Republic of the Philippines The respondents, through the Solicitor General, would have this case dismissed outright
eneral, would have this case dismissed outright on the ground that
SUPREME COURT
Manila
EN BANC
G.R. No. L-63915 April 24, 1985
LORENZO M. TAADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS FOR BROTHERHOOD,
INTEGRITY AND NATIONALISM, INC. [MABINI], petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the President, HON. JOAQUIN VENUS, in his
capacity as Deputy Executive Assistant to the President , MELQUIADES P. DE LA CRUZ, in his capacity as
Director, Malacaang Records Office, and FLORENDO S. PABLO, in his capacity as Director, Bureau of
Printing, respondents.
ESCOLIN, J.:
Invoking the people's right to be informed on matters of public concern, a right recognized in Section 6, Article IV
of the 1973 Philippine Constitution, as well as the principle that laws to be valid and enforceable must be
1
published in the Official Gazette or otherwise effectively promulgated, petitioners seek a writ of mandamus to
compel respondent public officials to publish, and/or cause the publication in the Official Gazette of various
presidential decrees, letters of instructions, general orders, proclamations, executive orders, letter of
implementation and administrative orders.
Specifically, the publication of the following presidential issuances is sought:
a] Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179, 184, 197, 200, 234, 265, 286, 298, 303, 312,
324, 325, 326, 337, 355, 358, 3
b] Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130, 136, 141, 150, 153, 155, 161, 173, 180, 187, 188,
192, 193, 199, 202, 204,
c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65.
d] Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281, 1319-1526, 1529, 1532, 1535, 1538, 1540-
1547, 1550-1558
e] Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471, 474-492, 494-507, 509-510, 522, 524-528, 531-
532, 536, 538, 543-544,
f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50, 51, 59, 76, 80-81, 92, 94, 95, 107, 120, 122,
123.
g] Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-433, 436-439.
petitioners have no legal personality or standing to bring the instant petition. The view is submitted that in the
absence of any showing that petitioners are personally and directly affected or prejudiced by the alleged non-
publication of the presidential issuances in question 2 said petitioners are without the requisite legal personality
to institute this mandamus proceeding, they are not being "aggrieved parties" within the meaning of Section 3,
Rule 65 of the Rules of Court, which we quote:
SEC. 3. Petition for Mandamus.When any tribunal, corporation, board or person unlawfully neglects the
performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or
unlawfully excludes another from the use a rd enjoyment of a right or office to which such other is entitled, and
there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby
may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be
rendered commanding the defendant, immediately or at some other specified time, to do the act required to be
done to Protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the
wrongful acts of the defendant.
Upon the other hand, petitioners maintain that since the subject of the petition concerns a public right and its
object is to compel the performance of a public duty, they need not show any specific interest for their petition
to be given due course.
The issue posed is not one of first impression. As early as the 1910 case of Severino vs. Governor General, 3 this
Court held that while the general rule is that "a writ of mandamus would be granted to a private individual only
in those cases where he has some private or particular interest to be subserved, or some particular right to be
protected, independent of that which he holds with the public at large," and "it is for the public officers
exclusively to apply for the writ when public rights are to be subserved [Mithchell vs. Boardmen, 79 M.e., 469],"
nevertheless, "when the question is one of public right and the object of the mandamus is to procure the
enforcement of a public duty, the people are regarded as the real party in interest and the relator at whose
instigation the proceedings are instituted need not show that he has any legal or special interest in the result, it
being sufficient to show that he is a citizen and as such interested in the execution of the laws [High,
Extraordinary Legal Remedies, 3rd ed., sec. 431].
Thus, in said case, this Court recognized the relator Lope Severino, a private individual, as a proper party to the
mandamus proceedings brought to compel the Governor General to call a special election for the position of
municipal president in the town of Silay, Negros Occidental. Speaking for this Court, Mr. Justice Grant T. Trent
said:
We are therefore of the opinion that the weight of authority supports the proposition that the relator is a proper
party to proceedings of this character when a public right is sought to be enforced. If the general rule in America
were otherwise, we think that it would not be applicable to the case at bar for the reason 'that it is always
dangerous to apply a general rule to a particular case without keeping in mind the reason for the rule, because, if
under the particular circumstances the reason for the rule does not exist, the rule itself is not applicable and
reliance upon the rule may well lead to error'
No reason exists in the case at bar for applying the general rule insisted upon by counsel for the respondent. The
circumstances which surround this case are different from those in the United States, inasmuch as if the relator is
not a proper party to these proceedings no other person could be, as we have seen that it is not the duty of the
law officer of the Government to appear and represent the people in cases of this character.
The reasons given by the Court in recognizing a private citizen's legal personality in the aforementioned case
apply squarely to the present petition. Clearly, the right sought to be enforced by petitioners herein is a public
right recognized by no less than the fundamental law of the land. If petitioners were not allowed to institute this
proceeding, it would indeed be difficult to conceive of any other person to initiate the same, considering that the
Solicitor General, the government officer generally empowered to represent the people, has entered his
appearance for respondents in this case.
Respondents further contend that publication in the Official Gazette is not a sine qua non requirement for the
effectivity of laws where the laws themselves provide for their own effectivity dates. It is thus submitted that
since the presidential issuances in question contain special provisions as to the date they are to take effect,
publication in the Official Gazette is not indispensable for their effectivity. The point stressed is anchored on
Article 2 of the Civil Code:
Art. 2. Laws shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided, ...
The interpretation given by respondent is in accord with this Court's construction of said article. In a long line of
decisions, this Court has ruled that publication in the Official Gazette is necessary in those cases where the
4
legislation itself does not provide for its effectivity date-for then the date of publication is material for
determining its date of effectivity, which is the fifteenth day following its publication-but not when the law itself
provides for the date when it goes into effect.
Respondents' argument, however, is logically correct only insofar as it equates the effectivity of laws with the fact
of publication. Considered in the light of other statutes applicable to the issue at hand, the conclusion is easily
reached that said Article 2 does not preclude the requirement of publication in the Official Gazette, even if the
law itself provides for the date of its effectivity. Thus, Section 1 of Commonwealth Act 638 provides as follows:
Section 1. There shall be published in the Official Gazette [1] all important legisiative acts and resolutions of a
public nature of the, Congress of the Philippines; [2] all executive and administrative orders and proclamations,
except such as have no general applicability; [3] decisions or abstracts of decisions of the Supreme Court and the
Court of Appeals as may be deemed by said courts of sufficient importance to be so published; [4] such
documents or classes of documents as may be required so to be published by law; and [5] such documents or
classes of documents as the President of the Philippines shall determine from time to time to have general
applicability and legal effect, or which he may authorize so to be published. ...
The clear object of the above-quoted provision is to give the general public adequate notice of the various laws
which are to regulate their actions and conduct as citizens. Without such notice and publication, there would be
no basis for the application of the maxim "ignorantia legis non excusat." It would be the height of injustice to
punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not
even a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has the publication of laws taken so vital
significance that at this time when the people have bestowed upon the President a power heretofore enjoyed
solely by the legislature. While the people are kept abreast by the mass media of the debates and deliberations
in the Batasan Pambansaand for the diligent ones, ready access to the legislative recordsno such publicity
accompanies the law-making process of the President. Thus, without publication, the people have no means of
knowing what presidential decrees have actually been promulgated, much less a definite way of informing
themselves of the specific contents and texts of such decrees. As the Supreme Court of Spain ruled: "Bajo la
denominacion generica de leyes, se comprenden tambien los reglamentos, Reales decretos, Instrucciones,
Circulares y Reales ordines dictadas de conformidad con las mismas por el Gobierno en uso de su potestad. 5
The very first clause of Section I of Commonwealth Act 638 reads: "There shall be published in the Official
Gazette ... ." The word "shall" used therein imposes upon respondent officials an imperative duty. That duty must
be enforced if the Constitutional right of the people to be informed on matters of public concern is to be given
substance and reality. The law itself makes a list of what should be published in the Official Gazette. Such listing,
to our mind, leaves respondents with no discretion whatsoever as to what must be included or excluded from
such publication.
The publication of all presidential issuances "of a public nature" or "of general applicability" is mandated by law.
Obviously, presidential decrees that provide for fines, forfeitures or penalties for their violation or otherwise
impose a burden or. the people, such as tax and revenue measures, fall within this category. Other presidential
issuances which apply only to particular persons or class of persons such as administrative and executive orders
need not be published on the assumption that they have been circularized to all concerned. 6
It is needless to add that the publication of presidential issuances "of a public nature" or "of general
applicability" is a requirement of due process. It is a rule of law that before a person may be bound by law, he
must first be officially and specifically informed of its contents. As Justice Claudio Teehankee said in Peralta vs.
COMELEC 7:
In a time of proliferating decrees, orders and letters of instructions which all form part of the law of the land, the
requirement of due process and the Rule of Law demand that the Official Gazette as the official government
repository promulgate and publish the texts of all such decrees, orders and instructions so that the people may
know where to obtain their official and specific contents.
The Court therefore declares that presidential issuances of general application, which have not been published,
shall have no force and effect. Some members of the Court, quite apprehensive about the possible unsettling
effect this decision might have on acts done in reliance of the validity of those presidential decrees which were
published only during the pendency of this petition, have put the question as to whether the Court's declaration
of invalidity apply to P.D.s which had been enforced or implemented prior to their publication. The answer is all
too familiar. In similar situations in the past this Court had taken the pragmatic and realistic course set forth
in Chicot County Drainage District vs. Baxter Bank to wit:
8
The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L. Ry. Co.
v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad statements as to the effect of a
determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to
such a determination, is an operative fact and may have consequences which cannot justly be ignored. The past
cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may
have to be considered in various aspects-with respect to particular conduct, private and official. Questions of
rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon
accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand
examination. These questions are among the most difficult of those which have engaged the attention of courts,
state and federal and it is manifest from numerous decisions that an all-inclusive statement of a principle of
absolute retroactive invalidity cannot be justified.
Consistently with the above principle, this Court in Rutter vs. Esteban sustained the right of a party under the
9
Moratorium Law, albeit said right had accrued in his favor before said law was declared unconstitutional by this
Court.
Similarly, the implementation/enforcement of presidential decrees prior to their publication in the Official
Gazette is "an operative fact which may have consequences which cannot be justly ignored. The past cannot
always be erased by a new judicial declaration ... that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified."
From the report submitted to the Court by the Clerk of Court, it appears that of the presidential decrees sought
by petitioners to be published in the Official Gazette, only Presidential Decrees Nos. 1019 to 1030, inclusive,
1278, and 1937 to 1939, inclusive, have not been so published. 10 Neither the subject matters nor the texts of
these PDs can be ascertained since no copies thereof are available. But whatever their subject matter may be, it
is undisputed that none of these unpublished PDs has ever been implemented or enforced by the government.
In Pesigan vs. Angeles, 11 the Court, through Justice Ramon Aquino, ruled that "publication is necessary to
apprise the public of the contents of [penal] regulations and make the said penalties binding on the persons
affected thereby. " The cogency of this holding is apparently recognized by respondent officials considering the
manifestation in their comment that "the government, as a matter of policy, refrains from prosecuting violations
of criminal laws until the same shall have been published in the Official Gazette or in some other publication,
even though some criminal laws provide that they shall take effect immediately.
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential
issuances which are of general application, and unless so published, they shall have no binding force and effect.
SO ORDERED.
EN BANC
[G.R. No. 125350. December 3, 2002]
HON. RTC JUDGES MERCEDES G. DADOLE (Executive Judge, Branch 28), ULRIC R. CAETE (Presiding Judge, Branch 25),
AGUSTINE R. VESTIL (Presiding Judge, Branch 56), HON. MTC JUDGES TEMISTOCLES M. BOHOLST (Presiding
Judge, Branch 1), VICENTE C. FANILAG (Judge Designate, Branch 2), and WILFREDO A. DAGATAN (Presiding
Judge, Branch 3), all of Mandaue City, petitioners, vs. COMMISSION ON AUDIT, respondent.
DECISION
CORONA, J.:
Before us is a petition for certiorari under Rule 64 to annul the decision [1] and resolution[2], dated
September 21, 1995 and May 28, 1996, respectively, of the respondent Commission on Audit (COA) affirming the
notices of the Mandaue City Auditor which diminished the monthly additional allowances received by the
petitioner judges of the Regional Trial Court (RTC) and Municipal Trial Court (MTC) stationed in Mandaue City.
The undisputed facts are as follows:
In 1986, the RTC and MTC judges of Mandaue City started receiving monthly allowances of P1,260 each
through the yearly appropriation ordinance enacted by the Sangguniang Panlungsod of the said city. In 1991,
Mandaue City increased the amount to P1,500 for each judge.
On March 15, 1994, the Department of Budget and Management (DBM) issued the disputed Local Budget
Circular No. 55 (LBC 55) which provided that:
xxx xxx xxx
2.3.2. In the light of the authority granted to the local government units under the Local Government Code to
provide for additional allowances and other benefits to national government officials and employees assigned in
their locality, such additional allowances in the form of honorarium at rates not exceeding P1,000.00 in provinces
and cities and P700.00 in municipalities may be granted subject to the following conditions:
a) That the grant is not mandatory on the part of the LGUs;
b) That all contractual and statutory obligations of the LGU including the implementation of R.A. 6758 shall have
been fully provided in the budget;
c) That the budgetary requirements/limitations under Section 324 and 325 of R.A. 7160 should be satisfied
and/or complied with; and
d) That the LGU has fully implemented the devolution of functions/personnel in accordance with R.A. 7160.
[3]
(italics supplied)
xxx xxx xxx
The said circular likewise provided for its immediate effectivity without need of publication:
5.0 EFFECTIVITY
This Circular shall take effect immediately.
Acting on the DBM directive, the Mandaue City Auditor issued notices of disallowance to herein
petitioners, namely, Honorable RTC Judges Mercedes G. Dadole, Ulric R. Caete, Agustin R. Vestil, Honorable MTC
Judges Temistocles M. Boholst, Vicente C. Fanilag and Wilfredo A. Dagatan, in excess of the amount authorized
by LBC 55. Beginning October, 1994, the additional monthly allowances of the petitioner judges were reduced
to P1,000 each. They were also asked to reimburse the amount they received in excess of P1,000 from April to
September, 1994.
The petitioner judges filed with the Office of the City Auditor a protest against the notices of disallowance.
But the City Auditor treated the protest as a motion for reconsideration and indorsed the same to the COA
Regional Office No. 7. In turn, the COA Regional Office referred the motion to the head office with a
recommendation that the same be denied.
On September 21, 1995, respondent COA rendered a decision denying petitioners motion for
reconsideration. The COA held that:
The issue to be resolved in the instant appeal is whether or not the City Ordinance of Mandaue which provides a
higher rate of allowances to the appellant judges may prevail over that fixed by the DBM under Local Budget
Circular No. 55 dated March 15, 1994.
xxx xxx xxx
Applying the foregoing doctrine, appropriation ordinance of local government units is subject to the
organizational, budgetary and compensation policies of budgetary authorities (COA 5 Ind., dated March 17,
th
1994 re: Province of Antique; COA letter dated May 17, 1994 re: Request of Hon. Renato Leviste, Cong. 1st Dist.
Oriental Mindoro). In this regard, attention is invited to Administrative Order No. 42 issued on March 3, 1993 by
the President of the Philippines clarifying the role of DBM in the compensation and classification of local
government positions under RA No. 7160 vis-avis the provisions of RA No. 6758 in view of the abolition of the
JCLGPA. Section 1 of said Administrative Order provides that:
Section 1. The Department of Budget and Management as the lead administrator of RA No. 6758 shall, through
its Compensation and Position Classification Bureau, continue to have the following responsibilities in connection
with the implementation of the Local Government Code of 1991:
a) Provide guidelines on the classification of local government positions and on the
specific rates of pay therefore;
b) Provide criteria and guidelines for the grant of all allowances and additional forms
of compensation to local government employees; xxx. (underscoring supplied)
To operationalize the aforecited presidential directive, DBM issued LBC No. 55, dated March 15, 1994, whose
effectivity clause provides that:
xxx xxx xxx
5.0 EFFECTIVITY
This Circular shall take effect immediately.
It is a well-settled rule that implementing rules and regulations promulgated by administrative or executive
officer in accordance with, and as authorized by law, has the force and effect of law or partake the nature of a
statute (Victorias Milling Co., Inc., vs. Social Security Commission, 114 Phil. 555, cited in Agpalos Statutory
Construction, 2nd Ed. P. 16; Justice Cruzs Phil. Political Law, 1984 Ed., p. 103; Espanol vs. Phil Veterans
Administration, 137 SCRA 314; Antique Sawmills Inc. vs. Tayco, 17 SCRA 316).
xxx xxx xxx
There being no statutory basis to grant additional allowance to judges in excess of P1,000.00 chargeable against
the local government units where they are stationed, this Commission finds no substantial grounds or cogent
reason to disturb the decision of the City Auditor, Mandaue City, disallowing in audit the allowances in question.
Accordingly, the above-captioned appeal of the MTC and RTC Judges of Mandaue City, insofar as the same is not
covered by Circular Letter No. 91-7, is hereby dismissed for lack of merit.
xxx xxx xxx[4]
On November 27, 1995, Executive Judge Mercedes Gozo-Dadole, for and in behalf of the petitioner
judges, filed a motion for reconsideration of the decision of the COA. In a resolution dated May 28, 1996, the
COA denied the motion.
 Hence, this petition for certiorari by the petitioner judges, submitting the following questions for
resolution:
I stationed in or assigned to the city; (italics supplied)
HAS THE CITY OF MANDAUE STATUTORY AND CONSTITUTIONAL BASIS TO PROVIDE ADDITIONAL ALLOWANCES
AND OTHER BENEFITS TO JUDGES STATIONED IN AND ASSIGNED TO THE CITY?
II
CAN AN ADMINISTRATIVE CIRCULAR OR GUIDELINE SUCH AS LOCAL BUDGET CIRCULAR NO. 55 RENDER
INOPERATIVE THE POWER OF THE LEGISLATIVE BODY OF A CITY BY SETTING A LIMIT TO THE EXTENT OF THE
EXERCISE OF SUCH POWER?
III
HAS THE COMMISSION ON AUDIT CORRECTLY INTERPRETED LOCAL BUDGET CIRCULAR NO. 55 TO INCLUDE
MEMBERS OF THE JUDICIARY IN FIXING THE CEILING OF ADDITIONAL ALLOWANCES AND BENEFITS TO BE
PROVIDED TO JUDGES STATIONED IN AND ASSIGNED TO MANDAUE CITY BY THE CITY GOVERNMENT AT
P1,000.00 PER MONTH NOTWITHSTANDING THAT THEY HAVE BEEN RECEIVING ALLOWANCES OF P1,500.00
MONTHLY FOR THE PAST FIVE YEARS?
IV
IS LOCAL BUDGET CIRCULAR NO. 55 DATED MARCH 15, 1994 ISSUED BY THE DEPARTMENT OF BUDGET AND
MANAGEMENT VALID AND ENFORCEABLE CONSIDERING THAT IT WAS NOT DULY PUBLISHED IN ACCODANCE
WITH LAW?[5]
Petitioner judges argue that LBC 55 is void for infringing on the local autonomy of Mandaue City by
dictating a uniform amount that a local government unit can disburse as additional allowances to judges
stationed therein. They maintain that said circular is not supported by any law and therefore goes beyond the
supervisory powers of the President. They further allege that said circular is void for lack of publication.
On the other hand, the yearly appropriation ordinance providing for additional allowances to judges is
allowed by Section 458, par. (a)(1)[xi], of RA 7160, otherwise known as the Local Government Code of 1991,
which provides that:
Sec. 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the legislative body
of the city, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the city
and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the
city as provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient and effective city government, and in this
connection, shall:
xxx xxx xxx
(xi) When the finances of the city government allow, provide for additional allowances and other benefits to
judges, prosecutors, public elementary and high school teachers, and other national government officials
Instead of filing a comment on behalf of respondent COA, the Solicitor General filed a manifestation
supporting the position of the petitioner judges. The Solicitor General argues that (1) DBM only enjoys the power
to review and determine whether the disbursements of funds were made in accordance with the ordinance
passed by a local government unit while (2) the COA has no more than auditorial visitation powers over local
government units pursuant to Section 348 of RA 7160 which provides for the power to inspect at any time the
financial accounts of local government units.
Moreover, the Solicitor General opines that the DBM and the respondent are only authorized under RA
7160 to promulgate a Budget Operations Manual for local government units, to improve and systematize
methods, techniques and procedures employed in budget preparation, authorization, execution and
accountability pursuant to Section 354 of RA 7160. The Solicitor General points out that LBC 55 was not exercised
under any of the aforementioned provisions.
Respondent COA, on the other hand, insists that the constitutional and statutory authority of a city
government to provide allowances to judges stationed therein is not absolute. Congress may set limitations on
the exercise of autonomy. It is for the President, through the DBM, to check whether these legislative limitations
are being followed by the local government units.
One such law imposing a limitation on a local government units autonomy is Section 458, par. (a) (1) [xi],
of RA 7160, which authorizes the disbursement of additional allowances and other benefits to judges subject to
the condition that the finances of the city government should allow the same . Thus, DBM is merely enforcing the
condition of the law when it sets a uniform maximum amount for the additional allowances that a city
government can release to judges stationed therein.
Assuming arguendo that LBC 55 is void, respondent COA maintains that the provisions of the yearly
approved ordinance granting additional allowances to judges are still prohibited by the appropriation laws
passed by Congress every year. COA argues that Mandaue City gets the funds for the said additional allowances
of judges from the Internal Revenue Allotment (IRA). But the General Appropriations Acts of 1994 and 1995 do
not mention the disbursement of additional allowances to judges as one of the allowable uses of the IRA. Hence,
the provisions of said ordinance granting additional allowances, taken from the IRA, to herein petitioner judges
are void for being contrary to law.
To resolve the instant petition, there are two issues that we must address: (1) whether LBC 55 of the DBM
is void for going beyond the supervisory powers of the President and for not having been published and (2)
whether the yearly appropriation ordinance enacted by the City of Mandaue that provides for additional
allowances to judges contravenes the annual appropriation laws enacted by Congress.
We rule in favor of the petitioner judges.
On the first issue, we declare LBC 55 to be null and void.
We recognize that, although our Constitution[6] guarantees autonomy to local government units, the
exercise of local autonomy remains subject to the power of control by Congress and the power of supervision by
the President. Section 4 of Article X of the 1987 Philippine Constitution provides that:
Sec. 4. The President of the Philippines shall exercise general supervision over local governments. x x x
In Pimentel vs. Aguirre [7], we defined the supervisory power of the President and distinguished it from the
power of control exercised by Congress. Thus:
This provision (Section 4 of Article X of the 1987 Philippine Constitution) has been interpreted to exclude the
power of control. In Mondano v. Silvosa, [i][5]
the Court contrasted the President's power of supervision over local
government officials with that of his power of control over executive officials of the national government. It was
emphasized that the two terms -- supervision and control -- differed in meaning and extent. The Court
distinguished them as follows:
"x x x In administrative law, supervision means overseeing or the power or authority of an officer to see that
subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such
action or step as prescribed by law to make them perform their duties. Control, on the other hand, means the
power of an officer to alter or modify or nullify or set aside what a subordinate officer ha[s] done in the
performance of his duties and to substitute the judgment of the former for that of the latter." [ii][6]
In Taule v. Santos, [iii][7]
we further stated that the Chief Executive wielded no more authority than that of checking
whether local governments or their officials were performing their duties as provided by the fundamental law
and by statutes. He cannot interfere with local governments, so long as they act within the scope of their
authority. "Supervisory power, when contrasted with control, is the power of mere oversight over an inferior
body; it does not include any restraining authority over such body," [iv][8]
we said.
In a more recent case, Drilon v. Lim, [v][9]
the difference between control and supervision was further
delineated. Officers in control lay down the rules in the performance or accomplishment of an act. If these rules
are not followed, they may, in their discretion, order the act undone or redone by their subordinates or even
decide to do it themselves. On the other hand, supervision does not cover such authority.Supervising officials
merely see to it that the rules are followed, but they themselves do not lay down such rules, nor do they have
the discretion to modify or replace them. If the rules are not observed, they may order the work done or redone,
but only to conform to such rules. They may not prescribe their own manner of execution of the act. They have
no discretion on this matter except to see to it that the rules are followed.
Under our present system of government, executive power is vested in the President. [vi][10] The members of the
Cabinet and other executive officials are merely alter egos. As such, they are subject to the power of control of
the President, at whose will and behest they can be removed from office; or their actions and decisions changed,
suspended or reversed.[vii][11] In contrast, the heads of political subdivisions are elected by the people. Their
sovereign powers emanate from the electorate, to whom they are directly accountable. By constitutional fiat,
they are subject to the Presidents supervision only, not control, so long as their acts are exercised within the
sphere of their legitimate powers. By the same token, the President may not withhold or alter any authority or
power given them by the Constitution and the law.
Clearly then, the President can only interfere in the affairs and activities of a local government unit if he or
she finds that the latter has acted contrary to law. This is the scope of the Presidents supervisory powers over
local government units. Hence, the President or any of his or her alter egos cannot interfere in local affairs as
long as the concerned local government unit acts within the parameters of the law and the Constitution. Any
directive therefore by the President or any of his or her alter egos seeking to alter the wisdom of a law-
conforming judgment on local affairs of a local government unit is a patent nullity because it violates the
principle of local autonomy and separation of powers of the executive and legislative departments in governing
municipal corporations.
Does LBC 55 go beyond the law it seeks to implement? Yes.
LBC 55 provides that the additional monthly allowances to be given by a local government unit should not
exceed P1,000 in provinces and cities and P700 in municipalities. Section 458, par. (a)(1)(xi), of RA 7160, the law
that supposedly serves as the legal basis of LBC 55, allows the grant of additional allowances to judges when the
finances of the city government allow. The said provision does not authorize setting a definite maximum limit to
the additional allowances granted to judges. Thus, we need not belabor the point that the finances of a city
government may allow the grant of additional allowances higher than P1,000 if the revenues of the said city
government exceed its annual expenditures. Thus, to illustrate, a city government with locally generated annual
revenues of P40 million and expenditures of P35 million can afford to grant additional allowances of more
than P1,000 each to, say, ten judges inasmuch as the finances of the city can afford it.
Setting a uniform amount for the grant of additional allowances is an inappropriate way of enforcing the
criterion found in Section 458, par. (a)(1)(xi), of RA 7160. The DBM over-stepped its power of supervision over
local government units by imposing a prohibition that did not correspond with the law it sought to implement. In
other words, the prohibitory nature of the circular had no legal basis.
Furthermore, LBC 55 is void on account of its lack of publication, in violation of our ruling in Taada vs.
Tuvera[8] where we held that:
xxx. Administrative rules and regulations must also be published if their purpose is to enforce or implement
existing law pursuant to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of an
administrative agency and the public, need not be published. Neither is publication required of the so-called
letters of instruction issued by administrative superiors concerning the rules or guidelines to be followed by their
subordinates in the performance of their duties.
Respondent COA claims that publication is not required for LBC 55 inasmuch as it is merely an
interpretative regulation applicable to the personnel of an LGU. We disagree. In De Jesus vs. Commission on
Audit[9] where we dealt with the same issue, this Court declared void, for lack of publication, a DBM circular that
disallowed payment of allowances and other additional compensation to government officials and employees. In
refuting respondent COAs argument that said circular was merely an internal regulation, we ruled that:
On the need for publication of subject DBM-CCC No. 10, we rule in the affirmative. Following the doctrine
enunciated in Taada v. Tuvera, publication in the Official Gazette or in a newspaper of general circulation in the
Philippines is required since DBM-CCC No. 10 is in the nature of an administrative circular the purpose of which
is to enforce or implement an existing law. Stated differently, to be effective and enforceable, DBM-CCC No. 10
must go through the requisite publication in the Official Gazette or in a newspaper of general circulation in the
Philippines.
In the present case under scrutiny, it is decisively clear that DBM-CCC No. 10, which completely disallows
payment of allowances and other additional compensation to government officials and employees, starting
November 1, 1989, is not a mere interpretative or internal regulation. It is something more than that. And why
not, when it tends to deprive government workers of their allowance and additional compensation sorely
needed to keep body and soul together. At the very least, before the said circular under attack may be
permitted to substantially reduce their income, the government officials and employees concerned should be
apprised and alerted by the publication of subject circular in the Official Gazette or in a newspaper of general
circulation in the Philippines to the end that they be given amplest opportunity to voice out whatever
opposition they may have, and to ventilate their stance on the matter. This approach is more in keeping with
democratic precepts and rudiments of fairness and transparency. (emphasis supplied)
In Philippine International Trading Corporation vs. Commission on Audit [10], we again declared the same
circular as void, for lack of publication, despite the fact that it was re-issued and then submitted for publication.
Emphasizing the importance of publication to the effectivity of a regulation, we therein held that:
It has come to our knowledge that DBM-CCC No. 10 has been re-issued in its entirety and submitted for
publication in the Official Gazette per letter to the National Printing Office dated March 9, 1999. Would the
subsequent publication thereof cure the defect and retroact to the time that the above-mentioned items were
disallowed in audit?
The answer is in the negative, precisely for the reason that publication is required as a condition precedent to the
effectivity of a law to inform the public of the contents of the law or rules and regulations before their rights and
interests are affected by the same. From the time the COA disallowed the expenses in audit up to the filing of
herein petition the subject circular remained in legal limbo due to its non-publication. As was stated in Taada v.
Tuvera, prior publication of laws before they become effective cannot be dispensed with, for the reason that it
would deny the public knowledge of the laws that are supposed to govern it.[11]
We now resolve the second issue of whether the yearly appropriation ordinance enacted by Mandaue City
providing for fixed allowances for judges contravenes any law and should therefore be struck down as null and
void.
According to respondent COA, even if LBC 55 were void, the ordinances enacted by Mandaue City granting
additional allowances to the petitioner judges would still (be) bereft of legal basis for want of a lawful source of
funds considering that the IRA cannot be used for such purposes. Respondent COA showed that Mandaue Citys
funds consisted of locally generated revenues and the IRA. From 1989 to 1995, Mandaue Citys yearly
expenditures exceeded its locally generated revenues, thus resulting in a deficit. During all those years, it was the
IRA that enabled Mandaue City to incur a surplus. Respondent avers that Mandaue City used its IRA to pay for
said additional allowances and this violated paragraph 2 of the Special Provisions, page 1060, of RA 7845 (The
General Appropriations Act of 1995)[12] and paragraph 3 of the Special Provision, page 1225, of RA 7663 (The
General Appropriations Act of 1994)[13] which specifically identified the objects of expenditure of the IRA.
Nowhere in said provisions of the two budgetary laws does it say that the IRA can be used for additional
allowances of judges. Respondent COA thus argues that the provisions in the ordinance providing for such
disbursement are against the law, considering that the grant of the subject allowances is not within the specified
use allowed by the aforesaid yearly appropriations acts.
We disagree.
Respondent COA failed to prove that Mandaue City used the IRA to spend for the additional allowances of
the judges. There was no evidence submitted by COA showing the breakdown of the expenses of the city
government and the funds used for said expenses. All the COA presented were the amounts expended, the
locally generated revenues, the deficit, the surplus and the IRA received each year. Aside from these items, no
data or figures were presented to show that Mandaue City deducted the subject allowances from the IRA. In
other words, just because Mandaue Citys locally generated revenues were not enough to cover its expenditures,
this did not mean that the additional allowances of petitioner judges were taken from the IRA and not from the
citys own revenues.
 Moreover, the DBM neither conducted a formal review nor ordered a disapproval of Mandaue Citys
appropriation ordinances, in accordance with the procedure outlined by Sections 326 and 327 of RA 7160 which
provide that:
Section 326. Review of Appropriation Ordinances of Provinces, Highly Urbanized Cities, Independent Component
Cities, and Municipalities within the Metropolitan Manila Area. The Department of Budget and Management
shall review ordinances authorizing the annual or supplemental appropriations of provinces, highly-urbanized
cities, independent component cities, and municipalities within the Metropolitan Manila Area in accordance
with the immediately succeeding Section.
Section 327. Review of Appropriation Ordinances of Component Cities and Municipalities.- The sangguninang
panlalawigan shall review the ordinance authorizing annual or supplemental appropriations of component cities
and municipalities in the same manner and within the same period prescribed for the review of other
ordinances.
If within ninety (90) days from receipt of copies of such ordinance, the sangguniang panlalawigan takes no
action thereon, the same shall be deemed to have been reviewed in accordance with law and shall continue to
be in full force and effect. (emphasis supplied)
Within 90 days from receipt of the copies of the appropriation ordinance, the DBM should have taken
positive action. Otherwise, such ordinance was deemed to have been properly reviewed and deemed to have
taken effect. Inasmuch as, in the instant case, the DBM did not follow the appropriate procedure for reviewing
the subject ordinance of Mandaue City and allowed the 90-day period to lapse, it can no longer question the
legality of the provisions in the said ordinance granting additional allowances to judges stationed in the said city.
WHEREFORE, the petition is hereby GRANTED, and the assailed decision and resolution, dated September
21, 1995 and May 28, 1996, respectively, of the Commission on Audit are hereby set aside.
No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 207145 July 28, 2015
GIL G. CAWAD, MARIO BENEDICT P. GALON, DOMINGO E. LUSAYA, JEAN V. APOLINARES, MA. LUISA S. OREZCA,
JULIO R. GARCIA, NESTOR M. INTIA, RUBEN C. CALIWATAN, ADOLFO Q. ROSALES, MA. LUISA NAVARRO, and
the PHILIPPINE PUBLIC HEALTH ASSOCIATION, INC., Petitioners,
vs.
FLORENCIO B. ABAD, in his capacity as Secretary of the Department of Budget and Management (DBM);
ENRIQUE T. ONA, in his capacity as Secretary of the Department of Health (DOH); and FRANCISCO T. DUQUE III,
in his capacity as Chairman of the Civil Service Commission (CSC), Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for certiorari and prohibition under Rule 65 of the Rules of Court filed by the
officers and members of the Philippine Public Health Association, Inc. (PPHAI) assailing the validity of Joint
Circular No. 11dated November 29, 2012 of the Department of Budget and Management (DBM) and the
Department of Health (DOH) as well as Item 6.5 of the Joint Circular 2 dated September 3, 2012 of the DBM and
the Civil Service Commission (CSC).
The antecedent facts are as follows:
On March 26, 1992, Republic Act (RA) No. 7305, otherwise known as The Magna Carta of Public Health
Workers was signed into law in order to promote the social and economic well-being of health workers, their
living and working conditions and terms of employment, to develop their skills and capabilities to be better
equipped to deliver health projects and programs, and to encourage those with proper qualifications and
excellent abilities to join and remain in government service. 3 Accordingly, public health workers (PHWs) were
granted the following allowances and benefits, among others:
Section 20. Additional Compensation. - Notwithstanding Section 12 of Republic Act No.
6758, public health workers shall receive the following allowances: hazard allowance,
subsistence allowance, longevity pay, laundry allowance and remote assignment
allowance.
Section 21. Hazard Allowance. - Public health workers in hospitals, sanitaria, rural health
units, main health centers, health infirmaries, barangay health stations, clinics and other
health-related establishments located in difficult areas, strife-torn or embattled areas,
distressed or isolated stations, prisons camps, mental hospitals, radiation exposed clinics,
laboratories or disease-infested areas or in areas declared under state of calamity or
emergency for the duration thereof which expose them to great danger, contagion,
 radiation, volcanic activity/eruption, occupational risks or perils to life as determined by
the Secretary of Health or the Head of the unit with the approval of the Secretary of
Health, shall be compensated hazard allowances equivalent to at least twenty-five percent
(25%) of the monthly basic salary of health workers receiving salary grade 19 and
below, and five percent (5%) for health workers with<="" b="">
Section 22. Subsistence Allowance. - Public health workers who are required to render
service within the premises of hospitals, sanitaria, health infirmaries, main health centers,
rural health units and barangay health stations, or clinics, and other health-related
establishments in order to make their services available at any and all times, shall be
entitled to full subsistence allowance of three (3) meals which may be computed in
accordance with prevailing circumstances as determined by the Secretary of Health in
consultation with the Management-Health Worker's Consultative Councils, as established
under Section 33 of this Act: Provided, That representation and travel allowance shall be
given to rural health physicians as enjoyed by municipal agriculturists, municipal planning
and development officers and budget officers.
Section 23. Longevity Pay.- A monthly longevity pay equivalent to five percent (5%)of the
monthly basic pay shall be paid to a health worker for every five (5) years of continuous,
efficient and meritorious services rendered as certified by the chief of office concerned,
commencing with the service after the approval of this Act. 4
Pursuant to Section 355 of the Magna Carta, the Secretary of Health promulgated its Implementing Rules and
Regulations (IRR) in July 1992. Thereafter, in November 1999, the DOH, in collaboration with various government
agencies and health workers' organizations, promulgated a Revised IRR consolidating all additional and
clarificatory rules issued by the former Secretaries of Health dating back from the effectivity of the Magna Carta.
The pertinent provisions of said Revised IRR provide:
6.3. Longevity Pay.- A monthly longevity pay equivalent to five percent (5%)of the present
monthly basic pay shall be paid to public health workers for every five (5) years of
continuous, efficient and meritorious services rendered as certified by the Head of
Agency/Local Chief Executives commencing after the approval of the Act. (April 17, 1992)
xxxx
7.1.1. Eligibility to Receive Hazard Pay.- All public health workers covered under RA 7305
are eligible to receive hazard pay when the nature of their work exposes them to high
risk/low risk hazards for at least fifty percent (50%) of their working hours as determined
and approved by the Secretary of Health or his authorized representatives.
xxxx
7.2.1. Eligibility for Subsistence Allowance
a. All public health workers covered under RA 7305 are eligible to receive full subsistence
allowance as long as they render actual duty.
b. Public Health Workers shall be entitled to full Subsistence Allowance of three (3) meals
which may be computed in accordance with prevailing circumstances as determined by the
Secretary of Health in consultation with the Management-Health Workers Consultative
Council, as established under Section 33 of the Act.
c. Those public health workers who are out of station shall be entitled to per diems in
place of Subsistence Allowance. Subsistence Allowance may also be commuted.
xxxx
7.2.3 Rates of Subsistence Allowance
a. Subsistence allowance shall be implemented at not less than PhP50.00 per day or
PhP1,500.00 per month as certified by head of agency.
xxxx
d. Part-time public health workers/consultants are entitled to one-half (1/2)of the
prescribed rates received by full-time public health workers. 6
On July 28, 2008, the Fourteenth Congress issued Joint Resolution No. 4, entitled Joint Resolution Authorizing the
President of the Philippines to Modify the Compensation and Position Classification System of Civilian Personnel
and the Base Pay Schedule of Military and Uniformed Personnel in the Government, and for other Purposes,
approved by then President Gloria Macapagal-Arroyo on June 17,2009, which provided for certain amendments
in the Magna Carta and its IRR.
On September 3, 2012, respondents DBM and CSC issued one of the two assailed issuances, DBM-CSC Joint
Circular No. 1, Series of 2012, to prescribe the rules on the grant of Step Increments due to meritorious
performance and Step Increment due to length of service. 7 Specifically, it provided that "an official or employee
authorized to be granted Longevity Pay under an existing law is not eligible for the grant of Step Increment due
to length of service." 8 Shortly thereafter, on November29, 2012, respondents DBM and DOH then circulated the
other assailed issuance, DBM-DOH Joint Circular No. 1, Series of 2012, the relevant provisions of which state:
7.0. Hazard Pay. - Hazard pay is an additional compensation for performing hazardous
duties and for enduring physical hardships in the course of performance of duties.
As a general compensation policy, and in line with Section 21 of R. A. No. 7305, Hazard Pay
may be granted to PHWs only if the nature of the duties and responsibilities of their
positions, their actual services, and location of work expose them to great danger,
 occupational risks, perils of life, and physical hardships; and only during periods of actual
exposure to hazards and hardships.
xxxx
8.3 The Subsistence Allowance shall be P50for each day of actual full-time service,
or P25for each day of actual part-time service.
xxxx
9.0 Longevity Pay (LP)
9.1 Pursuant to Section 23 of R.A. No. 7305, a PHW may be granted LP at 5% of his/her
current monthly basic salary, in recognition of every 5 years of continuous, efficient, and
meritorious services rendered as PHW. The grant thereof is based on the following criteria:
9.1.1 The PHW holds a position in the agency plantilla of regular positions; and
9.1.2 He/She has rendered at least satisfactory performance and has not been found guilty
of any administrative or criminal case within all rating periods covered by the 5-year
period.
In a letter dated January 23, 2013 addressed to respondents Secretary of Budget and Management and
9
Secretary of Health, petitioners expressed their opposition to the Joint Circular cited above on the ground that
the same diminishes the benefits granted by the Magna Carta to PHWs.
Unsatisfied, petitioners, on May 30, 2013, filed the instant petition raising the following issues:
I.
WHETHER RESPONDENTS ENRIQUE T. ONA AND FLORENCIO B. ABAD ACTED WITH GRAVE
ABUSE OF DISCRETION AND VIOLATED SUBSTANTIVE DUE PROCESS WHEN THEY ISSUED
DBM-DOH JOINT CIRCULAR NO. 1, S. 2012 WHICH:
A) MADE THE PAYMENT OF HAZARD PAY DEPENDENT ON THE ACTUAL DAYS OF EXPOSURE
TO THE RISK INVOLVED;
B) ALLOWED PAYMENT OF SUBSISTENCE ALLOWANCE AT P50 FOR EACH DAY OF ACTUAL
FULL-TIME SERVICE OR P25 FOR EACH DAY OF ACTUAL PART-TIME SERVICE WITHOUT
CONSIDERATION OF THE PREVAILING CIRCUMSTANCES AS DETERMINED BY THE
SECRETARY OF HEALTH IN CONSULTATION WITH THE MANAGEMENT HEALTH WORKERS'
CONSULTATIVE COUNCILS;
C) REQUIRED THAT LONGEVITY PAY BE GRANTED ONLY TO PHWs WHO HOLD PLANTILLA
AND REGULAR POSITIONS; AND
D) MADE THE JOINT CIRCULAR EFFECTIVE ON JANUARY 1, 2013, BARELY THREE (3) DAYS
AFTER IT WAS PUBLISHED IN A NEWSPAPER OF GENERAL CIRCULATION ON DECEMBER 29,
2012, IN VIOLATION OF THE RULES ON PUBLICATION.
II.
WHETHER RESPONDENTS FRANCISCO T. DUQUE AND FLORENCIO B. ABAD ACTED WITH
GRAVE ABUSE OF DISCRETION WHEN THEY ISSUED DBM-CSC JOINT CIRCULAR NO. 1, S.
2012 DATED SEPTEMBER 2, 2012 WHICH PROVIDED THAT AN OFFICIAL OR EMPLOYEE
ENTITLED TO LONGEVITY PAY UNDER EXISTING LAW SHALL NO LONGER BE GRANTED STEP
INCREMENT DUE TO LENGTH OF SERVICE.
III.
WHETHER RESPONDENTS' ISSUANCE OF DBM-DOH JOINT CIRCULAR NO. 1, S. 2012 IS NULL
AND VOID FOR BEING AN UNDUE EXERCISE OF LEGISLATIVE POWER BY ADMINISTRATIVE
BODIES WHEN RESPONDENT ONA ALLOWED RESPONDENT ABAD TOSIGNIFICANTLY SHARE
THE POWER TO FORMULATE AND PREPARE THE NECESSARY RULES AND REGULATIONS TO
IMPLEMENT THE PROVISIONS OF THE MAGNA CARTA.
IV.
WHETHER RESPONDENT ONA WAS REMISS IN IMPLEMENTING THE MANDATE OF THE
MAGNA CARTA WHEN HE DID NOT INCLUDE THE MAGNA CARTA BENEFITS IN THE
DEPARTMENT'S YEARLY BUDGET.
V.
WHETHER RESPONDENTS' ISSUANCE OF DBM-DOH JOINT CIRCULAR NO. 1, S. 2012 IS NULL
AND VOID FOR BEING AN UNDUE EXERCISE OF LEGISLATIVE POWER BY ADMINISTRATIVE
BODIES WHEN THE SAME WAS ISSUED SANS CONSULTATION WITH PROFESSIONAL AND
HEALTH WORKERS' ORGANZATIONS AND UNIONS.
Petitioners contend that respondents acted with grave abuse of discretion when they issued DBM-DOH Joint
Circular No. 1, Series of 2012 and DBM-CSC Joint Circular No. 1, Series of 2012 which prescribe certain
requirements on the grant of benefits that are not otherwise required by RA No. 7305. Specifically, petitioners
assert that the DBM-DOH Joint Circular grants the payment of Hazard Pay only if the nature of the PHWs' duties
expose them to danger when RA No. 7305 does not make any qualification. They likewise claim that said circular
unduly fixes Subsistence Allowance at P50 for each day of full-time service and P25 for part-time service which
are not in accordance with prevailing circumstances determined by the Secretary of Health as required by RA No.
7305. Moreover, petitioners fault respondents for the premature effectivity of the DBM-DOH Joint Circular which
they believe should have been on January 29, 2012 and not on January 1, 2012. As to the grant of Longevity Pay,
petitioners posit that the same was wrongfully granted only to PHWs holding regular plantilla positions.
Petitioners likewise criticize the DBM-CSC Joint Circular insofar as it withheld the Step Increment due to length of
service from those who are already being granted Longevity Pay. As a result, petitioners claim that the subject
circulars are void for being an undue exercise of legislative power by administrative bodies.
In their Comment, respondents, through the Solicitor General, refute petitioners' allegations in stating that the
assailed circulars were issued within the scope of their authority, and are therefore valid and binding. They also
assert the authority of Joint Resolution No. 4, Series of 2009, approved by the President, in accordance with the
prescribed procedure. Moreover, respondents question the remedies of Certiorari and Prohibition used by
petitioners for the assailed circulars were done in the exercise of their quasi-legislative, and not of their judicial
or quasi-judicial functions.
The petition is partly meritorious.
At the outset, the petition for certiorari and prohibition filed by petitioners is not the appropriate remedy to
assail the validity of respondents' circulars. Sections 1 and 2 of Rule 65 of the Rules of Court provide:
RULE 65
CERTIORARI, PROHIBITION AND MANDAMUS
Section 1. Petition for certiorari. - When any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the proceedings
of such tribunal, board or officer, and granting such incidental reliefs as law and justice
may require.
xxxx
Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board,
officer or person, whether exercising judicial, quasi-judicial or ministerial functions, are
without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack
or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be
rendered commanding the respondent to desist from further proceedings in the action or
matter specified therein, or otherwise granting such incidental reliefs as law and justice
may require. 10
Thus, on the one hand, certiorari as a special civil action is available only if: (1) it is directed against a tribunal,
board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer acted without or
in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3)
there is no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law. 11
On the other hand, prohibition is available only if: (1) it is directed against a tribunal, corporation, board, officer,
or person exercising functions, judicial, quasi-judicial, or ministerial; (2) the tribunal, corporation, board or
person acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess
of jurisdiction; and (3) there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course
of law.12 Based on the foregoing, this Court has consistently reiterated that petitions for certiorari and prohibition
may be invoked only against tribunals, corporations, boards, officers, or persons exercising judicial, quasi-judicial
or ministerial functions, and not against their exercise of legislative or quasi-legislative functions. 13
Judicial functions involve the power to determine what the law is and what the legal rights of the parties are, and
then undertaking to determine these questions and adjudicate upon the rights of the parties. 14 Quasi judicial
functions apply to the actions and discretion of public administrative officers or bodies required to investigate
facts, hold hearings, and draw conclusions from them as a basis for their official action, in their exercise of
discretion of a judicial nature.15 Ministerial functions are those which an officer or tribunal performs in the
context of a given set of facts, in a prescribed manner and without regard to the exercise of his own judgment
upon the propriety or impropriety of the act done.16
Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that there be a law
that gives rise to some specific rights under which adverse claims are made, and the controversy ensuing
therefrom is brought before a tribunal, board, or officer clothed with authority to determine the law and
adjudicate the respective rights of the contending parties. 17 In this case, respondents did not act in any judicial,
quasi-judicial, or ministerial capacity in their issuance of the assailed joint circulars. In issuing and implementing
the subject circulars, respondents were not called upon to adjudicate the rights of contending parties to exercise,
in any manner, discretion of a judicial nature. The issuance and enforcement by the Secretaries of the DBM, CSC
and DOH of the questioned joint circulars were done in the exercise of their quasi-legislative and administrative
functions. It was in the nature of subordinate legislation, promulgated by them in their exercise of delegated
power. 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 non-delegation of powers from the
separation of the branches of the government.18
Based on the foregoing, certiorari and prohibition do not lie against herein respondents' issuances. It is beyond
the province of certiorari to declare the aforesaid administrative issuances illegal because petitions for certiorari
seek solely to correct defects in jurisdiction, and not to correct just any error committed by a court, board, or
officer exercising judicial or quasi-judicial functions unless such court, board, or officer thereby acts without or in
excess of jurisdiction or with such grave abuse of discretion amounting to lack of jurisdiction. 19
It is likewise beyond the territory of a writ of prohibition since generally, the purpose of the same is to keep a
lower court within the limits of its jurisdiction in order to maintain the administration of justice in orderly
channels. It affords relief against usurpation of jurisdiction by an inferior court, or when, in the exercise of
jurisdiction, the inferior court transgresses the bounds prescribed by the law, or where there is no adequate
remedy available in the ordinary course of law. 20
Be that as it may, We proceed to discuss the substantive issues raised in the petition in order to finally resolve
the doubt over the Joint Circulars' validity. For proper guidance, the pressing issue of whether or not the joint
circulars regulating the salaries and benefits relied upon by public health workers were tainted with grave abuse
of discretion rightly deserves its prompt resolution. With respect to the infirmities of the DBM-DOH Joint Circular
raised in the petition, they cannot be said to have been issued with grave abuse of discretion for not only are
they reasonable, they were likewise issued well within the scope of authority granted to the respondents. In fact,
as may be gathered from prior issuances on the matter, the circular did not make any substantial deviation
therefrom, but actually remained consistent with, and germane to, the purposes of the law.
First, the qualification imposed by the DBM-DOH Joint Circular granting the payment of Hazard Pay only if the
nature of PHWs' duties expose them to danger and depending on whether the risk involved is high or low was
merely derived from Section 7.1.1 of the Revised IRR of RA No. 7305, duly promulgated by the DOH in
collaboration with various government health agencies and health workers' organizations in November 1999, to
wit:
SECTION 7.1.1. Eligibility to Receive Hazard Pay. - All public health workers covered under RA 7305 are eligible to
receive hazard pay when the nature of their work exposes them to high risk/low risk hazards for at least fifty
percent (50%) of their working hours as determined and approved by the Secretary of Health or his authorized
representatives. 21
Second, fixing the Subsistence Allowance at P50 for each day of full-time service and P25 for part-time service
was also merely a reiteration of the limits prescribed by the Revised IRR, validly issued by the Secretary of Health
pursuant to Section 3522 of RA No. 7305, the pertinent portions of which states:
Section 7.2.3 Rates of Subsistence Allowance
a. Subsistence allowance shall be implemented at not less than PhP50.00 per day or PhP1,500.00 per month as
certified by head of agency.
xxxx
d. Part-time public health workers/consultants are entitled to one-half (1/2)of the prescribed rates received by
full-time public health workers.
Third, the condition imposed by the DBM-DOH Joint Circular granting longevity pay only to those PHWs holding
regular plantilla positions merely implements the qualification imposed by the Revised IRR which provides:
6.3. Longevity Pay. - A monthly longevity pay equivalent to five percent (5%) of the present monthly basic pay
shall be paid to public health workers for every five (5) years of continuous, efficient and meritorious services
rendered as certified by the Head of Agency/Local Chief Executives commencing after the approval of the Act.
(April 17, 1992)
6.3.1. Criteria for Efficient and Meritorious Service A Public Worker shall have:
a. At least a satisfactory performance rating within the rating period.
b. Not been found guilty of any administrative or criminal case within the rating period.
As can be gleaned from the aforequoted provision, petitioners failed to show any real inconsistency in granting
longevity pay to PHWs holding regular plantilla positions. Not only are they based on the same premise, but the
intent of longevity pay, which is paid to workers for every five (5) years of continuous, efficient and meritorious
services, necessarily coincides with that of regularization. Thus, the assailed circular cannot be invalidated for its
issuance is consistent with, and germane to, the purposes of the law.
Anent petitioners' contention that the DBM-DOH Joint Circular is null and void for its failure to comply with
Section 3523 of RA No. 7305 providing that its implementing rules shall take effect thirty (30) days after
publication in a newspaper of general circulation, as well as its failure to file a copy of the same with the
University of the Philippines Law Center-Office of the National Administrative Register (UP Law Center-ONAR),
jurisprudence as well as the circumstances of this case dictate otherwise.
Indeed, publication, as a basic postulate of procedural due process, is required by law in order for administrative
rules and regulations to be effective.24 There are, however, several exceptions, one of which are interpretative
regulations which "need nothing further than their bare issuance for they give no real consequence more than
what the law itself has already prescribed." 25 These regulations need not be published for they add nothing to
the law and do not affect substantial rights of any person.26
Thus, in Association of Southern Tagalog Electric Cooperatives, et. al. v. Energy Regulatory Commission
(ERC),27wherein several orders issued by the ERC were sought to be invalidated for lack of publication and non-
submission of copies thereof to the UP Law Center - ONAR, it has been held that since they merely interpret RA
No. 7832 and its IRR, particularly on the computation of the cost of purchased power, without modifying,
amending or supplanting the same, they cannot be rendered ineffective, to wit:
When the policy guidelines of the ERC directed the exclusion of discounts extended by
power suppliers in the computation of the cost of purchased power, the guidelines merely
affirmed the plain and unambiguous meaning of "cost" in Section 5, Rule IX of the IRR of
 R.A. No. 7832."Cost" is an item of outlay, and must therefore exclude discounts since these
are "not amounts paid or charged for the sale of electricity, but are reductions in rates.
xxxx
Thus, the policy guidelines of the ERC on the treatment of discounts extended by power
suppliers "give no real consequence more than what the law itself has already prescribed."
Publication is not necessary for the effectivity of the policy guidelines.
As interpretative regulations, the policy guidelines of the ERC on the treatment of
discounts extended by power suppliers are also not required to be filed with the U.P. Law
Center in order to be effective. Section 4, Chapter 2, Book VII of the Administrative Code of
1987 requires every rule adopted by an agency to be filed with the U.P. Law Center to be
effective. However, in Board of Trustees of the Government Service Insurance System v.
Velasco, this Court pronounced that "not all rules and regulations adopted by every
government agency are to be filed with the UP Law Center." Interpretative regulations and
those merely internal in nature are not required to be filed with the U.P. Law Center.
Paragraph 9 (a) of the Guidelines for Receiving and Publication of Rules and Regulations
Filed with the U.P. Law Center states:
9. Rules and Regulations which need not be filed with the U.P. Law Center, shall, among
others, include but not be limited to, the following:
a. Those which are interpretative regulations and those merely internal in nature, that is,
regulating only the personnel of the Administrative agency and not the public. x x x
Furthermore, the policy guidelines of the ERC did not create a new obligation and
impose a new duty, nor did it attach a new disability. As previously discussed, the policy
guidelines merely interpret R.A. No. 7832 and its IRR, particularly on the computation of
the cost of purchased power. The policy guidelines did not modify, amend or supplant
the IRR.
Similarly, in Republic v. Drugmaker's Laboratories, Inc., the validity of circulars issued by the Food and Drug
28
Administration (FDA) was upheld in spite of the non-compliance with the publication, prior hearing, and
consultation requirements for they merely implemented the provisions of Administrative Order No. 67, entitled
"Revised Rules and Regulations on Registration of Pharmaceutical Products" issued by the DOH, in the following
wise:
A careful scrutiny of the foregoing issuances would reveal that AO 67, s. 1989 is actually
the rule that originally introduced the BA/BE testing requirement as a component of
applications for the issuance of CPRs covering certain pharmaceutical products. As such,
it is considered an administrative regulation - a legislative rule to be exact - issued by the
Secretary of Health in consonance with the express authority granted to him by RA 3720 to
implement the statutory mandate that all drugs and devices should first be registered with
the FDA prior to their manufacture and sale. Considering that neither party contested the
validity of its issuance, the Court deems that AO 67, s. 1989 complied with the
requirements of prior hearing, notice, and publication pursuant to the presumption of
regularity accorded to the government in the exercise of its official duties.42
On the other hand, Circular Nos. 1 and 8, s. 1997 cannot be considered as administrative
regulations because they do not: (a) implement a primary legislation by providing the
details thereof; (b) interpret, clarify, or explain existing statutory regulations under
which the FDA operates; and/or (c) ascertain the existence of certain facts or things upon
which the enforcement of RA 3720 depends. In fact, the only purpose of these circulars
is for the FDA to administer and supervise the implementation of the provisions of AO
67, s. 1989, including those covering the BA/BE testing requirement, consistent with and
pursuant to RA 3720.43 Therefore, the FDA has sufficient authority to issue the said
circulars and since they would not affect the substantive rights of the parties that they
seek to govern - as they are not, strictly speaking, administrative regulations in the first
place - no prior hearing, consultation, and publication are needed for their validity.
In this case, the DBM-DOH Joint Circular in question gives no real consequence more than what the law itself had
already prescribed. As previously discussed, the qualification of actual exposure to danger for the PHW's
entitlement to hazard pay, the rates of P50 and P25 subsistence allowance, and the entitlement to longevity pay
on the basis of PHW's status in the plantilla of regular positions were already prescribed and authorized by pre-
existing law. There is really no new obligation or duty imposed by the subject circular for it merely reiterated
those embodied in RA No. 7305 and its Revised IRR. The Joint Circular did not modify, amend nor supplant the
Revised IRR, the validity of which is undisputed. Consequently, whether it was duly published and filed with the
UP Law Center - ONAR is necessarily immaterial to its validity because in view of the pronouncements above,
interpretative regulations, such as the DBM-DOH circular herein, need not be published nor filed with the UP
Law Center - ONAR in order to be effective. Neither is prior hearing or consultation mandatory.
Nevertheless, it bears stressing that in spite of the immateriality of the publication requirement in this case, and
even assuming the necessity of the same, its basic objective in informing the public of the contents of the law
was sufficiently accomplished when the DBM-DOH Joint Circular was published in the Philippine Star, a
newspaper of general circulation, on December 29, 2012.29
As to petitioners' allegation of grave abuse of discretion on the part of respondent DOH Secretary in failing to
include the Magna Carta benefits in his department's yearly budget, the same is belied by the fact that
petitioners themselves specifically provided in their petition an account of the amounts allocated for the same in
the years 2012 and 2013. 30
Based on the foregoing, it must be recalled that administrative regulations, such as the DBM-DOH Joint Circular
herein, enacted by administrative agencies to implement and interpret the law they are entrusted to enforce are
entitled to great respect.31 They partake of the nature of a statute and are just as binding as if they have been
written in the statute itself. As such, administrative regulations have the force and effect of law and enjoy the
presumption of legality. Unless and until they are overcome by sufficient evidence showing that they exceeded
the bounds of the law,32 their validity and legality must be upheld.
Thus, notwithstanding the contention that the Joint Resolution No. 4 promulgated by Congress cannot be a
proper source of delegated power, the subject Circular was nevertheless issued well within the scope of
authority granted to the respondents. The issue in this case is not whether the Joint Resolution No. 4 can
become law and, consequently, authorize the issuance of the regulation in question, but whether the circular can
be struck down as invalid for being tainted with grave abuse of discretion. Regardless, therefore, of the validity or
invalidity of Joint Resolution No. 4, the DBMDOH Joint Circular assailed herein cannot be said to have been
arbitrarily or capriciously issued for being consistent with prior issuances duly promulgated pursuant to valid and
binding law.
Distinction must be made, however, with respect to the DBM-CSC Joint Circular, the contested provision of which
states:
6.5 An official or employee authorized to be granted Longevity Pay under an existing law is not eligible for the
grant of Step Increment Due to Length of Service.
A review of RA No. 7305 and its Revised IRR reveals that the law does not similarly impose such condition on the
grant of longevity pay to PHWs in the government service. As such, the DBM-CSC Joint Circular effectively
created a new imposition which was not otherwise stipulated in the law it sought to interpret. Consequently, the
same exception granted to the DBM-DOH Joint Circular cannot be applied to the DBM-CSC Joint Circular insofar
as the requirements on publication and submission with the UP Law Center - ONAR are concerned. Thus, while it
was well within the authority of the respondents to issue rules regulating the grant of step increments as
provided by RA No. 6758, otherwise known as the Compensation and Position Classification Act of 1989, which
pertinently states:
Section 13. Pay Adjustments. - Paragraphs (b) and (c), Section 15 of Presidential Decree No. 985 are hereby
amended to read as follows: xxxx
(c) Step Increments- Effective January 1, 1990 step increments shall be granted based on merit and/or length of
service in accordance with rules and regulations that will be promulgated jointly by the DBM and the Civil Service
Commission,
and while it was duly published in the Philippine Star, a newspaper of general circulation, on September 15,
2012,33 the DBM-CSC Joint Circular remains unenforceable for the failure of respondents to file the same with the
UP Law Center - ONAR.34 Moreover, insofar as the DBM-DOH Joint Circular similarly withholds the Step Increment
due to length of service from those who are already being granted Longevity Pay, the same must likewise be
declared unenforceable.[35
Note also that the DBM-DOH Joint Circular must further be invalidated insofar as it lowers the hazard pay at rates
below the minimum prescribed by Section 21 of RA No. 7305 and Section 7.1.5 (a) of its Revised IRR as follows:
SEC. 21. Hazard Allowance. - Public health worker in hospitals, sanitaria, rural health units,
main centers, health infirmaries, barangay health stations, clinics and other health-related
establishments located in difficult areas, strife-torn or embattled areas, distresses or
isolated stations, prisons camps, mental hospitals, radiation-exposed clinics, laboratories
or disease-infested areas or in areas declared under state of calamity or emergency for the
duration thereof which expose them to great danger, contagion, radiation, volcanic
activity/eruption occupational risks or perils to life as determined by the Secretary of
Health or the Head of the unit with the approval of the Secretary of Health, shall be
compensated hazard allowance equivalent to at least twenty-five percent (25%)of the
monthly basic salary of health workers receiving salary grade 19 and below, and five
percent (5%) for health workers with salary grade 20 and above.
xxxx
7.1.5. Rates of Hazard Pay
a. Public health workers shall be compensated hazard allowances equivalent to at least
twenty five (25%)of the monthly basic salary of health workers, receiving salary grade 19
and below, and five percent (5%)for health workers with salary grade 20 and above. This
may be granted on a monthly, quarterly or annual basis.
It is evident from the foregoing provisions that the rates of hazard pay must be at least25% of the basic monthly
salary of PWHs receiving salary grade 19 and below, and 5% receiving salary grade 20 and above. As such, RA No.
7305 and its implementing rules noticeably prescribe the minimum rates of hazard pay due all PHWs in the
government, as is clear in the self-explanatory phrase "at least" used in both the law and the rules. 36 Thus, the
following rates embodied in Section 7.2 of DBM-DOH Joint Circular must be struck down as invalid for being
contrary to the mandate of RA No. 7305 and its Revised IRR:
 7.2.1 For PHWs whose positions are at SG-19 and below, Hazard Pay shall be based on the degree of exposure to
high risk or low risk hazards, as specified in sub-items 7 .1.1 and 7 .1.2 above, and the number of workdays of
actual exposure over 22 workdays in a month, at rates not to exceed 25% of monthly basic salary. In case of
exposure to both high risk and low risk hazards, the Hazard Pay for the month shall be based on only one risk
level, whichever is more advantageous to the PHW.
7.2.2 PHWs whose positions are at SG-20 and above may be entitled to Hazard Pay at 5% of their monthly basic
salaries for all days of exposure to high risk and/or low risk hazards. However, those exposed to high risk hazards
for 12 or more days in a month may be entitled to a fixed amount of P4,989.75 per month.
Rates of Hazard Pay
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.
MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the then Court of First Instance of Bulacan. The
appeal was originally taken to the then Court of Appeals, which endorsed it to this instance stating that the issue
involved was one of law.
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant
partnership and defendant Elino Lee Chi, as the managing partner. The loan became ultimately due on January

Actual Exposure/ 31, 1960, but was not paid on that date, with the debtors asking for an extension of three months, or up to April
High Risk Low Risk
Level of Risk 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was extended to
12 or more days 25% of monthly basic salary 14% of monthly basic salary
April 30, 1960, but the obligation was increased by P6,000.00 as follows:

6 to 11 days 14% of monthly basic salary 8% of monthly basic salary That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form part of the principal obligation
to answer for attorney's fees, legal interest, and other cost incident thereto to be paid unto the creditor and his
Less than 6 days 8% monthly basic salary 5% of monthly basic salary
successors in interest upon the termination of this agreement.
WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The DBM-DOH Joint Circular, insofar Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960, plaintiff instituted
as it lowers the hazard pay at rates below the minimum prescribed by Section 21 of RA No. 7305 and Section this collection case. Defendants admitted the P10,000.00 principal obligation, but claimed that the additional
7.1.5 (a) of its Revised IRR, is declared INVALID. The DBM-CSC Joint Circular, insofar as it provides that an official P6,000.00 constituted usurious interest.
or employee authorized to be granted Longevity Pay under an existing law is not eligible for the grant of Step Upon application of plaintiff, the Trial Court issued, on the same date of September 23, 1960, a writ of
Increment Due to Length of Service, is declared UNENFORCEABLE. The validity, however, of the DBM-DOH Joint Attachment on real and personal properties of defendants located at Karanglan, Nueva Ecija. After the Writ of
Circular as to the qualification of actual exposure to danger for the PHW's entitlement to hazard pay, the rates Attachment was implemented, proceedings before the Trial Court versed principally in regards to the
of P50 and P25 subsistence allowance, and the entitlement to longevity pay on the basis of the PHW' s status in attachment.
the plantilla of regular positions, is UPHELD. On January 18, 1961, an Order was issued by the Trial Court stating that "after considering the manifestation of
SO ORDERED. both counsel in Chambers, the Court hereby allows both parties to simultaneously submit a Motion for Summary
Republic of the Philippines Judgment. 1 The plaintiff filed his Motion for Summary Judgment on January 31, 1961, while defendants filed
SUPREME COURT theirs on February 2, 196l. 2
Manila On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff "the amount of
FIRST DIVISION P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal rate of interest on
G.R. No. L-30771 May 28, 1984 both amounts from April 30, 1960." It is from this judgment that defendants have appealed.
LIAM LAW, plaintiff-appellee, We have decided to affirm.
vs. Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the P6,000.00
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants. obligation, "it is presumed that it exists and is lawful, unless the debtor proves the contrary". No evidentiary
hearing having been held, it has to be concluded that defendants had not proven that the P6,000.00 obligation
was illegal. Confirming the Trial Court's finding, we view the P6,000.00 obligation as liquidated damages suffered
by plaintiff, as of March 17, 1960, representing loss of interest income, attorney's fees and incidentals.
The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00 constituted usurious
interest. They insist the claim of usury should have been deemed admitted by plaintiff as it was "not denied
specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed
against said person or corporation before a competent court to recover the money or other personal or real
property, seeds or agricultural products, charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of the facts contained in the latter.
The foregoing provision envisages a complaint filed against an entity which has committed usury, for the recovery
of the usurious interest paid. In that case, if the entity sued shall not file its answer under oath denying the
allegation of usury, the defendant shall be deemed to have admitted the usury. The provision does not apply to a
case, as in the present, where it is the defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as lender and
borrower may agree upon. 4 The Rules of Court in regards to allegations of usury, procedural in nature, should be
considered repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as applicable to actions pending and
undetermined at the time of their passage. Procedural laws are retrospective in that sense and to that extent. 5
... Section 24(d), Republic Act No. 876, known as the Arbitration Law, which took effect on 19 December 1953,
and may be retroactively applied to the case at bar because it is procedural in nature. ... 6
WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
September 2, 2015
G.R. No. 188639
SECURITIES AND EXCHANGE COMMISSION, Petitioner,
vs.
HON. REYNALDO M. LAIGO, in his capacity as Presiding Judge of the Regional Trial Court, National Capital
Judicial Region, Makati City, Branch 56, GLICERIA AYAD, SAHLEE DELOS REYES and ANTONIO P. HUETE,
JR., Respondents.
DECISION
MENDOZA, J.:
In this petition for certiorari1under Rule 65 of the Rules of Court, petitioner Securities and Exchange
Commission (SEC), through the Office of the Solicitor General (OSG), assails the June 26, 2009 Order2 (June
26, 2009 Order) issued by respondent Judge Reynaldo M. Laigo (Judge Laigo) of the Regional Trial Court, Branch
56, Makati City (RTC), in Sp. Proc. No. M-6758,3 a petition for involuntary insolvency of Legacy Consolidated
Plans, Incorporated (Legacy), ordering the inclusion of the trust fund in its corporate assets to the prejudice of
the plan holders.
Factual Antecedents
Republic Act (R.A.) No. 8799, otherwise known as the Securities Regulation Code (SRC), specifically Section 16
thereof, mandated the Securities and Exchange Commission (SEC) to prescribe rules and regulations governing
the pre-need industry. Pursuant thereto, the SEC issued the corresponding New Rules on the Registration and
Sale of Pre-Need Plans (New Rules)4 to govern the pre-need industry prior to the enactment of R.A. No. 9829,
otherwise known as the Pre-need Code of the Philippines (Pre-Need Code). It required from the pre-need
providers the creation of trust funds as a requirement for registration.
As defined in Rule 1.9 of the New Rules, " Trust Fund means a fund set up from plan holders payments,
separate and distinct from the paid-up capital of a registered pre-need company, established with a trustee
under a trust agreement approved by the SEC, to pay for the benefits as provided in the pre-need plan."
Legacy, being a pre-need provider, complied with the trust fund requirement and entered into a trust agreement
with the Land Bank of the Philippines (LBP).
In mid-2000, the industry collapsed for a range of reasons. Legacy, like the others, was unable to pay its
obligations to the plan holders.
This resulted in Legacy being the subject of a petition for involuntary insolvency filed on February 18, 2009 by
private respondents in their capacity as plan holders. Through its manifestation filed in the RTC, Legacy did not
object to the proceedings. Accordingly, it was declared insolvent by the RTC in its Order, 5 dated April 27, 2009.
The trial court also ordered Legacy to submit an inventory of its assets and liabilities pursuant to Sections 15 and
16 of Act No. 1956,6 otherwise known as the Insolvency Law, the applicable bankruptcy law at that time.
On May 15, 2009, the RTC ordered the SEC, being the pre-need industrys regulator, to submit the documents
pertaining to Legacys assets and liabilities.
In its Manifestation with Evaluation, dated June 10, 2009, the SEC opposed the inclusion of the trust fund in the
inventory of corporate assets on the ground that to do so would contravene the New Rules which treated trust
funds as principally established for the exclusive purpose of guaranteeing the delivery of benefits due to the
planholders. It was of the position that the inclusion of the trust fund in the insolvents estate and its being
opened to claims by non-planholders would contravene the purpose for its establishment.
On June 26, 2009, despite the opposition of the SEC, Judge Laigo ordered the insolvency Assignee, Gener T.
Mendoza (Assignee) to take possession of the trust fund. Judge Laigo viewed the trust fund as Legacys corporate
assets and, for said reason, included it in the insolvents estate. Thus:
WHEREFORE, the Court rules as follows:
1. Directing the afore-named banks to report to Assignee, Gener T. Mendoza, whose address is at c/o GNCA
Holdings, Inc., Unit 322, 3/F, LRI design Center, 210 Nicanor Garcia St., Makati City, the total funds as of today
deposited to the insolvent debtors respective Trust Funds, within five (5) days from receipt of this Order.
2. Subject funds can be withdrawn by the Assignee only upon Order of the Court for distribution among the
creditors who have officially filed their valid claims with this Court, and for all the expenses to be incurred by the
Assignee in the course of the discharge of his duties and responsibilities as such Assignee.
3. Stopping the Securities and Exchange Commission (SEC) from further validating the claims of planholders (now
creditors) pertaining to their pre-need plans.
xxx xxx xxx
SO ORDERED. 7
The RTC stated that the trust fund could be withdrawn by the Assignee to be used for the expenses he would
incur in the discharge of his functions and to be distributed among the creditors who had officially filed their
valid claims with the court.
The Present Petition
Intent on protecting the interest of the investing public and securing the trust fund exclusively for the
planholders, the SEC filed "this present recourse directly to this Honorable Court in accordance with Section 5
(1),
Article VIII of the 1987 Constitution for the reason that the matters involve an issue of transcendental
importance to numerous hard-working Filipinos who had invested their lifetime savings and hard-earned money
in Legacy, hoping that through this pre-need company they will be able to fulfill their dreams of providing a
bright future for their children." 8
The SECs Position
In essence, the SEC contends that Judge Laigo gravely abused his discretion in treating the trust fund as part of
the insolvency estate of Legacy. It argues that the trust fund should redound exclusively to the benefit of the plan
holders, who are the ultimate beneficial owners; that the trust fund is held, managed and administered by the
trustee bank to address and answer the claims against the pre-need company by all its plan holders and/or
beneficiaries; that to consider the said fund as corporate assets is to open the floodgates to creditors of Legacy
other than the plan holders; and that, in issuing the order, Judge Laigo effectively allowed non-plan holders to
reach the trust fund in patent violation of the New Rules established to protect the pre-need investors.
In its Memorandum,9 the SEC stressed that the setting-up of the trust funds effectively created a demarcation
line between the claims of Plan holders vis--vis those of the other creditors of Legacy; that Legacys interest
over the trust properties was only by virtue of it being a trustor and not the owner; and that the SEC was
authorized to validate claims of plan holders in the exercise of its power as regulator of pre-need corporations.
Further, the SEC is of the position that Section 52 of the Pre-Need Code 10 should be given retroactive effect for
being procedural in character.
Thus, the SEC raises the following
ISSUES
I.
Whether or not the Trust Funds of Legacy form part of its Corporate Assets.
II.
Whether or not respondent Trial Court Judge committed grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the herein assailed Order dated
June 26, 2009.
III.
Whether or not the claims of planholders are to be treated differently from the claims of
other creditors of Legacy.
IV.
Whether or not Legacy retains ownership over the trust funds assets despite the
execution of trust agreements.
V.
Whether or not the insolvency court, presided by respondent Trial Court Judge, has the
authority to enjoin petitioner SEC from further validating the claims of Legacys
planholders and treating them as if they are ordinary creditors of Legacy.
VI.
Whether or not the provision of the Pre-need Code regarding liquidation is in the nature
of a procedural law that can be retroactively applied to the case at bar. 11
Private Respondents position
In their Comment/Opposition, the private respondents, Glicera Ayad, Sahlee Delos Reyes and Antonio P.
12
Huerte, Jr. (private respondents), submit that nothing in the New Rules expressly provided that the trust fund is
excluded from the inventory of corporate assets which is required to be submitted to the insolvency court; that
the SECs interference in the insolvency proceedings is incongruous to the legal system; and that under the
provisions of the Insolvency Law, all claims, including those against the trust funds should be filed in the
liquidation proceedings. Hence, private respondents assert that no grave abuse of discretion was committed by
13
Judge Laigo in issuing the June 26, 2009 Order.
The Assignees Position
In his separate Comments on Petition and Memorandum, the Assignee contends that the trust fund forms
14 15
part of Legacys corporate assets for the following reasons: first, the insolvency court has jurisdiction over all the
claims against the insolvent and the trust fund forms part of the companys corporate assets. It cited Abrera v.
College Assurance Plan,16 where the Court held that claims arising from pre-need contracts should not be treated
separately from other claims against a pre-need company. As such, the claims over the trust fund, being claims
against Legacy, are necessarily lodged with the insolvency court. Second, the setting up of the trust fund is a
mere scheme to attain an administrative end, that is, the assurance that the benefits will be delivered under the
pre-need contracts.
Considering that Legacy is the debtor as regards such benefits, it is only through it, or through the insolvency
court, that the assets including the trust fund can be distributed to satisfy valid claims. Third, though the trustee
banks hold legal title over the funds, the real parties-in-interest are the preneed companies as the terms of the
trust agreement between Legacy and LBP (as trustee) show this intent.
The Assignee also submits that no law authorized the SEC to interfere in the insolvency proceedings because its
authority under the SRC is only to regulate the sale of pre-need plans and not to regulate the management of
trust funds.
In sum, the Assignee interprets the June 26, 2009 Order in this wise: that the creditors, plan holders or not,
should first line up and file valid claims with the insolvency court and not get entangled in the validation process
of the SEC; and that once the plan holders have qualified, they will be given preference in the distribution of the
trust assets. Moreover, he proposes that if the trust fund assets will not be enough to satisfy all claims, the plan
holders can still join other claimants and participate in the distribution of the other assets of the pre-need
company. 17
From the foregoing, the Court is called to determine whether Judge Laigo gravely abused his discretion in:
1. Including the trust properties in the insolvents estate; and
2. Prohibiting the SEC from validating the claims filed by the plan holders against the trust fund.
The Courts Ruling
The overarching consideration in the legislative mandate to establish trust funds is the protection of the interest
of the planholders in the investment plans. The SRC provides in no uncertain terms the intent to make such
interests paramount above all else. Thus, it directed the SEC to come up with rules and regulations to govern not
only trust funds but the industry as a whole. Pursuant to its mandate and delegated authority, the SEC came out
with the New Rules, which the Congress later on toughened through the enactment of the Pre-Need Code,
carrying similar protection but far more detailed in scope.
It is in this context that this Court rules to grant the petition filed by the SEC. The Court finds that Judge Laigo
gravely abused his discretion in treating the trust fund as assets that form part of Legacys insolvency estate and
in enjoining the SECs validation of the planholders claims against the trust properties.
The Trust Fund is for the sole benefit
of the planholders and cannot be used
to satisfy the claims of other creditors
of Legacy
Section 30 of the Pre-Need Code clearly provides that the proceeds of trust funds shall redound solely to the
planholders. Section 30 reads:
Trust Fund
SECTION 30. Trust Fund. To ensure the delivery of the guaranteed benefits and services
provided under a pre-need plan contract, a trust fund per pre-need plan category shall be
established. A portion of the installment payment collected shall be deposited by the pre-
need company in the trust fund, the amount of which will be as determined by the actuary
based on the viability study of the pre-need plan approved by the Commission. Assets in
the trust fund shall at all times remain for the sole benefit of the plan holders . At no time
shall any part of the trust fund be used for or diverted to any purpose other than for the
exclusive benefit of the plan holders. In no case shall the trust fund assets be used to
satisfy claims of other creditors of the pre-need company. The provision of any law to the
contrary notwithstanding, in case of insolvency of the pre-need company, the general
creditors shall not be entitled to the trust fund.
Except for the payment of the cost of benefits or services, the termination values payable
to the plan holders, the insurance premium payments for insurance-funded benefits of
memorial life plans and other costs necessary to ensure the delivery of benefits or services
to plan holders, no withdrawal shall be made from the trust fund unless approved by the
Commission. The benefits received by the plan holders shall be exempt from all taxes and
the trust fund shall not be held liable for attachment, garnishment, levy or seizure by or
under any legal or equitable processes except to pay for the debt of the plan holder to the
benefit plan or that arising from criminal liability imposed in a criminal action.
[Emphases Supplied]
The Assignee argues that Legacy has retained a beneficial interest in the trust fund despite the execution of the
trust agreement and that the properties can be the subject of insolvency proceedings. In this regard, the
Assignee calls the Courts attention to the trust agreement provisions which supposedly refer to the interest of
Legacy in the trust properties, to wit:
The TRUSTEE hereby undertakes to perform the functions and duties of a TRUSTEE
provided for in this Agreement with the utmost good faith, care and prudence required by
a fiduciary relation, being understood, however, that the COMPANY shall be solely and
exclusive (sic) responsible for (1) fulfilling the servi ferred to in the recital clauses, (ii) the
settlement/payment of claims of any person or firm availing of such
services, (iii)compliance with all laws and governmental regulations on pre-needplans, and
(iv) submission of other data or information as may beprescribed by the Commission.
xxx
xxx the Trustee shall from time to time on the written directions of the Company make
payments out of the Trust Fund to the Company. To the extent permitted by law, the
Trustee shall be under no liability for any payment made pursuant to the direction of the
Company. Any written direction of the Company shall constitute a certification that the
distribution of payment so directed is one which the Company is authorized to direct.
From time to time and when directed in writing by the Company, the Trustee shall pay
monies from the Trust Fund in amounts equal to the outstanding amount of the Trust Fund
at any given time to defray the Companys obligations to the Plan holders under its
preneed plan contract and provided further that the company shall be reimbursed by the
Trustee from the Trust Fund for whatever amounts it has advanced to its
beneficiaries. [Italics supplied]
18
To the Assignee, these "control" mechanisms are indicative of the interest of Legacy in the enforcement of the
trust fund because the agreement gives it the power to dictate on LBP the fulfilment of the trust, such as the
delivery of monies to it to facilitate the payment to the plan holders.
The Court, however, sees it differently.
In the course of delving into the complex relationships created by the agreement and the existing regulatory
framework, this Court finds that Legacys claimed interest in the enforcement of the trust and in the trust
properties is mere apparent than real. Legacy is not a beneficiary.
First, it must be stressed that a person is considered as a beneficiary of a trust if there is a manifest intention to
give such a person the beneficial interest over the trust properties. This is the considered opinion expressed in
19
the Restatement of the Law of Trust (Restatement) which Justice Vicente Abad Santos has described in his
20
contribution to the Philippine Law Journal as containing the more salient principles, doctrines and rules on the
subject.21 Here, the terms of the trust agreement plainly confer the status of beneficiary to the plan holders, not
to Legacy. In the recital clauses of the said agreement, Legacy bound itself to provide for the sound, prudent and
efficient management and administration of such portion of the collection "for the benefit and account of the
planholders,"22 through LBP (as the trustee).
This categorical declaration doubtless indicates that the intention of the trustor is to make the planholders the
beneficiaries of the trust properties, and not Legacy. It is clear that because the beneficial ownership is vested in
the planholders and the legal ownership in the trustee, LBP, Legacy, as trustor, is left without any iota of interest
in the trust fund. This is consistent with the nature of a trust arrangement, whereby there is a separation of
interests in the subject matter of the trust, the beneficiary having an equitable interest, and the trustee having
an interest which is normally legal interest.23
Second, considering the fact that a mandated pre-need trust is one imbued with public interest, the issue on who
the beneficiary is must be determined on the basis of the entire regulatory framework. Under the New Rules, it is
unmistakable that the beneficial interest over the trust properties is with the planholders. Rule 16.3 of the New
Rules provides that : [n]o withdrawal shall be made from the trust fund except for paying the benefits such as
monetary consideration, the cost of services rendered or property delivered, trust fees, bank charges and
investment expenses in the operation of the trust fund, termination values payable to the plan holders,
annuities,contributions of cancelled plans to the fund and taxes on trust funds.
Rule 17.1 also states that to ensure the liquidity of the trust fund to guarantee the delivery of the benefits
provided for under the plan contract and to obtain sufficient capital growth to meet the growing actuarial
reserve liabilities, all investments of the trust fund shall be limited to Fixed Income Instruments, Mutual Funds,
Equities, and Real Estate, subject to certain limitations.
Further, Rule 20.1 directs the trustee to exercise due diligence for the protection of the plan holders guided by
sound investment principles in the exclusive management and control over the funds and its right, at any time, to
sell, convert, invest, change, transfer, or otherwise change or dispose of the assets comprising the funds. All
these certainly underscore the importance of the plan holders being recognized as the ultimate beneficiaries of
the SEC-mandated trust.
This consistently runs in accord with the legislative intent laid down in Chapter IV of R.A. No. 8799, or the SRC,
which provides for the establishment of trust funds for the payment of benefits under such plans. Section 16 of
the SRC provides:
SEC. 16. Pre-Need Plans. - No person shall sell or offer for sale to the public any pre-need
plan except in accordance with rules and regulations which the Commission shall
prescribe. Such rules shall regulate the sale of pre-need plans by, among other things,
 requiring the registration of pre-need plans, licensing persons involved in the sale of pre-
need plans, requiring disclosures to prospective plan holders, prescribing advertising
guidelines, providing for uniform accounting system, reports and record keeping with
respect to such plans, imposing capital, bonding and other financial responsibility, and
establishing trust funds for the payment of benefits under such plans. [Emphasis supplied]
It is clear from Section 16 that the underlying congressional intent is to make the plan holders the exclusive
beneficiaries. It has been said that what is within the spirit is within the law even if it is not within the letter of
the law because the spirit prevails over the letter.24
This will by the legislature was fortified with the enactment of R.A. No. 9829 or the Pre-Need Code in 2009. 25 The
Congress, because of the chaos confounding the industry at the time, considered it necessary to provide a
stronger legal framework so that no entity could claim that the mandate and delegated authority of the SEC
under the SRC was nebulous. The Pre-Need Code cemented the regulatory framework governing the preneed
industry with precise specifics to ensure that the rights of the pre-need plan holders would be categorically
defined and protected. Similar provisions in the Pre-Need Code are the following:
SECTION 32. Terms and Conditions of a Trust Fund. A trust fund must be established
separately for each type of pre-need plan with the trust department of a trust company,
bank orinvestment house doing business in the Philippines. No trust fund shall be
established by a pre-need company with an affiliate trust entity subject to Section 38
hereof.
The trust agreement shall be submitted to the Commission for approval before execution
and shall contain the following salient provisions, among others:
(a) The manner in which the trust fund is to be operated;
(b) Investment powers of the trustee with respect to trust deposits, including the character
and kind of investment;
(c) Auditing and settlement of accounts of the trustee with respect to the trust fund;
(d) Basis upon which the trust fund may be terminated;
(e) Provisions for withdrawals from the trust fund;
(f) That the trustee shall submit to the power of the Commission to examine and verify the
trust fund;
(g) An undertaking by the trustee that it shall abide by the rules and regulations of the
Commission with respect to the trust fund; and
(h) An undertaking by the trustee that it shall submit such other data or information as
may be prescribed by the Commission.
SECTION 33. Responsibilities of the Trustee. The trustee shall:
(a) Administer and manage the trust fund with utmost good faith, care and prudence
required by a fiduciary relationship;
(b) The trustee shall have the exclusive management and control over the funds and the
right at any time to sell, convert, invest, change, transfer or otherwise change or dispose of
the assets comprising the funds within the parameters prescribed by the pre-need
company and provided these parameters are compliant with the Commission's
regulations; and
(c) Not use the trust fund to invest in or extend any loan or credit accommodation to the
pre-need company, its directors, officers, stockholders, and related interests as well as to
persons or enterprises controlling, owned or controlled by, or under common control with
said company, its directors, officers, stockholders and related interests except for entities
which are direct providers of pre-need companies.
SECTION 34. Investment of the Trust Fund. To ensure the liquidity of the trust fund to
guarantee the delivery of the benefits provided for under the plan contract and likewise
obtain sufficient capital growth to meet the growing actuarial reserve liabilities, all
investments of the trust fund/s of a pre-need company shall be limited to the following
and subject to limitations, to wit:
(a) Fixed income instruments. These may be classified into short-term and long-term
instruments. The instrument is shortterm if the maturity period is three hundred sixty-five
(365) days or less. This category includes:
(1) Government securities which shall not be less than ten percent (10%) of the trust fund
amount;
(2) Savings/time deposits and unit investment trust funds maintained with and managed
by a duly authorized bank with satisfactory examination rating as of the last examination
by the BSP;
(3) Commercial papers duly registered with the SEC with a credit rating of "1" for short-
term and "AAA" for longterm based on the rating scale of an accredited Philippine Rating
Agency or its equivalent at the time of investment.
The maximum exposure to long-term commercial papers shall not exceed fifteen percent
(15%) of the total trust fund amount while the exposure to each commercial paper issuer
shall not exceed ten percent (10%) of the allocated amount; and
(4) Direct loans to corporations which are financially stable, profitable for the last three (3)
years and have a good track record of paying their previous loans. These loans shall be fully
secured by a real estate mortgage up to the extent of sixty percent (60%) of the zonal
valuation of the property at the time the loan was granted.
The property shall be covered by a transfer certificate of title registered in the name of the
mortgagor and free from liens and encumbrances. The maximum amount to be allocated
for direct loans shall not exceed five percent (5%) of the total trust fund amount while the
amount to be granted to each corporate borrower shall not exceed ten percent (10%) of
the amount allocated.
The maximum term of the loan should be no longer than four (4) years.
Direct loans to planholders are exempt from the limitations set forth under this section:
Provided, That such loans to planholders shall not exceed ten percent (10%) of the total
trust fund amount.
(b) Equities. Investments in equities shall be limited to stocks listed on the main board
of a local stock exchange.
Investments in duly registered collective investment instruments such as mutual funds are
allowed hereunder: Provided, That such funds are invested only in fixed income
instruments and blue chips securities, subject to the limitations prescribed by laws, rules
and regulations.
These investments shall include stocks issued by companies that are financially stable,
actively traded, possess good track record of growth and have declared dividends for the
past three (3) years. Notwithstanding the prohibition against transactions with directors,
officers, stockholders and related interests, the trustee may invest in equities of companies
related to the trustee provided these companies comply with the foregoing criteria
provided in this paragraph for equity investments.
The amount to be allocated for this purpose shall not exceed thirty percent (30%) of the
total trust fund while the investment in any particular issue shall not exceed ten percent
(10%) of the allocated amount. The investment shall be recorded at the aggregate of the
lower of cost or market.
Existing investments which are not in accordance herewith shall be disposed of within
three (3) years from the effectivity of this Act.
(c) Real Estate. These shall include real estate properties located in strategic areas of
cities and first class municipalities.1wphi1 The transfer certificate of title (TCT) shall be in
the name of the seller, free from liens and encumbrances and shall be transferred in the
name of the trustee in trust for the planholders unless t r/transferor is the pre-need
company wherein an annotation to the TCT relative to the sale/transfer may be allowed. It
shall be recorded at acquisition cost.
However, the real estate shall be appraised every three (3) years by a licensed real estate
appraiser, accredited by the Philippine Association of Real Estate Appraisers, to reflect the
increase or decrease in the value of the property. In case the appraisal would result in an
increase in the value, only sixty percent (60%) of the appraisal increase is allowed to be
recorded in the books of the trust fund but in case of decline in value, the entire decline
shall be recorded. Appraisal increment should not be used to cover up the required
monthly contribution to the trust fund.
The total recorded value of the real estate investment shall not exceed ten percent (10%)
of the total trust fund amount of the pre-need company. In the event that the existing real
estate investment exceeds the aforesaid limit, the same shall be leveled off to the
prescribed limit within three (3) years from the effectivity of this Code.
Investment of the trust fund, which is not in accordance with the preceding paragraphs,
shall not be allowed unless the prior written approval of the Commission had been
secured: Provided, further, That no deposit or investment in any single entity shall exceed
fifteen percent (15%) of the total value of the trust fund: Provided, finally, That the
Commission is authorized to adjust the percentage allocation per category set forth herein
not in excess of two percentage (2%) points upward or downward and no oftener than
once every five (5) years. The first adjustment hereunder may be made no earlier than five
(5) years from the effectivity of this Act. The pre-need company shall not use the trust fund
to extend any loan to or to invest in its directors, stockholders, officers or its affiliates.
xxx
SECTION 36. Trust Fund Deficiencies. Upon approval by the Commission of the pre-
need reserve computation submitted in the preceding section, any deficiency in the trust
fund, when compared to the reserve liabilities as reported in the pre-need reserve
valuation report, shall be funded by the pre-need company within sixty (60) days from
such approval. Failure to cover the deficiency in an appropriate manner within the time
required shall subject the pre-need company to the payment of a penalty, in addition to
other remedies exercisable by the Commission, as provided for in this Code. Any excess of
the trust fund over the actuarial reserve liabilities may be credited to future deposit
requirements.
SECTION 37. Liquidity Reserve. The trustee shall at all times maintain a liquidity reserve
which shall be sufficient to cover at least fifteen percent (15%) of the trust fund but in no
case less than one hundred twenty-five percent (125%) of the amount of the availing plans
for the succeeding year. For this purpose, the pr pany shall timely submit to the trustee a
summary of benefits payable for the succeeding year.
The following shall qualify as investments for the liquidity reserve:
(a) Loans secured by a hold-out on assignment or pledge deposits maintained either with
the trustee or other banks, or of deposit substitute of the trustee itself or mortgage and
chattel mortgage bonds issued by the trustee;
(b) Treasury notes or bills, other government securities or bonds, and such other evidences
or indebtedness or obligations the servicing and repayment of which are fully guaranteed
by the Republic of the Philippines;
(c) Repurchase agreements with any of those mentioned in Item "b" above, as underlying
instruments thereof; and
(d) Savings or time deposits with government-owned banks or commercial banks.
SECTION 38. Trustees. Upon approval of the Commission or when the Commission
requires for the protection of plan holders, the pre-need company shall entrust the
management and administration of the trust fund to any reputable bank's trust
department, trust company or any entity authorized to perform trust functions in the
Philippines: Provided, That no director and/or officer of the pre-need company shall at the
same time serve as director and/or officer of the affiliate or related trust entity: Provided,
further, That no trust fund shall be established by a preneed company with a subsidiary,
affiliate or related trust entity. However, such may be allowed: Provided, That the following
conditions are complied with:
(a) A written approval of the Commission has been previously obtained; and
(b) Public disclosure of the affiliation with the trust entity be included in all materials in
whatever form.
The Commission shall have the authority to prescribe appropriate rules that shall ensure
that the yield of the trust fund is maximized, consistent with the requirements of safety
and liquidity.
[Italics Supplied]
"Under the principle of legislative approval of administrative interpretation by re-enactment, the re-enactment of
a statute, substantiallyunchanged (as in this case), is persuasive indication of the adoption by Congress of a prior
executive construction."26 Accordingly, where a statute is susceptible of the meaning placed upon it by a ruling of
the government agency charged with its enforcement and the legislature thereafter reenacts the provisions
without substantial change, such action is to some extent confirmatory that the ruling carries out the legislative
purpose.27
The Court cannot go against that legislative intent for it is the duty of this institution to read what the law
intends. It is a cardinal rule that, in seeking the meaning of the law, the first concern of the judge should be to
discover in its provisions the intent of the lawmaker. Unquestionably, the law should never be interpreted in such
a way as to cause injustice as this is never within the legislative intent. An indispensable part of that intent, in
fact, for we presume the good motives of the legislature, is to render justice.28
To rule that Legacy has retained a beneficial interest in the trust fund is to perpetuate the injustices being
committed against the plan holders and violate not only the spirit of the trust agreement but, more importantly,
the lawmakers intent. If indeed Legacy had an interest that could be reached by its creditors even during
insolvency, the plan holders would be prejudiced as they would be forced to share in the assets that would be
distributed pro rata to all creditors, whether plan holders or not. It would contradict the very purpose for which
the trust was mandated by the Congress in the first place.
Third, the perceived interest of Legacy, as touted by the Assignee, has simply no basis. It may appear that Legacy
under the agreement has control over the enforcement of the trust because of its provisions stating that Legacy
shall "solely and exclusive[ly] [be] responsible for fulfilling the services referred to in the recital clauses and the
settlement/payment of claims of any person or firm availing of such services" and that "[a]ny written direction of
the Company [to the trustee] shall constitute a certification that the distribution of payment so directed is one
which the Company is authorized to direct" 29 Such provisions, however, cannot be construed as Legacy having
retained a beneficial interest in the trust fund.
To begin with, the aforestated provisions refer solely to the delivery of the proceeds of the trust from LBP to
Legacy and then finally to the beneficiaries. In effect, Legacy merely agreed to facilitate the payment of the
benefits from the trust fund to the intended beneficiaries, acting as a conduit or an agent of the trustee in the
enforcement of the trust agreement. Under the general principles of trust, a trustee, by the terms of the
agreement may be permitted to delegate to agents or to co-trustees or to other persons the administration of
the trust or the performance of act which could not otherwise be properly delegated. 30Thus, by the terms of
the trust, as in this case, a trustee may be authorized or permit an agent to do acts such as the delivery of the
benefits out of the trust fund.
The Court cannot subscribe either to the Assignees position that Legacy is a debtor of the planholders relative to
the trust fund. In trust, it is the trustee, and not the trustor, who owes fiduciary duty to the beneficiary.
The Restatement is clear on this point. Section 170 thereof provides that the "trustee is under a duty to the
beneficiary to administer the trust solely in the interest of the beneficiary." Section 182 also states that the duty
31
of a trustee is to pay income to the beneficiary. Thus, LBP is tasked with the fiduciary duty to act for the benefit
32
of the planholders as to matters within the scope of the relation. Like a debtor, LBP owes the planholders the
33
amounts due from the trust fund. As to the planholders, as creditors, they can rightfully use equitable remedies
against the trustee for the protection of their interest in the trust fund and, in particular, their right to demand
the payment of what is due them from the fund. Verily, Legacy is out of the picture and exists only as a
representative of the trustee, LBP, with the limited role of facilitating the delivery of the benefits of the trust fund
to the beneficiaries the planholders. The trust fund should not revert to Legacy, which has no beneficial
interest over it. Not being an asset of Legacy, the trust fund is immune from its reach and cannot be included by
the RTC in the insolvency estate.
In the end, the failure of Judge Laigo to consider the provisions of the SRC, the New Rules and the law on trusts,
that should have warranted the exclusion of the trust fund from the insolvency estate of Legacy, constituted
grave abuse of discretion. In treating the trust fund as forming part of Legacys insolvency estate, Judge Laigo
acted against what was contemplated by law. He turned a blind eye to the will of the Congress as expressed
through the SRC and the Pre-Need Code. In the process, he endangered the claims of the planholders by allowing
the probability that they would be drastically reduced or dissipated. He should have acted prudently bearing in
mind that the establishment of the trust was precisely for the exclusive benefit of the plan holders.
Enjoining the SEC from validating the claims against the trust fund is grave
abuse of discretion for the insolvencycourt has no authority to order the
reversion of properties that do not form part of Legacys insolvent estate.
The Assignee cited Abrera v. College Assurance Plan (Abrera), where the Court held that claims covered by
34
rehabilitation proceedingsbefore the RTC should include all claims or demands of whatever nature or character
against a debtor or its property. At the heart of the Assignees argument is that because the authority is with the
RTC, the SEC has no right to interfere in the insolvency proceedings.
It is an error for the Assignee to assume that the authority of the RTC extends to the claims against the trust
fund. Claims against the trust fund must be distinguished from claims against Legacy. The claims against the trust
fund are directed not against Legacy, but against LBP, the trustee, being the debtor relative to the trust
properties.
The Pre-Need Code is clear on this. It recognizes the distinction between claims against the pre-need company
and those against the trust fund.1wphi1 Section 52 (b) states that liquidation "proceedings in court shall
proceed independently of proceedings in the Commission for the liquidation of claims, and creditors of the pre-
need company shall have no personality whatsoever in the Commission proceedings to litigate their claims
against the trust funds." The reason why claims against the trust funds can proceed independently of the
proceedings in the courts is the fact that the latter is directed against a different person or entity.
Moreover, the Assignee must be reminded that the issue in Abrera is not similar to the question raised here by
the SEC. In the case at bench, the SEC questions the propriety of including the trust fund in the inventory of
Legacys corporate assets.
Jurisdiction over claims filed against the trust fund
From the effectivity of the Pre-Need Code, it is the Insurance Commission (IC) that "shall have the primary and
exclusive power to adjudicate any and all claims involving pre-need plans." 35
The transitory provisions of the Pre-Need Code, however, provide that "[n]otwithstanding any provision to the
contrary, all pending claims, complaints and cases (referring to pre-need contract and trust claims) filed with
the SEC shall be continued in its full and final conclusion." 36
The Pre-Need Code recognizes that the jurisdiction over pending claims against the trust funds prior to its
effectivity is vested with the SEC. Such authority can be easily discerned even from the provisions of the SRC.
Section 4 thereof provides that despite the transfer of jurisdiction 37 to the RTC of those matters enumerated
under Section 5 of P.D. No. 902-A, 38 the SEC remains authorized to "exercise such other powers as may be
provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying
out of, the express powers granted the Commission 39 to achieve the objectives and purposes of these
laws."40 Relevant thereto is Section 36.5 (b) of the SRC which states that:
The Commission may, having due regard to the public interest or the protection of investors, regulate, supervise,
examine, suspend or otherwise discontinue such and other similar funds under such rules and regulations which
the Commission may promulgate, and which may include taking custody and management of the fund itself as
well as investments in, and disbursements from, the funds under such forms of control and supervision by the
Commission as it may from time to time require. The authority granted to the Commission under this subsection
shall also apply to all funds established for the protection of investors (which necessarily includes the trust
funds), whether established by the Commission or otherwise.41
Concomitantly, under the New Rules, the SEC "may, at its discretion, demand for the conversion to cash or other
near cash assets of the investments made by the Trustee to protect the interest of the Planholders." 42
Therefore, even prior to the transfer to the IC of matters pertaining to pre-need plans and trust funds, the SEC
had authority to regulate, manage, and hear all claims involving trust fund assets, if in its discretion, public
interest so required. Accordingly, all claims against the trust funds, which have been pending before it, are clearly
within the SECs authority to rule upon.
Pre-Need Code is curative and remedial in character and, therefore, can be applied retroactively The Court upholds its duty to protect the ordinary Filipino workers who are seeking a future for their children
Finally, it must be stressed that the primary protection accorded by the Pre-Need Code to the plan holders is through pre-need contracts. Their incredibly long wait is over as this is the moment when their rightful and
curative and remedial and, therefore, can be applied retroactively. The rule is that where the provisions of a exclusive right to the trust funds, created primarily for them, is judicially respected and affirmed.
statute clarify an existing law and do not contemplate a change in that law, the statute may be given curative, WHEREFORE, the petition is GRANTED. The June 26, 2009 Order of the Regional Trial Court, Branch 56, Makati
remedial and retroactive effect. To review, curative statutes are those enacted to cure defects, abridge
43
City, is declared NULL and VOID.
superfluities, and curb certain evils. As stressed by the Court in Fabian v. Desierto,
44 45
The Securities and Exchange Commission is directed to process the claims of legitimate plan holders with
If the rule takes away a vested right, it is not procedural. If the rule creates a right such as the right to appeal, it dispatch.
may be clarified as a substantive matter; but if it operates as a means of implementing an existing right then SO ORDERED.
the rule deals merely with procedure.
[Emphasis Supplied]
A reading of the Pre-Need Code immediately shows that its provisions operate merely in furtherance of the
remedy or confirmation of the right of the planholders to exclusively claim against the trust funds as intended by
the legislature. No new substantive right was created or bestowed upon the plan holders. Section 52 of the Pre-
Need Code only echoes and clarifies the SRCs intent to exclude from the insolvency proceeding trust fund assets
that have been established "exclusively for the benefit of plan holders." It was precisely enacted to foil the tactic
of taking undue advantage of any ambiguities in the New Rules.
Any doubt or reservation in this regard has been dispelled by the Pre- Need Code. Section 57 thereof provides
that "[a]ny pre-need company who, at the time of the effectivity of this Code has been registered and licensed
to sell pre-need plans and similar contracts, shall be considered registered and licensed under the provision of
this Code and its implementing rules and regulations and shall be subject to and governed by the provisions
hereof xxx." Thus, Legacy and all other existing pre-need companies cannot claim that the provisions of the Pre-
Need Code are not applicable to them and to the claims which accrued prior to the enactment of the said law.
"[I]t has been said that a remedial statute must be so construed as to make it effect the evident purpose for
which it was enacted, so that if the reason of the statute extends to past transactions, as well as to those in the
future, then it will be so applied although the statute does not in terms so direct.. 46 With the Pre-Need Code
having the attribute of a remedial statute, Legacy and all pre-need providers or their creditors cannot argue that
it cannot be retroactively applied.
Conclusion
In sum, improvidently ordering the inclusion of the trust fund in Legacy's insolvency estate without regard to the
avowed state policy of protecting the consumer of pre-need plans, as laid down in the SRC, the New Rules, and
the Pre-Need Code, constitutes grave abuse of discretion. The R TC should have known, and ought to know, the
overarching consideration the Congress intended in requiring the establishment of trust funds - to uphold first
and foremost the interest of the plan holders.