private enterprise as a public utility. The legislature
cannot, by its mere declaration, make something a public utility which is not
in fact such; and a private business operated under private contracts
with selected customers and not devoted to public use cannot, by
legislative fiat or by order of a public service commission, be
declared a public utility, since that would be taking private property for
public use without just compensation, which cannot be done consistently
with the due process clause.[24]
It is worthy to note that automobile and aircraft manufacturers, which
are of similar nature to shipyards, are not considered public utilities despite
the fact that their operations greatly impact on land and air transportation.
The reason is simple. Unlike commodities or services traditionally regarded
as public utilities such as electricity, gas, water, transportation, telephone or
telegraph service, automobile and aircraft manufacturing---and for that
matter ship building and ship repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better
view of the intent of any law. The succession of laws affecting the status of
shipyards ought not to obliterate, but rather, give us full picture of the intent
of the legislature. The totality of the circumstances, including the
contemporaneous interpretation accorded by the administrative bodies
tasked with the enforcement of the law all lead to a singular conclusion: that
shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility
Commission (PUC) until its repeal by Commonwealth Act No. 146,
establishing the Public Service Commission (PSC), a shipyard, by legislative
declaration, has been considered a public utility. [25] A Certificate of Public
Convenience (CPC) from the PSC to the effect that the operation of the said
service and the authorization to do business will promote the public interests
in a proper and suitable manner is required before any person or corporation
may operate a shipyard.[26] In addition, such persons or corporations should
abide by the citizenship requirement provided in Article XIII, section 8 of the
1935 Constitution,[27] viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the
operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or other entities organized under the laws of
the Philippines, sixty per centum of the capital of which is owned by
citizens of the Philippines, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years.
No franchise or right shall be granted to any individual, firm or corporation,
except under the condition that it shall be subject to amendment, alteration,
or repeal by the National Assembly when the public interest so requires.
(emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry,

former President Ferdinand E. Marcos issued P.D. No. 666 granting the
following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the
Maritime Industry Authority shall be entitled to the following incentive
benefits:
(a) Exemption from import duties and taxes.- The importation of machinery,
equipment and materials for shipbuilding, ship repair and/or alteration,
including indirect import, as well as replacement and spare parts for the
repair and overhaul of vessels such as steel plates, electrical machinery and
electronic parts, shall be exempt from the payment of customs duty and
compensating tax: Provided, however, That the Maritime Industry Authority
certifies that the item or items imported are not produced locally in
sufficient quantity and acceptable quality at reasonable prices, and that the
importation is directly and actually needed and will be used exclusively for
the construction, repair, alteration, or overhaul of merchant vessels, and
other watercrafts; Provided, further, That if the above machinery,
equipment, materials and spare parts are sold to non-tax exempt persons or
entities, the corresponding duties and taxes shall be paid by the original
importer; Provided, finally, That local dealers and/or agents who sell
machinery, equipment, materials and accessories to shipyards for
shipbuilding and ship repair are entitled to tax credits, subject to approval by
the total tariff duties and compensating tax paid for said machinery,
equipment, materials and accessories.
(b) Accelerated depreciation.- Industrial plant and equipment may, at the
option of the shipbuilder and ship repairer, be depreciated for any number of
years between five years and expected economic life.
(c) Exemption from contractors percentage tax.- The gross receipts derived
by shipbuilders and ship repairers from shipbuilding and ship repairing
activities shall be exempt from the Contractors Tax provided in Section 91 of
the National Internal Revenue Code during the first ten years from
registration with the Maritime Industry Authority, provided that such
registration is effected not later than the year 1990; Provided, That any and
all amounts which would otherwise have been paid as contractors tax shall
be set aside as a separate fund, to be known as Shipyard Development
Fund, by the contractor for the purpose of expansion, modernization and/or
improvement of the contractors own shipbuilding or ship repairing facilities;
Provided, That, for this purpose, the contractor shall submit an annual
statement of its receipts to the Maritime Industry Authority; and Provided,
further, That any disbursement from such fund for any of the purposes
hereinabove stated shall be subject to approval by the Maritime Industry
Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair
industry from the list of public utilities, thereby freeing the industry from the
60% citizenship requirement under the Constitution and from the need to
obtain Certificate of Public Convenience pursuant to section 15 of C.A No.
146. Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of
constructing and repairing vessels or parts thereof shall not be

considered a public utility and no Certificate of Public Convenience

shall be required therefor. However, no shipyard, graving dock, marine
railway or marine repair shop and no person or enterprise shall engage in
construction and/or repair of any vessel, or any phase or part thereof,
without a valid Certificate of Registration and license for this purpose from
the Maritime Industry Authority, except those owned or operated by the
Armed Forces of the Philippines or by foreign governments pursuant to a
treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent
with P.D. No. 666 were repealed or modified accordingly. [28] Consequently,
sections 13 (b) and 15 of C.A. No. 146 were repealed in so far as the former
law included shipyards in the list of public utilities and required the
certificate of public convenience for their operation. Simply stated, the
repeal was due to irreconcilable inconsistency, and by definition, this kind of
repeal falls under the category of an implied repeal.[29]
On April 28, 1983, Batas Pambansa Blg. 391, also known as the
Investment Incentive Policy Act of 1983, was enacted. It laid down the
general policy of the government to encourage private domestic and foreign
investments in the various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to
encourage private domestic and foreign investments in industry, agriculture,
mining and other sectors of the economy which shall: provide significant
employment opportunities relative to the amount of the capital being
invested; increase productivity of the land, minerals, forestry, aquatic and
other resources of the country, and improve utilization of the products
thereof; improve technical skills of the people employed in the enterprise;
provide a foundation for the future development of the economy; accelerate
development of less developed regions of the country; and result in
increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly
contribute to the attainment of these objectives, fiscal incentives without
which said projects may not be established in the locales, number and/or
pace required for optimum national economic development. Fiscal
incentive systems shall be devised to compensate for market
imperfections, reward performance of making contributions to
economic development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist
initial operations of the enterprise, and shall terminate after a period of not
more than 10 years from registration or start-up of operation unless a
special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive
schemes and in particular will supersede article 2 of Presidential Decree No.
1789. (emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391
repealed the following laws, viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22,
28, 30, 39, 49 (d), 62, and 77. Articles 45, 46 and 48 are
hereby amended only with respect to domestic and export
producers.
All other laws, decrees, executive orders, administrative orders, rules and
regulations or parts thereof which are inconsistent with the provisions of this
Act are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the
provisions of this Act may be restructured by the President so as to render
them cost-efficient and to make them conform with the other policy
guidelines in the declaration of policy provided in Section 2 of this Act.
(emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No.
666, section 1 was expressly and categorically repealed. As a consequence,
the provisions of C.A. No. 146, which were impliedly repealed by P.D. No.
666, section 1 were revived. [30] In other words, with the enactment of Batas
Pambansa Blg. 391, a shipyard reverted back to its status as a public utility
and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal
of Batas Pambansa Blg. 391 by Executive Order No. 226 issued by former
President Corazon C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No.
226 did not revive Section 1 of P.D. No. 666. But more importantly, it also
put a period to the existence of sections 13 (b) and 15 of C.A. No. 146. It
bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally
written, owed their continued existence to Batas Pambansa Blg. 391. Had
the latter not repealed P.D. No. 666, the former should have been modified
accordingly and shipyards effectively removed from the list of public utilities.
Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226,
the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to
stand on. A law that has been expressly repealed ceases to exist and
becomes inoperative from the moment the repealing law becomes effective.
[31]
Hence, there is simply no basis in the conclusion that shipyards remain to
be a public utility. A repealed statute cannot be the basis for classifying
shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold
that a shipyard is not a pubic utility. A shipyard has been considered a public
utility merely by legislative declaration. Absent this declaration, there is no
more reason why it should continuously be regarded as such. The fact that
the legislature did not clearly and unambiguously express its intention to
include shipyards in the list of public utilities indicates that that it did not
intend to do so. Thus, a shipyard reverts back to its status as non-public
utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed
upon it by the Board of Investments (BOI), which was entrusted by the
legislature with the preparation of annual Investment Priorities Plan (IPPs).

The BOI has consistently classified shipyards as part of the manufacturing

sector and not of the public utilities sector. The enactment of Batas
Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It
has been, as at present, classified as part of the manufacturing and not of
the public utilities sector.[32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities
registered with the MARINA,[33] none appears to have an existing franchise. If
we continue to hold that a shipyard is a pubic utility, it is a necessary
consequence that all these entities should have obtained a franchise as was
the rule prior to the enactment of P.D. No. 666. But MARINA remains without
authority, pursuant to P.D. No. 474 [34] to issue franchises for the operation of
shipyards. Surely,
the legislature did not intend to create a vacuum by continuously
treating a shipyard as a public utility without giving MARINA the power to
issue a Certificate of Public Convenience (CPC) or a Certificate of Public
Convenience and Necessity (CPCN) as required by section 15 of C.A. No.
146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that
there is nothing that prevents KAWASAKI from acquiring more than 40% of
PHILSECOs total capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The parties
shall thereafter increase their subscription in Philseco as may be necessary
and as called by the Board of Directors, maintaining a proportion of 60%40% for NIDC and KAWASAKI respectively, up to a total subscribed and paidup capital stock of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [renamed PHILSECO] to any third party without giving the other under
the same terms the right of first refusal. This provision shall not apply if the
transferee is a corporation owned and controlled by the GOVERMENT [of the
Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights
to unissued shares of SNS [PHILSECO].[35]
Under section 1.3, the parties agreed to the amount of P330 million as
the total capitalization of their joint venture. There was no mention of the
amount of their initial subscription. What is clear is that they are to infuse
the needed capital from time to time until the total subscribed and paid-up
capital reaches P312 million. The phrase maintaining a proportion of 60%40% refers to their respective share of the burden each time the Board of
Directors decides to increase the subscription to reach the target paid-up
capital of P312 million. It does not bind the parties to maintain the sharing
scheme all throughout the existence of their partnership.

The parties likewise agreed to arm themselves with protective

mechanisms to preserve their respective interests in the partnership in the
event that (a) one party decides to sell its shares to third parties; and (b)
new Philseco shares are issued. Anent the first situation, the non-selling
party is given the right of first refusal under section 1.4 to have a
preferential right to buy or to refuse the selling partys shares. The right of
first refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it
as co-venturer(s) or co-shareholder(s). The joint venture between the
Philippine Government and KAWASAKI is in the nature of a partnership [36]
which, unlike an ordinary corporation, is based on delectus personae.[37] No
one can become a member of the partnership association without the
consent of all the other associates. The right of first refusal thus ensures that
the parties are given control over who may become a new partner in
substitution of or in addition to the original partners. Should the selling
partner decide to dispose all its shares, the non-selling partner may acquire
all these shares and terminate the partnership. No person or corporation can
be compelled to remain or to continue the partnership. Of course, this
presupposes that there are no other restrictions in the maximum allowable
share that the non-selling partner may acquire such as the constitutional
restriction on foreign ownership in public utility. The theory that KAWASAKI
can acquire, as a maximum, only 40% of PHILSECOs shares is correct only if
a shipyard is a public utility. In such instance, the non-selling partner who is
an alien can acquire only a maximum of 40% of the total capitalization of a
public utility despite the grant of first refusal. The partners cannot, by mere
agreement, avoid the constitutional proscription. But as afore-discussed,
PHILSECO is not a public utility and no other restriction is present that would
limit the right of KAWASAKI to purchase the Governments share to 40% of
Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be
given an interpretation that would limit the right of KAWASAKI to purchase
PHILSECO shares only to the extent of its original proportionate contribution
of 40% to the total capitalization of the PHILSECO. Taken together with the
whole of section 1.4, the phrase under the same terms means that a
partner to the joint venture that decides to sell its shares to a third
party shall make a similar offer to the non-selling partner. The selling
partner cannot make a different or a more onerous offer to the non-selling
partner.
The exercise of first refusal presupposes that the non-selling partner is
aware of the terms of the conditions attendant to the sale for it to have a
guided choice. While the right of first refusal protects the non-selling partner
from the entry of third persons, it cannot also deprive the other partner the
right to sell its shares to third persons if, under the same offer, it does not
buy the shares.
Apart from the right of first refusal, the parties also have
preemptive rights under section 1.5 in the unissued shares of Philseco.
Unlike the former, this situation does not contemplate transfer of a partners
shares to third parties but the issuance of new Philseco shares. The grant of
preemptive rights preserves the proportionate shares of the original partners

so as not to dilute their respective interests with the issuance of the new
shares. Unlike the right of first refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to the extent that it
retains its original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the
transfer of a partners share in the joint venture. Verily, the operative
protective mechanism is the right of first refusal which does not impose any
limitation in the maximum shares that the non-selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised
by private respondent did not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or
an invitation to prospective contractors whereby the government manifests
its intention to make proposals for the purpose of supplies, materials and
equipment for official business or public use, or for public works or repair. [38]
The three principles of public bidding are: (1) the offer to the public; (2) an
opportunity for competition; and (3) a basis for comparison of bids. [39] As
long as these three principles are complied with, the public bidding can be
considered valid and legal. It is not necessary that the highest bid be
automatically accepted. The bidding rules may specify other conditions or
the bidding process be subjected to certain reservation or qualification such
as when the owner reserves to himself openly at the time of the sale the
right to bid upon the property, or openly announces a price below which the
property will not be sold. Hence, where the seller reserves the right to refuse
to accept any bid made, a binding sale is not consummated between the
seller and the bidder until the seller accepts the bid. Furthermore, where a
right is reserved in the seller to reject any and all bids received, the owner
may exercise the right even after the auctioneer has accepted a bid, and
this applies to the auction of public as well as private property. [40] Thus:
It is a settled rule that where the invitation to bid contains a reservation for
the Government to reject any or all bids, the lowest or the highest bidder, as
the case may be, is not entitled to an award as a matter of right for it does
not become a ministerial duty of the Government to make such an award.
Thus, it has been held that where the right to reject is so reserved, the
lowest bid or any bid for that matter may be rejected on a mere technicality,
that all bids may be rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound discretion, the award may be
made to another than the lowest bidder. And so, where the Government as
advertiser, availing itself of that right, makes its choice in rejecting any or all
bids, the losing bidder has no cause to complain nor right to dispute that
choice, unless an unfairness or injustice is shown. Accordingly, he has no
ground of action to compel the Government to award the contract in his
favor, nor compel it to accept his bid.[41]

In the instant case, the sale of the Government shares in PHILSECO was
publicly known. All interested bidders were welcomed. The basis for
comparing the bids were laid down. All bids were accepted sealed and were
opened and read in the presence of the COAs official representative and
before all interested bidders. The only question that remains is whether or
not the existence of KAWASAKIs right to top destroys the essence of
competitive bidding so as to say that the bidders did not have an
opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are
placed on equal footing. This means that all qualified bidders have an equal
chance of winning the auction through their bids. In the case at bar, all of
the bidders were exposed to the same risk and were subjected to the same
condition, i.e., the existence of KAWASAKIs right to top. Under the ASBR, the
Government expressly reserved the right to reject any or all bids, and
manifested its intention not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR. This reservation or
qualification was made known to the bidders in a pre-bidding conference
held on September 28, 1993. They all expressly accepted this condition in
writing without any qualification. Furthermore, when the Committee on
Privatization notified petitioner of the approval of the sale of the National
Government shares of stock in PHILSECO, it specifically stated that such
approval was subject to the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the
bidding rules. Clearly, the approval of the sale was a conditional one. Since
Philyards eventually exercised its right to top petitioners bid by 5%, the sale
was not consummated. Parenthetically, it cannot be argued that the
existence of the right to top set for naught the entire public bidding. Had
Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale
between the petitioner and the National Government would have been
consummated. In like manner, the existence of the right to top cannot be
likened to a second bidding, which is countenanced, except when there is
failure to bid as when there is only one bidder or none at all. A prohibited
second bidding presupposes that based on the terms and conditions of the
sale, there is already a highest bidder with the right to demand that the
seller accept its bid. In the instant case, the highest bidder was well aware
that the acceptance of its bid was conditioned upon the non-exercise of the
right to top.
To be sure, respondents did not circumvent the requirements for
bidding by granting KAWASAKI, a non-bidder, the right to top the highest
bidder. The fact that KAWASAKIs nominee to exercise the right to top has
among its stockholders some losing bidders cannot also be deemed unfair.
It must be emphasized that none of the parties questions the existence
of KAWASAKIs right of first refusal, which is concededly the basis for the
grant of the right to top. Under KAWASAKIs right of first refusal, the National
Government is under the obligation to give preferential right to KAWASAKI in
the event it decides to sell its shares in PHILSECO. It has to offer to
KAWASAKI the shares and give it the option to buy or refuse under the
same terms for which it is willing to sell the said shares to third parties.
KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the

incidents of which are governed by the law on contracts and on partnership.

It is true that properties of the National Government, as a rule, may be
sold only after a public bidding is held. Public bidding is the accepted
method in arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are eliminated or
minimized.[42] But the requirement for public bidding does not negate the
exercise of the right of first refusal. In fact, public bidding is an essential first
step in the exercise of the right of first refusal because it is only after the
public bidding that the terms upon which the Government may be said to be
willing to sell its shares to third parties may be known. It is only after the
public bidding that the Government will have a basis with which to offer
KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal
with the right to top, KAWASAKI would have been able to buy the National
Governments shares in PHILSECOunder the same terms as offered by the
highest bidder. Stated otherwise, by exercising its right of first refusal,
KAWASAKI could have bought the shares for only P2.03 billion and not the
higher amount of P2.1315 billion. There is, thus, no basis in the submission
that the right to top unfairly favored KAWASAKI. In fact, with the right to top,
KAWASAKI stands to pay higher than it should had it settled with its right of
first refusal. The obvious beneficiary of the scheme is the National
Government.
If at all, the obvious consideration for the exchange of the right of first
refusal with the right to top is that KAWASAKI can name a nominee, which it
is a shareholder, to exercise the right to top. This is a valid contractual
stipulation; the right to top is an assignable right and both parties are aware
of the full legal consequences of its exercise. As aforesaid, all bidders were
aware of the existence of the right to top, and its possible effects on the
result of the public bidding was fully disclosed to them. The petitioner, thus,
cannot feign ignorance nor can it be allowed to repudiate its acts and
question the proceedings it had fully adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of
Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined
Philyards in the latters effort to raise P2.131 billion necessary in exercising
the right to top is not contrary to law, public policy or public morals. There is
nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or KAWASAKI/PHI
(should it exercise its right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with
fraudulent intent. Absent any proof of fraud, the formation by Philyards of a
consortium is legitimate in a free enterprise system. The appellate court is
thus correct in holding the petitioner estopped from questioning the validity
of the transfer of the National Governments shares in PHILSECO to
respondent.
Finally, no factual basis exists to support the view that the drafting of
the ASBR was illegal because no prior approval was given by the COA for it,
specifically the provision on the right to top the highest bidder and that the

public auction on December 2, 1993 was not witnessed by a COA

representative. No evidence was proffered to prove these allegations and
the Court cannot make legal conclusions out of mere allegations. Regularity
in the performance of official duties is presumed [44] and in the absence of
competent evidence to rebut this presumption, this Court is duty bound to
uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is
hereby GRANTED. The impugned Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.
Tinga, J., please see separate opinion.

THE REPUBLIC OF THE PHILIPPINES represented G.R. NO. 154475

by the SECRETARY OF AGRICULTURE and/or CESAR
M.
DRILON,
JR.,
in
his
capacity
as
Undersecretary,DEPARTMENT OF AGRICULTURE, Present:
BUREAU OF FISHERIES AND AQUATIC RESOURCES,
Petitioner,
PANGANIBAN, J., Chairman
SANDOVAL-GUTIERREZ,
CORONA,
- versus CARPIO MORALES, and
GARCIA, JJ.
ENO
FISHPOND
CORPORATION,
CABRAL
FISHPOND INDUSTRY CORPORATION and EDITHA
A. CABRAL,
Respondents.

ASIDE the Order dated October 1, 1999 which denied the

application of Eno Fishpond Corporation and the Order dated
June 27, 2000 which granted Paterno Belarminos Motion to
intervene and denied Eno Fishpond Corporations Motion for
Reconsideration.
The records of the case are remanded to the
Undersecretary of Agriculture and this Court commands him
to grant Editha Cabrals withdrawal of her protest in D.A. 99439-F and renders judgment on the basis of the uncontested
applications of Eno Fishpond Corporation and the records in
his Office.
SO ORDERED.

Promulgated:

The factual backdrop:

September 30, 2005

On March 13, 1979, the Bureau of Fisheries and Aquatic Resources

(BFAR), an agency under the Department of Agriculture (DA), pursuant to
Fishpond Lease Agreement FLA No. 2132, leased unto respondent Cabral
Fishpond

Industry

Corporation

(Cabral

Corporation)

50-hectare

fishpond located at Sitio Pinamuc-an, New Washington, Province of Aklan.

On June 25, 1979, in yet another Fishpond Lease Agreement (FLA

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

NO. 2126), BFAR leased to the same corporation another 50-hectare

fishpond also located in the same sitio.

DECISION
At the time the two (2) aforementioned lease agreements were

GARCIA, J.:

executed, seventy-five (75%) percent of the capital stock of the lessee

Under consideration is this petition for review on certiorari under Rule 45 of
the Rules of Court to nullify and set aside the July 16, 2002 decision[1] of
the Court of Appeals (CA) in CA-G.R. SP No. 60406, which decision
dispositively reads:

corporation was owned by the late Marcelino Cabral, husband of respondent

Editha Cabral.
In an intestate proceedings brought before the Regional Trial Court
at Iloilo City to settle the intestate estate of Marcelino Cabral, the intestate
court awarded to Editha her husbands shareholdings in Cabral Corporation.

WHEREFORE, premises considered, the Court SETS

On April 29, 1998, Editha, by way of a deed of assignment, assigned

to Paterno Belarmino her 75% shareholdings in Cabral Corporation. Editha

also executed a deed of confirmation authenticating the deed of assignment
she had earlier executed in favor of Belarmino.

On October 27, 1999, then DA Undersecretary Cesar Drilon, acting on

Edithas letter-protest in DA Case No. 99-439-F, issued an Order [4] denying
Enos application for the transfer to it of FLAs No. 2126 and 2132. The

On June 10, 1998, Cabral Corporation whose President at that time was

Undersecretary predicated his adverse ruling basically on two (2) grounds,

Edithas daughter Marjorie Galsim, assigned the corporations leasehold

to wit: (1) Cabral Corporations primary asset is its leasehold rights over FLAs

rights over FLAs No. 2126 and 2132 to respondent Eno Corporation, a

No. 2126 and 2132 and that the assignment thereof by the said corporation

corporate entity controlled by Maceja Ong Oh, another daughter of Editha

in favor of Eno Corporation was without the consent of Editha Cabral who did

and a sister of Marjorie. The conveyance was embodied in a Deed of

not receive any consideration therefor; and (2) the assignment would

Assignment

effectively render valueless Edithas shareholdings in Cabral Corporation. The

[2]

executed on June 10, 1998 by Cabral Corporation thru its

President Marjorie Galsim.

Undersecretary viewed the deed of assignment earlier executed by Cabral

Corporation in favor of Eno as a mere ploy hatched by the Edithas scheming

The present controversy took shape on November 5, 1998 when the

assignee (Eno Corporation) of the two (2) fishpond lease agreements filed
with the BFAR its own application for the transfer in its name of FLAs No.
2126 and 2132.
On February 24, 1999, Editha Cabral filed with the BFAR a letter-protest [3]
against Enos aforementioned application. In her protest, docketed as DA
Case No. 99-439-F, Editha claimed that the assignment by Cabral
Corporation of its leasehold rights over FLAs No. 2126 and 2132 in favor of
Eno Corporation was done without her knowledge and consent. Interestingly,
in the same letter-protest, Editha never mentioned the deed of assignment
she earlier executed in favor of Paterno Belarmino over her shareholdings in
Cabral Corporation.

In their reply to Edithas letter-protest, both Eno and Cabral corporations

asserted that they have complied with all the requirements for a valid
transfer of leasehold rights over the two (2) fishponds under FLAs No. 2126
and 2132.

daughters, namely, Marjorie Galsim, president of Cabral Corporation, and

Maceja Ong Oh, controlling stockholder of Eno Corporation, to deprive their
mother of the latters share as majority stockholder in the assignor
corporation. In the precise words of the Undersecretary in hisOrder of
October 27, 1999:
The Deed of Assignment executed on June 10, 1998 by
Cabral Fishpond Industry Corporation, represented by its
President, Marjorie C. Galsim in favor of the ENO Fishpond
Corporation, represented by its President Jose Reynaldo T.
Ong Oh (husband of Maceja Ong Oh) appears to be valid on
its face.
However, going deeper, this office found out the following
facts to wit:
a) This case concerns the quarrel between a mother
(Editha Cabral) and her two daughters
(Marjorie and Maceja) over inheritance;
b) The leasehold right over the fishpond areas
covered by FLA Nos. 2126, 2132 and 2515 is
the only asset of the Cabral Fishpond
Industry Corporation;
c) The Cabral Fishpond Industry Corp. is practically
owned by Marcelino Cabral and his wife who
owned 40,000 shares;
d) Upon the demise of Marcelino Cabral, his wife
Editha inherited 75% of the assets of the
corporation while her two daughters (Maceja

& Marjorie) inherited 12 % each;

e) This sharing was approved by the court after a
prolonged court battle between the mother
and her two daughters who vigorously
opposed the percentage of the sharing;
f) Marjorie Cabral-Galsim as President of the Cabral
Fishpond Industry Corp. transferred in favor
of ENO Corporation owned by his brother-inlaw Jose Reynaldo Ong Oh (husband of
Maceja Cabral) the assets of the Cabral
Fishpond Industry Corp. covered by FLA Nos.
2126 and 2132 without the knowledge and
consent of her mother;
g) Editha offered to sell her 75% share to her
daughters but the latter refused the offer;
h) Apparently, the transfer is simulated for lack of
consideration
because
the
daughters
(Marjorie and Maceja) and their husbands
(Jose Reynaldo Ong Oh and Nicolas C.
Galsim) cannot pay the 75% share of Editha;
It is therefore, the finding of this Office that the transfer was
obviously a ploy to deprive Editha of her shares of stock as
majority stockholder. The absence of the consent and
approval of Editha Cabral being the majority stockholder of
the Cabral Fishpond Industry Corporation to the Deed of
Assignment in favor of ENO Fishpond Corporation and the
apparent lack of consideration is ground for the rejection by
this Office of the Deed of Assignment.

she told the latter that she was thereby revoking her April 29, 1998 deed of
assignment of her shares of stock in Cabral Corporation, allegedly because
Belarmino breached their agreement in the matter of payment. Later, in her
letter to Undersecretary Drilon dated December 2, 1999, [7] Editha made
clear that she was no longer interested in pursuing her letter-protest of
February 24, 1999 in DA Case No. 99-439-F against Eno Corporations
application for the transfer in its name of the leaseholds rights over FLAs No.
2126 and 2132, explaining that she had settled her differences with her
daughters and that she is now convinced that Enos application is in order,
and accordingly prayed for the approval thereof.

Obviously aggrieved by this development, Paterno Belarmino filed in

DA Case No. 99-439-F a Motion to Intervene[8] and an opposition[9] to Edithas
revocation of the deed of assignment of her shareholdings in Cabral
Corporation.

In an Order dated June 27, 2000,[10] Undersecretary Drilon denied

xxx xxx xxx

the two (2) corporations joint letter-reconsideration but admitted Belarminos

WHEREFORE, premises considered, the letter dated February

24, 1999, of Editha Cabral protecting the transfer of FLA No.
2126 and 2132 in favor of Eno Fishpond Corporation is
hereby GRANTED. The proposed transfer is therefore hereby
DENIED.

motion for intervention. The Undersecretary brushed aside Cabral and Eno
corporations argument that DA Case No. 99-439-F involves an intracorporate dispute, adding that since the Department of Agriculture is the
sole approving authority in the matter of transfer of leasehold rights over

SO ORDERED.

fishponds, his office has jurisdiction to resolve the issues relating to the

In time, both Cabral and Eno corporations filed a joint letter-

application of Eno Corporation for the transfer to it of the leasehold right

reconsideration[5] refuting Edithas allegations in her letter-protest and in

over FLAs No. 2126 and 2132. He further stated that intervenor Belarmino

effect arguing that the matters therein treated relate to intra-corporate

has the personality to challenge Enos application since it would thereby

dispute over which the Department of Agriculture has no jurisdiction.

impair the formers shares of stock in Cabral Corporation. Again, we quote

the Undersecretary in his Order of June 27, 2000:

The case took an interesting turn when Editha had a change of

heart. For, in her letter [6] dated November 25, 1999 to Paterno Belarmino,

On the allegation that this Office has no authority to

pass intra-corporate controversy is bereft of merit because

we are not dealing on corporate affairs of the Corp. but dealt

only on the transfer of rights which became the basis for the
approval or disapproval of the transfer of rights executed by
Cabral Fishpond Industry Corp. in favor of ENO Fishpond
Corp. without the approval of the majority stockholder,
considering that the party of the controversy involved is the
transfer of rights of the Cabral Fishpond Industry Corp. who
is the lessee of FLA No. 2126 and 2132 in a contract of
Fishpond Lease Agreement with this Office which under the
law has exclusive jurisdiction over the disposition of the
same.
xxx xxx xxx
On the allegations of the ENO Fishpond Corp. and
Cabral Fishpond Industry Corp. that Belarmino is a total
stranger to the present case; that the contract entered into
by Editha Cabral without the knowledge and consent of the
Corp. are not binding to Cabral Fishpond Industry Corp.; that
the personality of Editha Cabral as shareholders of Cabral
Fishpond Industry Corp. is distinct and separate from the
Corp.; that Editha Cabral revoked and cancelled that
memorandum of agreement she has signed with Belarmino
in a letter dated 25 November 1999; That Belarmino did not
satisfy the legal requirements of the rule to qualify himself
as intervenor under Rule 19 of the new rules of Civil
Procedure for he has no legal interest in the matter in
litigation, or in the success of either of the parties; that
Editha Cabral filed her notice/letter withdrawing her protest
and prayed for its dismissal due to supervening transactions
entered into by her with her two (2) daughters are devoid of
merits for the following reasons:
1.

Being the assignee, transferee and

purchaser in good faith of the shares
of stocks of Editha Cabral, Belarmino
cannot be considered a stranger to
Cabral Fishpond Industry Corp. He is
now
considered
the
majority
stockholder of the Cabral Fishpond
Industry Corp. by subrogation.

2. It is well settled that shares of stock in a

corporation are personal property,
and as such, the owner thereof has
an inherent right, as an incident of
his ownership, to sell and transfer
the same at will, except insofar as
the right may be restricted by the
charter of the corporation or the
general law, or by a valid by-law or

by a valid agreement between him

and the Corp. In the absence of such
restrictions, a bona fide transfer
does not require the consent of the
corporation,
and
cannot
be
prevented by it or by its officers (SEC
Opinion dated June 8, 1995, citing
previous SEC opinions). Likewise,
transfer of shares from existing
stockholders to other parties need
not be reported to or approved by
the
Commission
because
the
question of whether or not such
transfer should be recorded in the
corporate books is a matter that only
the Corporation itself can resolve.
(SEC Opinion dated October 9, 1995
citing previous SEC opinions).
3. The revocation of Editha Cabral of the
Memorandum
of
Agreement
executed
between
her
and
Belarmino was obviously tainted with
bad faith for the following reasons:
a. The agreement with Belarmino is
bilateral in nature, therefore,
the same can not be revoked
unilaterally;
b. There is no valid legal reason for
the unilateral revocation;
c. Belarmino is a purchaser in good
faith and for value;
d. The Heirs were given the first
option to buy but they
refused;
e. Belarmino is a qualified applicant
for
fishpond
lease
agreement;
f. Revocation is believed to be
continuation of the unholy
scheme to deprive her of her
majority shares by her
daughters.
Obviously, the Deed of Assignment is intended to prejudice
Belarmino by depriving him of his right as majority
stockholder. The consideration of P1,000.00 in the Deed of
Assignment of shares of stocks of Editha Cabral is very
unrealistic and under priced giving the impression that the
price is simulated.

Therefrom, both Cabral and Eno corporations went to the Court of Appeals
via a petition for certiorari in CA-G.R. SP No. 60406.
As stated at the outset hereof, the appellate court, in its Decision of July
16, 2002, set aside the challenged orders of Undersecretary Drilon; allowed
Editha Cabral to withdraw her protest against the application of Eno
Corporation; and directed the Undersecretary to act on Enos application.
Partly explains the appellate court in its decision:
1.

In acting upon Eno Corporations contested Application

for a Fishpond Lease Agreement, did the Secretary of
Agriculture or his Undersecretary have the
jurisdiction to determine the validity or nullity of the
Deed of Assignment executed by the Cabral
Corporation transferring its interest in FLA Nos. 2126
and 2132 to Eno Corporation?

2.

Assuming that the public respondent had the

competence to resolve issue number one, did the
Secretary of Agriculture or his Undersecretary act in
excess of said jurisdiction or with grave abuse of
discretion in rejecting the Notice of Editha Cabral
withdrawing her protest against the Application for a
Fishpond Lease Agreement of Eno Corporation?

3.

Did the Secretary of Agriculture or his Undersecretary

have the competence to determine the validity or
nullity of the Deed of Assignment executed by Editha
Cabral transferring 75 percent of the assets of
Cabral Corporation to Paterno Belarmino:

4.

Assuming that the Secretary of Agriculture or his

Undersecretary had the competence to resolve issue
number three, did it however act in excess of his
jurisdiction or with grave abuse of discretion when
he allowed Paterno Belarmino to intervene in D.A.
Case No. 99-439?

One. The Court believes and so holds that the

Secretary of Agriculture has the competence to initially
determine the validity or nullity of the Deed of Assignment
executed by the Cabral Corporation in favor of Eno
Corporation. It is not at all denied that it is the Department
of Agriculture through the BFAR which processes application
for fishpond lease agreements of public waters and finally

grants or denies the same. When an application is

contested, an administrative case results. There is no
question that the Department of Agriculture or through its
agency hears and decides the administrative case. To arrive
at a verdict, all that is needed is substantial evidence to
back it up.
In the case at bench, Editha Cabral initially
impugned the Deed of Assignment which was the basis of
Eno Corporations Application for a Fishpond Lease
Agreement. Is there any other way to determine whether
Eno Corporation was indeed qualified to apply for a fishpond
lease agreement without determining the validity or nullity
of the Deed of Assignment? None. An administrative
determination of such an issue was merely incidental to the
authority of the Department of Agriculture to process an
application for a fishpond lease agreement pursuant to its
statutory authority over public waters. Of course, this
administrative determination is not the last word on the
matter. It may, eventually, be subjected to a judicial review
and in that proceeding, the reviewing court may make a
more definitive ruling on the same issue.
Is the issue of the validity or nullity of the Deed of
Assignment an intra-corporate dispute and, therefore, within
the exclusive jurisdiction of the Securities and Exchange
Commission?
Before July 19, 2000, the Securities and Exchange
Commission had original and exclusive jurisdiction over
intra-corporate disputes. (Sec. 5, PD No. 902-A as amended
by P.D. No. 1758). On July 19, 2000 however, the Securities
Regulation Code (RA No. 8799) became a law. In Sec. 5.2
thereof, jurisdiction over intra-corporate disputes was
transferred to the appropriate Regional Trial Court except
pending cases.
Jurisprudence on point is the following:
In order that the Securities and
Exchange Commission can take cognizance
of a case, the controversy must pertain to
any of the following relationships; (a)
between the corporation, partnership or
association and the public; (b) between the
corporation, partnership or association and
its stockholders, partners, members or
officers; (c) between the corporation,
partnership or association and the State
insofar as its franchise permit or license to
operate is concerned; and (d) among the

stockholders,
partners
or
associates
themselves. (Espino v. National Labor
Relations Commission, citing Bernardo, Sr. v.
Court of Appeals, 263 SCRA 660).
The parties in D.A. Case No. 99-439-F were Eno
Corporation which is a stranger to Cabral Corporation and
Editha Cabral who was a stockholder of said corporation. A
dispute between these two parties cannot be categorized as
intra-corporate dispute because the parties did not fall under
any of the relationships mentioned above.

The

Three. Regarding the issue of whether the Secretary

of Agriculture had the jurisdiction to declare the Deed of
Assignment executed by Editha Cabral in favor of Paterno
Belarmino as valid, this Court holds that the Secretary has
exceeded its jurisdiction. The determination of the validity or
nullity of the said Deed of Assignment was not necessary to
resolve the contested application of Eno Corporation for a
fishpond lease agreement. That issue is fundamentally
within the jurisdiction of the regular courts. Obviously, the
Secretary had to make that determination to allow Paterno
Belarmino to intervene in D.A. Case No. 94-439-F. It should
be pointed out that the motion for intervention was
addressed to the sound discretion of the Secretary. He could
have denied it (without prejudice to Paterno Belarmino
seeking relief in the regular courts) and stayed well within
the precinct of his administrative adjudicatory jurisdiction. [11]

thru

the

Solicitor

General,

in

representation

of

Undersecretary Drilon, the DA and BFAR is now with us via the instant
petition on its sole submission that THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT CONSIDERING THAT THE NULLIFICATION OF THE
TRANSFER OF FISHPOND LEASE AGREEMENTS NOS. 2126
AND 2132 FROM CABRAL CORPORATION TO ENO
CORPORATION AND DENIAL OF NOTICE TO WITHDRAW
LETTER PROTEST OF EDITHA CABRAL OF THE 29 APRIL 1998
DEED OF ASSIGNMENT OF FISHPOND LEASE AGREEMENT
WITH PATERNO BELARMINO ARE MERE INCIDENTS TO
PETITIONERS POWER TO DENY ENO CORPORATIONS
APPLICATION FOR FISHPOND LEASE AGREEMENT.[12]

Another point. It is procedurally absurd that Editha

Cabral as a petitioner herein should assail the jurisdiction of
the Department of Agriculture considering that she invoked
that jurisdiction by filing her letter-protest against Eno
Corporations application which resulted in the administrative
case.
Two. The Undersecretary of Agriculture however
gravely abuse his discretion in denying the Notice of Editha
Cabral withdrawing her protest against the Application for
Lease Agreement of Eno Corporation. That case was neither
a criminal nor an administrative disciplinary case. It was just
an administrative case involving the exercise of
administration discretion to grant or deny an application for
a fishpond agreement. There is neither law nor jurisprudence
which prescribes the withdrawal of a protest. The withdrawal
of the protest however does not ipso jure result in the
granting of the application. The Undersecretary of Justice
would still determine on the basis of the uncontested
application of Eno Corporation and the records in his Office
whether the application is in accordance with law and the
pertinent regulations.

Republic,

We do not agree.

The office of petitioner Republic charged with the power to oversee the use
of

public

fishponds

is

the

Department

of

Agriculture

under

the

Administrative Code of 1987,[13] which pertinently reads:

Sec.3. Powers and
Agriculture] shall:

Functions.

The

Department

[of

xxx xxx xxx

(3)

Promulgate and enforce all laws, rules

and regulations governing the conservation
and proper utilization of agricultural and
fishery resources.

Unquestionably, the BFAR as an agency under the DA which directly

regulates transfers of leasehold rights over fishponds, like any other
regulatory bodies of the Government, is given sufficient discretion to
approve or disapprove applications/petitions pertaining to matters falling
within its sphere of authority. However, that discretion must be confined

within the parameters set forth by law. Applications for transfer of leasehold

application

for

transfer

of

leasehold

rights.

Compliance

with

the

rights should be treated by BFAR in the light of the applicants compliance

requirements of FAO No. 60 entitles the applicant to reasonably expect the

with its Fisheries Administrative Order (FAO) No. 60, particularly

approval of his application unless some other provision of law says

Section 33 thereof which subjects such applications to the following

otherwise. Conversely, the failure of the applicant to meet the standards set

conditions:

forth in FAO No. 60 does not entitle him the confidence to expect the
(a) The areas of twenty-five (25)
hectares or less, covered by permits or
leases,
shall
be
approved
by
the
Commissioner of Fisheries, and areas more
than twenty-five (25) hectares shall be
approved by the Secretary of Agriculture and
Natural Resources;

approval of his application.

(b) That the area covered by permit

or
lease
has,
upon
verification,
improvements equivalent to 50% of the
required improvements for the entire area,
at P1,000.00 per hectare;

Undersecretary

(c) That the transferee or sublessee

shall assume not only the rights but also the
obligations of the transferor or sublessor
relative to the said permit or lease.

be approved. For sure, there was not even an attempt to rationalize the

(d) That said transfer or sublease

shall be subject to the laws, rules and
regulations now existing and to those that
may hereafter be promulgated governing
fisheries; and
(e) That any transfer or sublease
without the previous approval of the
Commissioner or by the Secretary, as the
case may be, shall be considered null and
void and deemed sufficient cause for the
cancellation of the permit or lease, and the
forfeiture of the improvements and bond, in
connection therewith, in favor of the
government.

Good governance requires that actions of regulatory bodies on

applications before them must be reasonably predictable. The standards set
forth in FAO No. 60 provide predictability in the action of BFAR on a pending

Here, Undersecretary Drilon indulged in whimsical exercise of

discretion when he denied the application of Eno Corporation for the transfer
to it of the leasehold right over FLAs No. 2132 and 2126. As it were, the
premised

his

disapproval

action

on

ground

not

contemplated under Section 33,supra, of FAO No. 60. Instead of public

interest, the Undersecretarys main concern was the dilution of the value of
shareholdings of Paterno Belarmino in Cabral Corporation should the transfer

denial of Enos application as a necessary measure to protect the interest of

the government on the FLAs in question. DA Case No. 99-439-F could have
been decided and resolved strictly on the basis of FAO No. 60, but the
proceedings therein got entangled and were saddled by corporate quarrels
between and among the stockholders of the assignor corporation, Cabral
Fishpond Industry Corporation, matters which could have been ventilated in
another forum. In the apt words of the appellate court:
xxx The determination of the validity or nullity of
[the] Deed of Assignment [executed] by Editha Cabral in
favor of Paterno Belarmino was not necessary to resolve the
contested application of Eno Corporation for a fishpond lease
agreement. The issue is fundamentally within the jurisdiction
of the regular courts. [The Undersecretary could have denied
Paterno Belarminos] motion for intervention (without
prejudice to Paterno Belarmino seeking relief in the regular
courts) and stayed well within the precinct of his
administrative adjudicatory jurisdiction. (Words in brackets is
ours).

Doubtless, the Undersecretarys challenged issuances in CA-G.R. SP No.

60406 were tainted with grave abuse of discretion appropriately corrected
by the appellate court in the decision under review.
WHEREFORE, the petition is DENIED and the assailed decision of
the Court of Appeals AFFIRMED.
No costs.

SO ORDERED.

[G.R. No. 109976. April 26, 2005]

PHILIPPINE NATIONAL OIL COMPANY, petitioner, vs. THE HON.

COURT OF APPEALS, THE COMMISSIONER OF INTERNAL
REVENUE and TIRSO SAVELLANO, respondents.

[G.R. No. 112800. April 26, 2005]

PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF

APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANO and
COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a consolidation of two Petitions for Review on Certiorari filed by
the Philippine National Oil Company (PNOC) [1] and the Philippine National
Bank (PNB),[2] assailing the decisions of the Court of Appeals in CA-G.R. SP
No. 29583[3] and CA-G.R. SP No. 29526,[4] respectively, which both affirmed
the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249. [5]
The Petitions before this Court originated from a sworn statement
submitted by private respondent Tirso B. Savellano (Savellano) to the
Bureau of Internal Revenue (BIR) on 24 June 1986. Through his sworn
statement, private respondent Savellano informed the BIR that PNB had
failed to withhold the 15% final tax on interest earnings and/or yields from
the money placements of PNOC with the said bank, in violation of
Presidential Decree (P.D.) No. 1931. P.D. No. 1931, which took effect on 11
June 1984, withdrew all tax exemptions of government-owned and controlled
corporations.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its
liability for taxes on the interests earned by its money placements with PNB
and which PNB did not withhold.[6]PNOC wrote the BIR on 25 September
1986, and made an offer to compromise its tax liability, which it estimated
to be in the sum of P304,419,396.83, excluding interest and surcharges, as
of 31 July 1986. PNOC proposed to set-off its tax liability against a claim for
tax refund/credit of the National Power Corporation (NAPOCOR), then
pending with the BIR, in the amount ofP335,259,450.21. The amount of the
claim for tax refund/credit was supposedly a receivable account of PNOC
from NAPOCOR.[7]
On 08 October 1986, the BIR sent a demand letter to PNB, as
withholding agent, for the payment of the final tax on the interest earnings
and/or yields from PNOCs money placements with the bank, from 15 October
1984 to 15 October 1986, in the total amount of P376,301,133.33.[8] On the
same date, the BIR also mailed a letter to PNOC informing it of the demand
letter sent to PNB.[9]
PNOC, in another letter, dated 14 October 1986, reiterated its proposal
to settle its tax liability through the set-off of the said tax liability against
NAPOCORS pending claim for tax refund/credit. [10] The BIR replied on 11
November 1986 that the proposal for set-off was premature since
NAPOCORs claim was still under process. Once more, BIR requested PNOC to

settle its tax liability in the total amount of P385,961,580.82, consisting of

P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15
November 1986.[11]
On 09 June 1987, PNOC made another offer to the BIR to settle its tax
liability. This time, however, PNOC proposed a compromise by paying
P91,003,129.89, representing 30% of theP303,343,766.29 basic tax, in
accordance with the provisions of Executive Order (E.O.) No. 44. [12]
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June
1987, accepted the compromise. The BIR received a total tax payment on
the interest earnings and/or yields from PNOCs money placements with PNB
in the amount of P93,955,479.12, broken down as follows:
Previous payment made by PNB
Add: Payment made by PNOC pursuant to the
compromise agreement of June 22, 1987
Total tax payment

P 2,952,349.23
P 91,003,129.89
P 93,955,479.12[13]

Private respondent Savellano, through four installments, was paid the

informers reward in the total amount of P14,093,321.89, representing 15%
of the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He
received the last installment on 01 December 1987.[14]
On 07 January 1988, private respondent Savellano, through his legal
counsel, wrote the BIR to demand payment of the balance of his informers
reward, computed as follows:
BIR tax assessment
Final tax rate
Informers reward due
(BIR deficiency tax assessment x Final
tax rate)
Less: Payment received by private
respondent Savellano
Outstanding balance

P 385,961,580.82
0.15
P 57,894,237.12
P 14,093,321.89
P 43,800,915.25[15]

BIR Commissioner Tan replied through a letter, dated 08 March 1988,

that private respondent Savellano was already fully paid the informers
reward equivalent to 15% of the amount of tax actually collected by the BIR
pursuant to its compromise agreement with PNOC. BIR Commissioner Tan
further explained that the compromise was in accordance with the
provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86,
and RMO No. 4-87.[16]
Private respondent Savellano submitted another letter, dated 24 March
1988, to BIR Commissioner Tan, seeking reconsideration of his decision to
compromise the tax liability of PNOC. In the same letter, private respondent
Savellano questioned the legality of the compromise agreement entered into
by the BIR and PNOC and claimed that the tax liability should have been
collected in full.[17]
On 08 April 1988, while the aforesaid Motion for Reconsideration was

still pending with the BIR, private respondent Savellano filed a Petition for
Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He
claimed therein that BIR Commissioner Tan acted with grave abuse of
discretion and/or whimsical exercise of jurisdiction in entering into a
compromise agreement that resulted in a gross and unconscionable
diminution of his reward. Private respondent Savellano prayed for the
enforcement and collection of the total tax assessment against taxpayer
PNOC and/or withholding agent PNB; and the payment to him by the BIR
Commissioner of the 15% informers reward on the total tax collected. [18] He
would later amend his Petition to implead PNOC and PNB as necessary and
indispensable parties since they were parties to the compromise agreement.
[19]

In his Answer filed with the CTA, BIR Commissioner Tan asserted that
the Petition stated no cause of action against him, and that private
respondent Savellano was already paid the informers reward due him.
Alleging that the Petition was baseless and malicious, BIR Commissioner Tan
filed a counterclaim for exemplary damages against private respondent
Savellano.[20]
PNOC and PNB filed separate Motions to Dismiss, both arguing that the
CTA lacked jurisdiction to decide the case. [21] In its Resolution, dated 28
November 1988, the CTA denied the Motions to Dismiss since the question
of lack of jurisdiction and/or cause of action do not appear to be indubitable.
[22]

After their Motions to Dismiss were denied by the CTA, PNOC and PNB
filed their respective Answers to the amended Petition. PNOC averred,
among other things, that (1) it had no privity with private respondent
Savellano; (2) the BIR Commissioners discretionary act in entering into the
compromise agreement had legal basis under E.O. No. 44 and RMO No. 3986 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case
against it.[23] On the other hand, PNB asserted that (1) the CTA lacked
jurisdiction over the case; and (2) the BIR Commissioners decision to accept
the compromise was discretionary on his part and, therefore, cannot be
reviewed or interfered with by the courts. [24] PNOC and PNB later filed their
amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informers reward to private
respondent Savellano.[25]
The CTA, thereafter, ordered the parties to submit their evidence, [26] to
be followed by their respective Memoranda.[27]
On 23 November 1990, private respondent Savellano, filed a
Manifestation with Motion for Suspension of Proceedings, claiming that his
pending Motion for Reconsideration with the BIR Commissioner may soon be
resolved.[28] Both PNOC and PNB opposed the said Motion.[29]
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to
PNB, dated 16 January 1991, demanded that PNB pay deficiency withholding
tax on the interest earnings and/or yields from PNOCs money placements, in
the amount of P294,958,450.73, computed as follows:

Withholding tax, plus interest under the letter

of demand dated November 11, 1986
Less: Amount paid under E.O. No. 44
Amount still due and collectible

P 385,961,580.82
P 91,003,129.89
P 294,958,450.73[30]

This BIR letter was received by PNB on 06 February 1991, [31] and was
protested by it through a letter, dated 11 April 1991. [32] The BIR denied PNBs
protest on the ground that it was filed out of time and, thus, the assessment
had already become final.[33]
Private respondent Savellano, on 22 February 1991, filed an Omnibus
Motion moving to withdraw his previous Motion for Suspension of Proceeding
since BIR Commissioner Ong had finally resolved his Motion for
Reconsideration, and submitting by way of supplemental offer of evidence
(1) the letter of BIR Commissioner Ong, dated 13 February 1991, informing
private respondent Savellano of the action on his Motion for
Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to
PNB, dated 16 January 1991.[34]
Despite the oppositions of PNOC and PNB, the CTA, in a Resolution,
dated 02 May 1991, resolved to allow private respondent Savellano to
withdraw his previous Motion for Suspension of Proceeding and to admit the
supplementary evidence being offered by the same party. [35]
In its Order, dated 03 June 1991, the CTA considered the case submitted
for decision as of the following day, 04 June 1991. [36]
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the
BIR assessment, dated 16 January 1991, for deficiency withholding tax in the
sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was
sanctioned under P.D. No. 242, which provided for the administrative
settlement of disputes between government offices, agencies, and
instrumentalities, including government-owned and controlled corporations.
[37]

Three days later, on 14 June 1991, PNB filed a Motion to Suspend

Proceedings before the CTA since it had a pending appeal before the DOJ. [38]
On 04 July 1991, PNB filed with the CTA a Motion for Reconsideration of its
Order, dated 03 June 1991, submitting the case for decision as of 04 June
1991, and prayed that the CTA hold its resolution of the case in view of PNBs
appeal pending before the DOJ.[39]
On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by
the BIR. It alleged that despite its request for reconsideration of the
deficiency withholding tax assessment, dated 16 January 1991, BIR
Commissioner Ong sent another letter, dated 23 April 1991, demanding
payment of the P294,958,450.73 deficiency withholding tax on the interest
earnings and/or yields from PNOCs money placements. The same letter
informed PNB that this was the BIR Commissioners final decision on the
matter and that the BIR Commissioner was set to issue a warrant of distraint
and/or levy against PNBs deposits with the Central Bank of the Philippines.
PNB further alleged that the levy and distraint of PNBs deposits, unless
restrained by the CTA, would cause great and irreparable prejudice not only

to PNB, a government-owned and controlled corporation, but also to the

Government itself.[40]
Pursuant to the Order of the CTA, during the hearing on 19 July 1991, [41]
the parties submitted their respective Memoranda on PNBs Motion to
Suspend Proceedings.[42]
On 20 September 1991, private respondent Savellano filed another
Omnibus Motion calling the attention of the CTA to the fact that the BIR
already issued, on 12 August 1991, a warrant of garnishment addressed to
the Central Bank Governor and against PNB. In compliance with the said
warrant, the Central Bank issued, on 23 August 1991, a debit advice against
the demand deposit account of PNB with the Central Bank for the amount of
P294,958,450.73, with a corresponding transfer of the same amount to the
demand deposit-in-trust of BIR with the Central Bank. Since the assessment
had already been enforced, PNBs Motion to Suspend Proceedings became
moot and academic. Private respondent Savellano, thus, moved for the
denial of PNBs Motion to Suspend Proceedings and for an order requiring BIR
to deposit with the CTA the amount of P44,243,767.00 as his informers
reward, representing 15% of the deficiency withholding tax collected. [43]
Both PNOC and PNB opposed private respondent Savellanos Omnibus
Motion, dated 20 September 1991, arguing that the DOJ already ordered the
suspension of the collection of the tax deficiency. There was therefore no
basis for private respondent Savellanos Motion as the same was premised
on the erroneous assumption that the tax deficiency had been collected.
When the DOJ denied the BIR Commissioners Motion to Dismiss and required
him to file his answer, the DOJ assumed jurisdiction over PNBs appeal, and
the CTA should first suspend its proceedings to give the DOJ the opportunity
to decide the validity and propriety of the tax assessment against PNB. [44]

PNOC and PNB filed separate appeals with the Court of Appeals seeking
the reversal of the CTA decision in CTA Case No. 4249, dated 28 May 1992,
and the CTA Resolution in the same case, dated 16 November 1992. PNOCs
appeal was docketed as CA-G.R. SP No. 29583, while PNBs appeal was CAG.R. SP No. 29526. In both cases, the Court of Appeals affirmed the decision
of the CTA.
In the meantime, the Central Bank again issued on 02 September 1992
a debit advice against the demand deposit account of PNB with the Central
Bank for the amount ofP294,958,450.73,[47] and on 15 September 1992,
credited the same amount to the demand deposit account of the Treasurer
of the Republic of the Philippines. [48] On 04 November 1992, the Treasurer of
the Republic issued a journal voucher transferring P294,958,450.73 to the
account of the BIR.[49] PNB, in turn, debited P294,958,450.73 from the
deposit account of PNOC with PNB.[50]
PNOC and PNB then filed separate Petitions for Review on Certiorari
with this Court, praying that the decisions of the Court of Appeals in CA-G.R.
SP No. 29583 and CA-G.R. SP No. 29526, respectively, both affirming the
decision of the CTA in CTA Case No. 4249, be reversed and set aside. These
two Petitions were consolidated since they involved identical parties and
factual background, and the resolution of related, if not exactly, the same
issues.
In its Petition for Review, PNOC alleged the following errors committed
by the Court of Appeals in CA-G.R. SP No. 29583:
1. The Court of Appeals erred in holding that the deficiency taxes
of PNOC could not be the subject of a compromise under
Executive Order No. 44; and

The CTA, on 28 May 1992, rendered its decision, wherein it upheld its
jurisdiction and disposed of the case as follows:

2. The Court of Appeals erred in holding that Savellano is entitled

to additional informers reward.[51]

WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT

between the Bureau of Internal Revenue, on the one hand, and the
Philippine National Oil Company and Philippine National Bank, on the other,
as WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to ENFORCE the
ASSESSMENT of January 16, 1991 against Philippine National Bank which has
become final and unappealable by collecting from Philippine National Bank
the deficiency withholding tax, plus interest totalling (sic) P294,958,450.73;
Petitioner may be paid, upon collection of the deficiency withholding tax, the
balance of his entitlement to informers reward based on fifteen percent
(15%) of the deficiency withholding total tax collected in this case or
P44,243.767.00 subject to existing rules and regulations governing payment
of reward to informers.[45]

PNB, in its own Petition for Review, assailed the decision of the Court of
Appeals in CA-G.R. SP No. 29526, assigning the following errors:

In a Resolution, dated 16 November 1992, the CTA denied the Motions

for Reconsideration filed by PNOC and PNB since they substantially raised
the same issues in their previous pleadings and which had already been
passed upon and resolved adversely against them.[46]

1. Respondent Court erred in not finding that the Court of Tax

Appeals lacks jurisdiction on the controversy involving BIR and
PNB (both government instrumentalities) regarding the new
assessment of BIR against PNB;
2. The respondent Court erred in not finding that the Court of Tax
Appeals has no jurisdiction to question the compromise
agreement entered into by the Commissioner of Internal
Revenue; and
3. The respondent Court erred in not ruling that the Commissioner
of Internal Revenue cannot unilaterally annul tax compromises
validly entered into by his predecessor.[52]
The decisions of the Court of Appeals in CA-GR SP No. 29583 and CAG.R. SP No. 29526, affirmed the decision of the CTA in CTA Case No. 4249.
The resolution, therefore, of the assigned errors in the Court of Appeals

decisions essentially requires a review of the CTA decision itself.

In consolidating the present Petitions, this Court finds that PNOC and
PNB are basically questioning the (1) Jurisdiction of the CTA in CTA Case No.
4249; (2) Declaration by the CTA that the compromise agreement was
without force and effect; (3) Finding of the CTA that the deficiency
withholding tax assessment against PNB had already become final and
unappealable and, thus, enforceable; and (4) Order of the CTA directing
payment of additional informers reward to private respondent Savellano.
I
Jurisdiction of the CTA
A. The demand letter, dated 16 January 1991 did not constitute a new
assessment against PNB.
The main argument of PNB in assailing the jurisdiction of the CTA in CTA
Case No. 4249 is that the BIR demand letter, dated 16 January 1991, [53]
should be considered as a new assessment against PNB. As a new
assessment, it gave rise to a new dispute and controversy solely between
the BIR and PNB that should be administratively settled or adjudicated, as
provided in P.D. No. 242.
This argument is without merit. The issuance by the BIR of the demand
letter, dated 16 January 1991, was merely a development in the continuing
effort of the BIR to collect the tax assessed against PNOC and PNB way back
in 1986.
BIRs first letter, dated 08 August 1986, was addressed to PNOC,
requesting it to settle its tax liability. The BIR subsequently sent another
letter, dated 08 October 1986, to PNB, as withholding agent, demanding
payment of the tax it had failed to withhold on the interest earnings and/or
yields from PNOCs money placements. PNOC wrote the BIR three succeeding
letters offering to compromise its tax liability; PNB, on the other hand, did
not act on the demand letter it received, dated 08 October 1986. The BIR
and PNOC eventually reached a compromise agreement on 22 June 1987.
Private respondent Savellano questioned the validity of the compromise
agreement because the reduced amount of tax collected from PNOC, by
virtue of the compromise agreement, also proportionately reduced his
informers reward. Private respondent Savellano then requested the BIR
Commissioner to review and reconsider the compromise agreement. Acting
on the request of private respondent Savellano, the new BIR Commissioner
declared the compromise agreement to be without basis and issued the
demand letter, dated 16 January 1991, against PNB, as the withholding
agent for PNOC.
It is clear from the foregoing that the BIR demand letter, dated 16
January 1991, could not stand alone as a new assessment. It should always
be considered in the factual context summarized above.
In fact, the demand letter, dated 16 January 1991, actually referred to
the withholding tax assessment first issued in 1986 and its eventual
settlement through a compromise agreement. In addition, the computation

of the deficiency withholding tax was based on the figures from the 1986
assessments against PNOC and PNB, and BIR no longer conducted a new
audit or investigation of either PNOC and PNB before it issued the demand
letter on 16 January 1991.
These constant references to past events and circumstances
demonstrate that the demand letter, dated 16 January 1991, was not a new
assessment, but rather, the latest action taken by the BIR to collect on the
tax assessments issued against PNOC and PNB in 1986.
PNB argues that the demand letter, dated 16 January 1991, introduced
a new controversy. We see it differently as the said demand letter presented
the resolution by BIR Commissioner Ong of the previous controversy
involving the compromise of the 1986 tax assessments. BIR Commissioner
Ong explicitly declared therein that the compromise agreement was without
legal basis, and requested PNB, as the withholding agent, to pay the amount
of withholding tax still due.
B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue
of Republic Act No. 1125.
Having established that the BIR demand letter, dated 16 January 1991,
did not constitute a new assessment, then, there could be no basis for PNBs
claim that any dispute arising from the new assessment should only be
between BIR and PNB.
Still proceeding from the argument that there was a new dispute
between PNB and BIR, PNB sought the suspension of the proceedings in CTA
Case No. 4249, after it contested the deficiency withholding tax assessment
against it and the demand for payment thereof before the DOJ, pursuant to
P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and
continued the proceedings in CTA Case No. 4249; and, in effect, rejected
DOJs claim of jurisdiction to administratively settle or adjudicate BIRs
assessment against PNB.
The CTA assumed jurisdiction over the Petition for Review filed by
private respondent Savellano based on the following provision of Rep. Act
No. 1125, the Act creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or
other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau
of Internal Revenue; . . . (Underscoring ours.)
In his Petition before the CTA, private respondent Savellano requested a
review of the decisions of then BIR Commissioner Tan to enter into a
compromise agreement with PNOC and to reject his claim for additional
informers reward. He submitted before the CTA questions of law involving
the interpretation and application of (1) E.O. No. 44, and its implementing

rules and regulations, which authorized the BIR Commissioner to

compromise delinquent accounts and disputed assessments pending as of
31 December 1985; and (2) Section 316(1) of the National Internal Revenue
Code of 1977 (NIRC of 1977), as amended, which granted to the informer a
reward equivalent to 15% of the actual amount recovered or collected by the
BIR.[54]These should undoubtedly be considered as matters arising from the
NIRC and other laws being administered by the BIR, thus, appealable to the
CTA under Section 7(1) of Rep. Act No. 1125.

the legislative will, should prevail over the earlier.

PNB, however, insists on the jurisdiction of the DOJ over its appeal of
the deficiency withholding tax assessment by virtue of P.D. No. 242.
Provisions on jurisdiction of P.D. No. 242 read:

After re-examining the provisions on jurisdiction of Rep. Act No. 1125

and P.D. No. 242, this Court finds itself in disagreement with the
pronouncement made in Development Bank of the Philippines v. Court of
Appeals, et al.,[58] and refers to the earlier case of Lichauco & Company, Inc.
v. Apostol, et al.,[59] for the guidelines in determining the relation between
the two statutes in question, to wit:

SECTION 1. Provisions of law to the contrary notwithstanding, all disputes,

claims and controversies solely between or among the departments,
bureaus, offices, agencies, and instrumentalities of the National
Government, including government-owned or controlled corporations, but
excluding constitutional offices or agencies, arising from the interpretation
and application of statutes, contracts or agreements, shall henceforth be
administratively settled or adjudicated as provided hereinafter; Provided,
That this shall not apply to cases already pending in court at the time of the
effectivity of this decree.
SECTION 2. In all cases involving only questions of law, the same shall be
submitted to and settled or adjudicated by the Secretary of Justice, as
Attorney General and ex officio legal adviser of all government-owned or
controlled corporations and entities, in consonance with Section 83 of the
Revised Administrative Code. His ruling or determination of the question in
each case shall be conclusive and binding upon all the parties concerned.
SECTION 3. Cases involving mixed questions of law and of fact or only
factual issues shall be submitted to and settled or adjudicated by:
(a) The Solicitor General, with respect to disputes or claims
controversies between or among the departments, bureaus,
offices and other agencies of the National Government;
(b) The Government Corporate Counsel, with respect to disputes or
claims or controversies between or among government-owned
or controlled corporations or entities being served by the
Office of the Government Corporate Counsel; and
(c) The Secretary of Justice, with respect to all other disputes or
claims or controversies which do not fall under the categories
mentioned in paragraphs (a) and (b).
The PNB and DOJ are of the same position that P.D. No. 242, the more
recent law, repealed Section 7(1) of Rep. Act No. 1125, [55] based on the
pronouncement of this Court inDevelopment Bank of the Philippines v. Court
of Appeals, et al., [56] quoted below:
The Court expresses its entire agreement with the conclusion of the Court of
Appeals and the basic premises thereof that there is an "irreconcilable
repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and
hence, that the later enactment (P.D. No. 242), being the latest expression of

In the said case, it was expressly declared that P.D. No. 242 repealed Section
7(2) of Rep. Act No. 1125, which provides for the exclusive appellate
jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB
contends that P.D. No. 242 should be deemed to have likewise repealed
Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate
jurisdiction of the CTA over decisions of the BIR Commissioner. [57]

The cases relating to the subject of repeal by implication all proceed on the
assumption that if the act of later date clearly reveals an intention on the
part of the law making power to abrogate the prior law, this intention must
be given effect; but there must always be a sufficient revelation of this
intention, and it has become an unbending rule of statutory construction
that the intention to repeal a former law will not be imputed to the
Legislature when it appears that the two statutes, or provisions, with
reference to which the question arises bear to each other the relation of
general to special. (Underscoring ours.)
When there appears to be an inconsistency or conflict between two
statutes and one of the statutes is a general law, while the other is a special
law, then repeal by implication is not the primary rule applicable. The
following rule should principally govern instead:
Specific legislation upon a particular subject is not affected by a general law
upon the same subject unless it clearly appears that the provisions of the
two laws are so repugnant that the legislators must have intended by the
later to modify or repeal the earlier legislation. The special act and the
general law must stand together, the one as the law of the particular subject
and the other as the general law of the land. (Ex Parte United States, 226 U.
S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030;
Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.)
Where there are two acts or provisions, one of which is special and
particular, and certainly includes the matter in question, and the other
general, which, if standing alone, would include the same matter and thus
conflict with the special act or provision, the special must be taken as
intended to constitute an exception to the general act or provision,
especially when such general and special acts or provisions are
contemporaneous, as the Legislature is not to be presumed to have intended
a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of
Utah vs. Richards, 77 Am. St. Rep., 928.)[60]
It has, thus, become an established rule of statutory construction that
between a general law and a special law, the special law prevails Generalia
specialibus non derogant.[61]

Sustained herein is the contention of private respondent Savellano that

P.D. No. 242 is a general law that deals with administrative settlement or
adjudication of disputes, claims and controversies between or among
government offices, agencies and instrumentalities, including governmentowned or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the
Revised Administrative Code of the Philippines. [62] On the other hand, Rep.
Act No. 1125 is a special law[63] dealing with a specific subject matter the
creation of the CTA, which shall exercise exclusive appellate jurisdiction over
the tax disputes and controversies enumerated therein.
Following the rule on statutory construction involving a general and a
special law previously discussed, then P.D. No. 242 should not affect Rep. Act
No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction
of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and
controversies, falling under Section 7 of Rep. Act No. 1125, even though
solely among government offices, agencies, and instrumentalities, including
government-owned and controlled corporations, remain in the exclusive
appellate jurisdiction of the CTA. Such a construction resolves the alleged
inconsistency or conflict between the two statutes, and the fact that P.D. No.
242 is the more recent law is no longer significant.
Even if, for the sake of argument, that P.D. No. 242 should prevail over
Rep. Act No. 1125, the present dispute would still not be covered by P.D. No.
242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims
and controversies solely between or among departments, bureaus, offices,
agencies, and instrumentalities of the National Government, including
constitutional offices or agencies, as well as government-owned and
controlled corporations, shall be administratively settled or adjudicated.
While the BIR is obviously a government bureau, and both PNOC and PNB
are government-owned and controlled corporations, respondent Savellano is
a private citizen. His standing in the controversy could not be lightly brushed
aside. It was private respondent Savellano who gave the BIR the information
that resulted in the investigation of PNOC and PNB; who requested the BIR
Commissioner to reconsider the compromise agreement in question; and
who initiated CTA Case No. 4249 by filing a Petition for Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers Union-PTGWO, et al.,[64]
this Court upheld the jurisdiction of the Court of Industrial Relations over the
ordinary courts and justified its decision in the following manner:
We are unprepared to break away from the teaching in the cases just
adverted to. To draw a tenuous jurisdictional line is to undermine stability in
labor litigations. A piecemeal resort to one court and another gives rise to
multiplicity of suits. To force the employees to shuttle from one court to
another to secure full redress is a situation gravely prejudicial. The time to
be lost, effort wasted, anxiety augmented, additional expense incurred these
are considerations which weigh heavily against split jurisdiction. Indeed, it is
more in keeping with orderly administration of justice that all the causes of
action here be cognizable and heard by only one court: the Court of
Industrial Relations.

The same justification is used in the present case to reject DOJs

jurisdiction over the BIR and PNB, to the exclusion of the other parties. The
rights of all four parties in CTA Case No. 4249, namely the BIR, as the tax
collector; PNOC, the taxpayer; PNB, the withholding agent; and private
respondent Savellano, the informer claiming his reward; arose from the
same factual background and were so closely interrelated, that a
pronouncement as to one would definitely have repercussions on the others.
The ends of justice were best served when the CTA continued to exercise its
jurisdiction over CTA Case No. 4249. The CTA, which had assumed
jurisdiction over all the parties to the controversy, could render a
comprehensive resolution of the issues raised and grant complete relief to
the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise under E.O. No. 44 because its tax
liability was not a delinquent account or a disputed assessment as of
31 December 1985.
PNOC and PNB, on different grounds, dispute the decision of the CTA in
CTA Case No. 4249 declaring the compromise agreement between BIR and
PNOC without force and effect.
PNOC asserts that the compromise agreement was in accordance with
E.O. No. 44, and its implementing rules and regulations, and should be
binding upon the parties thereto.
E.O. No. 44 granted the BIR Commissioner or his duly authorized
representatives the power to compromise any disputed assessment or
delinquent account pending as of 31 December 1985, upon the payment of
an amount equal to 30% of the basic tax assessed; in which case, the
corresponding interests and penalties shall be condoned. E.O. No. 44 took
effect on 04 September 1986 and remained effective until 31 March 1987.
The disputed assessments or delinquent accounts that the BIR
Commissioner could compromise under E.O. No. 44 are defined under
Revenue Regulation (RR) No. 17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or before
December 31, 1985 from a taxpayer who failed to pay the same
within the time prescribed for its payment arising from (1) a self
assessed tax, whether or not a tax return was filed, or (2) a
deficiency assessment issued by the BIR which has become final
and executory.
Where no return was filed, the taxpayer shall be considered
delinquent as of the time the tax on such return was due, and in
availing of the compromise, a tax return shall be filed as a basis for
computing the amount of compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed or
protested on or before December 31, 1985 under any of the
following categories:

1) if the same is administratively protested within thirty (30) days from the
date the taxpayer received the assessment, or
2.) if the decision of the BIR on the taxpayers administrative protest is
appealed by the taxpayer before an appropriate court.
PNOCs tax liability could not be considered a delinquent account since
(1) it was not self-assessed, because the BIR conducted an investigation and
assessment of PNOC and PNB after obtaining information regarding the nonwithholding of tax from private respondent Savellano; and (2) the demand
letter, issued against it on 08 August 1986, could not have been a deficiency
assessment that became final and executory by 31 December 1985.
The dissenting opinion contends, however, that the tax liability of PNOC
constitutes a self-assessed tax, and is, therefore, a delinquent account as of
31 December 1985, qualifying for a compromise under E.O. No. 44. It
anchors its argument on the declaration made by this Court in Tupaz v. Ulep,
[65]
that internal revenue taxes are self-assessing.
It is not denied herein that the self-assessing system governs Philippine
internal revenue taxes. The dissenting opinion itself defines self-assessed
tax as, a tax that the taxpayer himself assesses or computes and pays to
the taxing authority. Clearly, such a system imposes upon the taxpayer the
obligation to conduct an assessment of himself so he could determine and
declare the amount to be used as tax basis, any deductions therefrom, and
finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not a tax return was
filed. The phrase whether or not a tax return was filed only refers to the
compliance by the taxpayer with the obligation to file a return on the dates
specified by law, but it does not do away with the requisite that the tax must
be self-assessed in order for the taxpayer to avail of the compromise. The
second paragraph of Section 2(a) of RR No. 17-86 expressly commands, and
still imposes upon the taxpayer, who is availing of the compromise under
E.O. No. 44, and who has not previously filed any return, the duty to conduct
self-assessment by filing a tax return that would be used as the basis for
computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a
taxpayer, after conducting a self-assessment, discovers or becomes aware
that he had failed to pay a tax due on or before 31 December 1985,
regardless of whether he had previously filed a return to reflect such tax;
voluntarily comes forward and admits to the BIR his tax liability; and applies
for a compromise thereof. In case the taxpayer has not previously filed any
return, he must fill out such a return reflecting therein his own declaration of
the taxable amount and computation of the tax due. The compromise
payment shall be computed based on the amount reflected in the tax return
submitted by the taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the withholding agent,
respectively, conducted self-assessment in this case. There is no showing
that in the absence of the tax assessment issued by the BIR against them,
that PNOC and/or PNB would have voluntarily admitted their tax liabilities,
already amounting to P385,961,580.82, as of 15 November 1986, and would

have offered to compromise the same. In fact, both PNOC and PNB were
conspicuously silent about their tax liabilities until they were assessed
thereon.
Any attempt by PNOC and PNB to assess and declare by themselves
their tax liabilities had already been overtaken by the BIRs conduct of its
audit and investigation and subsequent issuance of the assessments, dated
08 August 1986 and 08 October 1986, against PNOC and PNB, respectively.
The said tax assessments, uncontested and undisputed, presented the
results of the BIR audit and investigation and the computation of the total
amount of tax liabilities of PNOC and PNB. They should be controlling in this
case, and should not be so easily and conveniently ignored and set aside. It
would be a contradiction to claim that the tax liabilities of PNOC and PNB are
self-assessed and, at the same time, BIR-assessed; when it is clear and
simple that it had been the BIR that conducted the assessment and
determined the tax liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be differentiated from a selfassessed one, is supported by the provisions of RR No. 17-86 on the basis for
computing the amount of compromise payment. Note that where tax
liabilities are self-assessed, the compromise payment shall be computed
based on the tax return filed by the taxpayer. [66] On the other hand, where
the BIR already issued an assessment, the compromise payment shall be
computed based on the tax due on the assessment notice. [67]
For instances where the BIR had already issued an assessment against
the taxpayer, the tax liability could still be compromised under E.O. No. 44
only if: (1) the assessment had been final and executory on or before 31
December 1985 and, therefore, considered a delinquent account as of said
date;[68] or (2) the assessment had been disputed or protested on or before
31 December 1985.[69]
RMO No. 39-86, which provides the guidelines for the implementation of
E.O. No. 44, does mention different types of assessments that may be
compromised under said statute (i.e., jeopardy assessments, arbitrary
assessments, and tax assessments of doubtful validity). RMO No. 39-86 may
not have expressly stated any qualification for these particular types of
assessments; nonetheless, E.O. No. 44 specifically refers only to
assessments that were delinquent or disputed as of 31 December 1985.
E.O. No. 44 and all BIR issuances to implement said statute should be
interpreted so that they are harmonized and consistent with each other.
Accordingly, this Court finds that the different types of assessments
mentioned in RMO No. 39-86 would still have to qualify as delinquent
accounts or disputed assessments as of 31 Dcember 1985, so that they
could be compromised under E.O. No. 44.
The BIR had first written to PNOC on 08 August 1986, demanding
payment of the income tax on the interest earnings and/or yields from
PNOCs money placements with PNB from 15 October 1984 to 15 October
1986. This demand letter could be regarded as the first assessment notice
against PNOC.

Such an assessment, issued only on 08 August 1986, could not have

been final and executory as of 31 December 1985 so as to constitute a
delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31
December 1985, having been issued on a later date.
Given that PNOCs tax liability did not constitute a delinquent account or
a disputed assessment as of 31 December 1985, then it could not be
compromised under E.O. No. 44.
The assessment against PNOC, instead, was more appropriately
covered by Revenue Memorandum Circular (RMC) No. 31-86. RMC No. 31-86
clarifies the scope of availment of the tax amnesty under E.O. No. 41 [70] and
compromise payments on delinquent accounts and disputed assessments
under E.O. No. 44. The third paragraph of RMC No. 31-86 reads:
[T]axpayers against whom assessments had been issued from January 1 to
August 21, 1986 may settle their tax liabilities by way of compromise under
Section 246 of the Tax Code as amended by paying 30% of the basic
assessment excluding surcharge, interest, penalties and other increments
thereto.
The above-quoted paragraph supports the position that only
assessments that were disputed or that were final and executory by 31
December 1985 could be the subject of a compromise under E.O. No. 44.
Assessments issued between 01 January to 21 August 1986 could still be
compromised by payment of 30% of the basic tax assessed, not anymore
pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, as
amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR
Commissioner the authority to compromise the payment of any internal
revenue tax under the following circumstances: (1) there exists a reasonable
doubt as to the validity of the claim against the taxpayer; or (2) the financial
position of the taxpayer demonstrates a clear inability to pay the assessed
tax.[71]
There are substantial differences in circumstances under which
compromises may be granted under Section 246 of the NIRC of 1977, as
amended, and E.O. No. 44. Although PNOC and PNB have extensively argued
their entitlement to compromise under E.O. No. 44, neither of them has
alleged, much less, has presented any evidence to prove that it may
compromise its tax liability under Section 246 of the NIRC of 1977, as
amended.
B. The tax liability of PNB as withholding agent also did not qualify for
compromise under E.O. No. 44.
Before proceeding any further, this Court reconsiders the conclusion
made by BIR Commissioner Ong in his demand letter, dated 16 January
1991, that the compromise settlement executed between the BIR and PNOC
was without legal basis because withholding taxes were not actually taxes
that could be compromised, but a penalty for PNBs failure to withhold and

for which it was made personally liable.

E.O. No. 44 covers disputed or delinquency cases where the person
assessed was himself the taxpayer rather than a mere agent. [72] RMO No. 3986 expressly allows a withholding agent, who failed to withhold the required
tax because of neglect, ignorance of the law, or his belief that he was not
required by law to withhold tax, to apply for a compromise settlement of his
withholding tax liability under E.O. No. 44. A withholding agent, in such a
situation, may compromise the withholding tax assessment against him
precisely because he is being held directly accountable for the tax. [73]
RMO No. 39-86 distinguishes between the withholding agent in the
foregoing situation from the withholding agent who withheld the tax but
failed to remit the amount to the Government. A withholding agent in the
latter situation is the one disqualified from applying for a compromise
settlement because he is being made accountable as an agent, who held
funds in trust for the Government.[74]
Both situations, however, involve withholding agents. The right to
compromise under these provisions should have been claimed by PNB, the
withholding agent for PNOC. The BIR held PNB personally accountable for its
failure to withhold the tax on the interest earnings and/or yields from PNOCs
money placements with PNB. The BIR sent a demand letter, dated 08
October 1986, addressed directly to PNB, for payment of the withholding tax
assessed against it, but PNB failed to take any action on the said demand
letter. Yet, all the offers to compromise the withholding tax assessment
came from PNOC and PNOC did not claim that it made the offers to
compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still applies to
withholding agents that the withholding tax liability must either be a
delinquent account or a disputed assessment as of 31 December 1985 to
qualify for compromise settlement. The demand letter against PNB, which
also served as its assessment notice, had been issued on 08 October 1986
or two months later than PNOCs. PNBs withholding tax liability could not be
considered a delinquent account or a disputed assessment, as defined under
RR No. 17-86, for the same reasons that PNOCs tax liability did not
constitute as such. The tax liability of PNB, therefore, was also not eligible
for compromise settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No.
44, their application for compromise was filed beyond the deadline.
Despite already ruling that the tax liabilities of PNOC and PNB could not
be compromised under E.O. No. 44, this Court still deems it necessary to
discuss the finding of the CTA that the compromise agreement had been
filed beyond the effectivity of E.O. No. 44, since the CTA made a declaration
in relation thereto that paragraph 2 of RMO No. 39-86 was null and void for
unduly extending the effectivity of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. Filing of application for compromise settlement

under the said law shall be effective only until March 31, 1987. Applications
filed on or before this date shall be valid even if the payment or payments of
the compromise amount shall be made after the said date, subject, however,
to the provisions of Executive Order No. 44 and its implementing Revenue
Regulations No. 17-86.
It is well-settled in this jurisdiction that administrative authorities are
vested with the power to make rules and regulations because it is
impracticable for the lawmakers to provide general regulations for various
and varying details of management. The interpretation given to a rule or
regulation by those charged with its execution is entitled to the greatest
weight by the court construing such rule or regulation, and such
interpretation will be followed unless it appears to be clearly unreasonable
or arbitrary.[75]
RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be
unreasonable or arbitrary. It does not unduly expand the coverage of E.O.
No. 44 by merely providing that applications for compromise filed until 31
March 1987 are still valid, even if payment of the compromised amount is
made on a later date.
It cannot be expected that the compromise allowed under E.O. No. 44
can be automatically granted upon mere filing of the application by the
taxpayer. Irrefutably, the applications would still have to be processed by the
BIR to determine compliance with the requirements of E.O. No. 44. As it is
uncontested that a taxpayer could still file an application for compromise on
31 March 1987, the very last day of effectivity of E.O. No. 44, it would be
unreasonable to expect the BIR to process and approve the taxpayers
application within the same date considering the volume of applications filed
and pending approval, plus the other matters the BIR personnel would also
have to attend to. Thus, RMO No. 39-86 merely assures the taxpayers that
their applications would still be processed and could be approved on a later
date. Payment, of course, shall be made by the taxpayer only after his
application had been approved and the compromised amount had been
determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the next question
that needs to be addressed is whether PNOC had been able to submit an
application for compromise on or before 31 March 1987 in compliance
thereof. Although the compromise agreement was executed only on 22 June
1987, PNOC is claiming that it had already written a letter to the BIR, as
early as 25 September 1986, offering to compromise its tax liability, and
that the said letter should be considered as PNOCs application for
compromise settlement.
A perusal of PNOCs letter, dated 25 September 1986, would reveal,
however, that the terms of its proposed compromise did not conform to
those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of
the basic tax assessed against it as required by E.O. No. 44; and instead,
made the following offer:
(2) That PNOC be permitted to set-off its foregoing mentioned tax liability of
P304,419,396.83 against the tax refund/credit claims of the National Power

Corporation (NPC) for specific taxes on fuel oil sold to NPC totaling
P335,259,450.21, which tax refunds/credits are actually receivable accounts
of our Company from NPC.[76]
PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.
The BIR, in its letters to PNOC, dated 8 October 1986 [78] and 11 November
1986,[79] consistently denied PNOCs offer because the claim for tax
refund/credit of NAPOCOR was still under process, so that the offer to set-off
such claim against PNOCs tax liability was premature.
[77]

Furthermore, E.O. No. 44 does not contemplate compromise payment

by set-off of a tax liability against a claim for tax refund/credit. Compromise
under E.O. No. 44 may be availed of only in the following circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a
compromise any delinquent account or disputed assessment which has been
due as of December 31, 1985, by paying an amount equal to thirty
percent (30%) of the basic tax assessed.
SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise,
the amount offered as compromise in complete settlement of the delinquent
account shall be paid immediately in cash or managers certified
check.
Deferred or staggered payments of compromise amounts over P50,000 may
be considered on a case to case basis in accordance with the extant
regulations of the Bureau upon approval of the Commissioner of Internal
Revenue, his Deputy or Assistant as delineated in their respective
jurisdictions.
If the Compromise amount is not paid as required herein, the compromise
agreement is automatically nullified and the delinquent account reverted to
the original amount plus the statutory increments, which shall be collected
thru the summary and/or judicial processes provided by law.
E.O. No. 44 is not for the benefit of the taxpayer alone, who can
extinguish his tax liability by paying the compromise amount equivalent to
30% of the basic tax. It also benefits the Government by making collection
of delinquent accounts and disputed assessments simpler, easier, and faster.
Payment of the compromise amount must be made immediately, in cash or
in managers check. Although deferred or staggered payments may be
allowed on a case-to-case basis, the mode of payment remains unchanged,
and must still be made either in cash or in managers check.
PNOCs offer to set-off was obviously made to avoid actual cash-out by
the company. The offer defeated the purpose of E.O. No. 44 because it would
not only delay collection, but more importantly, it would not guarantee
collection. First of all, BIRs collection was contingent on whether the claim
for tax refund/credit of NAPOCOR would be subsequently granted. Second,
collection could not be made immediately and would have to wait until the
resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no
proof, other than the bare allegation of PNOC, that NAPOCORs claim for tax
refund/credit is an account receivable of PNOC. A possible dispute between
NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only
delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered
to compromise its tax liability in accordance with the terms and
circumstances prescribed by E.O. No. 44 and its implementing rules and
regulations, by stating that:
Consequently, we reiterate our previous request for compromise under E.O.
No. 44, and convey our preparedness to settle the subject tax assessment
liability by payment of the compromise amount ofP91,003,129.89,
representing thirty percent (30%) of the basic tax assessment of
P303,343,766.29, in accordance with E.O. No. 44 and its implementing BIR
Revenue Memorandum Order No. 39-86.[80]
PNOC claimed in the same letter that it had previously requested for a
compromise under the terms of E.O. No. 44, but this Court could not find
evidence of such previous request. There are stark and substantial
differences in the terms of PNOCs offer to compromise in its earlier letters,
dated 25 September 1986 and 14 October 1986 (set-off of the entire amount
of its tax liability against the claim for tax refund/credit of NAPOCOR), to
those in its letter, dated 09 June 1987 (payment of the compromise amount
representing 30% of the basic tax assessed against it), making it difficult for
this Court to accept that the letter of 09 June 1987 merely reiterated PNOCs
offer to compromise in its earlier letters.
This Court likewise cannot give credence to PNOCs allegation that
beginning 25 September 1986, the date of its first letter to the BIR, there
were continuing negotiations between PNOC and BIR that culminated in the
compromise agreement on 22 June 1987. Aside from the exchange of letters
recounted in the preceding paragraphs, both PNOC and PNB failed to present
any other proof of the supposed negotiations.
After the BIR denied the second offer of PNOC to set-off its tax liability
against the claim for tax refund/credit of NAPOCOR in a letter, dated 11
November 1986, there is no other evidence of subsequent communication
between PNOC and the BIR. It was only after almost seven months, or on 09
June 1987, that PNOC again wrote a letter to the BIR, this time offering to
pay the compromise amount of 30% of the basic tax assessed against. This
letter was already filed beyond 31 March 1987, after the lapse of the
effectivity of E.O. No. 44 and the deadline for filing applications for
compromise under the said statute.
Evidence of meetings between PNOC and the BIR, or any other form of
communication, wherein the parties presented their offer and counter-offer
to the other, would have been very valuable in explaining and supporting
BIR Commissioner Tans decision to accept PNOCs third offer to compromise
after denying the previous two. The absence of such evidence herein
negates PNOCs claim of actual negotiations with the BIR.
Therefore, even assuming arguendo that the tax liabilities of PNOC and
PNB qualify as delinquent accounts or disputed assessments as of 31
December 1985, the application for compromise filed by PNOC on 09 June
1987, and accepted by then BIR Commissioner Tan on 22 June 1987, was still
filed way beyond 31 March 1987, the expiration date of the effectivity of E.O.
No. 44 and the deadline for filing of applications for compromise under RMO

No. 39-86.
D.

The BIR Commissioners discretionary authority to enter into a

compromise agreement is not absolute and the CTA may inquire into
allegations of abuse thereof.

The foregoing discussion supports the CTAs conclusion that the

compromise agreement between PNOC and the BIR was indeed without legal
basis. Despite this lack of legal support for the execution of the said
compromise agreement, PNB argues that the CTA still had no jurisdiction to
review and set aside the compromise agreement. It contends that the
authority to compromise is purely discretionary on the BIR Commissioner
and the courts cannot interfere with his exercise thereof.
It is generally true that purely administrative and discretionary
functions may not be interfered with by the courts; but when the exercise of
such functions by the administrative officer is tainted by a failure to abide by
the command of the law, then it is incumbent on the courts to set matters
right, with this Court having the last say on the matter. [81]
The manner by which BIR Commissioner Tan exercised his discretionary
power to enter into a compromise was brought under the scrutiny of the CTA
amidst allegations of grave abuse of discretion and/or whimsical exercise of
jurisdiction.[82] The discretionary power of the BIR Commissioner to enter into
compromises cannot be superior over the power of judicial review by the
courts.
The discretionary authority to compromise granted to the BIR
Commissioner is never meant to be absolute, uncontrolled and unrestrained.
No such unlimited power may be validly granted to any officer of the
government, except perhaps in cases of national emergency. [83] In this case,
the BIR Commissioners authority to compromise, whether under E.O. No. 44
or Section 246 of the NIRC of 1977, as amended, can only be exercised
under certain circumstances specifically identified in said statutes. The BIR
Commissioner would have to exercise his discretion within the parameters
set by the law, and in case he abuses his discretion, the CTA may correct
such abuse if the matter is appealed to them.[84]
Petitioners PNOC and PNB both contend that BIR Commissioner Tan
merely exercised his authority to enter into a compromise specially granted
by E.O. No. 44. Since this Court has already made a determination that the
compromise agreement did not qualify under E.O. No. 44, BIR Commissioner
Tans decision to agree to the compromise should have been reviewed in the
light of the general authority granted to the BIR Commissioner to
compromise taxes under Section 246 of the NIRC of 1977, as amended. Then
again, petitioners PNOC and PNB failed to allege, much less present
evidence, that BIR Commissioner Tan acted in accordance with Section 246
of the NIRC of 1977, as amended, when he entered into the compromise
agreement with PNOC.
E. The CTA may set aside a compromise agreement that is contrary to law
and public policy.

PNB also asserts that the CTA had no jurisdiction to set aside a
compromise agreement entered into in good faith. It relies on the decision of
this Court in Republic v. Sandiganbayan[85]that a compromise agreement
cannot be set aside merely because it is too one-sided. A compromise
agreement should be respected by the courts as the res judicata between
the parties thereto.
This Court, though, finds that there are substantial differences in the
factual background of Republic v. Sandiganbayan and the present case.
The compromise agreement executed between the Presidential
Commission on Good Government (PCGG) and Roberto S. Benedicto in
Republic v. Sandiganbayan was judicially approved by the Sandiganbayan.
The Sandiganbayan had ample opportunity to examine the validity of the
compromise agreement since two years elapsed from the time the
agreement was executed up to the time it was judicially approved. This
Court even stated in the said case that, We are not dealing with the usual
compromise agreement perfunctorily submitted to a court and approved as
a matter of course. The PCGG-Benedicto agreement was thoroughly and, at
times, disputatiously discussed before the respondent court. There could be
no deception or misrepresentation foisted on either the PCGG or the
Sandiganbayan.[86]
In addition, the new PCGG Chairman originally prayed for the renegotiation of the compromise agreement so that it could be more just, fair,
and equitable, an action considered by this Court as an implied admission
that the agreement was not contrary to law, public policy or morals nor was
there any circumstance which had vitiated consent.[87]
The above-mentioned circumstances strongly supported the validity of
the compromise agreement in Republic v. Sandiganbayan, which was why
this Court refused to set it aside. Unfortunately for the petitioners in the
present case, the same cannot be said herein.
The Court of Appeals, in upholding the jurisdiction of the CTA to set
aside the compromise agreement, ruled that:
We are unable to accept petitioners submissions. Its formulation of the
issues on CIR and CTAs lack of jurisdiction to disturb a compromise
agreement presupposes a compromise agreement validly entered into by
the CIR and not, when as in this case, it was indubitably shown that the
supposed compromise agreement is without legal support. In case of
arbitrary or capricious exercise by the Commissioner or if the proceedings
were fatally defective, the compromise can be attacked and reversed
through the judicial process (Meralco Securities Corporation v. Savellano,
117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443,
affd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page
18 of decision) .[88]
Although the general rule is that compromises are to be favored, and
that compromises entered into in good faith cannot be set aside, [89] this rule
is not without qualification. A court may still reject a compromise or
settlement when it is repugnant to law, morals, good customs, public order,

or public policy.[90]
The compromise agreement between the BIR and PNOC was contrary to
law having been entered into by BIR Commissioner Tan in excess or in abuse
of the authority granted to him by legislation. E.O. No. 44 and the NIRC of
1977, as amended, had identified the situations wherein the BIR
Commissioner may compromise tax liabilities, and none of these situations
existed in this case.
The compromise, moreover, was contrary to public policy. The primary
duty of the BIR is to collect taxes, since taxes are the lifeblood of the
Government and their prompt and certain availability are imperious needs.
[91]
In the present case, however, BIR Commissioner Tan, by entering into the
compromise agreement that was bereft of any legal basis, would have
caused the Government to lose almost P300 million in tax revenues and
would have deprived the Government of much needed monetary resources.
Allegations of good faith and previous execution of the terms of the
compromise agreement on the part of PNOC would not be enough for this
Court to disregard the demands of law and public policy. Compromise may
be the favored method to settle disputes, but when it involves taxes, it may
be subject to closer scrutiny by the courts. A compromise agreement
involving taxes would affect not just the taxpayer and the BIR, but also the
whole nation, the ultimate beneficiary of the tax revenues collected.
F. The Government cannot be estopped from collecting taxes by the
mistake, negligence, or omission of its agents.
The new BIR Commissioner, Commissioner Ong, had acted well within
his powers when he set aside the compromise agreement, dated 22 June
1987, after finding that the said compromise agreement was without legal
basis. When he took over from his predecessor, there was still a pending
motion for reconsideration of the said compromise agreement, filed by
private respondent Savellano on 24 March 1988. To resolve the said motion,
he reviewed the compromise agreement and, thereafter, came upon the
conclusion that it did not comply with E.O. No. 44 and its implementing rules
and regulations.
It had been declared by this Court in Hilado v. Collector of Internal
Revenue, et al.,[92] that an administrative officer, such as the BIR
Commissioner, may revoke, repeal or abrogate the acts or previous rulings
of his predecessor in office. The construction of a statute by those
administering it is not binding on their successors if, thereafter, the latter
becomes satisfied that a different construction should be given.
It is evident in this case that the new BIR Commissioner, Commissioner
Ong, construed E.O. No. 44 and its implementing rules and regulations
differently from that of his predecessor, former Commissioner Tan, which led
to Commissioner Ongs revocation of the BIR approval of the compromise
agreement, dated 22 June 1987. Such a revocation was only proper
considering that the former BIR Commissioners decision to approve the said
compromise agreement was based on the erroneous construction of the law
(i.e., E.O. No. 44 and its implementing rules and regulations) and should not

give rise to any vested right on PNOC.[93]

Furthermore, approval of the compromise agreement and acceptance of
the compromise payment by his predecessor cannot estop BIR
Commissioner Ong from setting aside the compromise agreement, dated 22
June 1987, for lack of legal basis; and from demanding payment of the
deficiency withholding tax from PNB. As a general rule, the Government
cannot be estopped from collecting taxes by the mistake, negligence, or
omission of its agents[94] because:
. . . Upon taxation depends the Government ability to serve the people for
whose benefit taxes are collected. To safeguard such interest, neglect or
omission of government officials entrusted with the collection of taxes
should not be allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on account of
his own negligence, the presumption being that they take good care of their
personal affairs. This should not hold true to government officials with
respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of
the principle of estoppel. (Republic vs. Caballero, L-27437, September 30,
1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order
of the Elks, Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA
162; Sy vs. Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA
571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs.
Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines,
Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax
Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs.
Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).[95]
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with the notice requirements
under RR No. 12-85 is raised for the first time on appeal and should not
be given due course.
PNB, in another effort to block the collection of the deficiency
withholding tax, this time raises doubts as to the validity of the deficiency
withholding tax assessment issued against it on 16 January 1991. It submits
that the BIR failed to comply with the notice requirements set forth in RR No.
12-85.[96]
Whether or not the BIR complied with the notice requirements of RR No.
12-85 is a new issue raised by PNB only before this Court. Such a question
has not been ventilated before the lower courts. For an appellate tribunal to
consider a legal question, it should have been raised in the court below. [97] If
raised earlier, the matter would have been seriously delved into by the CTA
and the Court of Appeals.[98]
B. The assessment against PNB had become final and unappealable, and
therefore, enforceable.

The CTA and the Court of Appeals declared as final and unappealable,
and thus, enforceable, the assessment against PNB, dated 16 January 1991,
since PNB failed to protest said assessment within the 30-day prescribed
period. This Court, though, finds that the significant BIR assessment, as far
as this case is concerned, should be the one issued by the BIR against PNB
on 08 October 1986.
The BIR issued on 08 October 1986 an assessment against PNB for its
withholding tax liability on the interest earnings and/or yields from PNOCs
money placements with the bank. It had 30 days from receipt to protest the
BIRs assessment. [99] PNB, however, did not take any action as to the said
assessment so that upon the lapse of the period to protest, the withholding
tax assessment against it, dated 8 October 1986, became final and
unappealable, and could no longer be disputed. [100] The courts may therefore
order the enforcement of this assessment.
It is the enforcement of this BIR assessment against PNB, dated 08
October 1986, that is in issue in the instant case. If the compromise
agreement is valid, it would effectively bar the BIR from enforcing the
assessment and collecting the assessed tax; on the other hand, if the
compromise agreement is void, then the courts can order the BIR to enforce
the assessment and collect the assessed tax.
As has been previously discussed by this Court, the BIR demand letter,
dated 16 January 1991, is not a new assessment against PNB. It only
demanded from PNB the payment of the balance of the withholding tax
assessed against it on 08 October 1986. The same demand letter also has
no substantial effect or impact on the resolution of the present case. It is
already unnecessary and superfluous, having been issued by the BIR when
CTA Case No. 4249 was already pending before the CTA. At best, the
demand letter, dated 16 January 1991, constitute a useful reference for the
courts in computing the balance of PNBs tax liability, after applying as
partial payment thereon the amount previously received by the BIR from
PNOC pursuant to the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised by petitioners PNOC and
PNB, and should be considered waived.
The dissenting opinion takes the position that the right of the BIR to
assess and collect income tax on the interest earnings and/or yields from
PNOCs money placements with PNB, particularly for taxable year 1985, had
already prescribed, based on Section 268 of the NIRC of 1977, as amended.
Section 268 of the NIRC of 1977, as amended, provides a three-year
period of limitation for the assessment and collection of internal revenue
taxes, which begins to run after the last day prescribed for filing of the
return.[101]
The dissenting opinion points out that more than four years have
elapsed from 25 January 1986 (the last day prescribed by law for PNB to file

its withholding tax return for the fourth quarter of 1985) to 16 January 1991
(the date when the alleged final assessment of PNBs tax liability was
issued).
The issue of prescription, however, was brought up only in the
dissenting opinion and was never raised by PNOC and PNB in the
proceedings before the BIR nor in any of their pleadings submitted to the
CTA and the Court of Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on
defenses and objections not pleaded, and reads:
SECTION 1. Defenses and objections not pleaded. Defenses and objections
not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there
is another action pending between the parties for the same cause, or that
the action is barred by prior judgment or by the statute of limitations, the
court shall dismiss the claim.
The general rule enunciated in the above-quoted provision governs the
present case, that is, the defense of prescription, not pleaded in a motion to
dismiss or in the answer, is deemed waived. The exception in same provision
cannot be applied herein because the pleadings and the evidence on record
do not sufficiently show that the action is barred by prescription.
It has been consistently held in earlier tax cases that the defense of
prescription of the period for the assessment and collection of tax liabilities
shall be deemed waived when such defense was not properly pleaded and
the facts alleged and evidences submitted by the parties were not sufficient
to support a finding by this Court on the matter. [102] In Querol v. Collector of
Internal Revenue,[103] this Court pronounced that prescription, being a matter
of defense, imposes the burden on the taxpayer to prove that the full period
of the limitation has expired; and this requires him to positively establish the
date when the period started running and when the same was fully
accomplished.
In making its conclusion that the assessment and collection in this case
had prescribed, the dissenting opinion took liberties to assume the following
facts even in the absence of allegations and evidences to the effect that: (1)
PNB filed returns for its withholding tax obligations for taxable year 1985; (2)
PNB reported in the said returns the interest earnings of PNOCs money
placements with the bank; and (3) that the returns were filed on or before
the prescribed date, which was 25 January 1986.
It is not safe to adopt the first and second assumptions in this case
considering that Section 269 of the NIRC of 1977, as amended, provides for
a different period of limitation for assessment and collection of taxes in case
of false or fraudulent return or for failure to file a return. In such cases, the
BIR is given 10 years after discovery of the falsity, fraud, or omission within
which to make an assessment. [104]
It is also not safe to accept the third assumption since there can be a

possibility that PNB filed the withholding tax return later than the prescribed
date, in which case, following the dictates of Section 268 of the NIRC of
1977, as amended, the three-year prescriptive period shall be counted from
the date the return was actually filed.[105]
PNBs withholding tax returns for taxable year 1985, duly received by
the BIR, would have been the best evidence to prove actual filing, the date
of filing and the contents thereof. These facts are relevant in determining
which prescriptive period should apply, and when such prescriptive period
should begin to run and when it had lapsed. Yet, the pleadings did not refer
to any return, and no return was made part of the records of the present
case.
This Court could not make a proper ruling on the matter of prescription
on the mere basis of assumptions; such an issue should have been properly
raised, argued, and supported by evidences submitted by the parties
themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance of the defense of
prescription, this Court finds that the assessment of the withholding tax
liability against PNOC and collection of the tax assessed were done
within the prescriptive period.
Assuming, for the sake of argument, that this Court can give due course
to the defense of prescription, it finds that the assessment against PNB for
its withholding tax liability for taxable year 1985 and the collection of the
tax assessed therein were accomplished within the prescribed periods for
assessment and collection under the NIRC of 1977, as amended.
If this Court adopts the assumption made by the dissenting opinion that
PNB filed its withholding tax return for the last quarter of 1985 on 25 January
1986, then the BIR had until 24 January 1989 to assess PNB. The original
assessment against PNB was issued as early as 08 October 1986, well-within
the three-year prescriptive period for making the assessment as prescribed
by the following provisions of the NIRC of 1977, as amended:
SEC. 268. Period of limitation upon assessment and collection. Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period
SEC. 269. Exceptions as to period of limitation of assessment and collection
of taxes.
(c) Any internal revenue tax which has been assessed within the period of
limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be
read in conjunction with one another. Section 268 requires that assessment
be made within three years from the last day prescribed by law for the filing
of the return. Section 269(c), on the other hand, provides that when an
assessment is issued within the prescribed period provided in Section 268,
the BIR has three years, counted from the date of the assessment, to collect

the tax assessed either by distraint, levy or court action. Therefore, when an
assessment is timely issued in accordance with Section 268, the BIR is given
another three-year period, under Section 269(c), within which to collect the
tax assessed, reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on
08 October 1986, so that the BIR had until 07 October 1989 to enforce it and
to collect the tax assessed. The filing, however, by private respondent
Savellano of his Amended Petition for Review before the CTA on 02 July 1988
already constituted a judicial action for collection of the tax assessed which
stops the running of the three-year prescriptive period for collection thereof.
A judicial action for the collection of a tax may be initiated by the filing
of a complaint with the proper regular trial court; or where the assessment is
appealed to the CTA, by filing an answer to the taxpayers petition for review
wherein payment of the tax is prayed for.[106]
The present case is unique, however, because the Petition for Review
was filed by private respondent Savellano, the informer, against the BIR,
PNOC, and PNB. The BIR, the collecting government agency; PNOC, the
taxpayer; and PNB, the withholding agent, initially found themselves on the
same side. The prayer in the Amended Petition for Review of private
respondent Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully prays that the
compromise agreement of June 22, 1987 be reviewed and declared null and
void, and that this Court directs:
a) respondent Commissioner to enforce and collect and respondents PNB
and/or PNOC to pay in a joint and several capacity, the total tax liability of
P387,987,785.73, plus interests from 31 October 1986; and
b) respondent Commissioner to pay unto petitioner, as informers reward,
15% of the tax liability collected under clause (a) hereof.
Other equitable reliefs under the premises are likewise prayed for. [107]
(Underscoring ours.)
Private respondent Savellano, in his Amended Petition for Review in CTA
Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to
enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax making
CTA Case No. 4249 a collection case. That the Amended Petition for Review
was filed by the informer and not the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the tax was also made
by the informer, not the BIR, should not affect the nature of the case as a
judicial action for collection. In case the CTA grants the Petition and the
prayer therein, as what has happened in the present case, the ultimate
result would be the collection of the tax assessed. Consequently, upon the
filing of the Amended Petition for Review by private respondent Savellano,
judicial action for collection of the tax had been initiated and the running of
the prescriptive period for collection of the said tax was terminated.
Supposing that CTA Case No. 4249 is not a collection case which stops
the running of the prescriptive period for the collection of the tax, CTA Case
No. 4249, at the very least, suspends the running of the said prescriptive
period. Under Section 271 of the NIRC of 1977, as amended, the running of

the prescriptive period to collect deficiency taxes shall be suspended for the
period during which the BIR Commissioner is prohibited from beginning a
distraint or levy or instituting a proceeding in court, and for 60 days
thereafter.[108] Just as in the cases of Republic v. Ker & Co., Ltd.[109] and
Protectors Services, Inc. v. Court of Appeals,[110] this Court declares herein
that the pendency of the present case before the CTA, the Court of Appeals
and this Court, legally prevents the BIR Commissioner from instituting an
action for collection of the same tax liabilities assessed against PNOC and
PNB in the CTA or the regular trial courts. To rule otherwise would be to
violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens.
Once again, that CTA Case No. 4249 was initiated by private respondent
Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the
withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is controlling herein is the
fact that the BIR Commissioner cannot file a judicial action in any other court
for the collection of the tax because such a case would necessarily involve
the same parties and involve the same issues already being litigated before
the CTA in CTA Case No. 4249. The three-year prescriptive period for
collection of the tax shall commence to run only after the promulgation of
the decision of this Court in which the issues of the present case are
resolved with finality.
Whether the filing of the Amended Petition for Review by private
respondent Savellano entirely stops or merely suspends the running of the
prescriptive period for collection of the tax, it had been premature for the
BIR Commissioner to issue a writ of garnishment against PNB on 12 August
1991 and for the Central Bank of the Philippines to debit the account of PNB
on 02 September 1992 pursuant to the said writ, because the case was by
then, pending review by the Court of Appeals. However, since this Court
already finds that the compromise agreement is without force and effect and
hereby orders the enforcement of the assessment against PNB, then, any
issue or controversy arising from the premature garnishment of PNBs
account and collection of the tax by the BIR has become moot and academic
at this point.
V
Additional Informers Reward
Private respondent Savellano is entitled to additional informers reward since
the BIR had already collected the full amount of the tax assessment against
PNB.
PNOC insists that private respondent Savellano is not entitled to
additional informers reward because there was no voluntary payment of the
withholding tax liability. PNOC, however, fails to state any legal basis for its
argument.
Section 316(1) of the NIRC of 1977, as amended, granted a reward to
an informer equivalent to 15% of the revenues, surcharges, or fees
recovered, plus, any fine or penalty imposed and collected. [111] The provision

was clear and uncomplicated an informer was entitled to a reward of 15% of

the total amount actually recovered or collected by the BIR based on his
information. The provision did not make any distinction as to the manner the
tax liability was collected whether it was through voluntary payment by the
taxpayer or through garnishment of the taxpayers property. Applicable
herein is another well-known maxim in statutory construction Ubi lex non
distinguit nec nos distinguere debemos when the law does not distinguish,
we should not distinguish.[112]
Pursuant to the writ of garnishment issued by the BIR, the Central Bank
issued a debit advice against the demand deposit account of PNB with the
Central Bank for the amount ofP294,958,450.73, and credited the same
amount to the demand deposit account of the Treasurer of the Republic of
the Philippines. The Treasurer of the Republic, in turn, already issued a
journal voucher transferring P294,958,450.73 to the account of the BIR.
Since the BIR had already collected P294,958,450.73 from PNB through
the execution of the writ of garnishment over PNBs deposit with the Central
Bank, then private respondent Savellano should be awarded 15% thereof as
reward since the said collection could still be traced to the information he
had given.
WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB
in G.R. No. 109976 and G.R. No. 112800, respectively, are hereby DENIED.
This Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R.
SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the
CTA in CTA Case No. 4249, with modifications, to wit:
(1) The compromise agreement between PNOC and the BIR, dated 22 June
1987, is declared void for being contrary to law and public policy, and
is without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;
(3)The withholding tax assessment against PNB, dated 08 October 1986, had
become final and unappealable. The BIR Commissioner is ordered to
enforce the said assessment and collect the amount of
P294,958,450.73, the balance of tax assessed after crediting the
previous payment made by PNOC pursuant to the compromise
agreement, dated 22 June 1987; and
(4) Private respondent Savellano shall be paid the remainder of his informers
reward, equivalent to 15% of the deficiency withholding tax ordered
collected herein, or P 44,243,767.61.
SO ORDERED.
Quisumbing, Sandoval-Gutierrez, Austria-Martinez, Callejo, Sr., and
Garcia, JJ., concur.
Davide, Jr., C.J., Corona, and Carpio-Morales, joins J. Carpio in his
dissenting opinion.
Puno, and Panganiban, J., concurs with the majority and the separate
opinion of J. Tinga.
Ynares-Santiago, J., no part.

Carpio, J., see dissenting opinion.

Azcuna, J., no partwas PNB Chairman in 1991.
Tinga, J., see separate concurring opinion.

The Facts
[G.R. No. 148191. November 25, 2003]
Quoting petitioner, the CA[6] summarized the facts of this case as
follows:
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK
CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from passive income are
subject to a twenty percent final withholding tax (20% FWT). This tax is
withheld at source and is thus not actuallyand physically received by the
banks, because it is paid directly to the government by the entities from
which the banks derived the income. Apart from the 20% FWT, banks are
also subject to a five percent gross receipts tax (5% GRT) which is imposed
by the Tax Code on their gross receipts, including the passive income.
Since the 20% FWT is constructively received by the banks and forms
part of their gross receipts or earnings, it follows that it is subject to the 5%
GRT. After all, the amount withheld is paid to the government on their behalf,
in satisfaction of their withholding taxes. That they do not actually receive
the amount does not alter the fact that it is remitted for their benefit in
satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax
system in place in this country, this 20 percent portion of the passive
income of banks would actually be paid to the banks and then remitted by
them to the government in payment of their income tax. The institution of
the withholding tax system does not alter the fact that the 20 percent
portion of their passive income constitutes part of their actual earnings,
except that it is paid directly to the government on their behalf in
satisfaction of the 20 percent final income tax due on their passive incomes.

The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court,
seeking to annul the July 18, 2000 Decision [2] and the May 8, 2001
Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 54599. The
decretal portion of the assailed Decision reads as follows:
WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the
Court of Tax Appeals.[5]
The
challenged
Reconsideration.

Resolution

denied

petitioners

Motion

for

For the calendar year 1995, [respondent] seasonably filed its Quarterly
Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross
Receipts Tax] rate) in the total amount of P1,474,691,693.44 with
corresponding gross receipts tax payments in the sum of P73,734,584.60,
broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total P 1,474,691,693.44 P 73,734,584.60
[Respondent] alleges that the total gross receipts in the amount of
P1,474,691,693.44 included the sum of P350,807,875.15 representing gross
receipts from passive income which was already subjected to 20% final
withholding tax.
On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA
Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal
Revenue[,] wherein it was held that the 20% final withholding tax on [a]
banks interest income should not form part of its taxable gross receipts for
purposes of computing the gross receipts tax.
On June 19, 1997, on the strength of the aforementioned decision,
[respondent] filed with the Bureau of Internal Revenue [BIR] a letter-request
for the refund or issuance of [a] tax credit certificate in the aggregate
amount of P3,508,078.75, representing allegedly overpaid gross receipts tax
for the year 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] P 3,508,078.75
Without waiting for an action from the [petitioner], [respondent] on the same
day filed [a] petition for review [with the Court of Tax Appeals] in order to toll
the running of the two-year prescriptive period to judicially claim for the
refund of [any] overpaid internal revenue tax[,] pursuant to Section 230
[now 229] of the Tax Code [also National Internal Revenue Code] x x x.
xxxxxxxxx
After trial on the merits, the [Court of Tax Appeals], on August 6, 1999,
rendered its decision ordering x x x petitioner to refund in favor of x x x
respondent the reduced amount of P1,555,749.65 as overpaid [gross
receipts tax] for the year 1995. The legal issue x x x was resolved by the
[Court of Tax Appeals], with Hon. Amancio Q. Saga dissenting, on the
strength of its earlier pronouncement in x x x Asian Bank Corporation vs.
Commissioner of Internal Revenue x x x, wherein it was held that the 20%

[final withholding tax] on [a] banks interest income should not form part of
its taxable gross receipts for purposes of computing the [gross receipts tax].

the amount of interest income withheld in payment of the 20% FWT forms
part of gross receipts in computing for the GRT on banks.

[7]

Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not form
part of the taxable gross receipts in computing the 5% GRT, because the
FWT was not actually received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax Code does
not specifically state any exemption, x x x the statute must receive a
sensible construction such as will give effect to the legislative intention, and
so as to avoid an unjust or absurd conclusion.[8]
Hence, this appeal.[9]

Issue
Petitioner raises this lone issue for our consideration:
Whether or not the 20% final withholding tax on [a] banks interest income
forms part of the taxable gross receipts in computing the 5% gross receipts
tax.[10]

The Courts Ruling

The Petition is meritorious.

Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20% FWT on respondents interest
income was not actually received by respondent because it was remitted
directly to the government, the fact that the amount redounded to the banks
benefit makes it part of the taxable gross receipts in computing the 5% GRT.
Respondent, on the other hand, maintains that the CA correctly ruled
otherwise.
We agree with petitioner. In fact, the same issue has been raised
recently in China Banking Corporation v. CA,[11] where this Court held that

The FWT and the GRT:

Two Different Taxes
The 5% GRT is imposed by Section 119 [12] of the Tax Code, [13] which
provides:
SEC. 119. Tax on banks and non-bank financial intermediaries. There shall
be collected a tax on gross receipts derived from sources within the
Philippines by all banks and non-bank financial intermediaries in accordance
with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as
income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
(b) On dividends...0%
(c) On royalties, rentals of property, real or personal, profits
from exchange and all other items treated as
gross income under Section 28[14] of this
Code....................................................................
5%
Provided, however, That in case the maturity period referred to in paragraph
(a) is shortened thru pretermination, then the maturity period shall be
reckoned to end as of the date of pretermination for purposes of classifying
the transaction as short, medium or long term and the correct rate of tax
shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the
same tax herein provided on persons performing similar banking activities.
The 5% GRT[15] is included under Title V. Other Percentage Taxes of the
Tax Code and is not subject to withholding. The banks and non-bank
financial intermediaries liable therefor shall, under Section 125(a)(1), [16] file
quarterly returns on the amount of gross receipts and pay the taxes due
thereon within twenty (20)[17] days after the end of each taxable quarter.
The 20% FWT,[18] on the other hand, falls under Section 24(e)(1) [19] of
Title II. Tax on Income. It is a tax on passive income, deducted and withheld
at source by the payor-corporation and/or person as withholding agent
pursuant to Section 50,[20] and paid in the same manner and subject to the
same conditions as provided for in Section 51.[21]

A perusal of these provisions clearly shows that two types of taxes are
involved in the present controversy: (1) the GRT, which is a percentage tax;
and (2) the FWT, which is an income tax. As a bank, petitioner is covered by
both taxes.
A percentage tax is a national tax measured by a certain percentage of
the gross selling price or gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings derived by any person
engaged in the sale of services.[22] It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net
or the gross income realized in a taxable year.[23] It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on
whom the tax is imposed; the payor, a separate entity, acts as no more than
an agent of the government for the collection of the tax in order to ensure
its payment. Obviously, this amount that is used to settle the tax liability is
deemed sourced from the proceeds constitutive of the tax base. [24] These
proceeds are either actual or constructive. Both parties herein agree that
there is no actual receipt by the bank of the amount withheld. What needs to
be determined is if there isconstructive receipt thereof. Since the payee -not the payor -- is the real taxpayer, the rule on constructive receipt can be
easily rationalized, if not made clearly manifest.[25]

Section 4(e) of RR 12-80, on the other hand, states that the tax rates to
be imposed on the gross receipts of banks, non-bank financial
intermediaries, financing companies, and other non-bank financial
intermediaries not performing quasi-banking activities shall be based on all
items of income actually received. This provision reads:
SEC. 4. x x x x x x x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing
quasi-banking activities. The rates of tax to be imposed on the gross receipts
of such financial institutions shall be based on all items of income actually
received. Mere accrual shall not be considered, but once payment is
received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial
institutions, as provided hereunder x x x.
Respondent argues that the above-quoted provision is plain and clear:
since there is no actual receipt, the FWT is not to be included in the tax base
for computing the GRT. There is supposedly no pecuniary benefit or
advantage accruing to the bank from the FWT, because the income is
subjected to a tax burden immediately upon receipt through the withholding
process. Moreover, the earlier RR 12-80 covered matters not falling under
the later RR 17-84.[31]
We are not persuaded.
By analogy, we apply to the receipt of income the rules on actual and
constructive possession provided in Articles 531 and 532 of our Civil Code.

Constructive Receipt
Versus Actual Receipt

Under Article 531:[32]

Applying Section 7 of Revenue Regulations (RR) No. 17-84,
petitioner
contends that there is constructive receipt of the interest on deposits and
yield on deposit substitutes. [27]Respondent, however, claims that even if
there is, it is Section 4(e) of RR 12-80 [28] that nevertheless governs the
situation.
[26]

Section 7 of RR 17-84 states:

SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield from
deposit substitutes subjected to the withholding taxes in accordance with
these regulations need not be included in the gross income in computing the
depositors/investors income tax liability in accordance with the provision of
Section 29(b),[29] (c)[30] and (d) of the National Internal Revenue Code, as
amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit
substitutes declared for purposes of imposing the withholding taxes in
accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial
institutions, the same shall be included as part of the tax base upon which
the gross receipt[s] tax is imposed.

Possession is acquired by the material occupation of a thing or the exercise

of a right, or by the fact that it is subject to the action of our will, or by the
proper acts and legal formalities established for acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it, by his
legal representative, by his agent, or by any person without any power
whatever; but in the last case, the possession shall not be considered as
acquired until the person in whose name the act of possession was executed
has ratified the same, without prejudice to the juridical consequences of
negotiorum gestio in a proper case.[33]
The last means of acquiring possession under Article 531 refers to
juridical acts -- the acquisition of possession by sufficient title to which the
law gives the force of acts of possession. [34] Respondent argues that only
items of income actually received should be included in its gross receipts. It
claims that since the amount had already been withheld at source, it did not
have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts and legal
formalities established therefor. The withholding process is one such act.

There may not be actual receipt of the income withheld; however, as

provided for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as
the withholding agent of the government, because the taxpayer ratifies the
very act of possession for the government. There is thus constructive
receipt. The processes of bookkeeping and accounting for interest on
deposits and yield on deposit substitutes that are subjected to FWT are
indeed -- for legal purposes -- tantamount to delivery, receipt or remittance.
[35]
Besides, respondent itself admits that its income is subjected to a tax
burden immediately upon receipt, although it claims that it derives no
pecuniary benefit or advantage through the withholding process. There
being constructive receipt of such income -- part of which is withheld -- RR
17-84 applies, and that income is included as part of the tax base upon
which the GRT is imposed.

RR 12-80 Superseded by RR 17-84

We now come to the effect of the revenue regulations on interest
income constructively received.
In general, rules and regulations issued by administrative or executive
officers pursuant to the procedure or authority conferred by law upon the
administrative agency have the force and effect, or partake of the nature, of
a statute.[36] The reason is that statutes express the policies, purposes,
objectives, remedies and sanctions intended by the legislature in general
terms. The details and manner of carrying them out are oftentimes left to
the administrative agency entrusted with their enforcement.
In the present case, it is the finance secretary who promulgates the
revenue regulations, upon recommendation of the BIR commissioner. These
regulations are the consequences of a delegated power to issue legal
provisions that have the effect of law.[37]
A revenue regulation is binding on the courts as long as the procedure
fixed for its promulgation is followed. Even if the courts may not be in
agreement with its stated policy or innate wisdom, it is nonetheless valid,
provided that its scope is within the statutory authority or standard granted
by the legislature.[38] Specifically, the regulation must (1) be germane to the
object and purpose of the law; [39] (2) not contradict, but conform to, the
standards the law prescribes;[40] and (3) be issued for the sole purpose of
carrying into effect the general provisions of our tax laws. [41]
In the present case, there is no question about the regularity in the
performance of official duty. What needs to be determined is whether RR 1280 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a

declaration in a regulation -- usually in its repealing clause -- that another

regulation, identified by its number or title, is repealed. All others are
implied repeals.[42] An example of the latter is a general provision that
predicates the intended repeal on a substantial conflict between the existing
and the prior regulations.[43]
As stated in Section 11 of RR 17-84, all regulations, rules, orders or
portions thereof that are inconsistent with the provisions of the said RR are
thereby repealed. This declaration proceeds on the premise that RR 17-84
clearly reveals such an intention on the part of the Department of Finance.
Otherwise, later RRs are to be construed as a continuation of, and not a
substitute for, earlier RRs; and will continue to speak, so far as the subject
matter is the same, from the time of the first promulgation. [44]
There are two well-settled categories of implied repeals: (1) in case the
provisions are in irreconcilable conflict, the later regulation, to the extent of
the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended as a
substitute, it will similarly operate as a repeal of the earlier one. [45] There is no
implied repeal of an earlier RR by the mere fact that its subject matter is related
to a later RR, which may simply be a cumulation or continuation of the earlier
one.[46]
Where a part of an earlier regulation embracing the same subject as a
later one may not be enforced without nullifying the pertinent provision of
the latter, the earlier regulation is deemed impliedly amended or modified to
the extent of the repugnancy.[47] The unaffected provisions or portions of the
earlier regulation remain in force, while its omitted portions are deemed
repealed.[48] An exception therein that is amended by its subsequent
elimination shall now cease to be so and instead be included within the
scope of the general rule.[49]
Section 4(e) of the earlier RR 12-80 provides that only items of income
actually received shall be included in the tax base for computing the GRT,
but Section 7(c) of the later RR 17-84 makes no such distinction and
provides that all interests earned shall be included. The exception having
been eliminated, the clear intent is that the later RR 17-84 includes the
exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged, unless
it is manifest that the administrative agency intended them. As a regulation
is presumed to have been made with deliberation and full knowledge of all
existing rules on the subject, it may reasonably be concluded that its
promulgation was not intended to interfere with or abrogate any earlier rule
relating to the same subject, unless it is either repugnant to or fully inclusive
of the subject matter of an earlier one, or unless the reason for the earlier
one is beyond peradventure removed.[50] Every effort must be exerted to
make all regulations stand -- and a later rule will not operate as a repeal of
an earlier one, if by any reasonable construction, the two can be reconciled.
[51]

RR 12-80 imposes the GRT only on all items of income actually

received, as opposed to their mere accrual, while RR 17-84 includes all

interest income in computing the GRT. RR 12-80 is superseded by the later

rule, because Section 4(e) thereof is not restated in RR 17-84. Clearly
therefore, as petitioner correctly states, this particular provision was
impliedly repealed when the later regulations took effect. [52]

Reconciling the Two Regulations

Granting that the two regulations can be reconciled, respondents
reliance on Section 4(e) of RR 12-80 is misplaced and deceptive. The accrual
referred to therein should not be equated with the determination of the
amount to be used as tax base in computing the GRT. Such accrual merely
refers to an accounting method that recognizes income as earned although
not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept of constructive
possession or receipt as earlier discussed. Petitioner correctly points out that
income that is merely accrued -- earned, but not yet received -- does not
form part of the taxable gross receipts; income that has been received,
albeit constructively, does.[53]
The word actually, used confusingly in Section 4(e), will be clearer if
removed entirely. Besides, if actually is that important, accrual should have
been eliminated for being a mere surplusage. The inclusion of accrual
stresses the fact that Section 4(e) does not distinguish between actual and
constructive receipt. It merely focuses on the method of accounting known
as the accrual system.
Under this system, income is accrued or earned in the year in which the
taxpayers right thereto becomes fixed and definite, even though it may not
be actually received until a later year; while a deduction for a liability is to
be accrued or incurred and taken when the liability becomes fixed and
certain, even though it may not be actually paid until later.[54]
Under any system of accounting, no duty or liability to pay an income
tax upon a transaction arises until the taxable year in which the event
constituting the condition precedent occurs. [55] The liability to pay a tax may
thus arise at a certain time and the tax paid within another given time. [56]
In reconciling these two regulations, the earlier one includes in the tax
base for GRT all income, whether actually or constructively received, while
the later one includes specifically interest income. In computing the income
tax liability, the only exception cited in the later regulations is the exclusion
from gross income of interest income, which is already subjected to
withholding. This exception, however, refers to a different tax altogether. To
extend mischievously such exception to the GRT will certainly lead to results
not contemplated by the legislators and the administrative body
promulgating the regulations.

Manila Jockey Club

Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,[57] we held
that the term gross receipts shall not include money which, although
delivered, has been especially earmarked by law or regulation for some
person other than the taxpayer.[58]
To begin, we have to nuance the definition of gross receipts[59] to
determine what it is exactly. In this regard, we note that US cases have
persuasive effect in our jurisdiction, because Philippine income tax law is
patterned after its US counterpart.[60]
[G]ross receipts with respect to any period means the sum of: (a) The total
amount received or accrued during such period from the sale, exchange, or
other disposition of x x x other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the
taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of its trade or business, and (b) The gross
income, attributable to a trade or business, regularly carried on by the
taxpayer, received or accrued during such period x x x. [61]
x x x [B]y gross earnings from operations x x x was intended all operations
xxx including incidental, subordinate, and subsidiary operations, as well as
principal operations.[62]
When we speak of the gross earnings of a person or corporation, we mean
the entire earnings or receipts of such person or corporation from the
business or operations to which we refer.[63]
From these cases, gross receipts [64] refer to the total, as opposed to the
net, income.[65] These are therefore the total receipts before any deduction [66]
for the expenses of management. [67] Websters New International Dictionary,
in fact, defines gross as whole or entire.
Statutes taxing the gross receipts, earnings, or income of particular
corporations are found in many jurisdictions. [68] Tax thereon is generally held
to be within the power of a state to impose; or constitutional, unless it
interferes with interstate commerce or violates the requirement as to
uniformity of taxation.[69]
Moreover, we have emphasized that the BIR has consistently ruled that
gross receipts does not admit of any deduction.[70] Following the principle of
legislative approval by reenactment, [71] this interpretation has been adopted
by the legislature throughout the various reenactments of then Section 119
of the Tax Code.[72]
Given that a tax is imposed upon total receipts and not upon net
earnings,[73] shall the income withheld be included in the tax base upon
which such tax is imposed? In other words, shall interest income
constructively received still be included in the tax base for computing the
GRT?
We rule in the affirmative.

Manila Jockey Club does not apply to this case. Earmarking is not the
same as withholding. Amounts earmarked do not form part of gross receipts,
because, although delivered or received, these are by law or regulation
reserved for some person other than the taxpayer. On the contrary, amounts
withheld form part of gross receipts, because these are in
constructivepossession and not subject to any reservation, the withholding
agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse
owners and jockeys amounts that never became the property of the race
track.[74] Unlike these amounts, the interest income that had been withheld
for the government became property of the financial institutions upon
constructive possession thereof. Possession was indeed acquired, since it
was ratified by the financial institutions in whose name the act of possession
had been executed. The money indeed belonged to the taxpayers; merely
holding it in trust was not enough.[75]
The government subsequently becomes the owner of the money when
the financial institutions pay the FWT to extinguish their obligation to the
government. As this Court has held before, this is the consideration for the
transfer of ownership of the FWT from these institutions to the government.
[76]
It is ownership that determines whether interest income forms part of
taxable gross receipts.[77] Being originally owned by these financial
institutions as part of their interest income, the FWT should form part of
their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax
liability, which is different from a percentage tax liability. Commissioner of
Internal Revenue v. Tours Specialists, Inc. aptly held thus:[78]
x x x [G]ross receipts subject to tax under the Tax Code do not include
monies or receipts entrusted to the taxpayer which do not belong to them
and do not redound to the taxpayers benefit; and it is not necessary that
there must be a law or regulation which would exempt such monies and
receipts within the meaning of gross receipts under the Tax Code. [79]
In the construction and interpretation of tax statutes and of statutes in
general, the primary consideration is to ascertain and give effect to the
intention of the legislature.[80] We ought to impute to the lawmaking body
the intent to obey the constitutional mandate, as long as its enactments
fairly admit of such construction.[81] In fact, x x x no tax can be levied
without express authority of law, but the statutes are to receive a
reasonable construction with a view to carrying out their purpose and intent.
[82]

Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find
that the first imposes an income tax; the second, a percentage tax. The
legislature clearly intended two different taxes. The FWT is a tax on passive
income, while the GRT is on business. [83] The withholding of one is not
equivalent to the payment of the other.

Non-Exemption of FWT from GRT:

Neither Unjust nor Absurd
Taxing the people and their property is essential to the very existence
of government. Certainly, one of the highest attributes of sovereignty is the
power of taxation,[84] which may legitimately be exercised on the objects to
which it is applicable to the utmost extent as the government may choose.
[85]
Being an incident of sovereignty, such power is coextensive with that to
which it is an incident.[86] The interest on deposits and yield on deposit
substitutes of financial institutions, on the one hand, and their business as
such, on the other, are the two objects over which the State has chosen to
extend its sovereign power. Those not so chosen are, upon the soundest
principles, exempt from taxation.[87]
While courts will not enlarge by construction the governments power of
taxation,[88] neither will they place upon tax laws so loose a construction as
to permit evasions, merely on the basis of fanciful and insubstantial
distinctions.[89] When the legislature imposes a tax on income and another
on business, the imposition must be respected. The Tax Code should be so
construed, if need be, as to avoid empty declarations or possibilities of
crafty tax evasion schemes. We have consistently ruled thus:
x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the
means to carry on its operations, and it is of the utmost importance that the
modes adopted to enforce the collection of the taxes levied should be
summary and interfered with as little as possible. x x x. [90]
Any delay in the proceedings of the officers, upon whom the duty is
devolved of collecting the taxes, may derange the operations of
government, and thereby cause serious detriment to the public. [91]
No government could exist if all litigants were permitted to delay the
collection of its taxes.[92]
A taxing act will be construed, and the intent and meaning of the
legislature ascertained, from its language.[93] Its clarity and implied intent
must exist to uphold the taxes as against a taxpayer in whose favor doubts
will be resolved.[94] No such doubts exist with respect to the Tax Code,
because the income and percentage taxes we have cited earlier have been
imposed in clear and express language for that purpose. [95]
This Court has steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its express terms
-- construction and interpretation being called for only when such literal
application is impossible or inadequate without them. [96] In Quijano v.
Development Bank of the Philippines,[97] we stressed as follows:
No process of interpretation or construction need be resorted to where a
provision of law peremptorily calls for application. [98]
A literal application of any part of a statute is to be rejected if it will
operate unjustly, lead to absurd results, or contradict the evident meaning of
the statute taken as a whole.[99] Unlike the CA, we find that the literal
application of the aforesaid sections of the Tax Code and its implementing

regulations does not operate unjustly or contradict the evident meaning of

the statute taken as a whole. Neither does it lead to absurd results. Indeed,
our courts are not to give words meanings that would lead to absurd or
unreasonable consequences.[100] We have repeatedly held thus:
x x x [S]tatutes should receive a sensible construction, such as will give
effect to the legislative intention and so as to avoid an unjust or an absurd
conclusion.[101]
While it is true that the contemporaneous construction placed upon a
statute by executive officers whose duty is to enforce it should be given
great weight by the courts, still if such construction is so erroneous, x x x the
same must be declared as null and void.[102]
It does not even matter that the CTA, like in China Banking Corporation,
[103]
relied erroneously on Manila Jockey Club. Under our tax system, the CTA
acts as a highly specialized body specifically created for the purpose of
reviewing tax cases.[104] Because of its recognized expertise, its findings of
fact will ordinarily not be reviewed, absent any showing of gross error or
abuse on its part.[105] Such findings are binding on the Court and, absent
strong reasons for us to delve into facts, only questions of law are open for
determination.[106]
Respondent claims that it is entitled to a refund on the basis of excess
GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions. [107] Such exemptions
are strictly construed against the taxpayer, being highly disfavored [108] and
almost said to be odious to the law.Hence, those who claim to be exempt
from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. They must be able to point to some
positive provision, not merely a vague implication, [109] of the law creating
that right.[110]
The right of taxation will not be surrendered, except in words too plain
to be mistaken. The reason is that the State cannot strip itself of this highest
attribute of sovereignty -- its most essential power of taxation -- by vague or
ambiguous language. Since tax refunds are in the nature of tax exemptions,
these are deemed to be in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the
exemption.[111]
No less than our 1987 Constitution provides for the mechanism for
granting tax exemptions.[112] They certainly cannot be granted by implication
or mere administrative regulation. Thus, when an exemption is claimed, it
must indubitably be shown to exist, for every presumption is against it, [113]
and a well-founded doubt is fatal to the claim. [114] In the instant case,
respondent has not been able to satisfactorily show that its FWT on interest
income is exempt from the GRT. Like China Banking Corporation, its
argument creates a tax exemption where none exists.[115]
No exemptions are normally allowed when a GRT is imposed. It is
precisely designed to maintain simplicity in the tax collection effort of the
government and to assure its steady source of revenue even during an

economic slump.[116]

No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation,
are different from each other. The basis of their imposition may be the same,
but their natures are different, thus leading us to a final point. Is there
double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should
be taxed only once; that is, x x x taxing the same person twice by the same
jurisdiction for the same thing.[117] It is obnoxious when the taxpayer is taxed
twice, when it should be but once.[118] Otherwise described as direct duplicate
taxation,[119] the two taxes must be imposed on the same subject matter, for the
same purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and they must be of the same kind or character.
[120]

First, the taxes herein are imposed on two different subject matters.
The subject matter of the FWT is the passive income generated in the form
of interest on deposits and yield on deposit substitutes, while the subject
matter of the GRT is the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the
property; hence, it is an excise [121] rather than a property tax. [122] It is not an
income tax, unlike the FWT. In fact, we have already held that one can be
taxed for engaging in business and further taxed differently for the income
derived therefrom.[123] Akin to our ruling in Velilla v. Posadas,[124] these two
taxes are entirely distinct and are assessed under different provisions.
Second, although both taxes are national in scope because they are
imposed by the same taxing authority -- the national government under the
Tax Code -- and operate within the same Philippine jurisdiction for the same
purpose of raising revenues, the taxing periods they affect are different. The
FWT is deducted and withheld as soon as the income is earned, and is paid
after every calendar quarter in which it is earned. On the other hand, the
GRT is neither deducted nor withheld, but is paid only after every taxable
quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is
an income tax subject to withholding, while the GRT is a percentage tax not
subject to withholding.
In short, there is no double taxation, because there is no taxing twice,
by the same taxing authority, within the same jurisdiction, for the same
purpose, in different taxing periods, some of the property in the territory. [125]
Subjecting interest income to a 20% FWT and including it in the computation
of the 5% GRT is clearly not double taxation.

WHEREFORE, the Petition is GRANTED. The assailed Decision and

Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. No
costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
concur.

G.R. No. L-16704

March 17, 1962
VICTORIAS MILLING COMPANY, INC., petitioner-appellant,
vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.
Ross, Selph and Carrascoso for petitioner-appellant.
Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.
BARRERA, J.:
On October 15, 1958, the Social Security Commission issued its Circular No.
22 of the following tenor: .
Effective November 1, 1958, all Employers in computing the premiums due
the System, will take into consideration and include in the Employee's
remuneration all bonuses and overtime pay, as well as the cash value of
other media of remuneration. All these will comprise the Employee's

remuneration or earnings, upon which the 3-1/2% and 2-1/2% contributions

will be based, up to a maximum of P500 for any one month.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc.,
through counsel, wrote the Social Security Commission in effect protesting
against the circular as contradictory to a previous Circular No. 7, dated
October 7, 1957 expressly excluding overtime pay and bonus in the
computation of the employers' and employees' respective monthly premium
contributions, and submitting, "In order to assist your System in arriving at a
proper interpretation of the term 'compensation' for the purposes of" such
computation, their observations on Republic Act 1161 and its amendment
and on the general interpretation of the words "compensation",
"remuneration" and "wages". Counsel further questioned the validity of the
circular for lack of authority on the part of the Social Security Commission to
promulgate it without the approval of the President and for lack of
publication in the Official Gazette.
Overruling these objections, the Social Security Commission ruled that
Circular No. 22 is not a rule or regulation that needed the approval of the
President and publication in the Official Gazette to be effective, but a mere
administrative interpretation of the statute, a mere statement of general
policy or opinion as to how the law should be construed.
Not satisfied with this ruling, petitioner comes to this Court on appeal.
The single issue involved in this appeal is whether or not Circular No. 22 is a
rule or regulation, as contemplated in Section 4(a) of Republic Act 1161
empowering the Social Security Commission "to adopt, amend and repeal
subject to the approval of the President such rules and regulations as may
be necessary to carry out the provisions and purposes of this Act."
There can be no doubt that there is a distinction between an administrative
rule or regulation and an administrative interpretation of a law whose
enforcement is entrusted to an administrative body. When an administrative
agency promulgates rules and regulations, it "makes" a new law with the
force and effect of a valid law, while when it renders an opinion or gives a
statement of policy, it merely interprets a pre-existing law (Parker,
Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and
regulations when promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction
provided in the law. This is so because statutes are usually couched in
general terms, after expressing the policy, purposes, objectives, remedies
and sanctions intended by the legislature. The details and the manner of
carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional
legal provisions that have the effect of law. (Davis,op. cit., p. 194.) .
A rule is binding on the courts so long as the procedure fixed for its
promulgation is followed and its scope is within the statutory authority
granted by the legislature, even if the courts are not in agreement with the
policy stated therein or its innate wisdom (Davis, op. cit., 195-197). On the
other hand, administrative interpretation of the law is at best merely
advisory, for it is the courts that finally determine what the law means.
Circular No. 22 in question was issued by the Social Security Commission, in
view of the amendment of the provisions of the Social Security Law defining

the term "compensation" contained in Section 8 (f) of Republic Act No. 1161
which, before its amendment, reads as follows: .
(f) Compensation All remuneration for employment include the cash value
of any remuneration paid in any medium other than cash except (1) that
part of the remuneration in excess of P500 received during the month; (2)
bonuses, allowances or overtime pay; and (3) dismissal and all other
payments which the employer may make, although not legally required to
do so.
Republic Act No. 1792 changed the definition of "compensation" to:
(f) Compensation All remuneration for employment include the cash value
of any remuneration paid in any medium other than cash except that part of
the remuneration in excess of P500.00 received during the month.
It will thus be seen that whereas prior to the amendment, bonuses,
allowances, and overtime pay given in addition to the regular or base pay
were expressly excluded, or exempted from the definition of the term
"compensation", such exemption or exclusion was deleted by the
amendatory law. It thus became necessary for the Social Security
Commission to interpret the effect of such deletion or elimination. Circular
No. 22 was, therefore, issued to apprise those concerned of the
interpretation or understanding of the Commission, of the law as amended,
which it was its duty to enforce. It did not add any duty or detail that was
not already in the law as amended. It merely stated and circularized the
opinion of the Commission as to how the law should be
construed.1wph1.t
The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959)
cited by appellant, does not support its contention that the circular in
question is a rule or regulation. What was there said was merely that a
regulation may be incorporated in the form of a circular. Such statement
simply meant that the substance and not the form of a regulation is decisive
in determining its nature. It does not lay down a general proposition of law
that any circular, regardless of its substance and even if it is only
interpretative, constitutes a rule or regulation which must be published in
the Official Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is
not applicable to the present case, because the penalty that may be
incurred by employers and employees if they refuse to pay the
corresponding premiums on bonus, overtime pay, etc. which the employer
pays to his employees, is not by reason of non-compliance with Circular No.
22, but for violation of the specific legal provisions contained in Section
27(c) and (f) of Republic Act No. 1161.
We find, therefore, that Circular No. 22 purports merely to advise employersmembers of the System of what, in the light of the amendment of the law,
they should include in determining the monthly compensation of their
employees upon which the social security contributions should be based,
and that such circular did not require presidential approval and publication
in the Official Gazette for its effectivity.
It hardly need be said that the Commission's interpretation of the
amendment embodied in its Circular No. 22, is correct. The express
elimination among the exemptions excluded in the old law, of all bonuses,
allowances and overtime pay in the determination of the "compensation"
paid to employees makes it imperative that such bonuses and overtime pay

must now be included in the employee's remuneration in pursuance of the

amendatory law. It is true that in previous cases, this Court has held that
bonus is not demandable because it is not part of the wage, salary, or
compensation of the employee. But the question in the instant case is not
whether bonus is demandable or not as part of compensation, but whether,
after the employer does, in fact, give or pay bonus to his employees, such
bonuses shall be considered compensation under the Social Security Act
after they have been received by the employees. While it is true that terms
or words are to be interpreted in accordance with their well-accepted
meaning in law, nevertheless, when such term or word is specifically defined
in a particular law, such interpretation must be adopted in enforcing that
particular law, for it can not be gainsaid that a particular phrase or term may
have one meaning for one purpose and another meaning for some other
purpose. Such is the case that is now before us. Republic Act 1161
specifically defined what "compensation" should mean "For the purposes of
this Act". Republic Act 1792 amended such definition by deleting same
exemptions authorized in the original Act. By virtue of this express
substantial change in the phraseology of the law, whatever prior executive
or judicial construction may have been given to the phrase in question
should give way to the clear mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby
affirmed, with costs against appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Paredes, Dizon and De Leon, JJ., concur.

G.R. No. 73140 May 29, 1987

RIZAL EMPIRE INSURANCE GROUP AND/OR SERGIO CORPUS,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, TEODORICO L. RUIZ, as
Labor Arbiter and ROGELIO R. CORIA, respondents.
Ambrosio Padilla, Mempin & Reyes Law Offices for petitioners.
Guillermo H. Pulia for private respondent.
PARAS, J.:
This is a petition for review on certiorari of the March 14, 1985 Decision of
Labor Arbiter Teodorico L. Ruiz which held that herein private respondent
Rogelio R. Coria was illegally dismissed; and of the Resolution of the National
Labor Relations Commission which dismissed petitioner's appeal on the
ground that the same was filed out of time.
In August, 1977, herein private respondent Rogelio R. Coria was hired by
herein petitioner Rizal Empire Insurance Group as a casual employee with a
salary of P10.00 a day. On January 1, 1978, he was made a regular
employee, having been appointed as clerk-typist, with a monthly salary of
P300.00. Being a permanent employee, he was furnished a copy of
petitioner company's "General Information, Office Behavior and Other Rules
and Regulations." In the same year, without change in his positiondesignation, he was transferred to the Claims Department and his salary
was increased to P450,00 a month. In 1980, he was transferred to the
Underwriting Department and his salary was increased to P580.00 a month
plus cost of living allowance, until he was transferred to the Fire Department
as filing clerk. In July, 1983, he was made an inspector of the Fire Division
with a monthly salary of P685.00 plus allowances and other benefits.
On October 15, 1983, private respondent Rogelio R. Coria was dismissed
from work, allegedly, on the grounds of tardiness and unexcused absences.
Accordingly, he filed a complaint with the Ministry of Labor and Employment
(MOLE), and in a Decision dated March 14, 1985 (Record, pp. 80-87), Labor
Arbiter Teodorico L. Ruiz reinstated him to his position with back wages.
Petitioner filed an appeal with the National labor Relations Commission
(NLRC) but, in a Resolution dated November 15, 1985 (Ibid, pp. 31-32), the
appeal was dismissed on the ground that the same had been filed out of
time. Hence, the instant petition (Ibid, pp. 2-22).
In compliance with the resolution of the Second Division of this Court dated
April 30, 1986 (Ibid., p. 94), private respondent filed his Comment on May
23, 1986 (Ibid., pp. 97-101) and public respondent on July 2, 1986 (Ibid.,pp.
120-124).
On June 6, 1986, petitioners filed their Reply to private respondent's
Comment (Ibid, pp. 102-105) and on July 25, 1986, their Reply to public

respondent's Comment (Ibid., pp. 126-131).

In a Resolution dated August 18, 1986, the Second Division of this Court
resolved to give due course to the petition and to require the parties to
submit their respective memoranda (Ibid., P. 132).
In compliance with the above mentioned Resolution, petitioners filed the,.r
memorandum on November 10, 1986; while private respondent filed his
Memorandum on October 17, 1986 (Ibid, pp. 139-144), and public
respondent on November 16, 1986 (Ibid., pp. 160-166).
Before going however, into the merits of the case, an important point to
consider is whether or not it is still within the jurisdiction of this Court to
review.
Rule VIII of the Revised Rules of the National Labor Relations Commission on
appeal, provides:
SECTION 1. (a) Appeal. Decision or orders of a labor Arbiter shall be final
and executory unless appealed to the Commission by any or both of the
parties within ten (10) calendar days from receipt of notice thereof.
xxx xxx xxx
SECTION 6. No extension of period. No motion or request for extension of
the period within which to perfect an appeal shall be entertained.
The record shows that the employer (petitioner herein) received a copy of
the decision of the Labor Arbiter on April 1, 1985. It filed a Motion for
Extension of Time to File Memorandum of Appeal on April 11, 1985 and filed
the Memorandum of Appeal on April 22, 1985. Pursuant to the "no extension
policy" of the National Labor Relations Commission, aforesaid motion for
extension of time was denied in its resolution dated November 15, 1985 and
the appeal was dismissed for having been filed out of time (Rollo, pp. 31-32).
Petitioners claim, among other things, that respondent Commission
committed a grave abuse of discretion amounting to lack of jurisdiction in
arbitrarily dismissing petitioners' appeal on a technicality (Rollo, p. 9). It
invokes the Rules of Court provision on liberal construction of the Rules in
the interest of substantial justice.
It will be noted however, that the foregoing provision refers to the Rules of
Court. On the other hand, the Revised Rules of the National Labor Relations
Commission are clear and explicit and leave no room for interpretation.
Moreover, it is an elementary rule in administrative law that administrative
regulations and policies enacted by administrative bodies to interpret the
law which they are entrusted to enforce, have the force of law, and are
entitled to great respect (Espanol v. Philippine Veterans Administration, 137
SCRA 314 [1985]).
Under the above-quoted provisions of the Revised NLRC Rules, the decision
appealed from in this case has become final and executory and can no
longer be subject to appeal.
Even on the merits, the ruling of the Labor Arbiter appears to be correct; the
consistent promotions in rank and salary of the private respondent indicate
he must have been a highly efficient worker, who should be retained despite
occasional lapses in punctuality and attendance. Perfection cannot after all
be demanded.
WHEREFORE, this petition is DISMISSED.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Padilla, J., took no part.

[G.R. No. 163123. April 15, 2005]

PHILIPPINE HEALTH INSURANCE CORPORATION, petitioner, vs.

CHINESE GENERAL HOSPITAL AND MEDICAL CENTER,
respondent.
DECISION
CORONA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the March 29, 2004 decision [1] of the Court of Appeals, the
dispositive portion of which read:
FOR THE FOREGOING DISQUISITIONS, the petition is GRANTED, the
Philippine Health Insurance Corporation[2] is hereby ordered to give due
course to petitioners, Chinese General Hospital and Medical Center, claims
for the period from 1989 to 1992, amounting to FOURTEEN MILLION TWO
HUNDRED NINETY ONE THOUSAND FIVE HUNDRED SIXTY EIGHT PESOS and
71/100 PESOS (P14,291,568.71). [3]
The facts, as culled by the Court of Appeals, follow.
On February 14, 1995, Republic Act No. 7875, otherwise known as An Act
Instituting a National Health Insurance Program for all Filipinos and
Establishing the Philippine Health Insurance Corporation For the Purpose,
was approved and signed into law. As its guiding principle, it is provided in
Section 2 thereof, thus:
Section 2. Declaration of Principles and Policies. Section 11, Article XIII of the
Constitution of the Republic of the Philippines declares that the state shall

adopt an integrated and comprehensive approach to health development

which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. Priority for the needs
of the underprivileged, sick, elderly, disabled, women, and children should
be recognized. Likewise, it shall be the policy of the State to provide free
medical care to paupers.
Prior to the enactment of R.A. 7875. CGH[4] had been an accredited health
care provider under the Philippine Medical Care Commission (PMCC), more
popularly known as Medicare. As defined by R.A. 7875, a health care
provider refers to a health care institution, which is duly licensed and
accredited devoted primarily to the maintenance and operation of facilities
for health promotion, prevention, diagnosis, treatment and care of
individuals suffering from illness, disease, injury, disability or deformity, or in
need of obstetrical or other medical and nursing care.[5]
As such, petitioner[6] filed its Medicare claims with the Social Security System
(SSS), which, together with the Government Service Insurance System
(GSIS), administered the Health Insurance Fund of the PMMC. Thus,
petitioner filed its claim from 1989 to 1992 with the SSS, amounting to
EIGHT MILLION ONE HUNDRED TWO THOUSAND SEVEN HUNDRED EIGHTYTWO and 10/100 (P8,102,782.10). Its application for the payment of its claim
with the SSS was overtaken by the passage of R.A. 7875, which in Section 51
and 52, provides:
SECTION 51. Merger. Within sixty (60) days from the promulgation of the
implementing rules and regulations, all functions and assets of the Philippine
Medical Care Commission shall be merged with those of the Corporation
(PHILHEALTH) without need of conveyance, transfer or assignment. The
PMCC shall thereafter cease to exist.
The liabilities of the PMCC shall be treated in accordance with existing laws
and pertinent rules and regulations. xxx
SECTION 52. Transfer of Health Insurance Funds of the SSS and GSIS. The
Health Insurance Funds being administered by the SSS and GSIS shall be
transferred to the Corporation within sixty (60) days from the promulgation
of the implementing rules and regulations. The SSS and GSIS shall, however,
continue to perform Medicare functions under contract with the Corporation
until such time that such functions are assumed by the Corporation xxx.
Being the successor of the PMCC, PHILHEALTH, in compliance with the
mandate of R.A. 7875,[7] promulgated the rules and regulations
implementing said act, Section 52 of which provides:
SECTION 52. Fee for Service Guidelines on Claims Payment. xxx b. All claims
for payment of services rendered shall be filed within sixty (60) calendar
days from the date of discharge of the patient. Otherwise, the claim shall be
barred from payment except if the delay in the filing of thee claim is due to
natural calamities and other fortuitous events. If the claim is sent through
mail, the date of the mailing as stamped by the post office of origin shall be
considered as the date of the filing.
If the delay in the filing is due to natural calamities or other fortuitous
events, the health care provider shall be accorded an extension period of
sixty (60) calendar days.
If the delay in the filing of the claim is caused by the health care provider,
and the Medicare benefits had already been deducted, the claim will not be
paid. If the claim is not yet deducted, it will be paid to the member

chargeable to the future claims of the health care provider.

Instead of giving due course to petitioners claims totaling to EIGHT MILLION
ONE HUNDRED TWO THOUSAND SEVEN HUNDRED EIGHTY-TWO and 10/100
(P8,102,782.10), only ONE MILLION THREE HUNDRED SIXTY-FIVE THOUSAND
FIVE HUNDRED FIFTY-SIX and 32/100 Pesos (1,365,556.32) was paid to
petitioner, representing its claims from 1989 to 1992 (sic).
Petitioner again filed its claims representing services rendered to its patients
from 1998 to 1999, amounting to SEVEN MILLION FIVE HUNDRED FIFTY
FOUR THOUSAND THREE HUNDRED FORTY TWO and 93/100 Pesos
(P7,554,342.93). For being allegedly filed beyond the sixty (60) day period
allowed by the implementing rules and regulations, Section 52 thereof,
petitioners claims were denied by the Claims Review Unit of Philhealth in its
letter dated January 14, 200, thus:
xxx
This pertains to your three hundred seventy three Philhealth medicare
claims (373) which were primarily denied by Claims Processing Department
for late filing and for which you made an appeal to this office. We regret to
inform you that after thorough evaluation of your claims, [your] 361
medicare claims were DENIED, due to the fact that the claims were filed 5 to
16 months after discharge. However, the remaining medicare claims have
been forwarded to Claims Processing Department (CPD) for payment.
SECTION 52 (B) Rule 52 (B) Rule VIII of the Implementing Rules and
Regulations of 7875 provides that all claims for payment of services
rendered shall be filed within sixty (60) days from the day of discharge of
the patient. However, Philhealth Circular No, 31-A, series of 1998, state that
all claims pending with Philhealth as of September 15, 1998 and claims with
discharge dates from September to December 31, 1998 are given one
hundred twenty (120) days from the date of discharge to file their claim. In
as much as we would like to grant your request for reconsideration, the
Corporation could no longer extend the period of filing xxx.
Petitioners claim was denied with finality by PHILHEALTH in its assailed
decision dated June 6, 2000.
In a petition for review under Rule 43 of the Rules of Court, the Court of
Appeals ordered herein petitioner Philippine Health Insurance Corporation
(Philhealth) to pay the claims in the amount of Fourteen Million Two Hundred
Ninety-one Thousand Five Hundred Sixty-eight Pesos and 71/100
(P14,291,568.71), principally on the ground of liberal application of the 60day rule under Section 52 of RA 7875s Implementing Rules and Regulations.
According to the Court of Appeals:
The avowed policy in the creation of a national health program is, as
provided in Section 11, Article XIII of the 1987 Constitution, to adopt an
integrated and comprehensive approach to health development which shall
endeavor to make essential goods, health and other social services
available to all people at affordable cost. To assist the state in pursuing
this policy, hospitals and medical institutions such as herein petitioner are
accredited to provide health care. It is true, as aptly stated by the OGCC,
that petitioner was not required by the government to take part in its
program, it did so voluntarily. But the fact that the government did not twist
petitioners arm, so to speak, to participate does not make petitioners
participation in the program less commendable, considering that at rate

PHILHEALTH is denying claims of health care givers, it is more risky rather

than providential for health care givers to take part in the governments
health program.
It is Our firmly held view that the policy of the state in creating a national
health insurance program would be better served by granting the instant
petition. Thus, it is noteworthy to mention that health care givers are
threatening to boycott PHILHEALTH, reasoning that the claims approved by
PHILHEALTH are not commensurate to the services rendered by them to its
members. Thus, how can these accredited health care givers be encouraged
to serve an increasing number of members when they end up on the losing
end of this venture. We must admit that the costs of operating these medical
institutions cannot be taken lightly. They must also earn a modicum amount
of profit in order to operate properly.
Again, it is trite to emphasize that essentially, the purpose of the national
health insurance program is to provide members immediate medical care
with the least amount of cash expended. Thus, with PHILHEALTH,
members/patients need only to present their card to prove their membership
and the accredited health care giver is mandated by law to provide the
necessary medical assistance, said health care giver shouldering the
PHILHEALTH part of the bill. However, it is the members/patients who bear
the brunt. Thus, they are made to shoulder the PHILHEALTH part of the bill,
and the refund thereof is subject to whether or not the claims of the health
care providers are approved by PHILHEALTH. This is blatantly contrary to the
very purpose for which the National Health Insurance Program was created.
[8]

xxxxxxxxx
We agree.
The state policy in creating a national health insurance program is to
grant discounted medical coverage to all citizens, with priority to the needs
of the underprivileged, sick, elderly, disabled, women and children, and free
medical care to paupers[9].
The very same policy was adopted in RA 7875[10] which sought to:
a) provide all citizens of the Philippines with the mechanism to gain
financial access to health services;
b) create the National Health Insurance Program to serve as the
means to help the people pay for the health services;
c) prioritize and accelerate the provision of health services to all
Filipinos, especially that segment of the population who
cannot afford such services; and
d) establish the Philippine Health Insurance Corporation that will
administer the program at central and local levels.[11]
To assist the state in pursuing the aforementioned policy, health
institutions were granted the privilege of applying for accreditation as health
care providers.[12] Respondent Chinese General Hospital and Medical Center
(CGH) was one of those which received such accreditation.
Under the rules promulgated by the Philhealth Board pursuant to RA
7875, any claim for payment of services rendered (to a patient) shall be filed

within sixty (60) calendar days from the date of discharge of the patient.
Otherwise, the claim is barred.[13]
But before a claim is filed with petitioner Philhealth for services already
rendered, an accredited health care provider like respondent CGH is required
to:
a. accomplish a Philhealth claim form;
b. accomplish an itemized list of the medicines administered to
and medical supplies used by the patient concerned,
indicating therein the quality, unit, price and total price
corresponding thereto;
c. require the patient concerned and his/her employer to
accomplish and submit a Philhealth member/employer
certification;
d. in case the patient gave birth, require her to submit a certified
true copy of the childs birth certificate;
e. in case the patient died, require the immediate relatives to
submit a certified true copy of the deceaseds death certificate;
and
f. in case a members dependent is hospitalized for which the
member seeks coverage, require the member to submit proof
of relationship to the patient and to execute an affidavit of
support.[14]
Apart from the foregoing requirements which often necessitate securing
documents from other government offices, and the fact that most patients
are unable to immediately accomplish and submit the required documents,
an accredited health care provider like CGH has to contend with an average
of about a thousand members and/or dependents seeking medical treatment
for various illnesses per month.
Under these circumstances, it is unreasonable to expect respondent
CGH to comply 100% of the time with the prescribed 60-day rule of
Philhealth. Despite the prescribed standard procedures, respondent has no
assurance of the members prompt submission of the required documents.
This factor is completely beyond its control. There will always be delay not
attributable to respondent.
The unreasonably strict implementation of the 60-day rule, without
regard to the causes of delay beyond respondents control, will be counterproductive to the long-term effectiveness of the NHIP. Instead of placing a
premium on participation in the Program, Philhealth punishes an accredited
health provider like CGH by refusing to pay its claims for services already
rendered. Under these circumstances, no accredited provider will gamble on
honoring claims with delayed supporting papers no matter how
meritorious knowing that reimbursement from Philhealth will not be
forthcoming.
This Court will not hesitate, whenever necessary, to allow a liberal
implementation of the rules and regulations of an administrative agency in
cases where their unjustifiably rigid enforcement will result in a deprivation
of legal rights. In this case, respondent had already rendered the services for

which it was filing its claims. Technicalities should not be allowed to defeat
respondents right to be reimbursed, specially since petitioners charter itself
guarantees such reimbursement.
A careful reading of RA 7875 shows that the law itself does not provide
for any specific period within which to file claims. We can safely presume
therefore that the period for filing was not per se the principal concern of the
legislature. More important than mere technicalities is the realization of the
state policy to provide Philhealth members with the requisite medical care at
the least possible cost. Truly, nothing can be more disheartening than to see
the Acts noble objective frustrated by the overly stringent application of
technical rules.
The fact is that it was not RA 7875 itself but Section 52 of its
Implementing Rules and Regulations which established the 60-day cut-off
for the filing of claims.
While it is doctrinal in administrative law that the rules and regulations
of administrative bodies interpreting the law they are entrusted to enforce
have the force of law[15], these issuances are by no means iron-clad norms.
Administrative bodies themselves can and have in fact bent the rules for
reasons of public interest. On September 15, 1998, for instance, petitioner
issued Philhealth Circular No. 31-A:[16]
IN ORDER to allow members of the National Health Insurance Program
(NHIP) sufficient time to complete all documents to support their medical
care claims, Philhealth is temporarily suspending the sixty (60)-day
reglementary period for filing claims.
While Section 52 (b), Rule VIII of the Implementing Rules and
Regulations of R.A. 7875 provides that all claims for payment of
services shall be filed within 60 calendar days from the day of
discharge of a patient, there is a need to extend this period to
minimize the incidence of late filing due to members personal
difficulties and circumstances beyond their control. (emphasis ours)
And then again, on April 20, 1999, Philhealth Circular No. 50 was issued:
TO MINIMIZE the incidence of late filing of claims due to members
personal difficulties in preparing the needed documents, Philhealth
is extending the period for filing of claims xxx (emphasis ours)
The above circulars indubitably recognized the necessity of extending
the 60-day period because of the difficulties encountered by members in
completing the required documents, often due to circumstances beyond
their control. Petitioner appeared to be well aware of the problems
encountered by its members in complying with the 60-day rule. Furthermore,
implicit in the wording of the circulars was the cognition of the fact that the
fault was not always attributable to the health care providers like CGH but to
the members themselves.
Delay on the part of members is an ordinary occurrence. There is no
need to make a mountain out of a molehill as far as this particular point is
concerned. To this day, members continue to encounter delay in submitting

their documents. There was therefore no compelling reason for the exacting
and meticulous enforcement of the rule when, in at least two instances,
petitioner itself implemented it liberally and on the same ground that it was
using against respondent.
Petitioner likewise contends that respondent failed to exhaust
administrative remedies before resorting to judicial intervention. We
disagree.
Under the doctrine of exhaustion of administrative remedies, an
administrative decision must first be appealed to the administrative
superiors at the highest level before it may be elevated to a court of justice
for review.
This doctrine, however, is a relative one and its flexibility is conditioned
on the peculiar circumstances of a case.[17] There are a number of instances
when the doctrine has been held to be inapplicable. Among the established
exceptions are:
1) when the question raised is purely legal;
2) when the administrative body is in estoppel;
3) when the act complained of is patently illegal;
4) when there is urgent need for judicial intervention;
5) when the claim involved is small;
6) when irreparable damage will be suffered;
7) when there is no other plain, speedy and adequate remedy;
8) when strong public interest is involved;
9) when the subject of the controversy is private land;
10) in quo warranto proceedings.[18]
As explained by the appellate court:
It is Our view that the instant case falls as one of the exceptions, concerning
as it does public interest. As mentioned earlier, although they were not
made parties to the instant case, the rights of millions of Filipinos who are
members of PHILHEALTH and who obviously rely on it for their health care,
are considered, nonetheless, parties to the present case. This Court is
mandated herein to take conscious and detailed consideration of the
interplay of the interests of the state, the health care giver and the
members. With these in mind, We hold that the greater interest of the
greater number of people, mostly members of PHILHEALTH, is paramount.
Furthermore, when the representatives of herein petitioner met with Dr.
Enrique Zalamea, PHILHEALTHs President and Chief Executive Officer, he
informed them that, in lieu of protest to be filed directly with him, the
representatives could make representations with the Office of the President,
which petitioner did to no avail, considering that the formal protest filed was
referred back by the Office of the President to Dr. Zalamea. Being then the
head of PHILHEALTH, and expected to have an intimate knowledge of the
law and the rules creating the National Health Insurance Program, under
which PHILHEALTH was created, he instructed herein petitioner to pursue a
remedy not sanctioned by the rules and not in accord with the rule of
exhaustion of administrative remedies. In so doing, PHILHEALTH is deemed
estopped from assailing the instant petition for failure to exhaust

administrative remedies when PHILHEALTH itself, through its president, does

not subscribe to it.[19]
There is no need to belabor the fact that the baseless denial of
respondents claims will be gravely disturbing to the health care industry,
specially the providers whose claims will be unpaid. The unfortunate reality
is that there are today some health care providers who admit numbers for
treatment and/or confinement yet require them to pay the portion which
ought to be shouldered by Philhealth. A refund is made only if their claim is
first paid, due to the apprehension of not being reimbursed. Simply stated, a
member cannot avail of his benefits under the NHIP at the time he needs it
most.
We cannot turn a deaf ear to respondents plea for fairness which
essentially demands that its claims for services already rendered be honored
as the National Health Insurance Program law intended.
WHEREFORE, the assailed decision of the Court of Appeals is hereby
AFFIRMED. Petitioner is hereby ordered to pay respondents claims
representing services rendered to its members from 1989 to 1992.
No costs.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ.,
concur.
Garcia, J., no part.

G.R. No. L-75697

VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF
MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf
and purportedly on behalf of other videogram operators adversely affected.
It assails the constitutionality of Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board" with broad powers to regulate
and supervise the videogram industry (hereinafter briefly referred to as the
BOARD). The Decree was promulgated on October 5, 1985 and took effect
on April 10, 1986, fifteen (15) days after completion of its publication in the
Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended the
National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed videotape cassette, ready for playback, regardless of length, an annual tax of five
pesos; Provided, That locally manufactured or imported blank video tapes
shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated
Movie Producers, Importers and Distributors Association of the Philippines,
and Philippine Motion Pictures Producers Association, hereinafter collectively
referred to as the Intervenors, were permitted by the Court to intervene in
the case, over petitioner's opposition, upon the allegations that intervention
was necessary for the complete protection of their rights and that their
"survival and very existence is threatened by the unregulated proliferation

of film piracy." The Intervenors were thereafter allowed to file their Comment
in Intervention.
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations of
moviehouses and theaters, and have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes,
thereby resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600
Million per annum from rentals, sales and disposition of videograms, and
such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have
also affected the viability of the movie industry, particularly the more than
1,200 movie houses and theaters throughout the country, and occasioned
industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative
for the Government to create an environment conducive to growth and
development of all business industries, including the movie industry which
has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments
will not only alleviate the dire financial condition of the movie industry upon
which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram
features constitutes a clear and present danger to the moral and spiritual
well-being of the youth, and impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical, intellectual, and
social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial
measures to curb these blatant malpractices which have flaunted our
censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral
values of the people and betraying the national economic recovery program,
bold emergency measures must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the
following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not germane to
the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the
vast powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance,
which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one
subject which shall be expressed in the title thereof" 1 is sufficiently
complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The
requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are
not inconsistent with or foreign to the general subject and title. 2 An act
having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they
are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. 4 It should be
given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision
of the DECREE is a rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms.
Notwithstanding any provision of law to the contrary, the province shall
collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall acrrue to the municipality
where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax
shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx
xxx
xxx
The foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the DECREE,
which is the regulation of the video industry through the Videogram
Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for
regulation 6 it is simply one of the regulatory and control mechanisms
scattered throughout the DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from Preambles
2 and 5, supra. Those preambles explain the motives of the lawmaker in
presenting the measure. The title of the DECREE, which is the creation of the
Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions.
It is unnecessary to express all those objectives in the title or that the latter
be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh
and oppressive, confiscatory, and in restraint of trade. However, it is beyond
serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority
which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected
to tax, thereby depriving the Government of an additional source of revenue.
It is an end-user tax, imposed on retailers for every videogram they make
available for public viewing. It is similar to the 30% amusement tax imposed
or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission
ticket, thus shifting the tax burden on the buying or the viewing public. It is a
tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of
the rampant film piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over
another. 11
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the
state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing
legislature.
3. Petitioner argues that there was no legal nor factual basis for the
promulgation of the DECREE by the former President under Amendment No.
6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence
thereof, or whenever the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instructions,
which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the
8th "whereas" clause sufficiently summarizes the justification in that grave
emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the
judgment" of the then President, considering that the issue of the validity of

the exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the question
raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue
delegation of legislative power. The grant in Section 11 of the DECREE of
authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the
heads or personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily involves a discretion
as to what it shall be, and conferring authority or discretion as to its
execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in
the very language of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That
the grant of such authority might be the source of graft and corruption
would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto
law is, among other categories, one which "alters the legal rules of evidence,
and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's
position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of
forty-five (45) days after the effectivity of this Decree within which to
register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of
videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of
any person engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of violation of the
Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when
the required proof of registration of any videogram cannot be presented and
thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta
vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the
passage of a law providing that the presumption of innocence may be
overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome
such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at
858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain
facts have been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided

there be a rational connection between the facts proved and the ultimate
facts presumed so that the inference of the one from proof of the others is
not unreasonable and arbitrary because of lack of connection between the
two in common experience". 16
Applied to the challenged provision, there is no question that there is a
rational connection between the fact proved, which is non-registration, and
the ultimate fact presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the DECREE attaches
only after a forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being overregulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need for its regulation was apparent. While the
underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its
enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by
the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are
seen to have proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is the necessity,
wisdom and expediency of the DECREE. These considerations, however, are
primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action
taken, may be the basis for declaring a statute invalid. This is as it ought to
be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to
such a sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law,
as there ought to be, the last offender should be courts of justice, to which
rightly litigants submit their controversy precisely to maintain unimpaired
the supremacy of legal norms and prescriptions. The attack on the validity of
the challenged provision likewise insofar as there may be objections, even if
valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which
attaches to a challenged statute. We find no clear violation of the
Constitution which would justify us in pronouncing Presidential Decree No.
1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano,
Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

1991 letter of Director Cawad to Rabor and advised him "to stop reporting
for work effective August 16, 1991." 4

G.R. No. 111812 May 31, 1995

DIONISIO M. RABOR, petitioner,
vs.
CIVIL SERVICE COMMISSION, respondent.
FELICIANO, J.:
Petitioner Dionisio M. Rabor is a Utility Worker in the Office of the Mayor,
Davao City. He entered the government service as a Utility worker on 10
April 1978 at the age of 55 years.
Sometime in May 1991, 1 Alma, D. Pagatpatan, an official in the Office of the
Mayor of Davao City, advised Dionisio M. Rabor to apply for retirement,
considering that he had already reached the age of sixty-eight (68) years
and seven (7) months, with thirteen (13) years and one (1) month of
government service. Rabor responded to this advice by exhibiting a
"Certificate of Membership" 2 issued by the Government Service Insurance
System ("GSIS") and dated 12 May 1988. At the bottom of this "Certificate of
Membership" is a typewritten statement of the following tenor: "Service
extended to comply 15 years service reqts." This statement is followed by a
non-legible initial with the following date "2/28/91."
Thereupon, the Davao City Government, through Ms. Pagatpatan, wrote to
the Regional Director of the Civil Service Commission, Region XI, Davao City
("CSRO-XI"), informing the latter of the foregoing and requesting advice "as
to what action [should] be taken on this matter."
In a letter dated 26 July 1991, Director Filemon B. Cawad of CSRO-XI advised
Davao City Mayor Rodrigo R. Duterte as follows:
Please be informed that the extension of services of Mr. Rabor is contrary to
M.C. No. 65 of the Office of the President, the relevant portion of which is
hereunder quoted:
Officials and employees who have reached the compulsory retirement age of
65 years shall not be retained the service, except for extremely meritorious
reasons in which case the retention shall not exceed six (6) months.
IN VIEW WHEREFORE, please be advised that the services of Mr. Dominador
[M.] Rabor as Utility Worker in that office, is already non-extend[i]ble. 3
Accordingly, on 8 August l991, Mayor Duterte furnished a copy of the 26 July

Petitioner Rabor then sent to the Regional Director, CSRO-XI, a letter dated
14 August 1991, asking for extension of his services in the City Government
until he "shall have completed the fifteen (15) years service [requirement] in
the Government so that [he] could also avail of the benefits of the
retirement laws given to employees of the Government." The extension he
was asking for was about two (2) years. Asserting that he was "still in good
health and very able to perform the duties and functions of [his] position as
Utility Worker," Rabor sought "extension of [his] service as an exception to
Memorandum Circular No. 65 of the Office of the President." 5 This request
was denied by Director Cawad on 15 August 1991.
Petitioner Rabor next wrote to the Office of the President on 29 January 1992
seeking reconsideration of the decision of Director Cawad, CSRO-XI. The
Office of the President referred Mr. Rabor's letter to the Chairman of the Civil
Service Commission on 5 March 1992.
In its Resolution No. 92-594, dated 28 April 1992, the Civil Service
Commission dismissed the appeal of Mr. Rabor and affirmed the action of
Director Cawad embodied in the latter's letter of 26 July 1991. This
Resolution stated in part:
In his appeal, Rabor requested that he be allowed to continue rendering
services as Utility Worker in order to complete the fifteen (15) year service
requirement under P.D. 1146.
CSC Memorandum Circular No. 27, s. 1990 provides, in part:
1. Any request for extension of service of compulsory retirees to complete
the fifteen years service requirement for retirement shall be allowed only to
permanent appointees in the career service who are regular members of the
Government Service Insurance System (GSIS) and shall be granted for a
period of not exceeding one (1) year.
Considering that as early as October 18, 1988, Rabor was already due for
retirement, his request for further extension of service cannot be given due
course. 6 (Emphasis in the original)
On 28 October 1992, Mr. Rabor sought reconsideration of Resolution No. 92594 of the Civil Service Commission this time invoking the Decision of this
Court in Cena v. Civil Service Commission. 7 Petitioner also asked for
reinstatement with back salaries and benefits, having been separated from
the government service effective 16 August 1991. Rabor's motion for
reconsideration was denied by the Commission.
Petitioner Rabor sent another letter dated 16 April 1993 to the Office of the
Mayor, Davao City, again requesting that he be allowed to continue
rendering service to the Davao City Government as Utility Worker in order to
complete the fifteen (15) years service requirement under P.D. No. 1146.
This request was once more denied by Mayor Duterte in a letter to petitioner
dated 19 May 1993. In this letter, Mayor Duterte pointed out that,
underCena grant of the extension of service was discretionary on the part of
the City Mayor, but that he could not grant the extension requested. Mayor
Duterte's letter, in relevant part, read:
The matter was referred to the City Legal Office and the Chairman of the
Civil Service Commission, in the advent of the decision of the Supreme Court

in the Cena vs. CSC, et al. (G.R. No. 97419 dated July 3, 1992), for legal
opinion. Both the City Legal Officer and the Chairman of the Civil Service
Commission are one in these opinion that extending you an appointment in
order that you may be able to complete the fifteen-year service requirement
is discretionary [on the part of] the City Mayor.
Much as we desire to extend you an appointment but circumstances are that
we can no longer do so.As you are already nearing your 70th birthday may
no longer be able to perform the duties attached to your position. Moreover,
the position you had vacated was already filled up.
We therefore regret to inform you that we cannot act favorably on your
request. 8 (Emphases supplied)
At this point, Mr. Rabor decided to come to this Court. He filed a
Letter/Petition dated 6 July 1993 appealing from Civil Service Resolution No.
92-594 and from Mayor Duterte's letter of 10 May 1993.
The Court required petitioner Rabor to comply with the formal requirements
for instituting a special civil action ofcertiorari to review the assailed
Resolution of the Civil Service Commission. In turn, the Commission was
required to comment on petitioner's Letter/Petition. 9 The Court subsequently
noted petitioner's Letter of 13 September 1993 relating to compliance with
the mentioned formal requirements and directed the Clerk of Court to advise
petitioner to engage the services of counsel or to ask for legal assistance
from the Public Attorney's Office (PAO). 10
The Civil Service Commission, through the Office of the Solicitor General,
filed its comment on 16 November 1993. The Court then resolved to give
due course to the Petition and required the parties to file memoranda. Both
the Commission and Mr. Rabor (the latter through PAO counsel) did so.
In this proceeding, petitioner Rabor contends that his claim falls squarely
within the ruling of this Court in Cena v. Civil Service Commission. 11
Upon the other hand, the Commission seeks to distinguish this case from
Cena. The Commission, through the Solicitor General, stressed that in Cena,
this Court had ruled that the employer agency, the Land Registration
Authority of the Department of Justice, was vested with discretion to grant to
Cena the extension requested by him. The Land Registration Authority had
chosen not to exercise its discretion to grant or deny such extension. In
contrast, in the instant case, the Davao City Government did exercise its
discretion on the matter and decided to deny the extension sought by
petitioner Rabor for legitimate reasons.
While the Cena decision is barely three (3) years old, the Court considers
that it must reexamine the doctrine ofCena and the theoretical and policy
underpinnings thereof. 12
We start by recalling the factual setting of Cena.
Gaudencio Cena was appointed Registrar of the Register of Deeds of
Malabon, Metropolitan Manila, on 16 July 1987. He reached the compulsory
retirement age of sixty-five (65) years on 22 January 1991. By the latter
date, his government service would have reached a total of eleven (11)
years, nine (9) months and six (6) days. Before reaching his 65th birthday,
Cena requested the Secretary of Justice, through the Administrator of the

Land Registration Authority ("LRA") that he be allowed to extend his service

to complete the fifteen-year service requirement to enable him to retire with
the full benefit of an Old-Age Pension under Section 11 (b) of P.D. No. 1146.
If Cena's request were granted, he would complete fifteen (15) years of
government service on 15 April 1994, at the age of sixty-eight (68) years.
The LRA Administrator sought a ruling from the Civil Service Commission on
whether or not Cena's request could be granted considering that Cena was
covered by Civil Service Memorandum No. 27, Series of 1990. On 17 October
1990, the Commission allowed Cena a one (1) year extension of his service
from 22 January 1991 to 22 January 1992 under its Memorandum Circular
No. 27. Dissatisfied, Cena moved for reconsideration, without success. He
then came to this Court, claiming that he was entitled to an extension of
three (3) years, three (3) months and twenty-four (24) days to complete the
fifteen-year service requirement for retirement with full benefits under
Section 11 (b) of P.D. No. 1146.
This Court granted Cena' s petition in its Decision of 3 July 1992. Speaking
through Mr. Justice Medialdea, the Court held that a government employee
who has reached the compulsory retirement age of sixty-five (65) years, but
at the same time has not yet completed fifteen (15) years of government
service required under Section 11 (b) of P.D. No. 1146 to qualify for the OldAge Pension Benefit, may be granted an extension of his government service
for such period of time as may be necessary to "fill up" or comply with the
fifteen (15)-year service requirement. The Court also held that the authority
to grant the extension was a discretionary one vested in the head of the
agency concerned. Thus the Court concluded:
Accordingly, the Petition is GRANTED. The Land Registration Authority (LRA)
and Department of Justice has the discretion to allow petitioner Gaudencio
Cena to extend his 11 years, 9 months and 6 days of government to
complete the fifteen-year service so that he may retire with full benefits
under Section 11, paragraph (b) of P.D. 1146. 13 (Emphases supplied)
The Court reached the above conclusion primarily on the basis of the "plain
and ordinary meaning" of Section 11 (b) of P.D. No. 1146. Section 11 may be
quoted in its entirety:
Sec. 11 Conditions for Old-Age Pension. (a) Old-Age Pension shall be paid
to a member who
(1) has at least fifteen (15) years of service;
(2) is at least sixty (60) years of age; and
(3) is separated from the service.
(b) unless the service is extended by appropriate authorities, retirement
shall be compulsory for an employee at sixty-five-(65) years of age with at
least fifteen (15) years of service; Provided, that if he has less than fifteen
(15) years of service, he shall he allowed to continue in the service to
completed the fifteen (15) years. (Emphases supplied)
The Court went on to rely upon the canon of liberal construction which has
often been invoked in respect of retirement statutes:
Being remedial in character, a statute granting a pension or establishing [a]
retirement plan should be liberally construed and administered in favor of
persons intended to be benefitted thereby. The liberal approach aims to
achieve the humanitarian purposes of the law in order that efficiency,
security and well-being of government employees may be enhanced. 14

(Citations omitted)
While Section 11 (b) appeared cast in verbally unqualified terms, there were
(and still are) two (2) administrative issuances which prescribe limitations on
the extension of service that may be granted to an employee who has
reached sixty-five (65) years of age.
The first administrative issuance is Civil Service Commission Circular No. 27,
Series of 1990, which should be quoted in its entirety:
TO : ALL HEADS OF DEPARTMENTS, BUREAUS AND AGENCIES OF THE
NATIONAL/LOCAL GOVERNMENTS INCLUDING GOVERNMENT- OWNED
AND/OR CONTROLLED CORPORATIONS WITH ORIGINAL CHARTERS.
SUBJECT : Extension of Service of Compulsory Retiree to Complete the
Fifteen Years Service Requirement for Retirement Purposes.
Pursuant to CSC Resolution No. 90-454 dated May 21, 1990, the Civil Service
Commission hereby adopts and promulgates the following policies and
guidelines in the extension of services of compulsory retirees to complete
the fifteen years service requirement for retirement purposes:
1. Any request for the extension of service of compulsory retirees to
complete the fifteen (15) years service requirement for retirement shall be
allowed only to permanent appointees in the career service who are regular
members of the Government Service Insurance System (GSIS), and shall be
granted for a period not exceeding one (1) year.
2. Any request for the extension of service of compulsory retiree to complete
the fifteen (15) years service requirement for retirement who entered the
government service at 57 years of age or over upon prior grant of authority
to appoint him or her, shall no longer be granted.
3. Any request for the extension of service to complete the fifteen (15) years
service requirement of retirement shall be filled not later than three (3)
years prior to the date of compulsory retirement.
4. Any request for the extension of service of a compulsory retiree who
meets the minimum number of years of service for retirement purposes may
be granted for six (6) months only with no further extension.
This Memorandum Circular shall take effect immediately. (Emphases
supplied)
The second administrative issuance Memorandum Circular No. 65 of the
Office of the President, dated 14 June 1988 provides:
xxx xxx xxx
WHEREAS, this Office has been. receiving requests for reinstatement and/or
retention in the service of employees who have reached the compulsory
retirement age of 65 years, despite the strict conditions provided for in
Memorandum Circular No. 163, dated March 5, 1968, as amended.
WHEREAS, the President has recently adopted a policy to adhere more
strictly to the law providing for compulsory retirement age of 65 years and,
in extremely meritorious cases, to limit the service beyond the age of 65
years to six (6) months only.
WHEREFORE, the pertinent provision of Memorandum Circular No. 163 or on
the retention in the service of officials or employees who have reached the
compulsory retirement age of 65 years, is hereby amended to read as
follows:
Officials or employees who have reached the compulsory retirement age of
65 yearsshall not be retained in the service, except for extremely

meritorious reasons in which case the retention shall not exceed six (6)
months.
All heads of departments, bureaus, offices and instrumentalities of the
government including government-owned or controlled corporations, are
hereby enjoined to require their respective offices to strictly comply with this
circular.
This Circular shall take effect immediately.
By authority of the President
(Sgd.)
CATALINO MACARAIG, JR.
Executive Secretary
Manila, June 14, 1988. 15 (Emphasis supplied)
Medialdea, J. resolved the challenges posed by the above two (2)
administrative regulations by, firstly, considering as invalid Civil Service
Memorandum No. 27 and, secondly, by interpreting the Office of the
President's Memorandum Circular No. 65 as inapplicable to the case of
Gaudencio T. Cena.
We turn first to the Civil Service Commission's Memorandum Circular No. 27.
Medialdea, J. wrote:
The Civil Service Commission Memorandum Circular No. 27 being in the
nature of an administrative regulation, must be governed by the principle
that administrative regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the law,
and should be for the sole purpose of carrying into effect its general
provisions (People v. Maceren, G.R. No. L-32166, October 18, 1977, 79 SCRA
450; Teoxon v. Members of the Board of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel v. General Auditing Office, L-28952, December
29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29
SCRA 350). . . . . The rule on limiting to one the year the extension of service
of an employee who has reached the compulsory retirement age of sixty-five
(65) years, but has less than fifteen (15) years of service under Civil Service
Memorandum Circular No. 27, S. 1990, cannot likewise be accorded validity
because it has no relationship or connection with any provision of P.D. 1146
supposed to be carried into effect. The rule was an addition to or extension
of the law, not merely a mode of carrying it into effect. The Civil Service
Commission has no power to supply perceived omissions in P.D. 1146. 16
(Emphasis supplied)
It will be seen that Cena, in striking down Civil Service Commission
Memorandum No. 27, took a very narrow view on the question of what
subordinate rule-making by an administrative agency is permissible and
valid. That restrictive view must be contrasted with this Court's earlier ruling
in People v. Exconde, 17 where Mr. Justice J.B.L. Reyes said:
It is well established in this jurisdiction that, while the making of laws is a
non-delegable activity that corresponds exclusively to Congress,
nevertheless, the latter may constitutionally delegate authority and
promulgate rules and regulations to implement a given legislation and
effectuate its policies, for the reason that the legislature often finds it
impracticable (if not impossible) to anticipate and provide for the
multifarious and complex situations that may be met in carrying the law into

effect. All that is required is that the regulation should be germane to the
objects and purposes of the law; that the regulation be not in contradiction
with it, but conform to standards that the law prescribes. 18(Emphasis
supplied)
In Tablarin v. Gutierrez, 19 the Court, in sustaining the validity of a MECS
Order which established passing a uniform admission test called the National
Medical Admission Test (NMAT) as a prerequisite for eligibility for admission
into medical schools in the Philippines, said:
The standards set for subordinate legislation in the exercise of rule making
authority by an administrative agency like the Board of Medical Education
are necessarily broad and highly abstract. As explained by then Mr. Justice
Fernando in Edu v. Ericta (35 SCRA 481 [1970])
The standards may be either expressed or implied. If the former, the nondelegation objection is easily met. The Standard though does not have to be
spelled out specifically. It could be implied from the policy and purpose of
the act considered as a whole. In the Reflector Law, clearly the legislative
objective is public safety. What is sought to be attained in Calalang v.
William is "safe transit upon the roads."
We believe and so hold that the necessary standards are set forth in Section
1 of the 1959 Medical Act: "the standardization and regulation of medical
education" and in Section 5 (a) and 7 of the same Act, the body of the
statute itself, and that these considered together are sufficient compliance
with the requirements of the non-delegation principle. 20 (Citations omitted;
emphasis partly in the original and partly supplied)
In Edu v. Ericta, 21 then Mr. Justice Fernando stressed the abstract and very
general nature of the standards which our Court has in prior case law upheld
as sufficient for purposes of compliance with the requirements for validity of
subordinate or administrative rule-making:
This Court has considered as sufficient standards, "public welfare,"
(Municipality of Cardona v. Municipality of Binangonan, 36 Phil. 547 [1917]);
"necessary in the interest of law and order," (Rubi v. Provincial Board, 39
Phil. 660 [1919]); "public interest," (People v. Rosenthal, 68 Phil. 328
[1939]); and "justice and equity and substantial merits of the case,"
(International Hardwood v. Pangil Federation of Labor, 17 Phil. 602 [1940]). 22
(Emphasis supplied)
Clearly, therefore, Cena when it required a considerably higher degree of
detail in the statute to be implemented, went against prevailing doctrine. It
seems clear that if the governing or enabling statute is quite detailed and
specific to begin with, there would be very little need (or occasion) for
implementing administrative regulations. It is, however, precisely the
inability of legislative bodies to anticipate all (or many) possible detailed
situations in respect of any relatively complex subject matter, that makes
subordinate, delegated rule-making by administrative agencies so important
and unavoidable. All that may be reasonably; demanded is a showing that
the delegated legislation consisting of administrative regulations are
germane to the general purposes projected by the governing or enabling
statute. This is the test that is appropriately applied in respect of Civil

Service Memorandum Circular No. 27, Series of 1990, and to this test we
now turn.
We consider that the enabling statute that should appropriately be examined
is the present Civil Service law found in Book V, Title I, Subtitle A, of
Executive Order No. 292 dated 25 July 1987, otherwise known as the
Administrative Code of 1987 and not alone P.D. No. 1146, otherwise
known as the "Revised Government Service Insurance Act of 1977." For the
matter of extension of service of retirees who have reached sixty-five (65)
years of age is an area that is covered by both statutes and not alone by
Section 11 (b) of P.D. 1146. This is crystal clear from examination of many
provisions of the present civil service law.
Section 12 of the present Civil Service law set out in the 1987 Administrative
Code provides, in relevant part, as follows:
Sec. 12 Powers and Functions. The [Civil Service] Commission shall have
the following powers and functions:
xxx xxx xxx
(2) Prescribe, amend and enforce rules and regulations for carrying into
effect the provisions of the Civil Service Law and other pertinent laws;
(3) Promulgate policies, standards and guidelines for the Civil Service and
adopt plans and programsto promote economical, efficient and effective
personnel administration in the government;
xxx xxx xxx
(10) Formulate, administer and evaluate programs relative to the
development and retention of aqualified and competent work force in the
public service;
xxx xxx xxx
(14) Take appropriate action on all appointments and other personnel
matters in the Civil Serviceincluding extension of service beyond retirement
age;
xxx xxx xxx
(17) Administer the retirement program for government officials and
employees, and accredit government services and evaluate qualifications
for retirement;
xxx xxx xxx
(19) Perform all functions properly belonging to a central personnel agency
and such other functions as may be provided by law. (Emphasis supplied)
It was on the bases of the above quoted provisions of the 1987
Administrative Code that the Civil Service Commission promulgated its
Memorandum Circular No. 27. In doing so, the Commission was acting as
"the central personnel agency of the government empowered to promulgate
policies, standards and guidelines for efficient, responsive and effective
personnel administration in the government." 23 It was also discharging its
function of "administering the retirement program for government officials
and employees" and of "evaluat[ing] qualifications for retirement."
In addition, the Civil Service Commission is charged by the 1987
Administrative Code with providing leadership and assistance "in the
development and retention of qualified and efficient work force in the Civil
Service" (Section 16 [10]) and with the "enforcement of the constitutional
and statutory provisions, relative to retirement and the regulation for the
effective implementation of the retirement of government officials and
employees" (Section 16 [14]).

We find it very difficult to suppose that the limitation of permissible

extensions of service after an employee has reached sixty-five (65) years of
age has no reasonable relationship or is not germane to the foregoing
provisions of the present Civil Service Law. The physiological and
psychological processes associated with ageing in human beings are in fact
related to the efficiency and quality of the service that may be expected
from individual persons. The policy considerations which guided the Civil
Service Commission in limiting the maximum extension of service allowable
for compulsory retirees, were summarized by Grio-Aquino, J. in her
dissenting opinion in Cena:
Worth pondering also are the points raised by the Civil Service Commission
that extending the service of compulsory retirees for longer than one (1)
year would: (1) give a premium to late-comersin the government service
and in effect discriminate against those who enter the service at a younger
age; (2) delay the promotion of the latter and of next-in-rank employees;
and (3) prejudice the chances for employment of qualified young civil
service applicants who have already passed the various government
examination but must wait for jobs to be vacated by "extendees" who have
long passed the mandatory retirement age but are enjoying extension of
their government service to complete 15 years so they may qualify for oldage pension. 24 (Emphasis supplied).
Cena laid heavy stress on the interest of retirees or would be retirees,
something that is, in itself, quite appropriate. At the same time, however, we
are bound to note that there should be countervailing stress on the interests
of the employer agency and of other government employees as a whole. The
results flowing from the striking down of the limitation established in Civil
Service Memorandum Circular No. 27 may well be "absurd and inequitable,"
as suggested by Mme. Justice Grio-Aquino in her dissenting opinion. An
employee who has rendered only three (3) years of government service at
age sixty-five (65) can have his service extended for twelve (12) years and
finally retire at the age of seventy-seven (77). This reduces the significance
of the general principle of compulsory retirement at age sixty-five (65) very
close to the vanishing point.
The very real difficulties posed by the Cena doctrine for rational personnel
administration and management in the Civil Service, are aggravated when
Cena is considered together with the case of Toledo v. Civil Service
Commission. 25 Toledo involved the provisions of Rule III, Section 22, of the
Civil Service Rules on Personnel Action and Policies (CSRPAP) which
prohibited the appointment of persons fifty-seven (57) years old or above in
government service without prior approval of the Civil Service Commission.
Civil Service Memorandum Circular No. 5, Series of 1983 provided that a
person fifty-seven (57) years of age may be appointed to the Civil Service
provided that the exigencies of the government service so required and
provided that the appointee possesses special qualifications not possessed
by other officers or employees in the Civil Service and that the vacancy
cannot be filled by promotion of qualified officers or employees of the Civil
Service. Petitioner Toledo was appointed Manager of the Education and
Information Division of the Commission on Elections when he was almost
fifty-nine (59) years old. No authority for such appointment had been

obtained either from the President of the Philippines or from the Civil Service
Commission and the Commission found that the other conditions laid down
in Section 22 of Rule III, CSRPAP, did not exist. The Court nevertheless struck
down Section 22, Rule III on the same exceedingly restrictive view of
permissible administrative legislation that Cena relied on. 26
When one combines the doctrine of Toledo with the ruling in Cena, very
strange results follow. Under these combined doctrines, a person sixty-four
(64) years of age may be appointed to the government service and one (1)
year later may demand extension of his service for the next fourteen (14)
years; he would retire at age seventy-nine (79). The net effect is thus that
the general statutory policy of compulsory retirement at sixty-five (65) years
is heavily eroded and effectively becomes unenforceable. That general
statutory policy may be seen to embody the notion that there should be a
certain minimum turn-over in the government service and that opportunities
for government service should be distributed as broadly as possible,
specially to younger people, considering that the bulk of our population is
below thirty (30) years of age. That same general policy also reflects the life
expectancy of our people which is still significantly lower than the life
expectancy of, e.g., people in Northern and Western Europe, North America
and Japan.
Our conclusion is that the doctrine of Cena should be and is hereby modified
to this extent: that Civil Service Memorandum Circular No. 27, Series of
1990, more specifically paragraph (1) thereof, is hereby declared valid and
effective. Section 11 (b) of P.D. No. 1146 must, accordingly, be read together
with Memorandum Circular No. 27. We reiterate, however, the holding in
Cena that the head of the government agency concerned is vested with
discretionary authority to allow or disallow extension of the service of an
official or employee who has reached sixty-five (65) years of age without
completing fifteen (15) years of government service; this discretion is,
nevertheless, to be exercised conformably with the provisions of Civil
Service Memorandum Circular No. 27, Series of 1990.
We do not believe it necessary to deal specifically with Memorandum
Circular No. 65 of the Office of the President dated 14 June 1988. It will be
noted from the text quoted supra (pp. 11-12) that the text itself of
Memorandum Circular No. 65 (and for that matter, that of Memorandum
Circular No. 163, also of the Office of the President, dated 5 March 1968) 27
does not purport to apply only to officers or employees who have reached
the age of sixty-five (65) years and who have at least fifteen (l5) years of
government service. We noted earlier that Cena interpreted Memorandum
Circular No. 65 as referring only to officers and employees who have both
reached the compulsory retirement age of sixty-five (65) and completed the
fifteen (15) years of government service. Cena so interpreted this
Memorandum Circular precisely because Cena had reached the conclusion
that employees who have reached sixty-five (65) years of age, but who have
less than fifteen (15) years of government service, may be allowed such
extension of service as may be needed to complete fifteen (15) years of
service. In other words, Cena read Memorandum Circular No. 65 in such a
way as to comfort with Cena's own conclusion reached without regard to
that Memorandum Circular. In view of the conclusion that we today reached
in the instant case, this last ruling of Cena is properly regarded as merely

orbiter.
We also do not believe it necessary to determine whether Civil Service
Memorandum Circular No. 27 is fully compatible with Office of the
President's Memorandum Circular No. 65; this question must be reserved for
detailed analysis in some future justiciable case.
Applying now the results of our reexamination of Cena to the instant case,
we believe and so hold that Civil Service Resolution No. 92-594 dated 28
April 1992 dismissing the appeal of petitioner Rabor and affirming the action
of CSRO-XI Director Cawad dated 26 July 1991, must be upheld and affirmed.
ACCORDINGLY, for all the foregoing, the Petition for Certiorari is hereby
DISMISSED for lack of merit. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug,
Kapunan, Mendoza and Francisco, JJ., concur.
Quiason, J., is on leave.

Separate Opinions
PADILLA, J., concurring:
I vote to grant the petition for the same reasons stated in my concurring
opinion in Cena vs. CSC reported in 211 SCRA 192.

[G.R. No. 119528. March 26, 1997]

PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS

BOARD and GRAND INTERNATIONAL AIRWAYS, INC.,
respondents.
DECISION
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of
the Rules of Court seeks to prohibit respondent Civil Aeronautics Board from
exercising jurisdiction over private respondent's Application for the issuance
of a Certificate of Public Convenience and Necessity, and to annul and set
aside a temporary operating permit issued by the Civil Aeronautics Board in

favor of Grand International Airways (GrandAir, for brevity) allowing the

same to engage in scheduled domestic air transportation services,
particularly the Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative
franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the
issuance of a Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII of the
Constitution.
Respondent GrandAir, on the other hand, posits that a legislative
franchise is no longer a requirement for the issuance of a Certificate of
Public Convenience and Necessity or a Temporary Operating Permit,
following the Court's pronouncements in the case of Albano vs. Reyes,[1] as
restated by the Court of Appeals in Avia Filipinas International vs. Civil
Aeronautics Board[2] and Silangan Airways, Inc. vs. Grand International
Airways, Inc., and the Hon. Civil Aeronautics Board. [3]
On November 24, 1994, private respondent GrandAir applied for a
Certificate of Public Convenience and Necessity with the Board, which
application was docketed as CAB Case No. EP-12711. [4] Accordingly, the
Chief Hearing Officer of the CAB issued a Notice of Hearing setting the
application for initial hearing on December 16, 1994, and directing GrandAir
to serve a copy of the application and corresponding notice to all scheduled
Philippine Domestic operators. On December 14, 1994, GrandAir filed its
Compliance, and requested for the issuance of a Temporary Operating
Permit. Petitioner, itself the holder of a legislative franchise to operate air
transport services, filed an Opposition to the application for a Certificate of
Public Convenience and Necessity on December 16, 1995 on the following
grounds:
"A. The CAB has no jurisdiction to hear the petitioner's application until the
latter has first obtained a franchise to operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a
computation of trunkline, secondary and rural available seat kilometers
(ASK) which shall always be maintained at a monthly level at least 5% and
20% of the ASK offered into and out of the proposed base of operations for
rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss
statements, projected balance sheet, insurance coverage, list of personnel,
list of spare parts inventory, tariff structure, documents supportive of
financial capacity, route flight schedule, contracts on facilities (hangars,
maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection
clause of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition
contrary to Section 4(d) of R.A. 776."[5]
At the initial hearing for the application, petitioner raised the issue of

lack of jurisdiction of the Board to hear the application because GrandAir did
not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an
Order denying petitioner's Opposition. Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's
application until the latter has first obtained a franchise to operate from
Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the
application. In Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled
that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific
power and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."
Meantime, on December 22, 1994, petitioner this time, opposed private
respondent's application for a temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of
operating the services applied for under RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for
the services applied for."[6]
On December 23, 1994, the Board promulgated Resolution No. 119(92)
approving the issuance of a Temporary Operating Permit in favor of Grand
Air[7] for a period of three months, i.e., from December 22, 1994 to March 22,
1994. Petitioner moved for the reconsideration of the issuance of the
Temporary Operating Permit on January 11, 1995, but the same was denied
in CAB Resolution No. 02 (95) on February 2, 1995. [8] In the said Resolution,
the Board justified its assumption of jurisdiction over GrandAir's application.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of
Republic Act No. 776 as follows:
'(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny,
amend revise, alter, modify, cancel, suspend or revoke, in whole or in part,
upon petitioner-complaint, or upon its own initiative, any temporary
operating permit or Certificate of Public Convenience and Necessity;
Provided, however; that in the case of foreign air carriers, the permit shall be
issued with the approval of the President of the Republic of the Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992),
wherein the Supreme Court held that the CAB can even on its own initiative,
grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365),
promulgated on October 30, 1991, held that in accordance with its mandate,
the CAB can issue not only a TOP but also a Certificate of Public
Convenience and Necessity (CPCN) to a qualified applicant therefor in the
absence of a legislative franchise, citing therein as basis the decision of
Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public
utility may operate when the law has granted certain administrative
agencies the power to grant licenses for or to authorize the operation of

certain public utilities;

b) The Constitutional provision in Article XII, Section 11 that the issuance of
a franchise, certificate or other form of authorization for the operation of a
public utility does not necessarily imply that only Congress has the power to
grant such authorization since our statute books are replete with laws
granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995,
provides in Section 2.1 that a minimum of two (2) operators in each
route/link shall be encouraged and that routes/links presently serviced by
only one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by
Philippine Airlines on January 05, 1995 on the Grant by this Board of a
Temporary Operating Permit (TOP) to Grand International Airways, Inc.
alleging among others that the CAB has no such jurisdiction, is hereby
DENIED, as it hereby denied, in view of the foregoing and considering that
the grounds relied upon by the movant are not indubitable."
On March 21, 1995, upon motion by private respondent, the temporary
permit was extended for a period of six (6) months or up to September 22,
1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers
and jurisdiction in taking cognizance of GrandAirs application for the
issuance of a Certificate of Public Convenience and Necessity, and in issuing
a temporary operating permit in the meantime, since GrandAir has not been
granted and does not possess a legislative franchise to engage in scheduled
domestic air transportation. A legislative franchise is necessary before
anyone may engage in air transport services, and a franchise may only be
granted by Congress. This is the meaning given by the petitioner upon a
reading of Section 11, Article XII,[9] and Section 1, Article VI, [10] of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the
Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a
legislative franchise before the Civil Aeronautics Board (CAB) may issue a
Certificate of Public Convenience and Necessity and/or permit to engage in
air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a
congressional franchise, the House Committee on Corporations and
Franchises contended that under the present Constitution, the CAB may not
issue the abovestated certificate or permit, unless the individual or entity
concerned possesses a legislative franchise. You believe otherwise, however,

for the reason that under R.A. No. 776, as amended, the CAB is explicitly
empowered to issue operating permits or certificates of public convenience
and necessity and that this statutory provision is not inconsistent with the
current charter.
We concur with the view expressed by the House Committee on
Corporations and Franchises. In an opinion rendered in favor of your
predecessor-in-office, this Department observed that,xxx it is useful to note the distinction between the
franchise to operate and a permit to commence
operation. The former is sovereign and legislative in
nature; it can be conferred only by the lawmaking
authority (17 W and P, pp. 691-697). The latter is
administrative and regulatory in character (In re
Application of Fort Crook-Bellevue Boulevard Line, 283
NW 223); it is granted by an administrative agency, such
as the Public Service Commission [now Board of
Transportation], in the case of land transportation, and
the Civil Aeronautics Board, in case of air services. While
a legislative franchise is a pre-requisite to a grant of a
certificate of public convenience and necessity to an
airline company, such franchise alone cannot constitute
the authority to commence operations, inasmuch as
there are still matters relevant to such operations which
are not determined in the franchise, like rates, schedules
and routes, and which matters are resolved in the
process of issuance of permit by the administrative.
(Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and
necessity is an authorization issued by the appropriate governmental
agency for the operation of public services for which a franchise is required
by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293;
Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative
authorization to engage in a business activity or enterprise of a public
nature, whereas a certificate of public convenience and necessity is a
regulatory measure which constitutes the franchises authority to commence
operations. It is thus logical that the grant of the former should precede the
latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of
the provisions of Republic Act 776, which follows the pronouncements of the
Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board,
and Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil
Aeronautics Board can issue the Certificate of Public Convenience and
Necessity or Temporary Operating Permit to a prospective domestic air

transport operator who does not possess a legislative franchise to operate

as such. Relying on the Court's pronouncement in Albano vs. Reyes (supra),
the Court of Appeals upheld the authority of the Board to issue such
authority, even in the absence of a legislative franchise, which authority is
derived from Section 10 of Republic Act 776, as amended by P.D. 1462. [11]
The Civil Aeronautics Board has jurisdiction over GrandAir's Application
for a Temporary Operating Permit. This rule has been established in the case
of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June
13, 1968.[12] The Board is expressly authorized by Republic Act 776 to issue a
temporary operating permit or Certificate of Public Convenience and
Necessity, and nothing contained in the said law negates the power to issue
said permit before the completion of the applicant's evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB's authority to grant
a temporary permit "upon its own initiative" strongly suggests the power to
exercise said authority, even before the presentation of said evidence has
begun. Assuming arguendo that a legislative franchise is prerequisite to the
issuance of a permit, the absence of the same does not affect the
jurisdiction of the Board to hear the application, but tolls only upon the
ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is
admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature
itself, or by any one of its properly constituted instrumentalities. The grant,
when made, binds the public, and is, directly or indirectly, the act of the
state."[13]
The issue in this petition is whether or not Congress, in enacting
Republic Act 776, has delegated the authority to authorize the operation of
domestic air transport services to the respondent Board, such that
Congressional mandate for the approval of such authority is no longer
necessary.
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public utilities.
With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards the approval of
the practice by the courts. [14] It is generally recognized that a franchise may
be derived indirectly from the state through a duly designated agency, and
to this extent, the power to grant franchises has frequently been delegated,
even to agencies other than those of a legislative nature. [15] In pursuance of
this, it has been held that privileges conferred by grant by local authorities
as agents for the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature. [16]
The trend of modern legislation is to vest the Public Service
Commissioner with the power to regulate and control the operation of public
services under reasonable rules and regulations, and as a general rule,

courts will not interfere with the exercise of that discretion when it is just
and reasonable and founded upon a legal right.[17]
It is this policy which was pursued by the Court in Albano vs. Reyes.
Thus, a reading of the pertinent issuances governing the Philippine Ports
Authority,[18] proves that the PPA is empowered to undertake by itself the
operation and management of the Manila International Container Terminal,
or to authorize its operation and management by another by contract or
other means, at its option. The latter power having been delegated to the
PPA, a franchise from Congress to authorize an entity other than the PPA to
operate and manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board
has the authority to issue a Certificate of Public Convenience and Necessity,
or Temporary Operating Permit to a domestic air transport operator, who,
though not possessing a legislative franchise, meets all the other
requirements prescribed by the law. Such requirements were enumerated in
Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that
a legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator. Although Section 11 of Article
XII recognizes Congress' control over any franchise, certificate or authority
to operate a public utility, it does not mean Congress has exclusive authority
to issue the same. Franchises issued by Congress are not required before
each and every public utility may operate. [19] In many instances, Congress
has seen it fit to delegate this function to government agencies, specialized
particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress
to delegate the authority to regulate the issuance of a license to operate
domestic air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise
provided herein, the Board shall have the power to regulate the economic
aspect of air transportation, and shall have general supervision and
regulation of, the jurisdiction and control over air carriers, general sales
agents, cargo sales agents, and air freight forwarders as well as their
property rights, equipment, facilities and franchise, insofar as may be
necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the
following specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny,
amend, revise, alter, modify, cancel, suspend or revoke in whole or in part
upon petition or complaint or upon its own initiative any Temporary
Operating Permit or Certificate of Public Convenience and Necessity:
Provided however, That in the case of foreign air carriers, the permit shall be
issued with the approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to

issue "Certificates of Public Convenience and Necessity", this, according to

petitioner, means that a legislative franchise is an absolute requirement. It
cites a number of authorities supporting the view that a Certificate of Public
Convenience and Necessity is issued to a public service for which a franchise
is required by law, as distinguished from a "Certificate of Public
Convenience" which is an authorization issued for the operation of public
services for which no franchise, either municipal or legislative, is required by
law.[20]

canalized with banks that keep it from overflowing." Otherwise, the

delegation is in legal effect an abdication of legislative authority, a total
surrender by the legislature of its prerogatives in favor of the delegate." [23]

This submission relies on the premise that the authority to issue a

certificate of public convenience and necessity is a regulatory measure
separate and distinct from the authority to grant a franchise for the
operation of the public utility subject of this particular case, which is
exclusively lodged by petitioner in Congress.

"SECTION 4. Declaration of policies. In the exercise and performance of its

powers and duties under this Act, the Civil Aeronautics Board and the Civil
Aeronautics Administrator shall consider the following, among other things,
as being in the public interest, and in accordance with the public
convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system
properly adapted to the present and future of foreign and domestic
commerce of the Philippines, of the Postal Service and of the National
Defense;
(c) The regulation of air transportation in such manner as to recognize and
preserve the inherent advantages of, assure the highest degree of safety in,
and foster sound economic condition in, such transportation, and to improve
the relations between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air
carriers at reasonable charges, without unjust discriminations, undue
preferences or advantages, or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the
sound development of an air transportation system properly adapted to the
need of the foreign and domestic commerce of the Philippines, of the Postal
Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.

We do not agree with the petitioner.

Many and varied are the definitions of certificates of public convenience
which courts and legal writers have drafted. Some statutes use the terms
"convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together.
Both words modify each other and must be construed together. The word
'necessity' is so connected, not as an additional requirement but to modify
and qualify what might otherwise be taken as the strict significance of the
word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which
the existing facilities do not adequately afford. It does not mean or require
an actual physical necessity or an indispensable thing. [21]
"The terms 'convenience' and 'necessity' are to be construed together,
although they are not synonymous, and effect must be given both. The
convenience of the public must not be circumscribed by according to the
word 'necessity' its strict meaning or an essential requisites." [22]
The use of the word "necessity", in conjunction with "public
convenience" in a certificate of authorization to a public service entity to
operate, does not in any way modify the nature of such certification, or the
requirements for the issuance of the same. It is the law which determines
the requisites for the issuance of such certification, and not the title
indicating the certificate.
Congress, by giving the respondent Board the power to issue permits
for the operation of domestic transport services, has delegated to the said
body the authority to determine the capability and competence of a
prospective domestic air transport operator to engage in such venture. This
is not an instance of transforming the respondent Board into a minilegislative body, with unbridled authority to choose who should be given
authority to operate domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative
restrictions, not a "roving commission" that will give the delegate unlimited
legislative authority. It must not be a delegation "running riot" and "not

Congress, in this instance, has set specific limitations on how such

authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following
guidelines or policies:

More importantly, the said law has enumerated the requirements to

determine the competency of a prospective operator to engage in the public
service of air transportation.
SECTION 12. Citizenship requirement. Except as otherwise provided in the
Constitution and existing treaty or treaties, a permit authorizing a person to
engage in domestic air commerce and/or air transportation shall be issued
only to citizens of the Philippines.[24]
SECTION 21. Issuance of permit. The Board shall issue a permit authorizing
the whole or any part of the service covered by the application, if it finds: (1)
that the applicant is fit, willing and able to perform such service properly in
conformity with the provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is required by the
public convenience and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a
Certificate of Public Convenience and Necessity had been established to
ensure the weeding out of those entities that are not deserving of public
service.[25]

In sum, respondent Board should now be allowed to continue hearing

the application of GrandAir for the issuance of a Certificate of Public
Convenience and Necessity, there being no legal obstacle to the exercise of
its jurisdiction.

decrees, executive orders and other pronouncements promulgated during

the Martial Law regime.[1] The question that has taken a long life is whether
the operation of a radio or television station requires a congressional
franchise. The Court shall now lay to rest the issue.

ACCORDINGLY, in view of the foregoing considerations, the Court

RESOLVED to DISMISS the instant petition for lack of merit. The respondent
Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance
of a Certificate of Public Convenience and Necessity.

This is a petition for review on certiorari of the Court of Appeals January

31, 2000 decision and February 21, 2000 resolution affirming the January 13,
1999 decision of the National Telecommunications Commission (NTC for
brevity).

SO ORDERED.
Regalado (Chairman), and Puno, JJ., concur.
Romero, J., no part. Related to counsel.
Mendoza, J., no part. Relative in management of party.

First, the facts.

On November 11, 1931, Act No. 3846, entitled An Act Providing for the
Regulation of Radio Stations and Radio Communications in the Philippines
and for Other Purposes, was enacted. Sec. 1 of the law reads, viz:
Sec. 1. No person, firm, company, association, or corporation shall construct,
install, establish, or operate a radio transmitting station, or a radio receiving
station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the
Philippines...
Pursuant to the above provision, Congress enacted in 1965 R.A. No.
4551, entitled An Act Granting Marcos J. Villaverde, Jr. and Winfred E.
Villaverde a Franchise to Construct, Install, Maintain and Operate Public
Radiotelephone and Radiotelegraph Coastal Stations, and Public Fixed and
Public Based and Land Mobile Stations within the Philippines for the
Reception and Transmission of Radiotelephone and Radiotelegraph for
Domestic Communications and Provincial Telephone Systems in Certain
Provinces. It gave the grantees a 50-year franchise. [2]In 1969, the franchise
was transferred to petitioner Associated Communications & Wireless
Services United Broadcasting Network, Inc. (ACWS for brevity) through
Congress Concurrent Resolution No. 58. [3] Petitioner ACWS then engaged in
the installation and operation of several radio stations around the country.

[G.R. No. 144109. February 17, 2003]

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED

BROADCASTING NETWORKS, petitioner, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION, respondent.
DECISION
PUNO, J.:
For many years now, there has been a pervading confusion in the state
of affairs of the broadcast industry brought about by conflicting laws,

In 1974, P.D. No. 576-A, Regulating the Ownership and Operation of

Radio and Television Stations and for other Purposes was issued, with the
following pertinent provisions on franchise of radio and television
broadcasting systems:
Sec. 1. No radio station or television channel may obtain a franchise unless
it has sufficient capital on the basis of equity for its operation for at least one
year, including purchase of equipment.
xxxxxxxxx
Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of
authority to operate radio or television broadcasting systems shall terminate
on December 31, 1981. Thereafter, irrespective of any franchise, grant,
license, permit, certificate or other forms of authority to operate granted by
any office, agency or person, no radio or television station shall be
authorized to operate without the authority of the Board of Communications
and the Secretary of Public Works and Communications or their successors
who have the right and authority to assign to qualified parties frequencies,
channels or other means of identifying broadcasting system; Provided,

however, that any conflict over, or disagreement with a decision of the

aforementioned authorities may be appealed finally to the Office of the
President within fifteen days from the date the decision is received by the
party in interest.
A few years later or in 1979, E.O. No. 546 [4] was issued. It integrated the
Board of Communications and the Telecommunications Control Bureau under
the Integrated Reorganization Plan of 1972 into the NTC. Among the powers
vested in the NTC under Sec. 15 of E.O. No. 546 are the following:
a. Issue Certificate of Public Convenience for the operation of
communication utilities and services, radio communications systems, wire or
wireless telephone or telegraph system, radio and television broadcasting
system and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for wireless telephone and
telegraph systems and radio communication systems including amateur
radio stations and radio and television broadcasting systems; . . .
Upon termination of petitioners franchise on December 31, 1981
pursuant to P.D. No. 576-A, it continued operating its radio stations under
permits granted by the NTC.
As these presidential issuances relating to the radio and television
broadcasting industry brought about confusion as to whether the NTC could
issue permits to radio and television broadcast stations without legislative
franchise, the NTC sought the opinion of the Department of Justice (DOJ) on
the matter. On June 20, 1991, the DOJ rendered Opinion No. 98, Series of
1991, viz:
We believe that under P.D. No. 576-A dated November 11, 1974 and prior to
the issuance of E.O No. 546 dated July 23, 1979, the NTC, then Board of
Communications, had no authority to issue permits or authorizations to
operate radio and television broadcasting systems without a franchise first
being obtained pursuant to Section 1 of Act No. 3846, as amended. A close
reading of the provisions of Sections 1 and 6 of P.D. No. 576-A, supra, does
not reveal any indication of a legislative intent to do away with the
franchising requirement under Section 1 of Act No. 3846. In fact, a mere
reading of Section 1 would readily indicate that a franchise was necessary
for the operation of radio and television broadcasting systems as it expressly
provided that no such franchise may be obtained unless the radio station or
television channel has sufficient capital on the basis of equity for its
operation for at least one year, including purchase of equipment.
It is believed that the termination of all franchises granted for the operation
of radio and television broadcasting systems effective December 31, 1981
and the vesting of the power to authorize the operation of any radio or
television station upon the Board of Communications and the Secretary of
Public Works and Communications and their successors under Section 6 of
P.D. No. 576-A does not necessarily imply the abrogation of the requirement
of obtaining a franchise under Section 1 of Act No. 3846, as amended, in the
absence of a clear provision in P.D. No. 576-A providing to this effect.
It should be noted that under Act No. 3846, as amended, a person, firm or
entity desiring to operate a radio broadcasting station must obtain the

following: (a) a franchise from Congress (Sec. 1); (b) a permit to construct or
install a station from the Secretary of Commerce and Industry (Sec. 2); and
(c) a license to operate the station also from the Secretary of Commerce and
Industry (id.). The franchise is the privilege granted by the State through its
legislative body and is subject to regulation by the State itself by virtue of its
police power through its administrative agencies (RCPI vs. NTC, 150 SCRA
450). The permit and license are the administrative authorizations issued by
the administrative agency in the exercise of regulation. It is clear that what
was transferred to the Board of Communications and the Secretary of
Commerce and Industry under Section 6 of P.D. No. 576-A was merely the
regulatory powers vested solely in the Secretary of Commerce and Industry
under Section 2 of Act No. 3846, as amended. The franchising authority was
retained by the then incumbent President as repository of legislative power
under Martial Law, as is clearly indicated in the first WHEREAS clause of P.D.
No. 576-A to wit:
WHEREAS, the President of the Philippines is empowered under the
Constitution to review and approve franchises for public utilities.
Of course, under the Constitution, said power (the power to review and
approve franchises), belongs to the lawmaking body (Sec. 5, Art. XIV, 1973
Constitution; Sec. 11, Art. XII, 1987 Constitution).
The corollary question to be resolved is: Has E.O. No 546 (which is a law
issued pursuant to P.D. No. 1416, as amended by P.D. No. 1771, granting the
then President continuing authority to reorganize the administrative
structure of the national government) modified the franchising and licensing
arrangement for radio and television broadcasting systems under P.D. No.
576-A?
We believe so.
E.O. No. 546 integrated the Board of Communications and the
Telecommunications Bureau into a single entity known as the NTC (See Sec.
14), and vested the new body with broad powers, among them, the power to
issue Certificates of Public Convenience for the operation of communications
utilities, including radio and televisions broadcasting systems and the power
to grant permits for the use of radio frequencies (Sec. 14[a] and [c], supra).
Additionally, NTC was vested with broad rule making authority to encourage
a larger and more effective use of communications, radio and television
broadcasting facilities, and to maintain effective competition among private
entities in these activities whenever the Commission finds it reasonably
feasible (Sec. 15[f]).
In the recent case of Albano vs. Reyes (175 SCRA 264), the Supreme Court
held that franchises issued by Congress are not required before each and
every public utility may operate. Administrative agencies may be
empowered by law to grant licenses for or to authorize the operation of
certain public utilities. The Supreme Court stated that the provision in the
Constitution (Art. XII, Sec. 11) that the issuance of a franchise, certificate or
other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress, does not
necessarily imply . . . that only Congress has the power to grant such
authorization. Our statute books are replete with laws granting specified
agencies in the Executive Branch the power to issue such authorization for
certain classes of public utilities.
We believe that E.O. No. 546 is one law which authorizes an administrative

agency, the NTC, to issue authorizations for the operation of radio and
television broadcasting systems without need of a prior franchise issued by
Congress.
Based on all the foregoing, we hold the view that NTC is empowered under
E.O. No. 546 to issue authorization and permits to operate radio and
television broadcasting system.[5]
However, on May 3, 1994, the NTC, the Committee on Legislative
Franchises of Congress, and the Kapisanan ng mga Brodkaster sa Pilipinas of
which petitioner is a member of good standing, entered into a Memorandum
of Understanding (MOU) that requires a congressional franchise to operate
radio and television stations. The MOU states, viz:
WHEREAS, under the provisions of Section 1 of Act No. 3846 (Radio Laws of
the Philippines, as amended), only radio and television broadcast stations
with legislative franchise are authorized to operate.
WHEREAS, Executive Order No. 546, which created the National
Telecommunications Commission (NTC) and abolished the Board of
Communications (BOC) and the Telecommunications Control Bureau (TCB),
and integrated the functions and prerogative of the latter two agencies into
the National Telecommunications Commission (NTC);
WHEREAS, the National Telecommunications Commission (NTC) is authorized
to issue certificate of public convenience for the operation of radio and
television broadcast stations;
WHEREAS, there is a pervading confusion in the state of affairs of the
broadcast industry brought about by conflicting laws, decrees, executive
orders and other pronouncements promulgated during the Martial Law
regime, the parties in their common desire to rationalize the broadcast
industry, promote the interest of public welfare, avoid a vacuum in the
delivery of broadcast services, and foremost to better serve the ends of
press freedom, the parties hereto have agreed as follows:
The NTC shall continue to issue and grant permits or authorizations to
operate radio and television broadcast stations within their mandate under
Section 15 of Executive Order No. 546, provided that such temporary
permits or authorization to operate shall be valid for two (2) years within
which the permittee shall be required to file an application for legislative
franchise with Congress not later than December 31, 1994; provided finally,
that if the permittee of the temporary permit or authorization to operate fails
to secure the legislative franchise with Congress within this period, the NTC
shall not extend or renew its permit or authorization to operate any further. [6]
Prior to the December 31, 1994 deadline set by the MOU, petitioner
filed with Congress an application for a franchise on December 20, 1994.
Pending its approval, the NTC issued to petitioner a temporary permit dated
July 7, 1995 to operate a television station via Channel 25 of the UHF Band
from June 29, 1995 to June 28, 1997. [7] In 1996, the NTC authorized
petitioner to increase the power output of Channel 25 from 1.0 kilowatt to 25
kilowatts after finding it financially and technically capable; [8] it also granted
petitioner a permit to purchase radio transmitters/transceivers for use in its
television Channel 25 broadcasting.[9] Shortly before the expiration of its
temporary permit, petitioner applied for its renewal on May 14, 1997. [10]

On October 28, 1997, the House Committee on Legislative Franchises of

Congress replied to an inquiry of the NTCs Broadcast Division Chief
regarding the franchise application of ACWS filed on December 20, 1994.
The Committee certified that petitioners franchise application was not
deliberated on by the 9 th Congress because petitioner failed to submit the
required supporting documents. In the next Congress, petitioner did not refile its application.[11]
The following month or on November 17, 1997, the NTCs Broadcast
Service Department wrote to petitioner ordering it to submit a new
congressional franchise for the operation of its seven radio stations and
informing it that pending compliance, its application for temporary permits
to operate these radio stations would be held in abeyance. [12] Petitioner
failed to comply with the franchise requirement; it claims that it did not
receive the November 17, 1997 letter.
Despite the absence of a congressional franchise, the NTC notified
petitioner on January 19, 1998 that its May 14, 1997 application for renewal
of its temporary permit to operate television Channel 25 was approved and
would be released upon payment of the prescribed fee of P3,600.00.[13] After
paying said amount,[14] however, the NTC refused to release to petitioner its
renewed permit. Instead, the NTC commenced against petitioner
Administrative Case No. 98-009 based on the November 17, 1997 letter. On
February 26, 1998, the NTC issued an Order directing petitioner to show
cause why its assigned frequency, television Channel 25, should not be
recalled for lack of the required congressional franchise. Petitioner was also
directed to cease and desist from operating Channel 25 unless subsequently
authorized by the NTC.[15]
In compliance with the February 26, 1998 Order, petitioner filed its
Answer on March 17, 1998.[16] In a hearing on April 22, 1998, petitioner
presented evidence and asked for continuance of the presentation to May
20, 1998.[17] On May 4, 1998, however, petitioner filed before the Court of
Appeals a Petition for Mandamus, Prohibition, and Damages to compel the
NTC to release its temporary permit to operate Channel 25 which was
approved in January 1998. The appellate court denied the petition on
September 30, 1998.
Meantime, on August 17, 1998, the NTC issued Memorandum Circular
No. 14-10-98 which reads, viz:
SUBJECT: Guidelines in the Renewal/Extension of Temporary Permit of
Radio/TV Broadcast operators who failed to secure a legislative franchise
conformably with the Memorandum of Understanding (MOU) dated May 3,
1994, entered into by and between the National Telecommunications and
the Committee on Legislative Franchises, House of Representatives, and the
Kapisanan ng mga Brodkaster sa Pilipinas (KBP).
In compliance with the MOU and in order to clear the ambiguity surrounding
the operation of broadcast operators who were not able to have their
legislative franchise approved during the last congress, the following
guidelines are hereby issued:
1. Existing broadcast operators who were not able to secure a legislative
franchise up to this date are given up to December 31, 1999 within which to

have their application for a legislative franchise bill approved by Congress.

The franchise bill must be filed immediately but not later than November
30th of this year to give both Houses time to deliberate upon and
recommend approval/disapproval thereof.
2. Broadcast operators affected by this circular must file their respective
applications for renewal/extension of their Temporary Permits in the
prescribed form together with the certification from the Committee on
Legislative Franchises, House of Representatives that a franchise bill has
indeed been filed prior to 30 November 1998.
3. In the event the permittee will not be able to have its franchise bill
approved within the prescribed period, the NTC will no longer renew/extend
its Temporary Permit and the Commission shall initiate the recall of its
assigned frequency provided that due process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience
(CPC) to establish, maintain and operate a broadcast station in the
broadcast service shall be accepted for filing without showing that the
applicant has an approved Legislative Franchise.
This Memorandum Circular shall be published in one (1) newspaper of
general circulation in the Philippines and shall take effect thirty (30) days
from its publication.
August 17, 1998, Quezon City, Philippines.[18]
The Memorandum Circular was published in the Philippine Star on October
15, 1998.
Well within the November 30, 1998 deadline under the Memorandum
Circular, House Bill No. 3216, entitled An Act Granting the ACWS-United
Broadcasting Network, Inc. a Franchise to Construct, Install, Operate and
Maintain Radio and Television Broadcasting Stations within the Philippines,
and for other Purposes, was filed with the Legislative Calendar Section, Bills
and Index Division on September 2, 1998.[19]
On January 13, 1999, the NTC rendered a decision on Administrative
Case No. 98-009 against petitioner, the dispositive portion of which reads:
WHEREFORE, for lack of a legal personality to justify the issuance of any
permit or license to the respondent (ACWS), the respondent not having a
valid legislative franchise, the Commission hereby renders judgment as
follows:
1) Channel 25 assigned to herein respondent ACWS is hereby RECALLED;
2) Respondents application for renewal of its temporary permit to operate
Channel 25 is hereby DENIED; and
3) Respondent is hereby ordered to CEASE and DESIST from further
operating Channel 25.[20]
Petitioner sought recourse at the Court of Appeals which affirmed the NTC
decision.
Hence, this petition for review on certiorari on the following grounds:
I.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE NTC

THAT A CONGRESSIONAL FRANCHISE IS A CONDITION SINE QUA NON IN THE

OPERATION OF A RADIO AND TELEVISION BROADCASTING SYSTEM.
II.
THE COURT OF APPEALS ERRED IN NOT CONSIDERING OPINION 98 SERIES
OF 1991 DATED JUNE 20, 1991 OF THE SECRETARY OF JUSTICE HOLDING
THAT THE NTC MAY ISSUE AUTHORIZATION FOR THE OPERATION OF RADIO
AND TELEVISION BROADCASTING SYSTEMS, WITHOUT THE NEED OF A PRIOR
FRANCHISE ISSUED BY CONGRESS, AS BINDING ON THE NTC WHO
REQUESTED FOR SAID OPINION AND IS NOT MERELY ADVISORY, AS IT IS
PREDICATED ON A DECISION OF THIS HONORABLE COURT.
III.
THE COURT OF APPEALS ERRED IN CONSIDERING ACT NO. 3846 AS
REQUIRING A FRANCHISE FROM CONGRESS FOR THE LAWFUL OPERATION OF
RADIO OR TELEVISION BROADCASTING STATIONS WHEN CLEARLY ITS
PROVISIONS COVER ONLY RADIO BUT IT DOES NOT INCLUDE TELEVISION
STATIONS.
IV.
THE COURT OF APPEALS ERRED IN UPHOLDING THE RECALL OF THE
FREQUENCY CHANNEL 25 PREVIOUSLY ASSIGNED TO THE PETITIONER
AND/OR THE CANCELLATION OF ITS PERMIT TO OPERATE WHICH IS
UNREASONABLE, UNFAIR, OPPRESSIVE, WHIMSICAL AND CONFISCATORY
WHEN IT PREVIOUSLY ISSUED THE SAID PERMIT WITHOUT REQUIRING A
LEGISLATIVE FRANCHISE.
V.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT NTC CASE NO. 98009 HAD BEEN RENDERED MOOT AND ACADEMIC WITH THE ADOPTION AND
PROMULGATION BY THE NTC OF MEMORANDUM CIRCULAR NO. 14-10-98
DATED AUGUST 17, 1998 AS PETITIONER FILED THE APPLICATION FOR
LEGISLATIVE FRANCHISE PURSUANT THERETO. [21]
The petition is devoid of merit.
We shall discuss together the first three assigned errors as they are
interrelated.
Petitioner stresses that Act. No. 3846 covers only the operation of radio
and not television stations as Section 1 of the said law does not mention
television stations in its coverage, viz:
Sec. 1. No person, firm, company, association or corporation shall construct,
install, establish, or operate a radio transmitting station, or a radio receiving
station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the
Philippines
Petitioner observes that quite understandably, television stations were not
included in Act No. 3846 because the law was enacted in 1931 when there

was yet no television station in the Philippines. Following the rule in

statutory construction that what is not included in the law is deemed
excluded, petitioner avers that television stations are not covered by Act No.
3846.Petitioner notes that in fact, the NTC previously issued to it a
temporary permit dated July 7, 1995 to operate Channel 25 from June 29,
1995 to June 28, 1997 without requiring a congressional franchise. Likewise,
in 1996, the NTC issued to it a permit to increase its television operating
power and to purchase a radio transmitter/transceiver for use in its
television broadcasting, again without requiring a congressional franchise.
Petitioner thus argues that, contrary to the January 19, 1999 decision of the
NTC, its application for renewal of its temporary permit to operate television
Channel 25 does not require a congressional franchise.
In upholding the NTC decision, the Court of Appeals held that a
congressional franchise is required for the operation of radio and television
broadcasting stations as this requirement under Act No. 3846 was not
expressly repealed by P.D. No. 576-A nor E.O. No. 546. Citing Berces, Sr. v.
Guingona,[22] it ruled that without an express repeal, a subsequent law
cannot be construed as repealing a prior law unless there is an irreconcilable
inconsistency and repugnancy in the language of the new and old laws,
which petitioner was not able to show.[23]
The appellate court correctly ruled that a congressional franchise is
necessary for petitioner to operate television Channel 25. Even assuming
that Act No. 3846 applies only to radio stations and not to television stations
as petitioner adamantly insists, the subsequent P.D. No. 576-A clearly shows
in Section 1 that a franchise is required to operate radio as well as television
stations, viz:
Sec. 1. No radio station or television channel may obtain a franchise
unless it has sufficient capital on the basis of equity for its operation for at
least one year, including purchase of equipment. (emphasis supplied)
As pointed out in DOJ Opinion No. 98, there is nothing in P.D. No. 576-A that
reveals any intention to do away with the requirement of a franchise for the
operation of radio and television stations. Section 6 of P.D. No. 576-A merely
identifies the regulatory agencies from whom authorizations, in addition to
the required congressional franchise, must be secured after December 31,
1981, viz:
Sec. 6. All franchises, grants, licenses, permits, certificates or other forms of
authority to operate radio or television broadcasting systems shall terminate
on December 31, 1981. Thereafter, irrespective of any franchise,
grant, license, permit, certificate or other forms of authority to
operate granted by any office, agency or person, no radio or
television station shall be authorized to operate without the
authority of the Board of Communications and the Secretary of
Public Works and Communications or their successors who have the
right and authority to assign to qualified parties frequencies, channels or
other means of identifying broadcasting system . . . (emphasis supplied)
To understand why it was necessary to identify these agencies, we turn a
heedful eye on the laws regarding authorizations for the operation of radio

and television stations that preceded P.D. No. 576-A.

Act No. 3846 of 1931 provides, viz:
Sec. 1. No person, firm, company, association, or corporation shall construct,
install, establish, or operate a radio transmitting station, or a radio receiving
station used for commercial purposes, or a radio broadcasting station,
without having first obtained a franchise therefor from the Congress of the
Philippines:
xxxxxxxxx
Sec. 1-A. No person, firm, company, association or corporation shall possess
or own transmitters or transceivers (combination transmitter-receiver),
without registering the same with the Secretary of Public Works and
Communications . . . and no person, firm, company, association or
corporation shall construct or manufacture, or purchase radio transmitters or
transceivers without a permit issued by the Secretary of Public Works and
Communications.
xxxxxxxxx
Sec. 3. The Secretary of Public Works and Communications is hereby
empowered to regulate the construction or manufacture, possession,
control, sale and transfer of radio transmitters or transceivers (combination
transmitter-receiver) and the establishment, use, the operation of all radio
stations and of all forms of radio communications and transmissions within
the Philippines. In addition to the above, he shall have the following specific
powers and duties:
xxxxxxxxx
(c) He shall assign call letter and assign frequencies for each station licensed
by him and for each station established by virtue of a franchise granted by
the Congress of the Philippines and specify the stations to which each of
such frequencies may be used;. . .
Shortly after the declaration of Martial Law, then President Marcos
issued P.D. No. 1 dated September 24, 1972, through which the Integrated
Reorganization Plan for the executive branch was adopted. Under the Plan,
the Public Service Commission was abolished and its functions transferred to
special regulatory boards, among which was the Board of Communications
with the following functions:
5a. Issue Certificates of Public Convenience for the operation of
communications utilities and services, radio communications systems . . .,
radio and television broadcasting systems and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for . . . radio and television
broadcasting systems including amateur radio stations.
With the creation of the Board of Communications under the Plan, it was
no longer sufficient to secure authorization from the Secretary of Public
Works and Communications as provided in Act No. 3846. The Boards
authorization was also necessary. Thus, P.D. No. 576-A provides in Section 6
that radio and television station operators must secure authorization from
both the Secretary of Public Works and Communications and the Board of
Communications.

Dispensing with the requirement of a congressional franchise is not in

line with the declared purposes of P.D. No. 576-A, viz:
WHEREAS, it has been observed that some public utilities, especially radio
and television stations, have a tendency toward monopoly in ownership and
operation to such an extent that a region or section of the country may be
covered by any number of such broadcast stations, all or most of which are
owned, operated or managed by one person or corporation;
xxxxxxxxx
WHEREAS, on account of the limited number of frequencies available for
broadcasting in the Philippines, it is necessary to regulate the ownership and
operation of radio and television stations and provide measures that would
enhance quality and viability in broadcasting and help serve the public
interests; . . .
A textual interpretation of Section 6 of P.D. No. 576-A yields the same
interpretation that after December 31, 1981, a franchise is still necessary to
operate radio and television stations.Were it the intention of the law to do
away with the requirement of a franchise after said date, then the phrase
(t)hereafter, irrespective of any franchise, grant, license, permit, certificate
or other forms of authority to operate granted by any office, agency or
person (emphasis supplied) would not have been necessary because the
first sentence of Section 6 already states that (a)ll franchises, grants,
licenses, permits, certificates or other forms of authority to operate radio or
television broadcasting systems shall terminate on December 31, 1981. It is
therefore already understood that these forms of authority have no more
force and effect after December 31, 1981. If the intention were to do away
with the franchise requirement, Section 6 would have simply laid down after
the first sentence the requirements to operate radio and television stations
after December 31, 1981, i.e., no radio or television station shall be
authorized to operate without the authority of the Board of Communications
and the Secretary of Public Works and Communications. Instead, however,
the phrase irrespective of any franchise, was inserted to emphasize that a
franchise or any other form of authorization from any office, agency or
person does not suffice to operate radio and television stations because the
authorizations of both the Board of Communications and the Secretary of
Public Works and Communications are required as well. This interpretation
adheres to the rule in statutory construction that words in a statute should
not be construed as surplusage if a reasonable construction which will give
them some force and meaning is possible.[24]
Contrary to the opinion of the Secretary of Justice in DOJ Opinion No. 98,
Series of 1991, the appellate court was correct in ruling that E.O. No. 546
which came after P.D. No. 576-A did not dispense with the requirement of a
congressional franchise. It merely abolished the Board of Communications
and the Telecommunications Control Bureau under the Reorganization Plan
and transferred their functions to the NTC, [25] including the power to issue
Certificates of Public Convenience (CPC) and grant permits for the use of
frequencies, viz:
Sec. 15. a. Issue Certificate of Public Convenience for the operation of
communication utilities and services, radio communications systems, wire or

wireless telephone or telegraph system, radio and television broadcasting

system and other similar public utilities;
xxxxxxxxx
c. Grant permits for the use of radio frequencies for wireless telephone and
telegraph systems and radio communication systems including amateur
radio stations and radio and television broadcasting systems; . . .
E.O. No. 546 defines the regulatory and technical aspect of the legal process
preparatory to the full exercise of the privilege to operate radio and
television stations, which is different from the grant of a franchise from
Congress, viz:
The statutory functions of NTC may then be given effect as Congress
prerogative to grant franchises under Act No. 3846 is upheld for they are
distinct forms of authority. The former covers matters dealing mostly with
the technical side of radio or television broadcasting, while the latter
involves the exercise by the legislature of an exclusive power resulting in a
franchise or a grant under authority of government, conferring a special
right to do an act or series of acts of public concern (37 C.J.S., secs. 1, 14,
pp. 144, 157).
In fine, there being no clear showing that the laws here involved cannot
stand together, the presumption is against inconsistency or repugnance,
hence, against implied repeal of the earlier law by the later statute (Agujetas
v. Court of Appeals, 261 SCRA 17, 1996). [26]
As we held in Radio Communication of the Philippines, Inc. v.
National
Telecommunications
Commission, [27]
a
franchise
is
distinguished from a CPC in that the former is a grant or privilege from the
sovereign power, while the latter is a form of regulation through the
administrative agencies, viz:
A franchise started out as a royal privilege or (a) branch of the Kings
prerogative, subsisting in the hands of a subject. This definition was given by
Finch, adopted by Blackstone, and accepted by every authority since (State
v. Twin Village Water Co., 98 Me 214, 56 A 763 [1903]). Today, a franchise,
being merely a privilege emanating from the sovereign power of the state
and owing its existence to a grant, is subject to regulation by the state itself
by virtue of its police power through its administrative agencies. [28]
Even prior to E.O. No. 546, the NTCs precursor, i.e., the Board of
Communications, already had the function of issuing CPC under the
Integrated Reorganization Plan. The CPC was required by the Board at the
same time that P.D. No. 576-A required a franchise to operate radio and
television stations. The function of the NTC to issue CPC under E.O. No. 546
is thus nothing new and exists alongside the requirement of a congressional
franchise under P.D. No. 576-A. There is no conflict between E.O. No. 546 and
P.D. No 576-A; Section 15 of the former does not dispense with the franchise
requirement in the latter. We adhere to the cardinal rule in statutory
construction that statutes in pare materia, although in apparent conflict, or
containing apparent inconsistencies, should, as far as reasonably possible,
be construed in harmony with each other, so as to give force and effect to
each.[29] The ruling of this Court in Crusaders Broadcasting System, Inc.
v. National Telecommunications Commission,[30] buttresses the

interpretation that the requirement of a congressional franchise for the

operation of radio and television stations exists alongside the requirement of
a CPC. In that case, we held that under E.O. No. 546, the regulation of radio
communications is a function assigned to and performed by the NTC and at
the same time recognized the requirement of a congressional franchise for
the operation of a radio station under Act No. 3846. We did not interpret E.O.
No. 546 to have repealed the congressional franchise requirement under Act
No. 3846 as these two laws are not inconsistent and can both be given
effect. Likewise, in Radio Communication of the Philippines, Inc. v.
National Telecommunications Commission,[31] we recognized the
necessity of both a congressional franchise under Act No. 3846 and a CPC
under E.O. No. 546 to operate a radio communications system.
In buttressing its position that a congressional franchise is not required
to operate its television station, petitioner banks on DOJ Opinion No. 98,
Series of 1991 which states that under E.O. No. 546, the NTC may issue a
permit or authorization for the operation of radio and television broadcasting
systems without a prior franchise issued by Congress. Petitioner argues that
the opinion is binding and conclusive upon the NTC as the NTC itself
requested the advisory from the Secretary of Justice who is the legal adviser
of government. Petitioner claims that it was precisely because of the above
DOJ Opinion No. 98 that the NTC did not previously require a congressional
franchise in all of its applications for permits with the NTC.
Petitioner, however, cannot rely on DOJ Opinion No. 98 as this opinion is
merely persuasive and not necessarily controlling. [32] As shown above, the
opinion is erroneous insofar as it holds that E.O. No. 546 dispenses with the
requirement of a congressional franchise to operate radio and television
stations. The case of Albano v. Reyes[33] cited in the DOJ opinion, which
allegedly makes it binding upon the NTC, does not lend support to
petitioners cause. In that case, we held, viz:
Franchises issued by Congress are not required before each and every public
utility may operate. Thus, the law has granted certain administrative
agencies the power to grant licenses for or to authorize the operation of
certain public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a
public utility shall be subject to amendment, alteration or repeal by
Congress does not necessarily imply, as petitioner posits, that only Congress
has the power to grant such authorization. Our statute books are replete
with laws granting specified agencies in the Executive Branch the power to
issue such authorization for certain classes of public utilities. (footnote
omitted)[34]
Our ruling in Albano that a congressional franchise is not required
before each and every public utility may operate should be viewed in its
proper light. Where there is a law such as P.D. No. 576-A which requires a
franchise for the operation of radio and television stations, that law must be
followed until subsequently repealed. As we have earlier shown, however,
there is nothing in the subsequent E.O. No. 546 which evinces an intent to
dispense with the franchise requirement. In contradistinction with the case

at bar, the law applicable in Albano, i.e., E.O. No. 30, did not require a
franchise for the Philippine Ports Authority to take over, manage and operate
the Manila International Port Complex and undertake the providing of cargo
handling and port related services thereat. Similarly, in Philippine Airlines,
Inc. v. Civil Aeronautics Board, et al.,[35] we ruled that a legislative
franchise is not necessary for the operation of domestic air transport
because there is nothing in the law nor in the Constitution which indicates
that a legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator. [36] Thus, while it is correct to
say that specified agencies in the Executive Branch have the power to issue
authorization for certain classes of public utilities, this does not mean that
the authorization or CPC issued by the NTC dispenses with the requirement
of a franchise as this is clearly required under P.D. No. 576-A.
Petitioner contends that the NTC erroneously denied its application for
renewal of its temporary permit to operate Channel 25 and recalled its
Channel 25 frequency based on the May 3, 1994 MOU that requires a
congressional franchise for the operation of television broadcast stations.
The MOU is not an act of Congress and thus cannot amend Act No. 3846
which requires a congressional franchise for the operation of radio stations
alone, and not television stations.
We find no merit in petitioners contention. As we have shown, even
assuming that Act No. 3846 requires only radio stations to secure a
congressional franchise for its operation, P.D. No. 576-A was subsequently
issued in 1974, which clearly requires a franchise for both radio and
television stations. Thus, the 1994 MOU did not amend any law, but merely
clarified the existing law that requires a franchise.
That the legislative intent is to continue requiring a franchise for the
operation of radio and television broadcasting stations is clear from the
franchises granted by Congress after the effectivity of E.O. No. 546 in 1979
for the operation of radio and television stations. Among these are: (1) R.A.
No. 9131 dated April 24, 2001, entitled An Act Granting the Iddes Broadcast
Group, Inc., a Franchise to Construct, Install, Establish, Operate and Maintain
Radio and Television Broadcasting Stations in the Philippines; (2) R.A. No.
9148 dated July 31, 2001, entitled An Act Granting the Hypersonic
Broadcasting Center, Inc., a Franchise to Construct, Install, Establish,
Operate and Maintain Radio Broadcasting Stations in the Philippines; and (3)
R.A. No. 7678 dated February 17, 1994, entitled An Act Granting the Digital
Telecommunication Philippines, Incorporated, a Franchise to Install, Operate
and Maintain Telecommunications Systems Throughout the Philippines. All
three franchises require the grantees to secure a CPCN/license/permit to
construct and operate their stations/systems. Likewise, the Tax Reform Act of
1997 provides in Section 119 for tax on franchise of radio and/or television
broadcasting companies, viz:
Sec. 119. Tax on Franchises. Any provision of general or special law to the
contrary notwithstanding, there shall be levied, assessed and collected in
respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not
exceed Ten million pesos (P10,000,000), subject to Section 236 of this Code,

a tax of three percent (3%) and on electric, gas and water utilities, a tax of
two percent (2%) on the gross receipts derived from the business covered by
the law granting the franchise. . . (emphasis supplied)
Undeniably, petitioner is aware that a congressional franchise is
necessary to operate its television station Channel 25 as shown by its
actuations. Shortly before the December 31, 1994 deadline set in the MOU,
petitioner filed an application for a franchise with Congress. It was not,
however, acted upon in the 9th Congress for petitioners failure to submit the
necessary supporting documents; petitioner failed to re-file the application
in the following Congress. Petitioner also filed an application for a franchise
with Congress on September 2, 1998, before the November 30, 1998
deadline under Memorandum Circular No. 14-10-98.[37]
We now come to the fourth assigned error. Petitioner avers that the
Court of Appeals erred in upholding the recall of frequency Channel 25
previously assigned to it and the cancellation of its permit to operate which
was already approved in January 1998. It claims that these acts of the NTC
were unreasonable, unfair, oppressive, whimsical and confiscatory
considering that the NTC previously issued petitioner a temporary permit
without requiring a congressional franchise.
On February 26, 1998, the NTC issued a show cause order to petitioner
with the following decretal portion:
IN VIEW THEREOF, respondents are hereby directed to show cause in writing
within ten (10) days from receipt of this order why their assigned frequency,
more specifically Channel 25 in the UHF Band, should not be recalled for lack
of the necessary Congressional Franchise as required by Section 1, Act No.
3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating
DWQH-TV, unless subsequently authorized by the Commission. [38]
The order was supposedly based on a letter of the NTC dated November 17,
1997 informing petitioner that its application for renewal of temporary
permits of its seven radio stations were being held in abeyance pending
submission of its new congressional franchise. Petitioner was directed to
submit the franchise within thirty days from expiration of its temporary
permits to be renewed and informed that its failure to do so might constitute
denial of its application.
Petitioner is correct that the November 17, 1997 letter referred only to
its radio stations and not to its television Channel 25. Thus, it could not
serve as basis for the February 26, 1998 show cause order which referred
solely to its television Channel 25. Besides, petitioner claims that it did not
receive the letter. Be that as it may, the NTCs February 26, 1998 order for
petitioner to cease and desist from operating Channel 25 was not
unreasonable, unfair, oppressive, whimsical and confiscatory. The 1994 MOU
states in unmistakable terms that petitioners temporary permit to operate
Channel 25 would be valid for only two years, i.e., from June 29, 1995 to
June 28, 1997. During these two years, petitioner was supposed to have
secured a congressional franchise, otherwise the NTC shall not extend or
renew its permit or authorization to operate any further. [39] Apparently,

petitioner did not submit a congressional franchise to the NTC in applying for
renewal of this temporary permit on May 14, 1997. The NTCs approval of
petitioners application to renew its temporary permit in January 1998 was
thus erroneous because under the 1994 MOU, the NTC could not renew
petitioners temporary permit to operate Channel 25 without a congressional
franchise. In the absence of a renewed temporary permit, the NTC was
correct in ordering petitioner to cease and desist from operating Channel 25,
regardless of whether or not petitioner received the November 17, 1997
letter. The NTCs erroneous approval of petitioners application in January
1998 did not estop the NTC from ordering petitioner on February 26, 1998 to
cease and desist from operating Channel 25 for failure to comply with the
franchise requirement as estoppel does not work against the government. [40]
Likewise, the NTCs denial of petitioners application for renewal of its
temporary permit to operate Channel 25 and recall of its Channel 25
frequency in its January 13, 1999 decision were not unreasonable, unfair,
oppressive, whimsical and confiscatory so as to offend petitioners right to
due process. In Crusaders Broadcasting System, Inc. v. National
Telecommunications Commission,[41] the Court ruled that although a
particular ground for suspending operations of the broadcasting company
was not reflected in the show cause order, the NTC could nevertheless raise
said ground if any basis therefore was gleaned during the administrative
proceedings. In the instant case, the lack of congressional franchise as
ground for denial of petitioners application for renewal of temporary permit
and recall of its Channel 25 frequency was raised not only during the
administrative proceedings against it, but was even stated in the February
26, 1998 show cause order, viz:
IN VIEW THEREOF, respondents are hereby directed to show cause in writing
within ten (10) days from receipt of this order why their assigned frequency,
more specifically Channel 25 in the UHF Band, should not be recalled for
lack of the necessary Congressional Franchise as required by Section
1, Act No. 3846, as amended.
Moreover, respondent is hereby directed to cease and desist from operating
DWQH-TV, unless subsequently authorized by the Commission. [42] (emphasis
supplied)
In Eastern Broadcasting Corporation v. Dans, Jr., et al.,[43] we held
that the requirements of due process in administrative proceedings laid
down by this Court in Ang Tibay v. Court of Industrial Relations[44]
should be satisfied before a broadcast station may be closed or its
operations curtailed. We enumerated these requirements, viz:
. . . (1) the right to a hearing which includes the right to present ones case
and submit evidence in support thereof; (2) the tribunal must consider the
evidence presented; (3) the decision must have something to support itself;
(4) the evidence must be substantial. Substantial evidence means such
reasonable evidence as a reasonable mind might accept as adequate to
support a conclusion; (5) the decision must be based on the evidence
presented at the hearing, or at least contained in the record and disclosed to
the parties affected; (6) the tribunal or body or any of its judges must act on
its own independent consideration of the law and facts of the controversy

and not simply accept the views of a subordinate; (7) the board or body
should, in all controversial questions, render its decisions in such a manner
that the parties to the proceeding can know the various issues involved, and
the reasons for the decision rendered.[45]
Petitioner had the opportunity to present its case and submit evidence on
why its assigned frequency Channel 25 should not be recalled and its
application for renewal denied. Petitioner filed its Answer to the show cause
order on March 17, 1998.[46] A hearing was held on April 22, 1998 wherein
petitioner presented its evidence in compliance with the show cause
order.Based on the NTCs findings that petitioner failed to comply with the
requirement of a congressional franchise, the NTC denied its application for
renewal of its temporary permit to operate Channel 25 and recalled its
assigned Channel 25 frequency. The requirements of due process in Ang
Tibay were satisfied, thus petitioner cannot say that the NTCs actions were
unreasonable, unfair, oppressive, whimsical and confiscatory.
Finally, petitioner contends that the Court of Appeals erred in not
holding that Administrative Case No. 98-009, the administrative proceeding
against it for failure to secure a congressional franchise to operate its
television Channel 25, has been rendered moot and academic by the
adoption and promulgation of NTC Memorandum Circular No. 14-10-98 dated
August 17, 1998 which took effect on November 15, 1998. The
Memorandum Circular states, viz:
In compliance with the MOU and in order to clear the ambiguity surrounding
the operation of broadcast operators who were not able to have their
legislative franchise approved during the last Congress, the following
guidelines are hereby issued:
1. Existing broadcast operators who were not able to secure a legislative
franchise up to this date (August 17, 1998) are given up to December 31,
1999 within which to have their application for a legislative franchise bill
approved by Congress. The franchise bill must be filed immediately but not
later than November 30th of this year . . .
Petitioner avers that the NTC erroneously held that this Memorandum
Circular is not applicable to it because the words of the circular are clear
that it covers existing broadcasting operators including petitioner. In
compliance with the Memorandum Circular, petitioner filed House Bill No. 32
on September 2, 1998, well within the November 30, 1998 deadline. Thus,
petitioner argues that the NTC erred in denying its application for renewal of
permit to operate Channel 25 and recalling its assigned Channel 25
frequency on January 13, 1999, long before the Memorandum Circulars
December 31, 1999 deadline to secure a congressional franchise. Petitioner
posits that the NTCs premature and arbitrary promulgation of its January 13,
1999 decision slammed the door for the petitioner to secure its legislative
franchise. The pending application for legislative franchise of petitioner was
effectively struck out by said NTC decision. [47]
Whether or not the benefits of the Memorandum Circular extend to
petitioner, the fact is, as correctly pointed out by the appellate court,
petitioner failed to secure a legislative franchise by December 31, 1999.
Consequently, the NTCs recall of petitioners assigned frequency Channel 25

and denial of its application for renewal of its permit to operate the said
television channel were proper as the Memorandum Circular provides, viz:
1. Existing broadcast operators who are not able to secure a legislative
franchise up to this date (August 17, 1998) are given up to December 31,
1999 within which to have their application for a legislative franchise
approved by Congress. The franchise bill must be filed immediately but not
later than November 30th of this year . . .
xxxxxxxxx
3. In the event the permittee will not be able to have its franchise bill
approved within the prescribed period, the NTC will no longer
renew/extend its temporary permit and the Commission shall
initiate the recall of its assigned frequency provided that due
process of law is observed.
4. Henceforth, no application/petition for Certificate of Public Convenience
(CPC) to establish, maintain and operate a broadcast station in the
broadcast service shall be accepted for filing without showing that the
applicant has an approved legislative franchise.(emphasis supplied)
Petitioners argument is flawed when it states that the January 13, 1999
decision of the NTC slammed the door on its application for a congressional
franchise as the process of securing a congressional franchise is separate
and distinct from the process of applying for renewal of a temporary permit
with the NTC. The latter is not a prerequisite to the former. In fact, in the
normal course of securing authorizations to operate a television and radio
station, the application for a CPC with the NTC comes after securing a
franchise from Congress.[48] The CPC is not a condition for the grant of a
congressional franchise.[49]
The Court is not unmindful that there is a trend towards delegating the
legislative power to authorize the operation of certain public utilities to
administrative agencies and dispensing with the requirement of a
congressional franchise as in the Albano case which involved the provision
of cargo handling and port related services at the Manila International Port
Complex and the PAL case involving the operation of domestic air transport.
The rationale for this trend was explained in the PAL case, viz:
. . . With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards the approval of
the practice by the courts. (Pangasinan Transportation Co., Inc. vs. The
Public Service Commission, G.R. No. 47065, June 26, 1940, 70 Phil 221.) It is
generally recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the power to
grant franchises has frequently been delegated, even to agencies other than
those of a legislative nature. (Dyer vs. Tuskaloosa Bridge Co., 2 Port. 296, 27
Am. D. 655; Christian-Todd Tel. Co. vs. Commonwealth, 161 S.W. 543, 156 Ky.
557, 37 C.J.S. 158) In pursuance of this, it has been held that privileges
conferred by grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been made by an act of
the Legislature. (Superior Water, Light and Power Co. vs. City of Superior,

181 N.W. 113, 174 Wis. 257, affirmed 183 N.W. 254, 37 C.J.S. 158.)
The trend of modern legislation is to vest the Public Service Commissioner
with the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not
interfere with the exercise of that discretion when it is just and reasonable
and founded upon a legal right.[50]
The criticism against the requirement of a congressional franchise is
incisively expressed by a public utilities lawyer, viz:
As will be noted, a legislative franchise is required to install and operate a
radio station before an applicant can apply for a Certificate of Public
Convenience to operate a radio station based in any part of the country.
Under Act No. 3846 of 1929, Sec. 1, it was provided that no one may install
and operate a radio station without having first obtained a franchise
therefore from the Congress of the Philippines. Since then, this has been
strictly followed. And this holds true with respect to application for electric,
telephone and many other telecommunications services. Before, even mere
application for authority to operate an ice plant must have prior
congressional franchise. But this was not strictly followed until ice plant
operations were eventually deregulated. Right now, the both houses of the
legislature are saddled with House Bill Nos. etc. for the grant of legislative
franchise to operate this and that public utility services in various places in
the Philippines. We hear during sessions in both houses the time wasted on
reports and considerations of these house bills for grant of franchises. The
legislature is empowered and has created respective regulatory bodies with
requisite expertise to handle franchising and regulation of such types of
public utility services, why not just entrust all these functions to them?
What exactly is the reason or rationale for imposing a prior congressional
franchise? There seems to be no valid reason for it except to impose added
burden and expenses on the part of the applicant. The justification appears
to be simply because this was required in the past so it is now. We are
reminded of the forceful denunciation of Justice Holmes of a stubborn
adherence to an anachronistic rule of law:
It is revolting to have no better reason for a rule of law that so it was laid
down in the time of Henry IV. It is still more revolting if the grounds upon
which it was laid down have vanished long since, and the rule simply
persists from blind imitation of the past. (The Path of the Law, Collected
Legal Papers [1920] 210, 212 quoted from The Justice Holmes Reader, Julius
N. Marke, 1955 ed., p. 278.)[51]
The call to dispense with the requisite legislative franchise must, however,
be addressed to Congress as the lawmaker of the land for the Courts
function is to interpret and not to rewrite the law. As long as the law remains
unchanged, the requirement of a franchise to operate a television station
must be upheld.
WHEREFORE, the petition is DENIED and the Court of Appeals January
13, 2000 decision and February 21, 2000 resolution are AFFIRMED. No costs.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

G.R. No. L-68729 May 29, 1987

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI
RADIO NETWORK INCORPORATED,respondents.
GUTIERREZ, JR, J.:
This petition seeks the reversal of the decision of the National
Telecommunications Commission (NTC) which ordered petitioner Radio
Communications of the Philippines, Incorporated (RCPI) to desist from
operating its radio telephone services in Catarman, Northern Samar; San
Jose, Occidental Mindoro; and Sorsogon, Sorsogon.
Petitioner has been operating a radio communications system since 1957
under its legislative franchise granted by Republic Act No. 2036 which was
enacted on June 23, 1957.
In 1968, the petitioner established a radio telegraph service in Sorsogon,
Sorsogon. In 1971, another radio telegraph service was put up in San Jose,
Mindoro followed by another in Catarman, Samar in 1976. The installation of
radio telephone services started in 1971 in San Jose, Mindoro; then in
Sorsogon, Sorsogon and Catarman, Samar in 1983.
In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent
Kayumanggi Radio Network Incorporated was authorized by the public
respondent to operate radio communications systems in Catarman, Samar
and in San Jose, Mindoro.
On December 14, 1983, the private respondent filed a complaint with the
NTC alleging that the petitioner was operating in Catarman, Samar and in
San Jose, Mindoro without a certificate of public covenience and necessity.
The petitioner, on the other hand, counter-alleged that its telephone services
in the places subject of the complaint are covered by the legislative
franchise recognized by both the public respondent and its predecessor, the
Public Service Commission. In its supplemental reply, the petitioner further
stated that it has been in operation in the questioned places long before
private respondent Kayumanggi filed its application to operate in the same
places.
After conducting a hearing, NTC, in its decision dated August 22, 1984
ordered petitioner RCPI to immediately cease or desist from the operation of
its radio telephone services in Catarman Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon stating that under Executive
Order No. 546, a certificate of public convenience and necessity is
mandatory for the operation of communication utilities and services
including radio communications.
On September 4, 1984, the petitioner filed a motion for reconsideration

which was denied in an order dated September 12, 1984.

On October 1, 1984, the present petition was filed raising the issue of
whether or not petitioner RCPI, a grantee of a legislative franchise to operate
a radio company, is required to secure a certificate of public convenience
and necessity before it can validly operate its radio stations including radio
telephone services in Catarman, Northern Samar; San Jose, Occidental
Mindoro; and Sorsogon, Sorsogon.
The petitioner's main argument states that the abolition of the Public Service
Commission under Presidential Decree No. 1 and the creation of the National
Telecommunications Commission under Executive Order No. 546 to replace
the defunct Public Service Commission did not affect sections 14 and 15 of
the Public Service Law (Commonwealth Act. No. 146, as amended).
The provisions of the Public Service Law pertinent to the petitioner's
allegation are as follows:
Section 13. (a) the Commission shall have jurisdiction, supervision, and
control over all public services and their franchises, equipment and other
properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of public force: ...
Section 14. The following are exempted from the provisions of the preceding
section:
xxx xxx xxx
(d) Radio companies except with respect to the fixing of rates;
xxx xxx xxx
Section 15. With the exception of those enumerated in the preceding
section, no public service shall operate in the Philippines without possessing
a valid and subsisting certificate from the Public Service Commission, known
as "certificate of public convenience," or "certificate of convenience and
public necessity," as the case may be, to the effect that the operation of
said service and the authorization to do business will promote the public
interests in a proper and suitable manner. ...
We find no merit in the petitioner's contention.
Pursuant to Presidential Decree No. 1 dated September 23,1972,
reorganizing the executive branch of the National Government, the Public
Service Commission was abolished and its functions were transferred to
three specialized regulatory boards, as follows: the Board of Transportation,
the Board of Communications and the Board of Power and Waterworks. The
functions so transferred were still subject to the limitations provided in
sections 14 and 15 of the Public Service Law, as amended. With the
enactment of Executive Order No. 546 on July 23, 1979 implementing P.D.
No.1, the Board of Communications and the Telecommunications Control
Bureau were abolished and their functions were transferred to the National
Telecommunications Commission (Sec. 19(d), Executive Order No. 546).
Section 15 of said Executive Order spells out the functions of the National
Telecommunications Commission as follows:
Sec. 15. Functions of the Commission.-The Commission shall exercise the
following functions:
a. Issue Certificate of Public Convenience for the operation of
communications utilities and services, radio communications petitions
systems, wire or wireless telephone or telegraph system, radio and
television broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular

operators of public service communications; and determine and prescribe

charges or rates pertinent to the operation of such public utility facilities and
services except in cases where charges or rates are established by
international bodies or associations of which the Philippines is a participating
member or by bodies recognized by the Philippine Government as the
proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and
telegraph systems and radio communication systems including amateur
radio stations and radio and television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International
Telecommunications Union to the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all
cases related to the issued Certificate of Public Convenience and administer
and enforce the same;
f. Coordinate and cooperate with government agencies and other entities
concerned with any aspect involving communications with a view to
continuously improve the communications service in the country;
g. Promulgate such rules and regulations, as public safety and interest may
require, to encourage a larger and more effective use of communications,
radio and television broadcasting facilities, and to maintain effective
competition among private entities in these activities whenever the
Commission finds it reasonably feasible;
h. Supervise and inspect the operation of radio stations and
telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and
transceivers; and
k. Perform such other functions as may be prescribed by law.
It is clear from the aforequoted provision that the exemption enjoyed by
radio companies from the jurisdiction of the Public Service Commission and
the Board of Communications no longer exists because of the changes
effected by the Reorganization Law and implementing executive orders. The
petitioner's claim that its franchise cannot be affected by Executive Order
No. 546 on the ground that it has long been in operation since 1957 cannot
be sustained.
A franchise started out as a "royal privilege or (a) branch of the King's
prerogative, subsisting in the hands of a subject." This definition was given
by Finch, adopted by Blackstone, and accepted by every authority since
(State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a
franchise, being merely a privilege emanating from the sovereign power of
the state and owing its existence to a grant, is subject to regulation by the
state itself by virtue of its police power through its administrative agencies.
We ruled in Pangasinan transportation Co., Inc. v. Public Service Commission
(70 Phil. 221) that:
... statutes enacted for the regulation of public utilities, being a proper
exercise by the State of its police power, are applicable not only to those
public utilities coming into existence after its passage, but likewise to those
already established and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I
insofar as it amends the Public Service Law (CA No. 146, as amended) is
applicable to the petitioner who must be bound by its provisions. The

petitioner cannot install and operate radio telephone services on the basis of
its legislative franchise alone.
The position of the petitioner that by the mere grant of its franchise under
RA No. 2036 it can operate a radio communications system anywhere within
the Philippines is erroneous. Section 1 of said statute reads:
Section 1. Subject to the provisions of the Constitution, and to the
provisions, not inconsistent herewith, of Act Numbered Three thousand eight
hundred and forty-six, entitled.' An Act providing for the regulation of radio
stations and radio communications in the Philippine Islands, and for other
purposes;' Commonwealth Act Numbered One hundred forty-six, known as
the Public Service Act, and their amendments, and other applicable laws,
there is hereby granted to the Radio Communications of the Philippines, its
successors or assigns, the right and privilege of constructing, installing,
establishing and operating in the Philippines, at such places as the said
corporation may select and the Secretary of Public Works and
Communications may approve, radio stations for the reception and
transmission of wireless messages on radiotelegraphy and/or
radiotelephone, including both coastal and marine telecommunications,
each station to consist of two radio apparatus comprising of a receiving and
sending radio apparatus. (Emphasis supplied).
Section 4(a) of the same Act further provides that:
Sec. 4(a). This franchise shall not take effect nor shall any powers
thereunder be exercised by the grantee until the Secretary of Public works
and Communications shall have allotted to the grantee the frequencies and
wave lengths to be used, and issued to the grantee a license for such case.
(Emphasis supplied)
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of
Public Works and Communications was a precondition before the petitioner
could put up radio stations in areas where it desires to operate. It has been
repeated time and again that where the statutory norm speaks
unequivocally, there is nothing for the courts to do except to apply it. The
law, leaving no doubt as to the scope of its operation, must be obeyed.
(Gonzaga v. Court of Appeals, 51 SCRA 381).
The records of the case do not show any grant of authority from the then
Secretary of Public Works and Communications before the petitioner
installed the questioned radio telephone services in San Jose, Mindoro in
1971. The same is true as regards the radio telephone services opened in
Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public
convenience and necessity appears to have been secured by the petitioner
from the public respondent when such certificate,was required by the
applicable public utility regulations (See executive Order No. 546, sec. 15,
supra.; Philippine Long Distance Telephone Co. v. City of Davao, 15 SCRA 75;
Olongapo Electric Light and Power Corp. v. National Power Corporation, et
al., G.R. No. L-24912, promulgated April 9, 1987.)
It was well within the powers of the public respondent to authorize the
installation by the private respondent network of radio communications
systems in Catarman, Samar and San Jose, Mindoro. Under the
circumstances of this case, the mere fact that the petitioner possesses a
franchise to put up and operate a radio communications system in certain
areas is not an insuperable obstacle to the public respondent's issuing the
proper certificate to an applicant desiring to extend the same services to

those areas. The Constitution mandates that a franchise cannot be exclusive

in nature nor can a franchise be granted except that it must be subject to
amendment, alteration, or even repeal by the legislature when the common
good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an
express provision in the petitioner's franchise which provides compliance
with the above mandate R.A. 2036, sec. 15).
In view of the foregoing, we find no reason to disturb the public respondent's
findings of fact, and conclusions of law insofar as the private respondent was
authorized to operate in Catarman, Samar and San Jose, Mindoro. As a rule,
the Commission's findings of fact, if supported by substantial evidence, are
conclusive upon this Court. We may modify or ignore them only when it
clearly appears that there is no evidence to support reasonably such a
conclusion. (Halili v. Daplas, 14 SCRA 14). The petitioner has not shown why
the private respondent should be denied the authority to operate its services
in Samar and Mindoro. It has not overcome the presumption that when the
public respondent disturbed the petitioner's monopoly in certain areas, it
was doing so pursuant to public interest and the common good.
WHEREFORE, the challenged order of the public respondent dated August
22, 1984 is hereby AFFIRMED. The petition is dismissed for lack of merit.
SO ORDERED.
Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.

G.R. No. 83551 July 11, 1989

RODOLFO B. ALBANO, petitioner,
vs.
HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY,
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. RAZON,
INC., ANSCOR CONTAINER CORPORATION, and SEALAND SERVICES.
LTD.,respondents.
Vicente Abad Santos for petitioner.
Bautista, Picazo, Buyco & Tan for private respondents.

PARAS, J.:
This is a Petition for Prohibition with prayer for Preliminary Injunction or
Restraining Order seeking to restrain the respondents Philippine Ports
Authority (PPA) and the Secretary of the Department of Transportation and
Communications Rainerio O. Reyes from awarding to the International
Container Terminal Services, Inc. (ICTSI) the contract for the development,
management and operation of the Manila International Container Terminal
(MICT).
On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing
PPA management to prepare the Invitation to Bid and all relevant bidding
documents and technical requirements necessary for the public bidding of
the development, management and operation of the MICT at the Port of
Manila, and authorizing the Board Chairman, Secretary Rainerio O. Reyes, to
oversee the preparation of the technical and the documentation
requirements for the MICT leasing as well as to implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346,
created a seven (7) man "Special MICT Bidding Committee" charged with
evaluating all bid proposals, recommending to the Board the best bid, and
preparing the corresponding contract between the PPA and the winning
bidder or contractor. The Bidding Committee consisted of three (3) PPA
representatives, two (2) Department of Transportation and Communications
(DOTC) representatives, one (1) Department of Trade and Industry (DTI)
representative and one (1) private sector representative. The PPA
management prepared the terms of reference, bid documents and draft
contract which materials were approved by the PPA Board.
The PPA published the Invitation to Bid several times in a newspaper of
general circulation which publication included the reservation by the PPA of
"the right to reject any or all bids and to waive any informality in the bids or
to accept such bids which may be considered most advantageous to the
government."
Seven (7) consortia of companies actually submitted bids, which bids were
opened on July 17, 1987 at the PPA Head Office. After evaluation of the
several bids, the Bidding Committee recommended the award of the
contract to develop, manage and operate the MICT to respondent
International Container Terminal Services, Inc. (ICTSI) as having offered the
best Technical and Financial Proposal. Accordingly, respondent Secretary
declared the ICTSI consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two successive
cases were filed against the respondents which assailed the legality or
regularity of the MICT bidding. The first was Special Civil Action 55489 for
"Prohibition with Preliminary Injunction" filed with the RTC of Pasig by Basilio
H. Alo, an alleged "concerned taxpayer", and, the second was Civil Case 8843616 for "Prohibition with Prayer for Temporary Restraining Order (TRO)"
filed with the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9)
firm consortium "Manila Container Terminals, Inc." which had actively
participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but these were
subsequently lifted by this Court in Resolutions dated March 17, 1988 (in
G.R. No. 82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon.
Doroteo N. Caneba, etc., et al.) and April 14, 1988 (in G.R. No. 81947

captioned "Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved the proposed
MICT Contract, with directives that "the responsibility for planning, detailed
engineering, construction, expansion, rehabilitation and capital dredging of
the port, as well as the determination of how the revenues of the port
system shall be allocated for future port works, shall remain with the PPA;
and the contractor shall not collect taxes and duties except that in the case
of wharfage or tonnage dues and harbor and berthing fees, payment to the
Government may be made through the contractor who shall issue
provisional receipts and turn over the payments to the Government which
will issue the official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3")
incorporating therein by "clarificatory guidelines" the aforementioned
presidential directives. (Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as
citizen and taxpayer and as a member of the House of Representatives,
assailing the award of the MICT contract to the ICTSI by the PPA. The
petitioner claims that since the MICT is a public utility, it needs a legislative
franchise before it can legally operate as a public utility, pursuant to Article
12, Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a franchise
specially granted by Congress is not necessary for the operation of the
Manila International Container Port (MICP) by a private entity, a contract
entered into by the PPA and such entity constituting substantial compliance
with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the
Philippines, by virtue of the powers vested in me by the Constitution and the
law, do hereby order the immediate recall of the franchise granted to the
Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine
Ports Authority (PPA) to take over, manage and operate the Manila
International Port Complex at North Harbor, Manila and undertake the
provision of cargo handling and port related services thereat, in accordance
with P.D. 857 and other applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter of the
Philippine Ports Authority) states:
a) The corporate duties of the Authority shall be:
xxx xxx xxx
(ii) To supervise, control, regulate, construct, maintain, operate, and provide
such facilities or services as are necessary in the ports vested in, or
belonging to the Authority.
xxx xxx xxx
(v) To provide services (whether on its own, by contract, or otherwise) within
the Port Districts and the approaches thereof, including but not limited to
berthing, towing, mooring, moving, slipping, or docking of any vessel;
loading or discharging any vessel;
sorting, weighing, measuring, storing, warehousing, or otherwise handling
goods.
xxx xxx xxx
b) The corporate powers of the Authority shall be as follows:

xxx xxx xxx

(vi) To make or enter into contracts of any kind or nature to enable it to
discharge its functions under this Decree.
xxx xxx xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the
management and operation of the Manila International Port Complex and to
undertake the providing of cargo handling and port related services thereat,
the law provides that such shall be "in accordance with P.D. 857 and other
applicable laws and regulations." On the other hand, P.D. No. 857 expressly
empowers the PPA to provide services within Port Districts "whether on its
own, by contract, or otherwise" [See. 6(a) (v)]. Therefore, under the terms of
E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation and
development of the MICP.
2. Even if the MICP be considered a public utility, 1 or a public service 2 on
the theory that it is a "wharf' or a "dock" 3as contemplated under the Public
Service Act, its operation would not necessarily call for a franchise from the
Legislative Branch. Franchises issued by Congress are not required before
each and every public utility may operate. Thus, the law has granted certain
administrative agencies the power to grant licenses for or to authorize the
operation of certain public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a
public utility shall be subject to amendment, alteration or repeal by
Congress does not necessarily, imply, as petitioner posits that only Congress
has the power to grant such authorization. Our statute books are replete
with laws granting specified agencies in the Executive Branch the power to
issue such authorization for certain classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and
management of the MICP, in accordance with P.D. 857 and other applicable
laws and regulations. However, P.D. 857 itself authorizes the PPA to perform
the service by itself, by contracting it out, or through other means. Reading
E.O. No. 30 and P.D. No. 857 together, the inescapable conclusion is that the
lawmaker has empowered the PPA to undertake by itself the operation and
management of the MICP or to authorize its operation and management by
another by contract or other means, at its option. The latter power having
been delegated to the PPA, a franchise from Congress to authorize an entity
other than the PPA to operate and manage the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D.
No. 857, chose to contract out the operation and management of the MICP
to a private corporation. This is clearly within its power to do. Thus, PPA's
acts of privatizing the MICT and awarding the MICT contract to ICTSI are
wholly within the jurisdiction of the PPA under its Charter which empowers
the PPA to "supervise, control, regulate, construct, maintain, operate and
provide such facilities or services as are necessary in the ports vested in, or
belonging to the PPA." (Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the President's written
approval, constitute the necessary authorization for ICTSI's operation and
management of the MICP. The award of the MICT contract approved by no

less than the President of the Philippines herself enjoys the legal
presumption of validity and regularity of official action. In the case at bar,
there is no evidence which clearly shows the constitutional infirmity of the
questioned act of government.
For these reasons the contention that the contract between the PPA and
ICTSI is illegal in the absence of a franchise from Congress appears bereft of
any legal basis.
3. On the peripheral issues raised by the party, the following observations
may be made:
A. That petitioner herein is suing as a citizen and taxpayer and as a Member
of the House of Representatives, sufficiently clothes him with the standing to
institute the instant suit questioning the validity of the assailed contract.
While the expenditure of public funds may not be involved under the
contract, public interest is definitely involved considering the important role
of the MICP in the economic development of the country and the magnitude
of the financial consideration involved. Consequently, the disclosure
provision in the Constitution 5would constitute sufficient authority for
upholding petitioner's standing. [Cf. Taada v. Tuvera, G.R. No. 63915, April
24, 1985,136 SCRA 27, citing Severino v. Governor General, 16 Phil. 366
(1910), where the Court considered the petitioners with sufficient standing
to institute an action where a public right is sought to be enforced.]
B. That certain committees in the Senate and the House of Representatives
have, in their respective reports, and the latter in a resolution as well,
declared their opinion that a franchise from Congress is necessary for the
operation of the MICP by a private individual or entity, does not necessarily
create a conflict between the Executive and the Legislative Branches
needing the intervention of the Judicial Branch. The court is not faced with a
situation where the Executive Branch has contravened an enactment of
Congress. As discussed earlier, neither is the Court confronted with a case of
one branch usurping a power pertaining to another.
C. Petitioner's contention that what was bid out, i.e., the development,
management and operation of the MICP, was not what was subsequently
contracted, considering the conditions imposed by the President in her letter
of approval, thus rendering the bids and projections immaterial and the
procedure taken ineffectual, is not supported by the established facts. The
conditions imposed by the President did not materially alter the substance of
the contract, but merely dealt on the details of its implementation.
D. The determination of whether or not the winning bidder is qualified to
undertake the contracted service should be left to the sound judgment of
the PPA. The PPA, having been tasked with the formulation of a plan for the
development of port facilities and its implementation [Sec. 6(a) (i)], is the
agency in the best position to evaluate the feasibility of the projections of
the bidders and to decide which bid is compatible with the development
plan. Neither the Court, nor Congress, has the time and the technical
expertise to look into this matter.
Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37
SCRA 745] stated:
[C]ourts, as a rule, refuse to interfere with proceedings undertaken by
administrative bodies or officials in the exercise of administrative functions.
This is so because such bodies are generally better equipped technically to
decide administrative questions and that non-legal factors, such as

government policy on the matter, are usually involved in the decisions. [at p.
750.]
In conclusion, it is evident that petitioner has failed to show a clear case of
grave abuse of discretion amounting to lack or excess of jurisdiction as to
warrant the issuance of the writ of prohibition.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes,
Grio-Aquino, Medialdea and Regalado, JJ., concur.
Feliciano, J., concurs in the result.
Padilla and Sarmiento, JJ., took no part.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of whether or not the
winning bidder is qualified to undertake the contracted service should be left
to the sound judgment of the Philippine Ports Authority (PPA). I agree that
the PPA is the agency which can best evaluate the comparative
qualifications of the various bidding contractors and that in making such
evaluation it has the technical expertise which neither this Court nor
Congress possesses.
However, I would feel more comfortable in the thought that the above
rulings are not only grounded on firm legal foundations but are also factually
accurate if the PPA shows greater consistency in its submissions to this
Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233
[1977]), this Court decided the case in favor of the PPA because, among
others, of its submissions that: (1) the petitioner therein committed
violations as to outside stevedoring services, inadequate equipment,
delayed submission of reports, and non-compliance with certain port
regulations; (2) respondent Marina Port Services and not the petitioner was
better qualified to handle arrastre services; (3) the petitioner being
controlled by Alfredo Romualdez could not enter into a management
contract with PPA and any such contract would be null and void; and (4)
even if the petitioner may not have shared in the illegal intention behind the
transfer of majority shares, it shared in the benefits of the violation of law.
I was surprised during the oral arguments of the present petition to hear the
counsel for PPA submit diametrically different statements regarding the
capabilities and worth of E. Razon, Inc., as an arrastre operator. It now turns
out that the Manila International Container Terminal will depend a great deal
on the expertise, reliability and competence of E. Razon, Inc., for its
successful operations. The time difference between the two petitions is
insubstantial. After going over the pleadings of the present petition, I am
now convinced that it is the submissions of PPA in this case and not its
contentions in G.R. No. 75197 which are accurate and meritorious. There is
the distinct possibility that we may have been unfair in the earlier petition
because of assertions made therein which are contradictory to the
submissions in the instant petition. No such doubts would exist if the
Government is more consistent in its pleadings on such important factual
matters as those raised in these two petitions.

G.R. No. 47065

June 26, 1940
PANGASINAN TRANSPORTATION CO., INC., petitioner,
vs.
THE PUBLIC SERVICE COMMISSION, respondent.
C. de G. Alvear for petitioner.
Evaristo R. Sandoval for respondent.
LAUREL, J.:
The petitioner has been engaged for the past twenty years in the business of
transporting passengers in the Province of Pangasinan and Tarlac and, to a
certain extent, in the Province of Nueva Ecija and Zambales, by means of
motor vehicles commonly known as TPU buses, in accordance with the terms
and conditions of the certificates of public convenience issued in its favor by
the former Public Utility Commission in cases Nos. 24948, 30973, 36830,
32014 and 53090. On August 26, 1939, the petitioner filed with the Public
Service Commission an application for authorization to operate ten
additional new Brockway trucks (case No. 56641), on the ground that they
were needed to comply with the terms and conditions of its existing
certificates and as a result of the application of the Eight Hour Labor Law. In
the decision of September 26, 1939, granting the petitioner's application for
increase of equipment, the Public Service Commission ordered:
Y de acuerdo con que se provee por el articulo 15 de la ley No. 146 del

Commonwealth, tal como ha sido enmendada por el articulo 1 de la Ley No.

454, por la presente se enmienda las condiciones de los certificados de
convenciencia publica expedidos en los expedientes Nos. 24948, 30973,
36831, 32014 y la authorizacion el el expediente No. 53090, asi que se
consideran incorporadas en los mismos las dos siguientes condiciones:
Que los certificados de conveniencia publica y authorizacion arriba
mencionados seran validos y subsistentes solamente durante de veinticinco
(25) anos, contados desde la fecha de la promulgacion de esta decision.
Que la empresa de la solicitante porda ser adquirida por el Commonwealth
de Filipinas o por alguna dependencia del mismo en cualquier tiempo que lo
deseare previo pago del precio d costo de su equipo util, menos una
depreciacion razonable que se ha fijar por la Comision al tiempo de su
adquisicion.
Not being agreeable to the two new conditions thus incorporated in its
existing certificates, the petitioner filed on October 9, 1939 a motion for
reconsideration which was denied by the Public Service Commission on
November 14, 1939. Whereupon, on November 20, 1939, the present
petition for a writ of certiorari was instituted in this court praying that an
order be issued directing the secretary of the Public Service Commission to
certify forthwith to this court the records of all proceedings in case No.
56641; that this court, after hearing, render a decision declaring section 1 of
Commonwealth Act No. 454 unconstitutional and void; that, if this court
should be of the opinion that section 1 of Commonwealth Act No. 454 is
constitutional, a decision be rendered declaring that the provisions thereof
are not applicable to valid and subsisting certificates issued prior to June 8,
1939. Stated in the language of the petitioner, it is contended:
1. That the legislative powers granted to the Public Service Commission by
section 1 of Commonwealth Act No. 454, without limitation, guide or rule
except the unfettered discretion and judgment of the Commission, constitute
a complete and total abdication by the Legislature of its functions in the
premises, and for that reason, the Act, in so far as those powers are
concerned, is unconstitutional and void.
2. That even if it be assumed that section 1 of Commonwealth Act No. 454,
is valid delegation of legislative powers, the Public Service Commission has
exceeded its authority because: (a) The Act applies only to future certificates
and not to valid and subsisting certificates issued prior to June 8, 1939,
when said Act took effect, and (b) the Act, as applied by the Commission,
violates constitutional guarantees.
Section 15 of Commonwealth Act No. 146, as amended by section 1 of
Commonwealth Act No. 454, invoked by the respondent Public Service
Commission in the decision complained of in the present proceedings, reads
as follows:
With the exception to those enumerated in the preceding section, no public
service shall operate in the Philippines without possessing a valid and
subsisting certificate from the Public Service Commission, known as
"certificate of public convenience," or "certificate of convenience and public
necessity," as the case may be, to the effect that the operation of said
service and the authorization to do business will promote the public interests
in a proper and suitable manner.
The Commission may prescribed as a condition for the issuance of the
certificate provided in the preceding paragraph that the service can be

acquired by the Commonwealth of the Philippines or by any instrumentality

thereof upon payment of the cost price of its useful equipment, less
reasonable depreciation; and likewise, that the certificate shall valid only for
a definite period of time; and that the violation of any of these conditions
shall produce the immediate cancellation of the certificate without the
necessity of any express action on the part of the Commission.
In estimating the depreciation, the effect of the use of the equipment, its
actual condition, the age of the model, or other circumstances affecting its
value in the market shall be taken into consideration.
The foregoing is likewise applicable to any extension or amendment of
certificates actually force and to those which may hereafter be issued, to
permits to modify itineraries and time schedules of public services and to
authorization to renew and increase equipment and properties.
Under the first paragraph of the aforequoted section 15 of Act No. 146, as
amended, no public service can operate without a certificate of public
convenience or certificate of convenience and public necessity to the effect
that the operation of said service and the authorization to do business will
"public interests in a proper and suitable manner." Under the second
paragraph, one of the conditions which the Public Service Commission may
prescribed the issuance of the certificate provided for in the first paragraph
is that "the service can be acquired by the Commonwealth of the Philippines
or by any instrumental thereof upon payment of the cost price of its useful
equipment, less reasonable depreciation," a condition which is virtually a
restatement of the principle already embodied in the Constitution, section 6
of Article XII, which provides that "the State may, in the interest of national
welfare and defense, establish and operate industries and means of
transportation and communication, and, upon payment of just
compensation, transfer to public ownership utilities and other private
enterprises to be operated by the Government. "Another condition which the
Commission may prescribed, and which is assailed by the petitioner, is that
the certificate "shall be valid only for a definite period of time." As there is a
relation between the first and second paragraphs of said section 15, the two
provisions must be read and interpreted together. That is to say, in issuing a
certificate, the Commission must necessarily be satisfied that the operation
of the service under said certificate during a definite period fixed therein
"will promote the public interests in a proper and suitable manner." Under
section 16 (a) of Commonwealth Act. No. 146 which is a complement of
section 15, the Commission is empowered to issue certificates of public
convenience whenever it "finds that the operation of the public service
proposed and the authorization to do business will promote the public
interests in a proper and suitable manner." Inasmuch as the period to be
fixed by the Commission under section 15 is inseparable from the certificate
itself, said period cannot be disregarded by the Commission in determining
the question whether the issuance of the certificate will promote the public
interests in a proper and suitable manner. Conversely, in determining "a
definite period of time," the Commission will be guided by "public interests,"
the only limitation to its power being that said period shall not exceed fifty
years (sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8.)
We have already ruled that "public interest" furnishes a sufficient standard.
(People vs.Fernandez and Trinidad, G. R. No. 45655, promulgated June 15,
1938; People vs. Rosenthal and Osmea, G. R. Nos. 46076 and 46077,

promulgated June 12, 1939, citing New York Central Securities Corporation
vs. U.S.A., 287 U.S. 12, 24, 25, 77 Law. ed. 138, 145, 146; Schenchter
Poultry Corporation vs. I.S., 295, 540, 79 Law. ed. 1570, 1585; Ferrazzini vs.
Gsell, 34 Phil., 697, 711-712.)
Section 8 of Article XIII of the Constitution provides, among other things, that
no franchise, certificate, or any other form of authorization for the operation
of a public utility shall be "for a longer period than fifty years," and when it
was ordained, in section 15 of Commonwealth Act No. 146, as amended by
Commonwealth Act No. 454, that the Public Service Commission may
prescribed as a condition for the issuance of a certificate that it "shall be
valid only for a definite period of time" and, in section 16 (a) that "no such
certificates shall be issued for a period of more than fifty years," the National
Assembly meant to give effect to the aforesaid constitutional mandate. More
than this, it has thereby also declared its will that the period to be fixed by
the Public Service Commission shall not be longer than fifty years. All that
has been delegated to the Commission, therefore, is the administrative
function, involving the use discretion, to carry out the will of the National
Assembly having in view, in addition, the promotion of "public interests in a
proper and suitable manner." The fact that the National Assembly may itself
exercise the function and authority thus conferred upon the Public Service
Commission does not make the provision in question constitutionally
objectionable.
The theory of the separation of powers is designed by its originators to
secure action and at the same time to forestall overaction which necessarily
results from undue concentration of powers, and thereby obtain efficiency
and prevent deposition. Thereby, the "rule of law" was established which
narrows the range of governmental action and makes it subject to control by
certain devices. As a corollary, we find the rule prohibiting delegation of
legislative authority, and from the earliest time American legal authorities
have proceeded on the theory that legislative power must be exercised by
the legislature alone. It is frankness, however, to confess that as one delves
into the mass of judicial pronouncement, he finds a great deal of confusion.
One thing, however, is apparent in the development of the principle of
separation of powers and that is that the maxim of delegatus non potest
delegari or delegata potestas non potest delegari, attributed to Bracton (De
Legius et Consuetedinious Angliae, edited by G. E. Woodbine, Yale University
Press, 1922, vol. 2, p. 167) but which is also recognized in principle in the
Roman Law (D. 17.18.3), has been made to adapt itself to the complexities
of modern governments, giving rise to the adoption, within certain limits, of
the principle of "subordinate legislation," not only in the United States and
England but in practically all modern governments. (People vs. Rosenthal
and Osmea, G. R. Nos. 46076 and 46077, promulgated June 12, 1939.)
Accordingly, with the growing complexity of modern life, the multiplication of
the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency toward the
delegation of greater powers by the legislature, and toward the approval of
the practice by the court. (Dillon Catfish Drainage Dist, v. Bank of Dillon, 141
S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976,
165 Tenn. 319.) In harmony with such growing tendency, this Court, since
the decision in the case of Compaia General de Tabacos de Filipinas vs.
Board of Public Utility Commissioner (34 Phil., 136), relied upon by the

petitioner, has, in instances, extended its seal of approval to the "delegation

of greater powers by the legislature." (Inchausti Steamship Co. vs. Public
Utility Commissioner, 44 Phil., Autobus Co. vs. De Jesus, 56 Phil., 446; People
vs. Fernandez & Trinidad, G. R. No. 45655, promulgated June 15, 1938;
People vs. Rosenthal & Osmea, G. R. Nos. 46076, 46077, promulgated June
12, 1939; and Robb and Hilscher vs. People, G. R. No. 45866, promulgated
June 12, 1939.).
Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as
amended by Commonwealth Act No. 454, the power of the Public Service
Commission to prescribed the conditions "that the service can be acquired
by the Commonwealth of the Philippines or by any instrumentality thereof
upon payment of the cost price of its useful equipment, less reasonable,"
and "that the certificate shall be valid only for a definite period of time" is
expressly made applicable "to any extension or amendment of certificates
actually in force" and "to authorizations to renew and increase equipment
and properties." We have examined the legislative proceedings on the
subject and have found that these conditions were purposely made
applicable to existing certificates of public convenience. The history of
Commonwealth Act No. 454 reveals that there was an attempt to suppress,
by way of amendment, the sentence "and likewise, that the certificate shall
be valid only for a definite period of time," but the attempt failed:
xxx
xxx
xxx
Sr. CUENCO. Seor Presidente, para otra enmienda. En la misma pagina,
lineas 23 y 24, pido que se supriman las palabras 'and likewise, that the
certificate shall be valid only for a definite period time.' Esta disposicion del
proyecto autoriza a la Comision de Servicios Publicos a fijar un plazo de
vigencia certificado de conveniencia publica. Todo el mundo sabe que bo se
puede determinar cuando los intereses del servicio publico requiren la
explotacion de un servicio publico y ha de saber la Comision de Servisios, si
en un tiempo determinado, la explotacion de algunos buses en cierta ruta ya
no tiene de ser, sobre todo, si tiene en cuenta; que la explotacion de los
servicios publicos depende de condiciones flutuantes, asi como del volumen
como trafico y de otras condiciones. Ademas, el servicio publico se concede
por la Comision de Servicios Publicos el interes publico asi lo exige. El
interes publico no tiene duracion fija, no es permanente; es un proceso mas
o menos indefinido en cuanto al tiempo. Se ha acordado eso en el caucus de
anoche.
EL PRESIDENTE PRO TEMPORE. Que dice el Comite?
Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de
que esto certificados de conveniencia publica es igual que la franquicia:
sepuede extender. Si los servicios presentados por la compaia durante el
tiempo de su certificado lo require, puede pedir la extension y se le
extendera; pero no creo conveniente el que nosotros demos un certificado
de conveniencia publica de una manera que podria pasar de cincuenta anos,
porque seria anticonstitucional.
xxx
xxx
xxx
By a majority vote the proposed amendment was defeated. (Sesion de 17 de
mayo de 1939, Asamblea Nacional.)
The petitioner is mistaken in the suggestion that, simply because its existing
certificates had been granted before June 8, 1939, the date when
Commonwealth Act No. 454, amendatory of section 15 of Commonwealth

Act No. 146, was approved, it must be deemed to have the right of holding
them in perpetuity. Section 74 of the Philippine Bill provided that "no
franchise, privilege, or concession shall be granted to any corporation
except under the conditions that it shall be subject to amendment,
alteration, or repeal by the Congress of the United States." The Jones Law,
incorporating a similar mandate, provided, in section 28, that "no franchise
or right shall be granted to any individual, firm, or corporation except under
the conditions that it shall be subject to amendment, alteration, or repeal by
the Congress of the United States." Lastly, the Constitution of the Philippines
provided, in section 8 of Article XIII, that "no franchise or right shall be
granted to any individual, firm, or corporation, except under the condition
that it shall be subject to amendment, alteration, or repeal by the National
Assembly when the public interest so requires." The National Assembly, by
virtue of the Constitution, logically succeeded to the Congress of the United
States in the power to amend, alter or repeal any franchise or right granted
prior to or after the approval of the Constitution; and when Commonwealth
Acts Nos. 146 and 454 were enacted, the National Assembly, to the extent
therein provided, has declared its will and purpose to amend or alter existing
certificates of public convenience.
Upon the other hand, statutes enacted for the regulation of public utilities,
being a proper exercise by the state of its police power, are applicable not
only to those public utilities coming into existence after its passage, but
likewise to those already established and in operation.
Nor is there any merit in petitioner's contention, that, because of the
establishment of petitioner's operations prior to May 1, 1917, they are not
subject to the regulations of the Commission. Statutes for the regulation of
public utilities are a proper exercise by the state of its police power. As soon
as the power is exercised, all phases of operation of established utilities,
become at once subject to the police power thus called into operation.
Procedures' Transportation Co. v. Railroad Commission, 251 U. S. 228, 40
Sup. Ct. 131, 64 Law. ed. 239, Law v. Railroad Commission, 184 Cal. 737,
195 Pac. 423, 14 A. L. R. 249. The statute is applicable not only to those
public utilities coming into existence after its passage, but likewise to those
already established and in operation. The 'Auto Stage and Truck
Transportation Act' (Stats. 1917, c. 213) is a statute passed in pursuance of
the police power. The only distinction recognized in the statute between
those established before and those established after the passage of the act
is in the method of the creation of their operative rights. A certificate of
public convenience and necessity it required for any new operation, but no
such certificate is required of any transportation company for the operation
which was actually carried on in good faith on May 1, 1917, This distinction
in the creation of their operative rights in no way affects the power of the
Commission to supervise and regulate them. Obviously the power of the
Commission to hear and dispose of complaints is as effective against
companies securing their operative rights prior to May 1, 1917, as against
those subsequently securing such right under a certificate of public
convenience and necessity. (Motor Transit Co. et al. v. Railroad Commission
of California et al., 209 Pac. 586.)
Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic
acts of the Public Service Commission but are "a part of the charter of every
utility company operating or seeking to operate a franchise" in the

Philippines. (Streator Aqueduct Co. v. et al., 295 Fed. 385.) The business of a
common carrier holds such a peculiar relation to the public interest that
there is superinduced upon it the right of public regulation. When private
property is "affected with a public interest it ceased to be juris privati only."
When, therefore, one devotes his property to a use in which the public has
an interest, he, in effect, grants to the public an interest in that use, and
must submit to be controlled by the public for the common good, to the
extent of the interest he has thus created. He may withdraw his grant by
discounting the use, but so long as he maintains the use he must submit to
control. Indeed, this right of regulation is so far beyond question that it is
well settled that the power of the state to exercise legislative control over
public utilities may be exercised through boards of commissioners. (Fisher
vs.Yangco Steamship Company, 31 Phil., 1, citing Munn vs. Illinois, 94 U.S.
113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143
U.S. 517; New York etc. R. Co. vs. Bristol 151 U.S. 556, 571; Connecticut etc.
R. Co. vs. Woodruff, 153 U.S. 689; Louisville etc. Ry Co. vs. Kentucky, 161
U.S. 677, 695.) This right of the state to regulate public utilities is founded
upon the police power, and statutes for the control and regulation of utilities
are a legitimate exercise thereof, for the protection of the public as well as of
the utilities themselves. Such statutes are, therefore, not unconstitutional,
either impairing the obligation of contracts, taking property without due
process, or denying the equal protection of the laws, especially inasmuch as
the question whether or not private property shall be devoted to a public
and the consequent burdens assumed is ordinarily for the owner to decide;
and if he voluntarily places his property in public service he cannot complain
that it becomes subject to the regulatory powers of the state. (51 C. J., sec.
21, pp. 9-10.) in the light of authorities which hold that a certificate of public
convenience constitutes neither a franchise nor contract, confers no
property right, and is mere license or privilege. (Burgess vs. Mayor &
Alderman of Brockton, 235 Mass. 95, 100, 126 N. E. 456; Roberto
vs.Commisioners of Department of Public Utilities, 262 Mass. 583, 160 N. E.
321; Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581; Martz vs. Curtis [J.
L.] Cartage Co. [1937], 132 Ohio St. 271, 7 N. E. [d] 220; Manila Yellow
Taxicab Co. vs. Sabellano, 59 Phil., 773.)
Whilst the challenged provisions of Commonwealth Act No. 454 are valid and
constitutional, we are, however, of the opinion that the decision of the Public
Service Commission should be reversed and the case remanded thereto for
further proceedings for the reason now to be stated. The Public Service
Commission has power, upon proper notice and hearing, "to amend, modify
or revoke at any time any certificate issued under the provisions of this Act,
whenever the facts and circumstances on the strength of which said
certificate was issued have been misrepresented or materially changed."
(Section 16, par. [m], Commonwealth Act No. 146.) The petitioner's
application here was for an increase of its equipment to enable it to comply
with the conditions of its certificates of public convenience. On the matter of
limitation to twenty five (25) years of the life of its certificates of public
convenience, there had been neither notice nor opportunity given the
petitioner to be heard or present evidence. The Commission appears to have
taken advantage of the petitioner to augment petitioner's equipment in
imposing the limitation of twenty-five (25) years which might as well be
twenty or fifteen or any number of years. This is, to say the least, irregular

and should not be sanctioned. 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. In
the language of Chief Justice Hughes, in Morgan v. U.S., (304 U.S. 1, 58 S. Ct.
773, 999, 82 Law. ed. 1129), "the liberty and property of the citizen shall be
protected by the rudimentary requirements of fair play." 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. (Chief Justice Hughes in Morgan vs. U.S.,
298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed. 1288.) In the language of this Court
in Edwards vs. McCoy (22 Phil., 598), "the right to adduce evidence, without
the corresponding duty on the part of the board to consider it, is vain. Such
right is conspicuously futile if the person or persons to whom the evidence is
presented can thrust it aside without or consideration." 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. A decision with absolutely nothing to support it is a
nullity, at least when directly attacked. (Edwards vs. McCoy, supra.) This
principle emanates from the more fundamental principle that the genius of
constitutional government is contrary to the vesting of unlimited power
anywhere. Law is both a grant and a limitation upon power.
The decision appealed from is hereby reversed and the case remanded to
the Public Service Commission for further proceedings in accordance with
law and this decision, without any pronouncement regarding costs. So
ordered.
Avancea, C.J., Imperial, Diaz, Concepcion and Moran, JJ., concur.

A. L. A. Schechter Poultry Corp. v. United States, 295 U.S. 495

(1935)
A. L. A. Schechter Poultry Corp. v. United States
No. 854
Argued May 2, 3, 1935
Decided May 27, 1935*
295 U.S. 495
Syllabus
1. Extraordinary conditions, such as an economic crisis, may call for
extraordinary remedies, but they cannot create or enlarge constitutional
power. P. 295 U. S. 528.
2. Congress is not permitted by the Constitution to abdicate, or to transfer to
others, the essential legislative functions with which it is vested. Art. I, 1;
Art. I, 8, par. 18. Panama Refining Co. v. Ryan, 293 U. S. 388. P. 295 U. S.
529.

3. Congress may leave to selected instrumentalities the making of

subordinate rules within prescribed limits, and the determination of facts to
which the policy, as declared by Congress, is to apply; but it must itself lay
down the policies and establish standards. P. 295 U. S. 530.
4. The delegation of legislative power sought to be made to the President by
3 of the National Industrial Recovery Act of June 16, 1933, is
unconstitutional (pp. 295 U. S. 529 et seq.), and the Act is also
unconstitutional, as applied in this case, because it exceeds the power of
Congress to regulate interstate commerce and invades the power reserved
exclusively to the States (pp. 295 U. S. 542 et seq.).
5. Section 3 of the National Industrial Recovery Act provides that "codes of
fair competition," which shall be the " standards of fair competition" for the
trades and industries to which they relate, may be approved by the
President upon application of representative associations of the trades or
industries to be affected, or may be prescribed by him on his own motion.
Their provisions
Page 295 U. S. 496
are to be enforced by injunctions from the federal courts, and "any violation
of any of their provisions in any transaction in or affecting interstate
commerce" is to be deemed an unfair method of competition within the
meaning of the Federal Trade Commission Act, and is to be punished as a
crime against the United States. Before approving, the President is to make
certain findings as to the character of the association presenting the code
and absence of design to promote monopoly or oppress small enterprises,
and must find that it will "tend to effectuate the policy of this title." Codes
permitting monopolies or monopolistic practices are forbidden. The
President may "impose such conditions (including requirements for the
making of reports and the keeping of accounts) for the protection of
consumers, competitors, employees and others, and in the furtherance of
the public interest, and may provide such exceptions and exemptions from
the provisions of such code," as he, in his discretion, deems necessary "to
effectuate the policy herein declared." A code prescribed by him is to have
the same effect as one approved on application.
Held:
(1) The statutory plan is not simply one of voluntary effort; the "codes of fair
competition" are meant to be codes of laws. P. 295 U. S. 529.
(2) The meaning of the term "fair competition" (not expressly defined in the
Act) is clearly not the mere antithesis of "unfair competition," as known to
the common law, or of "unfair methods of competition" under the Federal
Trade Commission Act. P. 295 U. S. 531.
(3) In authorizing the President to approve codes which "will tend to
effectuate the policy of this title," 3 of the Act refers to the Declaration of
Policy in 1. The purposes declared in 1 are all directed to the
rehabilitation of industry and the industrial recovery which was the major
policy of Congress in adopting the Act. P. 295 U. S. 534.
(4) That this is the controlling purpose of the code now before the Court
appears both from its repeated declarations to that effect and from the
scope of its requirements. P. 295 U. S. 536.
(5) The authority sought to be conferred by 3 was not merely to deal with
"unfair competitive practices" which offend against existing law, or to create
administrative machinery for the application of established principles of law

to particular instances of violation. Rather, the purpose is clearly disclosed

to authorize new and controlling prohibitions through codes of laws which
would embrace what the formulators would propose, and what the President
Page 295 U. S. 497
would approve or prescribe, as wise and beneficent measures for the
government of trades and industries, in order to bring about their
rehabilitation, correction and improvement, according to the general
declaration of policy in 1. Codes of laws of this sort are styled " codes of
fair competition." P. 295 U. S. 535.
(6) A delegation of its legislative authority to trade or industrial associations,
empowering them to enact laws for the rehabilitation and expansion of their
trades or industries, would be utterly inconsistent with the constitutional
prerogatives and duties of Congress. P. 295 U. S. 537.
(7) Congress cannot delegate legislative power to the President to exercise
an unfettered discretion to make whatever laws he thinks may be needed or
advisable for the rehabilitation and expansion of trade and industry. P. 295 U.
S. 537.
(8) The only limits set by the Act to the President's discretion are that he
shall find, first, that the association or group proposing a code imposes no
inequitable restrictions on admission to membership and is truly
representative; second, that the code is not designed to promote
monopolies or to eliminate or oppress small enterprises and will not operate
to discriminate against them, and third, that it "will tend to effectuate the
policy of this title" -- this last being a mere statement of opinion. These are
the only findings which Congress has made essential in order to put into
operation a legislative code having the aims described in the "Declaration of
Policy." P. 295 U. S. 538.
(9) Under the Act, the President, in approving a code, may impose his own
conditions, adding to or taking from what is proposed, as "in his discretion"
he thinks necessary "to effectuate the policy" declared by the Act. He has no
less liberty when he prescribes a code on his own motion or on complaint,
and he is free to prescribe one if a code has not been approved. P. 295 U. S.
538.
(10) The acts and reports of the administrative agencies which the President
may create under the Act have no sanction beyond his will. Their
recommendations and findings in no way limit the authority which 3
undertakes to vest in him. And this authority relates to a host of different
trades and industries, thus extending the President's discretion to all the
varieties of laws which he may deem to be beneficial in dealing with the vast
array of commercial activities throughout the country. P. 295 U. S. 539.
(11) Such a sweeping delegation of legislative power finds no support in
decisions of this Court defining and sustaining the
Page 295 U. S. 498
powers granted to the Interstate Commerce Commission, to the Radio
Commission, and to the President when acting under the "flexible tariff"
provisions of the Tariff Act of 1922. P. 295 U. S. 539.
(12) Section 3 of the Recovery Act is without precedent. It supplies no
standards for any trade, industry or activity. It does not undertake to
prescribe rules of conduct to be applied to particular states of fact
determined by appropriate administrative procedure. Instead, it authorizes
the making of codes to prescribe them. For that legislative undertaking, it

sets up no standards, aside from the statement of the general aims of

rehabilitation, correction and expansion found in 1. In view of the broad
scope of that declaration, and of the nature of the few restrictions that are
imposed, the discretion of the President in approving or prescribing codes,
and thus enacting laws for the government of trade and industry throughout
the country, is virtually unfettered. The code-making authority thus sought
to be conferred is an unconstitutional delegation of legislative power. P. 295
U. S. 541.
6. Defendants were engaged in the business of slaughtering chickens and
selling them to retailers. They bought their fowls from commission men in a
market where most of the supply was shipped in from other States,
transported them to their slaugterhouses, and there held them for slaughter
and local sale to retail dealers and butchers, who in turn sold directly to
consumers. They were indicted for disobeying the requirements of a "Code
of Fair Competition for the Live Poultry Industry of the Metropolitan Area in
and about the City of New York," approved by the President under 3 of the
National Industrial Recovery Act. The alleged violations were: failure to
observe in their place of business provisions fixing minimum wages and
maximum hours for employees; permitting customers to select individual
chickens from particular coops and half-coops; sale of an unfit chicken; sales
without compliance with municipal inspection regulations and to
slaughterers and dealers not licensed under such regulations; making false
reports, and failure to make reports relating to range of daily prices and
volume of sales.
Held:
(1) When the poultry had reached the defendants' slaughterhouses, the
interstate commerce had ended, and subsequent transactions in their
business, including the matters charged in the indictment, were transactions
in intrastate commerce. P. 295 U. S. 542.
(2) Decisions which deal with a stream of interstate commerce -- where
goods come to rest within a State temporarily and are later to go forward in
interstate commerce -- and with the regulation
Page 295 U. S. 499
of transactions involved in that practical continuity of movement, are
inapplicable in this case. P. 295 U. S. 543.
(3) The distinction between intrastate acts that directly affect interstate
commerce, and therefore are subject to federal regulation, and those that
affect it only indirectly, and therefore remain subject to the power of the
States exclusively, is clear in principle, though the precise line can be drawn
only as individual cases arise. Pp. 295 U. S. 544, 295 U. S. 546.
(4) If the commerce clause were construed to reach all enterprises and
transactions which could be said to have an indirect effect upon interstate
commerce, the federal authority would embrace practically all the activities
of the people, and the authority of the State over its domestic concerns
would exist only by sufferance of the Federal Government. Indeed, on such a
theory, even the development of the State's commercial facilities would be
subject to federal control. P.295 U. S. 546.
(5) The distinction between direct and indirect effects has long been clearly
recognized in the application of the Anti-Trust Act. It is fundamental and
essential to the maintenance of our constitutional system. P. 295 U. S. 547.
(6) The Federal Government cannot regulate the wages and hours of labor of

persons employed in the internal commerce of a State. No justification for

such regulation is to be found in the fact that wages and hours affect costs
and prices, and so indirectly affect interstate commerce, nor in the fact that
failure of some States to regulate wages and hours diverts commerce from
the States that do regulate them. P. 295 U. S. 548.
(7) The provisions of the code which are alleged to have been violated in this
case are not a valid exercise of federal power. P. 295 U. S. 550.
76 F. 2d 617, reversed in part; affirmed in part.
CERTIORARI on the petition of defendants in a criminal case to review the
judgment below insofar as it affirmed convictions on a number of the counts
of an indictment and, on the petition of the Government, to review the same
judgment insofar as it reversed convictions on other counts. The indictment
charged violations of a "Live Poultry Code," and conspiracy to commit them.
Page 295 U. S. 519

G.R. No. 17122

February 27, 1922
THE UNITED STATES, plaintiff-appellee,
vs.
ANG TANG HO, defendant-appellant.
Williams & Ferrier for appellant.
Acting Attorney-General Tuason for appellee.
JOHNS, J.:
At its special session of 1919, the Philippine Legislature passed Act No.
2868, entitled "An Act penalizing the monopoly and holding of, and
speculation in, palay, rice, and corn under extraordinary circumstances,
regulating the distribution and sale thereof, and authorizing the GovernorGeneral, with the consent of the Council of State, to issue the necessary
rules and regulations therefor, and making an appropriation for this
purpose," the material provisions of which are as follows:
Section 1. The Governor-General is hereby authorized, whenever, for any
cause, conditions arise resulting in an extraordinary rise in the price of
palay, rice or corn, to issue and promulgate, with the consent of the Council
of State, temporary rules and emergency measures for carrying out the
purpose of this Act, to wit:
(a) To prevent the monopoly and hoarding of, and speculation in, palay, rice
or corn.
(b) To establish and maintain a government control of the distribution or sale
of the commodities referred to or have such distribution or sale made by the
Government itself.
(c) To fix, from time to time the quantities of palay rice, or corn that a
company or individual may acquire, and the maximum sale price that the
industrial or merchant may demand.
(d) . . .
SEC. 2. It shall be unlawful to destroy, limit, prevent or in any other manner
obstruct the production or milling of palay, rice or corn for the purpose of
raising the prices thereof; to corner or hoard said products as defined in
section three of this Act; . . .
Section 3 defines what shall constitute a monopoly or hoarding of palay, rice
or corn within the meaning of this Act, but does not specify the price of rice
or define any basic for fixing the price.
SEC. 4. The violations of any of the provisions of this Act or of the
regulations, orders and decrees promulgated in accordance therewith shall
be punished by a fine of not more than five thousands pesos, or by
imprisonment for not more than two years, or both, in the discretion of the
court: Provided, That in the case of companies or corporations the manager
or administrator shall be criminally liable.

SEC. 7. At any time that the Governor-General, with the consent of the
Council of State, shall consider that the public interest requires the
application of the provisions of this Act, he shall so declare by proclamation,
and any provisions of other laws inconsistent herewith shall from then on be
temporarily suspended.
Upon the cessation of the reasons for which such proclamation was issued,
the Governor-General, with the consent of the Council of State, shall declare
the application of this Act to have likewise terminated, and all laws
temporarily suspended by virtue of the same shall again take effect, but
such termination shall not prevent the prosecution of any proceedings or
cause begun prior to such termination, nor the filing of any proceedings for
an offense committed during the period covered by the Governor-General's
proclamation.
August 1, 1919, the Governor-General issued a proclamation fixing the price
at which rice should be sold.
August 8, 1919, a complaint was filed against the defendant, Ang Tang Ho,
charging him with the sale of rice at an excessive price as follows:
The undersigned accuses Ang Tang Ho of a violation of Executive Order No.
53 of the Governor-General of the Philippines, dated the 1st of August, 1919,
in relation with the provisions of sections 1, 2 and 4 of Act No. 2868,
committed as follows:
That on or about the 6th day of August, 1919, in the city of Manila, Philippine
Islands, the said Ang Tang Ho, voluntarily, illegally and criminally sold to
Pedro Trinidad, one ganta of rice at the price of eighty centavos (P.80), which
is a price greater than that fixed by Executive Order No. 53 of the GovernorGeneral of the Philippines, dated the 1st of August, 1919, under the
authority of section 1 of Act No. 2868. Contrary to law.
Upon this charge, he was tried, found guilty and sentenced to five months'
imprisonment and to pay a fine of P500, from which he appealed to this
court, claiming that the lower court erred in finding Executive Order No. 53
of 1919, to be of any force and effect, in finding the accused guilty of the
offense charged, and in imposing the sentence.
The official records show that the Act was to take effect on its approval; that
it was approved July 30, 1919; that the Governor-General issued his
proclamation on the 1st of August, 1919; and that the law was first
published on the 13th of August, 1919; and that the proclamation itself was
first published on the 20th of August, 1919.
The question here involves an analysis and construction of Act No. 2868, in
so far as it authorizes the Governor-General to fix the price at which rice
should be sold. It will be noted that section 1 authorizes the GovernorGeneral, with the consent of the Council of State, for any cause resulting in
an extraordinary rise in the price of palay, rice or corn, to issue and
promulgate temporary rules and emergency measures for carrying out the
purposes of the Act. By its very terms, the promulgation of temporary rules
and emergency measures is left to the discretion of the Governor-General.
The Legislature does not undertake to specify or define under what
conditions or for what reasons the Governor-General shall issue the
proclamation, but says that it may be issued "for any cause," and leaves the
question as to what is "any cause" to the discretion of the Governor-General.
The Act also says: "For any cause, conditions arise resulting in an
extraordinary rise in the price of palay, rice or corn." The Legislature does

not specify or define what is "an extraordinary rise." That is also left to the
discretion of the Governor-General. The Act also says that the GovernorGeneral, "with the consent of the Council of State," is authorized to issue
and promulgate "temporary rules and emergency measures for carrying out
the purposes of this Act." It does not specify or define what is a temporary
rule or an emergency measure, or how long such temporary rules or
emergency measures shall remain in force and effect, or when they shall
take effect. That is to say, the Legislature itself has not in any manner
specified or defined any basis for the order, but has left it to the sole
judgement and discretion of the Governor-General to say what is or what is
not "a cause," and what is or what is not "an extraordinary rise in the price
of rice," and as to what is a temporary rule or an emergency measure for the
carrying out the purposes of the Act. Under this state of facts, if the law is
valid and the Governor-General issues a proclamation fixing the minimum
price at which rice should be sold, any dealer who, with or without notice,
sells rice at a higher price, is a criminal. There may not have been any
cause, and the price may not have been extraordinary, and there may not
have been an emergency, but, if the Governor-General found the existence
of such facts and issued a proclamation, and rice is sold at any higher price,
the seller commits a crime.
By the organic law of the Philippine Islands and the Constitution of the
United States all powers are vested in the Legislative, Executive and
Judiciary. It is the duty of the Legislature to make the law; of the Executive to
execute the law; and of the Judiciary to construe the law. The Legislature has
no authority to execute or construe the law, the Executive has no authority
to make or construe the law, and the Judiciary has no power to make or
execute the law. Subject to the Constitution only, the power of each branch
is supreme within its own jurisdiction, and it is for the Judiciary only to say
when any Act of the Legislature is or is not constitutional. Assuming, without
deciding, that the Legislature itself has the power to fix the price at which
rice is to be sold, can it delegate that power to another, and, if so, was that
power legally delegated by Act No. 2868? In other words, does the Act
delegate legislative power to the Governor-General? By the Organic Law, all
Legislative power is vested in the Legislature, and the power conferred upon
the Legislature to make laws cannot be delegated to the Governor-General,
or any one else. The Legislature cannot delegate the legislative power to
enact any law. If Act no 2868 is a law unto itself and within itself, and it does
nothing more than to authorize the Governor-General to make rules and
regulations to carry the law into effect, then the Legislature itself created the
law. There is no delegation of power and it is valid. On the other hand, if the
Act within itself does not define crime, and is not a law, and some legislative
act remains to be done to make it a law or a crime, the doing of which is
vested in the Governor-General, then the Act is a delegation of legislative
power, is unconstitutional and void.
The Supreme Court of the United States in what is known as the Granger
Cases (94 U.S., 183-187; 24 L. ed., 94), first laid down the rule:
Railroad companies are engaged in a public employment affecting the public
interest and, under the decision in Munn vs. Ill., ante, 77, are subject to
legislative control as to their rates of fare and freight unless protected by
their charters.
The Illinois statute of Mar. 23, 1874, to establish reasonable maximum rates

of charges for the transportation of freights and passengers on the different

railroads of the State is not void as being repugnant to the Constitution of
the United States or to that of the State.
It was there for the first time held in substance that a railroad was a public
utility, and that, being a public utility, the State had power to establish
reasonable maximum freight and passenger rates. This was followed by the
State of Minnesota in enacting a similar law, providing for, and empowering,
a railroad commission to hear and determine what was a just and
reasonable rate. The constitutionality of this law was attacked and upheld by
the Supreme Court of Minnesota in a learned and exhaustive opinion by
Justice Mitchell, in the case of State vs. Chicago, Milwaukee & St. Paul ry. Co.
(38 Minn., 281), in which the court held:
Regulations of railway tariffs Conclusiveness of commission's tariffs.
Under Laws 1887, c. 10, sec. 8, the determination of the railroad and
warehouse commission as to what are equal and reasonable fares and rates
for the transportation of persons and property by a railway company is
conclusive, and, in proceedings by mandamus to compel compliance with
the tariff of rates recommended and published by them, no issue can be
raised or inquiry had on that question.
Same constitution Delegation of power to commission. The authority
thus given to the commission to determine, in the exercise of their discretion
and judgement, what are equal and reasonable rates, is not a delegation of
legislative power.
It will be noted that the law creating the railroad commission expressly
provides
That all charges by any common carrier for the transportation of passengers
and property shall be equal and reasonable.
With that as a basis for the law, power is then given to the railroad
commission to investigate all the facts, to hear and determine what is a just
and reasonable rate. Even then that law does not make the violation of the
order of the commission a crime. The only remedy is a civil proceeding. It
was there held
That the legislative itself has the power to regulate railroad charges is now
too well settled to require either argument or citation of authority.
The difference between the power to say what the law shall be, and the
power to adopt rules and regulations, or to investigate and determine the
facts, in order to carry into effect a law already passed, is apparent. The true
distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and the conferring an
authority or discretion to be exercised under and in pursuance of the law.
The legislature enacts that all freights rates and passenger fares should be
just and reasonable. It had the undoubted power to fix these rates at
whatever it deemed equal and reasonable.
They have not delegated to the commission any authority or discretion as to
what the law shall be, which would not be allowable, but have merely
conferred upon it an authority and discretion, to be exercised in the
execution of the law, and under and in pursuance of it, which is entirely
permissible. The legislature itself has passed upon the expediency of the
law, and what is shall be. The commission is intrusted with no authority or
discretion upon these questions. It can neither make nor unmake a single
provision of law. It is merely charged with the administration of the law, and

with no other power.

The delegation of legislative power was before the Supreme Court of
Wisconsin in Dowling vs. Lancoshire Ins. Co. (92 Wis., 63). The opinion says:
"The true distinction is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution, to be exercised under and in
pursuance of the law. The first cannot be done; to the latter no valid
objection can be made."
The act, in our judgment, wholly fails to provide definitely and clearly what
the standard policy should contain, so that it could be put in use as a
uniform policy required to take the place of all others, without the
determination of the insurance commissioner in respect to maters involving
the exercise of a legislative discretion that could not be delegated, and
without which the act could not possibly be put in use as an act in confirmity
to which all fire insurance policies were required to be issued.
The result of all the cases on this subject is that a law must be complete, in
all its terms and provisions, when it leaves the legislative branch of the
government, and nothing must be left to the judgement of the electors or
other appointee or delegate of the legislature, so that, in form and
substance, it is a law in all its details in presenti, but which may be left to
take effect in futuro, if necessary, upon the ascertainment of any prescribed
fact or event.
The delegation of legislative power was before the Supreme Court in United
States vs. Grimaud (220 U.S., 506; 55 L. ed., 563), where it was held that the
rules and regulations of the Secretary of Agriculture as to a trespass on
government land in a forest reserve were valid constitutional. The Act there
provided that the Secretary of Agriculture ". . . may make such rules and
regulations and establish such service as will insure the object of such
reservations; namely, to regulate their occupancy and use, and to preserve
the forests thereon from destruction;and any violation of the provisions of
this act or such rules and regulations shall be punished, . . ."
The brief of the United States Solicitor-General says:
In refusing permits to use a forest reservation for stock grazing, except upon
stated terms or in stated ways, the Secretary of Agriculture merely assert
and enforces the proprietary right of the United States over land which it
owns. The regulation of the Secretary, therefore, is not an exercise of
legislative, or even of administrative, power; but is an ordinary and
legitimate refusal of the landowner's authorized agent to allow person
having no right in the land to use it as they will. The right of proprietary
control is altogether different from governmental authority.
The opinion says:
From the beginning of the government, various acts have been passed
conferring upon executive officers power to make rules and regulations,
not for the government of their departments, but for administering the laws
which did govern. None of these statutes could confer legislative power. But
when Congress had legislated power. But when Congress had legislated and
indicated its will, it could give to those who were to act under such general
provisions "power to fill up the details" by the establishment of
administrative rules and regulations, the violation of which could be
punished by fine or imprisonment fixed by Congress, or by penalties fixed by
Congress, or measured by the injury done.

That "Congress cannot delegate legislative power is a principle universally

recognized as vital to the integrity and maintenance of the system of
government ordained by the Constitution."
If, after the passage of the act and the promulgation of the rule, the
defendants drove and grazed their sheep upon the reserve, in violation of
the regulations, they were making an unlawful use of the government's
property. In doing so they thereby made themselves liable to the penalty
imposed by Congress.
The subjects as to which the Secretary can regulate are defined. The lands
are set apart as a forest reserve. He is required to make provisions to protect
them from depredations and from harmful uses. He is authorized 'to regulate
the occupancy and use and to preserve the forests from destruction.' A
violation of reasonable rules regulating the use and occupancy of the
property is made a crime, not by the Secretary, but by Congress."
The above are leading cases in the United States on the question of
delegating legislative power. It will be noted that in the "Granger Cases," it
was held that a railroad company was a public corporation, and that a
railroad was a public utility, and that, for such reasons, the legislature had
the power to fix and determine just and reasonable rates for freight and
passengers.
The Minnesota case held that, so long as the rates were just and reasonable,
the legislature could delegate the power to ascertain the facts and
determine from the facts what were just and reasonable rates,. and that in
vesting the commission with such power was not a delegation of legislative
power.
The Wisconsin case was a civil action founded upon a "Wisconsin standard
policy of fire insurance," and the court held that "the act, . . . wholly fails to
provide definitely and clearly what the standard policy should contain, so
that it could be put in use as a uniform policy required to take the place of
all others, without the determination of the insurance commissioner in
respect to matters involving the exercise of a legislative discretion that could
not be delegated."
The case of the United States Supreme Court, supra dealt with rules and
regulations which were promulgated by the Secretary of Agriculture for
Government land in the forest reserve.
These decisions hold that the legislative only can enact a law, and that it
cannot delegate it legislative authority.
The line of cleavage between what is and what is not a delegation of
legislative power is pointed out and clearly defined. As the Supreme Court of
Wisconsin says:
That no part of the legislative power can be delegated by the legislature to
any other department of the government, executive or judicial, is a
fundamental principle in constitutional law, essential to the integrity and
maintenance of the system of government established by the constitution.
Where an act is clothed with all the forms of law, and is complete in and of
itself, it may be provided that it shall become operative only upon some
certain act or event, or, in like manner, that its operation shall be
suspended.
The legislature cannot delegate its power to make a law, but it can make a
law to delegate a power to determine some fact or state of things upon
which the law makes, or intends to make, its own action to depend.

The Village of Little Chute enacted an ordinance which provides:

All saloons in said village shall be closed at 11 o'clock P.M. each day and
remain closed until 5 o'clock on the following morning, unless by special
permission of the president.
Construing it in 136 Wis., 526; 128 A. S. R., 1100, 1 the Supreme Court of that
State says:
We regard the ordinance as void for two reasons; First, because it attempts
to confer arbitrary power upon an executive officer, and allows him, in
executing the ordinance, to make unjust and groundless discriminations
among persons similarly situated; second, because the power to regulate
saloons is a law-making power vested in the village board, which cannot be
delegated. A legislative body cannot delegate to a mere administrative
officer power to make a law, but it can make a law with provisions that it
shall go into effect or be suspended in its operations upon the ascertainment
of a fact or state of facts by an administrative officer or board. In the present
case the ordinance by its terms gives power to the president to decide
arbitrary, and in the exercise of his own discretion, when a saloon shall
close. This is an attempt to vest legislative discretion in him, and cannot be
sustained.
The legal principle involved there is squarely in point here.
It must be conceded that, after the passage of act No. 2868, and before any
rules and regulations were promulgated by the Governor-General, a dealer in
rice could sell it at any price, even at a peso per "ganta," and that he would
not commit a crime, because there would be no law fixing the price of rice,
and the sale of it at any price would not be a crime. That is to say, in the
absence of a proclamation, it was not a crime to sell rice at any price.
Hence, it must follow that, if the defendant committed a crime, it was
because the Governor-General issued the proclamation. There was no act of
the Legislature making it a crime to sell rice at any price, and without the
proclamation, the sale of it at any price was to a crime.
The Executive order2 provides:
(5) The maximum selling price of palay, rice or corn is hereby fixed, for the
time being as follows:
In Manila
Palay at P6.75 per sack of 57 kilos, or 29 centavos per ganta.
Rice at P15 per sack of 57 kilos, or 63 centavos per ganta.
Corn at P8 per sack of 57 kilos, or 34 centavos per ganta.
In the provinces producing palay, rice and corn, the maximum price shall be
the Manila price less the cost of transportation from the source of supply and
necessary handling expenses to the place of sale, to be determined by the
provincial treasurers or their deputies.
In provinces, obtaining their supplies from Manila or other producing
provinces, the maximum price shall be the authorized price at the place of
supply or the Manila price as the case may be, plus the transportation cost,
from the place of supply and the necessary handling expenses, to the place
of sale, to be determined by the provincial treasurers or their deputies.
(6) Provincial treasurers and their deputies are hereby directed to
communicate with, and execute all instructions emanating from the Director
of Commerce and Industry, for the most effective and proper enforcement of
the above regulations in their respective localities.
The law says that the Governor-General may fix "the maximum sale price

that the industrial or merchant may demand." The law is a general law and
not a local or special law.
The proclamation undertakes to fix one price for rice in Manila and other and
different prices in other and different provinces in the Philippine Islands, and
delegates the power to determine the other and different prices to provincial
treasurers and their deputies. Here, then, you would have a delegation of
legislative power to the Governor-General, and a delegation by him of that
power to provincial treasurers and their deputies, who "are hereby directed
to communicate with, and execute all instructions emanating from the
Director of Commerce and Industry, for the most effective and proper
enforcement of the above regulations in their respective localities." The
issuance of the proclamation by the Governor-General was the exercise of
the delegation of a delegated power, and was even a sub delegation of that
power.
Assuming that it is valid, Act No. 2868 is a general law and does not
authorize the Governor-General to fix one price of rice in Manila and another
price in Iloilo. It only purports to authorize him to fix the price of rice in the
Philippine Islands under a law, which is General and uniform, and not local or
special. Under the terms of the law, the price of rice fixed in the
proclamation must be the same all over the Islands. There cannot be one
price at Manila and another at Iloilo. Again, it is a mater of common
knowledge, and of which this court will take judicial notice, that there are
many kinds of rice with different and corresponding market values, and that
there is a wide range in the price, which varies with the grade and quality.
Act No. 2868 makes no distinction in price for the grade or quality of the
rice, and the proclamation, upon which the defendant was tried and
convicted, fixes the selling price of rice in Manila "at P15 per sack of 57
kilos, or 63 centavos per ganta," and is uniform as to all grades of rice, and
says nothing about grade or quality. Again, it will be noted that the law is
confined to palay, rice and corn. They are products of the Philippine Islands.
Hemp, tobacco, coconut, chickens, eggs, and many other things are also
products. Any law which single out palay, rice or corn from the numerous
other products of the Islands is not general or uniform, but is a local or
special law. If such a law is valid, then by the same principle, the GovernorGeneral could be authorized by proclamation to fix the price of meat, eggs,
chickens, coconut, hemp, and tobacco, or any other product of the Islands.
In the very nature of things, all of that class of laws should be general and
uniform. Otherwise, there would be an unjust discrimination of property
rights, which, under the law, must be equal and inform. Act No. 2868 is
nothing more than a floating law, which, in the discretion and by a
proclamation of the Governor-General, makes it a floating crime to sell rice
at a price in excess of the proclamation, without regard to grade or quality.
When Act No. 2868 is analyzed, it is the violation of the proclamation of the
Governor-General which constitutes the crime. Without that proclamation, it
was no crime to sell rice at any price. In other words, the Legislature left it to
the sole discretion of the Governor-General to say what was and what was
not "any cause" for enforcing the act, and what was and what was not "an
extraordinary rise in the price of palay, rice or corn," and under certain
undefined conditions to fix the price at which rice should be sold, without
regard to grade or quality, also to say whether a proclamation should be
issued, if so, when, and whether or not the law should be enforced, how long

it should be enforced, and when the law should be suspended. The

Legislature did not specify or define what was "any cause," or what was "an
extraordinary rise in the price of rice, palay or corn," Neither did it specify or
define the conditions upon which the proclamation should be issued. In the
absence of the proclamation no crime was committed. The alleged sale was
made a crime, if at all, because the Governor-General issued the
proclamation. The act or proclamation does not say anything about the
different grades or qualities of rice, and the defendant is charged with the
sale "of one ganta of rice at the price of eighty centavos (P0.80) which is a
price greater than that fixed by Executive order No. 53."
We are clearly of the opinion and hold that Act No. 2868, in so far as it
undertakes to authorized the Governor-General in his discretion to issue a
proclamation, fixing the price of rice, and to make the sale of rice in violation
of the price of rice, and to make the sale of rice in violation of the
proclamation a crime, is unconstitutional and void.
It may be urged that there was an extraordinary rise in the price of rice and
profiteering, which worked a severe hardship on the poorer classes, and that
an emergency existed, but the question here presented is the
constitutionality of a particular portion of a statute, and none of such
matters is an argument for, or against, its constitutionality.
The Constitution is something solid, permanent an substantial. Its stability
protects the life, liberty and property rights of the rich and the poor alike,
and that protection ought not to change with the wind or any emergency
condition. The fundamental question involved in this case is the right of the
people of the Philippine Islands to be and live under a republican form of
government. We make the broad statement that no state or nation, living
under republican form of government, under the terms and conditions
specified in Act No. 2868, has ever enacted a law delegating the power to
any one, to fix the price at which rice should be sold. That power can never
be delegated under a republican form of government.
In the fixing of the price at which the defendant should sell his rice, the law
was not dealing with government property. It was dealing with private
property and private rights, which are sacred under the Constitution. If this
law should be sustained, upon the same principle and for the same reason,
the Legislature could authorize the Governor-General to fix the price of
every product or commodity in the Philippine Islands, and empower him to
make it a crime to sell any product at any other or different price.
It may be said that this was a war measure, and that for such reason the
provision of the Constitution should be suspended. But the Stubborn fact
remains that at all times the judicial power was in full force and effect, and
that while that power was in force and effect, such a provision of the
Constitution could not be, and was not, suspended even in times of war. It
may be claimed that during the war, the United States Government
undertook to, and did, fix the price at which wheat and flour should be
bought and sold, and that is true. There, the United States had declared war,
and at the time was at war with other nations, and it was a war measure, but
it is also true that in doing so, and as a part of the same act, the United
States commandeered all the wheat and flour, and took possession of it,
either actual or constructive, and the government itself became the owner
of the wheat and flour, and fixed the price to be paid for it. That is not this
case. Here the rice sold was the personal and private property of the

defendant, who sold it to one of his customers. The government had not
bought and did not claim to own the rice, or have any interest in it, and at
the time of the alleged sale, it was the personal, private property of the
defendant. It may be that the law was passed in the interest of the public,
but the members of this court have taken on solemn oath to uphold and
defend the Constitution, and it ought not to be construed to meet the
changing winds or emergency conditions. Again, we say that no state or
nation under a republican form of government ever enacted a law
authorizing any executive, under the conditions states, to fix the price at
which a price person would sell his own rice, and make the broad statement
that no decision of any court, on principle or by analogy, will ever be found
which sustains the constitutionality of the particular portion of Act No. 2868
here in question. By the terms of the Organic Act, subject only to
constitutional limitations, the power to legislate and enact laws is vested
exclusively in the Legislative, which is elected by a direct vote of the people
of the Philippine Islands. As to the question here involved, the authority of
the Governor-General to fix the maximum price at which palay, rice and corn
may be sold in the manner power in violation of the organic law.
This opinion is confined to the particular question here involved, which is the
right of the Governor-General, upon the terms and conditions stated in the
Act, to fix the price of rice and make it a crime to sell it at a higher price, and
which holds that portions of the Act unconstitutional. It does not decide or
undertake to construe the constitutionality of any of the remaining portions
of the Act.
The judgment of the lower court is reversed, and the defendant discharged.
So ordered.
Araullo, C.J., Johnson, Street and Ostrand, JJ., concur.
Romualdez, J., concurs in the result.
Separate Opinions
MALCOLM, J., concurring:
I concur in the result for reasons which reach both the facts and the law. In
the first place, as to the facts, one cannot be convicted ex post facto of a
violation of a law and of an executive order issued pursuant to the law, when
the alleged violation thereof occurred on August 6, 1919, while the Act of the
Legislature in question was not published until August 13, 1919, and the
order was not published until August 20, 1919. In the second place, as to the
law, one cannot be convicted of a violation of a law or of an order issued
pursuant to the law when both the law and the order fail to set up an
ascertainable standard of guilt. (U.S. vs. Cohen Grocery Company [1921],
255 U.S., 81, holding section 4 of the Federal Food Control Act of August 10,
1917, as amended, invalid.)
In order that there may not be any misunderstanding of our position, I would
respectfully invite attention to the decision of the United States Supreme
Court in German Alliance Ins. Co. vs. Lewis ([1914, 233 U.S., 389),
concerning the legislative regulation of the prices charged by business
affected with a public interest, and to another decision of the United States
Supreme Court, that of Marshall Field & Co. vs. Clark ([1892], 143 U.S., 649),
which adopts as its own the principles laid down in the case of Locke's
Appeal ([1873], 72 Pa. St., 491), namely; "The Legislature cannot delegate
its power to make a law; but it can make a law to delegate a power to

determine some fact or state of things upon which the law makes, or intends
to make, its own action depend. To deny this would be to stop the wheels of
government. There are many things upon which wise and useful legislation
must depend which cannot be known to the law-making power, and must,
therefore, be a subject of inquiry and determination outside of the halls of
legislation."
Avancea and Villamor, JJ., concur.

G.R. No. 74457 March 20, 1987

RESTITUTO YNOT, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, THE STATION COMMANDER,
INTEGRATED NATIONAL POLICE, BAROTAC NUEVO, ILOILO and THE
REGIONAL DIRECTOR, BUREAU OF ANIMAL INDUSTRY, REGION IV,
ILOILO CITY, respondents.
Ramon A. Gonzales for petitioner.

CRUZ, J.:
The essence of due process is distilled in the immortal cry of Themistocles to
Alcibiades "Strike but hear me first!" It is this cry that the petitioner in
effect repeats here as he challenges the constitutionality of Executive Order
No. 626-A.
The said executive order reads in full as follows:
WHEREAS, the President has given orders prohibiting the interprovincial
movement of carabaos and the slaughtering of carabaos not complying with
the requirements of Executive Order No. 626 particularly with respect to
age;
WHEREAS, it has been observed that despite such orders the violators still
manage to circumvent the prohibition against inter-provincial movement of
carabaos by transporting carabeef instead; and
WHEREAS, in order to achieve the purposes and objectives of Executive
Order No. 626 and the prohibition against interprovincial movement of
carabaos, it is necessary to strengthen the said Executive Order and provide
for the disposition of the carabaos and carabeef subject of the violation;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by
virtue of the powers vested in me by the Constitution, do hereby promulgate
the following:
SECTION 1. Executive Order No. 626 is hereby amended such that
henceforth, no carabao regardless of age, sex, physical condition or purpose
and no carabeef shall be transported from one province to another. The
carabao or carabeef transported in violation of this Executive Order as
amended shall be subject to confiscation and forfeiture by the government,
to be distributed to charitable institutions and other similar institutions as
the Chairman of the National Meat Inspection Commission may ay see fit, in
the case of carabeef, and to deserving farmers through dispersal as the
Director of Animal Industry may see fit, in the case of carabaos.
SECTION 2. This Executive Order shall take effect immediately.
Done in the City of Manila, this 25th day of October, in the year of Our Lord,
nineteen hundred and eighty.
(SGD.) FERDINAND E. MARCOS
President
Republic of the Philippines
The petitioner had transported six carabaos in a pump boat from Masbate to
Iloilo on January 13, 1984, when they were confiscated by the police station
commander of Barotac Nuevo, Iloilo, for violation of the above measure. 1
The petitioner sued for recovery, and the Regional Trial Court of Iloilo City
issued a writ of replevin upon his filing of a supersedeas bond of P12,000.00.
After considering the merits of the case, the court sustained the confiscation
of the carabaos and, since they could no longer be produced, ordered the
confiscation of the bond. The court also declined to rule on the
constitutionality of the executive order, as raise by the petitioner, for lack of
authority and also for its presumed validity. 2
The petitioner appealed the decision to the Intermediate Appellate Court,* 3
which upheld the trial court, ** and he has now come before us in this
petition for review on certiorari.

The thrust of his petition is that the executive order is unconstitutional

insofar as it authorizes outright confiscation of the carabao or carabeef
being transported across provincial boundaries. His claim is that the penalty
is invalid because it is imposed without according the owner a right to be
heard before a competent and impartial court as guaranteed by due
process. He complains that the measure should not have been presumed,
and so sustained, as constitutional. There is also a challenge to the improper
exercise of the legislative power by the former President under Amendment
No. 6 of the 1973 Constitution. 4
While also involving the same executive order, the case of Pesigan v.
Angeles 5 is not applicable here. The question raised there was the necessity
of the previous publication of the measure in the Official Gazette before it
could be considered enforceable. We imposed the requirement then on the
basis of due process of law. In doing so, however, this Court did not, as
contended by the Solicitor General, impliedly affirm the constitutionality of
Executive Order No. 626-A. That is an entirely different matter.
This Court has declared that while lower courts should observe a becoming
modesty in examining constitutional questions, they are nonetheless not
prevented from resolving the same whenever warranted, subject only to
review by the highest tribunal. 6 We have jurisdiction under the Constitution
to "review, revise, reverse, modify or affirm on appeal or certiorari, as the
law or rules of court may provide," final judgments and orders of lower
courts in, among others, all cases involving the constitutionality of certain
measures. 7 This simply means that the resolution of such cases may be
made in the first instance by these lower courts.
And while it is true that laws are presumed to be constitutional, that
presumption is not by any means conclusive and in fact may be rebutted.
Indeed, if there be a clear showing of their invalidity, and of the need to
declare them so, then "will be the time to make the hammer fall, and
heavily," 8 to recall Justice Laurel's trenchant warning. Stated otherwise,
courts should not follow the path of least resistance by simply presuming the
constitutionality of a law when it is questioned. On the contrary, they should
probe the issue more deeply, to relieve the abscess, paraphrasing another
distinguished jurist, 9 and so heal the wound or excise the affliction.
Judicial power authorizes this; and when the exercise is demanded, there
should be no shirking of the task for fear of retaliation, or loss of favor, or
popular censure, or any other similar inhibition unworthy of the bench,
especially this Court.
The challenged measure is denominated an executive order but it is really
presidential decree, promulgating a new rule instead of merely
implementing an existing law. It was issued by President Marcos not for the
purpose of taking care that the laws were faithfully executed but in the
exercise of his legislative authority under Amendment No. 6. It was provided
thereunder that whenever in his judgment there existed a grave emergency
or a threat or imminence thereof or whenever the legislature failed or was
unable to act adequately on any matter that in his judgment required
immediate action, he could, in order to meet the exigency, issue decrees,
orders or letters of instruction that were to have the force and effect of law.
As there is no showing of any exigency to justify the exercise of that
extraordinary power then, the petitioner has reason, indeed, to question the

validity of the executive order. Nevertheless, since the determination of the

grounds was supposed to have been made by the President "in his
judgment, " a phrase that will lead to protracted discussion not really
necessary at this time, we reserve resolution of this matter until a more
appropriate occasion. For the nonce, we confine ourselves to the more
fundamental question of due process.
It is part of the art of constitution-making that the provisions of the charter
be cast in precise and unmistakable language to avoid controversies that
might arise on their correct interpretation. That is the Ideal. In the case of
the due process clause, however, this rule was deliberately not followed and
the wording was purposely kept ambiguous. In fact, a proposal to delineate
it more clearly was submitted in the Constitutional Convention of 1934, but
it was rejected by Delegate Jose P. Laurel, Chairman of the Committee on the
Bill of Rights, who forcefully argued against it. He was sustained by the body.
10
The due process clause was kept intentionally vague so it would remain also
conveniently resilient. This was felt necessary because due process is not,
like some provisions of the fundamental law, an "iron rule" laying down an
implacable and immutable command for all seasons and all persons.
Flexibility must be the best virtue of the guaranty. The very elasticity of the
due process clause was meant to make it adapt easily to every situation,
enlarging or constricting its protection as the changing times and
circumstances may require.
Aware of this, the courts have also hesitated to adopt their own specific
description of due process lest they confine themselves in a legal straitjacket
that will deprive them of the elbow room they may need to vary the
meaning of the clause whenever indicated. Instead, they have preferred to
leave the import of the protection open-ended, as it were, to be "gradually
ascertained by the process of inclusion and exclusion in the course of the
decision of cases as they arise." 11 Thus, Justice Felix Frankfurter of the U.S.
Supreme Court, for example, would go no farther than to define due process
and in so doing sums it all up as nothing more and nothing less than
"the embodiment of the sporting Idea of fair play." 12
When the barons of England extracted from their sovereign liege the
reluctant promise that that Crown would thenceforth not proceed against the
life liberty or property of any of its subjects except by the lawful judgment of
his peers or the law of the land, they thereby won for themselves and their
progeny that splendid guaranty of fairness that is now the hallmark of the
free society. The solemn vow that King John made at Runnymede in 1215
has since then resounded through the ages, as a ringing reminder to all
rulers, benevolent or base, that every person, when confronted by the stern
visage of the law, is entitled to have his say in a fair and open hearing of his
cause.
The closed mind has no place in the open society. It is part of the sporting
Idea of fair play to hear "the other side" before an opinion is formed or a
decision is made by those who sit in judgment. Obviously, one side is only
one-half of the question; the other half must also be considered if an
impartial verdict is to be reached based on an informed appreciation of the
issues in contention. It is indispensable that the two sides complement each

other, as unto the bow the arrow, in leading to the correct ruling after
examination of the problem not from one or the other perspective only but
in its totality. A judgment based on less that this full appraisal, on the pretext
that a hearing is unnecessary or useless, is tainted with the vice of bias or
intolerance or ignorance, or worst of all, in repressive regimes, the insolence
of power.
The minimum requirements of due process are notice and hearing 13 which,
generally speaking, may not be dispensed with because they are intended
as a safeguard against official arbitrariness. It is a gratifying commentary on
our judicial system that the jurisprudence of this country is rich with
applications of this guaranty as proof of our fealty to the rule of law and the
ancient rudiments of fair play. We have consistently declared that every
person, faced by the awesome power of the State, is entitled to "the law of
the land," which Daniel Webster described almost two hundred years ago in
the famous Dartmouth College Case, 14 as "the law which hears before it
condemns, which proceeds upon inquiry and renders judgment only after
trial." It has to be so if the rights of every person are to be secured beyond
the reach of officials who, out of mistaken zeal or plain arrogance, would
degrade the due process clause into a worn and empty catchword.
This is not to say that notice and hearing are imperative in every case for, to
be sure, there are a number of admitted exceptions. The conclusive
presumption, for example, bars the admission of contrary evidence as long
as such presumption is based on human experience or there is a rational
connection between the fact proved and the fact ultimately presumed
therefrom. 15 There are instances when the need for expeditions action will
justify omission of these requisites, as in the summary abatement of a
nuisance per se, like a mad dog on the loose, which may be killed on sight
because of the immediate danger it poses to the safety and lives of the
people. Pornographic materials, contaminated meat and narcotic drugs are
inherently pernicious and may be summarily destroyed. The passport of a
person sought for a criminal offense may be cancelled without hearing, to
compel his return to the country he has fled. 16Filthy restaurants may be
summarily padlocked in the interest of the public health and bawdy houses
to protect the public morals. 17 In such instances, previous judicial hearing
may be omitted without violation of due process in view of the nature of the
property involved or the urgency of the need to protect the general welfare
from a clear and present danger.
The protection of the general welfare is the particular function of the police
power which both restraints and is restrained by due process. The police
power is simply defined as the power inherent in the State to regulate liberty
and property for the promotion of the general welfare. 18 By reason of its
function, it extends to all the great public needs and is described as the
most pervasive, the least limitable and the most demanding of the three
inherent powers of the State, far outpacing taxation and eminent domain.
The individual, as a member of society, is hemmed in by the police power,
which affects him even before he is born and follows him still after he is
dead from the womb to beyond the tomb in practically everything he
does or owns. Its reach is virtually limitless. It is a ubiquitous and often
unwelcome intrusion. Even so, as long as the activity or the property has
some relevance to the public welfare, its regulation under the police power
is not only proper but necessary. And the justification is found in the

venerable Latin maxims, Salus populi est suprema lex and Sic utere tuo ut
alienum non laedas, which call for the subordination of individual interests to
the benefit of the greater number.
It is this power that is now invoked by the government to justify Executive
Order No. 626-A, amending the basic rule in Executive Order No. 626,
prohibiting the slaughter of carabaos except under certain conditions. The
original measure was issued for the reason, as expressed in one of its
Whereases, that "present conditions demand that the carabaos and the
buffaloes be conserved for the benefit of the small farmers who rely on them
for energy needs." We affirm at the outset the need for such a measure. In
the face of the worsening energy crisis and the increased dependence of our
farms on these traditional beasts of burden, the government would have
been remiss, indeed, if it had not taken steps to protect and preserve them.
A similar prohibition was challenged in United States v. Toribio, 19 where a
law regulating the registration, branding and slaughter of large cattle was
claimed to be a deprivation of property without due process of law. The
defendant had been convicted thereunder for having slaughtered his own
carabao without the required permit, and he appealed to the Supreme Court.
The conviction was affirmed. The law was sustained as a valid police
measure to prevent the indiscriminate killing of carabaos, which were then
badly needed by farmers. An epidemic had stricken many of these animals
and the reduction of their number had resulted in an acute decline in
agricultural output, which in turn had caused an incipient famine.
Furthermore, because of the scarcity of the animals and the consequent
increase in their price, cattle-rustling had spread alarmingly, necessitating
more effective measures for the registration and branding of these animals.
The Court held that the questioned statute was a valid exercise of the police
power and declared in part as follows:
To justify the State in thus interposing its authority in behalf of the public, it
must appear, first, that the interests of the public generally, as distinguished
from those of a particular class, require such interference; and second, that
the means are reasonably necessary for the accomplishment of the purpose,
and not unduly oppressive upon individuals. ...
From what has been said, we think it is clear that the enactment of the
provisions of the statute under consideration was required by "the interests
of the public generally, as distinguished from those of a particular class" and
that the prohibition of the slaughter of carabaos for human consumption, so
long as these animals are fit for agricultural work or draft purposes was a
"reasonably necessary" limitation on private ownership, to protect the
community from the loss of the services of such animals by their slaughter
by improvident owners, tempted either by greed of momentary gain, or by a
desire to enjoy the luxury of animal food, even when by so doing the
productive power of the community may be measurably and dangerously
affected.
In the light of the tests mentioned above, we hold with the Toribio Case that
the carabao, as the poor man's tractor, so to speak, has a direct relevance
to the public welfare and so is a lawful subject of Executive Order No. 626.
The method chosen in the basic measure is also reasonably necessary for
the purpose sought to be achieved and not unduly oppressive upon
individuals, again following the above-cited doctrine. There is no doubt that
by banning the slaughter of these animals except where they are at least

seven years old if male and eleven years old if female upon issuance of the
necessary permit, the executive order will be conserving those still fit for
farm work or breeding and preventing their improvident depletion.
But while conceding that the amendatory measure has the same lawful
subject as the original executive order, we cannot say with equal certainty
that it complies with the second requirement, viz., that there be a lawful
method. We note that to strengthen the original measure, Executive Order
No. 626-A imposes an absolute ban not on theslaughter of the carabaos but
on their movement, providing that "no carabao regardless of age, sex,
physical condition or purpose (sic) and no carabeef shall be transported from
one province to another." The object of the prohibition escapes us. The
reasonable connection between the means employed and the purpose
sought to be achieved by the questioned measure is missing
We do not see how the prohibition of the inter-provincial transport of
carabaos can prevent their indiscriminate slaughter, considering that they
can be killed anywhere, with no less difficulty in one province than in
another. Obviously, retaining the carabaos in one province will not prevent
their slaughter there, any more than moving them to another province will
make it easier to kill them there. As for the carabeef, the prohibition is made
to apply to it as otherwise, so says executive order, it could be easily
circumvented by simply killing the animal. Perhaps so. However, if the
movement of the live animals for the purpose of preventing their slaughter
cannot be prohibited, it should follow that there is no reason either to
prohibit their transfer as, not to be flippant dead meat.
Even if a reasonable relation between the means and the end were to be
assumed, we would still have to reckon with the sanction that the measure
applies for violation of the prohibition. The penalty is outright confiscation of
the carabao or carabeef being transported, to be meted out by the executive
authorities, usually the police only. In the Toribio Case, the statute was
sustained because the penalty prescribed was fine and imprisonment, to be
imposed by the court after trial and conviction of the accused. Under the
challenged measure, significantly, no such trial is prescribed, and the
property being transported is immediately impounded by the police and
declared, by the measure itself, as forfeited to the government.
In the instant case, the carabaos were arbitrarily confiscated by the police
station commander, were returned to the petitioner only after he had filed a
complaint for recovery and given a supersedeas bond of P12,000.00, which
was ordered confiscated upon his failure to produce the carabaos when
ordered by the trial court. The executive order defined the prohibition,
convicted the petitioner and immediately imposed punishment, which was
carried out forthright. The measure struck at once and pounced upon the
petitioner without giving him a chance to be heard, thus denying him the
centuries-old guaranty of elementary fair play.
It has already been remarked that there are occasions when notice and
hearing may be validly dispensed with notwithstanding the usual
requirement for these minimum guarantees of due process. It is also
conceded that summary action may be validly taken in administrative
proceedings as procedural due process is not necessarily judicial only. 20 In
the exceptional cases accepted, however. there is a justification for the
omission of the right to a previous hearing, to wit, the immediacy of the
problem sought to be corrected and the urgency of the need to correct it.

In the case before us, there was no such pressure of time or action calling
for the petitioner's peremptory treatment. The properties involved were not
even inimical per se as to require their instant destruction. There certainly
was no reason why the offense prohibited by the executive order should not
have been proved first in a court of justice, with the accused being accorded
all the rights safeguarded to him under the Constitution. Considering that, as
we held in Pesigan v. Angeles, 21 Executive Order No. 626-A is penal in
nature, the violation thereof should have been pronounced not by the police
only but by a court of justice, which alone would have had the authority to
impose the prescribed penalty, and only after trial and conviction of the
accused.
We also mark, on top of all this, the questionable manner of the disposition
of the confiscated property as prescribed in the questioned executive order.
It is there authorized that the seized property shall "be distributed to
charitable institutions and other similar institutions as the Chairman of the
National Meat Inspection Commissionmay see fit, in the case of carabeef,
and to deserving farmers through dispersal as the Director of Animal
Industrymay see fit, in the case of carabaos." (Emphasis supplied.) The
phrase "may see fit" is an extremely generous and dangerous condition, if
condition it is. It is laden with perilous opportunities for partiality and abuse,
and even corruption. One searches in vain for the usual standard and the
reasonable guidelines, or better still, the limitations that the said officers
must observe when they make their distribution. There is none. Their options
are apparently boundless. Who shall be the fortunate beneficiaries of their
generosity and by what criteria shall they be chosen? Only the officers
named can supply the answer, they and they alone may choose the grantee
as they see fit, and in their own exclusive discretion. Definitely, there is here
a "roving commission," a wide and sweeping authority that is not "canalized
within banks that keep it from overflowing," in short, a clearly profligate and
therefore invalid delegation of legislative powers.
To sum up then, we find that the challenged measure is an invalid exercise
of the police power because the method employed to conserve the carabaos
is not reasonably necessary to the purpose of the law and, worse, is unduly
oppressive. Due process is violated because the owner of the property
confiscated is denied the right to be heard in his defense and is immediately
condemned and punished. The conferment on the administrative authorities
of the power to adjudge the guilt of the supposed offender is a clear
encroachment on judicial functions and militates against the doctrine of
separation of powers. There is, finally, also an invalid delegation of
legislative powers to the officers mentioned therein who are granted
unlimited discretion in the distribution of the properties arbitrarily taken. For
these reasons, we hereby declare Executive Order No. 626-A
unconstitutional.
We agree with the respondent court, however, that the police station
commander who confiscated the petitioner's carabaos is not liable in
damages for enforcing the executive order in accordance with its mandate.
The law was at that time presumptively valid, and it was his obligation, as a
member of the police, to enforce it. It would have been impertinent of him,
being a mere subordinate of the President, to declare the executive order
unconstitutional and, on his own responsibility alone, refuse to execute it.
Even the trial court, in fact, and the Court of Appeals itself did not feel they

had the competence, for all their superior authority, to question the order
we now annul.
The Court notes that if the petitioner had not seen fit to assert and protect
his rights as he saw them, this case would never have reached us and the
taking of his property under the challenged measure would have become
afait accompli despite its invalidity. We commend him for his spirit. Without
the present challenge, the matter would have ended in that pump boat in
Masbate and another violation of the Constitution, for all its obviousness,
would have been perpetrated, allowed without protest, and soon forgotten in
the limbo of relinquished rights.
The strength of democracy lies not in the rights it guarantees but in the
courage of the people to invoke them whenever they are ignored or violated.
Rights are but weapons on the wall if, like expensive tapestry, all they do is
embellish and impress. Rights, as weapons, must be a promise of protection.
They become truly meaningful, and fulfill the role assigned to them in the
free society, if they are kept bright and sharp with use by those who are not
afraid to assert them.
WHEREFORE, Executive Order No. 626-A is hereby declared unconstitutional.
Except as affirmed above, the decision of the Court of Appeals is reversed.
The supersedeas bond is cancelled and the amount thereof is ordered
restored to the petitioner. No costs.
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Gutierrez, Jr., Paras, Gancayco,
Padilla Bidin Sarmiento and Cortes, JJ., concur.
Melencio-Herrera and Feliciano, JJ., are on leave.

G.R. Nos. L-46076 and L-46077

June 12, 1939

THE PEOPLE OF THE PHILIPPINES, plaintifff-appellee,

vs.
JACOB ROSENTHAL and NICASIO OSMEA, defendants-appellants.
Claro M. Recto and Hilado, Lorenzo and Hilado for appellant Rosenthal.
Jose M. Casal for appellant Osmea.
Office of the Solicitor-General Tuason for appellee.
LAUREL, J.:
Appellants, Jacob Rosenthal and Nicasio Osmea, were charged in the Court
of First Instance of Manila with having violated Act No. 2581, commonly
known as the Blue Sky Law, under the following informations:
CASE NO. 52365
That in or about and during the period comprised between October 1, 1935
and January 22, 1936, both dates inclusive, in the City of Manila, Philippine
Islands, and within the jurisdiction of this court, the said Nicasio Osmea and
Jacob Rosenthal, two of ten promoters, organizers, founders and
incorporators of, the former being, in addition, one of the members of the
board of directors of, the O.R.O. Oil Co., Inc., a domestic corporation
organized under the laws of the Philippines and registered in the mercantile
registry of the Bureau of Commerce, with central office in the said city, the
main objects and purposes of which were "to mine, dig for, or otherwise
obtain from earth, petroleum, rock and carbon oils, natural gas, other
volatile mineral substances and salt, and to manufacture, refine, prepare for
market, buy, sell and transport the same in crude or refined condition", and
the capital thereof in their articles of incorporation, the accused herein
included, consisting of 3,000 shares without par value, 400 shares of which
having been subscribed by the said accused at 200 shares each and paid
partly by them at the price of only P5 per share, according to the said
agreement which shares were speculative securities, because the value
thereof materially depended upon proposed promise for future promotion
and development of the oil business above mentioned rather than on actual
tangible assets and conditions thereof, did then and there, with deliberate
intent of evading the provisions of sections 2 and 5 of the said Act No. 2581,
and conspiring and confederating together and helping each other, willfully,
unlawfully and feloniously trade in, negotiate and speculate with, their
shares aforesaid, by making personally or through brokers or agents
repeated and successive sales of the said shares at a price ranging from
P100 to P300 per share, as follows:
The accused Nicasio Osmea sold 163 shares to nine different parties, and
the accused Jacob Rosenthal sold 21 shares to seven others, without first
obtaining the corresponding written permit or license from the Insular
Treasurer of the Commonwealth of the Philippines, as by law required.
CASE NO. 52366
That in or about and during the period comprised between October 1, 1935,
and January 22, 1936, both dates inclusive, in the City of Manila, Philippine
Islands, and within the jurisdiction of this court, the said Nicasio Osmea and
Jacob Rosenthal, two of the ten promoters, organizers, founders and
incorporators of, the former being, in addition, one of the members of the
board of directors of, the South Cebu Oil Co., Inc., a domestic corporation
organized under the laws of the Philippines and registered in the mercantile
registry of the Bureau of Commerce, with central office in the said city, the
main objects and purposes of which were "to mine, dig for, or otherwise

obtain from earth, petroleum, rock or carbon oils, natural gas, other volatile
mineral substances and salt, and to manufacture, refine, prepare for market,
buy, sell and transport the same in crude and refined condition", and the
capital stock of which, as per agreement of all the incorporators thereof in
their articles of incorporation, the accused herein included, consisting of
2,800 shares without par value, 200 shares of which having been subscribed
by the accused Nicasio Osmea, and 100 shares of which having been
subscribed by the accused Jacob Rosenthal and paid by both at the price of
only P5 per share, according to the said agreement, which shares were
speculative securities, because the value thereof materially depended upon
proposed promise of future promotion and development of the oil business
above mentioned rather than on actual tangible assets and conditions
thereof, did then and there, with deliberate intent of evading the provisions
of sections 2 and 5 of Act No. 2581, and conspiring and confederating
together and helping one another, willfully, unlawfully and feloniously trade
in, negotiate and speculate with, their shares aforesaid, by making
personally or through brokers or agents repeated and successive sales of the
said shares at a price ranging from P100 to P300 per share, as follows:
The accused Nicasio Osmea sold 185 shares to nine different parties, and
the accused Jacob Rosenthal sold 12 shares to seven others, without first
obtaining the corresponding written permit or license form the Insular
Treasurer of the Commonwealth of the Philippines, as by law provided.
Upon motion of Jacob Rosenthal, the Court of First Instance of Manila granted
him separate trial although, when the cases were called for hearing, the
court acceded to the motion of the prosecution that the two cases be tried
jointly inasmuch as the evidence to be adduced by the government therein
was the same, without prejudice to allowing the defendants to present their
proof separately. After trial, the lower court, on March 22, 1937, in separate
decisions, found the defendants guilty as charged in the informations. In
case No. 52365 Jacob Rosenthal was sentenced to pay a fine of P500, with
subsidiary imprisonment in case of insolvency, and to pay one-half of the
costs; Nicasio Osmea was sentenced to pay a fine of P1,000, with
subsidiary imprisonment in case of insolvency, and to pay one-half of the
costs. In case No. 52366 Jacob Rosenthal was sentenced to pay a fine of
P500, with subsidiary imprisonment in case of insolvency, and to pay onehalf of the costs; Nicasio Osmea was sentenced to pay a fine of P2,000,
with subsidiary imprisonment in case of insolvency, and to pay one-half of
the costs. The defendants duly perfected their appeal from these judgments
and the cases were originally elevated to the Court of Appeals but, upon
motion of the Solicitor-General, the same were forwarded to this court in
view of the fact that the constitutionality of Act No. 2581 has been put in
issue by appellants. Two separate briefs have been filed by Rosenthal and
Osmea. In the brief for appellant Rosenthal the following "joint assignment
of errors" is made:
1. In declaring that according to the report of the geologist contracted by the
O.R. Oil Co. and the South Cebu Oil Co. to explore the properties leased to
said companies, "no habia ninguna indicacion de que hubiese petroleo en
aquellos terrenos", when in truth what the report stated was that in so far as
the O.R.O. Oil Co. land was concerned, the territory covered by the lease if
full of possibilities; and with respect to the South Cebu Oil Co. lease, that no
further investigations and expenses be made "unless favorable test results

are obtained on the northern lease."

2. In declaring that the exploration leases were, subsequent to the findings
of the geologist, cancelled by the government, implying thereby that as no
oil was found in said lands, the leases were cancelled; when in truth the
cancellation was based on supposed violation of those provisions of the
corporation law prohibiting the setting up of interlocking directorates.
3. In declaring that the defendant, of his 200 shares of stock in the O.R.O. Oil
Co., sold twenty-one shares to different persons and on different dates, one
share having been sold directly to one E.F. Pimley; five, thru a firm of brokers
known as Mackay & McCormick, to Arthur Hoyer, Wm. Scheunig, and
Modesto Bautista, in the proportion of two, two and one, respectively; and
fifteen shares directly to Henry J. Belden, R.T. Fitzimmons and D.P. O'Brien, in
the proportion of five shares to each of them when in truth only that to
E.F. Pimley was sold to the latter by the defendant, while those eventually
transferred to Hoyer, Scheunig and Bautista were sold directly to the said
firm Mackay & McCormick, which bought them on its own risk and account,
and the remaining fifteen transferred to Belden, O'Brien, and Fitzimmons
were loaned by Rosenthal to Nicasio Osmea, who was not until now either
returned those shares or paid their value.
4. In also declaring that of his 100 shares of stock in the South Cebu Oil Co.,
the defendant sold twelve to various persons and on different dates, when in
truth only one of these shares was sold by the defendant to E.F. Pimley, and
the remaining eleven, two of which were transferred to Arthur Hoyer, two to
William Scheunig, one to Jose de la Fuente, one to Crispin Llamado, one to
A.M. Opisso, and four to Ines Galano, were sold and transferred, in one single
transaction, to the said firm of brokers directly, which firm bought said
shares on its own risk and account.
5. In declaring that the shares sold to Mackay & McCormick were brought by
the latter on credit at P250 each, to be resold by it at P300 each, and that
out of the proceeds of the sale of these shares the defendant received the
price agreed upon between him and the said brokerage firm, or P250 per
share, when in truth and in fact there was no agreement between the parties
as to whether the said firm was to sell said shares to others or whether
those shares were to be kept and retained by it on its own risk and account.
6. In declaring that the corporations had not begun exploration work on the
territory covered by their leases, and that they had no tangible properties.
7. In declaring that while the defendant needed no permit to sell his own
stock, the corporations as issuer being the ones bound to obtain the permit
required by the Blue Sky Law, nevertheless he (the defendant) was guilty of
a violation of said law because the possession of the shares held and sold by
him was not in good faith, in that his acquisition thereof was not made in the
ordinary and normal course of the business of the corporations, but that said
shares were purchased to indirectly promote the enterprise for which the
corporations were formed; the said defendant having paid in full to the
corporations the value of said shares of stock.
8. In holding as proven that the possession of the defendant of his own
stock, which he paid for in full, was not a possession in good faith, because
he, as an incorporator (fundador), should have known that no permit in
writing had been issued the corporations by the Insular Treasurer for the sale
of said stock.
9. In overruling the objection to the admission of Exhibit 1-b, and in holding

that a permit had not been issued by the Insular Treasurer for the sale of the
stocks of the corporations.
10. In holding that there were repeated and successive sales made by the
defendant Rosenthal of his own shares of stock.
11. In holding that although the defendant was the absolute owner of the
stock he sold, his repeated and successive sales of such stock prove that
this claim of ownership (esta pretension de propriedad) was but a means
employed by him to sell said stock at prices very much higher than those he
paid for them.
12. In holding that said stock was sold by the defendant without the required
permit having been first issued by the Insular Treasurer, and that the sale
was effected as if such permit had been actually issued (como si en realidad
pudieran venderse por haberse expedido tal permiso).
13. In holding that as a result of an investigation conducted by the City
Fiscal, the defendant refunded to Belden, O'Brien and Fitzimmons and others
the amount they paid for the stock they purchased.
14. In holding that the opinion given by the Chief of the Insurance Division of
the Office of the Insular Treasurer to the effect that the defendant could sell
the said stock without a permit as long as no false representations were
made by the said defendant, can not and does not exempt the latter from
criminal responsibility even though no false representations whatsoever
were made by the aforesaid defendant.
15. In holding that the prima facie presumption in section 8 of the law to the
effect that the claim of ownership is not bona fide when repeated and
successive sales of such stock are effected, has been totally destroyed by
the fact that said stock absolutely belongs to the defendant, and in not
further holding that because of such absolute ownership the defendant
could have legally disposed of such stock in as many sales as he saw fit
without any permit from the Insular Treasurer.
16. In not holding that the Blue Sky Law contravenes the constitutional
provisions of the Jones Act in so far as such law constitutes an undue
delegation of legislative powers to the Insular Treasurer, and in so far as it
does not afford equal protection before the law.
17. In not absolving the defendant.
In the brief for appellant Osmea the following "relacion conjunta de errores"
is in turn submitted:
1. Al no sobreseer esta causa despues de promulgada la Ley No. 83 del
Commonwealth, no obstante haberse llamado su atencion al hecho de que
esta Ley derogaba la Ley No. 2581 de la Legislatura Filipina, bajo cuyas
disposiciones ha sido procesado el acusado.
2. Al condenar al acusado por infraccion de la "Blue Sky Law", no obstante
reconocerse en la decision que consta en las pruebas que el acusado
Osmea no ha of recido en venta ninguna de aquellas acciones, ni ha hecho
manifestaciones falsas a nadie para poder venderlas, y que la mayor parte,
si no todos los que las compraron, estaban satisfechos de la inversion de su
dinero en la adquisicion de tales acciones.
3. Al condenar al acusado por haber vendido acciones especulativas sin
licencia, cuando no se probo: (a) que las acciones de la O.R.O. Oil Co., Inc., y
de la South Cebu Oil Co., Inc., eran especulativas por su naturaleza, y (b)
que el acusado Osmea carecia de licencia para venderlas.
4. Al declarar que la posesion por el acusado Osmea de sus acciones de la

O.R.O. Oil Co., Inc., y de la South Cebu Oil Co., Inc., no era de buena fe y que
no las habia adquirido por su propia cuenta sino para la promocion indirecta
de un provecto de negocio o empresa especulativa.
5. Al no declarar que la "Blue Sky Law" es contraria a las normas
constitucionales que gozaba al tiempo de su promulgacion : (1) porque
contiene en sus disposiciones una delegacion indebida de facultades
legislativas; (2) porque es vaga e incierte en sus disposiciones y, por tanto,
nula; y (3) porque infringe el derecho de igual proteccion ante la ley, viola la
libertad de contratacion y contraviene el derecho de adquirir, gozar y
disponer libremente de la propriedad privada, siendo su promulgacion, por
tanto, un acto de opresion y de verdadera tirania.
6. Al no absolveral acusado Nicasio Osmea..
To meet the foregoing errors assigned by the appellants, plaintiff-appellee
contends:
(a) That the enactment of Commonwealth Act No. 83 did not have the effect
of relieving appellants from criminal liability.
(b) That the appellants acted as promoters of the O.R.O. Oil Co. and the
South Cebu Oil Co.
(c) That the shares of the two corporations are speculative in nature.
(d) That the appellants sold their shares in said corporations without permit
or knowing that the latter did not have the permit required by law.
(e) That the appellants are not entitled to the exemption provided in section
8 of the Blue Sky Law (Act No. 2581).
(f) That the Blue Sky Law is valid and constitutional.
Most of the errors assigned by the appellants deal with questions of fact.
This is particularly true with reference to errors one, two, three, four, five,
six, seven, eight, nine, ten, eleven, twelve and thirteen of appellant Jacob
Rosenthal, and error four of appellant Nicasio Osmea. There is no material
discrepancy regarding the facts, and we shall proceed to consider the legal
questions propounded, which are in the main set forth by the SolicitorGeneral in his brief.
It is contended by the appellants that Act No. 2581 is unconstitutional on
three grounds. (1) That it constitutes an undue delegation of legislative
authority to the Insular Treasurer: (2) that it does not afford equal protection
before the law; and (3) that it is vague and ambiguous.
Under section 2 of Act No. 2581, every person, partnership, association, or
corporation attempting to offer to sell in the Philippines speculative
securities of any kind or character whatsoever, is under obligation to file
previously with the Insular Treasurer the various documents and papers
enumerated therein and to pay the required tax of twenty pesos. Certain
securities listed in section 3 are exempted from the operation of the Act.
Section 5 imposes upon the Insular Treasurer the mandatory duty to
examine the statements and documents thus filed and the additional duty to
make or cause to be made, if deemed advisable by him, a detailed
examination of the affairs of the applicant. Section 5 also provides that
"whatever the said Treasurer of the Philippine Islands is satisfied, either with
or without the examination herein provided, that any person, partnership,
association or corporation is entitled to the right to offer its securities as
above defined and provided for sale in the Philippine Islands, he shall issue
to such person, partnership, association or corporation a certificate or permit
reciting that such person, partnership, association or corporation has

complied with the provisions of this Act, and that such person, partnership,
association or corporation, its brokers or agents are entitled to offer the
securities named in said certificate or permit for sale"; that "said Treasurer
shall furthermore have authority, whenever in his judgment it is in the public
interest, to cancel said certificate or permit", and that "an appeal from the
decision of the Insular Treasurer may be had within the period of thirty days
to the Secretary of Finance."
Appellants argue that, while Act No. 2581 empowers the Insular Treasurer to
issue and cancel certificates or permits for the sale of speculative securities,
no standard or rule is fixed in the Act which can guide said official in
determining the cases in which a certificate or permit ought to be issued,
thereby making his opinion the sole criterion in the matter of its issuance,
with the result that, legislative powers being unduly delegated to the Insular
Treasurer, Act No. 2581 is unconstitutional. We are of the opinion that the
Act furnishes a sufficient standard for the Insular Treasurer to follow in
reaching a decision regarding the issuance or cancellation of a certificate or
permit. The certificate or permit to be issued under the Act must recite that
the person, partnership, association or corporation applying therefor "has
complied with the provisions of this Act", and this requirement, construed in
relation to the other provisions of the law, means that a certificate or permit
shall be issued by the Insular Treasurer when the provisions of Act No. 2581
have been complied with. Upon the other hand, the authority of the Insular
Treasurer to cancel a certificate or permit is expressly conditioned upon a
finding that such cancellation "is in the public interest." In view of the
intention and purpose of Act No. 2581 to protect the public against
"speculative schemes which have no more basis than so many feet of blue
sky" and against the "sale of stock in fly-by-night concerns, visionary oil
wells, distant gold mines, and other like fraudulent exploitations", we
incline to hold that "public interest" in this case is a sufficient standard to
guide the Insular Treasurer in reaching a decision on a matter pertaining to
the issuance or cancellation of certificates or permits. As we observed in the
case of People vs. Fernandez and Trinidad (G.R. No. 45655, June 15, 1938),
"siendo el objecto de la ley el evitar especulaciones ruinosas, es claro que el
interes publico, es, y debe ser la razon en que el Tesorero Insular deba basar
sus resoluciones." And the term "public interest" is not without a settled
meaning.
Appellant insists that the delegation of authority to the Commission is invalid
because the stated criterion is uncertain. That criterion is the public interest.
It is a mistaken assumption that this is a mere general reference to public
welfare without any standard to guide determinations. The purpose of the
Act, the requirement it imposes, and the context of the provision in question
show the contrary. . . . (New York Central Securities Corporation vs. U.S.A.,
287 U.S., 12, 24, 25; 77 Law. ed., 138, 145, 146.) (See alsoSchenchter
Poultry Corporation vs. U.S., 295 U.S., 495; 540; 79 Law. ed., 1570, 1585;
Ferrazzini vs. Gsell, 34 Phil., 697, 711, 712.)
In this connection, we cannot overlook the fact that the Act No. 2581 allows
an appeal from the decision of the Insular Treasurer to the Secretary of
Finance. Hence, it cannot be contended that the Insular Treasurer can act
and decide without any restraining influence.
The theory of the separation of powers is designed by its originators to
secure action and at the same time to forestall over action which necessarily

results from undue concentration of powers, and thereby obtain efficiency

and prevent despotism. Thereby, the "rule of law" was established which
narrows the range of governmental action and makes it subject to control by
certain legal devices. As a corollary, we find the rule prohibiting delegation
of legislative authority, and from the earliest time American legal authorities
have proceeded on the theory that legislative power must be exercised by
the legislative alone. It is frankness, however, to confess that as one delves
into the mass of judicial pronouncements, he finds a great deal of confusion.
One thing, however, is apparent in the development of the principle of
separation of powers and that is that the maximum of delegatus non potest
delegare or delegata potestas non potest delegare, attributed to Bracton
(De Legibus et Consuetudinious Angliae, edited by G.E. Woodbine, Yale
University Press [1922], vol. 2, p.167) but which is also recognized in
principle in the Roman Law (D.17.18.3), has been made to adapt itself to the
complexities of modern governments, giving rise to the adoption, within
certain limits, of the principle of "subordinate legislation", not only in the
United States and England but in practically all modern governments. The
difficulty lies in the fixing of the limit and extent of the authority. While
courts have undertaken to lay down general principles, the safest is to
decide each case according to its peculiar environment, having in mind the
wholesome legislative purpose intended to be achieved.
Counsel for appellant Jacob Rosenthal also argues that the Insular Treasurer
possesses "the discretionary power to determine when a security is a
speculative security and when it is not" because "he is given the power to
compel any corporation, association or partnership already functioning, to
surrender to him for examination its books and accounts enumerated in
section 2, 'whenever he has reasonable ground to believe that the securities
being sold or offered for sale are of a speculative character.'" It should be
observed, however, that section 1 of Act No. 2581 defines and enumerates
what are "speculative securities" and all the other provisions of the Act must
be read and construed in conjunction and harmony with said section.
Laws of the different states of the American Union similar in nature to Act
No. 2581 were assailed on constitutional grounds somewhat analogous to
those involved in the case at bar, but the decisions of both the state courts
and the Supreme Court of the United States have upheld their
constitutionality. In the case of Hall vs.Geiger-Jones Co. (242 U.S., 539), the
contention was made that the Blue Sky Law of Ohio, which requires the
commissioner before granting a license to "be satisfied of the good repute in
business of such applicant and named agents", and which empowers said
commissioner to revoke the license or refuse to renew it upon ascertaining
that the licensee "is of bad business repute; has violated any provisions of
this act or has engaged, or is about to engage, under favor of such license,
in illegitimate business or in fraudulent transactions", is unconstitutional
because the law has failed to give a standard to guide or determine the
decision of the commissioner leaves "room for the play and action of purely
personal and arbitrary power", but the Supreme Court of the United States
overruled the contention and held:
Besides it is certainly apparent that if the conditions are within the power of
the State to impose, they can only be ascertained by an executive officer.
Reputation and character are quite tangible attributes, but there can be no
legislative definition of them that can automatically attach to or identify

individuals possessing them, and necessarily the aid of some executive

agency must be invoked. The contention of appellees would take from
government one of its most essential instrumentalities, of which the various
national and state commissions are instances. But the contention may be
answered by authority. In Gundling vs.Chicago (177 U.S., 183), an ordinance
of the City of Chicago was passed on which required a license of dealers in
cigarettes and as a condition of the license that the applicant, if a single
individual, all of the members of the firm, if a co-partnership, and any
person or persons in charge of the business, if a corporation, should be of
good character and reputation, and the duty was delegated to the mayor of
the city to determine the existence of the conditions. The ordinance was
sustained. To this case may be added Red "C" Oil Manufacturing Co. vs.
North Carolina (222 U.S., 380, 394, and cases cited); Mutual Film Corporation
vs. Industrial Commission of Ohio (236 U.S., 230); Brazee vs. Michigan (241
U.S., 340, 341).See also Reetz vs. Michigan, (188 U.S., 505); Lieberman vs.
Van de Carr (199 U. S., 552). (Pp. 553, 554.)
In the case of Leach vs. Daugherty (238 P., 160), where the contention was
advanced that section 6 of the Corporate Securities Act of California which
authorized the corporation commissioner to refuse to grant a broker's
certificate, if he is not satisfied of the "good business reputation of the
applicant", is unconstitutional because "no rules, regulations, or
specifications are set forth in the said Corporate Securities Act defining what
shall constitute 'good business reputation,'" it was ruled that "Considering
such objection, it would appear that the leading case of Hall vs. Geiger-Jones
Co. (242 U.S., 539; 37 Sup. Ct., 217; 61 Law. ed., 480; L.R.A., 1917F, 514;
Ann. Cas. 1917C, 643), is so conclusively against the petitioner's contention
that little room is left for argument", and that "it is well-settled principle of
law in this state that by legislative act a commission or board may be
empowered to ascertain the existence of facts, upon the finding of which
may depend the right to continue in the practice of a profession or a
regulated business."
In the case of G.F. Redmond & Co. vs. Michigan Securities Commission (222
Mich., 1; 192 N.W., 688), in which it was argued that the provision in section
11955 of the Compiled Laws of 1915 (Michigan Blue Sky Law), authorizing
the commission to revoke a license for "good cause" upon notice to the
dealer and a hearing duly had, is unconstitutional because the term "good
cause" is so vague and indefinite that the law practically vested upon the
commission arbitrary powers, the court said:
The term "good cause" for revocation, as employed in the statute, relates so
clearly to the conduct of the licensed business, within the limits fixed by law,
as to negative any arbitrary official action, and is so comprehensive of
unlawful, irregular, fraudulent, unauthorized, and forbidden business
management and transactions conducted as to demand no more particular
specification of its meaning and its application.
Must the law map out , for the guidance of the licensee, a code of ethics and
post danger signals against inhibited and dishonest practices? The
defendant had no right to have the conduct of its business charted by
specifications of forbidden practices involving revocation of the license. The
general scope and expressed purpose of the law, together with open and fair
dealing, entered the license, and transgression thereof constituted good
cause for revocation thereof. (P. 689.)

In the case of State ex rel. Central Steam Heat & Power Co. vs. Gettle (Wis.
[1928], 220 N.W., 201), where it was argued that the requirement of the
Wisconsin Blue Sky Law (St. 1925, sec. 184.09 [3]; Law 1927, c. 444) that
the Railroad Commission shall find that the "financial condition, plan of
operation, and the proposed undertakings of the corporation are such as to
afford reasonable protection to the purchasers of the securities to be
issued", is unconstitutional for the reason that (1) the Legislature has no
power to regulate the issuance of securities in order to protect the investing
public; (2) the Legislature does not provide a standard to control the
commission; (3) the statute is so indefinite and uncertain in its meaning as
to be incapable of administration; and (4) the statute delegates to the
railroad commission legislative power, the court said:
This is but a usual provision found in the many so-called Blue Sy Laws, the
constitutionality of which has been upheld by the courts generally. The
constitutionality of similar provisions has been so thoroughly considered by
this court that further discussion thereof is unnecessary. The following cases
abundantly establish the constitutionality of this provision. (State ex rel.
Minneapolis, St. Paul & Sault Ste. Marie Railway Company vs. Railroad
Commission of Wisconsin, 137 Wis., 80; 117 N.W., 846; Appleton Water
Works Co. vs. Railroad Commission of Wisconsin, 154 Wis., 121; 142 N.E.,
476; 47 L.R.A. [N.S.], 770; Ann. Cas. 1915B, 1160; State ex rel. City of
Milwaukee vs. Milwaukee Electric Railway & Light Co., 169 Wis., 183; 172
N.W., 230; City of Milwaukee vs. Railroad Commission of Wisconsin, 183 Wis.,
498; 196 N.W., 853; Wisconsin Southern Ry. Co. vs. Railroad Commission of
Wisconsin, 185 Wis., 313; 201 N.W., 244; Kretuzer vs. Westfahl, 187 Wis.,
463; 204 N.W., 595.)
Another ground relied upon by appellants in contending that Act No. 2581 is
unconstitutional is that it denies equal protection of the laws because the
law discriminates between an owner who sells his securities in a single
transaction and one who disposes of them in repeated and successive
transactions. In disposing of this contention we need only refer to the case
of Hall vs. Geiger-Jones Co., supra, wherein the Supreme Court of the United
States held:
"Discriminations are asserted against the statute which extend, it is
contended, to denying appellees the equal protection of the laws. Counsel
enumerates them as follows:
"Prominent among such discriminations are . . . between an owner who sells
his securities in a single transaction and one who disposes of them in
successive transactions; . . . "
We cannot give separate attention to the asserted discriminations. It is
enough to say that they are within the power of classification which a state
has. A state "ay direct its law against what it deems the evil as it actually
exists without covering the whole field of possible abuses, and it may do so
none the less that the forbidden act does not differ in kind from those that
are allowed . . .. If a class is deemed to present a conspicuous example of
what the legislature seeks to prevent, the 14th Amendment allows it to be
dealt with although otherwise and merely logically not distinguishable from
others not embraced in the law.
Counsel for appellant Nicasio Osmea further alleges that Act No. 2581 is
unconstitutional on the ground that it is vague and uncertain. A similar
contention has already been overruled by this court in the case of People vs.

Fernandez and Trinidad, supra. An Act will be declared void and inoperative
on the ground of vagueness and uncertainty only upon a showing that the
defect is such that the courts are unable to determine, with any reasonable
degree of certainty, what the legislature intended. The circumstance that
this court has no more than one occasion given effect and application to Act.
No. 2581 (Valhalla Hotel Construction Co. vs. Carmona, 44 Phil., 233; People
vs. Nimrod McKinney, 47 Phil., 792; People vs. Fernandez and Trinidad,
supra) decisively argues against the position taken by appellant Osmea. In
this connection we cannot pretermit reference to the rule that "legislation
should not be held invalid on the ground of uncertainty if susceptible of any
reasonable construction that will support and give it effect. An Act will not be
declared inoperative and ineffectual on the ground that it furnishes no
adequate means to secure the purpose for which it is passed, if men of
common sense and reason can devise and provide the means, and all the
instrumentalities necessary for its execution are within the reach of those
intrusted therewith." (25 R.C.L., pp. 810, 811.)
Reaffirming our view in People vs. Fernandez and Trinidad, supra, we hold
that Act No. 2581 is valid and constitutional.
Taking up now the question raised with reference to the speculative nature
of the shares of the ). O.R.O. Oil Co. and the South Cebu Oil Co., we find that
section 1, paragraph (b) of Act No. 2581, in defining speculative securities,
provides:
. . . The term "speculative securities" as used in this Act shall be deemed to
mean and include:
xxx
xxx
xxx
(b) All securities the value of which materially depend upon proposed or
promised future promotion or development rather than on present tangible
assets and conditions.
At the beginning, and at the time of the issuance of the shares of the O.R.O.
Oil Co. and the South Cebu Oil Co., all that these companies had were their
exploration leases. Beyond this, there was nothing tangible. The value of
those shares depended upon future development and the uncertainty of
"striking" oil. The shares issued under these circumstances are clearly
speculative because they depended upon proposed or promised future
promotion or development rather than on present tangible assets and
conditions.
Appellants next contend that in view of the repeal of Act No. 2581 by
Commonwealth Act. No. 83, they have been relieved of criminal
responsibility. Assuming that the former Act has been entirely and
completely abrogated by the latter Act a point we do not have to decide
this fact does not relieve appellants from criminal responsibility. "It has
been the holding, and it must again be the holding, that where an Act of the
Legislature which penalizes an offense repeals a former Act which penalized
the same offense, such repeal does not have the effect of thereafter
depriving the courts of jurisdiction to try, convict and sentence offenders
charged with violations of the old law." (People vs. Concepcion, 44 Phil., 126,
132; Ong Chang Wing and Kwong Fok vs. U.S., 218 U.S., 272; 40 Phil., 1046;
U.S. vs. Cuna, 12 Phil., 241; U.S. vs. Aron, 12 Phil., 778; U.S. vs. Tonga, 15
Phil., 43; U.S. vs. Molina, 17 Phil., 582.)
Appellants further contend that they come under the exception provided in
section 8 of Act No. 2581. This section provides:

This Act shall not apply to the holder of any speculative security who is not
the issuer thereof, nor to the person who has acquired the same for his own
account in the usual and ordinary course of business and not for the direct
or indirect promotion of any enterprise or scheme within the purview of this
Act, unless such possession is in good faith. Repeated and successive sales
of any speculative securities shall beprima facie evidence that the claim of
ownership is not bona fide, but is a mere shift, device or plot to evade the
provisions of this Act. Such speculators shall incur the penalty provided for in
section seven of this Act.
Under this section, there are clearly two classes of persons to whom the law
is not applicable: (1) Persons who hold speculative securities but who are not
the issuers thereof; and (2) persons who have acquired the same for their
own account in the usual and ordinary course of business and not for the
direct or indirect promotion of any enterprise or scheme within the purview
of this Act, provided (the law uses the term "unless") such possession is in
good faith.
Passing upon the questions of fact necessarily involved in the application of
section 8 of Act No. 2581, the trial court in case No. 52365 makes the
following findings with reference to Nicasio Osmea:
. . . El acusado Osmea no ha adquirido por su propia cuenta en el curso
ordinario y corriente de los negocios en la O.R.O. Oil Co. Las acciones por el
vendidas, pues las adquirio mediante suscripcion como uno de los
fundadores de dicha corporacion, pero si para la promocion indirecta de un
proyecto de negocio o empresa para el cual se habia organizado le
corporacion, habiendo pagado totalmente el importe de dichas acciones a la
misma corporacion; ni tampoco las poseia de buena fe, puesto que como
fundador y miembro de la junta directiva de dicha corporacion debia saber
que no se habia expedido por el Tesorero Insular ningun permiso por escrito
a al corporacion para la venta de dichas acciones. Y las ventas sucesivas y
repetidas de esas acciones que tenia en la misma corporacion, aunque tales
acciones eran suyas por haberlas el obtenido de la corporacion mediante
suscripcion y pago del importe correspondiente prueban que esta pretension
de propiedad ha sido solamente un medio de que se ha valido para vender
tales acciones a precios mucho mayores que el importe por por haberse
expedido tal permiso.
The same findings, mutatis mutandis, are made in case No. 52366 against
the same appellant, and against Jacob Rosenthal in the two cases. Even if
we could, we do not feel justified in disturbing the findings of the trial court.
The good faith set up by appellant Rosenthal for having acted on the advice
of one Garcia, an officer in the Insular Treasury, and the subsequent
devolution by him of amounts collected from some of the purchasers of the
shares may be considered as a circumstance in his favor in the imposition of
the penalty prescribed by law but does not exempt him from criminal
responsibility. (People vs. McCalla, 63 Cal. App., 783; 220 Pac., 436; 367 U.S.,
585; 69 Law. ed., 799; 45 Sup. Ct., 461; People vs. Fernandez and Trinidad,
supra.)
The judgments of the lower court are affirmed, with the modification that the
fines are reduced as to accused Jacob Rosenthal from P500 to P200 in each
case, and as to accused Nicasio Osmea, from P1,000 to P500 in case No.
52365 and from P2,000 to P1,000 in case No. 52366, with subsidiary
imprisonment for both in case of insolvency, and costs. So ordered.

Avancea, C.J., Villa-Real, Imperial, Diaz, Concepcion, and Moran, JJ., concur.

G.R. No. L-4043

May 26, 1952
CENON S. CERVANTES, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar
for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying
petitioner's claim for quarters allowance as manager of the National Abaca
and Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a
salary of P15,000 a year. By a resolution of the Board of Directors of this
corporation approved on January 19 of that year, he was granted quarters
allowance of not exceeding P400 a month effective the first of that month.
Submitted the Control Committee of the Government Enterprises Council for
approval, the said resolution was on August 3, 1949, disapproved by the said

Committee on strenght of the recommendation of the NAFCO auditor,

concurred in by the Auditor General, (1) that quarters allowance constituted
additional compensation prohibited by the charter of the NAFCO, which fixes
the salary of the general manager thereof at the sum not to exceed P15,000
a year, and (2) that the precarious financial condition of the corporation did
not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to
reconsider its action and approve his claim for allowance for January to June
15, 1949, amounting to P1,650. The claim was again referred by the Control
Committee to the auditor General for comment. The latter, in turn referred it
to the NAFCO auditor, who reaffirmed his previous recommendation and
emphasized that the fact that the corporation's finances had not improved.
In view of this, the auditor General also reiterated his previous opinion
against the granting of the petitioner's claim and so informed both the
Control Committee and the petitioner. But as the petitioner insisted on his
claim the Auditor General Informed him on June 19, 1950, of his refusal to
modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on
June 18, 1939, with a capital stock of P20,000,000, 51 per cent of which was
to be able to be subscribed by the National Government and the remainder
to be offered to provincial, municipal, and the city governments and to the
general public. The management the corporation was vested in a board of
directors of not more than 5 members appointed by the president of the
Philippines with the consent of the Commission on Appointments. But the
corporation was made subject to the provisions of the corporation law in so
far as they were compatible with the provisions of its charter and the
purposes of which it was created and was to enjoy the general powers
mentioned in the corporation law in addition to those granted in its charter.
The members of the board were to receive each a per diem of not to exceed
P30 for each day of meeting actually attended, except the chairman of the
board, who was to be at the same time the general manager of the
corporation and to receive a salary not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the
President of the Philippines, among other things, to effect such reforms and
changes in government owned and controlled corporations for the purpose
of promoting simplicity, economy and efficiency in their operation Pursuant
to this authority, the President on October 4, 1947, promulgated Executive
Order No. 93 creating the Government Enterprises Council to be composed
of the President of the Philippines as chairman, the Secretary of Commerce
and Industry as vice-chairman, the chairman of the board of directors and
managing heads of all such corporations as ex-officio members, and such
additional members as the President might appoint from time to time with
the consent of the Commission on Appointments. The council was to advise
the President in the excercise of his power of supervision and control over
these corporations and to formulate and adopt such policy and measures as
might be necessary to coordinate their functions and activities. The
Executive Order also provided that the council was to have a Control
Committee composed of the Secretary of Commerce and Industry as
chairman, a member to be designated by the President from among the
members of the council as vice-chairman and the secretary as ex-officio
member, and with the power, among others

(1) To supervise, for and under the direction of the President, all the
corporations owned or controlled by the Government for the purpose of
insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of
expenditures approved by the respective Boards of Directors of the said
corporations; and
(3) To carry out the policies and measures formulated by the Government
Enterprises Council with the approval of the President. (Sec. 3, Executive
Order No. 93.)
With its controlling stock owned by the Government and the power of
appointing its directors vested in the President of the Philippines, there can
be no question that the NAFCO is Government controlled corporation subject
to the provisions of Republic Act No. 51 and the executive order (No. 93)
promulgated in accordance therewith. Consequently, it was also subject to
the powers of the Control Committee created in said executive order, among
which is the power of supervision for the purpose of insuring efficiency and
economy in the operations of the corporation and also the power to pass
upon the program of activities and the yearly budget of expenditures
approved by the board of directors. It can hardly be questioned that under
these powers the Control Committee had the right to pass upon, and
consequently to approve or disapprove, the resolution of the NAFCO board of
directors granting quarters allowance to the petitioners as such allowance
necessarily constitute an item of expenditure in the corporation's budget.
That the Control Committee had good grounds for disapproving the
resolution is also clear, for, as pointed out by the Auditor General and the
NAFCO auditor, the granting of the allowance amounted to an illegal
increase of petitioner's salary beyond the limit fixed in the corporate charter
and was furthermore not justified by the precarious financial condition of the
corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only
because it is based on a law that is unconstitutional as an illegal delegation
of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for
doing an act, the first day is excluded and the last day included (Section 13
Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his
executive order and that the order was in fact promulgated on October 4,
1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a
policy and a standard is established by the statute" there is no undue
delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the
President of the Philippines, among others, to make reforms and changes in
government-controlled corporations, lays down a standard and policy that
the purpose shall be to meet the exigencies attendant upon the
establishment of the free and independent government of the Philippines
and to promote simplicity, economy and efficiency in their operations. The
standard was set and the policy fixed. The President had to carry the
mandate. This he did by promulgating the executive order in question which,
tested by the rule above cited, does not constitute an undue delegation of

legislative power.
It is also contended that the quarters allowance is not compensation and so
the granting of it to the petitioner by the NAFCO board of directors does not
contravene the provisions of the NAFCO charter that the salary of the
chairman of said board who is also to be general manager shall not exceed
P15,000 per anum. But regardless of whether quarters allowance should be
considered as compensation or not, the resolution of the board of the
directors authorizing payment thereof to the petitioner cannot be given
effect since it was disapproved by the Control Committee in the exercise of
powers granted to it by Executive Order No. 93. And in any event,
petitioner's contention that quarters allowance is not compensation, a
proposition on which American authorities appear divided, cannot be
insisted on behalf of officers and employees working for the Government of
the Philippines and its Instrumentalities, including, naturally, governmentcontrolled corporations. This is so because Executive Order No. 332 of 1941,
which prohibits the payment of additional compensation to those working for
the Government and its Instrumentalities, including government-controlled
corporations, was in 1945 amended by Executive Order No. 77 by expressly
exempting from the prohibition the payment of quarters allowance "in favor
of local government officials and employees entitled to this under existing
law." The amendment is a clear indication that quarters allowance was
meant to be included in the term "additional compensation", for otherwise
the amendment would not have expressly excepted it from the prohibition.
This being so, we hold that, for the purpose of the executive order just
mentioned, quarters allowance is considered additional compensation and,
therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.
Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo,
JJ., concur.

[G.R. No. 47800. December 2, 1940.]

MAXIMO CALALANG, Petitioner, v. A. D. WILLIAMS, ET AL.,
Respondents.
Maximo Calalang in his own behalf.
Solicitor General Ozaeta and Assistant Solicitor General Amparo for
respondents Williams, Fragante and Bayan
City Fiscal Mabanag for the other respondents.
SYLLABUS
1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No.
648; DELEGATION OF LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF
PUBLIC WORKS AND SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS
TO PROMULGATE RULES AND REGULATIONS. The provisions of section 1 of
Commonwealth Act No. 648 do not confer legislative power upon the
Director of Public Works and the Secretary of Public Works and
Communications. The authority therein conferred upon them and under
which they promulgated the rules and regulations now complained of is not
to determine what public policy demands but merely to carry out the
legislative policy laid down by the National Assembly in said Act, to wit, "to
promote safe transit upon, and avoid obstructions on, roads and streets
designated as national roads by acts of the National Assembly or by
executive orders of the President of the Philippines" and to close them
temporarily to any or all classes of traffic "whenever the condition of the
road or the traffic thereon makes such action necessary or advisable in the
public convenience and interest." The delegated power, if at all, therefore, is
not the determination of what the law shall be, but merely the
ascertainment of the facts and circumstances upon which the application of
said law is to be predicated. To promulgate rules and regulations on the use
of national roads and to determine when and how long a national road
should be closed to traffic, in view of the condition of the road or the traffic
thereon and the requirements of public convenience and interest, is an
administrative function which cannot be directly discharged by the National
Assembly. It must depend on the discretion of some other government
official to whom is confided the duty of determining whether the proper
occasion exists for executing the law. But it cannot be said that the exercise
of such discretion is the making of the law.
2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY.
Commonwealth Act No. 548 was passed by the National Assembly in the

exercise of the paramount police power of the state. Said Act, by virtue of
which the rules and regulations complained of were promulgated, aims to
promote safe transit upon and avoid obstructions on national roads, in the
interest and convenience of the public. In enacting said law, therefore, the
National Assembly was prompted by considerations of public convenience
and welfare. It was inspired by a desire to relieve congestion of traffic, which
is, to say the least, a menace to public safety. Public welfare, then, lies at the
bottom of the enactment of said law, and the state in order to promote the
general welfare may interfere with personal liberty, with property, and with
business and occupations. Persons and property may be subjected to all
kinds of restraints and burdens, in order to secure the general comfort,
health, and prosperity of the state (U.S. v. Gomer Jesus, 31 Phil., 218). To this
fundamental aim of our Government the rights of the individual are
subordinated. Liberty is a blessing without which life is a misery, but liberty
should not be made to prevail over authority because then society will fall
into anarchy. Neither should authority be made to prevail over liberty
because then the individual will fall into slavery. The citizen should achieve
the required balance of liberty and authority in his mind through education
and, personal discipline, so that there may be established the resultant
equilibrium, which means peace and order and happiness for all. The
moment greater authority is conferred upon the government, logically so
much is withdrawn from the residuum of liberty which resides in the people.
The paradox lies in the fact that the apparent curtailment of liberty is
precisely the very means of insuring its preservation.
3. ID.; ID.; SOCIAL JUSTICE. Social justice is "neither communism, nor
despotism, nor atomism, nor anarchy," but the humanization of laws and the
equalization of social and economic forces by the State so that justice in its
rational and objectively secular conception may at least be approximated.
Social justice means the promotion of the welfare of all the people, the
adoption by the Government of measures calculated to insure economic
stability of all the competent elements of society, through the maintenance
of a proper economic and social equilibrium in the interrelations of the
members of the community, constitutionally, through the adoption of
measures legally justifiable, or extra-constitutionally, through the exercise of
powers underlying the existence of all governments on the time-honored
principle of salus populi est suprema lex. Social justice, therefore, must be
founded on the recognition of the necessity of interdependence among
divers and diverse units of a society and of the protection that should be
equally and evenly extended to all groups as a combined force in our social
and economic life, consistent with the fundamental and paramount objective
of the state of promoting the health, comfort, and quiet of all persons, and of
bringing about "the greatest good to the greatest number."
DECISION
LAUREL, J.:

Maximo Calalang, in his capacity as a private citizen and as a taxpayer of

Manila, brought before this court this petition for a writ of prohibition against
the respondents, A. D. Williams, as Chairman of the National Traffic
Commission; Vicente Fragante, as Director of Public Works; Sergio Bayan, as
Acting Secretary of Public Works and Communications; Eulogio Rodriguez, as
Mayor of the City of Manila; and Juan Dominguez, as Acting Chief of Police of
Manila.
It is alleged in the petition that the National Traffic Commission, in its
resolution of July 17, 1940, resolved to recommend to the Director of Public
Works and to the Secretary of Public Works and Communications that
animal-drawn vehicles be prohibited from passing along Rosario Street
extending from Plaza Calderon de la Barca to Dasmarias Street, from 7:30
a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal Avenue
extending from the railroad crossing at Antipolo Street to Echague Street,
from 7 a.m. to 11 p.m., from a period of one year from the date of the
opening of the Colgante Bridge to traffic; that the Chairman of the National
Traffic Commission, on July 18, 1940 recommended to the Director of Public
Works the adoption of the measure proposed in the resolution
aforementioned, in pursuance of the provisions of Commonwealth Act No.
548 which authorizes said Director of Public Works, with the approval of the
Secretary of Public Works and Communications, to promulgate rules and
regulations to regulate and control the use of and traffic on national roads;
that on August 2, 1940, the Director of Public Works, in his first indorsement
to the Secretary of Public Works and Communications, recommended to the
latter the approval of the recommendation made by the Chairman of the
National Traffic Commission as aforesaid, with the modification that the
closing of Rizal Avenue to traffic to animal-drawn vehicles be limited to the
portion thereof extending from the railroad crossing at Antipolo Street to
Azcarraga Street; that on August 10, 1940, the Secretary of Public Works and
Communications, in his second indorsement addressed to the Director of
Public Works, approved the recommendation of the latter that Rosario Street
and Rizal Avenue be closed to traffic of animal-drawn vehicles, between the
points and during the hours as above indicated, for a period of one year
from the date of the opening of the Colgante Bridge to traffic; that the Mayor
of Manila and the Acting Chief of Police of Manila have enforced and caused
to be enforced the rules and regulations thus adopted; that as a
consequence of such enforcement, all animal-drawn vehicles are not allowed
to pass and pick up passengers in the places above-mentioned to the
detriment not only of their owners but of the riding public as well.
It is contended by the petitioner that Commonwealth Act No. 548 by which
the Director of Public Works, with the approval of the Secretary of Public
Works and Communications, is authorized to promulgate rules and
regulations for the regulation and control of the use of and traffic on national
roads and streets is unconstitutional because it constitutes an undue
delegation of legislative power. This contention is untenable. As was
observed by this court in Rubi v. Provincial Board of Mindoro (39 Phil, 660,
700), "The rule has nowhere been better stated than in the early Ohio case
decided by Judge Ranney, and since followed in a multitude of cases,
namely: The true distinction therefore is between the delegation of power to

make the law, which necessarily involves a discretion as to what it shall be,
and conferring an authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to the latter no
valid objection can be made. (Cincinnati, W. & Z. R. Co. v. Commrs. Clinton
County, 1 Ohio St., 88.) Discretion, as held by Chief Justice Marshall in
Wayman v. Southard (10 Wheat., 1) may be committed by the Legislature to
an executive department or official. The Legislature may make decisions of
executive departments or subordinate officials thereof, to whom it has
committed the execution of certain acts, final on questions of fact. (U.S. v.
Kinkead, 248 Fed., 141.) The growing tendency in the decisions is to give
prominence to the necessity of the case."cralaw virtua1aw library
Section
1
of
Commonwealth
follows:jgc:chanrobles.com.ph

Act

No.

548

reads

as

"SECTION 1. To promote safe transit upon, and avoid obstructions on, roads
and streets designated as national roads by acts of the National Assembly or
by executive orders of the President of the Philippines, the Director of Public
Works, with the approval of the Secretary of Public Works and
Communications, shall promulgate the necessary rules and regulations to
regulate and control the use of and traffic on such roads and streets. Such
rules and regulations, with the approval of the President, may contain
provisions controlling or regulating the construction of buildings or other
structures within a reasonable distance from along the national roads. Such
roads may be temporarily closed to any or all classes of traffic by the
Director of Public Works and his duly authorized representatives whenever
the condition of the road or the traffic thereon makes such action necessary
or advisable in the public convenience and interest, or for a specified period,
with
the
approval
of
the
Secretary
of
Public
Works
and
Communications."cralaw virtua1aw library
The above provisions of law do not confer legislative power upon the
Director of Public Works and the Secretary of Public Works and
Communications. The authority therein conferred upon them and under
which they promulgated the rules and regulations now complained of is not
to determine what public policy demands but merely to carry out the
legislative policy laid down by the National Assembly in said Act, to wit, "to
promote safe transit upon and avoid obstructions on, roads and streets
designated as national roads by acts of the National Assembly or by
executive orders of the President of the Philippines" and to close them
temporarily to any or all classes of traffic "whenever the condition of the
road or the traffic makes such action necessary or advisable in the public
convenience and interest." The delegated power, if at all, therefore, is not
the determination of what the law shall be, but merely the ascertainment of
the facts and circumstances upon which the application of said law is to be
predicated. To promulgate rules and regulations on the use of national roads
and to determine when and how long a national road should be closed to
traffic, in view of the condition of the road or the traffic thereon and the
requirements of public convenience and interest, is an administrative
function which cannot be directly discharged by the National Assembly. It
must depend on the discretion of some other government official to whom is

confided the duty of determining whether the proper occasion exists for
executing the law. But it cannot be said that the exercise of such discretion
is the making of the law. As was said in Lockes Appeal (72 Pa. 491): "To
assert that a law is less than a law, because it is made to depend on a future
event or act, is to rob the Legislature of the power to act wisely for the
public welfare whenever a law is passed relating to a state of affairs not yet
developed, or to things future and impossible to fully know." The proper
distinction the court said was this: "The Legislature cannot delegate its
power to make the law; but it can make a law to delegate a power to
determine some fact or state of things upon which the law makes, or intends
to make, its own action depend. To deny this would be to stop the wheels of
government. There are many things upon which wise and useful legislation
must depend which cannot be known to the law-making power, and, must,
therefore, be a subject of inquiry and determination outside of the halls of
legislation." (Field v. Clark, 143 U. S. 649, 694; 36 L. Ed. 294.)
In the case of People v. Rosenthal and Osmea, G.R. Nos. 46076 and 46077,
promulgated June 12, 1939, and in Pangasinan Transportation v. The Public
Service Commission, G.R. No. 47065, promulgated June 26, 1940, this Court
had occasion to observe that the principle of separation of powers has been
made to adapt itself to the complexities of modern governments, giving rise
to the adoption, within certain limits, of the principle of "subordinate
legislation," not only in the United States and England but in practically all
modern governments. Accordingly, with the growing complexity of modern
life, the multiplication of the subjects of governmental regulations, and the
increased difficulty of administering the laws, the rigidity of the theory of
separation of governmental powers has, to a large extent, been relaxed by
permitting the delegation of greater powers by the legislative and vesting a
larger amount of discretion in administrative and executive officials, not only
in the execution of the laws, but also in the promulgation of certain rules and
regulations calculated to promote public interest.
The petitioner further contends that the rules and regulations promulgated
by the respondents pursuant to the provisions of Commonwealth Act No. 548
constitute an unlawful interference with legitimate business or trade and
abridge the right to personal liberty and freedom of locomotion.
Commonwealth Act No. 548 was passed by the National Assembly in the
exercise of the paramount police power of the state.
Said Act, by virtue of which the rules and regulations complained of were
promulgated, aims to promote safe transit upon and avoid obstructions on
national roads, in the interest and convenience of the public. In enacting
said law, therefore, the National Assembly was prompted by considerations
of public convenience and welfare. It was inspired by a desire to relieve
congestion of traffic. which is, to say the least, a menace to public safety.
Public welfare, then, lies at the bottom of the enactment of said law, and the
state in order to promote the general welfare may interfere with personal
liberty, with property, and with business and occupations. Persons and
property may be subjected to all kinds of restraints and burdens, in order to
secure the general comfort, health, and prosperity of the state (U.S. v.
Gomez Jesus, 31 Phil., 218). To this fundamental aim of our Government the

rights of the individual are subordinated. Liberty is a blessing without which

life is a misery, but liberty should not be made to prevail over authority
because then society will fall into anarchy. Neither should authority be made
to prevail over liberty because then the individual will fall into slavery. The
citizen should achieve the required balance of liberty and authority in his
mind through education and personal discipline, so that there may be
established the resultant equilibrium, which means peace and order and
happiness for all. The moment greater authority is conferred upon the
government, logically so much is withdrawn from the residuum of liberty
which resides in the people. The paradox lies in the fact that the apparent
curtailment of liberty is precisely the very means of insuring its preservation.
The scope of police power keeps expanding as civilization advances. As was
said in the case of Dobbins v. Los Angeles (195 U.S. 223, 238; 49 L. ed. 169),
"the right to exercise the police power is a continuing one, and a business
lawful today may in the future, because of the changed situation, the growth
of population or other causes, become a menace to the public health and
welfare, and be required to yield to the public good." And in People v. Pomar
(46 Phil., 440), it was observed that "advancing civilization is bringing within
the police power of the state today things which were not thought of as
being within such power yesterday. The development of civilization, the
rapidly increasing population, the growth of public opinion, with an
increasing desire on the part of the masses and of the government to look
after and care for the interests of the individuals of the state, have brought
within the police power many questions for regulation which formerly were
not so considered."cralaw virtua1aw library
The petitioner finally avers that the rules and regulations complained of
infringe upon the constitutional precept regarding the promotion of social
justice to insure the well-being and economic security of all the people. The
promotion of social justice, however, is to be achieved not through a
mistaken sympathy towards any given group. Social justice is "neither
communism, nor despotism, nor atomism, nor anarchy," but the
humanization of laws and the equalization of social and economic forces by
the State so that justice in its rational and objectively secular conception
may at least be approximated. Social justice means the promotion of the
welfare of all the people, the adoption by the Government of measures
calculated to insure economic stability of all the competent elements of
society, through the maintenance of a proper economic and social
equilibrium in the interrelations of the members of the community,
constitutionally, through the adoption of measures legally justifiable, or
extra-constitutionally, through the exercise of powers underlying the
existence of all governments on the time-honored principle of salus populi
est suprema lex.
Social justice, therefore, must be founded on the recognition of the necessity
of interdependence among divers and diverse units of a society and of the
protection that should be equally and evenly extended to all groups as a
combined force in our social and economic life, consistent with the
fundamental and paramount objective of the state of promoting the health,

comfort, and quiet of all persons, and of bringing about "the greatest good
to the greatest number."cralaw virtua1aw library
In view of the foregoing, the writ of prohibition prayed for is hereby denied,
with costs against the petitioner. So ordered.
Avancea, C.J., Imperial, Diaz. and Horrilleno. JJ. concur.

G.R. No. L-23825

December 24, 1965
EMMANUEL PELAEZ, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Zulueta, Gonzales, Paculdo and Associates for petitioner.
Office of the Solicitor General for respondent.
CONCEPCION, J.:
During the period from September 4 to October 29, 1964 the President of
the Philippines, purporting to act pursuant to Section 68 of the Revised
Administrative Code, issued Executive Orders Nos. 93 to 121, 124 and 126
to 129; creating thirty-three (33) municipalities enumerated in the margin. 1
Soon after the date last mentioned, or on November 10, 1964 petitioner
Emmanuel Pelaez, as Vice President of the Philippines and as taxpayer,
instituted the present special civil action, for a writ of prohibition with
preliminary injunction, against the Auditor General, to restrain him, as well
as his representatives and agents, from passing in audit any expenditure of
public funds in implementation of said executive orders and/or any
disbursement by said municipalities.
Petitioner alleges that said executive orders are null and void, upon the
ground that said Section 68 has been impliedly repealed by Republic Act No.
2370 and constitutes an undue delegation of legislative power. Respondent
maintains the contrary view and avers that the present action is premature
and that not all proper parties referring to the officials of the new political
subdivisions in question have been impleaded. Subsequently, the mayors
of several municipalities adversely affected by the aforementioned executive
orders because the latter have taken away from the former the barrios
composing the new political subdivisions intervened in the case.
Moreover, Attorneys Enrique M. Fernando and Emma Quisumbing-Fernando
were allowed to and did appear as amici curiae.
The third paragraph of Section 3 of Republic Act No. 2370, reads:
Barrios shall not be created or their boundaries altered nor their names
changed except under the provisions of this Act or by Act of Congress.
Pursuant to the first two (2) paragraphs of the same Section 3:
All barrios existing at the time of the passage of this Act shall come under
the provisions hereof.
Upon petition of a majority of the voters in the areas affected, a new barrio
may be created or the name of an existing one may be changed by the
provincial board of the province, upon recommendation of the council of the
municipality or municipalities in which the proposed barrio is stipulated. The
recommendation of the municipal council shall be embodied in a resolution
approved by at least two-thirds of the entire membership of the said council:
Provided, however, That no new barrio may be created if its population is
less than five hundred persons.
Hence, since January 1, 1960, when Republic Act No. 2370 became effective,
barrios may "not be created or their boundaries altered nor their names
changed" except by Act of Congress or of the corresponding provincial board
"upon petition of a majority of the voters in the areas affected" and the
"recommendation of the council of the municipality or municipalities in

which the proposed barrio is situated." Petitioner argues, accordingly: "If the
President, under this new law, cannot even create a barrio, can he create a
municipality which is composed of several barrios, since barrios are units of
municipalities?"
Respondent answers in the affirmative, upon the theory that a new
municipality can be created without creating new barrios, such as, by
placing old barrios under the jurisdiction of the new municipality. This theory
overlooks, however, the main import of the petitioner's argument, which is
that the statutory denial of the presidential authority to create a new barrio
implies a negation of the bigger power to create municipalities, each of
which consists of several barrios. The cogency and force of this argument is
too obvious to be denied or even questioned. Founded upon logic and
experience, it cannot be offset except by a clear manifestation of the intent
of Congress to the contrary, and no such manifestation, subsequent to the
passage of Republic Act No. 2379, has been brought to our attention.
Moreover, section 68 of the Revised Administrative Code, upon which the
disputed executive orders are based, provides:
The (Governor-General) President of the Philippines may by executive order
define the boundary, or boundaries, of any province, subprovince,
municipality, [township] municipal district, or other political subdivision, and
increase or diminish the territory comprised therein, may divide any
province into one or more subprovinces, separate any political division other
than a province, into such portions as may be required, merge any of such
subdivisions or portions with another, name any new subdivision so created,
and may change the seat of government within any subdivision to such
place therein as the public welfare may require: Provided, That the
authorization of the (Philippine Legislature) Congress of the Philippines shall
first be obtained whenever the boundary of any province or subprovince is
to be defined or any province is to be divided into one or more subprovinces.
When action by the (Governor-General) President of the Philippines in
accordance herewith makes necessary a change of the territory under the
jurisdiction of any administrative officer or any judicial officer, the (GovernorGeneral) President of the Philippines, with the recommendation and advice
of the head of the Department having executive control of such officer, shall
redistrict the territory of the several officers affected and assign such
officers to the new districts so formed.
Upon the changing of the limits of political divisions in pursuance of the
foregoing authority, an equitable distribution of the funds and obligations of
the divisions thereby affected shall be made in such manner as may be
recommended by the (Insular Auditor) Auditor General and approved by the
(Governor-General) President of the Philippines.
Respondent alleges that the power of the President to create municipalities
under this section does not amount to an undue delegation of legislative
power, relying upon Municipality of Cardona vs. Municipality of Binagonan
(36 Phil. 547), which, he claims, has settled it. Such claim is untenable, for
said case involved, not the creation of a new municipality, but a mere
transfer of territory from an already existing municipality (Cardona) to
another municipality (Binagonan), likewise, existing at the time of and prior
to said transfer (See Gov't of the P.I. ex rel. Municipality of Cardona vs.
Municipality, of Binagonan [34 Phil. 518, 519-5201) in consequence of
the fixing and definition, pursuant to Act No. 1748, of the common

boundaries of two municipalities.

It is obvious, however, that, whereas the power to fix such common
boundary, in order to avoid or settle conflicts of jurisdiction between
adjoining municipalities, may partake of an administrative nature
involving, as it does, the adoption of means and ways to carry into effect the
law creating said municipalities the authority to create municipal
corporations is essentially legislative in nature. In the language of other
courts, it is "strictly a legislative function" (State ex rel. Higgins vs. Aicklen,
119 S. 425, January 2, 1959) or "solely and exclusively the exercise
oflegislative power" (Udall vs. Severn, May 29, 1938, 79 P. 2d 347-349). As
the Supreme Court of Washington has put it (Territory ex rel. Kelly vs.
Stewart, February 13, 1890, 23 Pac. 405, 409), "municipal corporations are
purely the creatures of statutes."
Although1a Congress may delegate to another branch of the Government the
power to fill in the details in the execution, enforcement or administration of
a law, it is essential, to forestall a violation of the principle of separation of
powers, that said law: (a) be complete in itself it must set forth therein the
policy to be executed, carried out or implemented by the delegate 2 and
(b) fix a standard the limits of which are sufficiently determinate or
determinable to which the delegate must conform in the performance of
his functions.2aIndeed, without a statutory declaration of policy, the delegate
would in effect, make or formulate such policy, which is the essence of every
law; and, without the aforementioned standard, there would be no means to
determine, with reasonable certainty, whether the delegate has acted within
or beyond the scope of his authority. 2b Hence, he could thereby arrogate
upon himself the power, not only to make the law, but, also and this is
worse to unmake it, by adopting measures inconsistent with the end
sought to be attained by the Act of Congress, thus nullifying the principle of
separation of powers and the system of checks and balances, and,
consequently, undermining the very foundation of our Republican system.
Section 68 of the Revised Administrative Code does not meet these well
settled requirements for a valid delegation of the power to fix the details in
the enforcement of a law. It does not enunciate any policy to be carried out
or implemented by the President. Neither does it give a standard sufficiently
precise to avoid the evil effects above referred to. In this connection, we do
not overlook the fact that, under the last clause of the first sentence of
Section 68, the President:
... may change the seat of the government within any subdivision to such
place therein as the public welfare may require.
It is apparent, however, from the language of this clause, that the phrase "as
the public welfare may require" qualified, not the clauses preceding the one
just quoted, but only the place to which the seat of the government may be
transferred. This fact becomes more apparent when we consider that said
Section 68 was originally Section 1 of Act No. 1748, 3 which provided that,
"whenever in the judgment of the Governor-General the public welfare
requires, he may, by executive order," effect the changes enumerated
therein (as in said section 68), including the change of the seat of the
government "to such place ... as the public interest requires." The opening
statement of said Section 1 of Act No. 1748 which was not included in
Section 68 of the Revised Administrative Code governed the time at
which, or the conditions under which, the powers therein conferred could be

exercised; whereas the last part of the first sentence of said section referred
exclusively to the place to which the seat of the government was to be
transferred.
At any rate, the conclusion would be the same, insofar as the case at bar is
concerned, even if we assumed that the phrase "as the public welfare may
require," in said Section 68, qualifies all other clauses thereof. It is true that
in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil.
328), this Court had upheld "public welfare" and "public interest,"
respectively, as sufficient standards for a valid delegation of the authority to
execute the law. But, the doctrine laid down in these cases as all judicial
pronouncements must be construed in relation to the specific facts and
issues involved therein, outside of which they do not constitute precedents
and have no binding effect. 4 The law construed in the Calalang case
conferred upon the Director of Public Works, with the approval of the
Secretary of Public Works and Communications, the power to issue rules and
regulations topromote safe transit upon national roads and streets. Upon the
other hand, the Rosenthal case referred to the authority of the Insular
Treasurer, under Act No. 2581, to issue and cancel certificates or permits for
the sale ofspeculative securities. Both cases involved grants to
administrative officers of powers related to the exercise of their
administrative functions, calling for the determination of questions of fact.
Such is not the nature of the powers dealt with in section 68. As above
indicated, the creation of municipalities, is not an administrative function,
but one which is essentially and eminently legislative in character. The
question of whether or not "public interest" demands the exercise of such
power is not one of fact. it is "purely a legislativequestion "(Carolina-Virginia
Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310-313, 315318), or apolitical question (Udall vs. Severn, 79 P. 2d. 347-349). As the
Supreme Court of Wisconsin has aptly characterized it, "the question as to
whether incorporation is for the best interest of the community in any case
is emphatically a question of public policy and statecraft" (In re Village of
North Milwaukee, 67 N.W. 1033, 1035-1037).
For this reason, courts of justice have annulled, as constituting undue
delegation of legislative powers, state laws granting the judicial department,
the power to determine whether certain territories should be annexed to a
particular municipality (Udall vs. Severn, supra, 258-359); or vesting in a
Commission the right to determine the plan and frame of government of
proposed villages and what functions shall be exercised by the same,
although the powers and functions of the village are specifically limited by
statute (In re Municipal Charters, 86 Atl. 307-308); or conferring upon courts
the authority to declare a given town or village incorporated, and designate
its metes and bounds, upon petition of a majority of the taxable inhabitants
thereof, setting forth the area desired to be included in such village (Territory
ex rel Kelly vs. Stewart, 23 Pac. 405-409); or authorizing the territory of a
town, containing a given area and population, to be incorporated as a town,
on certain steps being taken by the inhabitants thereof and on certain
determination by a court and subsequent vote of the inhabitants in favor
thereof, insofar as the court is allowed to determine whether the lands
embraced in the petition "ought justly" to be included in the village, and
whether the interest of the inhabitants will be promoted by such
incorporation, and to enlarge and diminish the boundaries of the proposed

village "as justice may require" (In re Villages of North Milwaukee, 67 N.W.
1035-1037); or creating a Municipal Board of Control which shall determine
whether or not the laying out, construction or operation of a toll road is in
the "public interest" and whether the requirements of the law had been
complied with, in which case the board shall enter an order creating a
municipal corporation and fixing the name of the same (Carolina-Virginia
Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310).
Insofar as the validity of a delegation of power by Congress to the President
is concerned, the case of Schechter Poultry Corporation vs. U.S. (79 L. Ed.
1570) is quite relevant to the one at bar. The Schechter case involved the
constitutionality of Section 3 of the National Industrial Recovery Act
authorizing the President of the United States to approve "codes of fair
competition" submitted to him by one or more trade or industrial
associations or corporations which "impose no inequitable restrictions on
admission to membership therein and are truly representative," provided
that such codes are not designed "to promote monopolies or to eliminate or
oppress small enterprises and will not operate to discriminate against them,
and will tend to effectuate the policy" of said Act. The Federal Supreme
Court held:
To summarize and conclude upon this point: Sec. 3 of the Recovery Act is
without precedent. It supplies no standards for any trade, industry or
activity. It does not undertake to prescribe rules of conduct to be applied to
particular states of fact determined by appropriate administrative procedure.
Instead of prescribing rules of conduct, it authorizes the making of codes to
prescribe them. For that legislative undertaking, Sec. 3 sets up no standards,
aside from the statement of the general aims of rehabilitation, correction
and expansion described in Sec. 1. In view of the scope of that broad
declaration, and of the nature of the few restrictions that are imposed, the
discretion of the President in approving or prescribing codes, and thus
enacting laws for the government of trade and industry throughout the
country, is virtually unfettered. We think that the code making authority thus
conferred is an unconstitutional delegation of legislative power.
If the term "unfair competition" is so broad as to vest in the President a
discretion that is "virtually unfettered." and, consequently, tantamount to a
delegation of legislative power, it is obvious that "public welfare," which has
even a broader connotation, leads to the same result. In fact, if the validity
of the delegation of powers made in Section 68 were upheld, there would no
longer be any legal impediment to a statutory grant of authority to the
President to do anything which, in his opinion, may be required by public
welfare or public interest. Such grant of authority would be a virtual
abdication of the powers of Congress in favor of the Executive, and would
bring about a total collapse of the democratic system established by our
Constitution, which it is the special duty and privilege of this Court to
uphold.
It may not be amiss to note that the executive orders in question were
issued after the legislative bills for the creation of the municipalities
involved in this case had failed to pass Congress. A better proof of the fact
that the issuance of said executive orders entails the exercise of purely
legislative functions can hardly be given.
Again, Section 10 (1) of Article VII of our fundamental law ordains:
The President shall have control of all the executive departments, bureaus,

or offices, exercise general supervision over all local governments as may be

provided by law, and take care that the laws be faithfully executed.
The power of control under this provision implies the right of the President to
interfere in the exercise of such discretion as may be vested by law in the
officers of the executive departments, bureaus, or offices of the national
government, as well as to act in lieu of such officers. This power is denied by
the Constitution to the Executive, insofar as local governments are
concerned. With respect to the latter, the fundamental law permits him to
wield no more authority than that of checking whether said local
governments or the officers thereof perform their duties as provided by
statutory enactments. Hence, the President cannot interfere with local
governments, so long as the same or its officers act Within the scope of their
authority. He may not enact an ordinance which the municipal council has
failed or refused to pass, even if it had thereby violated a duty imposed
thereto by law, although he may see to it that the corresponding provincial
officials take appropriate disciplinary action therefor. Neither may he vote,
set aside or annul an ordinance passed by said council within the scope of
its jurisdiction, no matter how patently unwise it may be. He may not even
suspend an elective official of a regular municipality or take any disciplinary
action against him, except on appeal from a decision of the corresponding
provincial board.5
Upon the other hand if the President could create a municipality, he could, in
effect, remove any of its officials, by creating a new municipality and
including therein the barrio in which the official concerned resides, for his
office would thereby become vacant. 6 Thus, by merely brandishing the
power to create a new municipality (if he had it), without actually creating it,
he could compel local officials to submit to his dictation, thereby, in effect,
exercising over them the power of control denied to him by the Constitution.
Then, also, the power of control of the President over executive
departments, bureaus or offices implies no morethan the authority to
assume directly the functions thereof or to interfere in the exercise of
discretion by its officials. Manifestly, such control does not include the
authority either to abolish an executive department or bureau, or to create a
new one. As a consequence, the alleged power of the President to create
municipal corporations would necessarily connote the exercise by him of an
authority even greater than that of control which he has over the executive
departments, bureaus or offices. In other words, Section 68 of the Revised
Administrative Code does not merely fail to comply with the constitutional
mandate above quoted. Instead of giving the President less power over local
governments than that vested in him over the executive departments,
bureaus or offices, it reverses the process and does the exact opposite, by
conferring upon him more power over municipal corporations than that
which he has over said executive departments, bureaus or offices.
In short, even if it did entail an undue delegation of legislative powers, as it
certainly does, said Section 68, as part of the Revised Administrative Code,
approved on March 10, 1917, must be deemed repealed by the subsequent
adoption of the Constitution, in 1935, which is utterly incompatible and
inconsistent with said statutory enactment.7
There are only two (2) other points left for consideration, namely,
respondent's claim (a) that "not all the proper parties" referring to the
officers of the newly created municipalities "have been impleaded in this

case," and (b) that "the present petition is premature."

As regards the first point, suffice it to say that the records do not show, and
the parties do not claim, that the officers of any of said municipalities have
been appointed or elected and assumed office. At any rate, the Solicitor
General, who has appeared on behalf of respondent Auditor General, is the
officer authorized by law "to act and represent the Government of the
Philippines, its offices and agents, in any official investigation, proceeding or
matter requiring the services of a lawyer" (Section 1661, Revised
Administrative Code), and, in connection with the creation of the
aforementioned municipalities, which involves a political, not proprietary,
function, said local officials, if any, are mere agents or representatives of the
national government. Their interest in the case at bar has, accordingly,
been, in effect, duly represented.8
With respect to the second point, respondent alleges that he has not as yet
acted on any of the executive order & in question and has not intimated how
he would act in connection therewith. It is, however, a matter of common,
public knowledge, subject to judicial cognizance, that the President has, for
many years, issued executive orders creating municipal corporations and
that the same have been organized and in actual operation, thus indicating,
without peradventure of doubt, that the expenditures incidental thereto
have been sanctioned, approved or passed in audit by the General Auditing
Office and its officials. There is no reason to believe, therefore, that
respondent would adopt a different policy as regards the new municipalities
involved in this case, in the absence of an allegation to such effect, and
none has been made by him.
WHEREFORE, the Executive Orders in question are hereby declared null and
void ab initio and the respondent permanently restrained from passing in
audit any expenditure of public funds in implementation of said Executive
Orders or any disbursement by the municipalities above referred to. It is so
ordered.
Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Barrera and Dizon, JJ., concur.
Zaldivar, J., took no part.
Separate Opinions
BENGZON, J.P., J., concurring and dissenting:
A sign of progress in a developing nation is the rise of new municipalities.
Fostering their rapid growth has long been the aim pursued by all three
branches of our Government.
So it was that the Governor-General during the time of the Jones Law was
given authority by the Legislature (Act No. 1748) to act upon certain details
with respect to said local governments, such as fixing of boundaries,
subdivisions and mergers. And the Supreme Court, within the framework of
the Jones Law, ruled in 1917 that the execution or implementation of such
details, did not entail abdication of legislative power (Government vs.
Municipality of Binagonan, 34 Phil. 518; Municipality of Cardona vs.
Municipality of Binagonan, 36 Phil. 547). Subsequently, Act No. 1748's
aforesaid statutory authorization was embodied in Section 68 of the Revised
Administrative Code. And Chief Executives since then up to the present
continued to avail of said provision, time and again invoking it to issue
executive orders providing for the creation of municipalities.

From September 4, 1964 to October 29, 1964 the President of the Philippines
issued executive orders to create thirty-three municipalities pursuant to
Section 68 of the Revised Administrative Code. Public funds thereby stood to
be disbursed in implementation of said executive orders.
Suing as private citizen and taxpayer, Vice President Emmanuel Pelaez filed
in this Court a petition for prohibition with preliminary injunction against the
Auditor General. It seeks to restrain the respondent or any person acting in
his behalf, from passing in audit any expenditure of public funds in
implementation of the executive orders aforementioned.
Petitioner contends that the President has no power to create a municipality
by executive order. It is argued that Section 68 of the Revised Administrative
Code of 1917, so far as it purports to grant any such power, is invalid or, at
the least, already repealed, in light of the Philippine Constitution and
Republic Act 2370 (The Barrio Charter).
Section 68 is again reproduced hereunder for convenience:
SEC. 68. General authority of [Governor-General) President of the Philippines
to fix boundaries and make new subdivisions. The [Governor-General]
President of the Philippines may by executive order define the boundary, or
boundaries, of any province, subprovince, municipality, [township] municipal
district, or other political subdivision, and increase or diminish the territory
comprised therein, may divide any province into one or more subprovinces,
separate any political division other than a province, into such portions as
may be required, merge any of such subdivisions or portions with another,
name any new subdivision so created, and may change the seat of
government within any subdivision to such place therein as the public
welfare may require: Provided, That the authorization of the [Philippine
Legislature] Congress of the Philippines shall first be obtained whenever the
boundary of any province or subprovince is to be defined or any province is
to be divided into one or more subprovinces. When action by the [GovernorGeneral] President of the Philippines in accordance herewith makes
necessary a change of the territory under the jurisdiction of any
administrative officer or any judicial officer, the [Governor-General]
President of the Philippines, with the recommendation and advice of the
head of the Department having executive control of such officer, shall
redistrict the territory of the several officers to the new districts so formed.
Upon the changing of the limits of political divisions in pursuance of the
foregoing authority, an equitable distribution of the funds and obligations of
the divisions thereby affected shall be made in such manner as may be
recommended by the [Insular Auditor] Auditor General and approved by the
[Governor-General] President of the Philippines.
From such working I believe that power to create a municipality is included:
to "separate any political division other than a province, into such portions
as may be required, merge any such subdivisions or portions with another,
name any new subdivision so created." The issue, however, is whether the
legislature can validly delegate to the Executive such power.
The power to create a municipality is legislative in character. American
authorities have therefore favored the view that it cannot be delegated; that
what is delegable is not the power to create municipalities but only the
power to determine the existence of facts under which creation of a
municipality will result (37 Am. Jur. 628).
The test is said to lie in whether the statute allows any discretion on the

delegate as to whether the municipal corporation should be created. If so,

there is an attempted delegation of legislative power and the statute is
invalid (Ibid.). Now Section 68 no doubt gives the President such discretion,
since it says that the President "may by executive order" exercise the
powers therein granted. Furthermore, Section 5 of the same Code states:
SEC. 5. Exercise of administrative discretion The exercise of the
permissive powers of all executive or administrative officers and bodies is
based upon discretion, and when such officer or body is given authority to
do any act but not required to do such act, the doing of the same shall be
dependent on a sound discretion to be exercised for the good of the service
and benefit of the public, whether so expressed in the statute giving the
authority or not.
Under the prevailing rule in the United States and Section 68 is of
American origin the provision in question would be an invalid attempt to
delegate purely legislative powers, contrary to the principle of separation of
powers.
It is very pertinent that Section 68 should be considered with the stream of
history in mind. A proper knowledge of the past is the only adequate
background for the present. Section 68 was adopted half a century ago.
Political change, two world wars, the recognition of our independence and
rightful place in the family of nations, have since taken place. In 1917 the
Philippines had for its Organic Act the Jones Law. And under the setup
ordained therein no strict separation of powers was adhered to.
Consequently, Section 68 was not constitutionally objectionable at the time
of its enactment.
The advent of the Philippine Constitution in 1935 however altered the
situation. For not only was separation of powers strictly ordained, except
only in specific instances therein provided, but the power of the Chief
Executive over local governments suffered an explicit reduction.
Formerly, Section 21 of the Jones Law provided that the Governor-General
"shall have general supervision and control of all the departments and
bureaus of the government in the Philippine Islands." Now Section 10 (1),
Article VII of the Philippine Constitution provides: "The President shall have
control of all the executive departments, bureaus, or offices, exercise
general supervision over all local governments as may be provided by law,
and take care that the laws be faithfully executed.
In short, the power of control over local governments had now been taken
away from the Chief Executive. Again, to fully understand the significance of
this provision, one must trace its development and growth.
As early as April 7, 1900 President McKinley of the United States, in his
Instructions to the Second Philippine Commission, laid down the policy that
our municipal governments should be "subject to the least degree of
supervision and control" on the part of the national government. Said
supervision and control was to be confined within the "narrowest limits" or
so much only as "may be necessary to secure and enforce faithful and
efficient administration by local officers." And the national government "shall
have no direct administration except of matters of purely general concern."
(See Hebron v. Reyes, L-9158, July 28, 1958.)
All this had one aim, to enable the Filipinos to acquire experience in the art
of self-government, with the end in view of later allowing them to assume
complete management and control of the administration of their local

affairs. Such aim is the policy now embodied in Section 10 (1), Article VII of
the Constitution (Rodriguez v. Montinola, 50 O.G. 4820).
It is the evident decree of the Constitution, therefore, that the President shall
have no power of control over local governments. Accordingly, Congress
cannot by law grant him such power (Hebron v. Reyes, supra). And any such
power formerly granted under the Jones Law thereby became unavoidably
inconsistent with the Philippine Constitution.
It remains to examine the relation of the power to create and the power to
control local governments. Said relationship has already been passed upon
by this Court in Hebron v. Reyes, supra. In said case, it was ruled that the
power to control is an incident of the power to create or abolish
municipalities. Respondent's view, therefore, that creating municipalities and
controlling their local governments are "two worlds apart," is untenable. And
since as stated, the power to control local governments can no longer be
conferred on or exercised by the President, it follows a fortiori that the power
to create them, all the more cannot be so conferred or exercised.
I am compelled to conclude, therefore, that Section 10 (1), Article VII of the
Constitution has repealed Section 68 of the Revised Administrative Code as
far as the latter empowers the President to create local governments. Repeal
by the Constitution of prior statutes inconsistent with it has already been
sustained in De los Santos v. MaIlare, 87 Phil. 289. And it was there held that
such repeal differs from a declaration of unconstitutionality of a posterior
legislation, so much so that only a majority vote of the Court is needed to
sustain a finding of repeal.
Since the Constitution repealed Section 68 as far back as 1935, it is
academic to ask whether Republic Act 2370 likewise has provisions in
conflict with Section 68 so as to repeal it. Suffice it to state, at any rate, that
statutory prohibition on the President from creating a barrio does not, in my
opinion, warrant the inference of statutory prohibition for creating a
municipality. For although municipalities consist of barrios, there is nothing
in the statute that would preclude creation of new municipalities out of preexisting barrios.
It is not contrary to the logic of local autonomy to be able to create larger
political units and unable to create smaller ones. For as long ago observed in
President McKinley's Instructions to the Second Philippine Commission,
greater autonomy is to be imparted to the smaller of the two political units.
The smaller the unit of local government, the lesser is the need for the
national government's intervention in its political affairs. Furthermore, for
practical reasons, local autonomy cannot be given from the top downwards.
The national government, in such a case, could still exercise power over the
supposedly autonomous unit, e.g., municipalities, by exercising it over the
smaller units that comprise them, e.g., the barrios. A realistic program of
decentralization therefore calls for autonomy from the bottom upwards, so
that it is not surprising for Congress to deny the national government some
power over barrios without denying it over municipalities. For this reason, I
disagree with the majority view that because the President could not create
a barrio under Republic Act 2370, a fortiori he cannot create a municipality.
It is my view, therefore, that the Constitution, and not Republic Act 2370,
repealed Section 68 of the Revised Administrative Code's provision giving
the President authority to create local governments. And for this reason I
agree with the ruling in the majority opinion that the executive orders in

question are null and void.

In thus ruling, the Court is but sustaining the fulfillment of our historic desire
to be free and independent under a republican form of government, and
exercising a function derived from the very sovereignty that it upholds.
Executive orders declared null and void.
Makalintal and Regala, JJ., concur.

EN BANC
ABAKADA GURO PARTY LIST (Formerly
AASJAS) OFFICERS SAMSON S. ALCANTARA
and ED VINCENT S. ALBANO,
Petitioners,

- versus -

G.R. No. 168056

Present:
DAVIDE, JR., C.J.,
PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,
AZCUNA,

TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.
THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY
OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER
OF
INTERNAL
REVENUE
GUILLERMO
PARAYNO, JR.,
Respondents.
x-------------------------x
AQUILINO Q. PIMENTEL, JR., LUISA P.
EJERCITO-ESTRADA, JINGGOY E. ESTRADA,
PANFILO M. LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, AND SERGIO R.
OSMEA III,
Petitioners,

G.R. No. 168207

- versus EXECUTIVE SECRETARY EDUARDO R. ERMITA,

CESAR
V.
PURISIMA,
SECRETARY
OF
FINANCE, GUILLERMO L. PARAYNO, JR.,
COMMISSIONER
OF
THE
BUREAU
OF
INTERNAL REVENUE,
Respondents.
x-------------------------x
ASSOCIATION OF PILIPINAS SHELL DEALERS,
INC. represented by its President, ROSARIO
ANTONIO; PETRON DEALERS ASSOCIATION
represented by its President, RUTH E.
BARBIBI; ASSOCIATION OF CALTEX DEALERS
OF THE PHILIPPINES represented by its
President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name
and style of ANB NORTH SHELL SERVICE
STATION;
LOURDES
MARTINEZ
doing
business under the name and style of SHELL
GATE N. DOMINGO; BETHZAIDA TAN doing
business under the name and style of
ADVANCE SHELL STATION; REYNALDO P.
MONTOYA doing business under the name
and style of NEW LAMUAN SHELL SERVICE
STATION; EFREN SOTTO doing business
under the name and style of RED FIELD
SHELL
SERVICE
STATION;
DONICA
CORPORATION represented by its President,

G.R. No. 168461

DESI TOMACRUZ; RUTH E. MARBIBI doing

business under the name and style of R&R
PETRON STATION; PETER M. UNGSON doing
business under the name and style of
CLASSIC STAR GASOLINE SERVICE STATION;
MARIAN SHEILA A. LEE doing business under
the name and style of NTE GASOLINE &
SERVICE
STATION;
JULIAN
CESAR
P.
POSADAS doing business under the name
and style of STARCARGA ENTERPRISES;
ADORACION MAEBO doing business under
the name and style of CMA MOTORISTS
CENTER; SUSAN M. ENTRATA doing business
under the name and style of LEONAS
GASOLINE STATION and SERVICE CENTER;
CARMELITA BALDONADO doing business
under the name and style of FIRST CHOICE
SERVICE CENTER; MERCEDITAS A. GARCIA
doing business under the name and style of
LORPED SERVICE CENTER; RHEAMAR A.
RAMOS doing business under the name and
style of RJRAM PTT GAS STATION; MA.
ISABEL VIOLAGO doing business under the
name and style of VIOLAGO-PTT SERVICE
CENTER; MOTORISTS HEART CORPORATION
represented by its Vice-President for
Operations,
JOSELITO
F.
FLORDELIZA;
MOTORISTS
HARVARD
CORPORATION
represented by its Vice-President for
Operations,
JOSELITO
F.
FLORDELIZA;
MOTORISTS
HERITAGE
CORPORATION
represented by its Vice-President for
Operations,
JOSELITO
F.
FLORDELIZA;
PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for
Operations,
JOSELITO
F.
FLORDELIZA;
ROMEO MANUEL doing business under the
name and style of ROMMAN GASOLINE
STATION; ANTHONY ALBERT CRUZ III doing
business under the name and style of TRUE
SERVICE STATION,
Petitioners,
- versus CESAR V. PURISIMA, in his capacity as
Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity
as Commissioner of Internal Revenue,
Respondents.

x-------------------------x
FRANCIS JOSEPH G. ESCUDERO, VINCENT
CRISOLOGO,
EMMANUEL
JOEL
J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE
ANTONINO-CUSTODIO,
OSCAR
G.
MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
EDGARDO M. ANGARA, JUSTIN MARC SB.
CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A.
SANTIAGO, TEOFISTO DL. GUINGONA III, RUY
ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and
TEODORO A. CASIO,
Petitioners,

G.R. No. 168463

The expenses of government, having for their object
the interest of all, should be borne by everyone, and the
more man enjoys the advantages of society, the more he
ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal

- versus -

allocation for education, increased emoluments for health workers, and

CESAR V. PURISIMA, in his capacity as

Secretary
of
Finance,
GUILLERMO
L.
PARAYNO,
JR.,
in
his
capacity
as
Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as
Executive Secretary,
Respondents.

wider coverage for full value-added tax benefits these are the reasons why

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

wisdom of the law, but also perceived constitutional infirmities in its

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.

Petitioner,

Republic Act No. 9337 (R.A. No. 9337) [1] was enacted. Reasons, the wisdom
of which, the Court even with its extensive constitutional power of review,
cannot probe. The petitioners in these cases, however, question not only the

G.R. No. 168730

passage.
Every law enjoys in its favor the presumption of constitutionality.

- versus -

Their arguments notwithstanding, petitioners failed to justify their call for

HON. EDUARDO R. ERMITA, in his capacity as

the Executive Secretary; HON. MARGARITO
TEVES, in his capacity as Secretary of
Finance; HON. JOSE MARIO BUNAG, in his
capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON.
ALEXANDER AREVALO, in his capacity as the
OIC Commissioner of the Bureau of Customs,

the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY

Promulgated:
September 1, 2005

Respondents.

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

R.A. No. 9337 is a consolidation of three legislative bills namely,

House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 3555[2] was introduced on first reading on January 7,
2005. The House Committee on Ways and Means approved the bill, in

DECISION
AUSTRIA-MARTINEZ, J.:

substitution of House Bill No. 1468, which Representative (Rep.) Eric D.

Singson introduced on August 8, 2004. The President certified the bill on

January 7, 2005 for immediate enactment. On January 27, 2005, the House

2005, and with the House of Representatives agreeing thereto the next day,

of Representatives approved the bill on second and third reading.

May 11, 2005.

House Bill No. 3705[3] on the other hand, substituted House Bill

On May 23, 2005, the enrolled copy of the consolidated House and

No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381

Senate version was transmitted to the President, who signed the same into

introduced by Rep. Jacinto V. Paras. Its mother bill is House Bill No. 3555. The

law on May 24, 2005. Thus, came R.A. No. 9337.

House Committee on Ways and Means approved the bill on February 2,

2005. The President also certified it as urgent onFebruary 8, 2005. The
House of Representatives approved the bill on second and third reading on

July 1, 2005 is the effectivity date of R.A. No. 9337. [5] When said date
came, the Court issued a temporary restraining order, effective immediately
and continuing until further orders, enjoining respondents from enforcing

February 28, 2005.

and implementing the law.

Meanwhile, the Senate Committee on Ways and Means approved
Senate Bill No. 1950[4] on March 7, 2005, in substitution of Senate Bill Nos.
1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and
3705. Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate
Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon,
Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on
March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request
of the House of Representatives for a committee conference on the
disagreeing provisions of the proposed bills.
Before

long,

the

Conference

Committee

on

the

Disagreeing

Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No.
1950, after having met and discussed in full free and conference,
recommended the approval of its report, which the Senate did on May 10,

Oral arguments were held on July 14, 2005. Significantly, during the
hearing, the Court speaking through Mr. Justice Artemio V. Panganiban,
voiced the rationale for its issuance of the temporary restraining order on
July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your
presentation, let me just tell you a
little background. You know when the
law took effect on July 1, 2005, the
Court issued a TRO at about 5 oclock
in the afternoon. But before that,
there was a lot of complaints aired
on television and on radio. Some
people in a gas station were
complaining that the gas prices went
up by 10%. Some people were
complaining that their electric bill
will go up by 10%. Other times
people riding in domestic air carrier
were complaining that the prices
that theyll have to pay would have
to go up by 10%. While all that was
being aired, per your presentation
and per our own understanding of
the law, thats not true. Its not true
that the e-vat law necessarily
increased prices by 10% uniformly
isnt it?

there is no justification to increase

the fares by 10% at best 7%,
correct?

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : It is not?

ATTY. BANIQUED : I guess so, Your Honor, yes.

ATTY. BANIQUED : Its not, because, Your Honor, there is an
Executive Order that granted the
Petroleum companies some subsidy .
. . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to
temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating
measures would be the elimination
of the Excise Tax and the import
duties. That is why, it is not correct
to say that the VAT as to petroleum
dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for
increasing the retail price by 10% to
cover the E-Vat tax. If you consider
the excise tax and the import duties,
the Net Tax would probably be in the
neighborhood of 7%? We are not
going into exact figures I am just
trying to deliver a point that different
industries,
different
products,
different services are hit differently.
So its not correct to say that all
prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline
companies, Mr. Counsel, are at
present imposed a Sales Tax of 3%.
When this E-Vat law took effect the
Sales Tax was also removed as a
mitigating measure. So, therefore,

J. PANGANIBAN : There are other products that the people

were complaining on that first day,
were being increased arbitrarily by
10%. And thats one reason among
many others this Court had to issue
TRO because of the confusion in the
implementation. Thats why we
added as an issue in this case, even
if its tangentially taken up by the
pleadings of the parties, the
confusion in the implementation of
the E-vat. Our people were subjected
to the mercy of that confusion of an
across the board increase of 10%,
which you yourself now admit and I
think even the Government will
admit is incorrect. In some cases, it
should be 3% only, in some cases it
should be 6% depending on these
mitigating measures and the location
and situation of each product, of
each service, of each company, isnt
it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to
issue a TRO pending the clarification
of all these and we wish the
government will take time to clarify
all these by means of a more
detailed implementing rules, in case
the law is upheld by this Court. . . .[6]

The Court also directed the parties to file their respective

Memoranda.
G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party

Aside from questioning the so-called stand-by authority of the

List, et al., filed a petition for prohibition on May 27, 2005. They question the

President to increase the VAT rate to 12%, on the ground that it amounts to

constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections

an undue delegation of legislative power, petitioners also contend that the

106, 107 and 108, respectively, of the National Internal Revenue Code

increase in the VAT rate to 12% contingent on any of the two conditions

(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties,

being satisfied violates the due process clause embodied in Article III,

Section 5 imposes a 10% VAT on importation of goods, and Section 6

Section 1 of the Constitution, as it imposes an unfair and additional tax

imposes a 10% VAT on sale of services and use or lease of properties. These

burden on the people, in that: (1) the 12% increase is ambiguous because it

questioned provisions contain a uniform proviso authorizing the President,

does not state if the rate would be returned to the original 10% if the

upon recommendation of the Secretary of Finance, to raise the VAT rate to

conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as

12%, effective January 1, 2006, after any of the following conditions have

the people are unsure of the applicable VAT rate from year to year; and (3)

been satisfied, to wit:

the increase in the VAT rate, which is supposed to be an incentive to the

. . . That the President, upon the recommendation of

the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent
(1 %).

President to raise the VAT collection to at least 2

/5 of the GDP of the

previous year, should only be based on fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority
granted to the President by the Bicameral Conference Committee is a
violation of the no-amendment rule upon last reading of a bill laid down in
Article VI, Section 26(2) of the Constitution.
G.R. No. 168461

Petitioners argue that the law is unconstitutional, as it constitutes

abandonment by Congress of its exclusive authority to fix the rate of taxes
under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition
for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337.

Thereafter, a petition for prohibition was filed on June 29, 2005, by

the Association of Pilipinas Shell Dealers, Inc., et al., assailing the following
provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods
shall be amortized over a 60-month period, if the
acquisition, excluding the VAT components, exceeds
One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to

be credited against the output tax; and

progressive, violative of Article VI, Section 28(1) of the Constitution, and that

3) Section 12, amending Section 114 (c) of the NIRC,

authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are
subject to 10% VAT under Sections 106 (sale of
goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.

it is the smaller businesses with higher input tax to output tax ratio that will
suffer the consequences thereof for it wipes out whatever meager margins
the petitioners make.
G.R. No. 168463

Petitioners contend that these provisions are unconstitutional for

Several members of the House of Representatives led by Rep.

Francis Joseph G. Escudero filed this petition for certiorari on June 30, 2005.

being arbitrary, oppressive, excessive, and confiscatory.

They question the constitutionality of R.A. No. 9337 on the following

Petitioners argument is premised on the constitutional right of nondeprivation of life, liberty or property without due process of law under
Article III, Section 1 of the Constitution. According to petitioners, the
contested sections impose limitations on the amount of input tax that may
be claimed. Petitioners also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due
process of law. Petitioners further contend that like any other property or
property right, the input tax credit may be transferred or disposed of, and
that by limiting the same, the government gets to tax a profit or valueadded even if there is no profit or value-added.
Petitioners

also

believe

that

these

provisions

violate

the

grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue
delegation of legislative power, in violation of Article
VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No.
3705; and
3) Insertion by the Bicameral Conference Committee of
Sections 27, 28, 34, 116, 117, 119, 121, 125, [7] 148,
151, 236, 237 and 288, which were present in
Senate Bill No. 1950, violates Article VI, Section
24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives
G.R. No. 168730

constitutional guarantee of equal protection of the law under Article III,

Section 1 of the Constitution, as the limitation on the creditable input tax if:
(1) the entity has a high ratio of input tax; or (2) invests in capital
equipment; or (3) has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.

On the eleventh hour, Governor Enrique T. Garcia filed a petition for

certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the
law on the ground that the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they
collect, thus violating the principle that tax collection and revenue should be

Lastly, petitioners contend that the 70% limit is anything but

solely allocated for public purposes and expenditures. Petitioner Garcia

governments fiscal reform agenda. A reform in the value-added system of

further claims that allowing these establishments to pass on the tax to the

taxation is the core revenue measure that will tilt the balance towards a

consumers is inequitable, in violation of Article VI, Section 28(1) of the

sustainable macroeconomic environment necessary for economic growth.

Constitution.
ISSUES
RESPONDENTS COMMENT
The Court defined the issues, as follows:
The Office of the Solicitor General (OSG) filed a Comment in behalf
of respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys
the presumption of constitutionality and petitioners failed to cast doubt on
its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by
petitioners, i.e., legality of the bicameral proceedings, exclusive origination
of revenue measures and the power of the Senate concomitant thereto,
have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein arise.

PROCEDURAL ISSUE
Whether R.A. No. 9337
provisions of the Constitution:

violates

the

following

a. Article VI, Section 24, and

b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1

Respondents also refute petitioners argument that the increase to

12%, as well as the 70% limitation on the creditable input tax, the 60-month

RULING OF THE COURT

amortization on the purchase or importation of capital goods exceeding

P1,000,000.00, and the 5% final withholding tax by government agencies, is
arbitrary, oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the

As a prelude, the Court deems it apt to restate the general principles

and concepts of value-added tax (VAT), as the confusion and inevitably,
litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale,

barter, exchange or lease of goods or properties and services. [8] Being an

Reform Act of 1997,[18] and finally, the presently beleaguered R.A. No. 9337,

indirect tax on expenditure, the seller of goods or services may pass on the

also referred to by respondents as the VAT Reform Act.

amount of tax paid to the buyer, [9] with the seller acting merely as a tax
collector.[10] The burden of VAT is intended to fall on the immediate buyers
and ultimately, the end-consumers.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE

In contrast, a direct tax is a tax for which a taxpayer is directly liable

on the transaction or business it engages in, without transferring the burden
to someone else.[11]Examples are individual and corporate income taxes,

I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)

transfer taxes, and residence taxes.[12]

In the Philippines, the value-added system of sales taxation has long
been in existence, albeit in a different mode. Prior to 1978, the system was a
single-stage tax computed under the cost deduction method and was
payable only by the original sellers. The single-stage

system was

subsequently modified, and a mixture of the cost deduction method and tax
credit method was used to determine the value-added tax payable. [13] Under
the tax credit method, an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.[14]
It was only in 1987, when President Corazon C. Aquino issued

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President
in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both
the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the
amount of input tax to be credited against the output tax;
and
4) Including the amendments introduced only by Senate Bill
No. 1950 regarding other kinds of taxes in addition to the
value-added tax.

Executive Order No. 273, that the VAT system was rationalized by imposing
a multi-stage tax rate of 0% or 10% on all sales using the tax credit method.

Petitioners now beseech the Court to define the powers of the

Bicameral Conference Committee.

[15]

It should be borne in mind that the power of internal regulation and

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT
Law,[16] R.A. No. 8241 or the Improved VAT Law, [17] R.A. No. 8424 or the Tax

discipline are intrinsic in any legislative body for, as unerringly elucidated by

Justice Story, [i]f the power did not exist, it would be utterly

conference committee of both Houses which shall meet

within ten (10) days after their composition. The President
shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.

impracticable to transact the business of the nation, either at all, or

at least with decency, deliberation, and order. [19] Thus, Article VI,
Section 16 (3) of the Constitution provides that each House may determine

Each Conference Committee Report shall contain a

detailed and sufficiently explicit statement of the changes in,
or amendments to the subject measure, and shall be signed
by a majority of the members of each House panel, voting
separately.

the rules of its proceedings. Pursuant to this inherent constitutional power to

promulgate and implement its own rules of procedure, the respective rules
of each house of Congress provided for the creation of a Bicameral

A comparative presentation of the conflicting House

and Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee
shall be attached to the report.

Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of

...

Representatives provides as follows:

Sec. 88. Conference Committee. In the event that
the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences
may be settled by the conference committees of both
chambers.
In resolving the differences with the Senate, the
House panel shall, as much as possible, adhere to and
support the House Bill. If the differences with the Senate are
so substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latters
appropriate action.
Sec. 89. Conference Committee Reports. . . . Each
report shall contain a detailed, sufficiently explicit statement
of the changes in or amendments to the subject measure.

The creation of such conference committee was apparently in

response to a problem, not addressed by any constitutional provision, where
the two houses of Congress find themselves in disagreement over changes
or amendments introduced by the other house in a legislative bill. Given that
one of the most basic powers of the legislative branch is to formulate and
implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note
that in the present petitions, the issue is not whether provisions of the rules

...
The Chairman of the House panel may be
interpellated on the Conference Committee Report prior to
the voting thereon. The House shall vote on the Conference
Committee Report in the same manner and procedure as it
votes on a bill on third and final reading.

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree
with the House of Representatives on the provision of any
bill or joint resolution, the differences shall be settled by a

of

both

houses

creating

the

bicameral

conference

committee

are

unconstitutional, but whether the bicameral conference committee

has strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,[20] the Court
En Banc, unanimously reiterated and emphasized its adherence to the
enrolled bill doctrine, thus, declining therein petitioners plea for the Court to

has been said that Parliamentary rules

are merely procedural, and with their
observance,
the
courts
have
no
concern. They may be waived or
disregarded by the legislative body.
Consequently, mere failure to conform
to
parliamentary
usage
will
not
invalidate the action (taken by a
deliberative body) when the requisite
number of members have agreed to a
particular measure.[21] (Emphasis supplied)

go behind the enrolled copy of the bill. Assailed in said case was Congresss
creation of two sets of bicameral conference committees, the lack of records
of said committees proceedings, the alleged violation of said committees of
the rules of both houses, and the disappearance or deletion of one of the
provisions in the compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the passage of the law
nullified R.A. No. 9006, or the Fair Election Act.

The foregoing declaration is exactly in point with the present cases,

Striking down such argument, the Court held thus:
Under the enrolled bill doctrine, the signing of a bill
by the Speaker of the House and the Senate President and
the certification of the Secretaries of both Houses of
Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Courts consistent
adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation
of the 2nd or 3rd Bicameral Conference Committee by
the House. This Court is not the proper forum for the
enforcement of these internal rules of Congress,
whether House or Senate. Parliamentary rules are
merely procedural and with their observance the
courts have no concern. Whatever doubts there may
be as to the formal validity of Rep. Act No. 9006 must
be resolved in its favor. The Court reiterates its ruling
inArroyo vs. De Venecia, viz.:
But the cases, both here and
abroad, in varying forms of expression,
all deny to the courts the power to
inquire
into
allegations
that,
in
enacting a law, a House of Congress
failed to comply with its own rules, in
the absence of showing that there was
a violation of a constitutional provision
or the rights of private individuals.
InOsmea v. Pendatun, it was held: At any
rate, courts have declared that the rules
adopted by deliberative bodies are subject
to revocation, modification or waiver at the
pleasure of the body adopting them. And it

where

petitioners

allege

irregularities

committed

by

the

conference

committee in introducing changes or deleting provisions in the House and

Senate bills. Akin to the Farias case,[22] the present petitions also raise an
issue regarding the actions taken by the conference committee on matters
regarding Congress compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature is the power to
formulate rules for its proceedings and the discipline of its members.
Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its
conference committee if it believes that said members violated any of its
rules of proceedings. Even the expanded jurisdiction of this Court cannot
apply to questions regarding only the internal operation of Congress, thus,
the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the
case of Tolentino vs. Secretary of Finance, [23] the Court already made the
pronouncement that [i]f a change is desired in the practice [of the

petroleum products
sellers, respectively

Bicameral Conference Committee] it must be sought in Congress

since this question is not covered by any constitutional provision
but is only an internal rule of each house.

[24]

To date, Congress has not

seen it fit to make such changes adverted to by the Court. It seems,

therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient legislative
action.
Nevertheless, just to put minds at ease that no blatant irregularities

Provides that the input tax credit for capital goods on which
a VAT has been paid shall be equally distributed over 5
years or the depreciable life of such capital goods; the input
tax credit for goods and services other than capital goods
shall not exceed 5% of the total amount of such goods and
services; and for persons engaged in retail trading of goods,
the allowable input tax credit shall not exceed 11% of the
total amount of goods purchased.

No similar provision

tainted the proceedings of the bicameral conference committees, the Court

deems it necessary to dwell on the issue. The Court observes that there was

With regard to amendme

a necessity for a conference committee because a comparison of the

provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill

No similar provision

No similar provision

No. 1950 on the other, reveals that there were indeed disagreements. As
pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555

The disagreements between the provisions in the House bills and the
House Bill No.3705
Senate bill were with regard to (1) what rate of VAT is to be imposed; (2)
whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed

Provides for 12% VAT on every sale of goods or properties

(amending Sec. 106 of NIRC); 12% VAT on importation of
goods (amending Sec. 107 of NIRC); and 12% VAT on sale of
services and use or lease of properties (amending Sec. 108
of NIRC)

in VAT
the in
Senate
bill,
bothof the
VATor imposed
onand
electricity generation,
Provides for 12%
general
on or
sales
goods
properties
reduced rates for sale of certain locally manufactured goods and
transmission and distribution companies and the VAT imposed on sale of
petroleum products and raw materials to be used in the manufacture
thereof (amending
Sec. 106products
of NIRC);
12% VAT
of consumers,
goods
petroleum
should
not on
be importation
passed on to
as proposed in
and reduced rates for certain imported products including petroleum
products (amending
Sec. 107
NIRC);
and 12%
VATinput
on sale
services
the House
bill;of(3)
in what
manner
taxofcredits
should be limited; (4)
and use or lease of properties and a reduced rate for certain services
including power and
generation
(amending
108 of NIRC)
whether
the NIRCSec.
provisions
on corporate income taxes, percentage,
franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing

No similar provision

provisions
of the
Housegeneration
and Senate
bills,
Conference
Provides that the
VAT imposed
on power
and on
the the
sale Bicameral
of

Committee was mandated by the rules of both houses of Congress to act on

altogether deleting from its Report any no pass-on provision.

the same by settling said differences and/or disagreements. The Bicameral

Conference Committee acted on the disagreeing provisions by making the

3. With regard to the disagreement on whether input tax credits

following changes:
should be limited or not, the Bicameral Conference Committee decided to
1. With regard to the disagreement on the rate of VAT to be imposed,

adopt the position of the House by putting a limitation on the amount of

it would appear from the Conference Committee Report that the Bicameral

input tax that may be credited against the output tax, although it crafted its

Conference Committee tried to bridge the gap in the difference between the

own language as to the amount of the limitation on input tax credits and the

10% VAT rate proposed by the Senate, and the various rates with 12% as the

manner of computing the same by providing thus:

highest VAT rate proposed by the House, by striking a compromise whereby

(A) Creditable Input Tax. . . .

...

the present 10% VAT rate would be retained until certain conditions arise,
i.e., the value-added tax collection as a percentage of gross domestic
product (GDP) of the previous year exceeds 2 4/5%, or National Government
deficit as a percentage of GDP of the previous year exceeds 1%, when the
President, upon recommendation of the Secretary of Finance shall raise the
rate of VAT to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT

imposed on electricity generation, transmission and distribution companies
should not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the
Bicameral Conference Committee chose to settle such disagreement by

Provided, The input tax on goods purchased

or imported in a calendar month for use in
trade or business for which deduction for
depreciation is allowed under this Code, shall
be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for
such goods, excluding the VAT component
thereof,
exceeds
one
million
Pesos
(P1,000,000.00): PROVIDED, however, that if
the estimated useful life of the capital good
is less than five (5) years, as used for
depreciation purposes, then the input VAT
shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end
of any taxable quarter the output tax
exceeds the input tax, the excess shall be
paid by the VAT-registered person. If the
input tax exceeds the output tax, the excess
shall be carried over to the succeeding
quarter or quarters: PROVIDED that the input
tax inclusive of input VAT carried over from
the previous quarter that may be credited in
every quarter shall not exceed seventy
percent (70%) of the output VAT: PROVIDED,

HOWEVER, THAT any input tax attributable

to zero-rated sales by a VAT-registered
person may at his option be refunded or
credited against other internal revenue
taxes, . . .

The so-called stand-by authority in favor of the President, whereby

the rate of 10% VAT wanted by the Senate is retained until such time that
certain conditions arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the difference in the

4. With regard to the amendments to other provisions of the NIRC on

corporate

income

tax,

franchise,

percentage

and excise

taxes,

the

conference committee decided to include such amendments and basically

rate of VAT proposed by the two houses of Congress. Nevertheless, such

compromise is still totally within the subject of what rate of VAT should be
imposed on taxpayers.

adopted the provisions found in Senate Bill No. 1950, with some changes as
The no pass-on provision was deleted altogether. In the transcripts

to the rate of the tax to be imposed.

of the proceedings of the Bicameral Conference Committee held on May 10,

Under

the

provisions

of

both

the

Rules

of

the

House

of

Representatives and Senate Rules, the Bicameral Conference Committee is

mandated to settle the differences between the disagreeing provisions in the

2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason
for deleting the no pass-on provision in this wise:

the House bill or the provisions in the Senate bill would

. . . the thinking was just to keep the VAT law or the

VAT bill simple. And we were thinking that no sector should
be a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is a
pass on-tax. And lets keep it plain and simple. Lets not
confuse the bill and put a no pass-on provision. Two-thirds of
the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though
provision. So, the thinking of the Senate is basically simple,
lets keep the VAT simple.[26] (Emphasis supplied)

be carried into the final form of the bill, and/or (c) try to arrive at a

Rep. Teodoro Locsin further made the manifestation that the no

House bill and the Senate bill. The term settle is synonymous to reconcile
and harmonize.[25] To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific provisions
of either the House bill or Senate bill, (b) decide that neither provisions in

compromise between the disagreeing provisions.

pass-on provision never really enjoyed the support of either House. [27]
With regard to the amount of input tax to be credited against output

In the present case, the changes introduced by the Bicameral

tax, the Bicameral Conference Committee came to a compromise on the

Conference Committee on disagreeing provisions were meant only to

percentage rate of the limitation or cap on such input tax credit, but again,

reconcile and harmonize the disagreeing provisions for it did not inject any

the change introduced by the Bicameral Conference Committee was totally

idea or intent that is wholly foreign to the subject embraced by the original

within the intent of both houses to put a cap on input tax that may be

provisions.

credited against the output tax. From the inception of the subject revenue

bill in the House of Representatives, one of the major objectives was to plug

chamber
supplied)

is

thus

without

any

basis.[31]

(Emphasis

a glaring loophole in the tax policy and administration by creating vital

restrictions on the claiming of input VAT tax credits . . . and [b]y introducing
limitations on the claiming of tax credit, we are capping a major leakage that

B. R.A. No. 9337 Does Not Violate Article VI,

Section 26(2) of the Constitution on
the No-Amendment Rule

has placed our collection efforts at an apparent disadvantage. [28]

Article VI, Sec. 26 (2) of the Constitution, states:
As to the amendments to NIRC provisions on taxes other than the
value-added tax proposed in Senate Bill No. 1950, since said provisions were
among those referred to it, the conference committee had to act on the
same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral

No bill passed by either House shall become a law

unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when
the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.

Conference Committee were germane to subjects of the provisions referred

to it for reconciliation. Such being the case, the Court does not see any

Petitioners argument that the practice where a bicameral conference

grave abuse of discretion amounting to lack or excess of jurisdiction

committee is allowed to add or delete provisions in the House bill and the

committed by the Bicameral Conference Committee. In the earlier cases of

Senate bill after these had passed three readings is in effect a circumvention

Philippine Judges Association vs. Prado [29] and Tolentino vs. Secretary of

of the no amendment rule (Sec. 26 (2), Art. VI of the 1987 Constitution), fails

Finance,[30] the Court recognized the long-standing legislative practice of

to convince the Court to deviate from its ruling in the Tolentino case that:

giving

said

conference

committee

ample

latitude

for

compromising

differences between the Senate and the House. Thus, in the Tolentino case,
it was held that:
. . . it is within the power of a conference committee
to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of one or
two provisions, there is no reason why it cannot propose
several provisions, collectively considered as an amendment
in the nature of a substitute, so long as such amendment is
germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of
both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative

Nor is there any reason for requiring that the

Committees Report in these cases must have undergone
three readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house may
seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as
referring only to bills introduced for the first time in
either house of Congress, not to the conference
committee report.[32](Emphasis supplied)

The Court reiterates here that the no-amendment rule refers

only to the procedure to be followed by each house of Congress
with regard to bills initiated in each of said respective houses,

before said bill is transmitted to the other house for its concurrence
or amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead to
absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said
bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean
that

the

introduction

by

the

Bicameral

Conference

Committee

of

amendments and modifications to disagreeing provisions in bills that have

been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI,
Section 24 of the Constitution on
Exclusive Origination of Revenue
Bills

Coming to the issue of the validity of the amendments made

regarding the NIRC provisions on corporate income taxes and percentage,
excise taxes. Petitioners refer to the following provisions, to wit:
S
e
c
t
i
o
n

Rates of Income Tax on Domestic Corporation

2
7
2
8
(
A
)
(
1
)

Tax on Resident Foreign Corporation

Inter-corporate Dividends

8
(
B
)
(
1
)
3
4
(
B
)
(
1
)

Inter-corporate Dividends

1
1
6

Tax on Persons Exempt from VAT

1
1
7

Percentage Tax on domestic carriers and

keepers of Garage

1
1
9

Tax on franchises

1
2
1

Tax on banks
Intermediaries

1
4
8

Excise Tax on manufactured oils and other

fuels

1
5
1

Excise Tax on mineral products

2
3
6

Registration requirements

2
3
7

Issuance of receipts or sales or commercial

invoices

2
8
8

Disposition of Incremental Revenue

and

Non-Bank

Financial

Petitioners claim that the amendments to these provisions of the

NIRC did not at all originate from the House. They aver that House Bill No.

to propose or concur with amendments to a revenue bill that originated from

the House?

3555 proposed amendments only regarding Sections 106, 107, 108, 110 and
114 of the NIRC, while House Bill No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which amendments
were not found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the proposed
amendments did not originate from the House, such amendments are a
violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the
House of Representatives but the Senate may propose or
concur with amendments.

In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions of the
NIRC dealing mainly with the value-added tax. Upon transmittal of said
House bills to the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the value-added tax
but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the valueadded tax, which is the only kind of tax being amended in the House bills,
still within the purview of the constitutional provision authorizing the Senate

The foregoing question had been squarely answered in the Tolentino

case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue
bill which is required by the Constitution to originate
exclusively in the House of Representatives. It is important
to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that the
result may be a rewriting of the whole. . . . At this point,
what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a
revenue statute and not only the bill which initiated
the legislative process culminating in the enactment
of the law must substantially be the same as the
House bill would be to deny the Senates power not
only to concur with amendments but also to propose
amendments. It would be to violate the coequality of
legislative power of the two houses of Congress and in fact
make the House superior to the Senate.

Given, then, the power of the Senate to

propose amendments, the Senate can propose its
own version even with respect to bills which are
required by the Constitution to originate in the
House.
...
Indeed, what the Constitution simply means is that
the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and
bills of local application must come from the House of
Representatives on the theory that, elected as they are from
the districts, the members of the House can be
expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are
elected at large, are expected to approach the same
problems from the national perspective. Both views
are thereby made to bear on the enactment of such
laws.[33] (Emphasis supplied)

Since there is no question that the revenue bill exclusively originated

in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of
the Constitution does not contain any prohibition or limitation on the extent
of the amendments that may be introduced by the Senate to the House

2005, she reiterated that we all acknowledged that on top of

our agenda must be the restoration of the health of our fiscal
system.
In order to considerably lower the consolidated
public sector deficit and eventually achieve a balanced
budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the
beginning, but in the long run prove effective and
beneficial to the overall status of our economy. One
such opportunity is a review of existing tax rates,
evaluating
the
relevance
given
our
present
conditions.[34] (Emphasis supplied)

revenue bill.
Notably therefore, the main purpose of the bills emanating from the
Furthermore, the amendments introduced by the Senate to the NIRC
provisions that had not been touched in the House bills are still in
furtherance of the intent of the House in initiating the subject revenue bills.
The Explanatory Note of House Bill No. 1468, the very first House bill
introduced on the floor, which was later substituted by House Bill No. 3555,
stated:

House of Representatives is to bring in sizeable revenues for the

government
to supplement our countrys serious financial problems, and improve tax
administration and control of the leakages in revenues from income taxes
and value-added taxes. As these house bills were transmitted to the Senate,
the latter, approaching the measures from the point of national perspective,

One of the challenges faced by the present

administration is the urgent and daunting task of solving the
countrys serious financial problems. To do this, government
expenditures must be strictly monitored and controlled and
revenues must be significantly increased. This may be easier
said than done, but our fiscal authorities are still optimistic
the government will be operating on a balanced budget by
the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the
administration. It is supported with a credible package
of revenue measures that include measures to
improve tax administration and control the leakages
in revenues from income taxes and the value-added
tax (VAT). (Emphasis supplied)

Rep. Eric D. Singson, in his sponsorship speech for House Bill No.
3555, declared that:
In the budget message of our President in the year

can introduce amendments within the purposes of those bills. It can provide
for ways that would soften the impact of the VAT measure on the consumer,
i.e., by distributing the burden across all sectors instead of putting it entirely
on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is
worth quoting:
All in all, the proposal of the Senate Committee on
Ways and Means will raise P64.3 billion in additional
revenues annually even while by mitigating prices of power,
services and petroleum products.
However, not all of this will be wrung out of VAT. In
fact, only P48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab P10.5 billion- will be
picked by corporations.

What we therefore prescribe is a burden sharing

between corporate Philippines and the consumer. Why
should the latter bear all the pain? Why should the fiscal
salvation be only on the burden of the consumer?

sponsorship speech, Sen. Recto said:

However, for power plants that run on oil, we will
reduce to zero the present excise tax on bunker fuel, to
lessen the effect of a VAT on this product.

The corporate worlds equity is in form of the

increase in the corporate income tax from 32 to 35 percent,
but up to 2008 only. This will raise P10.5 billion a year. After
that, the rate will slide back, not to its old rate of 32 percent,
but two notches lower, to 30 percent.

For electric utilities like Meralco, we will wipe out the

franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the
VAT on oil products, so as not to destroy the VAT chain, we
will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.

Clearly, we are telling those with the capacity to pay,

corporations, to bear with this emergency provision that will
be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.

...

For their assistance, a reward of tax reduction awaits

them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a
light at the end of the tunnel, this government will keep on
making the tunnel long.

What do all these exercises point to? These are not

contortions of giving to the left hand what was taken from
the right. Rather, these sprang from our concern of softening
the impact of VAT, so that the people can cushion the blow
of higher prices they will have to pay as a result of VAT. [36]

The responsibility will not rest solely on the weary

shoulders of the small man. Big business will be there to
share the burden.[35]

The other sections amended by the Senate pertained to matters of

As the Court has said, the Senate can propose amendments and in
fact, the amendments made on provisions in the tax on income of

tax administration which are necessary for the implementation of the

changes in the VAT system.

corporations are germane to the purpose of the house bills which is to raise
revenues for the government.

To reiterate, the sections introduced by the Senate are germane to

the subject matter and purposes of the house bills, which is to supplement
our countrys fiscal deficit, among others. Thus, the Senate acted within its

Likewise, the Court finds the sections referring to other percentage

power to propose those amendments.

and excise taxes germane to the reforms to the VAT system, as these
SUBSTANTIVE ISSUES

sections would cushion the effects of VAT on consumers. Considering that

certain goods and services which were subject to percentage tax and excise
tax would no longer be VAT-exempt, the consumer would be burdened more

I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108 of the NIRC, violate the following provisions of the Constitution:

as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his

A.

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)
No
Undue
Delegation
of
Legislative Power

is hereby further amended to read as follows:

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving
the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the
legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is
hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or
Properties.
(A) Rate and Base of Tax. There shall be
levied, assessed and collected on every sale,
barter or exchange of goods or properties, a
value-added tax equivalent to ten percent
(10%) of the gross selling price or gross
value in money of the goods or properties
sold, bartered or exchanged, such tax to be
paid by the seller or transferor: provided,
that
the
President,
upon
the
recommendation of the Secretary of
Finance, shall, effective January 1,
2006, raise the rate of value-added tax
to twelve percent (12%), after any of
the following conditions has been
satisfied.
(i)

value-added tax collection

as
a
percentage
of
Gross
Domestic Product (GDP) of the
previous year exceeds two and
four-fifth percent (2 4/5%) or

(ii) national government deficit as a

percentage of GDP of the
previous year exceeds one and
one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended,

SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied,
assessed and collected on every importation
of goods a value-added tax equivalent to ten
percent (10%) based on the total value used
by the Bureau of Customs in determining
tariff and customs duties, plus customs
duties, excise taxes, if any, and other
charges, such tax to be paid by the importer
prior to the release of such goods from
customs custody: Provided, That where the
customs duties are determined on the basis
of the quantity or volume of the goods, the
value-added tax shall be based on the
landed cost plus excise taxes, if any:
provided, further, that the President,
upon the recommendation of the
Secretary of Finance, shall, effective
January 1, 2006, raise the rate of valueadded tax to twelve percent (12%) after
any of the following conditions has
been satisfied.
(i)

value-added tax collection as a

percentage of Gross Domestic
Product (GDP) of the previous
year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit as a
percentage of GDP of the
previous year exceeds one and
one-half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended,
is hereby further amended to read as follows:

SEC. 108. Value-added Tax on Sale

Services and Use or Lease of Properties

of

(A) Rate and Base of Tax. There shall be

levied, assessed and collected, a valueadded tax equivalent to ten percent (10%) of
gross receipts derived from the sale or
exchange of services: provided, that the
President, upon the recommendation of
the
Secretary
of
Finance,
shall,
effective January 1, 2006, raise the rate

of value-added tax to twelve percent

(12%), after any of the following
conditions has been satisfied.

transparency should dictate the actions of Congress and they should not
pass to the President the decision to impose taxes. They also argue that the

(i)

value-added tax collection as a

percentage of Gross Domestic
Product (GDP) of the previous
year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit as a
percentage of GDP of the
previous year exceeds one and
one-half percent (1 %). (Emphasis
supplied)

law also effectively nullified the Presidents power of control, which includes
the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers
to cause, influence or create the conditions provided by the law to bring

Petitioners allege that the grant of the stand-by authority to the

about either or both the conditions precedent.

President to increase the VAT rate is a virtual abdication by Congress of its

On the other hand, petitioners Escudero, et al. find bizarre and

exclusive power to tax because such delegation is not within the purview of

revolting the situation that the imposition of the 12% rate would be subject

Section 28 (2), Article VI of the Constitution, which provides:

to the whim of the Secretary of Finance, an unelected bureaucrat, contrary

The Congress may, by law, authorize the President

to fix within specified limits, and 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.

to the principle of no taxation without representation. They submit that the

Secretary of Finance is not mandated to give a favorable recommendation
and he may not even give his recommendation. Moreover, they allege that
no guiding standards are provided in the law on what basis and as to how he

They argue that the VAT is a tax levied on the sale, barter or
exchange of goods and properties as well as on the sale or exchange of
services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on

will

make

his

recommendation.

They

claim,

nonetheless,

that

any

recommendation of the Secretary of Finance can easily be brushed aside by

the President since the former is a mere alter ego of the latter, such that,
ultimately, it is the President who decides whether to impose the increased
tax rate or not.

goods or merchandise imported or exported.

A brief discourse on the principle of non-delegation of powers is
Petitioners ABAKADA GURO Party List, et al., further contend that

instructive.

delegating to the President the legislative power to tax is contrary to

republicanism.

They

insist

that

accountability,

responsibility

and

The principle of separation of powers ordains that each of the three

great branches of government has exclusive cognizance of and is supreme

powers is subject to the following recognized limitations or exceptions:

in matters falling within its own constitutionally allocated sphere. [37] A logical

(1) Delegation of tariff powers to the President under Section

28 (2) of Article VI of the Constitution;

corollary to the doctrine of separation of powers is the principle of non-

(2) Delegation of emergency powers to the President under

Section 23 (2) of Article VI of the Constitution;

delegation of powers, as expressed in the Latin maxim: potestas delegata

(3) Delegation to the people at large;

non delegari potest which means what has been delegated, cannot be

(4) Delegation to local governments; and

delegated.[38] This doctrine is based on the ethical principle that such as

(5) Delegation to administrative bodies.

delegated power constitutes not only a right but a duty to be performed by

the delegate through the instrumentality of his own judgment and not
In every case of permissible delegation, there must be a showing

through the intervening mind of another.[39]

that the delegation itself is valid. It is valid only if the law (a) is complete in
With respect to the Legislature, Section 1 of Article VI of the

itself, setting forth therein the policy to be executed, carried out, or

Constitution provides that the Legislative power shall be vested in the

implemented by the delegate;[41] and (b) fixes a standard the limits of which

Congress of the Philippines which shall consist of a Senate and a House of

are sufficiently determinate and determinable to which the delegate must

Representatives. The powers which Congress is prohibited from delegating

conform in the performance of his functions. [42] A sufficient standard is one

are those which are strictly, or inherently and exclusively, legislative. Purely

which defines legislative policy, marks its limits, maps out its boundaries

legislative power, which can never be delegated, has been described as the

and specifies the public agency to apply it. It indicates the circumstances

authority to make a complete law complete as to the time when it

under which the legislative command is to be effected. [43] Both tests are

shall take effect and as to whom it shall be applicable and to

intended to prevent a total transference of legislative authority to the

determine the expediency of its enactment.

delegate, who is not allowed to step into the shoes of the legislature and

[40]

Thus, the rule is that in

order that a court may be justified in holding a statute unconstitutional as a

exercise a power essentially legislative.[44]

delegation of legislative power, it must appear that the power involved is

In People vs. Vera,[45] the Court, through eminent Justice Jose P.

purely legislative in nature that is, one appertaining exclusively to the

legislative department. It is the nature of the power, and not the liability of
its use or the manner of its exercise, which determines the validity of its
delegation.
Nonetheless, the general rule barring delegation of legislative

Laurel, expounded on the concept and extent of delegation of power in this

wise:
In testing whether a statute constitutes an undue
delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or
delegate of the legislature.

...
The true distinction, says Judge Ranney, is
between the delegation of power to make the law,
which necessarily involves a discretion as to what it
shall be, and conferring an authority or discretion as
to its execution, to be exercised under and in
pursuance of the law. The first cannot be done; to the
latter no valid objection can be made.

governed. The efficiency of an Act as a declaration of

legislative will must, of course, come from Congress,
but the ascertainment of the contingency upon which
the Act shall take effect may be left to such agencies
as it may designate. The legislature, then, may
provide that a law shall take effect upon the
happening of future specified contingencies leaving
to some other person or body the power to determine
when the specified contingency has arisen. (Emphasis
supplied).[46]

...
It is contended, however, that a legislative act may
be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on
certain contingencies, as by proclamation of the executive or
the adoption by the people of a particular community. In
Wayman vs. Southard, the Supreme Court of the United
States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power
to ascertain facts is such a power which may be
delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as
the basis of the taking into effect of a law. That is a
mental process common to all branches of the
government.Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of
legislative authority on account of the complexity arising
from social and economic forces at work in this modern
industrial age, the orthodox pronouncement of Judge Cooley
in his work on Constitutional Limitations finds restatement in
Prof. Willoughby's treatise on the Constitution of the United
States in the following language speaking of declaration of
legislative power to administrative agencies: The principle
which permits the legislature to provide that the
administrative agent may determine when the
circumstances are such as require the application of a
law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is
the essence of the legislative act, is determined by
the legislature. In other words, the legislature, as it is
its duty to do, determines that, under given
circumstances, certain executive or administrative
action is to be taken, and that, under other
circumstances, different or no action at all is to be
taken. What is thus left to the administrative official
is not the legislative determination of what public
policy demands, but simply the ascertainment of
what the facts of the case require to be done
according to the terms of the law by which he is

In Edu vs. Ericta,[47] the Court reiterated:

What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them; the
test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To
determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope
and definiteness of the measure enacted. The legislative
does not abdicate its functions when it describes
what job must be done, who is to do it, and what is
the scope of his authority. For a complex economy, that
may be the only way in which the legislative process can go
forward. A distinction has rightfully been made
between delegation of power to make the laws which
necessarily involves a discretion as to what it shall
be, which constitutionally may not be done, and
delegation of authority or discretion as to its
execution to be exercised under and in pursuance of
the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).[48]

Clearly, the legislature may delegate to executive officers or bodies

the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority.[49] While the power to tax cannot be delegated
to executive agencies, details as to the enforcement and administration of
an exercise of such power may be left to them, including the power to

determine the existence of facts on which its operation depends. [50]

The rationale for this is that the preliminary ascertainment of facts

The case before the Court is not a delegation of legislative power. It

is simply a delegation of ascertainment of facts upon which enforcement

as basis for the enactment of legislation is not of itself a legislative function,

but is simply ancillary to legislation. Thus, the duty of correlating information
and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to

and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire

others to perform. Intelligent legislation on the complicated problems of

modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such
information is proper.

[51]

operation or non-operation of the 12% rate upon factual matters outside of

the control of the executive.

The Constitution as a continuously operative charter

of government does not require that Congress find for itself

No discretion would be exercised by the President. Highlighting the

every fact upon which it desires to base legislative action or that it make for

absence of discretion is the fact that the word shall is used in the common

itself detailed determinations which it has declared to be prerequisite to

proviso. The use of the word shall connotes a mandatory order. Its use in a

application of legislative policy to particular facts and circumstances

statute denotes an imperative obligation and is inconsistent with the idea of

impossible for Congress itself properly to investigate. [52]

discretion.[53] Where the law is clear and unambiguous, it must be taken to

mean exactly what it says, and courts have no choice but to see to it that

In the present case, the challenged section of R.A. No. 9337 is the

the mandate is obeyed.[54]

common proviso in Sections 4, 5 and 6 which reads as follows:

That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(i) Value-added tax collection as a
percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and fourfifth percent (2 4/5%); or
(ii) National government deficit as a
percentage of GDP of the previous year
exceeds one and one-half percent (1 %).

Thus, it is the ministerial duty of the President to immediately

impose the 12% rate upon the existence of any of the conditions specified
by Congress. This is a duty which cannot be evaded by the President.
Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear directive to
impose the 12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.

In the present case, in making his recommendation to the President

The Court finds no merit to the contention of petitioners ABAKADA
GURO Party List, et al. that the law effectively nullified the Presidents power
of control over the Secretary of Finance by mandating the fixing of the tax
rate by the President upon the recommendation of the Secretary of Finance.
The Court cannot also subscribe to the position of petitioners

on the existence of either of the two conditions, the Secretary of Finance is

not acting as the alter ego of the President or even her subordinate. In such
instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take

Pimentel, et al. that the word shall should be interpreted to mean may in
view of the phrase upon the recommendation of the Secretary of Finance.
Neither does the Court find persuasive the submission of petitioners
Escudero, et al. that any recommendation by the Secretary of Finance can
easily be brushed aside by the President since the former is a mere alter ego
of the latter.

effect.[56] The Secretary of Finance becomes the means or tool by which

legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of
the two conditions laid out by Congress is present. His personality in such

When one speaks of the Secretary of Finance as the alter ego of the

instance is in reality but a projection of that of Congress. Thus, being the

President, it simply means that as head of the Department of Finance he is

agent of Congress and not of the President, the President cannot alter or

the assistant and agent of the Chief Executive. The multifarious executive

modify or nullify, or set aside the findings of the Secretary of Finance and to

and administrative functions of the Chief Executive are performed by and

substitute the judgment of the former for that of the latter.

through the executive departments, and the acts of the secretaries of such
departments,

such

as

the

Department

of

Finance,

performed

and

promulgated in the regular course of business, are, unless disapproved or

reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is subject to the direction of the
President."[55]

Congress simply granted the Secretary of Finance the authority to

ascertain the existence of a fact, namely, whether by December 31, 2005,
the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the
national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. There is no undue delegation
of legislative power but only of the discretion as to the execution of

a law. This is constitutionally permissible.[57] Congress does not

also argue that the 12% increase, dependent on any of the 2 conditions set

abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our

forth in the contested provisions, is ambiguous because it does not state if

complex economy that is frequently the only way in which the legislative

the VAT rate would be returned to the original 10% if the rates are no longer

process can go forward.

[58]

satisfied. Petitioners also argue that such rate is unfair and unreasonable, as
As to the argument of petitioners ABAKADA GURO Party List, et al.

the people are unsure of the applicable VAT rate from year to year.

that delegating to the President the legislative power to tax is contrary to

the principle of republicanism, the same deserves scant consideration.

Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337,

Congress did not delegate the power to tax but the mere implementation of

if any of the two conditions set forth therein are satisfied, the President shall

the law. The intent and will to increase the VAT rate to 12% came from

increase the VAT rate to 12%. The provisions of the law are clear. It does not

Congress and the task of the President is to simply execute the legislative

provide for a return to the 10% rate nor does it empower the President to so

policy. That Congress chose to do so in such a manner is not within the

revert if, after the rate is increased to 12%, the VAT collection goes below

province of the Court to inquire into, its task being to interpret the law. [59]

the 24/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1%.

The insinuation by petitioners Pimentel, et al. that the President has ample
powers to cause, influence or create the conditions to bring about either or

Therefore, no statutory construction or interpretation is needed.

both the conditions precedent does not deserve any merit as this argument

Neither can conditions or limitations be introduced where none is provided

is highly speculative. The Court does not rule on allegations which are

for. Rewriting the law is a forbidden ground that only Congress may tread

manifestly conjectural, as these may not exist at all.The Court deals with

upon.[60]

facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.

Thus, in the absence of any provision providing for a return to the

10% rate, which in this case the Court finds none, petitioners argument is, at

B. The 12% Increase VAT Rate Does Not

Impose an Unfair and Unnecessary
Additional Tax Burden

best, purely speculative. There is no basis for petitioners fear of a fluctuating

VAT rate because the law itself does not provide that the rate should go back
to 10% if the conditions provided in Sections 4, 5 and 6 are no longer

Petitioners Pimentel, et al. argue that the 12% increase in the VAT
rate imposes an unfair and additional tax burden on the people. Petitioners

present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the

legislative intent, the law must be taken as it is, devoid of judicial addition or

there is a public purpose for which the law was passed, which in this case, is

subtraction.[61]

mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise
in revenue.

Petitioners also contend that the increase in the VAT rate, which was
allegedly an incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.

The principle of fiscal adequacy as a characteristic of a sound tax

system was originally stated by Adam Smith in his Canons of Taxation
(1776), as:

Petitioners obviously overlooked that increase in VAT collection is not

the only condition. There is another condition, i.e., the national government
deficit as a percentage of GDP of the previous year exceeds one and one-

IV. Every tax ought to be so contrived as both to take out

and to keep out of the pockets of the people as little
as possible over and above what it brings into the
public treasury of the state.[63]

half percent (1 %).

Respondents explained the philosophy behind these alternative

government expenditures and their variations.[64]

conditions:
1.

VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12%

have economic or fiscal meaning. If VAT/GDP is less than
2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be
ineffectual.
2.

It simply means that sources of revenues must be adequate to meet

Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT when

deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is
towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since
the fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need
to increase the VAT rate.[62]

That the first condition amounts to an incentive to the President to

increase the VAT collection does not render it unconstitutional so long as

The dire need for revenue cannot be ignored. Our country is in a

quagmire of financial woe. During the Bicameral Conference Committee
hearing, then Finance Secretary Purisima bluntly depicted the countrys
gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines
finds itself in right now. We are in a position where 90
percent of our revenue is used for debt service. So, for every
peso of revenue that we currently raise, 90 goes to debt
service. Thats interest plus amortization of our debt. So
clearly, this is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way
out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to
GDP is approximately equal to our GDP. Again, that shows
you that this is not a sustainable situation.
The third thing that Id like to point out is the
environment that we are presently operating in is not as
benign as what it used to be the past five years.
What do I mean by that?

In the past five years, weve been lucky because we

were operating in a period of basically global growth and low
interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in
the leading economies of the world. And, therefore, our
ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to
access the financial markets.
When the President made her speech in July last
year, the environment was not as bad as it is now, at least
based on the forecast of most financial institutions. So, we
were assuming that raising 80 billion would put us in a
position where we can then convince them to improve our
ability to borrow at lower rates. But conditions have changed
on us because the interest rates have gone up. In fact, just
within this room, we tried to access the market for a billion
dollars because for this year alone, the Philippines will have
to borrow 4 billion dollars. Of that amount, we have
borrowed 1.5 billion. We issued last January a 25-year bond
at 9.7 percent cost. We were trying to access last week and
the market was not as favorable and up to now we have not
accessed and we might pull back because the conditions are
not very good.
So given this situation, we at the Department of
Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of
the debt and we are in what we call a debt spiral. The more
debt you have, the more deficit you have because interest
and debt service eats and eats more of your revenue. We
need to get out of this debt spiral. And the only way, I think,
we can get out of this debt spiral is really have a front-end
adjustment in our revenue base.[65]

political branches of the government. It is not for this Court

to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results,
whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner
are matters for the judgment of the legislature, and the
serious conflict of opinions does not suffice to bring them
within the range of judicial cognizance. [66]

In the same vein, the Court in this case will not dawdle on the
purpose of Congress or the executive policy, given that it is not for the
judiciary to "pass upon questions of wisdom, justice or expediency of
legislation.[67]

II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and
110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue

that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and

The image portrayed is chilling. Congress passed the law hoping for
rescue from an inevitable catastrophe. Whether the law is indeed sufficient
to answer the states economic dilemma is not for the Court to judge. In the
Farias case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair

Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary,

oppressive,

excessive

and

confiscatory.

Their

argument

is

premised on the constitutional right against deprivation of life, liberty of

property without due process of law, as embodied in Article III, Section 1 of
the Constitution.

Election Act), pronouncing that:

. . . policy matters are not the concern of the Court.
Government policy is within the exclusive dominion of the

Petitioners

also

contend

that

these

provisions

violate

the

constitutional guarantee of equal protection of the law.

The doctrine is that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather

exceeds 70% of the output tax, and therefore, the input tax in excess of 70%
remains uncredited. However, to the extent that the input tax is less than
70% of the output tax, then 100% of such input tax is still creditable.

broad standards, there is a need for proof of such persuasive character as

would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.[68]

More importantly, the excess input tax, if any, is retained in a

businesss books of accounts and remains creditable in the succeeding
quarter/s. This is explicitly allowed by Section 110(B), which provides that if

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC

the input tax exceeds the output tax, the excess shall be carried over to the

imposes a limitation on the amount of input tax that may be credited against

succeeding quarter or quarters. In addition, Section 112(B) allows a VAT-

the output tax. It states, in part: [P]rovided, that the input tax inclusive of

registered person to apply for the issuance of a tax credit certificate or

the input VAT carried over from the previous quarter that may be credited in

refund for any unused input taxes, to the extent that such input taxes have

every quarter shall not exceed seventy percent (70%) of the output VAT:

not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.

Input Tax is defined under Section 110(A) of the NIRC, as amended,

as the value-added tax due from or paid by a VAT-registered person on the

The non-application of the unutilized input tax in a given quarter is

importation of goods or local purchase of good and services, including lease

not ad infinitum, as petitioners exaggeratedly contend. Their analysis of the

or use of property, in the course of trade or business, from a VAT-registered

effect of the 70% limitation is incomplete and one-sided. It ends at the net

person, and Output Tax is the value-added tax dueon the sale or lease of

effect that there will be unapplied/unutilized inputs VAT for a given quarter. It

taxable goods or properties or services by any person registered or required

does not proceed further to the fact that such unapplied/unutilized input tax

to register under the law.

may be credited in the subsequent periods as allowed by the carry-over

provision of Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).

Petitioners claim that the contested sections impose limitations on

the amount of input tax that may be claimed. In effect, a portion of the input

Therefore, petitioners argument must be rejected.

tax that has already been paid cannot now be credited against the output
On the other hand, it appears that petitioner Garcia failed to

tax.

comprehend the operation of the 70% limitation on the input tax. According
Petitioners argument is not absolute. It assumes that the input tax

to petitioner, the limitation on the creditable input tax in effect allows VAT-

registered establishments to retain a portion of the taxes they collect, which

person/taxpayer has already previously paid the input tax to a seller, and

violates the principle that tax collection and revenue should be for public

the seller will subsequently remit such input tax to the BIR. The party

purposes and expenditures

directly liable for the payment of the tax is the seller. [71] What only needs to
be done is for the person/taxpayer to apply or credit these input taxes, as

As earlier stated, the input tax is the tax paid by a person, passed on

evidenced by receipts, against his output taxes.

to him by the seller, when he buys goods. Output tax meanwhile is the tax
due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also

argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.

First, if at the end of a taxable quarter the output taxes charged by

the seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required;

The input tax is not a property or a property right within the

constitutional purview of the due process clause. A VAT-registered persons
entitlement to the creditable input tax is a mere statutory privilege.

Second, when the output taxes exceed the input taxes, the person
shall be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR);[69] and

The distinction between statutory privileges and vested rights must

be borne in mind for persons have no vested rights in statutory privileges.
The state may change or take away rights, which were created by the law of

Third, if the input taxes exceed the output taxes, the excess shall be
carried over to the succeeding quarter or quarters. Should the input taxes

the state, although it may not take away property, which was vested by
virtue of such rights.[72]

result from zero-rated or effectively zero-rated transactions, any excess over

the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayers option.[70]

Under the previous system of single-stage taxation, taxes paid at

every level of distribution are not recoverable from the taxes payable,
although it becomes part of the cost, which is deductible from the gross

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the

input tax. Thus, a person can credit his input tax only up to the extent of
70% of the output tax. In laymans term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited
up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the

revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage
tax on all sales, it was then that the crediting of the input tax paid on
purchase or importation of goods and services by VAT-registered persons
against the output tax was introduced. [73] This was adopted by the Expanded
VAT Law (R.A. No. 7716), [74] and The Tax Reform Act of 1997 (R.A. No. 8424).

The right to credit input tax as against the output tax is clearly a privilege

the government.[76] In the same breath, Congress also justified its move by

created by law, a privilege that also the law can remove, or in this case,

saying that the provision was designed to raise an annual revenue of 22.6

limit.

billion.[77] The legislature also dispelled the fear that the provision will fend

[75]

off foreign investments, saying that foreign investors have other tax
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the
NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported
in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fiftynine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided,
however, That if the estimated useful life of the capital
goods is less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase
of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or license upon payment
of the compensation, rental, royalty or fee.

The foregoing section imposes a 60-month period within which to

amortize the creditable input tax on purchase or importation of capital goods
with acquisition cost of P1 Million pesos, exclusive of the VAT component.
Such spread out only poses a delay in the crediting of the input tax.
Petitioners argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.

incentives provided by law, and citing the case of China, where despite a
17.5% non-creditable VAT, foreign investments were not deterred. [78] Again,
for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot
intervene.
With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions, Section 12 of
R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government
or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are
subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added
tax at the rate of five percent (5%) of the gross payment
thereof: Provided, That the payment for lease or use of
properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of
payment. For purposes of this Section, the payor or person
in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section
shall be remitted within ten (10) days following the end of
the month the withholding was made.

It is worth mentioning that Congress admitted that the spread-out of

the creditable input tax in this case amounts to a 4-year interest-free loan to

Section 114(C) merely provides a method of collection, or as stated

by respondents, a more simplified VAT withholding system. The government

in this case is constituted as a withholding agent with respect to their

payments for goods and services.

tax due of the payee on said income. Taxes withheld on

income payments covered by the expanded withholding tax
(referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.

Prior to its amendment, Section 114(C) provided for different rates of

value-added taxes to be withheld -- 3% on gross payments for purchases of

As applied to value-added tax, this means that taxable transactions

goods; 6% on gross payments for services supplied by contractors other

with the government are subject to a 5% rate, which constitutes as full

than by public works contractors; 8.5% on gross payments for services

payment of the tax payable on the transaction. This represents the net VAT

supplied by public work contractors; or 10% on payment for the lease or use

payable of the seller. The other 5% effectively accounts for the standard

of properties or property rights to nonresident owners. Under the present

input VAT (deemed input VAT), in lieu of the actual input VAT directly or

Section 114(C), these different rates, except for the 10% on lease or

attributable to the taxable transaction.[79]

property rights payment to nonresidents, were deleted, and a uniform rate

of 5% is applied.

The Court need not explore the rationale behind the provision. It is
clear that Congress intended to treat differently taxable transactions with

The Court observes, however, that the law the used the word final.

the government.[80] This is supported by the fact that under the old provision,

In tax usage, final, as opposed to creditable, means full. Thus, it is provided

the 5% tax withheld by the government remains creditable against the tax

in Section 114(C): final value-added tax at the rate of five percent (5%).

liability of the seller or contractor, to wit:

In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The

Tax Reform Act of 1997), the concept of final withholding tax on income was
explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding
tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment
of the income tax due from the payee on the said income.
The liability for payment of the tax rests primarily on the
payor as a withholding agent. Thus, in case of his failure to
withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding
agent.
(B) Creditable Withholding Tax. Under the creditable
withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Creditable Value-added Tax.
The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods from sellers
and services rendered by contractors which are subject to
the value-added tax imposed in Sections 106 and 108 of this
Code, deduct and withhold the value-added tax due at the
rate of three percent (3%) of the gross payment for the
purchase of goods and six percent (6%) on gross receipts for
services rendered by contractors on every sale or
installment payment which shall be creditable against the
value-added tax liability of the seller or contractor:
Provided, however, That in the case of government public
works contractors, the withholding rate shall be eight and
one-half percent (8.5%): Provided, further, That the payment
for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this purpose, the

payor or person in control of the payment shall be

considered as the withholding agent.
The valued-added tax withheld under this Section
shall be remitted within ten (10) days following the end of
the month the withholding was made. (Emphasis supplied)

Whats more, petitioners contention assumes the proposition that

there is no profit or value-added. It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a

As amended, the use of the word final and the deletion of the word

business is created precisely for profit.

creditable exhibits Congresss intention to treat transactions with the

government differently. Since it has not been shown that the class subject

The equal protection clause under the Constitution means that no

to the 5% final withholding tax has been unreasonably narrowed, there is no

person or class of persons shall be deprived of the same protection of laws

reason to invalidate the provision. Petitioners, as petroleum dealers, are not

which is enjoyed by other persons or other classes in the same place and in

the only ones subjected to the 5% final withholding tax. It applies to all

like circumstances.[83]

those who deal with the government.

The

power

of

the

State

to

make

reasonable

and

natural

Moreover, the actual input tax is not totally lost or uncreditable, as

classifications for the purposes of taxation has long been established.

petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated

Whether it relates to the subject of taxation, the kind of property, the rates

Value-Added Tax Regulations 2005 issued by the BIR, provides that should

to be levied, or the amounts to be raised, the methods of assessment,

the actual input tax exceed 5% of gross payments, the excess may form part

valuation and collection, the States power is entitled to presumption of

of the cost. Equally, should the actual input tax be less than 5%, the

validity. As a rule, the judiciary will not interfere with such power absent a

difference is treated as income.[81]

clear showing of unreasonableness, discrimination, or arbitrariness. [84]

Petitioners also argue that by imposing a limitation on the creditable

Petitioners point out that the limitation on the creditable input tax if

input tax, the government gets to tax a profit or value-added even if there is

the entity has a high ratio of input tax, or invests in capital equipment, or

no profit or value-added.

has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.

Petitioners stance is purely hypothetical, argumentative, and again,

one-sided. The Court will not engage in a legal joust where premises are

The argument is pedantic, if not outright baseless. The law does not

what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the

make any classification in the subject of taxation, the kind of property, the

Court on this point will only be, as Shakespeare describes life in Macbeth,[82]

rates to be levied or the amounts to be raised, the methods of assessment,

full of sound and fury, signifying nothing.

valuation and collection. Petitioners alleged distinctions are based on

variables that bear different consequences. While the implementation of the

Article VI, Section 28(1) of the Constitution reads:

law may yield varying end results depending on ones profit margin and

The rule of taxation shall be uniform and equitable.

The Congress shall evolve a progressive system of taxation.

value-added, the Court cannot go beyond what the legislature has laid down
and interfere with the affairs of business.

Uniformity in taxation means that all taxable articles or kinds of

The

equal

protection clause

does

not

require

the universal

property of the same class shall be taxed at the same rate. Different articles

application of the laws on all persons or things without distinction. This

may be taxed at different amounts provided that the rate is uniform on the

might in fact sometimes result in unequal protection. What the clause

same class everywhere with all people at all times. [86]

requires is equality among equals as determined according to a valid

classification. By classification is meant the grouping of persons or things
similar to each other in certain particulars and different from all others in
these same particulars.[85]

In this case, the tax law is uniform as it provides a standard rate of

0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and properties,

Petitioners brought to the Courts attention the introduction of Senate

importation of goods, and sale of services and use or lease of properties.

These same sections also provide for a 0% rate on certain sales and

Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on
June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed
legislation seeks to amend the 70% limitation by increasing the same to
90%. This, according to petitioners, supports their stance that the 70%

transaction.
Neither does the law make any distinction as to the type of industry
or trade that will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of

limitation is arbitrary and confiscatory. On this score, suffice it to say that

uniform taxation does not deprive Congress of the power to classify subjects

these are still proposed legislations. Until Congress amends the law, and

of taxation, and only demands uniformity within the particular class. [87]

absent any unequivocal basis for its unconstitutionality, the 70% limitation
stays.
B. Uniformity and Equitability of Taxation

R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding
P1,500,000.00.[88] Also, basic marine and agricultural food products in their

original state are still not subject to the tax, [89] thus ensuring that prices at

from a previous 32%.[95] Intercorporate dividends of non-resident foreign

the grassroots level will remain accessible. As was stated in Kapatiran ng

corporations are still subject to 15% final withholding tax but the tax credit

mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90]

allowed on the corporations domicile was increased to 20%. [96] The Philippine

The disputed sales tax is also equitable. It is

imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that
the costs of basic food and other necessities, spared as they
are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public.

Amusement and Gaming Corporation (PAGCOR) is not exempt from income

taxes anymore.[97] Even the sale by an artist of his works or services
performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of
taxation, which would otherwise rest largely on the consumers. It cannot
therefore be gainsaid that R.A. No. 9337 is equitable.

It is admitted that R.A. No. 9337 puts a premium on businesses with

C.

Progressivity of Taxation

low profit margins, and unduly favors those with high profit margins.
Congress was not oblivious to this. Thus, to equalize the weighty burden the
law entails, the law, under Section 116, imposed a 3% percentage tax on
VAT-exempt persons under Section 109(v), i.e., transactions with gross

Lastly, petitioners contend that the limitation on the creditable input

tax is anything but regressive. It is the smaller business with higher input
tax-output tax ratio that will suffer the consequences.

annual sales and/or receipts not exceeding P1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify for VAT coverage
and VAT-exempt taxpayers stand on equal-footing.

Progressive taxation is built on the principle of the taxpayers ability

to pay. This principle was also lifted from Adam Smiths Canons of Taxation,
and it states:

Moreover, Congress provided mitigating measures to cushion the

impact of the imposition of the tax on those previously exempt. Excise taxes
on petroleum products[91]and natural gas[92] were reduced. Percentage tax on
domestic carriers was removed.[93] Power producers are now exempt from
paying franchise tax.[94]
Aside from these, Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. Domestic, foreign,
and non-resident corporations are now subject to a 35% income tax rate,

I. The subjects of every state ought to contribute towards

the support of the government, as nearly as
possible, in proportion to their respective abilities;
that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected.[98]
The VAT is an antithesis of progressive taxation. By its very nature, it
is regressive. The principle of progressive taxation has no relation with the
VAT system inasmuch as the VAT paid by the consumer or business for every

goods bought or services enjoyed is the same regardless of income. In

CONCLUSION

other words, the VAT paid eats the same portion of an income, whether big
or small. The disparity lies in the income earned by a person or profit margin
marked by a business, such that the higher the income or profit margin, the
smaller the portion of the income or profit that is eaten by VAT. A converso,
the lower the income or profit margin, the bigger the part that the VAT eats
away. At the end of the day, it is really the lower income group or businesses
with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition
of indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The Court stated in the Tolentino
case, thus:
The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall
evolve a progressive system of taxation. The constitutional
provision has been interpreted to mean simply that direct
taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to
evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, 17
(1) of the 1973 Constitution from which the present Art. VI,
28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No.
7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4
amending 103 of the NIRC)[99]

It has been said that taxes are the lifeblood of the government. In
this case, it is just an enema, a first-aid measure to resuscitate an economy
in distress. The Court is neither blind nor is it turning a deaf ear on the plight
of the masses. But it does not have the panacea for the malady that the law
seeks to remedy. As in other cases, the Court cannot strike down a law as
unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for
every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many
wrongs the judicature may not correct, for instance, those
involving political questions. . . .
Let us likewise disabuse our minds from the notion
that the judiciary is the repository of remedies for all political
or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three
distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the
prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing,
each may be brought to account, either by impeachment,
trial or by the ballot box.[100]

The words of the Court in Vera vs. Avelino[101] holds true then, as it
still holds true now. All things considered, there is no raison d'tre for the
unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the
petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are
hereby DISMISSED.
There being no constitutional impediment to the full enforcement

and implementation of R.A. No. 9337, the temporary restraining order issued
by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.

G.R. No. 158540

July 8, 2004
SOUTHERN CROSS CEMENT CORPORATION, petitioner,
vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY
OF THE DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF
THE DEPARTMENT OF FINANCE, and THE COMMISSIONER OF THE

BUREAU OF CUSTOMS, respondents.

DECISION
TINGA, J.:
"Good fences make good neighbors," so observed Robert Frost, the
archetype of traditional New England detachment. The Frost ethos has been
heeded by nations adjusting to the effects of the liberalized global market. 1
The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the
imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of
anti-dumping duties) and, finally, Rep. Act No. 8800, also known as the
Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement
on Tariff and Trade (GATT) and the World Trade Organization (WTO)
Agreement.3
The SMA provides the structure and mechanics for the imposition of
emergency measures, including tariffs, to protect domestic industries and
producers from increased imports which inflict or could inflict serious injury
on them.4 The wisdom of the policies behind the SMA, however, is not put
into question by the petition at bar. The questions submitted to the Court
relate to the means and the procedures ordained in the law to ensure that
the determination of the imposition or non-imposition of a safeguard
measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a
domestic corporation engaged in the business of cement manufacturing,
production, importation and exportation. Its principal stockholders are
Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the
largest cement manufacturers in Japan.5
Private respondent Philippine Cement Manufacturers Corporation6
("Philcemcor") is an association of domestic cement manufacturers. It has
eighteen (18) members,7 per Record. While Philcemcor heralds itself to be
an association of domestic cement manufacturers, it appears that
considerable equity holdings, if not controlling interests in at least twelve
(12) of its member-corporations, were acquired by the three largest cement
manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex
S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank
Financiere Glaris, Ltd., then Holderfin B.V.).8
On 22 May 2001, respondent Department of Trade and Industry ("DTI")
accepted an application from Philcemcor, alleging that the importation of
gray Portland cement9 in increased quantities has caused declines in
domestic production, capacity utilization, market share, sales and
employment; as well as caused depressed local prices. Accordingly,
Philcemcor sought the imposition at first of provisional, then later, definitive
safeguard measures on the import of cement pursuant to the SMA.
Philcemcor filed the application in behalf of twelve (12) of its membercompanies.10
After preliminary investigation, the Bureau of Import Services of the DTI,
determined that critical circumstances existed justifying the imposition of
provisional measures.11 On 7 November 2001, the DTI issued an
Order,imposing a provisional measure equivalent to Twenty Pesos and Sixty
Centavos (P20.60) per forty (40) kilogram bag on all importations of gray

Portland cement for a period not exceeding two hundred (200) days from the
date of issuance by the Bureau of Customs (BOC) of the implementing
Customs Memorandum Order.12 The corresponding Customs Memorandum
Order was issued on 10 December 2001, to take effect that same day and to
remain in force for two hundred (200) days.13
In the meantime, the Tariff Commission, on 19 November 2001, received a
request from the DTI for a formal investigation to determine whether or not
to impose a definitive safeguard measure on imports of gray Portland
cement, pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations. A notice of commencement of formal investigation was
published in the newspapers on 21 November 2001. Individual notices were
likewise sent to concerned parties, such as Philcemcor, various importers
and exporters, the Embassies of Indonesia, Japan and Taiwan,
contractors/builders associations, industry associations, cement workers'
groups, consumer groups, non-government organizations and concerned
government agencies.14 A preliminary conference was held on 27 November
2001, attended by several concerned parties, including Southern Cross. 15
Subsequently, the Tariff Commission received several position papers both in
support and against Philcemcor's application.16 The Tariff Commission also
visited the corporate offices and manufacturing facilities of each of the
applicant companies, as well as that of Southern Cross and two other
cement importers.17
On 13 March 2002, the Tariff Commission issued its Formal Investigation
Report ("Report"). Among the factors studied by the Tariff Commission in its
Report were the market share of the domestic industry, 18 production and
sales,19 capacity utilization,20 financial performance and profitability, 21 and
return on sales.22 The Tariff Commission arrived at the following conclusions:
1. The circumstances provided in Article XIX of GATT 1994 need not be
demonstrated since the product under consideration (gray Portland cement)
is not the subject of any Philippine obligation or tariff concession under the
WTO Agreement. Nonetheless, such inquiry is governed by the national
legislation (R.A. 8800) and the terms and conditions of the Agreement on
Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a
major proportion of the total domestic production of gray Portland cement
and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland cement
(Pozzolan) are "like" to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased
quantities, both in absolute terms and relative to domestic production,
starting in 2000. The increase in volume of imports is recent, sudden, sharp
and significant.
5. The industry has not suffered and is not suffering significant overall
impairment in its condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of gray
Portland cement.
7. Causation has become moot and academic in view of the negative
determination of the elements of serious injury and imminent threat of
serious injury.23
Accordingly, the Tariff Commission made the following recommendation, to
wit:

The elements of serious injury and imminent threat of serious injury not
having been established, it is hereby recommended that no definitive
general safeguard measure be imposed on the importation of gray Portland
cement.24
The DTI received the Report on 14 March 2002. After reviewing the report,
then DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the
conclusion of the Tariff Commission that there was no serious injury to the
local cement industry caused by the surge of imports. 25 In view of this
disagreement, the DTI requested an opinion from the Department of Justice
("DOJ") on the DTI Secretary's scope of options in acting on the
Commission's recommendations. Subsequently, then DOJ Secretary
Hernando Perez rendered an opinion stating that Section 13 of the SMA
precluded a review by the DTI Secretary of the Tariff Commission's negative
finding, or finding that a definitive safeguard measure should not be
imposed.26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the
conclusions of the Tariff Commission, the DTI Secretary noted the DTI's
disagreement with the conclusions. However, he also cited the DOJ Opinion
advising the DTI that it was bound by the negative finding of the Tariff
Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commission's
recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA
8800 which states:
"In the event of a negative final determination; or if the cash bond
is in excess of the definitive safeguard duty assessed, the
Secretary shall immediately issue, through the Secretary of
Finance, a written instruction to the Commissioner of Customs,
authorizing the return of the cash bond or the remainder thereof,
as the case may be, previously collected as provisional general
safeguard measure within ten (10) days from the date a final
decision has been made; Provided, that the government shall not
be liable for any interest on the amount to be returned. The
Secretary shall not accept for consideration another petition from
the same industry, with respect to the same imports of the product
under consideration within one (1) year after the date of rendering
such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray
Portland cement filed by PHILCEMCOR (Case No. 02-2001) is hereby
denied.27 (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days
later, it filed with the Court of Appeals a Petition for Certiorari, Prohibition
and Mandamus28 seeking to set aside the DTI Decision, as well as the Tariff
Commission's Report. Philcemcor likewise applied for a Temporary
Restraining Order/Injunction to enjoin the DTI and the BOC from
implementing the questioned Decision and Report. It prayed that the Court
of Appeals direct the DTI Secretary to disregard the Report and to render
judgment independently of the Report. Philcemcor argued that the DTI
Secretary, vested as he is under the law with the power of review, is not
bound to adopt the recommendations of the Tariff Commission; and, that the

Report is void, as it is predicated on a flawed framework, inconsistent

inferences and erroneous methodology.29
On 10 June 2002, Southern Cross filed its Comment.30 It argued that the
Court of Appeals had no jurisdiction over Philcemcor's Petition, for it is on
the Court of Tax Appeals ("CTA") that the SMA conferred jurisdiction to
review rulings of the Secretary in connection with the imposition of a
safeguard measure. It likewise argued that Philcemcor's resort to the special
civil action of certiorari is improper, considering that what Philcemcor sought
to rectify is an error of judgment and not an error of jurisdiction or grave
abuse of discretion, and that a petition for review with the CTA was available
as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the
DOJ Opinion that Section 13 of the SMA precludes a review by the DTI
Secretary of a negative finding of the Tariff Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for
preliminary injunction, the Court of Appeals' Twelfth Division 31 granted the
writ sought in its Resolution dated 21 June 2002.32 Seven days later, on 28
June 2002, the two-hundred (200)-day period for the imposition of the
provisional measure expired. Despite the lapse of the period, the BOC
continued to impose the provisional measure on all importations of Portland
cement made by Southern Cross. The uninterrupted assessment of the tariff,
according to Southern Cross, worked to its detriment to the point that the
continued imposition would eventually lead to its closure. 33
Southern Cross timely filed a Motion for Reconsideration of the Resolution on
9 September 2002. Alleging that Philcemcor was not entitled to provisional
relief, Southern Cross likewise sought a clarificatory order as to whether the
grant of the writ of preliminary injunction could extend the earlier imposition
of the provisional measure beyond the two hundred (200)-day limit imposed
by law. The appeals' court failed to take immediate action on Southern
Cross's motion despite the four (4) motions for early resolution the latter
filed between September of 2002 and February of 2003. After six (6) months,
on 19 February 2003, the Court of Appeals directed Philcemcor to comment
on Southern Cross's Motion for Reconsideration.34 After Philcemcor filed its
Opposition35 on 13 March 2003, Southern Cross filed another set of four (4)
motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly
resolve the Motion for Reconsideration. Instead, on 5 June 2003, it rendered
a Decision,36 granting in part Philcemcor's petition. The appellate court ruled
that it had jurisdiction over the petition for certiorari since it alleged grave
abuse of discretion. It refused to annul the findings of the Tariff Commission,
citing the rule that factual findings of administrative agencies are binding
upon the courts and its corollary, that courts should not interfere in matters
addressed to the sound discretion and coming under the special technical
knowledge and training of such agencies. 37 Nevertheless, it held that the DTI
Secretary is not bound by the factual findings of the Tariff Commission since
such findings are merely recommendatory and they fall within the ambit of
the Secretary's discretionary review. It determined that the legislative intent
is to grant the DTI Secretary the power to make a final decision on the Tariff
Commission's recommendation.38 The dispositive portion of the Decision
reads:
WHEREFORE, based on the foregoing premises, petitioner's prayer to set
aside the findings of the Tariff Commission in its assailed Report dated March

13, 2002 is DENIED. On the other hand, the assailed April 5, 2002 Decision
of the Secretary of the Department of Trade and Industry is hereby SET
ASIDE. Consequently, the case is REMANDED to the public respondent
Secretary of Department of Trade and Industry for a final decision in
accordance with RA 8800 and its Implementing Rules and Regulations.
SO ORDERED.39
On 23 June 2003, Southern Cross filed the present petition, assailing the
appellate court's Decision for departing from the accepted and usual course
of judicial proceedings, and not deciding the substantial questions in
accordance with law and jurisprudence. The petition argues in the main that
the Court of Appeals has no jurisdiction over Philcemcor's petition, the
proper remedy being a petition for review with the CTA conformably with the
SMA, and; that the factual findings of the Tariff Commission on the existence
or non-existence conditions warranting the imposition of general safeguard
measures are binding upon the DTI Secretary.
The timely filing of Southern Cross's petition before this Court necessarily
prevented the Court of AppealsDecision from becoming final.40 Yet on 25
June 2003, the DTI Secretary issued a new Decision, ruling this time that
that in light of the appellate court's Decision there was no longer any legal
impediment to his deciding Philcemcor's application for definitive safeguard
measures.41 He made a determination that, contrary to the findings of the
Tariff Commission, the local cement industry had suffered serious injury as a
result of the import surges. 42 Accordingly, he imposed a definitive safeguard
measure on the importation of gray Portland cement, in the form of a
definitive safeguard duty in the amount of P20.60/40 kg. bag for three years
on imported gray Portland Cement.43
On 7 July 2003, Southern Cross filed with the Court a "Very Urgent
Application for a Temporary Restraining Order and/or A Writ of Preliminary
Injunction" ("TRO Application"), seeking to enjoin the DTI Secretary from
enforcing hisDecision of 25 June 2003 in view of the pending petition before
this Court. Philcemcor filed an opposition, claiming, among others, that it is
not this Court but the CTA that has jurisdiction over the application under
the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review,
assailing the DTI Secretary's 25 June 2003 Decision which imposed the
definite safeguard measure. Prescinding from this action, Philcemcor filed
with this Court a Manifestation and Motion to Dismiss in regard to Southern
Cross's petition, alleging that it deliberately and willfully resorted to forumshopping. It points out that Southern Cross's TRO Application seeks to enjoin
the DTI Secretary's second decision, while its Petition before the CTA prays
for the annulment of the same decision.44
Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor
also argues that the CTA, being a special court of limited jurisdiction, could
only review the ruling of the DTI Secretary when a safeguard measure is
imposed, and that the factual findings of the Tariff Commission are not
binding on the DTI Secretary.45
After giving due course to Southern Cross's Petition, the Court called the
case for oral argument on 18 February 2004. 46 At the oral argument,
attended by the counsel for Philcemcor and Southern Cross and the Office of
the Solicitor General, the Court simplified the issues in this wise: (i) whether
the Decision of the DTI Secretary is appealable to the CTA or the Court of

Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether
itsDecision is in accordance with law; and, (iii) whether a Temporary
Restraining Order is warranted.47
During the oral arguments, counsel for Southern Cross manifested that due
to the imposition of the general safeguard measures, Southern Cross was
forced to cease operations in the Philippines in November of 2003. 48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's
application for provisional relief. It sought to enjoin the DTI Secretary from
enforcing the definitive safeguard measure he imposed in his 25 June
2003Decision. The Court did not grant the provisional relief for it would be
tantamount to enjoining the collection of taxes, a peremptory judicial act
which is traditionally frowned upon, 49 unless there is a clear statutory basis
for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits
any court from granting an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the internal revenue
code.51A similar philosophy is expressed by Section 29 of the SMA, which
states that the filing of a petition for review before the CTA does not stop,
suspend, or otherwise toll the imposition or collection of the appropriate
tariff duties or the adoption of other appropriate safeguard measures. 52 This
evinces a clear legislative intent that the imposition of safeguard measures,
despite the availability of judicial review, should not be enjoined
notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forumshopping has been duly proven, or that sanction should befall upon Southern
Cross and its counsel. The standard by Section 5, Rule 7 of the 1997 Rules of
Civil Procedure in order that sanction may be had is that "the acts of the
party or his counsel clearly constitute willful and deliberate forum
shopping."53 The standard implies a malicious intent to subvert procedural
rules, and such state of mind is not evident in this case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief
that it had jurisdiction over Philcemcor'sPetition, discussed the issue of
whether or not the DTI Secretary is bound to adopt the negative
recommendation of the Tariff Commission on the application for safeguard
measure. The Court of Appeals maintained that it had jurisdiction over the
petition, as it alleged grave abuse of discretion on the part of the DTI
Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of
discretion on the part of the DTI Secretary in rendering the assailed April 5,
2002 Decision wherein it was ruled that he had no alternative but to abide
by the findings of the Commission on the matter of safeguard measures for
the local cement industry. Abuse of discretion is admittedly within the ambit
of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction. It is alleged that, in the
assailed Decision, the DTI Secretary gravely abused his discretion in
wantonly evading to discharge his duty to render an independent
determination or decision in imposing a definitive safeguard measure. 54

We do not doubt that the Court of Appeals' certiorari powers extend to

correcting grave abuse of discretion on the part of an officer exercising
judicial or quasi-judicial functions.55 However, the special civil action of
certiorari is available only when there is no plain, speedy and adequate
remedy in the ordinary course of law.56 Southern Cross relies on this
limitation, stressing that Section 29 of the SMA is a plain, speedy and
adequate remedy in the ordinary course of law which Philcemcor did not
avail of. The Section reads:
Section 29. Judicial Review. Any interested party who is adversely affected
by the ruling of the Secretary in connection with the imposition of a
safeguard measure may file with the CTA, a petition for review of such
ruling within thirty (30) days from receipt thereof. Provided, however, that
the filing of such petition for review shall not in any way stop, suspend or
otherwise toll the imposition or collection of the appropriate tariff duties or
the adoption of other appropriate safeguard measures, as the case may be.
The petition for review shall comply with the same requirements and shall
follow the same rules of procedure and shall be subject to the same
disposition as in appeals in connection with adverse rulings on tax matters
to the Court of Appeals.57 (Emphasis supplied)
It is not difficult to divine why the legislature singled out the CTA as the court
with jurisdiction to review the ruling of the DTI Secretary in connection with
the imposition of a safeguard measure. The Court has long recognized the
legislative determination to vest sole and exclusive jurisdiction on matters
involving internal revenue and customs duties to such a specialized court. 58
By the very nature of its function, the CTA is dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an
expertise on the subject.59
At the same time, since the CTA is a court of limited jurisdiction, its
jurisdiction to take cognizance of a case should be clearly conferred and
should not be deemed to exist on mere implication. 60 Concededly, Rep. Act
No. 1125, the statute creating the CTA, does not extend to it the power to
review decisions of the DTI Secretary in connection with the imposition of
safeguard measures.61 Of course, at that time which was before the advent
of trade liberalization the notion of safeguard measures or safety nets was
not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by
including review of the rulings of the DTI Secretary in connection with the
imposition of safeguard measures. However, Philcemcor and the public
respondents agree that the CTA has appellate jurisdiction over a decision of
the DTI Secretary imposing a safeguard measure, but not when his ruling is
not to impose such measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004,
expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of
Trade and Industry, in case of nonagricultural product, commodity or article
xxx involving xxx safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to
impose said duties."62 Had Rep. Act No. 9282 already been in force at the
beginning of the incidents subject of this case, there would have been no
need to make any deeper inquiry as to the extent of the CTA's jurisdiction.
But as Rep. Act No. 9282 cannot be applied retroactively to the present case,
the question of whether such jurisdiction extends to a decision not to impose

a safeguard measure will have to be settled principally on the basis of the

SMA.
Under Section 29 of the SMA, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated therein: (i)
there must be a ruling by the DTI Secretary; (ii) the petition must be filed by
an interested party adversely affected by the ruling; and (iii) such ruling
must be in connection with the imposition of a safeguard measure. The first
two requisites are clearly present. The third requisite deserves closer
scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case
where the DTI Secretary decides not to impose a safeguard measure, it is
the CTA which has jurisdiction to review his decision. The reasons are as
follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI
Secretary's ruling is exercised by two different courts, depending on whether
or not it imposes a safeguard measure, and in either case the court
exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI
decision involves the imposition of a safeguard measure it is the CTA which
has appellate jurisdiction; otherwise, it is the Court of Appeals. Such setup is
as novel and unusual as it is cumbersome and unwise. Essentially,
respondents advocate that Section 29 of the SMA has established split
appellate jurisdiction over rulings of the DTI Secretary on the imposition of
safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused
to sanction split jurisdiction.63 The power of the DTI Secretary to adopt or
withhold a safeguard measure emanates from the same statutory source,
and it boggles the mind why the appeal modality would be such that one
appellate court is qualified if what is to be reviewed is a positive
determination, and it is not if what is appealed is a negative determination.
In deciding whether or not to impose a safeguard measure, provisional or
general, the DTI Secretary would be evaluating only one body of facts and
applying them to one set of laws. The reviewing tribunal will be called upon
to examine the same facts and the same laws, whether or not the
determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the
exercise by two judicial bodies of jurisdiction over basically the same subject
matterprecisely the split-jurisdiction situation which is anathema to the
orderly administration of justice. 64 The Court cannot accept that such was
the legislative motive especially considering that the law expressly confers
on the CTA, the tribunal with the specialized competence over tax and tariff
matters, the role of judicial review without mention of any other court that
may exercise corollary or ancillary jurisdiction in relation to the SMA. The
provision refers to the Court of Appeals but only in regard to procedural rules
and dispositions of appeals from the CTA to the Court of Appeals. 65
The principle enunciated in Tejada v. Homestead Property Corporation66 is
applicable to the case at bar:
The Court agrees with the observation of the [that] when an administrative
agency or body is conferred quasi-judicial functions, all controversies
relating to the subject matter pertaining to its specialization are
deemed to be included within the jurisdiction of said administrative

agency or body. Split jurisdiction is not favored.67

Second. The interpretation of the provisions of the SMA favors vesting
untrammeled appellate jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not
expressly bar the CTA from reviewing a negative determination by the DTI
Secretary nor conferred on the Court of Appeals such review authority.
Respondents note, on the other hand, that neither did the law expressly
grant to the CTA the power to review a negative determination. However,
under the clear text of the law, the CTA is vested with jurisdiction to review
the ruling of the DTI Secretary " in connection with the imposition of a
safeguard measure." Had the law been couched instead to incorporate the
phrase "the ruling imposing a safeguard measure," then respondent's claim
would have indisputable merit. Undoubtedly, the phrase "in connection with"
not only qualifies but clarifies the succeeding phrase "imposition of a
safeguard measure." As expounded later, the phrase also encompasses the
opposite or converse ruling which is the non-imposition of a safeguard
measure.
In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States
Supreme Court, in interpreting a key provision of the Employee Retirement
Security Act of 1974, construed the phrase "relates to" in its normal sense
which is the same as "if it has connection with or reference to." 69 There is no
serious dispute that the phrase "in connection with" is synonymous to
"relates to" or "reference to," and that all three phrases are broadly
expansive. This is affirmed not just by jurisprudential fiat, but also the
acquired connotative meaning of "in connection with" in common parlance.
Consequently, with the use of the phrase "in connection with," Section 29
allows the CTA to review not only the ruling imposing a safeguard measure,
but all other rulings related or have reference to the application for
such measure.
Now, let us determine the maximum scope and reach of the phrase "in
connection with" as used in Section 29 of the SMA. A literalist reading or
linguistic survey may not satisfy. Even the US Supreme Court in New York
State Blue Cross Plans v. Travelers Ins.70 conceded that the phrases "relate
to" or "in connection with" may be extended to the farthest stretch of
indeterminacy for, universally, relations or connections are infinite and stop
nowhere.71 Thus, in the case the US High Court, examining the same phrase
of the same provision of law involved in Shaw, resorted to looking at the
statute and its objectives as the alternative to an "uncritical literalism." 72 A
similar inquiry into the other provisions of the SMA is in order to determine
the scope of review accorded therein to the CTA.73
The authority to decide on the safeguard measure is vested in the DTI
Secretary in the case of non-agricultural products, and in the Secretary of
the Department of Agriculture in the case of agricultural products. 74 Section
29 is likewise explicit that only the rulings of the DTI Secretary or the
Agriculture Secretary may be reviewed by the CTA. 75 Thus, the acts of other
bodies that were granted some powers by the SMA, such as the Tariff
Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide
on several matters. Within thirty (30) days from receipt of a petition seeking
the imposition of a safeguard measure, or from the date he mademotu
proprio initiation, the Secretary shall make a preliminary determination on

whether the increased imports of the product under consideration

substantially cause or threaten to cause serious injury to the domestic
industry.76Such ruling is crucial since only upon the Secretary's positive
preliminary determination that a threat to the domestic industry exists shall
the matter be referred to the Tariff Commission for formal investigation, this
time, to determine whether the general safeguard measure should be
imposed or not.77 Pursuant to a positive preliminary determination, the
Secretary may also decide that the imposition of a provisional safeguard
measure would be warranted under Section 8 of the SMA. 78 The Secretary is
also authorized to decide, after receipt of the report of the Tariff
Commission, whether or not to impose the general safeguard measure, and
if in the affirmative, what general safeguard measures should be applied. 79
Even after the general safeguard measure is imposed, the Secretary is
empowered to extend the safeguard measure, 80 or terminate, reduce or
modify his previous rulings on the general safeguard measure. 81
With the explicit grant of certain powers involving safeguard measures by
the SMA on the DTI Secretary, it follows that he is empowered to rule on
several issues. These are the issues which arise in connection with, or in
relation to, the imposition of a safeguard measure. They may arise at
different stages the preliminary investigation stage, the post-formal
investigation stage, or the post-safeguard measure stage yet all these
issues do become ripe for resolution because an initiatory action has been
taken seeking the imposition of a safeguard measure. It is the initiatory
action for the imposition of a safeguard measure that sets the wheels in
motion, allowing the Secretary to make successive rulings, beginning with
the preliminary determination.
Clearly, therefore, the scope and reach of the phrase "in connection with," as
intended by Congress, pertain to all rulings of the DTI Secretary or
Agriculture Secretary which arise from the time an application or motu
proprioinitiation for the imposition of a safeguard measure is taken. Indeed,
the incidents which require resolution come to the fore only because there is
an initial application or action seeking the imposition of a safeguard
measure. From the legislative standpoint, it was a matter of sense and
practicality to lump up the questions related to the initiatory application or
action for safeguard measure and to assign only one court and; that is the
CTA to initially review all the rulings related to such initiatory application or
action. Both directions Congress put in place by employing the phrase "in
connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the CTA
under Section 29, we do not doubt that a negative ruling refusing to impose
a safeguard measure falls within the scope of its jurisdiction. On a literal
level, such negative ruling is "a ruling of the Secretary in connection with the
imposition of a safeguard measure," as it is one of the possible outcomes
that may result from the initial application or action for a safeguard
measure. On a more critical level, the rulings of the DTI Secretary in
connection with a safeguard measure, however diverse the outcome may
be, arise from the same grant of jurisdiction on the DTI Secretary by the
SMA.82 The refusal by the DTI Secretary to grant a safeguard measure
involves the same grant of authority, the same statutory prescriptions, and
the same degree of discretion as the imposition by the DTI Secretary of a
safeguard measure.

The position of the respondents is one of "uncritical literalism" 83 incongruent

with the animus of the law. Moreover, a fundamentalist approach to Section
29 is not warranted, considering the absurdity of the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur
Inconveniens Et Absurdum.84
Even assuming arguendo that Section 29 has not expressly granted the CTA
jurisdiction to review a negative ruling of the DTI Secretary, the Court is
precluded from favoring an interpretation that would cause inconvenience
and absurdity.85 Adopting the respondents' position favoring the CTA's
minimal jurisdiction would unnecessarily lead to illogical and onerous
results.
Indeed, it is illiberal to assume that Congress had intended to provide
appellate relief to rulings imposing a safeguard measure but not to those
declining to impose the measure. Respondents might argue that the right to
relief from a negative ruling is not lost since the applicant could, as
Philcemcor did, question such ruling through a special civil action for
certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an
appeal to the CTA. Yet these two reliefs are of differing natures and
gravamen. While an appeal may be predicated on errors of fact or errors of
law, a special civil action for certiorari is grounded on grave abuse of
discretion or lack of or excess of jurisdiction on the part of the decider. For a
special civil action for certiorari to succeed, it is not enough that the
questioned act of the respondent is wrong. As the Court clarified in Sempio
v. Court of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the
legal power to determine the case. There is excess of jurisdiction where,
being clothed with the power to determine the case, the tribunal, board or
officer oversteps its/his authority as determined by law. And there is grave
abuse of discretion where the tribunal, board or officer acts in a capricious,
whimsical, arbitrary or despotic manner in the exercise of his judgment as to
be said to be equivalent to lack of jurisdiction. Certiorari is often resorted to
in order to correct errors of jurisdiction. Where the error is one of law or of
fact, which is a mistake of judgment, appeal is the remedy. 86
It is very conceivable that the DTI Secretary, after deliberate thought and
careful evaluation of the evidence, may either make a negative preliminary
determination as he is so empowered under Section 7 of the SMA, or refuse
to adopt the definitive safeguard measure under Section 13 of the same law.
Adopting the respondents' theory, this negative ruling is susceptible to
reversal only through a special civil action for certiorari, thus depriving the
affected party the chance to elevate the ruling on appeal on the rudimentary
grounds of errors in fact or in law. Instead, and despite whatever indications
that the DTI Secretary acted with measure and within the bounds of his
jurisdiction are, the aggrieved party will be forced to resort to a gymnastic
exercise, contorting the straight and narrow in an effort to discombobulate
the courts into believing that what was within was actually beyond and what
was studied and deliberate actually whimsical and capricious. What then
would be the remedy of the party aggrieved by a negative ruling that simply
erred in interpreting the facts or the law? It certainly cannot be the special
civil action for certiorari, for as the Court held in Silverio v. Court of Appeals:
"Certiorari is a remedy narrow in its scope and inflexible in its character. It is
not a general utility tool in the legal workshop." 87

Fortunately, this theoretical quandary need not come to pass. Section 29 of

the SMA is worded in such a way that it places under the CTA's judicial
review all rulings of the DTI Secretary, which are connected with the
imposition of a safeguard measure. This is sound and proper in light of the
specialized jurisdiction of the CTA over tax matters. In the same way that a
question of whether to tax or not to tax is properly a tax matter, so is the
question of whether to impose or not to impose a definitive safeguard
measure.
On another note, the second paragraph of Section 29 similarly reveals the
legislative intent that rulings of the DTI Secretary over safeguard measures
should first be reviewed by the CTA and not the Court of Appeals. It reads:
The petition for review shall comply with the same requirements and shall
follow the same rules of procedure and shall be subject to the same
disposition as in appeals in connection with adverse rulings on tax matters
to the Court of Appeals.
This is the only passage in the SMA in which the Court of Appeals is
mentioned. The express wish of Congress is that the petition conform to the
requirements and procedure under Rule 43 of the Rules of Civil Procedure.
Since Congress mandated that the form and procedure adopted be
analogous to a review of a CTA ruling by the Court of Appeals, the legislative
contemplation could not have been that the appeal be directly taken to the
Court of Appeals.
Issue of Binding Effect of Tariff
Commission's Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by
the Tariff Commission under the SMA is binding on the DTI Secretary.
Otherwise stated, the question is whether the DTI Secretary may impose
general safeguard measures in the absence of a positive final determination
by the Tariff Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the
findings of the Tariff Commission do not necessarily constitute a final
decision. Section 13 details the procedure for the adoption of a safeguard
measure, as well as the steps to be taken in case there is a negative final
determination. The implication of the Court of Appeals' holding is that the
DTI Secretary may adopt a definitive safeguard measure, notwithstanding a
negative determination made by the Tariff Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions
before general safeguard measures may be imposed. However, the most
fundamental restriction on the DTI Secretary's power in that
respect is contained in Section 5 of the SMAthat there should first
be a positive final determination of the Tariff Commissionwhich the
Court of Appeals curiously all but ignored. Section 5 reads:
Sec. 5. Conditions for the Application of General Safeguard Measures. The
Secretary shall apply a general safeguard measure upon a positive
final determination of the [Tariff] Commission that a product is being
imported into the country in increased quantities, whether absolute or
relative to the domestic production, as to be a substantial cause of serious
injury or threat thereof to the domestic industry; however, in the case of
non-agricultural products, the Secretary shall first establish that the
application of such safeguard measures will be in the public interest.

(emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that
has the power to make a "positive final determination." This power lodged in
the Tariff Commission, must be distinguished from the power to impose the
general safeguard measure which is properly vested on the DTI Secretary. 88
All in all, there are two condition precedents that must be satisfied before
the DTI Secretary may impose a general safeguard measure on grey
Portland cement. First, there must be a positive final determination by the
Tariff Commission that a product is being imported into the country in
increased quantities (whether absolute or relative to domestic production),
as to be a substantial cause of serious injury or threat to the domestic
industry. Second, in the case of non-agricultural products the Secretary must
establish that the application of such safeguard measures is in the public
interest.89 As Southern Cross argues, Section 5 is quite clear-cut, and it is
impossible to finagle a different conclusion even through overarching
methods of statutory construction. There is no safer nor better settled canon
of interpretation that when language is clear and unambiguous it must be
held to mean what it plainly expresses:90 In the quotable words of an
illustrious member of this Court, thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its
literal meaning and applied without attempted interpretation. The verba
legis or plain meaning rule rests on the valid presumption that the words
employed by the legislature in a statute correctly express its intent or will
and preclude the court from construing it differently. The legislature is
presumed to know the meaning of the words, to have used words advisedly,
and to have expressed its intent by the use of such words as are found in
the statute.91
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA, 92
which interprets Section 5 of the law, likewise requires a positive final
determination on the part of the Tariff Commission before the application of
the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff
Commission and the DTI Secretary. The plain meaning of Section 5 shows
that it is the Tariff Commission that has the power to make a "positive final
determination." This power, which belongs to the Tariff Commission, must be
distinguished from the power to impose general safeguard measure properly
vested on the DTI Secretary. The distinction is vital, as a "positive final
determination" clearly antecedes, as a condition precedent, the imposition
of a general safeguard measure. At the same time, a positive final
determination does not necessarily result in the imposition of a general
safeguard measure. Under Section 5, notwithstanding the positive final
determination of the Tariff Commission, the DTI Secretary is tasked to decide
whether or not that the application of the safeguard measures is in the
public interest.
It is also clear from Section 5 of the SMA that the positive final determination
to be undertaken by the Tariff Commission does not entail a mere gathering
of statistical data. In order to arrive at such determination, it has to establish
causal linkages from the statistics that it compiles and evaluates: after
finding there is an importation in increased quantities of the product in
question, that such importation is a substantial cause of serious threat or
injury to the domestic industry.

The Court of Appeals relies heavily on the legislative record of a

congressional debate during deliberations on the SMA to assert a purported
legislative intent that the findings of the Tariff Commission do not bind the
DTI Secretary.93 Yet as explained earlier, the plain meaning of Section 5
emphasizes that only if the Tariff Commission renders a positive
determination could the DTI Secretary impose a safeguard measure. Resort
to the congressional records to ascertain legislative intent is not warranted if
a statute is clear, plain and free from ambiguity. The legislature is presumed
to know the meaning of the words, to have used words advisedly, and to
have expressed its intent by the use of such words as are found in the
statute.94
Indeed, the legislative record, if at all to be availed of, should be approached
with extreme caution, as legislative debates and proceedings are powerless
to vary the terms of the statute when the meaning is clear. 95 Our holding in
Civil Liberties Union v. Executive Secretary 96 on the resort to deliberations of
the constitutional convention to interpret the Constitution is likewise
appropriate in ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates and
proceedings of the constitutional convention in order to arrive at the reason
and purpose of the resulting Constitution, resort thereto may be had only
when other guides fail as said proceedings are powerless to vary the terms
of the Constitution when the meaning is clear. Debates in the constitutional
convention "are of value as showing the views of the individual members,
and as indicating the reasons for their votes, but they give us no light as to
the views of the large majority who did not talk xxx. We think it safer to
construe the constitution from what appears upon its face."97
Moreover, it is easy to selectively cite passages, sometimes out of their
proper context, in order to assert a misleading interpretation. The effect can
be dangerous. Minority or solitary views, anecdotal ruminations, or even the
occasional crude witticisms, may improperly acquire the mantle of
legislative intent by the sole virtue of their publication in the authoritative
congressional record. Hence, resort to legislative deliberations is allowable
when the statute is crafted in such a manner as to leave room for doubt on
the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's
power to impose a general safeguard measure by preconditioning such
imposition on a positive determination by the Tariff Commission. Such
legislative intent should be given full force and effect, as the executive
power to impose definitive safeguard measures is but a delegated
powerthe power of taxation, by nature and by command of the
fundamental law, being a preserve of the legislature. 98 Section 28(2), Article
VI of the 1987 Constitution confirms the delegation of legislative power, yet
ensures that the prerogative of Congress to impose limitations and
restrictions on the executive exercise of this power:
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.99
The safeguard measures which the DTI Secretary may impose under the
SMA may take the following variations, to wit: (a) an increase in, or

imposition of any duty on the imported product; (b) a decrease in or the

imposition of a tariff-rate quota on the product; (c) a modification or
imposition of any quantitative restriction on the importation of the product
into the Philippines; (d) one or more appropriate adjustment measures,
including the provision of trade adjustment assistance; and (e) any
combination of the above-described actions. Except for the provision of
trade adjustment assistance, the measures enumerated by the SMA are
essentially imposts, which precisely are the subject of delegation under
Section 28(2), Article VI of the 1987 Constitution. 100
This delegation of the taxation power by the legislative to the executive is
authorized by the Constitution itself.101At the same time, the Constitution
also grants the delegating authority (Congress) the right to impose
restrictions and limitations on the taxation power delegated to the
President.102 The restrictions and limitations imposed by Congress take on
the mantle of a constitutional command, which the executive branch is
obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President,103 to
impose definitive general safeguard measures, which basically are tariff
imposts of the type spoken of in the Constitution. However, the law did not
grant him full, uninhibited discretion to impose such measures. The DTI
Secretary authority is derived from the SMA; it does not flow from any
inherent executive power. Thus, the limitations imposed by Section 5 are
absolute, warranted as they are by a constitutional fiat. 104
Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI
Secretary, having the final decision on the safeguard measure, has the
power to evaluate the findings of the Tariff Commission and make an
independent judgment thereon. Given the constitutional and statutory
limitations governing the present case, the citation is misplaced. Lamb
pertained to the discretion of the Insular Auditor of the Philippine Islands,
whom, as the Court recognized, "[t]he statutes of the United States
require[d] xxx to exercise his judgment upon the legality xxx [of] provisions
of law and resolutions of Congress providing for the payment of money, the
means of procuring testimony upon which he may act."106
Thus in Lamb, while the Court recognized the wide latitude of discretion that
may have been vested on the Insular Auditor, it also recognized that such
latitude flowed from, and is consequently limited by, statutory grant.
However, in this case, the provision of the Constitution in point expressly
recognizes the authority of Congress to prescribe limitations in the case of
tariffs, export/import quotas and other such safeguard measures. Thus, the
broad discretion granted to the Insular Auditor of the Philippine Islands
cannot be analogous to the discretion of the DTI Secretary which is
circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human Rights,107 likewise cited
by Philcemcor, is also inapplicable owing to the different statutory regimes
prevailing over that case and the present petition. In Cario, the Court ruled
that the constitutional power of the Commission on Human Rights (CHR) to
investigate human rights' violations did not extend to adjudicating claims on
the merits.108 Philcemcor claims that the functions of the Tariff Commission
being "only investigatory," it could neither decide nor adjudicate. 109
The applicable law governing the issue in Cario is Section 18, Article XIII of
the Constitution, which delineates the powers and functions of the CHR. The

provision does not vest on the CHR the power to adjudicate cases, but only
to investigate all forms of human rights violations. 110 Yet, without modifying
the thorough disquisition of the Court in Cario on the general limitations on
the investigatory power, the precedent is inapplicable because of the
difference in the involved statutory frameworks. The Constitution does not
repose binding effect on the results of the CHR's investigation. 111 On the
other hand, through Section 5 of the SMA and under the authority of Section
28(2), Article VI of the Constitution, Congress did intend to bind the DTI
Secretary to the determination made by the Tariff Commission. 112 It is of no
consequence that such determination results from the exercise of
investigatory powers by the Tariff Commission since Congress is well within
its constitutional mandate to limit the authority of the DTI Secretary to
impose safeguard measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and
Rule 13 of the SMA's Implementing Rules in support of the view that the DTI
Secretary may decide independently of the determination made by the Tariff
Commission. Admittedly, there are certain infelicities in the language of
Section 13 and Rule 13. But reliance should not be placed on the textual
imprecisions. Rather, Section 13 and Rule 13 must be viewed in light of the
fundamental prescription imposed by Section 5. 113
Section 13 of the SMA lays down the procedure to be followed after the Tariff
Commission renders its report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. Upon its positive determination,
the Commission shall recommend to the Secretary an appropriate definitive
measure, in the form of:
(a) An increase in, or imposition of, any duty on the imported product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the
product;
(c) A modification or imposition of any quantitative restriction on the
importation of the product into the Philippines;
(d) One or more appropriate adjustment measures, including the provision of
trade adjustment assistance;
(e) Any combination of actions described in subparagraphs (a) to (d).
The Commission may also recommend other actions, including the initiation
of international negotiations to address the underlying cause of the increase
of imports of the product, to alleviate the injury or threat thereof to the
domestic industry, and to facilitate positive adjustment to import
competition.
The general safeguard measure shall be limited to the extent of redressing
or preventing the injury and to facilitate adjustment by the domestic
industry from the adverse effects directly attributed to the increased
imports: Provided, however, That when quantitative import restrictions are
used, such measures shall not reduce the quantity of imports below the
average imports for the three (3) preceding representative years, unless
clear justification is given that a different level is necessary to prevent or
remedy a serious injury.
A general safeguard measure shall not be applied to a product originating
from a developing country if its share of total imports of the product is less
than three percent (3%): Provided, however, That developing countries with
less than three percent (3%) share collectively account for not more than
nine percent (9%) of the total imports.

The decision imposing a general safeguard measure, the duration of which is

more than one (1) year, shall be reviewed at regular intervals for purposes
of liberalizing or reducing its intensity. The industry benefiting from the
application of a general safeguard measure shall be required to show
positive adjustment within the allowable period. A general safeguard
measure shall be terminated where the benefiting industry fails to show any
improvement, as may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned
government agencies to implement the appropriate general safeguard
measure as determined by the Secretary within fifteen (15) days from
receipt of the report.
In the event of a negative final determination, or if the cash bond is in
excess of the definitive safeguard duty assessed, the Secretary shall
immediately issue, through the Secretary of Finance, a written instruction to
the Commissioner of Customs, authorizing the return of the cash bond or the
remainder thereof, as the case may be, previously collected as provisional
general safeguard measure within ten (10) days from the date a final
decision has been made: Provided, That the government shall not be liable
for any interest on the amount to be returned. The Secretary shall not
accept for consideration another petition from the same industry, with
respect to the same imports of the product under consideration within one
(1) year after the date of rendering such a decision.
When the definitive safeguard measure is in the form of a tariff increase,
such increase shall not be subject or limited to the maximum levels of tariff
as set forth in Section 401(a) of the Tariff and Customs Code of the
Philippines.
To better comprehend Section 13, note must be taken of the distinction
between the investigatory and recommendatory functions of the Tariff
Commission under the SMA.
The word "determination," as used in the SMA, pertains to the factual
findings on whether there are increased imports into the country of the
product under consideration, and on whether such increased imports are a
substantial cause of serious injury or threaten to substantially cause serious
injury to the domestic industry. 114The SMA explicitly authorizes the DTI
Secretary to make a preliminary determination, 115 and the Tariff Commission
to make the final determination. 116 The distinction is fundamental, as these
functions are not interchangeable. The Tariff Commission makes its
determination only after a formal investigation process, with such
investigation initiated only if there is a positive preliminary determination by
the DTI Secretary under Section 7 of the SMA. 117 On the other hand, the DTI
Secretary may impose definitive safeguard measure only if there is a
positive final determination made by the Tariff Commission. 118
In contrast, a "recommendation" is a suggested remedial measure submitted
by the Tariff Commission under Section 13 after making a positive final
determination in accordance with Section 5. The Tariff Commission is not
empowered to make a recommendation absent a positive final
determination on its part.119 Under Section 13, the Tariff Commission is
required to recommend to the [DTI] Secretary an "appropriate definitive
measure."120 The Tariff Commission "may also recommend other actions,
including the initiation of international negotiations to address the
underlying cause of the increase of imports of the products, to alleviate the

injury or threat thereof to the domestic industry and to facilitate positive

adjustment to import competition."121
The recommendations of the Tariff Commission, as rendered under Section
13, are not obligatory on the DTI Secretary. Nothing in the SMA mandates
the DTI Secretary to adopt the recommendations made by the Tariff
Commission. In fact, the SMA requires that the DTI Secretary establish that
the application of such safeguard measures is in the public interest,
notwithstanding the Tariff Commission's recommendation on the appropriate
safeguard measure based on its positive final determination. 122 The nonbinding force of the Tariff Commission's recommendations is congruent with
the command of Section 28(2), Article VI of the 1987 Constitution that only
the President may be empowered by the Congress to impose appropriate
tariff rates, import/export quotas and other similar measures. 123 It is the DTI
Secretary, as alter ego of the President, who under the SMA may impose
such safeguard measures subject to the limitations imposed therein. A
contrary conclusion would in essence unduly arrogate to the Tariff
Commission the executive power to impose the appropriate tariff measures.
That is why the SMA empowers the DTI Secretary to adopt safeguard
measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has
a different effect on the DTI Secretary. Only on the basis of a positive final
determination made by the Tariff Commission under Section 5 can the DTI
Secretary impose a general safeguard measure. Clearly, then the DTI
Secretary is bound by thedetermination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13 124 uses
the variant word "determined" in a different context, as it contemplates "the
appropriate general safeguard measure as determined by the Secretary
within fifteen (15) days from receipt of the report." Quite plainly, the word
"determined" in this context pertains to the DTI Secretary's power of choice
of the appropriate safeguard measure, as opposed to the Tariff Commission's
power to determine the existence of conditions necessary for the imposition
of any safeguard measure. In relation to Section 5, such choice also relates
to the mandate of the DTI Secretary to establish that the application of
safeguard measures is in the public interest, also within the fifteen (15) day
period. Nothing in Section 13 contradicts the instruction in Section 5 that the
DTI Secretary is allowed to impose the general safeguard measures only if
there is a positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned
"Final Determination by the Secretary." The assailed Decision and Philcemcor
latch on this phraseology to imply that the factual determination rendered
by the Tariff Commission under Section 5 may be amended or reversed by
the DTI Secretary. Of course, implementing rules should conform, not clash,
with the law that they seek to implement, for a regulation which operates to
create a rule out of harmony with the statute is a nullity. 125 Yet imperfect
draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can
set aside the determination made by the Tariff Commission under the aegis
of Section 5. This can be seen by examining the specific provisions of Rule
13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of
the Commission, the Secretary shall make a decision, taking into

consideration the measures recommended by the Commission.

RULE 13.2.b. If the determination is affirmative, the Secretary shall issue,
within two (2) calendar days after making his decision, a written instruction
to the heads of the concerned government agencies to immediately
implement the appropriate general safeguard measure as determined by
him. Provided, however, that in the case of non-agricultural products, the
Secretary shall first establish that the imposition of the safeguard measure
will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the
Secretary shall also order its publication in two (2) newspapers of general
circulation. He shall also furnish a copy of his Order to the petitioner and
other interested parties, whether affirmative or negative. (Emphasis
supplied.)
Moreover, the DTI Secretary does not have the power to review the findings
of the Tariff Commission for it is not subordinate to the Department of Trade
and Industry ("DTI"). It falls under the supervision, not of the DTI nor of the
Department of Finance (as mistakenly asserted by Southern Cross), 126 but of
the National Economic Development Authority, an independent
planning agency of the government of co-equal rank as the DTI. 127
As the supervision and control of a Department Secretary is limited to the
bureaus, offices, and agencies under him, 128 the DTI Secretary generally
cannot exercise review authority over actions of the Tariff Commission.
Neither does the SMA specifically authorize the DTI Secretary to alter,
amend or modify in any way the determination made by the Tariff
Commission. The most that the DTI Secretary could do to express
displeasure over the Tariff Commission's actions is to ignore its
recommendation, but not its determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules is
dissonant with the same word as employed in the SMA, which in the latter
case is undeviatingly in reference to the determination made by the Tariff
Commission. Beyond the resulting confusion, however, the divergent use in
Rule 13.2 is explicable as the Rule textually pertains to the power of the DTI
Secretary to review the recommendations of the Tariff Commission, not the
latter's determination. Indeed, an examination of the specific provisions
show that there is no real conflict to reconcile. Rule 13.2 respects the logical
order imposed by the SMA. The Rule does not remove the essential
requirement under Section 5 that a positive final determination be made by
the Tariff Commission before a definitive safeguard measure may be
imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as
merely recommendatory and points to the DTI Secretary as the authority
who renders the final decision.129 At the same time, Philcemcor asserts that
the Tariff Commission's functions are merely investigatory, and as such do
not include the power to decide or adjudicate. These contentions, viewed in
the context of the fundamental requisite set forth by Section 5, are
untenable. They run counter to the statutory prescription that a positive final
determination made by the Tariff Commission should first be obtained before
the definitive safeguard measures may be laid down.
Was it anomalous for Congress to have provided for a system whereby the
Tariff Commission may preclude the DTI, an office of higher rank, from
imposing a safeguard measure? Of course, this Court does not inquire into

the wisdom of the legislature but only charts the boundaries of powers and
functions set in its enactments. But then, it is not difficult to see the internal
logic of this statutory framework.
For one, as earlier stated, the DTI cannot exercise review powers over the
Tariff Commission which is not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of
check and balance involving two different governmental agencies with
disparate specializations. The matter of safeguard measures is of such
national importance that a decision either to impose or not to impose then
could have ruinous effects on companies doing business in the Philippines.
Thus, it is ideal to put in place a system which affords all due deliberation
and calls to fore various governmental agencies exercising their particular
specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain
a general safeguard measure, it is because such safeguard measure is the
exception, rather than the rule. The Philippines is obliged to observe its
obligations under the GATT, under whose framework trade liberalization, not
protectionism, is laid down. Verily, the GATT actually prescribes conditions
before a member-country may impose a safeguard measure. The pertinent
portion of the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if that
member has determined, pursuant to the provisions set out below, that such
product is being imported into its territory in such increased quantities,
absolute or relative to domestic production, and under such conditions as to
cause or threaten to cause serious injury to the domestic industry that
produces like or directly competitive products.130
3. (a) A Member may apply a safeguard measure only following an
investigation by the competent authorities of that Member pursuant to
procedures previously established and made public in consonance with
Article X of the GATT 1994. This investigation shall include reasonable public
notice to all interested parties and public hearings or other appropriate
means in which importers, exporters and other interested parties could
present evidence and their views, including the opportunity to respond to
the presentations of other parties and to submit their views, inter alia, as to
whether or not the application of a safeguard measure would be in the
public interest. The competent authorities shall publish a report setting forth
their findings and reasoned conclusions reached on all pertinent issues of
fact and law.131
The SMA was designed not to contradict the GATT, but to complement it. The
two requisites laid down in Section 5 for a positive final determination are
the same conditions provided under the GATT Agreement on Safeguards for
the application of safeguard measures by a member country. Moreover, the
investigatory procedure laid down by the SMA conforms to the procedure
required by the GATT Agreement on Safeguards. Congress has chosen the
Tariff Commission as the competent authority to conduct such investigation.
Southern Cross stresses that applying the provision of the GATT Agreement
on Safeguards, the Tariff Commission is clearly empowered to arrive at
binding conclusions.132 We agree: binding on the DTI Secretary is the Tariff
Commission's determinations on whether a product is imported in increased
quantities, absolute or relative to domestic production and whether any such
increase is a substantial cause of serious injury or threat thereof to the

domestic industry.133
Satisfied as we are with the proper statutory paradigm within which the SMA
should be analyzed, the flaws in the reasoning of the Court of Appeals and in
the arguments of the respondents become apparent. To better understand
the dynamics of the procedure set up by the law leading to the imposition of
definitive safeguard measures, a brief step-by-step recount thereof is in
order.
1. After the initiation of an action involving a general safeguard measure, 134
the DTI Secretary makes a preliminary determination whether the increased
imports of the product under consideration substantially cause or threaten
to substantially cause serious injury to the domestic industry, 135 and whether
the imposition of a provisional measure is warranted under Section 8 of the
SMA.136 If the preliminary determination is negative, it is implied that no
further action will be taken on the application.
2. When his preliminary determination is positive, the Secretary immediately
transmits the records covering the application to the Tariff Commission for
immediate formal investigation.137
3. The Tariff Commission conducts its formal investigation, keyed towards
making a final determination. In the process, it holds public hearings,
providing interested parties the opportunity to present evidence or
otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff
Commission is tasked to determine: (a) whether a product is being imported
into the country in increased quantities, irrespective of whether the product
is absolute or relative to the domestic production; and (b) whether the
importation in increased quantities is such that it causes serious injury or
threat to the domestic industry.139 The findings of the Tariff Commission as to
these matters constitute the final determination, which may be either
positive or negative.
4. Under Section 13 of the SMA, if the Tariff Commission makes a positive
determination, the Tariff Commission "recommends to the [DTI] Secretary an
appropriate definitive measure." The Tariff Commission "may also
recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of
the products, to alleviate the injury or threat thereof to the domestic
industry, and to facilitate positive adjustment to import competition." 140
5. If the Tariff Commission makes a positive final determination, the DTI
Secretary is then to decide, within fifteen (15) days from receipt of the
report, as to what appropriate safeguard measures should he impose.
6. However, if the Tariff Commission makes a negative final determination,
the DTI Secretary cannot impose any definitive safeguard measure. Under
Section 13, he is instructed instead to return whatever cash bond was paid
by the applicant upon the initiation of the action for safeguard measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary,
with the instruction that the DTI Secretary may impose a general safeguard
measure even if there is no positive final determination from the Tariff
Commission. More crucially, the Court of Appeals could not have acquired
jurisdiction over Philcemcor's petition for certiorari in the first place, as
Section 29 of the SMA properly vests jurisdiction on the CTA. Consequently,
the assailed Decision is an absolute nullity, and we declare it as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003

Decision of the DTI Secretary imposing the general safeguard measure? We

have recognized that any initial judicial review of a DTI ruling in connection
with the imposition of a safeguard measure belongs to the CTA. At the same
time, the Court also recognizes the fundamental principle that a null and
void judgment cannot produce any legal effect. There is sufficient cause to
establish that the 5 June 2003 Decision of the DTI Secretary resulted from
the assailed Court of Appeals Decision, even if the latter had not yet become
final. Conversely, it can be concluded that it was because of the putative
imprimatur of the Court of Appeals' Decision that the DTI Secretary issued
his ruling imposing the safeguard measure. Since the 5 June 2003 Decision
derives its legal effect from the void Decision of the Court of Appeals, this
ruling of the DTI Secretary is consequently void. The spring cannot rise
higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from
the appellate court's Decision for in his own 5 June 2003 Decision, he
declared:
From the aforementioned ruling, the CA has remanded the case to the DTI
Secretary for a final decision. Thus, there is no legal impediment for the
Secretary to decide on the application.141
The inescapable conclusion is that the DTI Secretary needed the assailed
Decision of the Court of Appeals to justify his rendering a second Decision.
He explicitly invoked the Court of Appeals' Decision as basis for rendering
his 5 June 2003 ruling, and implicitly recognized that without such Decision
he would not have the authority to revoke his previous ruling and render a
new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a
product of the void Decision, it being an attempt to carry out such null
judgment. There is therefore no choice but to declare it void as well, lest we
sanction the perverse existence of a fruit from a non-existent tree. It does
not even matter what the disposition of the 25 June 2003 Decision was, its
nullity would be warranted even if the DTI Secretary chose to uphold his
earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to
enforce a judicial decision which is not yet final and actually pending review
on appeal. Had it been a judge who attempted to enforce a decision that is
not yet final and executory, he or she would have readily been subjected to
sanction by this Court. The DTI Secretary may be beyond the ambit of
administrative review by this Court, but we are capacitated to allocate the
boundaries set by the law of the land and to exact fealty to the legal order,
especially from the instrumentalities and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court
of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the
DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and
SET ASIDE. No Costs.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Responsibility, for their disreputable conduct is more likely to be magnified

in the public eye.[1] The actuations of respondent brought to light in this case
bring disrepute not only to his good name, but to the government and to the
State. Restoration of public trust cannot ensue without an equivocal
statement from this Court that such behavior will not stand unpunished.
We consider the administrative liability of Atty. Fidel H. Borres, Jr.
(respondent), a Provincial Agrarian Reform Adjudicator (PARAD) of the
Department of Agrarian Reform Regional Arbitration Board (DARAB) for
rendering a blatantly irregular decision.
The facts of the case are as follows:
On 3 October 1987, by virtue of Presidential Decree No. 27 (PD 27),
SECOND DIVISION
the Ministry of Agrarian Reform issued Original Certificate of Title No. P-106
BERNARDO A. TADLIP, A.C. No. 5708
Complainant,

(OCT No. P-106), Emancipation Patent No. A-028380 to Eusebio E. Arce

Present:
- versus - PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
ATTY. FIDEL H. BORRES, JR., CHICO-NAZARIO, JJ. Respondent.
Promulgated:

conveying to him Three Thousand Nine Hundred Eight (3,908) square meters

November 11, 2005

27 was executed by Angel Madarieta, as represented by his wife, Pelagia

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

Madarieta (Madarieta) and Eusebio E. Arce.[3] The parties agreed that the

RESOLUTION
TINGA, J.:

of agricultural land situated in Mambajao, Camiguin. The land was formerly

owned by Angel Madarieta.[2]
Subsequently, on 14 December 1987, a Deed of Transfer under PD

land would be given to Arce in consideration of Seven Hundred Fifty (750)

kerosene cans of palay.[4]
Arce died on 23 December 1993. As he was succeeded by two minor

Lawyers in government service should be more sensitive in their

daughters ages 5 and 6 years old, herein complainant Tadlip, who is his
adherence to their professional obligations under the Code of Professional

nephew, assumed the responsibility of tilling the land. Tadlip caused the

reality that a clear deprivation of such right would ensue should the petition

reallocation of the disputed land through the aid of the Bureau of Legal

be granted.

Assistance, Department of Agrarian Reform, Yuming, Mambajao, Camiguin

The second was a Complaint[9] entitled Pelagia Madarieta v. Heirs of
(BLA-DAR) in a petition dated 9 October 1997 and docketed as DARAB Case
Eusebio Arce/Bernardo A. Tadlip, docketed as DARAB Case No. X-99-04 for
No. X-861.[5]
Cancellation of Original Certificate of Title No. EP 106 and Retention. In the
Respondent, as PARAD of the DARAB, issued an Order[6] dated 3 April

said complaint, Madarieta substantially alleged the same facts and prayed

1998 granting the petition of complainant reallocating the land to him and

for the same remedies except that she included one more allegation, that

the heirs of Arce.

which pertains to the reallocation of the land to complainant.

However, the title to the parcels of land was never transferred to

Complainant alleged that the Complaint was filed by Madarieta upon

complainant and the heirs of Arce because unknown to them, respondent

the instruction of respondent, to correct the procedural flaw attending to her

rendered another Order[7] dated 26 January 1999 canceling the registration

initial Petition.[10]Interestingly, complainant also asserts that the filing of the

of the same OCT No. P-106 and ordering the issuance of a transfer certificate

petition and complaint of Madarieta was not simultaneously done albeit it

of title ex parte in favor of Madarieta in DARAB Case No. X-99-02.

would seem as if they were. According to him, respondent PARAD, after

rendering the Order dated 26 January 1999, advised Madarieta to file a

As borne out by the records of the case, Madarieta filed two

complaint impleading complainant and the heirs of Arce so as to make it
pleadings on 22 January 1999. The first was a Petition[8] entitled In the
appear that the cancellation of the title of the emancipated land was regular
Matter

of

Cancellation

of

Original

Certificate

of

Title

No.

EPand legal.[11] In effect, complainant maintains that the filing of the petition

106/Emancipation Patent No. A-028380 and Retention Right docketed as

and the complaint by Madarieta on 22 January 1999 was not simultaneous
DARAB Case No. X-99-02. Madarieta based her Petition on the ground that
but successive,[12] where after respondent rendered the Order for the
she was not able to exercise her right of retention, the land is idle,
petition, Madarieta thereafter filed the complaint at a later date but made it
abandoned, unattended and unproductive and that the late Eusebio Arce did
appear that the same was also filed on 22 January 1999.
not comply with the agreed monthly amortization as payment for the lot. By
the nature of the pleadings filed, Madarieta obviously executed an ex parte

In any event, the Petition, despite its obvious flaws, was decided by

proceeding. Hence, no attempt was made to implead Tadlip or the Arce

respondent in favor of Madrieta just four (4) days after it had been filed.

heirs, despite the existence of their legal interest over the property and

Thus, OCT No. P-106 was ordered cancelled even before Tadlip or the heirs of

Arce had any possible opportunity to be heard.

In a resolution dated 19 February 2003, the Court referred the case

to the Integrated Bar of the Philippines (IBP) for investigation, report and

Complainant discovered this fact only when the DARAB-Camiguin

recommendation.
furnished the BLA-DAR a copy of the Order in DARAB Case No. X-99-02 on 25
February 1999. Complainant filed an Urgent Motion for Reconsideration [13]

The IBP found that respondent violated Canon I of the Code of

but this was denied by respondent in an Order [14] dated 19 March 1999. As if

Professional Responsibility by disregarding and failing to apply the specific

complainants travails in the hands of respondent were not enough,

provisions of the 1994 New Rules of Procedure [20] (DARAB Rules) in disposing

respondent also rendered on 17 May 1999 a Decision[15] on the Complaint in

of DARAB Case Nos. X-99-02 and X-99-04 and recommended that

DARAB Case No. X-99-04 also adverse to complainant.

respondent be suspended from the practice of law for a period of two (2)
months with a warning that a repetition of the same or similar act will be

Matters were aggravated when Madarieta filed a motion for

dealt with more severely.[21]
execution pending appeal on 25 May 1999.

[16]

The same was granted by

We agree with the findings

of

the IBP but hold that

the

respondent on 11 June 1999[17]despite the vehement opposition[18] of

recommended penalty is quite slight for the infractions done by respondent.
complainant who cited procedural irregularities according to the DARAB
Rules of Procedure, particularly the rule that any motion for execution of the

This Court cannot delve into the factual or legal questions raised by

decision of the Adjudicator pending appeal shall be filed with the DARAB,

complainant. We can only rule on its administrative aspect. However, for us

and not the adjudicator.[19]

to fully dispose of the case, the multiple violations of respondent must be

subjected to scrutiny and scorn.

Hence,

on

20

March

2002,

complainant

filed

this

instant

administrative complaint. On 7 August 2002, this Court required respondent

to comment on the complaint.

Respondent is not only a lawyer practicing his profession, but also a

provincial adjudicator, a public officer tasked with the duty of deciding
conflicting claims of the parties. He is part of the quasi-judicial system of our

Respondent, in his comment dated 9 December 2002, denied all the

government. Thus, by analogy, the present dispute may be likened to
accusations hurled against him. He related that complainant filed an appeal
administrative cases of judges whose manner of deciding cases was
and certiorari case relative to the land dispute but instead of waiting for the
similarly subject of respective administrative cases.
result,

the

latter

filed

another

case

subsequently this administrative case.

before

the

Ombudsman

and
To hold the judge liable, this Court has time and again ruled that the

error must be so gross and patent as to produce an inference of ignorance or

bad faith or that the judge knowingly rendered an unjust decision. [22] It must
be so grave and on so fundamental a point as to warrant condemnation of
the judge as patently ignorant or negligent. [23]Otherwise, to hold a judge
administratively accountable for every erroneous ruling or decision he
renders, assuming that the judge erred, would be nothing short of
harassment and that would be intolerable.[24]
However, it has also been held that when the law violated is
elementary, the failure to know or observe it constitutes gross ignorance of

filed shall be stamped thereon. The corresponding summons

and notice of hearing to the adverse party, attaching
therewith a copy of such complaint or petition, affidavit and
documentary evidence if any, shall be served by personal
delivery or registered mail to the defendant or respondent
within two (2) days therefrom. The summons and notice of
hearing shall direct the defendant or respondent to file an
answer to the complaint or petition and submit counter
affidavit and other documentary evidence, if any, within a
non-extendible period of ten (10) days from receipt thereof
furnishing a copy to the petitioner or the complainant. The
summons shall also specify the date, time and place of the
hearing and order the parties and their witnesses to appear
at the scheduled date of hearing. The aforementioned
affidavits and counter-affidavits of the witnesses shall take
the place of their direct testimony. Failure of any party to
submit his affidavits or counter affidavits as herein directed
will be interpreted by the Adjudicator or Board as a waiver to
present evidence or that he has more evidence to submit
and the case could be considered submitted for decision.

the law. The disregard of established rule of law which amounts to gross
ignorance of law makes a judge subject to disciplinary action. [25]
Clearly, complainant was a party in interest in the two DARAB cases
In Pesayco v. Layague,[26] the Court had the opportunity to declare
that:

filed by Madarieta as he stood to be adversely affected by the decision of

respondent. Yet, he was never summoned in DARAB Case No. X-99-02, which

A judge must be acquainted with legal norms and

precepts as well as with procedural rules. When a judge
displays an utter lack of familiarity with the rules, he erodes
the publics confidence in the competence of our courts.
Such is gross ignorance of the law. One who accepts the
exalted position of a judge owes the public and the court the
duty to be proficient in the law. . . . Basic rules of procedure
must be at the palm of a judges hands.[27]

was decided against him just four (4) days after it was filed. Evidently
complainant had no reasonable opportunity to be heard before he was
divested of the land over which respondent, just a few months earlier, had
affirmed complainants rights thereto.
It would be absurd to accept the reasoning of respondent that since

Needless to say, respondent was sorely remiss in his duties as the

PARAD of Camiguin in the disposition of cases filed by Madarieta.

complainant was not impleaded as a party to DARAB Case No. X-99-02, the
latter was not entitled to be notified of the hearing and the eventual
disposition of the case. The DARAB Rules requires the joinder of all parties-

He violated Rule VI of the DARAB Rules, to wit:

in-interest whether as defendants or respondents. Parties-in-interest are
SECTION 1. Issuance of Summons, Time to Answer
and Submission of Evidence. Upon the filing of the complaint
or petition, the hour/time, day, month, and year when it was

defined as (a)ll persons who claim an interest in the dispute or subject

matter thereof adverse to complainant or petitioner, or who are necessary to

a complete determination or settlement of the issue involved therein. [28]

complainant with an interest in the lot with all the rights therewith

Complainant, as the holder of title and possession of the property sought to

accompanying the order of reallocation. He, therefore, cannot afterwards

be reconveyed, is ineluctably a party-in-interest.

deny such right or interest from complainant to defend the latters claim and
subsequently cancel OCT No. P-106 unilaterally. In doing so, complainants

Respondent should have dismissed Madarietas petition for failure to

possession, if not ownership of the land has been adversely affected.
implead complainant, the heirs of Arce, and all others who derive title from
them.[29]

Complainant has also alleged that he was able to obtain positive

action on his petition for reallocation only after paying the respondent One

Complainant intimates that the Complaint was instituted precisely to

Thousand (P1,000.00) pesos.[30] He also categorically states that there was a
cure the defect attending the Petition. The Court cannot conclude
rumored

pay-off

between

respondent

and

the

Madarieta

Family. [31]

definitively that this remedial measure was instigated on the suggestion of

Admittedly through, no other evidence was given to corroborate the alleged
the respondent. But assuming this were true, respondents undue haste in
pay-off and his payment of P1,000.00. Thus, we cannot deem these serious
granting the Petition just four days after it was filed practically obviated
allegations as proven. Still, the dubious nature of the decisions is
whatever curative effect the Complaint may have served, since the relief
inescapable, and on that basis administrative liability can ensue.
sought in the latter was the same already granted in the former. Whatever
proceedings may have transpired in the hearing of the Complaint, these

Compounding respondents liability is the fact that in granting

were a redundancy, considering that the relief prayed for had already been

execution pending appeal, he also disregarded Rule XII of the DARAB Rules,

granted.

which states:

Furthermore, as correctly observed by the IBP Commissioner,

by respondent as a motion for intervention and yet respondent denied the

SECTION 2. Execution pending appeal. Any motion

for execution of the decision of the Adjudicator
pending appeal shall be filed before the Board, and the
same may be granted upon showing good reasons under
conditions which the Board may require. (Emphasis ours.)

same.

It is unmistakably stated in unequivocal terms that execution

complainants urgent motion for reconsideration may very well be considered

pending appeal must be filed before the Adjudication Board. Respondent

Remarkably, respondent, nine months prior to his Order dated 26
violated this rule in rendering an order of execution pending appeal when
January 1999, has rendered an Order dated 3 April 1998 reallocating the
such authority has been given to the Board alone. Even the respondent cited
land in question from Arce to complainant. Respondent himself had vested
the said provision of the DARAB Rules in his position paper [32] and yet it

seems that he merely dispensed of the rules and replaced it with his own

appeal in effect deprived complainant of the land he tills and the source of

system of procedure contrary to the DARAB Rules.

his income. Complainant woke up one day not knowing that the
emancipated land which he thought was already reallocated to him was lost

In addition, on 14 May 1993, the DAR Region X, Macanhan, Carmen,

by order of respondent. He was not given the chance to defend his claim
Cagayan de Oro received an advisory through an official radiophone
over the property. This is tantamount to deprivation of property without due
message addressed to all Regional Agrarian Reform Adjudicators (RARADs)
process of law, a constitutional guarantee available to every individual.
and PARADs of the DAR from the then Undersecretary Lorenzo Reyes not to
execute any ejection proceedings promptly appealed to the DARAB. [33] On 15
September

1993,

the

same

undersecretary

issued

another

The actual review of the subject issuance of the respondent should

official

be undertaken in the proper judicial proceedings, and not by this Court at

radiophone message addressed to RARAD Jimmy Tapangan of DAR Region X,

this time via an administrative action. Nevertheless, respondents culpability

Cagayan de Oro which is faithfully reproduced as follows:

under the Code of Professional Responsibility is indubitable. As a lawyer, the

IBP determined, and we subscribe to such determination, that respondent

HELLO, PLEASE ADVISE OUR ADJUDICATORS NOT TO

EXECUTE DECISIONS WHERE NOTICE OF APPEAL WAS FILED
WITHIN THE REGLEMENTARY PERIOD INSTEAD THE RECORDS
OF THE CASE SHOULD BE IMMEDIATELY FORWARDED TO THE
BOARD PD SOME MEMBERS OF THE BOARD ARE
CONTEMPLATING OF THROWING THE BOOKS TO THOSE WHO
INSIST ON EXECUTING DECISIONS THAT ARE PROMPTLY
INSPITE OF OUR PREVIOUS ADVISES NOT TO DO SO PD THE
BOARD HAS CONSISTENTLY RULED IN SO MANY DECISIONS
ALREADY THAT DECISIONS THAT ARE PROMPTLY APPEALED
CAN NO LONGER BE EXECUTED BY THE ADJUDICATOR
CONCERENED PD THESE RADIOMESSAGE IS THE OFFICIAL
ADVISE VERBAL OF THE BOARD PD KEEP UP THE GOOD
WORK WARMEST REGARDS END. . . .[34]

violated Canon 1 of the Code of Professional Responsibility which states:

Canon 1A lawyer shall uphold the Constitution, obey
the laws of the land and promote respect for law and for
legal processes.

While the duty to uphold the Constitution and obey the laws is an
obligation imposed upon every citizen, a lawyer assumes responsibilities
well beyond the basic requirements of good citizenship. As a servant of the

Hence, as early as 1993, the RARADs and PARADs have been aware
that executions pending appeal was to be acted upon by the DARAB and not

law, a lawyer should moreover make himself an exemplar of others to

emulate.[35]

by them.
A member of the bar who assumes public office does not shed his
Respondents non-observance of the DARAB Rules on notice and

professional obligations. Hence the Code of Professional Responsibility,

hearing and his grant to Madarieta of her motion for execution pending

promulgated on 21 June 1988, was not meant to govern the conduct of

private practitioners alone, but of all lawyers including those in government

service. This is clear from Canon 6 of the said Code. Lawyers in government
service are public servants who owe the utmost fidelity to the public service.
Thus they should be more sensitive in the performance of their professional
obligations, as their conduct is subject to the ever-constant scrutiny of the
public.[36]
Respondent, as a Provincial Adjudicator of the DARAB, was reposed
with a higher gravamen of responsibility than a lawyer in private practice.
The recommended penalty of two months suspension is too light under the
circumstances,

and

penalty

of

six

(6)

months

suspension

more

appropriate.

As held in recent cases,[37] the penalty for a judge found to be guilty

of gross ignorance of the law is six (6) months. In the case at bar, after due
consideration of the facts involved, the Court believes and so holds that the
same penalty should be imposed upon respondent as he disregarded
pertinent rules of procedure of the DARAB that led to the unjust deprivation
of complainant of his property.
WHEREFORE,

premises

considered,

respondent

is

hereby

SUSPENDED from the practice of law for a period of six (6) months. Let a
copy of this Resolution be furnished the Bar Confidant for appropriate
annotation in the record of respondent.

SO ORDERED.

Bautista vs. Federico A. Poblete, et al., and docketed as EO Case No. 98-219.
Of the 77 persons offered by the complainant to prove the charges, 44
executed their respective affidavits and swore and subscribed to the truth
thereof, on the vote-buying of the respondents. The Law Department of the
petitioner conducted the requisite preliminary investigation, after which it
submitted its comments and recommendations to the COMELEC En Banc. On
February 25, 1999, the COMELEC En Banc issued Resolution No. 99-0346,
the dispositive portion of which reads:

[G.R. No. 149164-73. December 10, 2003]

COMMISSION ON ELECTIONS, petitioner, vs. HON. DOLORES L.

ESPAOL, Presiding Judge, Regional Trial Court, Branch 90,
Imus, Cavite,respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for certiorari and mandamus under Rule 65 of the
Rules of Court, as amended, filed by the Commission on Elections
(COMELEC) for the nullification of the Order of the respondent judge dated
February 20, 2001, denying the Omnibus Motion to Dismiss filed by the
petitioner in Criminal Case Nos. 7960-00 to 7969-00, and the Order dated
May 16, 2001, denying the petitioners motion for reconsideration.

The Antecedents
During the elections on May 11, 1998, Florentino A. Bautista was the
official candidate of the Lakas for the position of Municipal Mayor of Kawit,
Cavite. He executed an Affidavit-Complaint charging the incumbent
Municipal Mayor Atty. Federico Hit Poblete, Vice-Mayor Reynaldo Aguinaldo,
Bienvenido Pobre, Arturo Ganibe, Leonardo Llave, Diosdado del Rosario,
Manuel Ubod, Angelito Peregrino, Mario Espiritu, Salvador Olaes and Pedro
Paterno, Jr. of violation of paragraphs (a) and (b) of Section 261 of the
Omnibus Election Code (vote buying) and filed the same with the Law
Department of the COMELEC. The complaint was entitled Florentino A.

RESOLVED: (a) to file the necessary information against respondents

Federico A. Poblete, Bienvenido C. Pobre, Reynaldo B. Aguinaldo, Leonardo
Llave, Diosdado del Rosario, Angelito Peregrino, Mario Espiritu, Salvador
Olaes, Pedro Paterno, Jr., Arturo Ganibe and Manuel Ubod, before the proper
Regional Trial Court of Cavite for violation of Section 261 (a) and (b) of the
Omnibus Election Code; and to authorize the Director IV of the Law
Department to designate a COMELEC prosecutor to handle the prosecution
of the case until termination thereof, with the duty to submit periodic report
after every hearing of the case; and (b) to file a Motion before the Court for
the preventive suspension for a period of ninety (90) days of respondents
Mayor Bienvenido Pobre, Vice-Mayor Reynaldo Aguinaldo and Sangguniang
Bayan members Leonardo Llave, Diosdado del Rosario, Angelito Peregrino,
Mario Espiritu, Salvador Olaes and Pedro Paterno, Jr., while the case is
pending pursuant to Section 60 Chapter IV of Republic Act No. 7160,
otherwise known as the Local Government Code of 1991 specifically on the
ground of commission of an offense involving moral turpitude. [1]
The petitioner, through its Law Department, filed an Information against
the respondents with the Regional Trial Court of Cavite, docketed as Criminal
Case No. 7034-99, raffled to Branch 90, presided by the respondent judge.
On May 10, 1999, the court issued an order directing the Law Department of
the petitioner to conduct a reinvestigation of the case, citing the ruling of
this Court in Lozano vs. Yorac[2] and Nolasco vs. Commission on Elections.[3]
In the meantime, Gerardo Macapagal and Inocencio Rodelas filed a
criminal complaint for violation of Section 261(a) of the Omnibus Election
Code (vote selling) against the witnesses of Florentino A. Bautista in Criminal
Case No. 7034-99. The complaint was docketed as I.S. No. 1-99-1080. The
Office of the Cavite Provincial Prosecutor conducted a preliminary
investigation of the complaint, in his capacity as a deputy of the petitioner.
On April 10, 2000, the Office of the Cavite Provincial Prosecutor issued a
resolution in I.S. No. 1-99-1080 finding probable cause against the
respondents for violations of Section 261(a) and (b) of the Omnibus Election
Code, and filed separate Informations against them with the RTC of Cavite.
The dispositive portion of the Resolution reads:
WHEREFORE, in the light of the preceding premises, let separate
Informations for vote-selling penalized under Section 261 (a) (b) of the
Omnibus Election Code be immediately filed against all respondents,
thirteen of whom were deemed to have waived their right to present
evidence in their behalf during the preliminary investigation. [4]
The cases were raffled and assigned to the RTC branches as follows:

Criminal Case No. Branch Number

7940-00 to 7949-00 and 7981-00 Branch 22
7973-00 to 7979-00 and 7970-00 Branch 21
7950-00 to 7959-00 and 7980-00 Branch 20
7960-00 to 7969-00 Branch 90
On June 15, 2000, the respondents in I.S. No. 1-99-1080 received copies
of the Resolution of the Provincial Prosecutor, and on June 23, 2000
appealed the same to the petitioner, contending that:
Violation of Section 261 (a)(2) of the Omnibus Election Code is an election
offense under Article XXII of the same code. Under Section 265 of the Code,
it is this Honorable Commission which has the exclusive power to conduct
(the) preliminary investigation thereof, and to prosecute the same. As such,
it is also this Honorable Commission which has the exclusive power to
review, motu proprio or through an appeal, the recommendation or
resolution of investigating officers in the preliminary investigation.
This appeal is, therefore, made pursuant to this Honorable Commissions
exclusive power to conduct preliminary investigation of all election offenses
xxx and to prosecute the same and to review the recommendation or
resolution of investigating officers, like the chief state prosecutor and/or
provincial/city prosecutors in preliminary investigations thereof under
Section 265 of the Omnibus Election Code and Section 10, Rule 34 of the
COMELEC Rules of Procedure.[5]
On July 6, 2000, the petitioner came out with Minute Resolution No. 001378 denying the appeal of the respondents-appellants therein for lack of
jurisdiction. But on the same day, the respondents-appellants filed an Urgent
Motion to Withdraw or Revoke the Delegated Authority of the Law
Department to Direct the Said Office to Suspend or Move for the Suspension
of the Prosecution of Criminal Cases Nos. 7940-00 to 7981-00. The
respondents-appellants also filed a Manifestation with Urgent Motion to Set
for Hearing Re: Appeal from the Resolution of the Provincial Prosecutor of
Resolution No. I.S. No. 1-99-1080. On September 7, 2000, the COMELEC
approved Resolution No. 00-1826, thus:
The Commission, after due deliberation, RESOLVED as it hereby RESOLVES to
defer action on the aforesaid matter. Meanwhile, to refer the same to the
Law Department for comment and recommendation.
Let the Law Department implement this resolution.[6]
On October 24, 2000, the Law Department of the petitioner filed a
motion before Branches 20, 21, 22 and 90, praying for the suspension of the
proceedings against all the accused until the petitioner shall have resolved
the incidents before it. The public prosecutor did not object to the motion.
On October 25, 2000, RTC, Branch 22, issued an Order granting the motion
in the criminal cases before it.
Meanwhile, acting on the appeal of the respondents-appellants in I.S.
No. 1-99-1080, Atty. Michael L. Valdez submitted his recommendation in

behalf of the COMELECs Law Department, Investigation and Prosecution

Division on November 13, 2000. It was recommended that the petitioner
nullify the Resolution of the Office of the Cavite Provincial Prosecutor in I.S.
No. 1-99-1080, for the reason that the respondents-appellants are exempt,
under Section 28(4) of Republic Act No. 6646, from prosecution for violation
of Section 261(a)(b) of the Omnibus Election Code:
WHEREFORE, premises considered, the Law Department RECOMMENDS to
declare as null and void the Resolution of the Office of the Provincial Fiscal
(Prosecutor) of Cavite in I.S. No. 1-99-1080, entitled Gerardo Macapagal, et
al. vs. Celerino Villarosa, et al., finding the existence of a probable cause
against the respondents for being a violation of Section 28 (4) of Rep. Act
No. 6646, and to exempt them from criminal prosecution, accused: Celerino
Villarosa, Felisa Villarosa, Leonardo Collano, Azucena Collano, Jonathan
Francisco, Berna Francisco, David Zablan, Teresita Zablan, Rowel Del Rosario,
Reynaldo Morales, Lolita Morales, Sherlita Borejon, Leonardo Mabiliran,
Virgilio Duco, Marina Duco, Bencio Planzar, Rudy Solomon, Nenita Viajador,
Antonio De la Cruz, Guinata Agarao, Luis Cantiza, Ramilo Pinote, Miriam
Pinote, Wilfredo/Fredo Rodriguez, Marlene/Marlyn Rodriguez, Rodelio Pinote,
Saludia Pinote, Ronel Escalante, Alejandrino Duco, Dominga Duco, Joel De la
Rosa, Shirley De la Rosa, Ernesto Del Rosario, Nilda Del Rosario, Rodger
Pinote, Ma. Theresa Pinote, Wilfredo Del Rosario, Roberto Pinote, Jocelyn
Pinote, Norma De la Rosa, Lita Montad and Nacy Daiz, whose cases are
pending before Branches Nos. 20, 21, 22, and 90, Regional Trial Court, Imus,
Cavite, and who are witnesses of the prosecution in Crim. Case No. 7034-99,
Regional Trial Court, Branch 90, Imus, Cavite, and to direct the Law
Department to file the necessary motion before the court to dismiss their
cases, by citing Section 28 (4) of Rep. Act No. 6646. [7]
During the regular meeting of the COMELEC En Banc on November 23,
2000, the Chairman and two other commissioners were on official leave. The
remaining four commissioners met and issued Resolution No. 00-2453
approving the foregoing recommendation, to wit:
The Commission RESOLVED, as it hereby RESOLVES, to approve the
recommendation of the Law Department as follows:
1. to declare the Resolution of the Office of the Provincial Prosecutor of
Cavite in I.S. No. 1-99-1080 (Gerardo Macapagal, et al. vs. Celerino Villarosa,
et al.) as null and void, and to exempt the aforementioned accused from
criminal prosecution pursuant to Section 28 (4) of R.A. No. 6646; and
2. to direct the Law Department to file the necessary motion to dismiss
before the proper court the cases against the herein-named accused.
Let the Law Department implement this resolution.
SO ORDERED.[8]
In compliance with the Resolution of the COMELEC En Banc, its Law
Department, through Attys. Jose P. Balbuena and Michael Valdez, filed with
the RTC, Branch 90, an Omnibus Motion (1) Motion for Reconsideration Re:
Order of this Court dated November 22, 2000; (2) Motion for Leave to
Reiterate Urgent Motion to Suspend Proceedings; and (3) Motion to Dismiss
filed on January 8, 2001. The Public Prosecutor opposed the petitioners
motion to dismiss on the following grounds: (a) the exemption under the last

paragraph of Section 28 of Republic Act No. 6646 applies only to the offense
of vote-buying, as the accused in Criminal Case No. 7034-99 in which the
respondents-appellants gave their sworn statements was for vote-buying;
this exemption will not apply to the charge for vote-selling which was the
crime charged in I.S. No. 1-99-1080; (b) the July 6, 2000 Resolution No. 001378 of the petitioner had become final and executory; hence, it is no longer
subject to review by the petitioner; and (c) the review of the Provincial
Prosecutors resolution made by the petitioner was a re-investigation of the
case, and was done without prior authority of the Court.
On February 20, 2001, the trial court issued an Order denying the
Omnibus Motion of the petitioner. The petitioner filed a Motion for
Reconsideration of the said order on March 31, 2000. The Provincial
Prosecutor opposed the motion. On May 16, 2001, the trial court issued an
Order denying the said motion holding that the petitioner had no absolute
power to grant exemptions under Section 28 of Republic Act No. 6648. The
trial court also held that the issue of whether or not the accused are exempt
from prosecution and consequent conviction for vote-buying is a matter
addressed to the Court and not to the petitioner.
In its petition at bar, the petitioner raises the following issues for
resolution, viz:
(1) WHETHER THE ACCUSED ARE EXEMPT FROM CRIMINAL PROSECUTION
PURSUANT TO SECTION 28 (4) OF R.A. No. 6646.
(2) WHETHER THERE IS NO NEED FOR AN EN BANC RESOLUTION REVOKING
THE AUTHORITY OF THE PROVINCIAL PROSECUTOR FROM HANDLING THE
CASES FILED IN COURT SINCE THE COMELEC EN BANC ALREADY DIRECTED
THE LAW DEPARTMENT TO FILE A MOTION TO DISMISS THESE CASES; [9]
On the first issue, the petitioner contends that the complainantsappellees in I.S. No. 1-99-1080 failed to file any motion for the
reconsideration of the petitioners Resolution No. 00-2453 reversing
Resolution No. 00-1378 which, in turn, dismissed the respondents-appellants
appeal. Neither did the said complainants-appellees file a petition for
certiorari under Rule 65 of the Rules of Court from its Resolution No. 002453. Consequently, Resolution No. 00-2453 has become final and
executory; hence, is binding and conclusive on the complainants-appellees,
the Office of the Provincial Prosecutor and the herein respondent judge. The
petitioner further asserts that the respondents-appellants motion for
reconsideration in I.S. No. 1-99-1080 of COMELEC Resolution No. 00-1378 is
not a prohibited pleading under Rule 13, Section 1, paragraph (d) of the
COMELEC Rules of Procedure.
According to the petitioner, the prosecution of election offenses is under
its sole control. Any delegation of its authority to the Provincial or City
Prosecutor to prosecute election cases may be revoked or withdrawn by it,
expressly or impliedly, at any stage of the proceedings in the RTC. The
petitioner, through Atty. Michael Valdez of its Law Department, had already
entered his appearance for the petitioner as public prosecutor before the
respondent judge. The Provincial Prosecutor was, thus, ipso facto divested of
his authority, as deputized prosecutor, to represent the petitioner on the
motion to dismiss and to prosecute the cases before the respondent judge.

The respondent judge, for her part, avers that COMELEC Resolution No.
00-2453 was approved only by four of the seven members of the petitioner
sitting en banc, and as such, could not have validly revoked Resolution No.
00-1378 which was, in turn, approved by unanimous vote of the Commission
Members sitting en banc. It behooved the petitioner to conduct a joint
reinvestigation in I.S. No. 1-99-1080 and EO No. 98-219 to ascertain whether
the respondents-appellants in I.S. No. 1-99-1080 were exempt from
prosecution for vote-selling.
Finally, according to the respondent judge, Section 2, Rule 34 of the
COMELEC Rules of Procedure is contrary to Section 265 of the Omnibus
Election Code, which does not allow the petitioner to withdraw its deputation
of Provincial or City Prosecutors.
We agree with the petitioner.
Under Article IX, Section 2(b) of the Constitution, [10] the petitioner is
empowered to investigate and, when appropriate, prosecute election
offenses. The grant by the Constitution to the petitioner of the express
power to investigate and prosecute election offenses is intended to enable
the petitioner to assure the people of a fine, orderly, honest, peaceful and
credible election.[11] Under Section 265 of the Omnibus Election Code, the
petitioner, through its duly authorized legal officers, has the exclusive power
to conduct preliminary investigation of all election offenses punishable under
the Omnibus Election Code, and to prosecute the same. The petitioner may
avail of the assistance of the prosecuting arms of the government. [12] In
Section 2, Rule 34 of the COMELEC Rules of Procedure, all Provincial and City
Prosecutors and/or their respective assistants are given continuing authority
as its deputies to conduct preliminary investigation of complaints involving
election offenses under election laws and to prosecute the same. The
complaints may be filed directly with them or may be indorsed to them by
the petitioner or its duly authorized representatives. [13] The respondents
assertion that Section 2, Rule 34, of the COMELEC Rules of Procedure is a
violation of Section 265 of the Omnibus Election Code has been laid to rest
by this Court in Margarejo vs. Escoses,[14] wherein this Court ruled that until
revoked, the continuing authority of the Provincial or City Prosecutors stays.
The deputation of the Provincial and City Prosecutors is necessitated by
the need for prompt investigation and dispensation of election cases as an
indispensable part of the task of securing fine, orderly, honest, peaceful and
credible elections. Enfeebled by lack of funds and the magnitude of its
workload, the petitioner does not have a sufficient number of legal officers
to conduct such investigation and to prosecute such cases. The prosecutors
deputized by the petitioner are subject to its authority, control and
supervision in respect of the particular functions covered by such
deputation. The acts of such deputies within the lawful scope of their
delegated authority are, in legal contemplation, the acts of the petitioner
itself.[15] Such authority may be revoked or withdrawn any time by the
petitioner, either expressly or impliedly, when in its judgment such
revocation or withdrawal is necessary to protect the integrity of the process
to promote the common good, or where it believes that successful
prosecution of the case can be done by the petitioner. Moreover, being mere

deputies or agents of the petitioner, provincial or city prosecutors deputized

by the petitioner are expected to act in accord with and not contrary to or in
derogation of the resolutions, directives or orders of the petitioner in relation
to election cases such prosecutors are deputized to investigate and
prosecute. Otherwise, the only option of such provincial or city prosecutor is
to seek relief from the petitioner as its deputy.
The withdrawal by the petitioner of its deputation of the provincial or
city prosecutors may not be interfered with or overruled by the trial court. In
this case, the petitioner had resolved to approve the recommendation of its
Law Department and nullified the Resolution of the Provincial Prosecutor in
I.S. No. 1-99-1080, and directed its Law Department, not the Provincial
Prosecutor, to implement the said resolution and file the necessary motion
to dismiss Criminal Cases Nos. 7960-00 to 7969-00 pending with the
respondent judge. The Law Department did file before the respondent a
Motion to Dismiss the said cases and a motion for the respondent to, in the
meantime, suspend the proceedings. Atty. Michael L. Valdez, a legal officer
of the petitioners Law Department, entered his appearance for the
petitioner. The Provincial Prosecutor was thereby relieved of his deputation
to represent the petitioner in connection with the said motion. However, the
Provincial Prosecutor refused to give way to the Legal Officer of the
petitioner and even opposed the said motion. The act of the Provincial
Prosecutor constituted a defiance of the resolution of the petitioner and
should have been ignored by the respondent judge.
It bears stressing that when the Provincial Prosecutor conducted the
preliminary investigation of I.S. No. 1-99-1080, and filed the Information in
Criminal Cases Nos. 7960-00 to 7969-00, he did so because he had been
duly deputized by the petitioner. He did not do so under the sole authority of
his office.[16] The resolution of the Provincial Prosecutor in I.S. No. 1-99-1080
was subject to appeal by the aggrieved party to the petitioner and may be
reversed by the petitioner in the exercise of its supervision and control of its
deputies/subordinates.[17]
While it is the true that the petitioner initially dismissed the appeal of
the respondents-appellants from the resolution of the Provincial Prosecutor
in I.S. No. 1-99-1080, the petitioner later gave due course and granted the
appeal, and nullified the resolution of the Provincial Prosecutor. Contrary to
the latters claim, the petitioner did not conduct a reinvestigation of I.S. No.
1-99-1080. It merely acted on the appeal of the respondents-appellants.
The respondent has failed to cite any COMELEC rule which requires the
unanimous votes of all its Commissioners sitting en banc for the reversal or
revocation of a prior resolution approved by unanimous vote. On the other
hand, Section 5, Rule 2 of the COMELEC Rules of Procedure provides that:
SEC. 5. Quorum; Votes Required. (a) When sitting en banc, four (4) Members
of the Commission shall constitute a quorum for the purpose of transacting
business. The concurrence of a majority of the Members of the Commission
shall be necessary for the pronouncement of a decision, resolution, order or
ruling.
In this case, COMELEC Resolution No. 00-2453 was approved by four of

the seven Commissioners of the petitioner, three of whom were on official

leave. Irrefragably, the said resolution of the petitioner giving due course to
the appeal of the respondents-appellants in I.S. No. 1-99-1087 was a valid
reversal of COMELEC Resolution No. 00-1378 which initially denied the said
appeal of the respondents-appellants.
The conduct of a preliminary investigation of election offenses for the
purpose of determining whether or not there is probable cause to believe
that the accused is guilty of the offense charged and, therefore, should be
subjected to trial is the function of the petitioner. [18] The Court will not even
interfere with the finding of the petitioner absent a clear showing of grave
abuse of discretion. Neither should the respondent. This principle emanates
from the COMELECs exclusive power to conduct preliminary investigation of
all election offenses and to prosecute the same except as may otherwise be
provided by law. While it is the duty of the petitioner to prosecute those
committing election offenses, it is equally its duty not to prosecute those
offenses where no probable cause exists. The exclusion and inclusion of
persons in Informations for election offenses is a prerogative granted by the
law and the Constitution to the petitioner. [19] The petitioner may not be
compelled to charge a person or include the latter in an Information when it
believes that under the law and on the basis of the evidence in its
possession, such person should not be charged at all.
On the second issue, the petitioner contends that respondentsappellants in I.S. No. 1-99-1080, who were its witnesses in Criminal Case No.
7034-99, had been granted exemptions from prosecution and punishment
for the offense of vote-buying, pursuant to Section 28(4) of Republic Act No.
6848. The petitioner avers that the respondents-appellants in I.S. No. 1-991080, are also exempt from criminal liability for the offense of vote-selling;
hence, should not be charged with the latter offense. Thus, Criminal Cases
Nos. 7960-00 to 7969-00 should be dismissed. The petitioner avers that the
witnesses had executed their respective affidavits as to where and how the
accused in Criminal Case No. 7034-99 committed the crimes of vote-buying.
The petitioner also contends that the charges of vote-selling filed against the
said witnesses in Criminal Cases Nos. 7960-00 to 7969-00 were designed to
frighten and discourage them from testifying against the vote buyers, who
are the accused in Criminal Case No. 7034-99. The respondent, thus,
committed a grave abuse of discretion amounting to excess or lack of
jurisdiction in denying its motion to dismiss Criminal Cases Nos. 7960-00 to
7969-00 grounded on the exemption of the accused therein.
For her part, the respondent avers that under Section 265 of the
Omnibus Election Code, both the vote-buyer and the vote-seller must be
charged, investigated and prosecuted by the petitioner for violation of
Section 261(a)(b) of Republic Act No. 6648, as provided for in Section 28 of
Rep. Act No. 6698. She cites the ruling of the Court in Lozano vs. Yorac, et
al.,[20] to support her stand. She contends that vote-buyers cannot be exempt
from criminal liability for vote-buying because there can be no vote-buying
without someone selling his vote. Preliminary investigations of the charges
for vote-buying and vote-selling must be jointly conducted. This is to enable
the COMELECs Law Department to determine whether the witnesses in
Criminal Case No. 7034-99 had voluntarily presented themselves to give

information on the vote-buying of the accused in Criminal Cases Nos. 796000 to 7969-00. Based on the records, the witnesses in Criminal Case No.
7034-99 executed their sworn statements only after the preliminary
investigation of EO No. 98-219; hence, the Law Department of the petitioner
could not have intelligently determined whether the said witnesses were
exempt from prosecution or not.
We agree with the petitioner.
Section 261(a)(b) of the Omnibus Election Code penalizes vote-buying
and vote-selling and conspiracy to bribe voters.
(a) Vote-buying and vote-selling. (1) Any person who gives, offers or
promises money or anything of value, gives or promises any office or
employment, franchise or grant, public or private, or makes or offers to
make an expenditure, directly or indirectly, or cause an expenditure to be
made to any person, association, corporation, entity, or community in order
to induce anyone or the public in general to vote for or against any
candidate or withhold his vote in the election, or to vote for or against any
aspirant for the nomination or choice of a candidate in a convention or
similar election process of a political party.
...
(b) Conspiracy to bribe voters. Two or more persons, whether candidates or
not, who come to an agreement concerning the commission of any violation
of paragraph (a) of this section and decide to commit it.
Not only principals but also accomplices and accessories are criminally
liable for election offenses.[21] Section 28 of Republic Act No. 6648 governs
the prosecution of the crimes of vote-buying and vote-selling, thus:
SECTION 28. Prosecution of Vote-buying and Vote-selling. The presentation
of a complaint for violations of paragraph (a) or (b) of Section 261 of Batas
Pambansa Blg. 881 supported by affidavits of complaining witnesses
attesting to the offer or promise by or of the voters acceptance of money or
other consideration from the relatives, leaders or sympathizers of a
candidate, shall be sufficient basis for an investigation to be immediately
conducted by the Commission, directly or through its duly authorized legal
officers, under Section 68 or Section 265 of said Batas Pambansa Blg. 881.
Under the last paragraph of the said provision, any person guilty of
vote-buying and vote-selling who voluntarily gives information and willingly
testifies on violations of paragraphs (a) and (b) of Section 261 of the
Omnibus Election Code shall be exempt from prosecution and punishment
for the offense with reference to which their information and
testimony were given, without prejudice to their liability for perjury and
false testimony, thus:
SEC. 265. Prosecution. . . .
...
The giver, offerer, and promisor as well as the solicitor, acceptor, recipient
and conspirator referred to in paragraphs (a) and (b) of Section 261 of Batas
Pambansa Blg. 881 shall be liable as principals: Provided, That any person,
otherwise guilty under said paragraphs who voluntarily gives information

and willingly testifies on any violation thereof in any official investigation or

proceeding shall be exempt from prosecution and punishment for the
offenses with reference to which his information and and testimony were
given: Provided, further, That nothing herein shall exempt such person from
criminal prosecution for perjury or false testimony.
Under Section 265 of the Omnibus Election Code, the petitioner is
mandated to conduct a preliminary investigation of all election offenses and
to prosecute the same. The general rule is that the petitioner must
investigate, charge and prosecute all those committing election offenses
without any discrimination to ensure a clean, orderly and speedy elections. A
joint preliminary investigation thereof must be conducted and the
appropriate Information filed in court against all the offenders. To enable the
petitioner to comply with its mandate to investigate and prosecute those
committing election offenses, it has been vested with authority under the
last paragraph of Section 28 of Republic Act No. 6648 to exempt those who
have committed election offenses under Section 261 (a) and (b) but
volunteer to give informations and testify on any violation of said law in any
official investigation or proceeding with reference to which his information
and testimony is given. The law is an immunity statute which grants
transactional immunity to volunteers from investigation and prosecution for
violation of Section 261 (a) and (b) of the Omnibus Election Code. [22] The
immunity statute seeks a rational accommodation between the imperatives
of the privilege against self-incrimination and the legitimate demands of
government to encourage citizens, including law violators themselves, to
testify against law violators. The statute operates as a complete pardon for
the offenses to which the information was given. The execution of those
statutes reflects the importance of the testimony therefor, and the fact that
many offenses are of such character that the only persons capable of giving
useful testimony are those implicated in the crimes. Indeed, their origins
were in the context of such offenses and their primary use has been to
investigate and prosecute such offenses. [23]Immunity from suit is the only
consequence flowing from a violation of ones constitutional right to be
protected from unreasonable search and seizure, his right to counsel and his
right not to be coerced into confessing. [24] By voluntarily offering to give
information on violations of Section 261(a) and (b) and testify against the
culprits, one opens himself to investigation and prosecution if he himself is a
party to any violation of the law. In exchange for his testimony, the law gives
him immunity from investigation and prosecution for any offense in Section
261(a) and (b) with reference to which his information is given. He is,
therefore, assured that his testimony cannot be used by the prosecutors and
any authorities in any respect, and that his testimony cannot lead to the
infliction of criminal penalties on him. [25] The testimony of a voluntary
witness in accord with his sworn statement operates as a pardon for the
criminal charges to which it relates.[26]
It bears stressing that one may voluntarily give information on
violations of Section 261(a) and (b) and execute an affidavit before a
complaint is filed with the petitioner, or any provincial or city prosecutor.
This may be done even during the preliminary investigation or even after an
Information is filed, on the condition that his testimony must be in accord
with or based on his affidavit. If such witness later refuses to testify or

testifies but contrary to his affidavit, he loses his immunity from suit, and
may be prosecuted for violations of Section 261(a) and (b) of the Omnibus
Election Code, perjury under Article 183 of the Revised Penal Code, or false
testimony under Article 180 of the same Code.
The power to grant exemptions is vested solely on the petitioner. This
power is concomitant with its authority to enforce election laws, investigate
election offenses and prosecute those committing the same. The exercise of
such power should not be interfered with by the trial court. Neither may this
Court interfere with the petitioners exercise of its discretion in denying or
granting exemptions under the law, unless the petitioner commits a grave
abuse of its discretion amounting to excess or lack of jurisdiction.
There is no showing in the record that the petitioner committed abuse
of discretion in granting immunity to the witnesses in Criminal Case No.
7034-99 and in nullifying the Resolution of the Provincial Prosecutor in I.S.
No. 1-99-1080.
It cannot be over-emphasized that the authority given to the petitioner
to grant exemptions should be used to achieve and further its mandate to
insure clean, honest, peaceful and orderly elections.
The respondents reliance on the ruling of this Court in Lozano v. Yorac is
misplaced. The issue of the application of the immunity statute was not
raised in that case.
In sum then, the Court finds that the respondent committed a grave
abuse of discretion amounting to excess or lack of jurisdiction in denying the
petitioners motion to dismiss Criminal Cases Nos. 7960-00 to 7969-00 before
it and the motion for reconsideration of the said denial.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
assailed Orders dated February 20, 2001 and May 16, 2001 are SET ASIDE.
Respondent Judge Dolores Espaol, RTC, Imus, Cavite, Branch 90, is directed
to dismiss Criminal Cases Nos. 7960-00 to 7969-00. No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales,
Azcuna, and Tinga, JJ., concur.

SECOND DIVISION
[G.R. No. L-16285. December 29, 1960.]
JOSE SETON and JULIANA SETON, Petitioners, v. HON. JOSE S.
RODRIGUEZ, Judge of the Court of First Instance (Branch IV) of
Cebu, and IGNACIO SETON, Respondents.
Cornelio E. Codilla, for Petitioners.
Cesar Gonzales for Respondents.
SYLLABUS
1. APPEAL AND ERROR; ANNOTATION OF ATTACHMENT, LIEN OR ADVERSE
CLAIMS; ORDER OF REGISTRATION COURT APPEALABLE. An order of the
registration court requiring the holder of a duplicate certificate of title to
surrender the same for the purpose of annotating an attachment, lien, or
adverse claim under section 72 of Act 496 is appealable because it resolves
important questions as to the respective rights of the parties.

2. REGISTRATION OF LAND TITLES; REGISTRATION DEFINED; PURPOSE.

Registration is a ministerial act by which a deed, contract, or instrument is
sought to be inscribed in the records of the Office of the Register of Deeds
and annotated at the back of the Certificate of title covering the land subject
of the deed, contract or instrument. Its purpose is to give notice thereof to
all persons (section 51, Act No. 496) and does not declare that the recorded
instrument is a valid and subsisting interest in the land. This is so because
the effect or validity of the instrument can only be determined in an ordinary
case before the courts, not before a court acting merely as a registration
court which has no jurisdiction over the same.
3. ID.; PENDENCY OF PARTITION PROCEEDINGS; REGISTRATION OF SALE NOT
PRECLUDED BY QUESTION OF VALIDITY. The pendency of partition
proceedings, wherein the validity of the sale of registered land is in issue,
does not preclude the registration of the sale at the back of the certificate of
title covering the land. Both cases may proceed independently of each other.
4. ID.; ID.; ID.; WHEN ANNOTATION MAY BE CANCELLED. Where the claim
or sale is adjudged to be invalid, the annotation may be cancelled, and if
found by the court to be frivolous or vexatious, the court may tax the
adverse claimant double or treble costs in its discretion.
DECISION
GUTIERREZ DAVID, J.:
This is a petition for certiorari with preliminary injunction to annul an order
of the Court of First Instance of Cebu requiring the petitioners Jose Seton and
Juliana Seton to surrender the owners duplicate of Original Certificate of
Title No. RO-783 (O-244) to the Register of Deeds for the annotation of the
rights acquired by the respondent Ignacio Seton in the land covered by the
title.
It appears from the record that the original certificate of title above
mentioned, which is in the possession of the petitioners Jose and Juliana
Seton, was issued in the name of their parents Baldomero Seton and Severa
Quimada, who died intestate sometime in 1918 and 1940, respectively,
leaving as their legitimate heirs their four children, namely, the said
petitioners and Andrica and Jacinto. On May 29, 1959, Jacintos son, herein
respondent Ignacio Seton, filed a complaint in the Court of First Instance of
Cebu against Jose, Andrica and Juliana for the partition of the real estate left
by the deceased spouses, with damages, alleging, among other things, that
on June 10, 1952 he acquired by purchase and for valuable-consideration all
the rights and interests of his father therein. (Civil Case No. 6174.)
On June 3, 1959, Ignacio Seton also filed a motion in another branch of the

Court of First Instance of Cebu in the original land registration proceedings,

praying that Jose and Juliana Seton be ordered to deliver the owners
duplicate of Original Certificate of Title No. RO-783 (O244) to the Register of
Reeds so that the deed of sale executed by his father in his favor may be
annotated thereon.
Jose and Juliana Seton opposed the motion, alleging that the lots covered by
the Torrens title had been partitioned among the heirs thereto, including
Ignacio Setons father; that shortly after the death of their mother in 1940,
Jacinto Seton, Ignacios father, sold his shares to Jose Seton and one Pedro
Quimada, which transaction was known to Ignacio; and that consequently,
the deed of sale sought to be registered was fictitious, false and
fraudulent." The oppositors also invoked the pendency of the action for
partition filed by Ignacio Seton against them and Andrica Seton, wherein the
validity of the sale between Jacinto Seton and his son Ignacio was raised.
Accordingly, in a "petition for writ of preliminary injunction" filed in the same
proceedings, the said oppositors prayed that the consideration of the motion
for the surrender of title and annotation be held ,in abeyance until after the
action for partition and damages is decided.
Before the petition for the issuance of a writ of preliminary injunction 1 could
be heard, however, the respondent Judge on September 15, 1959 issued the
order now complained of, requiring Jose and Juliana Seton to surrender the
owners duplicate of Original Certificate of Title No. 0-783 (0-244) to the
Register of Deeds of Cebu for the annotation of the rights acquired by
Ignacio Seton from his father Jacinto Seton. Reconsideration of the order
having been denied, Jose Seton and Juliana Seton filed a notice of appeal,
appeal bond and record on appeal. The appeal, however, was not allowed,
the court below citing the ruling in the case of Government of the Philippines
v. Payva (44 Phil., 629), "to the effect that the order requiring the holder of a
duplicate certificate to surrender the same for annotation of attachment or
any other lien under Section 72 of the Land Registration Act is not
appealable." From this order, Jose and Juliana Seton brought the case to this
Court thru the present petition for certiorari. As prayed for, the writ of
preliminary injunction was issued upon the petitioners posting a bond of
P200.00.
At the outset, it should be stated that the lower court erred in dismissing
petitioners record on appeal on the authority of the ruling of this Court in
the case of Government of the Philippines v. Payva, supra. For it was
precisely held there by this Court that an order of the registration court
requiring the holder of a duplicate certificate of title for the purpose of
annotating an attachment, lien, or adverse claim under section 72 of Act 496
is appealable because it resolves important questions as to the respective
rights of the parties.
Going into the merits of the case, we do not, however, think that the lower
court committed any error, or much less abused its discretion, in issuing the
order complained of requiring the petitioners to surrender the owners
duplicate certificate of title for the annotation of the deed of sale in favor of
respondent Ignacio Seton. Registration is a mere ministerial act by which a

deed, contract or instrument is sought to be inscribed in the records of the

Office of the Register of Deeds and annotated at the back of the certificate
of title covering the land subject of the deed, contract or instrument. Its
purpose is to give notice thereof to all persons (sec. 51, Act No. 496) and
does not declare that the recorded instrument is a valid and subsisting
interest in the land. This is so because the effect or validity of the instrument
can only be determined in an ordinary case before the courts, not before a
court acting merely as a registration court which has no jurisdiction over the
same. (Agricultural Credit Cooperative Association of Hinigaran v. Yusal, 107
Phil., 791.) In other words, registration only operates as a notice of the deed,
contract or instrument to others, but neither adds to its validity nor convert
an invalid instrument into a valid one between the parties. In the case of
Gurbax Singh Pabla & Co. Et. Al. v. Reyes, Et Al., (92 Phil., 177; 48 Off. Gaz.
4365), this Court had occasion to rule that "The supposed invalidity of the
contracts of lease is no valid objection to their registration, because
invalidity is no proof of their nonexistence or a valid excuse for denying their
registration . . . . If the purpose of registration is merely to give notice, then
questions regarding the effects or invalidity of instruments are expected to
be decided after, not before, registration. It must follow as a necessary
consequence that registration must first be allowed, and validity or effect
litigated afterwards. (See also Register of Deeds of Manila v. Tinoco Vda. de
Cruz, 95 Phil., 818, 53 Off. Gaz., 2804, Samanilla v. Cajucom Et. Al., 107
Phil., 432; 57 Off. Gaz. [33] 5876.)
In the case at bar, it will be noted that all that respondent Ignacio demands
or prays for is the surrender of the owners duplicate of the original
certificate of title so that the contract of sale in his favor affecting a portion
or the land covered by the title may be annotated thereon. Following the
ruling in the cases above cited, the pendency of the partition proceedings
instituted by the respondent Ignacio Seton against his fathers co-heirs,
therein the validity of the sale of the latters share to him is in issue, does
not preclude said Ignacio Seton from requesting that said sale be registered
at the back of the certificate of title covering the land. Both cases may
proceed independently of each other. Where the claim or sale is adjudged to
be invalid, its annotation may be cancelled and if found by the court to be
frivolous or vexatious the court may tax the adverse claimant double or
treble costs in its discretion. (Register of Deeds of Manila v. Tinoco Vda. de
Cruz, supra.)
Wherefore, the order complained of is affirmed, and the preliminary
injunction heretofore issued dissolved. With costs against the petitioners.
Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,
Paredes and Dizon, JJ., concur.

G.R. No. L-13001

March 18, 1958
ALFREDO ABCEDE, petitioner,
vs.
HON. DOMINGO IMPERIAL, GAUDENCIO GARCIA, and SIXTO
BRILLANTES, Commisioners Elections,respondents.
Felipe L. Abel for petitioner.
Dominador D. Dayot for respondents.
CONCEPCION, J.:
Prior to September 7, 1957, petitioner Alfredo Abcede filed, with the
Commission on Elections, his certificate of candidacy for the Office of the
President of the Philippines, in connection with the elections to be held on
November 12 of the same year. On or about said date, Abcede and other
candidates were summoned by the Commission on Elections to appear
before the same on September 23, 1957, "to show cause why their
certificates of candidacy should be considered as filed in good faith and to
be given due course," with the admonition that their failure to so appear
would be sufficient ground for the Commission to consider said certificates
of candidacy as not filed in good faith and not to give due course thereto.
After due hearing, at which Abcede appeared and introduced evidence, the
Commission issued a resolution dated October 4, 1957, ordering that the
certificates of candidacy of the persons therein named, including that of said
petitioner, "shall not be given due course." A reconsideration of such
resolution having been denied, Abcede filed with this Court a petition
forcertiorari and mandamus, praying that the resolution be annulled and
that his aforementioned certificate of candidacy be given due course. Upon
motion of petitioner herein, this Court issued a writ of preliminary injunction
ordering the respondent to refrain and desist from carrying out the
resolution above referred to, pending the final disposition of the case at bar.
Insofar as petitioner herein is concerned, the action taken by the
Commissision on Elections is based upon the following facts, set forth in its
said resolution, from which we quote:
Alfredo Abcede was a candidate for senator in 1953, again in 1955, in both
of which his votes were nil. In this election he presents his candidacy for
President of the Philippines, with the redemption of the Japanese war notes
as his main program of government. It is of record that the Bureau of Posts,
by Fraud Order No. 2, dated November 2, 1955, banned from the use of the
Philippine mail matter of whatever class mailed by, or addressed to,
theJapanese War Notes Claims Association of the Philippines, Inc., and its
agentand representatives, including Alfredo Abcede and Marciana MesinaAbcede, which order was based on the findings of the Securities and
Exchange Commission, confirmed by the Secretary of Justice, that said entity
aid its agents and representatives, including Alfredo Abcede, are engaged in
a scheme to obtain money from the public by means of false or fraudulent
pretenses. The Commission is convinced that the certificate of candidacy of
Alfredo Abcede was filed for motives other than a bona fide desire to obtain
a substantial number of votes of the electorate.
In holding that it has, under these facts the power not to give due course to
petitioner's certficate of candidacy, the Commission on Elections gave the
following reasons:

The Commission believes that while Section 37 of the Revised Election Code
imposes upon the commission the ministerial duty to receive and
acknowledge certificates of candidacy, the law leaves to the Commission a
measure:of discretion on whether to give due course to a particular
certificate of candidacy should it find said certificate of candidacy to have
been filed not bona fide. We also believe that a certificate of candidacy is
not bona fide when it is filed, as a matter of caprice or fancy, by a person
who is incapable of understanding the full meaning of his acts and the true
significance of election and without any political organization or visible
supporters behind him so that he, has not even the tiniest chance to obtain
the favorable indorsement of a substantial portion of the electorate, or when
the one who files the same exerts no tangible effort, shown by overt acts, to
pursue to a semblance of success his candidacy.
The law requires the certificate of candidacy to be under oath in
acknowledgment of its serious character as an indispensable segment in the
process of election, the first step that a citizen has to take in seeking public
trust and in avoiding service to the common weal. It is a solemn matter, not
to be taken lightly.
The giving due course to a certificate of candidacy is a process of no mean
proportion, particularly for the offices of President and Vice President of the
Philippines and Senator which involve the printing at public expense of
around 136,000 copies of each certificate of candidacy; the printing of the
names of the candidates in several election forms; the mailing, sorting, and
distribution of the copies of said certificates of candidacy and forms among
the 34,000 polling places throughout the country; the entering of the names
of the candidates by the board of inspectors in still other forms; etc.
Conisidering all these, the Commission is satisfied with the view that
Congress could not have meant to make as a ministerial duty of the
Commission to give due course to every certificate of candidacy, no matter
how senseless said certificate of candidacy may be, thus in effect
authorizing a meaningless expenditure of a considerable amount of public
funds, and in the process put added routinary burden on the already heavily
burdened election machinery, as well as shear off the election much of its
dignity as a solemn process of democracy.
Based on existing records of the Commission and on evidence adduced
during the hearing on the certificates of candidacy mentioned above, the
Commission finds, and so declares, that the said certificates of candidacy
have not been filed in good faith on grounds hereunder stated.
Section 36 of the Revised Election Code provides that 96 certificates of
candidacy of candiddtes for President . . . shall be filed with the Commission
on Elections which shall order the preparation and distribution of copies for
the same to all the election precincts of the Philippines. . . .
It further provides that said certificates shall be distributed as follows:
. . . the Commission on Elections . . . shall immediately send copies thereof
to the secretary of the Provincial Board of each province where the elections
will be held, and the latter shall in turn immediately forward copies to all the
polling places. The Commission on Elections shall communicate the names
of said candidates to the secretary of the provincial board by telegraph. If
the certificate of candidacy is sent by mail, it shall be by registered mail, and
the date on which the package was deposited in the post-office may be
considered as the filing date thereof if confirmed by a telegram or radiogram

addressed to the Commission on Elections on the same date.

Moreover, pursuant to section 37 of said Code:
The Commission on Election, the secretary of the provincial board, and the
municipal secretary, in their respective cases, shall have the ministerial duty
to receive the certificates of candidacy referred to in the preceding section
and to immediately acknowledge receipt thereof.
The foregoing provisions give the Commission no discretion to give or not to
give due course to petitioner's certificate of candidacy. On the contrary, the
Conunission has, admittedly, the "ministerial" duty to receive said certificate
of candidacy. Of what use would it be to receive it if the certificate were not
to be given due course? We must not assume that Congress intended to
require a useless act that it would have imposed a mandatory duty to do
something vain, futile and empty.
Moreover, in the words of section 37, the Commission "shall immediately
send copies" of said certificates to the secretaries of the provincial boards.
The compulsory nature of this requirement, evinced by the imperative
character generally attached to the term "shall", is stressed by the
peremptory connotation of the adverb "immediately."
Again, the Constitution fixes the qualifications for the office of the highest
magistrate of the land. All possessors of such qualifications are, therefore,
deemed legally fit, at least, to aspire to such office and to run therefor,
provided that they file their respective certificates of candidacy within the
time, at the place and in the manner provided by law, and petitioner herein
has done so.
Lastly, as the branch of the executive department although independent
of the President to which the Constitution has given the "exclusive
charge" of the "enforcement and administration of all laws relative to the
conduct of elections," the power of decision of the Commission is limited to
purely "administrative questions." (Article X, sec. 2, Constitution of the
Philippines.) It has no authority to decide matters "involving the right to
vote". It may not even pass upon the legality of a given vote (Nacionalista
Party vs. Commission on Elections, * 47 Off.; Gaz., [6], 2851). We do not see,
therefore, how it could whether, if so granted in the vague, abstract,
indeter-assert the greater and more far-reaching authority to determine who
among those possessing the qualifications prescribed by the Constitution,
who have complied with the procedural requirements relative to the filing of
certificates of candidacy should be allowed to enjoy the full benefits
intended by law therefor. The question whether in order to enjoy those
benefits a candidate must be capable of "understanding the full meaning
of his acts and the true significance of election," and must have over a
month prior, to the elections(when the resolution complained of was issued)
"the tiniest chance to obtain the favorable indorsement of a substantial
portion of the electorate," is a matter of policy, not of administration and
enforcement of the law, which policy must be determined by Congress in the
exercise of its legislative functions. Apart from the absence of specific
statutory grant of such general, broad power as the Commission claims to
have, it is dubious minate and undefined manner necessary in order that it
could pass upon the factors relied upon in said resolution (and such grant
must not he deemed made, in the absence of clear and positive provision to
such effect, which is absent in the case at bar) the legislative enactment
would not amount to undue delegation of legislative power. (Schechter vs.

U.S., 295 U.S. 495, 79 L. ed. 1570.).

The case of Ciriaco S. Garcia vs. Imperial, L-12930 (October 22, 1957) cited
in respondent's answer is not in point. That case referred to the certificates
of candidacy of Ciriaco S. Garcia of San Simon, Pampanga, Carlos C. Garcia
of Iloilo City and Eulogio Palma Garcia of Butuan City, all for the Office of the
President of the Philippines, filed in September, 1957. The facts therein are
set forth in the pertinent resolution of the Commission on Elections from
which we quote:
Ciriaco S. Garcia, . . . admitted, . . . that he had not up to the date of the
hearing held any public meeting relative to his candidacy; had not posted
any handbills or posters or banners announcing candidacy; had not
established any national headquarters; and had no line up for vice-president,
senators, or members of Congress. In connection with the case of Ciriaco S.
Garcia, counsel for the intervenor presented documents as exhibits. . . . all
showing that Ciriaco S. Garcia had not shown any active interest in his
candidacy. Relative to the case of Carlos C. Garcia, counsel for intervenor
presented a witness, Salvador del Rosario who testifed to the effect that he
knows personally said Carlos C. Garcia as a former dress maker and now
maintains a bar in a city of Iloilo; that he has not done anything to promote
his candidacy; and that he is a brother-in-law of Atty. Tomas Vargas a
prominent Liberal Party leader in the province of iloilo. He also submitted as
evidence the telegram of the provincial commanderr of Iloilo reporting that
said Carlos C. Garcia is not a well known person in Iloilo. And as regard
Eulogio Palma Garcia, counsel for intervenor likewise submitted a telegram
of the provincial commander of Agusan to the effect that said Eulogio Palma
Garcia is an unknown person in Agusan. He farther pointed out that the
address of said Eulogio Palma Garcia, as appearing in this certificate of
candidacy, is % Tranquilino O. Calo, Jr., a nephew of ex-congressman Calo,
and official candidate of the Liberal Party for Senator. (Emphasis ours.)
The findings of the Commission were as follows:
The Commission is convinced that the failure of Carlos C. Garcia, a bar
tender, and Eulogio Palma Garcia, a person who has not even a residence of
his own, to appear before the Commission, notwithstanding the mandatory
statement issued them, which had been received in their behalf, to the
effect that failure to appear on their part before the Commission as required
would be sufficient for the Commission to consider their certificates of
candidacy, as filed in bad faith, shows that they are not actually interested
in the outcome of their pretended candidacy, and/or that they fear that their
personal appearance before the Commission would not expose too clearly
the true motives behind the filing of their certificates of candidacy.
As regards Ciriaco S. Garcia, a former chief of police, with no visible property
to his name, . . . the Commission is likewise satisfied . . . that his certificate
of candidacy was filed without the least idea of actively pursuing the same,
but simply to prejudice a legitimate and bona fide candidate, President
Carlos P. Garcia.
Each of said three certificates of candidacy is a well fitted piece in an overall
conspired scheme to fairly prejudice the candidacy of President Carlos P.
Garcia. Even the circumstances of geography and of course of names have
been suitably played upon to achieve in the most effective way the desired
objective ofdestroying legitimate votes for the bona fide candidate. Ciriaco
S. Garcia hails from Central Luzon; Carlos C. Garcia is from Central Visayas;

and Eulogio Palma Garcia is from Northern Mindanao. The names used are
such that all votes for "Carlos Garcia", "C. Garcia", "P. Garcia", and "Garcia"
would, be declared stray. The mischief aimed to be realize by the plan is too
plain to be missed by any impartial mind. . . .
The Commission, . . . is clear in the conclusion that all raid three certificates
of candidacy have been filed not for the purpose of winning the election or
even to obtain a substantial number of votes for the presidency of the
Philippines but for the purpose of prejudicing the candidacy of a candidate
in good faith by nullifying the votes cast for the same name and/or surname
of said candidate in good faith.
xxx
xxx
xxx
We reiterate here what the Commission has already said in the similar case
of Re-Certificate of Candidacy of Eduardo A. Barreto. (Case No. 179):
The duty of the Commission under these circumstances is too plain to be
mistaken. The law could not have intended nor will the Commission allow
itself to be made a party to fraud against the integrity and purity of election.
Election is not a game of mean political tricks where deceit wins a premium.
It is an honest process, governed by fair rules of law and good conduct. In
election as well as in any other field of fair contest, deceit cannot be allowed
to clothe itself in legal technicalities and demand a prize. It must be
condemned and never tolerated. (Emphasis ours.)
In other words, the candidates in question did not really aspire to be elected
President of the Philippines. Their certificates of candidacy were filed merely
for the purpose of nullifying, in effect, all votes cast in favor of "Garcia", "C.
Garcia", and "P. Garcia", even if the voters intended to vote for Carlos P.
Garcia, the incumbent of said office. The objective was, evidently, to prevent
a faithful determination of the true will of the electorate. Had the certificates
of candidacy in question been given due course, whether or not such tax
penalty, or sum has been election inspectors, who would be at a loss as to
whom to credit the votes cast for "Carlos Garcia", "C. Garcia", "P. Garcia",
and "Garcia" or whether said votes should not be counted, as stray votes.
Thus, an opportunity would be created to subject the election officers
throughout the Philippines to complaints, either by the opponents of, the
incumbent President, if the votes were credited to him or by the Nacionalista
Party, if the votes were counted in favor of either Ciriaco S. Garcia, or Carlos
C. Garcia, or Eulogio Palma Garcia, or considered as stray votes. What this
could have led to, or given an excuse for,public disorders which may not
have been altogether unlikely, in the light of the conditions then existing.
Worse, still, there would have been no means, under the law, to ascertain
whether the aforementioned votes were intended for the incumbent
President Carlos P. Garcia or for the petitioners in said case. The action of
the Commission therein tended, therefore, to insure free, orderly and honest
elections, which is its main Concern, under our fundamental law and the
Revised Election Code. Such, however, is not the situation obtaining in the
case at bar.
Whether or not the Commission on Election should incur the expenses
incident to the preparation and distribution of copies of the certificates of
candidacy of those who, in its opinion, do not have a chance to get a
substantial number of votes, is another question of policy for Congress,not
the Commission, to settle. When the Revised Election Code imposes upon
the Commission the ministerial duty to receive those certificates and

provides that said Commission shall immediately prepare and distribute

copies thereof to the offices mentioned in section 36 of said Code, it
necessarily implies that compliance with the latter provision is, likewise,
ministerial. If the Commission believes, however, that the effect thereof is to
unnecessarily impose a useless burden upon the Government, then the
remedy is to call the attention of Congress thereto, coupled with the
corresponding proposals, recommendations, or suggestions for such
amendments as may be deemed best, consistently with the democratic
nature of our political system.
Needless to say, the vigilant attitude of the Commission on Elections and the
efforts exerted by the same to comply with what it considers its duty, merit
full and unqualified recognition, as well as commendation of the highest
order. In this particular case, however, the action of the Commission as
regards petitioner's certificate of candidacy is beyond the bounds of its
jurisdiction, and, hence, void.
Wherefore, the aforementioned resolution of the Commission on Elections is
hereby annulled, insofar as petitioner Alfredo Abcede is concerned, and the
writ of preliminary injunction heretofore issued made permanent, without
special pronouncement as to costs. It is so ordered.
Paras, C.J. Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo,
Labrador, Reyes, J.B.L., Endencia and Felix, JJ., concur.

G.R. No. L-25679 August 5, 1926

MAGDALENO RIEL, Petitioner, vs. BEN F. WRIGHT, Insular Auditor of
the Philippine Islands, Respondent.
Santos & Benitez for petitioner.
The respondent, supported by the Attorney-General Jaranilla, in his own
behalf.
STATEMENT
After the formal pleas, the petitioner alleges that on September 1, 1925, he
was duly appointed a "temporary clerk" in the office of the Secretary,

Philippine Senate, with an agreed compensation of P40 per month, as shown

by the letter of appointment from the Secretary of the Senate, a copy of
which is attached to the petition marked Exhibit A; that he took his oath of
office and entered on the discharge on his duties as "temporary clerk," and
has performed them from the date to the present time; that from February 1
to 14, 1926, there is due and owing him P20 for and on account of his
services as such clerk, for which amount a warrant was issued to and in his
favor by the chairman of the committee on accounts of the Philippine
Senate, which is attached to the petition marked Exhibit B; that it is the duty
of the respondent to approve such warrant; but the said respondent, in
violation of the clear legal rights of the petitioner, and of his, the said
respondent's plain duty in the premises, unjustly refused and still refuses to
approve said warrant; that at the time said warrant was presented to the
respondent for approval, there was a large amount of money in the Insular
Treasury not otherwise appropriated by law and subject to be applied to the
payment of said warrant; that petitioner does not have any plain, speedy or
adequate remedy, and prays for a writ of mandamus against the Insular
Auditor commanding him to sign the warrant.chanroblesvirtualawlibrary
chanrobles virtual law library
For answer, the respondent admits the allegations in paragraphs 1, 2, and 3
of the petition, and specifically denies all other allegations, and, as a first
special defense, alleges that this court has no jurisdiction over the subject
matter, and that the petitioner has another plain, speedy, and adequate
remedy. As second special defense, the respondent then alleges that the
appropriation for the petitioner is governed by the provisions of paragraph 2
under section 18 of Act No. 2935, in connection with item No. 120 of the
Appropriation Act for 1925, and item No. 134 of the Appropriation Act for
1926, he being included among "employees rendering service before, during
and several days after a session;" that the Legislature closed its last session
on November 9, 1925; and that the petitioner was paid his salary up to and
including January 31, 1926, which latter date was many more than several
days after the close of a session;" that for such reason, the respondent
refused to sign the warrant, and for the further reason that the services of
the petitioner and like employees have been unnecessary since February 1,
1026, for the reason that there have been one hundred and sixty-one more
or less permanent employees on the payroll of the Senate; that on January
29, 1926, the chairman of the Senate Committee on Accounts was advised
that the respondent would refuse the payment of such warrant; that on
December 7th, such employees were duly notified that their services would
be dispensed will not or after January 1, 1926; that the present case is a test
case, the decision of which will effect the status of forty-seven other like
employees.chanroblesvirtualawlibrary chanrobles virtual law library
It appears of record that on December 31, 1925, the Secretary of the Senate
revoked his letter of December 7, 1925, and that the petitioner "was
acquired to continue rendering services until further order."
JOHNS, J.:
The respondent appeared in person and read an exhaustive brief in which he
forcibly contended that this court did not have any jurisdiction over his
official acts or any authority to compel him to sign the warrant, and claimed
and asserted that his powers and duties as Insular Auditor were in legal

effect identical with those of the U. S. Comptroller, and he then cited

decisions of the Supreme Court of the United States to the effect that the
court do not have any control over, and do not review, the decisions of the
Comptroller.chanroblesvirtualawlibrary chanrobles virtual law library
For a number of years, it has been and is now the policy of his court to follow
and respect the decisions of the Supreme Court of the United States in so far
as those decisions construe or apply to the law of the Philippine Islands, and
if it be a fact that the Insular Auditor has the same powers and duties as the
U.
S.
Comptroller,
we
would
follow
and
approve
those
decisions.chanroblesvirtualawlibrary chanrobles virtual law library
The voice of the argument made by the Insular Auditor in person lies in his
assumption that, under the law of the Philippine Islands, He has like powers
and duties as the U. S. Comptroller under the laws of the United
States.chanroblesvirtualawlibrary chanrobles virtual law library
As was pointed out in the Ynchausti case, 1 the law here expressly says that
the decisions of the Insular Auditor are binding upon the "executive branch"
of the government. The fact that the law specifically says that his decisions
are binding upon the "executive branch" of the government, under all rules
of statutory construction, clearly implies and carries with it that his decisions
are binding upon the executive branch only, and that they are not binding
upon any other branch of the government.chanroblesvirtualawlibrary
chanrobles virtual law library
Under the law of Congress, there is no such limitation upon the powers and
duties of the U. S. Comptroller. The finality of his decisions is not confined or
limited to the executive branch of the government, but they apply with
equal force and effect upon all branches. If and when the law is amended to
confer upon the Insular Auditor of the Philippine Islands like powers and
duties as those of the U. S. Comptroller, the authorities cited by the Insular
Auditor would then be in point, and will be followed and approved by this
court. Until such time as that is done our decisions is overruled by the
United States Supreme Court, upon that question, we will follow and approve
the law is laid down by this court in its former decisions. Neither is there any
legal merit in the allegation made in the answer, "that the services of the
petitioner and the other employees of the same status are and have been
unnecessary since February 1, 1926." It is not for the Insular Auditor to say
how many employees the Legislature should have or the compensation
which they would receive. That is a matter within the peculiar province of
the Legislature and for which its members are responsible to their
constituents.chanroblesvirtualawlibrary chanrobles virtual law library
Be that as it may, this is petition for a mandamus in which the petitioner
prays for a writ to compel the Insular Auditor to sign the warrant in question.
To obtain the writ, the petitioner must both allege and prove a clear legal
right to a valid warrant.chanroblesvirtualawlibrary chanrobles virtual law
library
He alleges that on September 1, 1925, he was "duly appointed a "temporary
clerk" in the office of the Secretary, Philippine Senate," and the appointment
itself shows that he is "a temporary clerk." He also alleges that he accepted
and continued in the performance of his duties from the date of his
appointment "to the present time." "That for his salary as such clerk for the
period from February 1 to 14, 1926, there is now due the petitioner the sum
of 20," for which a warrant was duly drawn and which the respondent

refused to sign "in violation of the clear legal rights of the petitioner," and
that he unjustly refused and still refuses to approve said warrant."chanrobles
virtual law library
The answer alleges "that the Philippine Legislature closed its last session on
November 9, 1925," and that the petitioner was paid his corresponding
salary to January 31, 1926. "That the respondent refused to approve the
payment of the alleged salary of the petitioner from February 1, 1926, up to
the present time for the reason that prior to February 1, 1926, very many
more than "several days" had elapsed since the closing of the last session of
the Philippine Legislature . . . ."chanrobles virtual law library
Section 18 of Act No. 2935 says:
The following rules are hereby establishment regarding the appropriations
for the Legislature and the Departments, Bureaus, offices or dependencies of
the Insular Government, and shall not be understood to be repealed by any
other law unless expressly repealed:
And subdivision 2 of that section provides:
The appropriation for "supplementary force" shall be understood to be
available for the payment of officers appointed in accordance with section
one hundred of the Administrative Code; of employees rendering service
before, during, and several days after a session, and employees within and
outside of the Philippine Islands . . .
It must be conceded that the services of the petitioner come under the
provision for "the appropriation for supplementary force." That is to say, that
he was employed as a "temporary clerk," and as such he is distinguished
from a "permanent employee" of the Legislature, and that the services in
question were rendered eighty-two days after the final adjourment of the
Legislature. Hence, if the words "several days after a session" cannot legally
be construed to cover and apply to the period in question, the petitioner was
not legally employed, and is not entitled to the compensation in
question.chanroblesvirtualawlibrary chanrobles virtual law library
No authority has been cited, and none will ever be found, construing the
words "several days" to cover and include a period of eighty-two days. A day
has twenty-four hours, and there are seven days in a week, and thirty days
in a month, and twelve months, in a year. In using the words "several days
after a session," the Legislature must have known the meaning of the words
and their legal force and effect, and it is the duty of the court to so construe
them.chanroblesvirtualawlibrary chanrobles virtual law library
It is unnecessary in this opinion to define or specify the exact period of time
meant by "several days after a session" as used in the Act. But we do hold
that, as to the "supplementary force," the words cannot be construed to
mean or apply to a period of eighty-two days, "after a session." Giving them
this construction, it follows that the petitioner has no legal right to
compensation for the services in question.chanroblesvirtualawlibrary
chanrobles virtual law library
Apparently recognizing the legal force and effect of the words used, the
petitioner contends that section 18 of Act No. 2935 is unconstitutional,
because ( a) it embraces two subjects, and "( b) that one of the subjects is
not expressed in the title of the bill." It is entitled "an Act appropriating funds
for the necessary expenses of the Government of the Philippine Islands
during the fiscal year ending December thirty-first, nineteen hundred and
twenty-on, and for other purposes." And section 18 provides that the

following rules are established regarding appropriations for the Legislature,

and shall not be understood to be repealed by any other law unless
expressly repealed," which has not been done. The Act in question must be
construed as a whole, and, as so construed, section 18 is germane to the
Act. That is to say, that the only appropriation which the Legislature has ever
made for "supplementary force" is for "employees rendering service before,
during, and several days after a session," and that upon no legal principle
can the words "several days after a session" be construed to cover and
include services rendered on and after a period of eighty-two days after the
Legislature had adjourned. In legal effect any other construction would
nullify the language used as to time, and destroy the meaning of the words
"supplementary force," and make a "temporary clerk" a "permanent
employee" of the Legislature.chanroblesvirtualawlibrary chanrobles virtual
law library
For such reasons, the writ is denied and the petition dismissed, with costs in
favor of the respondent.chanroblesvirtualawlibrary chanrobles virtual law
library
So ordered.
G.R. No. 93237 November 6, 1992
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),
petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) and JUAN A.
ALEGRE, respondents.
PADILLA, J.:
Private respondent Juan A. Alegre's wife, Dr. Jimena Alegre, sent two (2)
RUSH telegrams through petitioner RCPI's facilities in Taft Ave., Manila at
9:00 in the morning of 17 March 1989 to his sister and brother-in-law in
Valencia, Bohol and another sister-in-law in Espiritu, Ilocos Norte, with the
following identical texts:
MANONG POLING DIED INTERMENT TUESDAY 1
Both telegrams did not reach their destinations on the expected dates.
Private respondent filed a letter-complaint against the RCPI with the National
Telecommunications Commission (NTC) for poor service, with a request for
the imposition of the appropriate punitive sanction against the company.
Taking cognizance of the complaint, NTC directed RCPI to answer the
complaint and set the initial hearing of the case to 2 May 1989. After two (2)
resettings, RCPI moved to dismiss the case on the following grounds:
1. Juan Alegre is not the real party in interest;
2. NTC has no jurisdiction over the case;
3. the continued hearing of the case violates its constitutional right to due
process of law. 2
RCPI likewise moved for deferment of scheduled hearings until final
determination of its motion to dismiss.
On 15 June 1989, NTC proceeded with the hearing and received evidence for
private respondent Juan Alegre. On 3 October 1989, RCPI's motion to dismiss

was denied, thus:

The herein complainant is the husband of the sender of the "rush" telegram
that respondent allegedly failed to deliver in a manner respondent bound
itself to undertake, so his legal interest in this administrative case cannot be
seriously called in question. As regards the issue of jurisdiction, the authority
of the Commission to hear and decide this case stems from its power of
control and supervision over the operation of public communication utilities
as conferred upon it by law.
Besides, the filing of a motion to dismiss is not allowed by the rules (Section
1, Rule 12, Rules of Practice and Procedures). Following, however, the liberal
construction of the rules, respondent (sic) motion shall be treated as its
answer or be passed upon after the conclusion of the hearing on the
merits. . . . 3
Hearings resumed in the absence of petitioner RCPI which was, however,
duly notified thereof. On 27 November 1989, NTC disposed of the
controversy in the following manner:
WHEREFORE, in view of all the foregoing, the Commission finds respondent
administratively liable for deficient and inadequate service defined under
Section 19(a) of C.A. 146 and hereby imposes the penalty of FINE payable
within thirty (30) days from receipt hereof in the aggregate amount of ONE
THOUSAND PESOS (P1,000.00) for:
1. Rush Telegram sent to Valencia, Bohol on March 17, 1989 and received on
March 21, 1989
3 days x P200.00 per day = P600.00
2. Rush Telegram sent to Espiritu, Ilocos Norte on March 17, 1989 and
received on March 20, 1989
2 days x P200.00 per day = P400.00
Total = P1,000.00
ENTERED. November 27, 1989. 4
A motion for reconsideration by RCPI reiterating averments in its earlier
motion to dismiss was denied for lack of merit; 5 hence, this petition for
review invoking C.A. 146 Sec. 19(a) which limits the jurisdiction of the Public
Service Commission (precursor of the NTC) to the fixing of rates. RCPI
submits that its position finds support in two (2) decided cases 6 identical
with the present one. Then Justice (later Chief Justice) Fernando writing for
the Court stated:
. . . There can be no justification then for the Public Service Commission
imposing the fines for these two petitions. The law cannot be any clearer.
The only power it possessed over radio companies, as noted was the (sic )
fix rates. It could not take to task a radio company for negligence or
misfeasance. It was bereft of such competence. It was not vested within
such authority. . . .
The Public Service Commission having been abolished by virtue of a
Presidential Decree, as set forth at the outset, and a new Board of
Communications having been created to take its place, nothing said in its
decision has reference to whatever powers are now lodged in the latter
body. . . . . . . (Footnotes omitted)

Two (2) later cases, 7 adhering to the above tenet ruled:

Even assuming that the respondent Board of Communications has the power
of jurisdiction over petitioner in the exercise of its supervision to insure
adequate public service, petitioner cannot be subjected to payment of fine
under sec. 21 of the Public Service Act, because this provision of the law
subjects to a fine every public service that violates or falls (sic) to comply
with the terms and conditions of any certificate or any orders, decisions and
regulations of the Commission. . . . .
The Office of the Solicitor General now claims that the cited cases are no
longer applicable, that the power and authority of the NTC to impose fines is
incidental to its power to regulate public service utilities and to supervise
telecommunications facilities, which are now clearly defined in Section 15,
Executive Order No. 546 dated 23 July 1979: thus:
Functions of the Commission. The Commission shall exercise the following
functions:
xxx xxx xxx
b. Establish, prescribe and regulate the areas of operation of particular
operators of the public service communications;
xxx xxx xxx
h. Supervise and inspect the operation of radio stations and
telecommunications facilities.
Regulatory administrative agencies necessarily impose sanctions, adds the
Office of the Solicitor General. RCPI was fined based on the finding of the
NTC that it failed to undertake adequate service in delivering two (2) rush
telegrams. NTC takes the view that its power of supervision was broadened
by E. O. No. 546, and that this development superseded the ruling in RCPI
vs. Francisco Santiago and companion cases.
The issues of due process and real parties in interest do not have to be
discussed in this case. This decision will dwell on the primary question of
jurisdiction of the NTC to administratively impose fines on a telegraph
company which fails to render adequate service to a consumer.
E. O. 546, it will be observed, is couched in general terms. The NTC stepped
"into the shoes" of the Board of Communications which exercised powers
pursuant to the Public Service Act. The power to impose fines should
therefore be read in the light of the Francisco Santiago case because
subsequent legislation did not grant additional powers to the Board of
Communications. The Board in other words, did not possess the power to
impose administrative fines on public services rendering deficient service to
customers, ergo its successor cannot arrogate unto itself such power, in the
absence of legislation. It is true that the decision in RCPI vs. Board of
Communications seems to have modified the Santiago ruling in that the
later case held that the Board of Communications can impose fines if the
public service entity violates or fails to comply with the terms and conditions
of any certificate or any order, decision or regulation of the Commission. But
can private respondent's complaint be similarly treated when the complaint
seeks redress of a grievance against the company? 8 NTC has no jurisdiction
to impose a fine. Globe Wireless Ltd. vs. Public Service Commission (G. R.
No. L-27250, 21 January 1987, 147 SCRA 269) says so categorically.
Verily, Section 13 of Commonwealth Act No. 146, as amended, otherwise
known as the Public Service Act, vested in the Public Service Commission
jurisdiction, supervision and control over all public services and their

franchises, equipment and other properties.

xxx xxx xxx
The act complained of consisted in petitioner having allegedly failed to
deliver the telegraphic message of private respondent to the addressee in
Madrid, Spain. Obviously, such imputed negligence has nothing whatsoever
to do with the subject matter of the very limited jurisdiction of the
Commission over petitioner.
Moreover, under Section 21 of C. A. 146, as amended, the Commission was
empowered to impose an administrative fine in cases of violation of or
failure by a public service to comply with the terms and conditions of any
certificate or any orders, decisions or regulations of the Commission.
Petitioner operated under a legislative franchise, so there were no terms nor
conditions of any certificate issued by the Commission to violate. Neither
was there any order, decision or regulation from the Commission applicable
to petitioner that the latter had allegedly violated, disobeyed, defied or
disregarded.
No substantial change has been brought about by Executive Order No. 546
invoked by the Solicitor General's Office to bolster NTC's jurisdiction. The
Executive Order is not an explicit grant of power to impose administrative
fines on public service utilities, including telegraphic agencies, which have
failed to render adequate service to consumers. Neither has it expanded the
coverage of the supervisory and regulatory power of the agency. There
appears to be no alternative but to reiterate the settled doctrine in
administrative law that:
Too basic in administrative law to need citation of jurisprudence is the rule
that jurisdiction and powers of administrative agencies, like respondent
Commission, are limited to those expressly granted or necessarily implied
from those granted in the legislation creating such body; and any order
without or beyond such jurisdiction is void and ineffective . . . (Globe
Wireless case, supra).
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE for
lack of jurisdiction of the NTC to render it. The temporary restraining order
issued on 18 June 1990 is made PERMANENT without prejudice, however, to
the filing by the party aggrieved by the conduct of RCPI, of the proper action
in the proper forum. No costs.
SO ORDERED.
Cruz, Grio-Aquino and Bellosillo, JJ., concur.
Medialdea, J., is on leave.