UNITED STATES vs. FRED DORR, ET AL. [May 19, 1903] / 2 PHIL.

339

FACTS: Fred Dorr, et. al. have been charged with the offense of writing, publishing, and circulating
a scurrilous libel against the Government of the U.S. and the Insular Government of the Philippine
Islands, in violation of Sec. 8 of Act No. 292 of the Commission. The alleged libel was published as an
editorial in the issue of the "Manila Freedom", criticizing the action of the Civil Commission in
appointing natives to important Government positions.

ISSUE: W/N the article can be regarded as embraced within the description of "scurrilous libels
against the Government of the US or the Insular Government of the Philippine Islands.

HELD: NO. The term GOVERNMENT is understood as that institution or aggregate of institutions by
which an independent society makes and carries out those rules of action which are necessary to
enable men to live in a social state, or which are imposed upon the people forming that society by
those who possess the power or authority of prescribing them. It is the aggregate of authorities
which rule a society. On the otherhand, ADMINISTRATION means the aggregate of those persons in
whose hands the reins of government are for the time being.

The article in question contains no attack upon the governmental system of the United States, and it
is quite apparent that, though grossly abusive as respect both the Commission as a body and some of
its individual members, it contains no attack upon the governmental system by which the authority
of the United States is enforced in these Islands. The form of government by a Civil Commission and
a Civil Governor is not assailed. It is the character of the men who are entrusted with the
administration of the government that the writer is seeking to bring into disrepute by impugning
the purity of their motives, their public integrity, and their private morals, and the wisdom of their
policy. The publication of the article, therefore, no seditious tendency being apparent, constitutes no
offense under Act No. 292, Sec. 8. THUS, the judgment of conviction is reversed and the defendants
are ACQUITTED. Defamation of individuals, whether holding official positions or not, and whether
directed to their public conduct or to their private life, may always be adequately punished under the
general libel law.
LEOPOLDO BACANI and MATEO MATOTO vs. NATIONAL COCONUT CORPORATION
[November 29, 1956] / 100 PHIL. 468

FACTS: Plaintiffs are court stenographers in CFI-Manila. In a Civil Case entitled Sycip vs. NACOCO,
counsel for NACOCO requested for a copy of the transcript of the stenographic notes taken during
the hearing. Plaintiffs delivered the transcript, along with their bills for the payment of their fees.
NACOCO paid P564 to Bacani and P150 to Matoto for said transcript at the rate of P1 per page.
Upon inspecting the books of NACOCO, the Auditor General disallowed the payment of these fees
and sought the recovery of the amounts paid, on the basis that NACOCO, being a government
entity, was exempt from the payment of the fees in question.

ISSUE: W/N NACOCO may be considered as included in the term “Government of the Republic of
the Philippines” for the purposes of the exemption of the legal fees provided for in Rule 130 of the
Rules of Court.

HELD: NO. The term “Government of the Republic of the Philippines” refers to a government entity
through which the functions of government are exercised, including the various arms through which
political authority is made effective in the Philippines, whether pertaining to the central government
or to the provincial or municipal branches or other form of local government. This requires a little
digression on the nature and functions of our government as instituted in our Constitution.

To begin with, we state that the term “Government” may be defined as “that institution or aggregate
of institutions by which an independent society makes and carries out those rules of action which are
necessary to enable men to live in a social state, or which are imposed upon the people forming that
society by those who possess the power or authority of prescribing them” (U.S. vs. Dorr, 2 Phil., 332).
This institution, when referring to the national government, has reference to what our Constitution
has established composed of three great departments, the legislative, executive, and the judicial,
through which the powers and functions of government are exercised. These functions are twofold:
constituent and ministrant. The former are those which constitute the very bonds of society and are
compulsory in nature; the latter are those that are undertaken only by way of advancing the general
interests of society, and are merely optional. President Wilson enumerates the constituent functions
as follows:chanroblesvirtuallawlibrary

“‘(1) The keeping of order and providing for the protection of persons and property from violence
and robbery.

‘(2) The fixing of the legal relations between man and wife and between parents and children.

‘(3) The regulation of the holding, transmission, and interchange of property, and the determination
of its liabilities for debt or for crime.

‘(4) The determination of contract rights between individuals.

‘(5) The definition and punishment of crime.

‘(6) The administration of justice in civil cases.

‘(7) The determination of the political duties, privileges, and relations of citizens.
‘(8) Dealings of the state with foreign powers:chanroblesvirtuallawlibrary the preservation of the
state from external danger or encroachment and the advancement of its international interests.’“
(Malcolm, The Government of the Philippine Islands, p. 19.)

The most important of the ministrant functions are:chanroblesvirtuallawlibrary public works, public
education, public charity, health and safety regulations, and regulations of trade and industry. The
principles deter mining whether or not a government shall exercise certain of these optional
functions are:chanroblesvirtuallawlibrary (1) that a government should do for the public welfare
those things which private capital would not naturally undertake and (2) that a government should
do these things which by its very nature it is better equipped to administer for the public welfare
than is any private individual or group of individuals. (Malcolm, The Government of the Philippine
Islands, pp. 19-20.)

From the above we may infer that, strictly speaking, there are functions which our government is
required to exercise to promote its objectives as expressed in our Constitution and which are
exercised by it as an attribute of sovereignty, and those which it may exercise to promote merely the
welfare, progress and prosperity of the people. To this latter class belongs the organization of those
corporations owned or controlled by the government to promote certain aspects of the economic life
of our people such as the National Coconut Corporation. These are what we call government-owned
or controlled corporations which may take on the form of a private enterprise or one organized with
powers and formal characteristics of a private corporations under the Corporation Law.

The question that now arises is:chanroblesvirtuallawlibrary Does the fact that these corporation
perform certain functions of government make them a part of the Government of the Philippines?

The answer is simple: they do not acquire that status for the simple reason that they do not come
under the classification of municipal or public corporation. Take for instance the National Coconut
Corporation.

While NACOCO was organized with the purpose of “adjusting the coconut industry to a position
independent of trade preferences in the United States” and of providing “Facilities for the better
curing of copra products and the proper utilization of coconut by-products”, a function which our
government has chosen to exercise to promote the coconut industry, however, it was given a
corporate power separate and distinct from our government, for it was made subject to the
provisions of our Corporation Law in so far as its corporate existence and the powers that it may
exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and be sued in the
same manner as any other private corporations, and in this sense it is an entity different from our
government. As this Court has aptly said, “The mere fact that the Government happens to be a
majority stockholder does not make it a public corporation” (National Coal Co. vs. Collector of
Internal Revenue, 46 Phil., 586-587). “By becoming a stockholder in the National Coal Company, the
Government divested itself of its sovereign character so far as respects the transactions of the
corporation cralaw . Unlike the Government, the corporation may be sued without its consent, and is
subject to taxation. Yet the National Coal Company remains an agency or instrumentality of
government.” (Government of the Philippine Islands vs. Springer, 50 Phil., 288.)
To recapitulate, we may mention that the term “Government of the Republic of the Philippines” used
in section 2 of the Revised Administrative Code refers only to that government entity through which
the functions of the government are exercised as an attribute of sovereignty, and in this are included
those arms through which political authority is made effective whether they be provincial, municipal
or other form of local government. These are what we call municipal corporations. They do not
include government entities which are given a corporate personality separate and distinct from the
government and which are governed by the Corporation Law. Their powers, duties and liabilities
have to be determined in the light of that law and of their corporate charters. They do not therefore
come within the exemption clause prescribed in section 16, Rule 130 of our Rules of Court.

“Public corporations are those formed or organized for the government of a portion of the State.”
(Section 3, Republic Act No. 1459, Corporation Law).

“‘The generally accepted definition of a municipal corporation would only include organized cities
and towns, and like organizations, with political and legislative powers for the local, civil government
and police regulations of the inhabitants of the particular district included in the boundaries of the
corporation.’ Heller vs. Stremmel, 52 Mo. 309, 312.”

“In its more general sense the phrase ‘municipal corporation’ may include both towns and counties,
and other public corporations created by government for political purposes. In its more common and
limited signification, it embraces only incorporated villages, towns and cities. Dunn vs. Court of
County Revenues, 85 Ala. 144, 146, 4 So. 661.” (McQuillin, Municipal Corporations, 2nd ed., Vol. 1, p.
385.)

“We may, therefore, define a municipal corporation in its historical and strict sense to be the
incorporation, by the authority of the government, of the inhabitants of a particular place or district,
and authorizing them in their corporate capacity to exercise subordinate specified powers of
legislation and regulation with respect to their local and internal concerns. This power of local
government is the distinctive purpose and the distinguishing feature of a municipal corporation
proper.” (Dillon, Municipal Corporations, 5th ed., Vol. I, p. 59.)

It is true that under section 8, Rule 130, stenographers may only charge as fees P0.30 for each page
of transcript of not less than 200 words before the appeal is taken and P0.15 for each page after the
filing of the appeal, but in this case the National Coconut Corporation has agreed and in fact has paid
P1.00 per page for the services rendered by the Plaintiffs and has not raised any objection to the
amount paid until its propriety was disputed by the Auditor General. The payment of the fees in
question became therefore contractual and as such is valid even if it goes beyond the limit prescribed
in section 8, Rule 130 of the Rules of Court.

As regards the question of procedure raised by Appellants, suffice it to say that the same is
insubstantial, considering that this case refers not to a money claim disapproved by the Auditor
General but to an action of prohibition the purpose of which is to restrain the officials concerned
from deducting from Plaintiffs’ salaries the amount paid to them as stenographers’ fees. This case
does not come under section 1, Rule 45 of the Rules of Court relative to appeals from a decision of
the Auditor General.

Wherefore, the decision appealed from is affirmed, without pronouncement as to costs.

Paras, C.J., Bengzon, Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and
Felix, JJ., concur.

CENTRAL BANK OF THE PHILIPPINES vs. COURT OF APPEALS and ABLAZA CONSTRUCTION &
FINANCE CORPORATION
[April 22, 1975]

Petition of the Central Bank of the Philippines for review of the decision of the Court of Appeals in
CA-G.R. No. 43638-R affirming the judgment of the Court of First Instance of Rizal in Civil Case No. Q-
10919 sentenced petitioner to pay respondent Ablaza Construction and Finance Corporation
damages for breach contract in that after having formally and officially awarded, pursuant to the
results of the usual bidding to Ablaza in December 1965 the "contract" for the construction of its San
Fernando, La Union branch building and allowed said contractor to commence the work up to about
May, 1966, albeit without any written formal contract having been executed, the Bank failed and
refused to proceed with the project, unless the plans were revised and a lower price were agreed to
by Ablaza, the Bank claiming that its action was pursuant to the policy of fiscal restraint announced
by the then new President of the Philippines on December 30, 1965 and the Memorandum Circular
No. 1 dated December 31, 1965 of the same President.

The factual background of this case is related in the following portions of the decision of the trial
court, which the Court of Appeals affirmed without modification: têñ.£îhqwâ£

Sometime in 1965, defendant Central Bank of the Philippines issued Invitations to

Bid and Instructions to Bidders for the purpose of receiving sealed proposals for the
general construction of its various proposed regional offices, including the Central
Bank regional office building in San Fernando, La Union.

In response to the aforesaid Invitations to Bid, the plaintiff Ablaza Construction and
Finance Corporation, which was one of the qualified bidders, submitted a bid
proposal for the general construction of defendant's proposed regional office
building in San Fernando, La Union at the public bidding held on November 3, 1965.
The said proposal was, as required by the defendant accompanied by a cash bidder's
bond in the sum of P275,000.00.

On December 7, 1965, the Monetary Board of the defendant Central Bank of the
Philippines, after evaluating all the bid proposals submitted during the above-
mentioned bidding, unanimously voted and approved the award to the plaintiff of
the contract for the general construction of defendant's proposed regional office
building in San Fernando, La Union, for the sum of P3,749,000.00 under plaintiff's
Proposal Item No. 2.

Pursuant thereto, on December 10, 1965, Mr. Rizalino L. Mendoza, Assistant to the
Governor and concurrently the Chairman of the Management Building Committee of
the defendant Central Bank of the Philippines, set a telegram to the plaintiff,
informing the latter that the contract for the general construction of defendant's
proposed regional office building in San Fernando, La Union, had been awarded to
the plaintiff. The said telegram was followed by a formal letter, also dated December
10, 1965, duly signed by said Mr. Rizalino L. Mendoza, confirming the approval of the
award of the above-stated contract under plaintiff's Proposal Item No. 2 in the
amount of P3,749,000.00.

Upon receipt of the aforementioned letter, plaintiff immediately accepted the said
award by means of a letter dated December 15, 1965, whereby plaintiff also
requested permission for its workmen to enter the site of the project, build a
temporary shelter and enclosure, and do some clearing job thereat. Accordingly, said
permission was granted by the defendant as embodied in its letter dated January 4,
1966, addressed to the plaintiff..

Within five (5) days from receipt by the plaintiff of the said notice of award, and
several times thereafter Mr. Nicomedes C. Ablaza, an officer of the plaintiff
corporation, went personally to see Mr. Rizalino L. Mendoza at the latter's Central
Bank office to follow up the signing of the corresponding contract. A performance
bond in the total amount of P962,250.00 (P275,000.00 of which was in cash and
P687,250.00 in the form of a surety bond) was subsequently posted by the plaintiff
in compliance with the above-stated Instructions to Bidders, which bond was duly
accepted by the defendant.

Pursuant to the permission granted by the defendant, as aforesaid, plaintiff

commenced actual construction work on the project about the middle of January,
1966. On February 8, 1966, by means of a formal letter, defendant requested the
plaintiff to submit a schedule of deliveries of materials which, according to plaintiff's
accepted proposal, shall be furnished by the defendant. In compliance therewith, on
February 16, 1966, plaintiff submitted to the defendant the schedule of deliveries
requested for.

During the period when the actual construction work on the project was in progress,
Mr. Nicomedes G. Ablaza had several meetings with Mr. Rizalino L. Mendoza at the
latter's office in the Central Bank. During those meetings, they discussed the
progress of the construction work being then undertaken by the plaintiff of the
projects of the defendant in San Fernando, La Union, including the progress of the
excavation work.

Sometime during the early part of March, 1966, Mr. Rizalino L. Mendoza was at the
construction site of the said project. While he was there, he admitted having seen
pile of soil in the premises. At that time, the excavation work being undertaken by
the plaintiff was about 20% complete. On March 22, 1966, defendant again wrote
the plaintiff, requesting the latter to submit the name of its representative
authorized to sign the building contract with the defendant. In compliance with the
said request, plaintiff submitted to the defendant the name of its duly authorized
representative by means of a letter dated March 24, 1966.

A meeting called by the defendant was held at the conference room of the Central
Bank on May 20, 1966. At the said meeting, the defendant, thru Finance Secretary
Eduardo Romualdez, announced, among other things, the reduction of the
appropriations for the construction of the defendant's various proposed regional
offices, including that of the proposed San Fernando, La Union regional office
building, the construction of which had already been started by the plaintiff. He also
stated that the Central Bank Associated Architects would be asked to prepare new
plans and designs based on such reduced appropriations. The defendant, during that
same meeting, also advised the plaintiff, thru Messrs. Nicomedes G. Ablaza and
Alfredo G. Ablaza (who represented the plaintiff corporation at the said meeting), to
stop its construction work on the Central Bank Regional office building in San
Fernando, La Union. This was immediately complied with by the plaintiff, although its
various construction equipment remained in the jobsite. The defendant likewise
presented certain offer and proposals to the plaintiff, among which were: (a) the
immediate return of plaintiff's cash bidder's bond of P275,000.00; (b) the payment of
interest on said bidder's bond at 12% per annum; (c) the reimbursement to the
plaintiff of the value of all the work accomplished at the site; (d) the entering into a
negotiated contract with the plaintiff on the basis of the reduced appropriation for
the project in question; and (e) the reimbursement of the premium on plaintiff's
performance bond. Not one of these offers and proposals of the defendant,

however, was accepted by the plaintiff during that meeting of May 20, 1966.

On June 3, 1966, plaintiff, thru counsel, wrote the defendant, demanding for the
formal execution of the corresponding contract, without prejudice to its claim for
damages. The defendant, thru its Deputy Governor, Mr. Amado R. Brinas, on June 15,
1966, replied to the said letter of the plaintiff, whereby the defendant claimed that
 an agreement was reached between the plaintiff and the defendant during the
meeting held on May 20, 1966. On the following day, however, in its letter dated
June 16, 1966, the plaintiff, thru counsel, vehemently denied that said parties
concluded any agreement during the meeting in question.

On July 5, 1966, defendant again offered to return plaintiff's cash bidder's bond in
the amount of P275,000.00. The plaintiff, thru counsel, on July 6, 1966, agreed to
accept the return of the said cash bond, without prejudice, however, to its claims as
contained in its letters to the defendant dated June 3, June 10, and June 16, 1966,
and with further reservation regarding payment of the corresponding interest
thereon. On July 7, 1966, the said sum of P275,000.00 was returned by the
defendant to the plaintiff.

On January 30, 1967, in accordance with the letter of the plaintiff, thru counsel,
dated January 26, 1967, the construction equipment of the plaintiff were pulled out
from the construction site, for which the plaintiff incurred hauling expenses.

The negotiations of the parties for the settlement of plaintiff's claims out of court
proved to be futile; hence, the present action was instituted by plaintiff against the
defendant." (Pp. 249-256, Rec. on Appeal).

It may be added that the Instructions to Bidders on the basis of which the bid and award in question
were submitted and made contained, among others, the following provisions: têñ.£îhqwâ£

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the
Proposal. The acceptance of a Proposal shall bind the successful bidder to execute
the Contract and to be responsible for liquidated damages as herein provided. The
rights and obligations provided for in the Contract shall become effective and binding
upon the parties only with its formal execution.

xxx xxx xxx

IB 114.1 The bidder whose proposal is accepted will be required to appear at the
Office of the Owner in person, or, if a firm or corporation, a duly authorized
representative shall so appear, and to execute that contract within five (5) days after
notice that the contract has been awarded to him. Failure or neglect to do so shall
constitute a breach of agreement effected by the acceptance of the Proposal.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days from
the date he receives a copy of the fully executed Contract, and he shall complete the
work within the time specified." (Pp. 18-19 & 58-59, Petitioner-Appellant's Brief.)

In the light of these facts, petitioner has made the following assignment of errors: têñ.£îhqwâ£

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS A PERFECTED

CONTRACT BETWEEN PETITIONER CENTRAL BANK OF THE PHILIPPINES AND
 RESPONDENT ABLAZA CONSTRUCTION & FINANCE CORPORATION FOR THE GENERAL
CONSTRUCTION WORK OF PETITIONER'S REGIONAL OFFICE BUILDING AT SAN
FERNANDO, LA UNION.

II. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS COMMITTED A
BREACH OF CONTRACT.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD GIVEN ITS
APPROVAL TO THE WORK DONE BY RESPONDENT ABLAZA CONSTRUCTION &
FINANCE CORPORATION.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE AWARD OF ACTUAL AND
COMPENSATORY DAMAGES, ATTORNEY'S FEES AND RETAINING FEE IS FAIR AND
REASONABLE, AND IN HOLDING THAT PETITIONER IS LIABLE FOR COSTS." (Pp. A & B,
Petitioner-Appellant's Brief.)

Under the first assigned error, petitioner denotes the major part of its effort to the discussion of its
proposition that there could be no perfected contract in this case, (contrary to the conclusion of the
courts below) because there is no showing of compliance, and in fact, there has been no compliance
with the requirement that there must be a certification of the availability of funds by the Auditor
General pursuant to Section 607 of the Revised Administrative Code which provides thus: têñ.
£îhqwâ£

Section 607. Certificate showing appropriation to meet contract. — Except in the

case of a contract for personal service or for supplies to be carried in stock, no
contract involving an expenditure by the National Government of three thousand
pesos or more shall be entered into or authorized until the Auditor General shall
have certified to the officer entering into such obligation that funds have been duly
appropriated for such purpose and that the amount necessary to cover the proposed
contract is available for expenditure on account thereof. When application is made
to the Auditor General for the certificate herein required, a copy of the proposed
contract or agreement shall be submitted to him accompanied by a statement in
writing from the officer making the application showing all obligations not yet
presented for audit which have been incurred against the appropriation to which the
contract in question would be chargeable; and such certificate, when signed by the
Auditor, shall be attached to and become a part of the proposed contract, and the
sum so certified shall not thereafter be available for expenditure for any other
purposes until the Government is discharged from the contract in question.

Except in the case of a contract for supplies to be carried in stock, no contract

involving the expenditure by any province, municipality, chartered city, or municipal
district of two thousand pesos or more shall be entered into or authorized until the
treasurer of the political division concerned shall have certified to the officer
entering into such contract that funds have been duly appropriated for such purpose
and that the amount necessary to cover the proposed contract is available for
expenditure on account thereof. Such certificate, when signed by the said treasurer,
shall be attached to and become part of the proposed contract and the sum so
 certified shall not thereafter be available for expenditure for any other purpose until
the contract in question is lawfully abrogated or discharged.

For the purpose of making the certificate hereinabove required ninety per centum of
the estimated revenues and receipts which should accrue during the current fiscal
year but which are yet uncollected, shall be deemed to be in the treasury of the
particular branch of the Government against which the obligation in question would
create a charge." (Pp. 23-25, Petitioner-Appellant's Brief.)

It is contended that in view of such omission and considering the provisions of Section 608 of the
same code to the effect that "a purported contract entered into contrary to the requirements of the
next preceding section hereof shall be wholly void", "no contract between the petitioner and
respondent Ablaza Construction and Finance Corporation for the general construction of the
proposed regional office building of the Central Bank in San Fernando, La Union, was ever perfected
because only the first stage, that is the award of the contract to the lowest responsible bidder,
respondent Ablaza Construction and Finance Corporation, was completed." (p. 29, Petitioner-
Appellant's Brief.) And in support of this pose, petitioner relies heavily on Tan C. Tee & Co. vs.
Wright thus: têñ.£îhqwâ£

The aforesaid requirements of the Revised Administrative Code for the perfection of
government contracts have been upheld by this Honorable Court in the case of Tan
C. Tee Co. vs. Wright, 53 Phil. 172, in which case it was held that the award of the
contract to the lowest bidder does not amount to entering into the contract because
of the requirement of Section 607 of the Revised Administrative Code that a copy of
the proposed contract shall be submitted to the Auditor General together with a
request for the availability of funds to cover the proposed contract. Thus, this
Honorable Court held: têñ.£îhqwâ£

'To award the contract to the lowest responsible bidder is not the
equivalent of entering into the contract. Section 607 of the
Administrative Code requires that a copy of the proposed contract
shall be submitted along with the request for the certificate of
availability of funds, but there could be no proposed contract to be
submitted until after the award was made.'

And to guide government authorities in the letting of government contracts, this

Honorable Court, in said case of Tan C. Tee vs. Wright, supra, laid down the
procedure which should be followed, as follows: têñ.£îhqwâ£

`PROCEDURE WHICH SHOULD BE FOLLOWED IN THE LETTING OF

CONTRACTS FOR INSULAR WORKS. — The procedure which should
be followed in the letting of contracts for Insular works is the
following: First, there is an award of the contract by the Director of
Public Works to the lowest responsible bidder. Second, there is a
certificate of availability of funds to be obtained from the Insular
Auditor, and in some cases from the Insular Treasurer, to cover the
proposed contract. And third, there is a contract to be executed on
 behalf of the Government by the Director of Public Works with the
approval of the department head.'" (Pp. 27-28, Petitioner-
Appellant's Brief.)

The contention is without merit. To start with, the record reveals that it is more of an afterthought.
Respondent never raised this question whether in its pleadings or at the hearings in the trial court.
We have also read its brief in the appellate court and no mention is made therein of this point. Not
even in its memorandum submitted to that court in lieu of oral argument is there any discussion
thereof, even as it appears that emphasis was given therein to various portions of the Revised
Manual of Instructions to Treasurers regarding the perfection and constitution of public contracts. In
fact, reference was made therein to Administrative Order No. 290 of the President of the Philippines,
dated February 5, 1959, requiring "all contracts of whatever nature involving P10,000 or more to be
entered into by all bureaus and offices, ... including the ... Central Bank ... shall be submitted to the
Auditor General for examination and review before the same are perfected and/or consummated,
etc.", without mentioning, however, that said administrative order was no longer in force, the same
having been revoked on January 17, 1964 by President Macapagal under Administrative Order No.
81, s. 1964.

Hence, if only for the reason that it is a familiar rule in procedure that defenses not pleaded in the
answer may not be raised for the first time on appeal, petitioner's position cannot be sustained.
Indeed, in the Court of Appeals, petitioner could only bring up such questions as are related to the
issues made by the parties in their pleadings, particularly where factual matters may be involved,
because to permit a party to change his theory on appeal "would be unfair to the adverse party." (II,
Moran, Rules of Court, p. 505, 1970 ed.) Furthermore, under Section 7 of Rule 51, the appellate
court cannot consider any error of the lower court "unless stated in the assignment of errors and
properly argued in the brief."

Even prescinding from this consideration of belatedness, however, it is Our considered view that
contracts entered into by petitioner Central Bank are not within the contemplation of Sections 607
and 608 cited by it. Immediately to be noted, Section 607 specifically refers to "expenditure(s) of the
National Government" and that the term "National Government" may not be deemed to include the
Central Bank. Under the Administrative Code itself, the term "National Government" refers only to
the central government, consisting of the legislative, executive and judicial departments of the
government, as distinguished from local governments and other governmental entities and is not
synonymous, therefore, with the terms "The Government of the Republic of the Philippines" or
"Philippine Government", which are the expressions broad enough to include not only the central
government but also the provincial and municipal governments, chartered cities and other
government-controlled corporations or agencies, like the Central Bank. (I, Martin, Administrative
Code, p. 15.)

To be sure the Central Bank is a government instrumentality. But it was created as an autonomous
body corporate to be governed by the provisions of its charter, Republic Act 265, "to administer the
monetary and banking system of the Republic." (Sec. 1) As such, it is authorized "to adopt, alter and
use a corporate seal which shall be judicially noticed; to make contracts; to lease or own real and
personal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise
to do and perform any and all things that may be necessary or proper to carry out the purposes of
this Act. The Central Bank may acquire and hold such assets and incur such liabilities as result directly
from operations authorized by the provisions of this Act, or as are essential to the proper conduct of
such operations." (Sec. 4) It has capital of its own and operates under a budget prepared by its own
Monetary Board and otherwise appropriates money for its operations and other expenditures
independently of the national budget. It does not depend on the National Government for the
financing of its operations; it is the National Government that occasionally resorts to it for needed
budgetary accommodations. Under Section 14 of the Bank's charter, the Monetary Board may
authorize such expenditures by the Central Bank as are in the interest of the effective administration
and operation of the Bank." Its prerogative to incur such liabilities and expenditures is not subject to
any prerequisite found in any statute or regulation not expressly applicable to it. Relevantly to the
issues in this case, it is not subject, like the Social Security Commission, to Section 1901 and related
provisions of the Revised Administrative Code which require national government constructions to
be done by or under the supervision of the Bureau of Public Works. (Op. of the Sec. of Justice No. 92,
Series of 1960) For these reasons, the provisions of the Revised Administrative Code invoked by the
Bank do not apply to it. To Our knowledge, in no other instance has the Bank ever considered itself
subject thereto.

In Zobel vs. City of Manila, 47 Phil. 169, this Court adopted a restrictive construction of Section 607
of the Administrative Code thus:

The second question to be considered has reference to the applicability of section 607 of the
Administrative Code to contracts made by the City of Manila. In the second paragraph of said section
it is declared that no contract involving the expenditure by any province, municipality, township, or
settlement of two thousand pesos or more shall be entered into or authorized until the treasurer of
the political division concerned shall have certified to the officer entering into such contract that
funds have been duly appropriated for such purpose and that the amount necessary to cover the
proposed contract is available for expenditure on account thereof. It is admitted that no such
certificate was made by the treasurer of Manila at the time the contract now in question was made.
We are of the opinion that the provision cited has no application to contracts of a chartered city,
such as the City of Manila. Upon examining said provision (sec. 607) it will be found that the term
chartered city, or other similar expression, such as would include the City of Manila, is not used; and
it is quite manifest from the careful use of terms in said section that chartered cities were intended
to be excluded. In this connection the definitions of "province," "municipality," and "chartered city,"
given in section 2 of the Administrative Code are instructive. The circumstance that for certain
purposes the City of Manila has the status both of a province and a municipality (as is true in the
distribution of revenue) is not inconsistent with this conclusion." 1

We perceive no valid reason why the Court should not follow the same view now in respect to the
first paragraph of the section by confirming its application only to the offices comprised within the
term National Government as above defined, particularly insofar as government-owned or created
corporations or entities having powers to make expenditures and to incur liabilities by virtue of their
own corporate authority independently of the national or local legislative bodies, as in the case of
the petitioner herein, are concerned. Whenever necessary, the Monetary Board, like any other
corporate board, makes all required appropriations directly from the funds of the Bank and does not
need any official statement of availability from its treasurer or auditor and without submitting any
papers to, much less securing the approval of the Auditor General or any outside authority before
doing so. Indeed, this is readily to be inferred from the repeal already mentioned earlier of
Administrative Order No. 290, s. 1959, which petitioner tried to invoke, overlooking perhaps such
repeal. In other words, by that repeal, the requirement that the Central Bank should submit to the
Auditor General for examination and review before contracts involving P10,000 or more to be
entered into by it "before the same are perfected and/or consummated" had already been
eliminated at the time the transaction herein involved took place. Consequently, the point of
invalidity pressed, belatedly at that, by petitioner has no leg to stand on.

The other main contention of petitioner is that the purported or alleged contract being relied upon
by respondent never reached the stage of perfection which would make it binding upon the parties
and entitle either of them to sue for specific performance in case of breach thereof. In this
connection, since the transaction herein involved arose from the award of a construction contract 2 by
a government corporation and the attempt on its part to discontinue with the construction several
months after such award had been accepted by the contractor and after the latter had already
commenced the work without any objection on the part of the corporation, so much so that entry
into the site for the purpose was upon express permission from it, but before any written contract
has been executed, it is preferable that certain pertinent points be clarified for the proper resolution
of the issue between the parties here and the general guidance of all who might be similarly
situated.

Petitioner buttresses its position in regard to this issue on the provisions earlier quoted in this
opinion of the Instruction to Bidders: têñ.£îhqwâ£

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the
Proposal. The acceptance of a Proposal shall bind the successful bidder to execute
the Contract and to be responsible for liquidated damages as herein provided. The
rights and obligations provided for in the Contract shall become effective and binding
upon the parties only with its formal execution.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days from
the date he receives a copy of the fully executed Contract, and he shall complete the
work within the time specified." (Pp. 18-19, Petitioner-Appellant's Brief.)

Petitioner insists that under these provisions, the rights and obligations of the Bank and Ablaza could
become effective and binding only upon the execution of the formal contract, and since admittedly
no formal contract has yet been signed by the parties herein, there is yet no perfected contract to
speak of and respondent has, therefore, no cause of action against the Bank. And in refutation of
respondent's argument that it had already started the work with some clearing job and foundation
excavations, which has never been stopped by petitioner who had previously given express
permission to respondent to enter the jobsite, build a temporary shelter and enclosures thereon,
petitioner counters that under the above instructions, respondent is supposed to commence the
work "within ten (10) calendar days from the date he receives a copy of the fully executed Contract,"
and for said respondent to have started actual construction work before any contract has been
signed was unauthorized and was consequently undertaken at his own risk, all the above
circumstances indicative of estoppel notwithstanding.

We are not persuaded that petitioner's posture conforms with law and equity. According to
Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was "required to appear in the office of the
Owner (the Bank) in person, or, if a firm or corporation, a duly authorized representative (thereof),
and to execute the contract within five (5) days after notice that the contract has been awarded to
him. Failure or neglect to do so shall constitute a breach of agreement effected by the acceptance of
the Proposal." There can be no other meaning of this provision than that the Bank's acceptance of
the bid of respondent Ablaza effected an actionable agreement between them. We cannot read it in
the unilateral sense suggested by petitioner that it bound only the contractor, without any
corresponding responsibility or obligation at all on the part of the Bank. An agreement presupposes a
meeting of minds and when that point is reached in the negotiations between two parties intending
to enter into a contract, the purported contract is deemed perfected and none of them may
thereafter disengage himself therefrom without being liable to the other in an action for specific
performance.

The rather ambiguous terms of Paragraph IB 113.4 of the Instructions to Bidders relied upon by
petitioner have to be reconciled with the other paragraphs thereof to avoid lack of mutuality in the
relation between the parties. This invoked paragraph stipulates that "the acceptance of
(respondent's) Proposal shall bind said respondent to execute the Contract and to be responsible for
liquidated damages as herein provided." And yet, even if the contractor is ready and willing to
execute the formal contract within the five (5) day period given to him, petitioner now claims that
under the invoked provision, it could refuse to execute such contract and still be absolutely free from
any liability to the contractor who, in the meantime, has to make necessary arrangements and incur
expenditures in order to be able to commence work "within ten (10) days from the date he receives
a copy of the fully executed Contract," or be responsible for damages for delay. The unfairness of
such a view is too evident to be justified by the invocation of the principle that every party to a
contract who is sui juris and who has entered into it voluntarily and with full knowledge of its
unfavorable provisions may not subsequently complain about them when they are being enforced, if
only because there are other portions of the Instruction to Bidders which indicate the contrary.
Certainly, We cannot sanction that in the absence of unavoidable just reasons, the Bank could simply
refuse to execute the contract and thereby avoid it entirely. Even a government owned corporation
may not under the guise of protecting the public interest unceremoniously disregard contractual
commitments to the prejudice of the other party. Otherwise, the door would be wide open to abuses
and anomalies more detrimental to public interest. If there could be instances wherein a government
corporation may justifiably withdraw from a commitment as a consequence of more paramount
considerations, the case at bar is not, for the reasons already given, one of them.

As We see it then, contrary to the contention of the Bank, the provision it is citing may not be
considered as determinative of the perfection of the contract here in question. Said provision only
means that as regards the violation of any particular term or condition to be contained in the formal
contract, the corresponding action therefor cannot arise until after the writing has been fully
executed. Thus, after the Proposal of respondent was accepted by the Bank thru its telegram and
letter both dated December 10, 1965 and respondent in turn accepted the award by its letter of
December 15, 1965, both parties became bound to proceed with the subsequent steps needed to
formalize and consummate their agreement. Failure on the part of either of them to do so, entities
the other to compensation for the resulting damages. To such effect was the ruling of this Court in
Valencia vs. RFC 103 Phil. 444. We held therein that the award of a contract to a bidder constitutes
an acceptance of said bidder's proposal and that "the effect of said acceptance was to perfect a
contract, upon notice of the award to (the bidder)". (at p. 450) We further held therein that the
bidder's "failure to (sign the corresponding contract) do not relieve him of the obligation arising from
the unqualified acceptance of his offer. Much less did it affect the existence of a contract between
him and respondent". (at p. 452)

It is neither just nor equitable that Valencia should be construed to have sanctioned a one-sided view
of the perfection of contracts in the sense that the acceptance of a bid by a duly authorized official of
a government-owned corporation, financially and otherwise autonomous both from the National
Government and the Bureau of Public Works, insofar as its construction contracts are concerned,
binds only the bidder and not the corporation until the formal execution of the corresponding
written contract.

Such unfairness and inequity would even be more evident in the case at bar, if We were to uphold
petitioner's pose. Pertinently to the point under consideration, the trial court found as follows:

To determine the amount of damages recoverable from the defendant, plaintiff's claim for actual
damages in the sum of P298,433.35, as hereinabove stated, and the recommendation of Messrs.
Ambrosio R. Flores and Ricardo Y. Mayuga, as contained in their separate reports (Exhs. "13" and
"15"), in the amounts of P154,075.00 and P147,500.00, respectively, should be taken into account.

There is evidence on record showing that plaintiff incurred the sum of P48,770.30 for the preparation
of the jobsite, construction of bodegas, fences field offices, working sheds, and workmen's quarters;
that the value of the excavation work accomplished by the plaintiff at the site was P113,800.00; that
the rental of the various construction equipment of the plaintiff from the stoppage of work until the
removal thereof from the jobsite would amount to P78,540.00 (Exhs. "K" - "K-l"); that the interest on
the cash bond of P275,000.00 from November 3, 1965 to July 7, 1966 at 12% per annum would be
P22,000.00; that for removing said construction equipment from the jobsite to Manila, plaintiff paid
a hauling fee of P700.00 (Exhs. "L" - "L-1" ); that for the performance bond that the plaintiff posted as
required under its contract with the defendant, the former was obliged to pay a premium of
P2,216.55; and that the plaintiff was likewise made to incur the sum of P32,406.50, representing the
3% contractor's tax (Exhs. "AA" - "A-l"). The itemized list of all these expenditures, totalling
P298,433.35 is attached to the records of this case (Annex "B", Complaint) and forms part of the
evidence of the plaintiff. Mr. Nicomedes G. Ablaza, the witness for the plaintiff, properly identified
said document and affirmed the contents thereof when he testified during the hearing. The same
witness likewise explained in detail the various figures contained therein, and identified the
corresponding supporting papers.

It is noteworthy, in this connection, that there is nothing in the records that would show that the
defendant assailed the accuracy and/or reasonableness of the figures presented by the plaintiff;
neither does it appear that the defendant offered any evidence to refute said figures.

While it is claimed by the defendant that the plaintiff incurred a total expense of only P154,075.00
according to the report of Mr. Ambrosio R. Flores, or P147,500.00, according to the report of Mr.
Ricardo Y. Mayuga, the Court finds said estimates to be inaccurate. To cite only an instance, in
estimating, the value of the excavation work, the defendant merely measured the depth, length and
width of the excavated, area which was submerged in water, without ascertaining the volume of rock
and the volume of earth actually excavated as was done by the plaintiff who prepared a detailed plan
showing the profile of the excavation work performed in the site (Exh. "B"). Likewise, the unit
measure adopted by the defendant was in cubic meter while it should be in cubic yard. Also the unit
price used by the defendant was only P8.75 for rock excavation while it should be P10.00 per cubic
yard; and only P4.95 for earth excavation while it should be P5.50 per cubic yard as clearly indicated
in plaintiff's proposal (Annex "A", Complaint; same as Annex "1", Answer). The Court, therefore, can
not give credence to defendant's, aforementioned estimates in view of their evident inaccuracies.

The Court finds from the evidence adduced that Plaintiff claim for actual damages in the sum of
P298,433.35 is meritorious.

The Bulk of plaintiffs claims consists of expected profit which it failed to realize due to the breach of
the contract in question by the defendant. As previously stated, the plaintiff seeks to recover the
amount of P814,190.00 by way of unrealized expected profit. This figure represents 18% of
P4,523,275.00 which is the estimated direct cost of the subject project.

As it has been established by the evidence that the defendant in fact was guilty of breach of contract
and, therefore, liable for damages (Art. 1170, New Civil Code), the Court finds that the plaintiff is
entitled to recover from the defendant unrealized expected profit as part of the actual or
compensatory damages. Indemnification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits which the obligee failed to obtain (Art. 2200, New Civil
Code).

Where a party is guilty of breach of contract, the other party is entitled to recover the profit which
the latter would have been able to make had the contract been performed (Paz P. Arrieta, et al.,
plaintiffs-appellees, vs. National Rice Corporation defendant-appellant, G.R. No. L-15645,
promulgated on January 31, 1964; Vivencio Cerrano, plaintiff-appellee, vs. Tan Chuco, defendant-
appellant, 38 Phil. 392).

Regarding the expected profit, a number of questions will have to be answered: Is the 18%
unrealized expected profit being claimed by the plaintiff reasonable? Would the plaintiff be entitled
to the whole amount of said expected profit although there was only partial performance of the
contract? Would the 18% expected profit be based on the estimated direct cost of the subject in the
amount of P4,523,275.00, or on plaintiff's bid proposal of P3,749,000.00?

On the question of reasonableness of the 18% expected profit, the Court noted that according to
defendant's own expert witness, Mr. Ambrosio R. Flores, 25% contractor's profit for a project similar
in magnitude as the one involved in the present case would be ample and reasonable. Plaintiff's
witness, Mr. Nicomedes G. Ablaza, an experienced civil engineer who has been actively engaged in
the construction business, testified that 15% to 20% contractor's profit would be in accordance with
the standard engineering practice. Considering the type of the project involved in this case, he
stated, the contractor's profit was placed at 18%. Taking into consideration the fact that this
percentage of profit is even lower than what defendant's witness considered to be ample and
reasonable, the Court believes that the reasonable percentage should be 18% inasmuch as the actual
work was not done completely and the plaintiff has not invested the whole amount of money called
for by the project." (Pp. 263-268, Record on Appeal.)

These findings have not been shown to Us to be erroneous. And additional and clarificatory details,
which We find to be adequately supported by the record, are stated in Respondents' brief thus: têñ.
£îhqwâ£

23. In a letter dated January 4, 1966, petitioner Central Bank, through the same Mr.
Mendoza, to this request of respondent Ablaza. (Annex "D-1" to the Partial
Stipulation of Facts, R.A., p. 146).

24. Acting upon this written permission, respondent Ablaza immediately brought its
men and equipment from Manila to the construction site in San Fernando, La Union,
and promptly commenced construction work thereat. This work, consisted of the
setting up of an enclosure around the site, the building of temporary shelter for its
workmen, and the making of the necessary excavation works. (Commissioner's
Report, R.A., p. 181).

25. Following the commencement of such construction work, petitioner Central

Bank, through a letter dated February 8, 1966, formally requested respondent Ablaza
to submit to petitioner the following:têñ.£îhqwâ£

(a) A schedule of deliveries of material which, under the terms of

respondent Ablaza's approved proposal, were to be furnished by
petitioner.

(b) A time-table for the accomplishment of the construction work.

In short, as early as February 8, 1966, or more than three months

prior to petitioner's repudiation of the contract in question the latter
(petitioner) already took the above positive steps it compliance with
its own obligations under the contract.

26. Acting upon petitioner's above letter of February 8, 1966, on February 16, 1966,
respondent Ablaza submitted the schedule of deliveries requested by petitioner.
(Commissioner's Report, R.A., p. 182; Decision id., 252; also Exhs. "D" to "D-7",
inclusive.)

27. During the period of actual construction, respondent Ablaza, on several

occasions, actually discussed the progress of the work with Mr. Mendoza. In
addition, in March 1966, the latter (Mr. Mendoza) personally visited the construction
site. There he saw the work which respondent had by that time already
accomplished which consisted of the completion of approximately 20% of the
necessary excavation works. (Commissioner's Report, R.A., p. 182; Decision, id., p.
252).

28. Following Mr. Mendoza's visit at the construction site, or more specifically on
March 22, 1966, the latter (Mendoza) wrote to respondent Ablaza, instructing the
latter to formally designate the person to represent the corporation at the signing of
the formal construction contract. (Exh. "H"; also t.s.n., pp. 119-121, December 18,
1967).

29. By a letter dated March 24, 1966, respondent Ablaza promptly complied with the
above request. (Exh. "I"; also t.s.n., pp 121-123, December 18, 1967).

30. Subsequently, respondent Ablaza posted the required performance guaranty

bond in the total amount of P962,250.00, consisting of (a) a cash bond in the amount
of P275,000.00, and (b) a surety bond, PSIC Bond No. B-252-ML, dated May 19,
1966, in the amount of P687,250.00. In this connection, it is important to note
that the specific purpose of this bond was to guarantee "the faithful Performance of
the Contract" by respondent Ablaza. (Partial Stipulation of Facts, par. 6, R.A., p.
141). This performance guaranty bond was duly accepted by petitioner.(Id.)

31. However, on May 20, 1966, petitioner Central Bank called for a meeting with
representatives of respondent Ablaza and another contractor. This meeting was held
at the Conference Room of the Central Bank Building. At this meeting, then Finance
Secretary Eduardo Romualdez, who acted as the representative of petitioner,
announced that the Monetary Board had decided to reduce the appropriations for
the various proposed Central Bank regional office buildings, including the one for San
Fernando, La Union.

32. In view of this decision, Secretary Romualdez informed respondent Ablaza that
new plans and designs for the proposed regional office building in San Fernando
would have to be drawn up to take account of the reduction in appropriation.
Secretary Romualdez then advised respondent to suspendwork at the construction
site in San Fernando in the meanwhile. (Decision, R.A., pp. 253-254).

33. After making the above announcements, Secretary Romualdez proposed that all
existing contracts previously entered into between petitioner Central Bank and the
several winning contractors (among them being respondent Ablaza) be considered
set aside.

34. Obviously to induce acceptance of the above proposal, Secretary Romualdez

offered the following concessions to respondent Ablaza: têñ.£îhqwâ£

(a) That its cash bond in the amount of P275,000.00 be released

immediately, and that interest be paid thereon at the rate of 12%
per annum.

(b) That respondent Ablaza be reimbursed for expenses incurred for

the premiums on the performance bond which it posted, and which
petitioner had already accepted. (Decision, R.A., pp. 253-254).

35. In addition, Secretary Romualdez also proposed the conclusion of a new contract
with respondent Ablaza for the construction of a more modest regional office
building at San Fernando, La Union, on a negotiated basis. However, the sincerity
 and feasibility of this proposal was rendered dubious by a caveat attached to it, as
follows: têñ.£îhqwâ£

'4. Where auditing regulations would permit, the Central Bank would
enter into a negotiated contract with the said corporation (Ablaza)
for the construction work on the building on the basis of the revised
estimates.' (Annex "8" to Answer, R.A., p. 95).

36. The revised cost fixed for this proposed alternative regional office building was
fixed at a maximum of P3,000,000.00 (compared to P3,749,000.00 under the
contract originally awarded to respondent). (Annex "6-A" to Answer, R.A., p. 87).

37. Needless perhaps to state, respondent Ablaza rejected the above proposals
(pars. 34 and 35, supra.), and on June 3, 1966, through counsel, wrote to petitioner
demanding the formal execution of the contract previously awarded to it, or in the
alternative, to pay "all damages and expenses suffered by (it) in the total amount of
P1,181,950.00 ... "(Annex "7" to Answer, R.A., pp. 89-91; Decision, id., p. 254).

38. In a letter dated June 15, 1966, petitioner Central Bank, through Deputy
Governor Amado R. Brinas, replied to respondent Ablaza's demand denying any
liability on the basis of the following claim: têñ.£îhqwâ£

`(That, allegedly) in line with the agreement ... reached between the
Central Bank and Ablaza Construction and Finance Corporation at a
meeting held ... on May 20, 1966,' "whatever agreements might
have been previously agreed upon between (petitioner and
respondent) would be considered set aside." (Decision, R.A., p. 255;
Annex "8" to Answer, id., pp. 93-96.)

39. The above claim was, however, promptly and peremptorily denied by respondent
Ablaza, through counsel, in a letter dated June 16, 1966. (Partial Stipulation of Facts,
par. 9, R.A., p. 142, also Annex "G" thereof; Commissioner's Report, R.A., p.
185; Decision, id., p. 255.)" (Appellee's Brief, pars. 23 to 39, pp. 14-19.)

None of these facts is seriously or in any event sufficiently denied in petitioner's reply brief.

Considering all these facts, it is quite obvious that the Bank's insistence now regarding the need for
the execution of the formal contract comes a little too late to be believable. Even
assuming arguendo that the Revised Manual of Instructions to Treasurers were applicable to the
Central Bank, which is doubtful, considering that under the provisions of its charter already referred
to earlier, disbursements and expenditures of the Bank are supposed to be governed by rules and
regulations promulgated by the Monetary Board, in this particular case, the attitude and actuations
then of the Bank in relation to the work being done by Ablaza prior to May 20, 1966 clearly indicate
that both parties assumed that the actual execution of the written contract is a mere formality which
could not materially affect their respective contractual rights and obligations. In legal effect,
therefore, the Bank must be considered as having waived such requirement.
To be more concrete, from December 15, 1965, when Ablaza accepted the award of the contract in
question, both parties were supposed to have seen to it that the formal contract were duly signed.
Under the Instructions to Bidders, Ablaza was under obligation to sign the same within five (5) days
from notice of the award, and so, he called on the Bank at various times for that purpose. The Bank
never indicated until May, 1966 that it would not comply. On the contrary, on February 8, 1966,
Ablaza was requested to submit a "schedule of deliveries of materials" which under the terms of the
bid were to be furnished by the Bank. On March 22, 1966, Ablaza received a letter from the Bank
inquiring as to who would be Ablaza's representative to sign the formal contract. In the meanwhile,
no less than Mr. Rizalino Mendoza, the Chairman of the Management Building Committee of the
Central Bank who had been signing for the Bank all the communications regarding the project at
issue, had visited the construction site in March, 1966, just before he wrote the request
abovementioned of the 22nd of that month for the nomination of the representative to sign the
formal contract, and actually saw the progress of the work and that it was being continued, but he
never protested or had it stopped. All these despite the fact that the Memorandum Circular being
invoked by the Bank was issued way back on December 31, 1965 yet. And when finally on May 20,
1966 the Bank met with the representatives of Ablaza regarding the idea of changing the plans to
more economical ones, there was no mention of the non-execution of the contract as entitling the
Bank to back out of it unconditionally. Rather, the talk, according to the findings of the lower courts,
was about the possibility of setting aside whatever agreement there was already. Under these
circumstances, it appears that respondent has been made to believe up to the time the Bank decided
definitely not to honor any agreement at all that its execution was not indispensable to a contract to
be considered as already operating and respondent could therefore proceed with the work, while the
contract could be formalized later.

Petitioner contends next that its withdrawal from the contract is justified by the policy of economic
restraint ordained by Memorandum Circular No. 1. We do not see it that way. Inasmuch as the
contract here in question was perfected before the issuance of said Memorandum Circular, it is
elementary that the same may not be enforced in such a manner as to result in the impairment of
the obligations of the contract, for that is not constitutionally permissible. Not even by means of a
statute, which is much more weighty than a mere declaration of policy, may the government issue
any regulation relieving itself or any person from the binding effects of a contract. (Section 1 (10),
Article III, Philippine Constitution of 1953 and Section 11, Article IV, 1973 Constitution of the
Philippines.) Specially in the case of the Central Bank, perhaps, it might not have been really
imperative that it should have revised its plans, considering that it has its own resources
independent of those of the national government and that the funds of the Central Bank are derived
from its own operations, not from taxes. In any event, if the memorandum circular had to be
implemented, the corresponding action in that direction should have been taken without loss of time
and before the contract in question had taken deeper roots. It is thus clear that in unjustifiably failing
to honor its contract with respondent, petitioner has to suffer the consequences of its action.

The last issue submitted for Our resolution refers to the amount of damages awarded to Ablaza by
the trial court and found by the Court of Appeals to be "fair and reasonable." Again, after a review of
the record, We do not find sufficient ground to disturb the appealed judgment even in this respect,
except as to attorney's fees.
There are three principal items of damages awarded by the courts below, namely: (1) compensation
for actual work done in the amount of P298,433.35, (2) unrealized profits equivalent to 18% of the
contract price of P3,749,000 or P674,820.00 and (3) 15% of the total recovery as attorney's fees in
addition to the P5,000 already paid as retaining fee. All of these items were the subject of evidence
presented by the parties. According to the Court of Appeals: têñ.£îhqwâ£

As regard the accuracy and reasonableness of the award for damages, both actual
and compensatory, it is to be noted that the trial court subjected the Commissioner's
report and the evidence adduced therein to a careful scrutiny. Thus, when the
appellant called the trial court's attention to the fact that the P814,190.00 unrealized
expected profit being claimed by appellee represented 18% of P4,523,275.00 which
was the estimated cost of the project, while the contract awarded to appellee was
only in the amount of P3,749,000.00 as per its bid proposal, the Court made the
necessary modification. It is further to be noted that the amount of 18% of the
estimated cost considered in the said award is much less than that given by
appellant's own expert witness, Ambrosio R. Flores. He testified that 25% as
contractor's profit "would be fair, ample and reasonable." (T.s.n, p. 557, Batalla.)" (p.
17 A, Appellant's brief.)

Basically, these are factual conclusions which We are not generally at liberty to disregard. And We
have not been shown that they are devoid of reasonable basis.

There can be no dispute as to the legal obligation of petitioner to pay respondent the actual
expenses it has incurred in performing its part of the contract.

Upon the other hand, the legal question of whether or not the Bank is liable for unrealized profits
presents no difficulty. In Arrieta vs. Naric G.R. No. L-15645, Jan. 31, 1964, 10 SCRA 79, this Court
sustained as a matter of law the award of damages n the amount of U.S. $286,000, payable in
Philippine Currency, measured in the rate of exchange prevailing at the time the obligation was
incurred (August, 1952), comprising of unrealized profits of the plaintiff, Mrs. Paz Arrieta, in a case
where a government-owned corporation, the Naric failed to proceed with the purchase of imported
rice after having accepted and approved the bid of Arrieta and after she had already closed her
contract with her foreign sellers.

Actually, the law on the matter is unequivocally expressed in Articles 2200 and 2201 of the Civil Code
thus: têñ.£îhqwâ£

ART. 2200. Identification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits, which the obligee failed to obtain..

ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have forseen or
could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non- performance of the
obligation.
Construing these provisions, the following is what this Court held in Cerrano vs. Tan Chuco, 38 Phil.
392: têñ.£îhqwâ£

.... Article 1106 (now 2200) of the Civil Code establishes the rule that prospective
profits may be recovered as damages, while article 1107 (now 2201) of the same
Code provides that the damages recoverable for the breach of obligations not
originating in fraud (dolo) are those which were or might have been foreseen at the
time the contract was entered into. Applying these principles to the facts in this case,
we think that it is unquestionable that defendant must be deemed to have foreseen
at the time he made the contract that in the event of his failure to perform it, the
plaintiff would be damaged by the loss of the profit he might reasonably have
expected to derive from its use.

When the existence of a loss is established, absolute certainty as to its amount is not
required. The benefit to be derived from a contract which one of the parties has
absolutely failed to perform is of necessity to some extent, a matter of speculation,
but the injured party is not to be denied all remedy for that reason alone. He must
produce the best evidence of which his case is susceptible and if that evidence
warrants the inference that he has been damaged by the loss of profits which he
might with reasonable certainty have anticipated but for the defendant's wrongful
act, he is entitled to recover. As stated in Sedgwick on Damages (Ninth Ed., par. 177):

The general rule is, then, that a plaintiff may recover compensation for any gain
which he can make it appear with reasonable certainty the defendant's wrongful act
prevented him from acquiring, ...'. (See also Algarra vs. Sandejas, 27 Phil. Rep., 284,
289; Hicks vs. Manila Hotel Co., 28 Phil. Rep., 325.) (At pp. 398-399.)

Later, in General Enterprises, Inc. vs. Lianga Bay Logging Co. Inc., 11 SCRA 733, Article 2200 of the
Civil Code was again applied as follows: têñ.£îhqwâ£

Regarding the actual damages awarded to appellee, appellant contends that they are
unwarranted inasmuch as appellee has failed to adduce any evidence to substantiate
them even assuming arguendo that appellant has failed to supply the additional
monthly 2,000,000 board feet for the remainder of the period agreed upon in the
contract Exhibit A. Appellant maintains that for appellee to be entitled to demand
payment of sales that were not effected it should have proved (1) that there are
actual sales made of appellee's logs which were not fulfilled, (2) that it had obtained
the best price for such sales, (3) that there are buyers ready to buy at such price
stating the volume they are ready to buy, and (4) appellee could not cover the sales
from the logs of other suppliers. Since these facts were not proven, appellee's right
to unearned commissions must fail.

This argument must be overruled in the light of the law and evidence on the matter.
Under Article 2200 of the Civil Code, indemnification for damages comprehends not
only the value of the loss suffered but also that of the profits which the creditor fails
to obtain. In other words, lucrum cessans is also a basis for indemnification. The
question then that arises is: Has appellee failed to make profits because of
appellant's breach of contract, and in the affirmative, is there here basis for
determining with reasonable certainty such unearned profits?

Appellant's memorandum (p. 9) shows that appellee has sold to Korea under the
contract in question the following board feet of logs, Breareton Scale: têñ.£îhqwâ£

Months Board Feet

From June to August 1959 3,007,435

September, 1959 none
October, 1959 2,299,805
November, 1959 801,021
December, 1959 1,297,510

Total 7,405,861

The above figures tally with those of Exhibit N. In its brief (p. 141) appellant claims
that in less than six months' time appellee received by way of commission the
amount of P117,859.54, while in its memorandum, appellant makes the following
statement:

`11. The invoice F.O.B. price of the sale through plaintiff General is P767,798.82 but
the agreed F.O.B. price was P799,319.00, the commission at 13% (F.O.B.) is
P117,859.54. But, as there were always two prices — Invoice F.O.B price and F.O.B.
price as per contract, because of the sales difference amounting to P31,920.18, and
the same was deducted from the commission, actually paid to plaintiff General is
only P79,580.82.' " It appears, therefore, that during the period of June to December,
1959, in spite of the short delivery incurred by appellant, appellee had been earning
its commission whenever logs were delivered to it. But from January, 1960, appellee
had ceased to earn any commission because appellant failed to deliver any log in
violation of their agreement. Had appellant continued to deliver the logs as it was
bound to pursuant to the agreement it is reasonable to expect that it would have
continued earning its commission in much the same manner as it used to in
connection with the previous shipments of logs, which clearly indicates that it failed
to earn the commissions it should earn during this period of time. And this
commission is not difficult to estimate. Thus, during the seventeen remaining
months of the contract, at the rate of at least 2,000,000 board feet, appellant should
have delivered thirty-four million board feet. If we take the number of board feet
delivered during the months prior to the interruption, namely, 7,405,861 board feet,
and the commission received by appellee thereon, which amounts to P79,580.82, we
would have that appellee received a commission of P.0107456 per board feet.
Multiplying 34 million board feet by P.0107456, the product is P365,350.40, which
represents the lucrum cessans that should accrue to appellee. The award therefore,
made by the court a quo of the amount of P400,000.00 as compensatory damages is
not speculative, but based on reasonable estimate.
In the light of these considerations, We cannot say that the Court of Appeals erred in making the
aforementioned award of damages for unrealized profits to respondent Ablaza.

With respect to the award for attorney's fees, We believe that in line with the amount fixed in Lianga,
supra., an award of ten per centum (10%) of the amount of the total recovery should be enough.

PREMISES CONSIDERED, the decision of the Court of Appeals in this case is affirmed, with the
modification that the award for attorney's fees made therein is hereby reduced to ten per centum
(10%) of the total recovery of respondent Ablaza.

Costs against petitioner.

C & C COMMERCIAL CORP. vs. NATIONAL WATERWORKS AND SEWERAGE AUTHORITY

[November 18, 1967]

In the decision appealed from the Court of First Instance of Manila has permanently enjoined the
NAWASA from the procurement of the materials needed for the projects involved which, according
to the appellant, are designed to alleviate the sufferings of the millions of inhabitants in said places
where there is a crying need for more water — an item so vital to human existence — and the delay
occasioned by the injunctions complained of, has in no little way, further aggravated the
inconvenience of the consuming public in said metropolitan areas where acute water crises have
recurred through the years. Nevertheless, it is vehemently contended by the appellee that the
declaration of an economic national policy as envisioned in the aforequoted provision of the law
which, like the original Flag Law1 is impressed with the clear nationalistic policy of giving preference
to locally produced materials and products, has been violated; and if this is so, no amount of public
clamor could justify the acts of the NAWASA complained of, for above all the supremacy of the law
must be upheld. We have, therefore, examined the record of this case with these considerations
foremost in Our minds.

It appears that the case, originally commenced in the Court of First Instance of Manila, on July 7,
1965, as a petition for declaratory relief for the purpose of securing a judicial pronouncement on the
interpretation of the word "practicable" as used in Republic Act No. 912, i.e., whether it means that
the cheapest materials among the locally produced or manufactured products should be preferred
and specified in construction and repair works undertaken by the Government, was later converted
into, an action for prohibition with preliminary injunction through the process of supplemental
pleadings.

THE SAN PABLO WATERWORKS SYSTEM —

The corresponding complaint was filed on 19 July 1965, alleging that the NAWASA had started to
negotiate: for direct purchase of centrifugally cast iron pipes (CCI) for the improvement of the San
Pablo Waterworks System in violation of the provisions of Republic Act 912 and the law on public
biddings, excluding the C & C Commercial Company, the plaintiff, which can supply instead asbestos
cement pressure pipes which are available, practicableand usable, and will serve the purpose of the
said project at a much lower cost.

On 6 August 1965, the NAWASA filed its answer to the complaint. On 10 August 1965, the Filipino
Pipe and Foundry Corporation, with leave of court, also filed its answer in intervention.

On 16 August 1965, as prayed for in the complaint, the court issued a writ of preliminary injunction
restraining the NAWASA from further negotiating the purchase of the CCI pipes from the intervenor.

On 23 September 1965, the plaintiff and the NAWASA entered into a partial stipulation of facts, on
the basis of which and the additional evidence adduced at the hearing, the court rendered a partial
decision on 31 January 1966, dismissing the complaint insofar as the San Pablo Waterworks System
was concerned and dissolving the preliminary injunction issued thereunder. This partial decision has
become final.

THE DAVAO METROPOLITAN WATERWORKS —

On 22 January 1965, the NAWASA called for bids for the furnishing of labor and the supply of
materials for the construction of the proposed improvement of the Davao Metropolitan Waterworks
System. In the call for bids, the bidders were required to submit proposals for the supply of 24-inch
steel pipes, asbestos, cement pressure pipes, and cast iron pipes. The bidding was held on 23
February 1965. On 15 March 1965, the committee on award of the NAWASA recommended to the
board of directors that the bid be awarded to the lowest bidder, Tirso del Rosario, under his proposal
to supply steel pipes.

On 10 August 1965, the plaintiff filed a (First) supplemental complaint seeking to restrain the
NAWASA from proceeding with the award of the project in Davao, alleging that in specifying steel
pipes for the project, which is admittedly imported material, without giving preference to locally
produced asbestos cement pressure pipes manufactured by the plaintiff, violates the provisions of
Republic Act 912. On 14 August 1965, the court admitted the supplemental complaint; and as prayed
for therein on, 17 September 1965, the Court issued a writ of preliminary injunction.

THE ILOILO WATERWORKS SYSTEM —

As early as on 26 November 1962, the NAWASA called for bids for the supply of 18-inch steel pipes for
the improvement of the Iloilo Waterworks System. The bidding was conducted on 27 December
1962. C & C Commercial Co. participated in the bidding offering to supply the needed 18-inch steel
pipes for the project, but lost in the bidding. The lowest bidder for the supply of the specified 18-inch
steel pipes was the Regal Trading Corporation, and the bid was awarded to it.
On 8 September 1965, almost three (3) years after the date of the bidding, the C & C Commercial Co.
filed a (Second) supplemental complaint; seeking to restrain the NAWASA from formalizing or
implementing the award on the aforesaid Iloilo project for the supply of 18-inch steel pipes, alleging
that in specifying steel pipes for the particular project, the NAWASA has violated the provisions of
Republic Act 912 which requires the purchase of Philippine made materials and products which
are available, practicable and usable locally, like plaintiff's product — asbestos cement pressure
pipes — in construction and repair undertaken by the government. On 24 September 1965, over the
objection of the NAWASA, alleges second supplemental complaint was admitted by the court. The
record is not clear when the restraining order under the second supplemental complaint was issued,
although the NAWASA alleges that a restraining order was issued under date of 10 September 1965,
which fact has not been traversed by the plaintiff.

THE MANILA AND SUBURBS WATERWORKS SYSTEM —

On 13 September 1965, the NAWASA advertised for bids for the supply of 30 to 42-inch steel pipes for
the use and improvement of the interim waterworks project in the City of Manila and suburbs, the
bidding to take place on 14 December 1955. On 10 November 1965, the C & C Commercial Co. filed a
(Third) Supplemental complaint seeking to restrain the NAWASA and its representatives from holding
the balding under the aforementioned notice to bid, averring identical facts as those alleged in the
previous supplemental complaints, that the call for bid for steel pipes for the Manila project and
suburbs violates the provisions of Republic Act 912. Over the objection of the defendant NAWASA,
the supplemental complaint was admitted; and as prayed for therein, on 20 November 1965, a writ
of preliminary injunction was issued restraining the NAWASA from holding the bidding scheduled on
14 December 1965, or on any subsequent date, until further orders from the court.

Pending the case in the court a quo, the NAWASA filed three separate motions praying for the
dissolution of the preliminary injunctive writs issued in connection with the Davao, Iloilo and Manila
projects, pleading to the court to consider the crying need for a more adequate supply of water in
those cities, particularly in the City of Manila and its suburbs, where the lack of adequate supply of
potable water has been a recurrent crisis which affected to a dangerous extent, the health and the
life of the inhabitants, and that the continuation of the injunctive writs may bring about the
cancellation of the $20,200,000.00 loan of the NAWASA from the World Bank, which would result
from the failure of the NAWASA to comply with the formulated work schedule of the waterworks
projects, which under the agreement with the World Bank, has to be completed in the month of
October 1967; but the court failed to take any action on the motions. Parodying Shakespeare, "Set
honor in one eye, and death in the other, and I will look on both indifferently."

After a trial of the case, on 15 August 1966, the court rendered a decision finding and concluding
that the act of the NAWASA in specifying steel pipes for the project of the city of Manila and its
suburbs, and in awarding the contracts for the supply of steel pipes in the cases of the Davao and
Iloilo Waterworks System, constituted a violation of the provisions of Republic Act 912; the
dispositive portion of the decision reads as follows:

(a) On the supplemental complaint, making permanent the preliminary injunction dated
September 2, 1965, enjoining the defendant or its representatives and agents from
formalizing or implementing the award for the construction of the Davao Waterworks Project
in respect of the award of pipes to be used therein; rescinding the award made in favor of
 Tirso del Rosario; and ordering the reappraisal of the bids with a view to complying with the
provisions of Republic Act No 912;

(b) On the second supplemental complaint ordering the issuance of a permanent injunction
to enjoin the defendants or its agents and representatives from formalizing the award of the
contract for the furnishing of 18" steel pipes for the Iloilo Waterworks System; ordering a
new bidding for the said project so as to include in the call for bids for the supply and
delivery of materials, asbestos cement pipes, as well as CCI pipes; and rescinding the award
of the contract in favor of the Regal Trading Corporation;

(c) On the third supplemental complaint, making permanent the preliminary injunction
dated December 14, 1965, or any other subsequent date calling for imported steel pipes
from 30" to 42" diameter for the interim Development of Waterworks System for Manila and
suburbs; and ordering the defendant to specify asbestos cement pressure pipes for the said
project; and

(d) Ordering the defendants to pay the costs.

From the decision, NAWASA appealed to this Court.

3
It is to be noted, however, that Section 2 of the Revised Administrative Code defining the term
"Government" which is heavily relied upon by the appellant recognizes an exception: "when a
different meaning for the word or phrase is given a particular statute or is plainly to be collected from
the context or connection where the term is used." In this context of the law, the term "government"
without any qualification as used in Republic Act 912, should be construed in its implied sense and
not in the strict signification of the term "Government of the Philippines" as the political entity
through which political authority is exercised. A comparative analysis of Republic Act 912 and
Commonwealth Act 138, otherwise known as the "Flag Law" the latter "An Act to give Native
Products and Domestic Entities the Preference in the Purchase of Articles for the Government", and
the former "An Act to Require the Use, Under Certain Conditions, of Philippine Made Materials or
Products in Government Projects or Public Works Construction, Whether Done Directly by the
Government or Awarded thru Contracts", discloses that both relate to the same subject matter and
have the same nationalistic purpose or object: to give preference to locally produced materials in
purchases, works or projects of the Government. The oberservation that Commonwealth Act 138
expressly includespurchases by Government-owned companies, while Republic Act 912 merely
relates to construction or repair work done by the Government, is no argument for the proposition
that government-owned or controlled corporations have been excepted from the operation of the
latter law, for it is clear that Commonwealth Act 138 also ordains that the Purchase and Equipment
Division of government-owned companies authorized to purchase or contract for materials and
supplies for public use, buildings, or public works, shall give preference to locally produced materials
or products. Being statutes in pari materia they should be construed together to attain the purpose
of an expressed national policy. Thus, it has been aptly stated:

On the presumption that whenever the legislature enacts a provision it has in mind the
previous statutes relating to the same subject matter, it is held that in the absence of any
express repeal or amendment therein, the new provision was enacted in accord with the
legislative policy embodied in those prior statutes, and they all should be construed together.
 Provisions in an act which are omitted in another act relating to the same subject matter will
be applied in a proceeding under the other act, when not inconsistent with its purpose. Prior
statutes relating to the same subject matter are to be compared with the new provisions;
and if possible by reasonable construction, both are to be construed that effect is given to
every provision of each. Statutes in pari materia although in apparent conflict, are so far as
reasonably possible construed to be in harmony with each other. 4

The main objective of the Government is to develop our domestic industries so that the country will
be economically self-sufficient. And both Commonwealth Act 138 and Republic Act 912 aim to
contribute to the realization of the aforesaid nationalistic policy by requiring, the use of Philippine
made products or materials, whenever available, practicable and usable in government construction
work or repair projects. The alleged conflict between the two laws is more apparent than real, and
should not be allowed to defeat the purpose of these laws. We have to declare, therefore, that the
NAWASA, like any other corporation exercising proprietary or governmental functions should be
deemed embraced within the term "Government" found in Republic Act 912, and in the repair or
construction of their works or projects or the purchase of materials therefor, local materials should
be given preference when available, practicable and usable.

The next issue for consideration is: Did the NAWASA violate the provisions of Republic Act 912?

Appellant vehemently denies the charge and decries the holding of the lower court appealed from
that in specifying steel pipes in the call for bids for the supply of materials for the waterworks
projects under consideration it had defied the mandate of the law. Appellant insists that at the time
it called for bids for the Davao project, followed by the call for the supply of materials, for the Iloilo
project, herein appellee's plant was only capable of producing asbestos cement pressure pipes up to
12 inches diameter; while at the time the call for bids for the supply of materials for the Interim
Project of Manila and suburbs was advertised, the largest size of asbestos cement pipes available
were of 24 inches being produced at the time by another local manufacturer, the Eternit
Corporation, which never protested against the bids in question.

We have reexamined the record of the case with painstaking solicitude and, instead, We find the
facts indubitable and conclusive that the C & C Commercial Corporation had not therefore and even
up to the present time ever produced pipes larger than 12 inches in diameter. Said appellee
corporation has implicitly admitted this as a fact; and although it claims to have a complete plant
that is equipped with the necessary machinery, technicians and skilled laborers capable of producing
pipes in the sizes called for in those bids (18 to 42 inches in diameter) had the NAWASA specified
them in asbestos cement, the weakness of the argument is at once exposed by a mere examination
of the pertinent evidence adduced during the trial of the case on this particular point. The claim is
belied by Leopoldo del Rosario, a staff civil an engineer of the NAWASA, who testified as follows:

Q. Engineer Del Rosario, what is the limitation of the local asbestos cement
pressure pipes that are locally manufactured in the Philippines?

A. We based on NAWASA's experience, we have purchased only sizes up to 12

inches, but on certification of the Bureau of Public Works, a report has been
submitted to us that asbestos cement pressure pipes (is) being manufactured by one
local manufacturing company in the Philippines, the Eternit Corporation, which is a
 pipe manufacturer. and we have recently purchased pipes for the Manila interim
project of sizes up to 24 inches non-pressure pipes.

Q. Is there any other local manufacturer of asbestos cement pressure pipes

besides C & C Commercial Corporation?

A. None, sir, only the C & C Commercial Corporation. 5

Q. Engineer del Rosario, as staff civil engineer and the specification engineer,
member-secretary of the Pre-Qualifications Committee and the present chairman of
all the bidding committees of the NAWASA, do you know if C & C Commercial
Corporation, the plaintiff herein, is manufacturing asbestos cement pressure pipes
from sizes thirty inches and up in diameter?

A. The company does not manufacture size beyond twelve inches.

Q. Why do you say that the C & C Commercial Corporation is not manufacturing
asbestos cement pressure. pipes beyond twelve inches?

A. Because we had bi-yearly inspection of all local plants here as a matter of

policy of the committee to determine the capacity or capability of the local
manufacturers to supply and even to bid. So every six months the pre-qualifications,
committee in collaboration with the procurement inspect all the facilities of the
chemical producing plant, this cast iron and asbestos plant, the galvanized iron pipe
plant, these are regularly inspected every six months and so the pre-qualifications
would know what is available.6

And the foregoing testimony relative to the "non-availability" of appellee's products in sizes above 12
inches in diameter was corroborated by Mrs. Clara Reyes Pastor, herein appellee corporation's
President, who declared as follows:

Q. Is it not a fact Mrs. Reyes, that the sizes of asbestos cement pressure pipes
locally manufactured by you and which you furnish the NAWASA is only 12 inches in
diameter? Yes or No ?

A. Yes, sir, because that is the only pipe required at the time I delivered it.

Q. And the asbestos cement pressure pipes from sizes 12 to 42 inches that you
have supplied the NAWASA in the past, they were all imported by you?

A. Yes, sir.

Q. I heard you testify Mrs. Reyes, that in case you win in this particular bidding,
you intend to import equipments from abroad, is that correct?

A. Not equipments, only mandril.

Q. So that presently what is the biggest size of mandril that you have?

A. I have a 16-inch mandril the biggest of them all. 7

From the foregoing testimony of witnesses, and in the light of other evidence submitted by the
parties, the following may be deduced: that it is the practice of the NAWASA — which we find both
practical and logical — to send out its own men to the various local manufacturing plants for the
purpose of knowing the availability of materials needed for its projects; that at the time it specified
18 and 24 inches diameter steel pipes for the Davao and Iloilo waterworks projects, there were no
locally produced materials in said sizes; and that with respect to those sizes that were already
available, the NAWASA has actually specified and used them in various other construction and repair
works even without the certification of the Director of Public Works. We really do not see Our way
clear how herein appellee could have charged that the NAWASA had discriminated against its
products under the circumstances when its own president admits that it has supplied the NAWASA
before locally produced asbestos cement pressure pipes up to 12 inches diameter only and all those
with diameters above 12 inches were of foreign manufacture. The evidence, therefore, is conclusive
that locally produced asbestos pipes above 12 inches in diameter were not available for purposes of
claiming any preference under the provisions of Republic Act 912. And this conclusion becomes even
more cogent if We are to consider the fact that C & C Commercial Corporation failed to produce the
necessary certification from the Director of Public Works to show that its products were already
certified as available, practicable and usable at the time that the call for bids for the supply of
materials for the Davao, Iloilo and Manila Interim projects were made to give some semblance of the
right it claims to have been violated.

Of course, appellee points out the fact that it has subsequently secured the necessary certification
from the Director of Public Works certifying to the availability, practicability and durability of the
asbestos cement pressure pipes produced from its plant. We agree, and there should be no quarrel
at all that with respect to pipes of 4 to 12 inches in diameter which it is actually producing now, the
preference claimed under the law may be allowed. Be that as it may, however, the certification
referred to did not in any way improve its position; for the stubborn fact still remains that at the time
said certification was issued on July 6,1966, C & C Commercial Corporation was actually producing
asbestos pipe up to 12 inches only, which its existing equipment or machinery, when inspected by a
representative of the Office that issued the certification, was found capable of producing. Hence, We
cannot subscribe to the holding of the court below that locally produced asbestos cement pipes
above 12 inches in diameter may be considered "'available" within the meaning of Republic Act 912
simply because the President of herein appellee corporation n had manifested or promised that it
can procure bigger mandrels worth $25,000.00 fom abroad and will be able to produce pipes in the
larger sizes called for in the questioned bids shortly after their installation, for that would be giving
the term "available" a very strained meaning. It would really be unfair to require in order to be
"available" within the meaning of the law that herein appellee should have in stock the sizes of pipes
called for in the bids in the quantity needed by the appellant; but We cannot also believe, by any
stretch of the imagination, that the Director of Public Works would certify to the availability,
practicability, usability and durability of certain products even before the machinery, equipment or
tools needed to produce said products are actually bought from abroad and installed in its plant by
the manufacturer.

Statutes granting advantages to private persons have in many instances created special privileges or
monopolies for the grantees and thus have been viewed with suspicion and strictly construed. This is
altogether appropriate in the majority of situations, for if public advantage is gained by the grant,it
normally appears to be of secondary significance compared with the advantage gained by the
grantee.8 And rights which exist only by virtue of such statutes come into being only after strict
compliance with all the conditions found in those statutes. 9 These rules should apply to the case at
bar where the law invoked grants a preference to locally produced products or materials. Since
Republic Act 912 grants preference only upon the certification of availability, practicability and
usability of locally produced materials by the Director of Public Works, that certification must be
existing and effective before any right arising therefrom may be claimed to have been violated.
Notwithstanding the clear nationalistic policy of the law aforementioned, We cannot, by any
mistaken sympathy towards herein appellee, recognize the existence of its right under the law
alleged to have been violated, which C & C Commercial Corporation has miserably failed to prove in
this case.

With respect to the Interim Project for the City of Manila and its suburbs, it would seem that the
decision appealed from had virtually become moot and academic by reason of the passage of
Republic Act 4858 which authorizes the President to allow the procurement of supplies necessary for
the rehabilitation of the project as an exception to the restrictions and preferences provided for in
Republic Act 912, and the President appears to have authorized the General Manager of the
NAWASA under the said statutory power to purchase all the pipes and materials necessary for the
project by negotiated sales.

For all the foregoing, We find it unnecessary to discuss further the other errors assigned by the
appellant.

WHEREFORE, the decision appealed from is hereby set aside, with costs against the appellee. The
writs of preliminary injunctions issued by the lower court are set, aside, and declared null and void.

Concepcion, C.J., Reyes J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Fernando, J., took no part.
TOMATIC ARATUC, et al. vs. COMELEC [February 8,
1979]

In April 1978, elections of representatives to the Batasang Pambansa were held throughout the
Philippines. The cases at bar concern only the results of the elections in Central Mindanao. Tomatic
Aratuc, et al., independent candidates for the Interim Batasang Pambansa, sought the suspension of
the canvass then being undertaken by Regional Board of Canvassers for Region XII regarding the
canvass of the results of the election in said region for representatives to the IBP.

A supervening panel headed by COMELEC conducted hearings of petitioners’ complaints of the

alleged irregularities in the election records in all the voting centers in Lanao del Sur, Marawi City,
Lanao del Norte, Maguindanao, North Cotabato, and Sultan Kudarat. Petitioners had asked that the
returns from said voting centers be excluded from the canvass. Before the start of the hearings, the
canvass was suspended but after the supervisory panel presented its report, COMELEC lifted its order
of suspension and directed the resumption of the canvass to be done in Manila. This order was the
one assailed in this Court.

ISSUE: W/N COMELEC exceeded its jurisdiction in extending its inquiry beyond the election records
of the 878 voting centers passed upon by the Regional Board of Canvassers" and in excluding from
the canvass the returns showing 90% to 100% voting, from voting centers where military operations
were by the Army to be going on, to the extent that said voting centers had to be transferred to the
poblaciones the same being by evidence.

HELD: In regard to the jurisdictional and due process points raised by herein petitioner, it is of
decisive importance to bear in mind that under Section 168 of the Revised Election Code of 1978,
"the Commission (on Elections) shall have direct control and supervision on over the board of
canvassers" and that relatedly, Section 175 of the same Code provides that it "shall be the sole judge
of all pre-proclamation controversies." While nominally, the procedure of bringing to the
Commission objections to the actuations of boards of canvassers has been quite loosely referred to
in certain quarters, even by the Commission and by this Court, such as in the guidelines of May
23,1978 quoted earlier in this opinion, as an appeal, the fact of the matter is that the authority of the
Commission in reviewing such actuations does not spring from any appellate jurisdiction conferred
by any specific provision of law, for there is none such provision anywhere in the Election Code, but
from the plenary prerogative of direct control and supervision endowed to it by the above-quoted
provisions of Section 168. And in administrative law, it is a too well settled postulate to need any
supporting citation here, that a superior body or office having supervision and control over another
may do directly what the latter is supposed to do or ought to have done.

Consequently, anything said in Lucman vs. Dimaporo, 33 SCRA 387, cited by petitioner, to the
contrary notwithstanding, We cannot fault respondent Comelec for its having extended its inquiry
beyond that undertaken by the Board of Canvass On the contrary, it must be stated that Comelec
correctly and commendably asserted its statutory authority born of its envisaged constitutional
duties vis-a-vis the preservation of the purity of elections and electoral processes and p in doing
what petitioner it should not have done. Incidentally, it cannot be said that Comelec went further
than even what Aratuc et al. have asked, since said complaints had impugned from the outset not
only the returns from the 878 voting centers examined by their experts but all those mentioned in
their complaints in the election cases filed originally with the Comelec enumerated in the opening
statements hereof, hence respondent Comelec had that much field to work on.

The same principle should apply in respect to the ruling of the Commission regarding the voting
centers affected by military operations. It took cognizance of the fact, not considered by the board of
canvass, that said voting centers had been transferred to the poblaciones. And, if only for purposes
of pre-proclamation proceedings, We are persuaded it did not constitute a denial of due process for
the Commission to have taken into account, without the need or presentation of evidence by the
parties, a matter so publicly notorious as the unsettled situation of peace and order in localities in
the provinces herein involved that their may perhaps be taken judicial notice of, the same being
capable of unquestionable demonstration. (See 1, Rule 129)

In this connection, We may as well perhaps, say here as later that regrettably We cannot, however,
go along with the view, expressed in the dissent of our respected Chief Justice, that from the fact
that some of the voting centers had been transferred to the poblaciones there is already sufficient
basis for Us to rule that the Commission should have also subjected all the returns from the other
voting centers of the some municipalities, if not provinces, to the same degree of scrutiny as in the
former. The majority of the Court feels that had the Commission done so, it would have fallen into
the error by petitioner Mandangan about denial of due process, for it is relatively unsafe to draw
adverse conclusions as to the exact conditions of peace and order in those other voting centers
without at list some prima facie evidence to rely on considering that there is no allegation, much less
any showing at all that the voting centers in question are so close to those excluded by the Comelec
on as to warrant the inescapable conclusion that the relevant circumstances by the Comelec as
obtaining in the latter were Identical to those in the former.

Premises considered the petition in G.R. Nos. L-49717-21 is hereby dismiss for lack of merit.

THE ARATUC ET AL. PETITION

Of the eight errors assigned by herein petitioners earlier adverted to, the seventh and the sight do
not require any extended disquisition. As to the issue of whether the elections in the voting centers
concerned were held on April 7, 1978, the date designated by law, or earlier, to which the seventh
alleged error is addressed, We note that apparently petitioners are not seriously pressing on it
anymore, as evidenced by the complete absence of any reference thereto during the oral argument
of their counsel and the practically cavalier discussion thereof in the petition. In any event, We are
satisfied from a careful review of the analysis by the Comelec in its resolution now before Us that it
took pains to consider as meticulously as the nature of the evidence presented by both parties would
permit all the contentions of petitioners relative to the weight that should be given to such evidence.
The detailed discussion of said evidence is contained in not less than nineteen pages (pp. 70-89) of
the resolution. In these premises, We are not prepared to hold that Comelec acted wantonly and
arbitrarily in drawing its conclusions adverse to petitioners' position. If errors there are in any of
those conclusions, they are errors of judgment which are not reviewable in certiorari, so long as they
are founded on substantial evidence.

As to eighth assigned error the thrust of respondents, comment is that the results in the voting
centers mentioned in this assignment of error had already been canvassed at the regional canvass
center in Cotabato City. Again, We cannot say that in sustaining the board of canvassers in this
regard, Comelec gravely abused its discretion, if only because in the guidelines set by this Court,
what appears to have been referred to is, rightly or wrongly, the resumption only of the canvass,
which does not necessarily include the setting aside and repetition of the canvass already made in
Cotabato City.

The second and fourth assignments of error concern the voting centers the corresponding voters'
record (C.E. Form 1) and record of voting, (C.E. Form 5) of which have never been brought to Manila
because they, were not available The is not clear as to how many are these voting centers. According
to petitioners they are 501, but in the Comelec resolution in question, the number mentioned is only
408, and this number is directly challenged in the petition. Under the second assignment, it is
contended that the Comelec gravely abused its discretion in including in the canvass the election
returns from these voting centers and, somewhat alternatively, it is alleged as fourth assignment that
the petitioners motion for the opening of the ballot boxes pertaining to said voting centers was
arbitraly denied by respondent Comelec.

The resolution under scrutiny explains the situation that confronted the Commission in regard to the
408 voting centers reffered to as follows :

The Commission had the option of excluding from the canvass the election returns
under category. By deciding to exclude, the Commission would be summarily
disenfranchising the voters registered in the voting centers affected without any
basis. The Commission could also order the inclusion in the canvass of these
elections returns under the injunction of the Supreme Court that extremes caution
must be exercised in rejecting returns unless these are palpably irregular. The
Commission chose to give prima facie validity to the election returns mentioned and
uphold the votes cast by the voters in those areas. The Commission held the view
that the failure of some election officials to comply with Commission orders(to
submit the records) should not parties to such official disobedience. In the case of
Lino Luna vs. Rodriguez, 39 Phil. 208, the Supreme Court ruled that when voters
have honestly cast their ballots, the same should not be nullified because the officers
appointed under the law to direct the election and guard the purity of the ballot
have not complied with their duty. (cited in Laurel on Elections, p. 24)

On page 14 of the comment of the Solicitor General, however, it is stated that:

At all events, the returns corresponding to these voting centers were examined by
the Comelec and 141 of such returns were excluded, as follows:

SUMMARY

PROVINCE TOTAL EXCLUDED INCLUDED

Lanao del Norte 30 — 30

Lanao del Sur 342 137 205

 Maguindanao 21 1 20

North Cotabato 7 1 6

Sultan Kudarat 12 2 10

totals ----- 412 141 271

(Page 301, Record.)

This assertion has not been denied by petitioners.

Thus, it appears that precisely use of the absence or unavailability of the CE Forms 1 and 5
corresponding to the more than 400 voting centers concerned in our present discussion the Comelec
examined the returns from said voting centers to determine their trustworthiness by scrutinizing the
purported relevant data appearing on their faces, believing that such was the next best thing that
could be done to avoid total disenfranchisement of the voters in all of them On the Other hand,
Petitioners' insist that the right thing to do was to order the opening of the ballot boxes involved.

In connection with such opposing contentions, Comelec's explanation in its resolution is:

... The commission had it seen fit to so order, could have directed the opening of the
ballot boxes. But the Commission did not see the necessity of going to such length in
a that was in nature and decided that there was sufficient bases for the revolution of
the appeal. That the Commission has discretion to determine when the ballot boxes
should be opened is implicit in the guidelines set by the Supreme Court which states
that '. . . the ballot bones [which] shall be opened only upon orders of either the
respondent Board or respondent Commission, after the need therefor has become
evident ... ' (guideline No. 3; emphasissupplied). Furthermore, the Court on June 1,
1978, amended the guidelines that the "ballot boxes for the voting centers ... need
not be taken to Manila EXCEPT those of the centers as to which the petitioners have
the right to demand that the corresponding ballot boxes be opened ... provided that
the voting centers concerned shall be specified and made known by petitioners to the
Regional Board of Canvassers not later than June 3,1978 ... ' (Emphasis supplied).
The KB, candidates did not take advantage of the option granted them under these
guidelines.( Pp 106-107, Record.)

Considering that Comelec, if it had wished to do so, had the facilities to Identify on its own the voting
centers without CE Forms I and 5, thereby precluding the need for the petitioners having to specify
them, and under the circumstances the need for opening the ballot boxes in question should have
appeared to it to be quite apparent, it may be contended that Comelec would have done greater
service to the public interest had it proceeded to order such opening, as it had announced it had
thoughts of doing in its resolution of August 30, 1978. On the other hand, We cannot really blame
the Commission too much, since the exacting tenor of the guidelines issued by Us left it with very
little elbow room, so to speak, to use its own discretion independently of what We had ordered.
What could have saved matters altogether would have been a timely move on the part of petitioners
on or before June 3, 1978, as contemplated in Our resolution. After all come to think of it, that the
possible outcome of the opening of the ballot boxes would favor the petitioners was not a certainty
— the contents them could conceivably boomerang against them, such as, for example, if the ballots
therein had been found to be regular and preponderantly for their opponents. Having in mind that
significantly, petitioners filed their motion for only on January 9, 1979, practically on the eve of the
promulgation of the resolution, We hold that by having adhered to Our guidelines of June 1, 1978,
Comelec certainly cannot be held to be guilty of having gravely abused its discretion, in examining
and passing on the returns from the voting centers reffered to in the second and fourth assignments
of error in the canvass or in denying petitioners' motion for the of the ballot boxes concerned.

The first, third and sixth assignment of involve related matters and maybe discussed together. They
all deal with the inclusion in or exclusion from the canvass of returns on the basis of the percentage
of voting in specified voting centers and the corresponding findings of the Comelec on the extent of
substitute voting therein as indicated by the result of either the technical examination by experts of
the signatures and thumb-prints of the voters threat.

To begin with, petitioners' complaint that the Comelec did not examine and study 1,694 of the
records in an the 2,775 voting centers questioned by them is hardly accurate. To be more exact, the
Commission excluded a total of 1,267 returns coming under four categories namely: 1,001 under the
Diaz, supra, ruling, 79 because of 90-100 % turnout of voters despite military operations, 105
palpably manufactured owe and 82 returns excluded by the board of canvass on other grounds.
Thus, 45.45 % of the of the petitioners were sustained by the Comelec. In contrast, in the board of
canvassers, only 453 returns were excluded. The board was reversed as to 6 of these, and 821
returns were excluded by Comelec over and above those excluded by the board. In other words, the
Comelec almost doubled the exclusions by the board.

Petitioners would give the impression by their third assignment of error that Comelec refused to
consider high percentage of voting, coupled with mass substitute voting, as proof that the pertinent
returns had been manufactured. That such was not the case is already shown in the above
specifications. To add more, it can be gleaned from the resolution that in t to the 1,065 voting
centers in Lanao del Sur and Marawi City where a high percentage of voting appeared, the returns
from the 867 voting centers were excluded by the Comelec and only 198 were included a ratio of
roughly 78 % to 22 %. The following tabulation drawn from the figures in the resolution shows how
the Comelec went over those returns center by center and acted on them individually:

90% — 100% VOTING

MARAWI CITY AND LANAO DEL SUR

NO. OF V/C THAT V/C WITH 90% to 100% MUNICIPALITIES

FUNCTIONED VOTING

We are convinced, apart from presuming regularity in the performance of its duties, that there is
enough showing in the record that it did examine and study the returns and pertinent records
corresponding to all the 2775 voting centers subject of petitioners' complaints below. In one part of
its resolution the Comelec states:
 The Commission as earlier stated examined on its own the Books of Voters (Comelec
Form No. 1) and the Voters Rewards Comelec Form No. 5) to determine for itself
which of these elections form needed further examination by the COMELEC-NBI
experts. The Commission, aware of the nature of this pre-proclamation controversy,
believes that it can decide, using common sense and perception, whether the
election forms in controversy needed further examination by the experts based on
the presence or absence of patent signs of irregularity. (Pp. 137-138, Record.)

In the face of this categorical assertion of fact of the Commission, the bare charge of petitioners that
the records pertaining to the 1,694 voting centers assailed by them should not create any ripple of
serious doubt. As We view this point under discussion, what is more factually accurate is that those
records complained of were not examined with the aid of experts and that Comelec passed upon the
returns concerned "using common sense and perception only." And there is nothing basically
objectionable in this. The defunct Presidential Senate and House Electoral Tribunals examine passed
upon and voided millions of votes in several national elections without the assistance of experts and
"using" only common sense and perception". No one ever raised any eyebrows about such
procedure. Withal, what we discern from the resolution is that Comelec preliminary screened the
records and whatever it could not properly pass upon by "using common sense and perception" it
left to the experts to work on. We might disagree with he Comelec as to which voting center should
be excluded or included, were We to go over the same records Ourselves, but still a case of grave
abuse of discretion would not come out, considering that Comelec cannot be said to have acted
whimsically or capriciously or without any rational basis, particularly if it is considered that in many
respects and from the very nature of our respective functions, becoming candor would dictate to Us
to concede that the Commission is in a better position to appreciate and assess the vital
circumstances closely and accurately. By and large, therefore, the first, third and sixth assignments of
error of the petitioners are not well taken.

The fifth assignment of error is in Our view moot and academic. The Identification of the ballot boxes
in defective condition, in some instances open and allegedly empty, is at best of secondary import
because, as already discussed, the records related thereto were after all examined, studied and
passed upon. If at all, deeper inquiry into this point would be of real value in an electoral protest.

CONCLUSION

Before closing, it may not be amiss to state here that the Court had initially agreed to dispose of the
cases in a minute resolution, without prejudice to an extended or reasoned out opinion later, so that
the Court's decision may be known earlier. Considering, however, that no less than the Honorable
Chief Justice has expressed misgivings as to the propriety of yielding to the conclusions of
respondent Commission because in his view there are strong considerations warranting farther
meticulous inquiry of what he deems to be earmarks of seemingly traditional faults in the manner
elections are held in the municipalities and provinces herein involved, and he is joined in this pose by
two other distinguished colleagues of Ours, the majority opted to ask for more time to put down at
least some of the important considerations that impelled Us to see the matters in dispute the other
way, just as the minority bidded for the opportunity to record their points of view. In this manner, all
concerned will perhaps have ample basis to place their respective reactions in proper perspective.
In this connection, the majority feels it is but meet to advert to the following portion of the
ratiocination of respondent Board of Canvassers adopted by respondent Commission with approval
in its resolution under question:

First of all this Board was guided by the legal doctrine that canvassing boards must
exercise "extreme caution" in rejecting returns and they may do so only when the
returns are palpably irregular. A conclusion that an election return is obviously
manufactured or false and consequently should be disregarded in the canvass must
be approached with extreme caution, and only upon the most convincing proof. Any
plausible explanation one which is acceptable to a reasonable man in the light of
experience and of the probabilities of the situation, should suffice to avoid outright
nullification, with the resulting t of those who exercised their right of suffrage. (Anni
vs. Isquierdo et at L-35918, Jude 28,1974; Villavon v. Comelec L-32008, August
31,1970; Tagoranao v. Comelec 22 SCRA 978). In the absence of strong evidence
establishing the spuriousness of the return, the basis rule of their being accorded
prima facie status as bona fide reports of the results of the count of the votes for
canvassing and proclamation purposes must be applied, without prejudice to the
question being tried on the merits with the presentation of evidence, testimonial
and real in the corresponding electoral protest. (Bashier vs. Comelec L-33692, 33699,
33728, 43 SCRA 238, February 24, 1972). The decisive factor is that where it has
been duly de ed after investigation and examination of the voting and registration
records hat actual voting and election by the registered voters had taken place in the
questioned voting centers, the election returns cannot be disregarded and excluded
with the resting disenfranchisement of the voters, but must be accorded prima facie
status as bona fide reports of the results of the voting for canvassing and registration
purposes. Where the grievances relied upon is the commission of irregularities and
violation of the Election Law the proper remedy is election protest. (Anni vs.
Isquierdo et al. Supra). (P. 69, Record, L-49705-09).

The writer of this opinion has taken care to personally check on the citations to be doubly sure they
were not taken out of context, considering that most, if not all of them arose from similar situations
in the very venues of the actual milieu of the instant cases, and We are satisfied they do fit our
chosen posture. More importantly, they actually came from the pens of different members of the
Court, already retired or still with Us, distinguished by their perspicacity and their perceptive
prowess. In the context of the constitutional and legislative intent expounded at the outset of this
opinion and evident in the modifications of the duties and responsibilities of the Commission on
Elections vis-a-vis the matters that have concerned Us herein, particularly the elevation of the
Commission as the "sole judge of pre-proclamation controversies" as well as of all electoral contests,
We find the afore-quoted doctrines compelling as they reveal through the clouds of existing
jurisprudence the pole star by which the future should be guided in delineating and circumscribing
separate spheres of action of the Commission as it functions in its equally important dual role just
indicated bearing as they do on the purity and sanctity of elections in this country.

In conclusion, the Court finds insufficient merit in the petition to warrant its being given due course.
Petition dismissed, without pronouncement as to costs. Justices Fernando, Antonio and Guerrero
who are presently on official missions abroad voted for such dismissal.
In June 1978, the Region XII Board of Canvassers issued a resolution, over the objection of the
Konsensiya ng Bayan candidates d all the eight Kilusang ng Bagong Lipunan (KBL) candidates elected.
Appeal was taken by the KB candidates to the On January 13, 1979, the Comelec its questioned
resolution KBL can candidates and one KB candidate as having obtained the first eight places, and
ordering the Regional Board of Canvassers to p the winning candidates. The KB candidate forewith
the present petition ; in due time the respondents filed their comments.

Oral argument was had before the Court for two days, specifically on January 31 and February 1,
1979. Atty. Lino Patajo argued for and in behalf of the KB candidates, Assemblyman Estanislao
Fernandez for the KBL and the private respondents and Solicitor General Estelito P. Mendoza for the
public respondents. The Court subjected the three counsels to intensive interrogation. The cases
were then sub. muted for decision in the afternoon of February 1.

I have carefully read the entire record, more particularly the Comelec resolution of January 13, 1979,
and I must confess that until now my mind cannot rest easy on a number of questions sharply in
issue, some of which are hereunder briefly discussed.

a. After the Comelec examined very closely the voting returns, books of voting and voting records
from 1, 116 voting centers protested by the KB candidates, to the extent of subjecting them to
detailed documentary examination and finger print comparison by Comelec experts, and thereafter
annulled 31.84% of the votes cast, why did it refuse to proceed to subject all the records of the
remaining 1,659 voting centers protested by the KB candidates to the same manner of close
scrutiny?

b. Why did not the Comelec examine, utilizing the same meticulous method, similar documents and
records appertaining to a total of 164 voting centers in Lanao del Sur and 19 voting centers in Lanao
del Norte—two provinces where concededly there had been military operations—and an additional
number of voting centers in the other provinces, all of which registered a 100 % turnout of voters?
The peace and order conditions in the two cities of Iligan and Cotabato on the day of the elections
were normal and yet the total percentages of voting were only 73 % and 52 %, lively. How then can
the Comelec explained why and how in many voting centers located in areas where there had been
military operations there was a voting turnout of 100 %? Assuming that the KB candidates did not
call the attention of the Comelec—although they actually did—to the stark improbability of 100 %
vote turnout in the said places, because the peace and order conditions were far from normal it
perforce devolved on the Comelec to conduct, motu propio, an in-depth and full-blown inquiry into
this paradox. The record shows that there was l00 % voting in the whole of each of three
municipalities, over 99 % viting in each of thirteen other municipalities, and an average 97 % turnout
in five more municipalities. Of inescapable significance is the fact that most of these municipalities
are located in the provinces of Lanao del Sur and Lanao del Norte, the past election history of which
is replete with the perpetration of massive frauds, terrorism and scandalous substitutions of voters.
c. Why did the Comelec deny the motion of the KB candidates for the opening of ballot boxes
Pertaining to a total of 408 voting centers — the voting record of which were not available as they
had somehow mysteriously disappeared — to determine whether or not the election in each of the
said voting centers was a sham? This remedial measure was resorted to by the Comelec in 1969
when it Order the opening of a number of ballot boxes in the pre-proclamation contest in Lucman vs.
Dimaporo in order to see whether or not there were ballots, and determine whether there had been
an actual election in each of the disputed precincts. In that case to almost 200 ballot boxes found to
be without padlocks?

Of incalculable significance is the abscence of any statement in the Comelec resolution that indicates
that, granting that all the questions I have above raised would be resolved in favor of the KB
candidates, the election results would not be materially altered.Upon the other hand , the KB
candidates state categorically, with benefit of extrapolation, that the election results would be
considerably changed in their favor.

The majority of my brethren anchor their denial of the petition on two principal grounds, namely:

a. The issues raised by the KB candidates would be better and properly ventilated in an election
protest; and

b. No grave abuse of discretion is discernible from the actuations of the Comelec.

Anent the first ground, it is a notorious fact in the history of Philippine politics that an election
protest not only is usually inordinately protracted but as well entails heavy and prohibitive
expenditure of time, money and effort on the part of the protestant. More than this, should the
protestant in the end win, very little time or none at all is left for him to assume and discharge the
duties of his office. In the meantime, the person previously proclaimed elected continues to
fraudulently represent the people who had in law and in fact duly elected someone else to represent
them.

Besides, taking a broad view of the fundamental issues raised by the KB candidates, I am of the
opinion that resolution of these issues by the Comelec would not take more than six months of
conscientious labor—and surely this period is short, very short indeed, compared to the time that
win be wasted by the Comelec in deciding a formal electoral protest. Is it not time the Supreme
Court asserted its powers in order to excise completely the Old Society pernicious evil of "grab the
proclamation at all costs"?

Anent the second ground, I squarely traverse the statement that no grave abuse of discretion can be
imputed to the Comelec. The grave misgivings I have above articulated demonstrate what to my
mind constitute the size and shape of the remissness of the Comelec. And more compelling and over-
riding a consideration than the overwrought technicality of "grave abuse of discretion" is the
fundamental matter of the faith of the people of Region XII in the electoral process. There will always
be the nagging question in the minds of the voters in that Region as to the legitimacy of those who
will be proclaimed elected under the Comelec resolution should the Court refuse to direct that body
to continue the meticulous for legitimacy and truth.

Upon all the foregoing, it behooves the Court to remand these cases to the Comelec, with the
direction that body immediately convene and within an unextendible period and as speedily as
possible, resolve with definitiveness all the questions I have above posed, under such unequivocal
guidelines as the Court may prescribe.

For my part, unless and until this is done, I shall continue to enter grave doubt as to the correctness
and validity of the results already reached by the Comelec, especially when political history, placed in
perspective, pointedly reminds me of the massive frauds, terrorism and scandalous substitutions of
voters that have characterized past elections in the two Lanao provinces.
ASTURIAS SUGAR CENTRAL. vs. COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS
[September 30, 1969]

This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which
denied recovery of the sum of P28,629.42, paid by the petitioner, under protest, in the concept of
customs duties and special import tax, as well as the petitioner's alternative remedy to recover the
said amount minus one per cent thereof by way of a drawback under sec. 106 (b) of the Tariff and
Customs Code.

The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal
sugar for exert, the sugar so produced being placed in containers known as jute bags. In 1957 it made
two importations of jute bags. The first shipment consisting of 44,800 jute bags and declared under
entry 48 on January 8, 1967, entered free of customs duties and special import tax upon the
petitioner's filing of Re-exportation and Special Import Tax Bond no. 1 in the amounts of P25,088 and
P2,464.50, conditioned upon the exportation of the jute bags within one year from the date of
importation. The second shipment consisting of 75,200 jute bags and declared under entry 243 on
February 8, 1957, likewise entered free of customs duties and special import tax upon the
petitioner's filing of Re-exportation and Special Import Tax Bond no. 6 in the amounts of P42,112 and
P7,984.44, with the same conditions as stated in bond no. 1.

Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the
date of importation as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry
243, only 25,000 were exported within the said period of one year. In other words, of the total
number of imported jute bags only 33,647 bags were exported within one year after their
importation. The remaining 86,353 bags were exported after the expiration of the one-year period
but within three years from their importation.

On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the
Commissioner of Customs for a week's extension of Re-exportation and Special Import Tax Bond no.
6 which was to expire the following day, giving the following as the reasons for its failure to export
the remaining jute bags within the period of one year: (a) typhoons and severe floods; (b) picketing
of the Central railroad line from November 6 to December 21, 1957 by certain union elements in the
employ of the Philippine Railway Company, which hampered normal operations; and (c) delay in the
arrival of the vessel aboard which the petitioner was to ship its sugar which was then ready for
loading. This request was denied by the Commissioner per his letter of April 15, 1958.

Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags
within one year from their importation, the Collector of Customs of Iloilo, on March 17, 1958,
required it to pay the amount of P28,629.42 representing the customs duties and special import tax
due thereon, which amount the petitioner paid under protest.
In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded
the refund of the amount it had paid, on the ground that its request for extension of the period of
one year was filed on time, and that its failure to export the jute bags within the required one-year
period was due to delay in the arrival of the vessel on which they were to be loaded and to the
picketing of the Central railroad line. Alternatively, the petitioner asked for refund of the same
amount in the form of a drawback under section 106(b) in relation to section 105(x) of the Tariff and
Customs Code.

After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the
claim for refund. From his action, appeal was taken to the Commissioner of Customs who upheld the
decision of the Collector. Upon a petition for review the Court of Tax Appeals affirmed the decision of
the Commissioner of Customs.

The petitioner imputes three errors to the Court of Tax Appeals, namely:

1. In not declaring that force majeure and/or fortuitous event is a sufficient justification for
the failure of the petitioner to export the jute bags in question within the time required by
the bonds.

2. In not declaring that it is within the power of the Collector of Customs and/or the
Commissioner of Customs to extend the period of one (1) year within which the jute bags
should be exported.

3. In not declaring that the petitioner is entitled to a refund by way of a drawback under the
provisions of section 106, par. (b), of the Tariff and Customs Code.

1. The basic issue tendered for resolution is whether the Commissioner of Customs is vested, under
the Philippine Tariff Act of 1909, the then applicable law, with discretion to extend the period of one
year provided for in section 23 of the Act. Section 23 reads:

SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in
the opinion of the collector of customs, of such a character as to be readily identifiable may
be delivered to the importer thereof upon identification and the giving of a bond with
sureties satisfactory to the collector of customs in an amount equal to double the estimated
duties thereon, conditioned for the exportation thereof or payment of the corresponding
duties thereon within one year from the date of importation, under such rules and
regulations as the Insular Collector of Customs shall provide. 1

To implement the said section 23, Customs Administrative Order 389 dated December 6, 1940 was
promulgated, paragraph XXVIII of which provides that "bonds for the re-exportation of cylinders and
other containers are good for 12 months without extension," and paragraph XXXI, that "bonds for
customs brokers, commercial samples, repairs and those filed to guarantee the re-exportation of
cylinders and other containers are not extendible."

And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated August
25, 1948 was issued, prescribing rules and regulations governing the importation, exportation and
identification thereof under section 23 of the Philippine Tariff Act of 1909. Said administrative order
provides:
 That importation of jute bags intended for use as containers of Philippine products for
exportation to foreign countries shall be declared in a regular import entry supported by a
surety bond in an amount equal to double the estimated duties, conditioned for the
exportation or payment of the corresponding duties thereon within one year from the date
of importation.

It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of
the Tariff and Customs Code, while fixing at one year the period within which the containers therein
mentioned must be exported, are silent as to whether the said period may be extended. It was surely
by reason of this silence that the Bureau of Customs issued Administrative Orders 389 and 66,
already adverted to, to eliminate confusion and provide a guide as to how it shall apply the law, 2 and,
more specifically, to make officially known its policy to consider the one-year period mentioned in
the law as non-extendible.

Considering that the statutory provisions in question have not been the subject of previous judicial
interpretation, then the application of the doctrine of "judicial respect for administrative
construction," 3 would, initially, be in order.

Only where the court of last resort has not previously interpreted the statute is the rule applicable
that courts will give consideration to construction by administrative or executive departments of the
state.41awphîl.nèt

The formal or informal interpretation or practical construction of an ambiguous or uncertain

statute or law by the executive department or other agency charged with its administration
or enforcement is entitled to consideration and the highest respect from the courts, and
must be accorded appropriate weight in determining the meaning of the law, especially
when the construction or interpretation is long continued and uniform or is
contemporaneous with the first workings of the statute, or when the enactment of the
statute was suggested by such agency.5

The administrative orders in question appear to be in consonance with the intention of the
legislature to limit the period within which to export imported containers to one year, without
extension, from the date of importation. Otherwise, in enacting the Tariff and Customs Code to
supersede the Philippine Tariff Act of 1909, Congress would have amended section 23 of the latter
law so as to overrule the long-standing view of the Commissioner of Customs that the one-year
period therein mentioned is not extendible.

Implied legislative approval by failure to change a long-standing administrative construction

is not essential to judicial respect for the construction but is an element which greatly
increases the weight given such construction. 6

The correctness of the interpretation given a statute by the agency charged with
administering its provision is indicated where it appears that Congress, with full knowledge
of the agency's interpretation, has made significant additions to the statute without
amending it to depart from the agency's view. 7
Considering that the Bureau of Customs is the office charged with implementing and enforcing the
provisions of our Tariff and Customs Code, the construction placed by it thereon should be given
controlling weight.1awphîl.nèt

In applying the doctrine or principle of respect for administrative or practical construction, the courts
often refer to several factors which may be regarded as bases of the principle, as factors leading the
courts to give the principle controlling weight in particular instances, or as independent rules in
themselves. These factors are the respect due the governmental agencies charged with
administration, their competence, expertness, experience, and informed judgment and the fact that
they frequently are the drafters of the law they interpret; that the agency is the one on which the
legislature must rely to advise it as to the practical working out of the statute, and practical
application of the statute presents the agency with unique opportunity and experiences for
discovering deficiencies, inaccuracies, or improvements in the statute; ... 8

If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to
be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority, 10 then we are hard put to sustain the petitioner's stand that it was entitled to an extension
of time within which to export the jute bags and, consequently, to a refund of the amount it had paid
as customs duties.

In the light of the foregoing, it is our considered view that the one-year period prescribed in section
23 of the Philippine Tariff Act of 1909 is non-extendible and compliance therewith is mandatory.

The petitioner's argument that force majeure and/or fortuitous events prevented it from exporting
the jute bags within the one-year period cannot be accorded credit, for several reasons. In the first
place, in its decision of November 20, 1961, the Court of Tax Appeals made absolutely no mention of
or reference to this argument of the petitioner, which can only be interpreted to mean that the court
did not believe that the "typhoons, floods and picketing" adverted to by the petitioner in its brief
were of such magnitude or nature as to effectively prevent the exportation of the jute bags within
the required one-year period. In point of fact nowhere in the record does the petitioner convincingly
show that the so-called fortuitous events or force majeure referred to by it precluded the timely
exportation of the jute bags. In the second place, assuming, arguendo, that the one-year period is
extendible, the jute bags were not actually exported within the one-week extension the petitioner
sought. The record shows that although of the remaining 86,353 jute bags 21,944 were exported
within the period of one week after the request for extension was filed, the rest of the bags,
amounting to a total of 64,409, were actually exported only during the period from February 16 to
May 24, 1958, long after the expiration of the one-week extension sought by the petitioner. Finally, it
is clear from the record that the typhoons and floods which, according to the petitioner, helped
render impossible the fulfillment of its obligation to export within the one-year period, assuming
that they may be placed in the category of fortuitous events or force majeure, all occurred prior to
the execution of the bonds in question, or prior to the commencement of the one-year period within
which the petitioner was in law required to export the jute bags.

2. The next argument of the petitioner is that granting that Customs Administrative Order 389 is valid
and binding, yet "jute bags" cannot be included in the phrase "cylinders and other containers"
mentioned therein. It will be noted, however, that the Philippine Tariff Act of 1909 and the Tariff and
Customs Code, which Administrative Order 389 seeks to implement, speak of "containers" in general.
The enumeration following the word "containers" in the said statutes serves merely to give examples
of containers and not to specify the particular kinds thereof. Thus, sec. 23 of the Philippine Tariff Act
states, "containers such as casks large metals, glass or other receptacles," and sec. 105 (x) of the
Tariff and Customs Code mentions "large containers," giving as examples "demijohn cylinders, drums,
casks and other similar receptacles of metal, glass or other materials." (emphasis supplied) There is,
therefore, no reason to suppose that the customs authorities had intended, in Customs
Administrative Order 389 to circumscribe the scope of the word "container," any more than the
statures sought to be implemented actually intended to do.

3. Finally, the petitioner claims entitlement to a drawback of the duties it had paid, by virtue of
section 106 (b) of the Tariff and Customs Code, 11 which reads: SEC. 106. Drawbacks: ...

b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes
Thereof. — Upon the exportation of articles manufactured or produced in the Philippines,
including the packing, covering, putting up, marking or labeling thereof, either in whole or in
part of imported materials, or from similar domestic materials of equal quantity and
productive manufacturing quality and value, such question to be determined by the
Collector of Customs, there shall be allowed a drawback equal in amount to the duties paid
on the imported materials so used, or where similar domestic materials are used, to the
duties paid on the equivalent imported similar materials, less one per cent thereof: Provided,
That the exportation shall be made within three years after the importation of the foreign
material used or constituting the basis for drawback ... .

The petitioner argues that not having availed itself of the full exemption granted by sec. 105(x) of the
Tariff and Customs Code due to its failure to export the jute bags within one year, it is nevertheless,
by authority of the above-quoted provision, entitled to a 99% drawback of the duties it had paid,
averring further that sec. 106(b) does not presuppose immediate payment of duties and taxes at the
time of importation.

The contention is palpably devoid of merit.

The provisions invoked by the petitioner (to sustain his claim for refund) offer two options to an
importer. The first, under sec. 105 (x), gives him the privilege of importing, free from import duties,
the containers mentioned therein as long as he exports them within one year from the date of
acceptance of the import entry, which period as shown above, is not extendible. The second,
presented by sec. 106 (b), contemplates a case where import duties are first paid, subject to refund
to the extent of 99% of the amount paid, provided the articles mentioned therein are exported
within three years from importation.

It would seem then that the Government would forego collecting duties on the articles mentioned in
section 105(x) of Tariff and Customs Code as long as it is assured, by the filing of a bond, that the
same shall be exported within the relatively short period of one year from the date of acceptance of
the import entry. Where an importer cannot provide such assurance, then the Government, under
sec. 106(b) of said Code, would require payment of the corresponding duties first. The basic purpose
of the two provisions is the same, which is, to enable a local manufacturer to compete in foreign
markets, by relieving him of the disadvantages resulting from having to pay duties on imported
merchandise, thereby building up export trade and encouraging manufacture in the country. 12 But
there is a difference, and it is this: under section 105(x) full exemption is granted to an importer who
justifies the grant of exemption by exporting within one-year. The petitioner, having opted to take
advantage of the provisions of section 105(x), may not, after having failed to comply with the
conditions imposed thereby, avoid the consequences of such failure by being allowed a drawback
under section 106(b) of the same Act without having complied with the conditions of the latter
section.

For it is not to be supposed that the legislature had intended to defeat compliance with the terms of
section 105(x) thru a refuge under the provisions of section 106(b). A construction should be avoided
which affords an opportunity to defeat compliance with the terms of a statute. 13 Rather courts
should proceed on the theory that parts of a statute may be harmonized and reconciled with each
other.

A construction of a statute which creates an inconsistency should be avoided when a reasonable

interpretation can be adopted which will not do violence to the plain words of the act and will carry
out the intention of Congress.

In the construction of statutes, the courts start with the assumption that the legislature
intended to enact an effective law, and the legislature is not to be presumed to have done a
vain thing in the enactment of a statute. Hence, it is a general principle, embodied in the
maxim, "ut res magis valeat quam pereat," that the courts should, if reasonably possible to
do so without violence to the spirit and language of an act, so interpret the statute to give it
efficient operation and effect as a whole. An interpretation should, if possible, be avoided
under which a statute or provision being construed is defeated, or as otherwise expressed,
nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory. 14

ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at
petitioner's cost.

SALVADOR PEREZ and JUANITA APOSTOL vs. SANDIGANBAYAN [September 26,

2006]

This is a Petition for Certiorari under Rule 65 of the Rules of Court, questioning the twin
Resolutions1 of the Sandiganbayan dated 7 May 2004 (promulgated 18 May 2004), 2 and 27
September 2004 (promulgated 1 October 2004). 3

The following facts were culled from the records of the case:

In a resolution dated 24 April 2001, the Office of the Deputy Ombudsman for Luzon resolved to file
charges of violation of Section 3(e)4 of Republic Act No. 30195 against petitioners, San Manuel,
Pangasinan Mayor Salvador M. Perez, and Municipal Treasurer Juanita Apostol. The Information
alleges a crime committed as follows:

That on or about September of 1998, or sometime prior or subsequent thereto, in the Municipality
of San Manuel, Pangasinan, Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused, SALVADOR PEREZ, being then the Municipal Mayor and JUANITA APOSTOL,
ZAPANTA, Municipal Treasurer of said municipality, conspiring and confederating with one another,
committing the crime herein charged in relation to and taking advantage of their official functions,
and through manifest partiality, evident bad faith or gross inexcusable negligence, did then and
there, wilfully, unlawfully and criminally cause the purchase of one (1) computer unit costing
P120,000.00 acquisition by personal canvass which is in violation of Secs. 362 and 367 of R.A. 7160,
thereby causing undue injury to the Municipality of San Manuel, Pangasinan. 6

On 16 January 2002, prior to the scheduled arraignment, petitioners filed with the Sandiganbayan a
Motion for Leave of Court to File Motion for Reconsideration/Reinvestigation alleging the discovery
of new evidence which will change the outcome of the case if presented and appreciated. The
alleged newly discovered evidence consists in the reassessment by the auditors of the Commission
on Audit (COA) that, though the prices between the subject computer and that canvassed by the
COA are different, such difference is "not really that material." 7

The Sandiganbayan denied the Motion for Leave of Court to File Motion for
Reconsideration/Reinvestigation in an Order dated 4 April 2002. On a subsequent Motion for
Reconsideration, however, the Sandiganbayan reconsidered the 4 April 2002 Order, and granted
petitioners ten days from receipt of the current 6 September 2002 Resolution within which to
formalize their Motion for Reconsideration in the Office of the Ombudsman.

Complying with the 6 September 2002 Resolution, petitioners formalized their Motion for
Reconsideration in the Office of the Ombudsman.

Accordingly, the Office of the Special Prosecutor conducted a reinvestigation. Assistant Special
Prosecutor Warlito F. Galisanao prepared a Memorandum dated 23 October 2003, recommending
the withdrawal of the Information.8However, in the portion of the Memorandum earmarked for the
Special Prosecutor’s action, Special Prosecutor Dennis M. Villa-Ignacio chose the action "DO NOT
CONCUR" by drawing two lines on the action "I CONCUR," and wrote the following marginal note:

I am, instead adopting the enclosed memorandum of Pros. Chua dated Jan. 22, 2004 recommending
that in the meantime, further fact-finding be conducted, and an administrative case be filed against
accused Apostol, after withdrawing the Information for viol. of Sec. 3(e) R.A. 3019. 9

On the other hand, new Ombudsman Simeon V. Marcelo crossed out both actions
(APPROVED/DISAPPROVED), and wrote the following marginal note dated 16 February 2004:

The resolution of this case is deferred. There are two modes of violating Section 3(e) of RA 3019, to
wit: a) causing undue injury or b) giving unwarranted benefits, advantage or preference. OSP should
study whether the accused, assuming arguendo that there was no overprice, gave unwarranted
benefits, advantage or preference to the seller of the subject computer. Kindly submit your
recommendation soonest. 10

In an 8 March 2004 Supplemental Memorandum, Assistant Special Prosecutor III Warlito F. Galisanao
recommended an amendment of the Information, instead of a withdrawal thereof, to wit:

This is a Supplemental Memorandum to an earlier Memorandum dated October 23, 2003 to the
Honorable Tanodbayan, Simeon V. Marcelo who directed the deferment of action on undersigned’s
recommendation for the withdrawal of the Information.
As earlier found, the acquisition of the unbranded computer set was questionable on the following
grounds:

1. There was no public bidding and the mode of procurement was by canvass.

2. Under Sec. 367 of the Local Government Code, procurement through Personal Canvass requires
approval of the Committee on Awards. There was no committee approval to speak of in this case
because none has been constituted. This committee is supposed to be composed of:

a. Local General Services Officer or the Municipal Treasurer;

b. Local Accountant;

c. The head of office of department for whose use the supplies are being procured.

3. Purchases under this section allows municipalities outside Metro Manila with the following limits:

Second and Third Class – Forty Thousand Pesos

(P40,000.00)

Fourth Class and Below – Twenty Thousand Pesos

(P20,000.00)

These limits are applicable for all items procured by any one (1) month period only. The local
government of San Manuel, Pangasinan, incidentally, is a fourth class municipality.

It must be noted that the canvass made on all the stores/suppliers were done by accused Treasurer
Juanita Apostol and attested by Mayor, Salvador Perez. To attest means to affirm to be correct, true
or genuine (Blacks Law Dictionary, Fifth Edition)[.]

In the earlier memorandum, there is no unanimity of conclusion as far as the reasonableness of the
purchase price of the computer set is concern[ed]. However, the circumstances of its acquisition
clearly indicate that the public officials involved gave the supplier, Mobil Link Enterprises/Starlet
Sales Center, a private party, unwarranted benefits, advantage or preference through manifest
partiality, evident bad faith or gross inexcusable negligence by paying much more than the prevailing
price for a comparable computer set in the market.

This conclusion is derived from accused’s deliberate disregard of the rules on procurement discussed
above. The Information must, therefore, be amended to reflect the manner of the commission of the
offense. In regard to Prosecutor Elvira Chua’s recommendation which is endorsed by the Special
Prosecutor, the issue of overpricing must be referred to the appropriate office for further fact-finding
and probable administrative investigation for violation of COA rules and RA 7160 otherwise, known
as the Local Government Code of 1991.

In light of the foregoing, it is recommended that the Information be amended instead of withdrawing
the same. Further, the case of overpricing be referred for fact-finding and possible administrative
investigation for violation of Secs. 362 and 367 of RA 7160, otherwise known as the Local
Government Code of 1991.11
This time around, Special Prosecutor Villa-Ignacio approved the Supplemental Memorandum and,
pursuant thereto, Assistant Special Prosecutor Galisanao filed a Motion for Leave to File Amended
Information dated 12 March 2004. The Amended Information, which again charges petitioners Perez
and Apostol for violation of Sec. 3(e) of Republic Act No. 3019, provides:

That on or about January 21, 1998, or sometime prior or subsequent thereto, in the Municipality of
San Manuel, Pangasinan, Philippines, and within the jurisdiction of this Honorable Court, the above-
named accused, SALVADOR PEREZ, being then the Municipal Mayor and JUANITA A. APOSTOL,
Municipal Treasurer of said municipality, conspiring and confederating with one another, committing
the crime herein charged in relation to and taking advantage of their official functions, through
manifest partiality, evident bad faith or gross inexcusable negligence, did then and there, willfully,
unlawfully and criminally, give unwarranted benefits, advantage or preference in the discharge of
official functions to Mobil Link Enterprises/Starlet Sales Center causing the purchase of one (1)
computer unit costing P120,000.00, an acquisition by personal canvass which is in violation of
Sections 362 and 367 of RA 7160, thereby causing damage and prejudice to the Municipality of San
Manuel, Pangasinan.12

The Sandiganbayan granted the motion in the first assailed resolution, thus:

There having been no arraignment yet and the pre-maturity of the amendment is of the
prosecution’s risk, the motion to Amend the Information is GRANTED.

Accordingly, the Amended Information submitted by the prosecution is admitted. 13

Petitioners filed a motion for reconsideration, but the same was denied in the second assailed
resolution:

The Court resolves to deny the Motion for Reconsideration filed by the accused. Indeed, the power
of a prosecuting prosecutor to amend or cause the amendment of the information does not need the
approving authority of the Ombudsman. The Information was maintained only with some
amendments made which the Court feels do not violate any law since there was no arraignment yet.

Accordingly, accused Motion for Reconsideration dated June 4, 2004 is denied for lack of merit. 14

Petitioners assail the foregoing Resolutions before this Court, presenting the following issues for
resolution:

1. Whether or not there is a denial of procedural due process on the part of the petitioners when the
Special Prosecutor filed the Amended Information without authority from or the approval of the
Honorable Ombudsman, and against the latter’s specific instruction;

2. Whether or not the Amended Information is valid in the absence of such authority or approval of
the Ombudsman under the circumstances; and

3. Whether or not respondent Sandiganbayan acted with grave abuse of discretion amounting to lack
or excess of jurisdiction, when it admitted the Amended Information which bears no approval of the
Honorable Ombudsman, and against the latter’s written instruction to submit to him for approval the
result of the re-study before the filing of said Amended Information. 15
This is not the first time the respective powers of the Ombudsman and the Special Prosecutor were
pitted at loggerheads against each other since these positions were reinvented in the 1987
Constitution. The Offices of the Ombudsman (now also called the Tanodbayan) and the Special
Prosecutor (then called the Tanodbayan) were reintroduced, with modified powers and designation,
in the following provisions of Article XI of the Constitution:

Sec. 5. There is hereby created the independent Office of the Ombudsman, composed of the
Ombudsman to be known as Tanodbayan, one overall Deputy, and at least one Deputy each for
Luzon, Visayas and Mindanao. A separate Deputy for the military establishment may likewise be
appointed.

xxxx

Sec. 7. The existing Tanodbayan shall hereafter be known as the Office of the Special Prosecutor. It
shall continue to function and exercise its powers as now or hereafter may be provided by law,
except those conferred on the Office of the Ombudsman created under this Constitution.

A judicial examination of the prosecutorial powers of these two Constitutional positions came barely
a year after the effectivity of the 1987 Constitution, when then Special Prosecutor Raul Gonzalez filed
criminal cases against Antique Governor Enrique Zaldivar. Zaldivar claimed that said cases were filed
without legal and constitutional authority since, under the 1987 Constitution, it is only the
Ombudsman (not the incumbent Tanodbayan who should now be called the Special Prosecutor) who
has the authority to file the cases with the Sandiganbayan. In granting the petitions and nullifying the
criminal informations filed against Zaldivar, this Court held:

Under the 1987 Constitution, the Ombudsman (as distinguished from the incumbent Tanodbayan) is
charged with the duty to:

"Investigate on its own, or on complaint by any person, any act or omission of any public official,
employee, office or agency, when such act or omission appears to be illegal, unjust, improper or
inefficient." (Sec. 13, par. 1)

The Constitution likewise provides that:

"The existing Tanodbayan shall hereafter be known as the Office of the Special Prosecutor. It shall
continue to function and exercise its powers as now or hereafter may be provided by law, except
those conferred on the Office of the Ombudsman created under this Constitution." (Art. XI, Section
7) (Italics ours).

Now then, inasmuch as the aforementioned duty is given to the Ombudsman, the incumbent
Tanodbayan (called Special Prosecutor under the 1987 constitution and who is supposed to retain
powers and duties NOT GIVEN to the Ombudsman) is clearly without authority to conduct
preliminary investigations and to direct the filing of criminal cases with the Sandiganbayan, except
upon orders of the Ombudsman. This right to do so was lost effective February 2, 1987. From that
time, he has been divested of such authority.

Under the present constitution, the Special Prosecutor (Raul Gonzalez) is a mere subordinate of the
Tanodbayan (Ombudsman) and can investigate and prosecute cases only upon the latter’s authority
or orders. The Special Prosecutor cannot initiate the prosecution of cases but can only conduct the
same if instructed to do so by the Ombudsman. Even his original power to issue subpoena, which he
still claims under Section 10(d) of PD 1630, is now deemed transferred to the Ombudsman, who may,
however, retain it in the Special Prosecutor in connection with the cases he is ordered to
investigate.16 (Emphasis supplied.)

The following year, Republic Act No. 6770,17 otherwise known as The Ombudsman Act of 1989, was
passed into law. Among other things, said law:

1) expressly included the Special Prosecutor under the Office of the Ombudsman; 18

2) gave the Special Prosecutor the power, under the supervision and control and upon the authority
of the Ombudsman, to conduct preliminary investigation and prosecute criminal cases within the
jurisdiction of the Sandiganbayan, and to perform such other duties assigned to it by the
Ombudsman;19 and, most importantly,

3) granted the Ombudsman the powers to:

Investigate and prosecute on its own or on complaint by any person, any act or omission of any
public officer or employee, office or agency, when such act or omission appears to be illegal, unjust,
improper or inefficient. It has primary jurisdiction over cases cognizable by the Sandiganbayan and,
in the exercise of its primary jurisdiction, it may take over, at any stage, from any investigatory agency
of the Government, the investigation of such cases. 20

A few years later, several persons charged in a complaint filed with the Office of the Ombudsman (in
connection with the alleged summary execution of Kuratong Baleleng gang members) instituted
petitions for certiorari with this Court, claiming that it is the Special Prosecutor which has jurisdiction
to conduct the preliminary investigation and file the proper information against them. In the oral
arguments, the parties agreed to limit the issues, with petitioners praying for the re-examination of
the Zaldivar ruling on the argument that the Constitution did not give the Ombudsman prosecutorial
functions, and contending that the inclusion of the Office of the Special Prosecutor as among the
offices under the Office of the Ombudsman in Section 3 of Republic Act No. 6770 is unconstitutional.

In upholding Zaldivar, we held that while there was indeed an intention to withhold prosecutorial
functions from the Ombudsman, the legislature nevertheless recommended that the Legislature
could, through statute, prescribe such other powers, functions and duties to the
Ombudsman.21 Thus, paragraph 8, Section 13, Article XI of the Constitution, provides that the
Ombudsman may exercise other functions and duties as may be provided by law. 22Pursuant to this
authority, the Legislature enacted Republic Act No. 6770, which granted prosecutorial powers to the
Ombudsman.

On the claim that the inclusion of the Office of the Special Prosecutor as among the offices under the
Office of the Ombudsman in Section 3 of Republic Act No. 6770 is unconstitutional, we ratiocinated
that:

The contention is not impressed with merit. Firstly, the petitioners misconstrue Commissioner
Romulo’s statement as authority to advocate that the intent of the framers of the 1987 Constitution
was to place the Office of the Special Prosecutor under the Office of the President. The said
statement obviously referred to the Tanodbayan under P.D. No. 1630 – note how specific the
erstwhile Commissioner was in stating; ". . . as the decree now reads . . ." Further, in complete
contrast to the petitioner’s stand, one of the principal reasons for the proposal to withhold
prosecutorial powers from the Ombudsman was precisely to remove the office from presidential
control. x x x

xxxx

In the second place, Section 7 of Article XI expressly provides that the then existing Tanodbayan, to
be henceforth known as the Office of the Special Prosecutor, "shall continue to function and exercise
its powers as now or hereafter may be provided by law, except those conferred on the Office of the
Ombudsman created under this Constitution." The underscored phrase evidently refers to the
Tanodbayan’s powers under P.D. No. 1630 or subsequent amendatory legislation. It follows then that
Congress may remove any of the Tanodbayan’s/Special Prosecutor’s powers under P.D. No. 1630 or
grant it other powers, except those powers conferred by the Constitution on the Office of the
Ombudsman.

Pursuing the present line of reasoning, when one considers that by express mandate of paragraph 8,
Section 13, Article XI of the Constitution, the Ombudsman may "exercise such other powers or
perform functions or duties as may be provided by law," it is indubitable then that Congress has the
power to place the Office of the Special Prosecutor under the Office of the Ombudsman. In the same
vein, Congress may remove some of the powers granted to the Tanodbayan by P.D. No. 1630 and
transfer them to the Ombudsman; or grant the Office of the Special Prosecutor such other powers
and functions and duties as Congress may deem fit and wise. This Congress did through the passage
of R.A No. 6770.23

While it is clear that Acop v. Office of the Ombudsman upheld Zaldivar v. Sandiganbayan insofar as
the power of the Ombudsman to prosecute cases is concerned, there has been a shift in its ratio
decidendi. Hence, it was pronounced that the authority of the Ombudsman to prosecute was based
on Republic Act No. 6770, as authorized by paragraph 8, Section 13, Article XI of the Constitution.
This being the case, and considering that Republic Act No. 6770 also gives the Special Prosecutor the
power to prosecute criminal cases (albeit under the supervision and control and under the authority
of the Ombudsman), was there likewise a modification of our ruling in Zaldivar prohibiting the then
Special Prosecutor to initiate criminal cases unless authorized by the Ombudsman? Or should there
now be a presumed authority, pursuant to Republic Act No. 6770, to prosecute cases unless
prohibited by the Ombudsman?

The determination of this question is necessary in the case at bar, where it is the petitioners’ central
contention that the Sandiganbayan committed grave abuse of discretion amounting to lack or excess
in jurisdiction when it admitted the Amended Information which, according to petitioners, bears no
approval of the Ombudsman, thus, constituting denial of procedural due process. 24

Particularly, petitioners allege that the amendment of the Information and the admission of the
Amended Information is premature, since the Ombudsman has not yet acted with finality on the 23
October 2003 Memorandum.25 The Ombudsman, by stating in the marginal notes of the 23 October
2003 Memorandum that "(t)he resolution of this case is deferred," and "(k)indly submit your
recommendation soonest," allegedly decreed that the reinvestigation stage would not be completed
until his final determination.26

Respondent People’s defense is that compliance with the specific instructions of the Ombudsman is
merely an internal matter and the alleged failure to heed the specific instructions of the Ombudsman
is speculative.27

The marginal notes of Ombudsmen to the recommendations of investigating prosecutors are hardly
internal matters. In Cruz, Jr. v. People, 28 Olivarez v. Sandiganbayan,29 and Gallardo v. People,30 the
marginal notes, even one-liners as in the case of Gallardo, were judicially considered sufficient
dispositions by the Ombudsmen and Special Prosecutors concerned. We held in Olivarez that:

The mere fact that the order to file the information against petitioner was contained in a marginal
note is not sufficient to impute arbitrariness or caprice on the part of respondent special
prosecutors, absent a clear showing that they gravely abused their discretion in disapproving the
recommendation of the investigating prosecutors to dismiss or withdraw the case against petitioner.
x x x.31

Was there, as petitioners assert, a violation of the orders of the Ombudsman as stated in his marginal
note?

For reference, we reiterate the marginal note of Ombudsman Marcelo dated 16 February 2004:

The resolution of this case is deferred. There are two modes of violating Section 3(e) of RA 3019, to
wit: a) causing undue injury or b) giving unwarranted benefits, advantage or preference. OSP should
study whether the accused, assuming arguendo that there was no overprice, gave unwarranted
benefits, advantage or preference to the seller of the subject computer. Kindly submit your
recommendation soonest. 32

Assistant Special Prosecutor Galisanao’s Special Memorandum, quoted in full in the narration of
facts, show complete compliance with Ombudsman Marcelo’s order to "study whether the accused,
assuming arguendo that there was no overprice, gave unwarranted benefits, advantage or
preference to the seller of the subject computer." Assistant Special Prosecutor Galisanao answered
the query in the affirmative, stating that unwarranted benefits, advantage or preference were given
to Mobil Link Enterprises/Starlet Sales Center through the "deliberate disregard of the rules on
procurement discussed above."

Ombudsman Marcelo’s order, however, to "(k)indly submit your recommendation soonest," is

another matter. The marginal note did not indicate to whom the recommendation should be
submitted. As the recommendation was prepared by a subordinate in the Office of the Special
Prosecutor, would a submission to the Special Prosecutor be sufficient compliance with the order of
the Ombudsman? What is imperative is that the recommendation be submitted to someone who has
the authority to implement such recommendation, by authorizing the filing of the proper
information.

Republic Act No. 6770, by conferring upon the Ombudsman the power to prosecute, likewise grants
to the Ombudsman the power to authorize the filing of informations. As to the Special Prosecutor,
respondent People invokes the aforesaid authority of the Ombudsman in Section 15(10) to delegate
his powers, and claim that there was a general delegation of the authority to approve the filing of
informations in Office Order No. 03-97, series of 2003 (dated 15 September 2003), and Office Order
No. 40-05, series of 2005 (dated 4 April 2005).

Office Order No. 40-05 is a consolidation of several office orders, including the aforementioned Office
Order No. 03-97, which is thus superceded by the former. 33 Office Order No. 40-05 provides:

In the exigency of the service, except when otherwise ordered by the Ombudsman, the disposition of
administrative and criminal cases involving any of the following, viz:

1) City and Municipal mayors;

xxxx

as the highest ranking respondent, where the offense charged involves injury or damage amounting
to, or valued at Two Million Pesos (P2,000,000.00) or less, or where the maximum imposable penalty
for any of the offense charged does not exceed twenty (20) years imprisonment, shall be subject to
the final approval of the Deputy Ombudsman concerned; provided, that, where the offense charged
involves injury or damage amounting to, or valued at, more than Two Million Pesos (P2,000,000.00),
or where the maximum imposable penalty for any of the offense charged is more than twenty (20)
years imprisonment, the disposition shall be subject to the final approval of the Ombudsman.

In the foregoing dispositions that are subject to the final approval of the Deputy Ombudsman
concerned, the undersigned hereby delegates to the latter further authority to approve and sign any
corresponding criminal information, whether to be filed with the regular courts or the
Sandiganbayan; provided, however, that, preparatory to the filing of the information with the
Sandiganbayan, the Office of the Special Prosecutor may review and modify the same, subject to the
approval of the Special Prosecutor, without departing from, or varying in any way, the contents of the
basic Resolution, Order or Decision.34

Contrary to the contention of respondent People, the delegation of the power to authorize the filing
of informations under Office Order No. 40-05 was only made to Deputy Ombudsmen, and not to the
Special Prosecutor. All that was delegated to the Special Prosecutor was the discretional 35 authority
to review and modify the Deputy Ombudsmen-authorized information, but even this is subject to the
condition that such modification must be "without departing from, or varying in any way, the
contents of the basic Resolution, Order or Decision." Even the title of Office Order No. 40-05 betray
the contention of delegation to the Special Prosecutor: "DELEGATION OF FINAL APPROVING
AUTHORITY TO THE DEPUTY OMBUDSMAN FOR LUZON, DEPUTY OMBUDSMAN FOR VISAYAS AND
DEPUTY OMBUDSMAN FOR MINDANAO."

Neither does it help that, under Section 11(4) of Republic Act No. 6770, the Special Prosecutor was
given the rank and salary of Deputy Ombudsman. In Office of the Ombudsman v. Valera, 36 this Court
held:

The petitioner’s contention that since the Special Prosecutor is of the same rank as that of a Deputy
Ombudsman, then the former can rightfully perform all the functions of the latter, including the
power to preventively suspend, is not persuasive. Under civil service laws, rank classification
determines the salary and status of government officials and employees. Although there is
substantial equality in the level of their respective functions, those occupying the same rank do not
necessarily have the same powers nor perform the same functions. 37

There being no express delegation of the power to prosecute, we are constrained to go back to our
main query: Is there an implied delegation of the power to prosecute under Republic Act No. 6770,
such that Special Prosecutors are presumed to have been delegated such power, in the absence of a
prohibition from the Ombudsman?

Republic Act No. 6770 provides:

(4) The Office of the Special Prosecutor shall, under the supervision and control and upon the
authority of the Ombudsman, have the following powers:

(a) To conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the
Sandiganbayan;

(b) To enter into plea-bargaining agreements; and

(c) To perform such other duties assigned to it by the Ombudsman. 38

This Court has defined the power of control as "the power of an officer to alter or modify or nullify or
set aside what a subordinate officer had done in the performance of his duties and to substitute the
judgment of the former for that of the latter." 39 The power of supervision, on the other hand, means
"overseeing, or the power or authority of an officer to see that subordinate officers perform their
duties."40 Under the Administrative Code of 198741:

Supervision and control shall include authority to act directly whenever a specific function is
entrusted by law or regulation to a subordinate; direct the performance of duty; restrain the
commission of acts; review, approve, reverse or modify acts and decisions of subordinate officials or
units; determine priorities in the execution of plans and programs; and prescribe standards,
guidelines, plans and programs. x x x

Springing from the power of control is the doctrine of qualified political agency, wherein the acts of a
subordinate bears the implied approval of his superior, unless actually disapproved by the
latter.42 Thus, taken with the powers of control and supervision, the acts of Department Secretaries in
the performance of their duties are presumed to be the act of the President, unless and until the
President alters, modifies, or nullifies the same. By arguing that "[w]hat is important is that the
amended Information has not been withdrawn, and or recalled by the Honorable Ombudsman, [a]
clear showing that the latter acknowledged/upheld the act of the Special Prosecutor in signing the
Amended Information,"43 respondent People claims that the doctrine of qualified political agency
should be applied as well to the relationship between the Ombudsman and the Special Prosecutor.

Petitioners counter that the doctrine of qualified political agency does not apply to the Office of the
Ombudsman, since the latter is an apolitical agency, and is far different from the bureaucracy to
which said doctrine applies.44

Petitioners are correct.

The doctrine of qualified political agency was adopted in our system of government on the following
pronouncement of this Court in Villena v. The Secretary of the Interior 45:

After serious reflection, we have decided to sustain the contention of the government in this case on
the broad proposition, albeit not suggested, that under the presidential type of government which
we have adopted and considering the departmental organization established and continued in force
by paragraph 1, section 12, Article VII, of our Constitution, all executive and administrative
organizations are adjuncts of the Executive Department, the heads of the various executive
departments are assistants and agents of the Chief Executive, and, except in cases where the Chief
Executive is required by the Constitution or the law to act in person or the exigencies of the situation
demand that he act personally, the multifarious executive and administrative functions of the Chief
Executive are performed by and through the executive departments, and the acts of the secretaries
of such departments, performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.
(Runkle vs. United States [1887]. 122 U.S., 543; 30 Law. ed., 1167; 7 Sup. Ct. Rep., 1141; see also U. S.
vs. Eliason [1839], 16 Pet., 291; 10 Law. ed., 968; Jones vs. U. S. [1890], 137 U.S., 202; 34 Law. ed.,
691; 11 Sup. Ct., Rep., 80; Wolsey v. Chapman [1880], 101 U.S., 755; 25 Law. ed., 915; Wilcox vs.
Jackson [1836], 13 Pet., 498; 10 Law. ed., 264.) 46

While we do not underestimate the quantity of work in the hands of the Office of the Ombudsman,
the same simply does not measure up to the workload of the Office of the President as to
necessitate having the Special Prosecutor as an alter ego of the Ombudsman. In any case, the Office
of the Ombudsman could very well make a general delegation of powers to the Special Prosecutor, if
it is so desired. An examination of the office orders issued by the Ombudsman, however, reveal that
there had been no such intention to make a general delegation.

Indeed, a statute granting powers to an agency created by the Constitution should be liberally
construed for the advancement of the purposes and objectives for which it was created. 47 Yet, the
Ombudsman would be severely hampered from exercising his power of control if we are to allow the
Special Prosecutor to authorize the filing of informations in the first instance. This is because while
the Ombudsman has full discretion to determine whether or not a criminal case should be filed in
the Sandiganbayan, once the case has been filed with said court, it is the Sandiganbayan, and no
longer the Ombudsman, which has full control of the case so much so that the informations may not
be dismissed, without the approval of the said court. 48

We, therefore, resolve to grant the Petition. We realize that, once transmitted to the new
Ombudsman, she can so easily approve the 8 March 2004 Supplemental Memorandum of Assistant
Special Prosecutor Galisanao, and the same Amended Information can be filed in no time. However,
when the law entails a specific procedure to be followed, unwarranted shortcuts lead to the violation
of the sacred right to due process, which we cannot countenance.

Finally, as regards other informations authorized by the Special Prosecutor to be filed without the
approval of the Ombudsman, we also recognize that the former prevailing interpretation of the law
may shield these informations from illegality. Such reliance upon the operative fact, however, would
cease upon the finality of this Decision.
WHEREFORE, the instant Petition for Certiorari is GRANTED. The assailed Resolutions of the
Sandiganbayan admitting the Amended Information is SET ASIDE. Let the 8 March 2004
Supplemental Memorandum of Assistant Special Prosecutor III Warlito F. Galisanao be TRANSMITTED
to the Office of the Ombudsman for approval or disapproval. SO ORDERED.

UNIVERSITY OF NUEVA CACERES vs.ARSENIO MARTINEZ (Judge of CIR) [March 27,

1974]

Petition for certiorari, prohibition and mandamus, with preliminary injunction, relative to the orders
of respondent Presiding Judge of the Court of Industrial Relations dated July 30, 1969 and October 6,
1969, which in effect held that the determination of whether or not a charge of unfair labor practice,
investigated by the Prosecution Division of said court, should be dismissed outright because of any
fatal defect of form or substance is the exclusive prerogative of said Presiding Judge, to the exclusion
of the court en banc, on the theory that the function involved in such determination is not judicial
but purely administrative and hence entrusted to his exclusive administrative authority as head of
said court.

On June 17, 1969, respondent University of Nueva Caceres Guardians Union filed with the Bicol
branch of respondent Court of Industrial Relations (CIR) an unfair labor practice charge against
petitioners accompanied by the joint affidavit of Benito de la Paz and George Offemaria. At the
hearing of said charge before the prosecutor of the CIR, petitioners moved to dismiss the same on
the grounds: (1) it is not verified; (2) it does not specify the particular provisions of Section 4 (a) of
the Industrial Peace Act, RA 875, as amended, supposed to have been violated, and (3) the
supporting joint affidavit contains "falsities, misstatements and improbabilities on points otherwise
material to the charge." Instead of dismissing the charge, the prosecutor, although finding the
grounds of the dismissal motion to be more or less plausible, granted respondent Union five (5) days
"to file an amended charge and amended affidavit," which said Union did on July 8, 1969. On July 14,
1969, petitioners moved to reconsider the ruling of the prosecutor, but on July 30, 1969, respondent
Presiding Judge denied the same, admitted the amended charge and directed the Court Prosecutor
to set the said amended charge for preliminary investigation. On August 16, 1969, petitioners moved
again for reconsideration of the order of July 30, 1969. Apparently, petitioners assumed their motion
for reconsideration would be acted upon by the court en banc, for when on October 6, 1969,
respondent Judge issued an order, signed by him alone, denying it, the present petition was filed
charging said respondent with having acted in excess of jurisdiction in acting on a matter addressed
to and within the jurisdiction of the CIR en banc and of grave abuse of discretion in not ordering the
dismissal of the charge upon the grounds invoked by them.

The assertion by respondent Judge, implicit in his order of October 6, 1969, of jurisdiction, to the
exclusion of the court en banc, over the matter herein involved cannot be sustained. It is Our
considered view that unlike the preliminary investigation of criminal cases by fiscals which are under
the supervision and control of the Secretary of Justice, 1 the peculiar procedure prescribed by law in
unfair labor practices partakes of the nature of judicial investigations, since they are conducted, to
quote the language of the law, by "the Court or any agency or agent designated by the Court",
(Section 5 (b), Rep. Act 875) similarly to the preliminary investigations undertaken by courts of first
instance in election cases2 and charges of violation of the Anti-Subversion Act. 3 Surely, no one can
pretend that in such preliminary investigations, the courts of first instance are performing
administrative or non-judicial functions. In such cases, the courts act in the same judicial capacity as
they do in trying the cases on the merits and cannot, in any respect or measure, be controlled by the
Secretary of Justice. The fact that the law authorizes the CIR to delegate the investigation to "any
agency or agent designated by the Court" does not alter the nature of the court's function in the
premises, just as the appointment of commissioners by the courts under Rule 34 does not make the
procedure administrative or less judicial. Indeed, under the provision aforementioned, the
investigation could very well be assigned to one of the judges of the CIR, and in that event, how can
it be maintained that the function is administrative? Withal, it is implicit in this procedure that the
work of the "agency or agent designated by Court" is as much the responsibility of the court as if it
were the court itself that were acting directly.

The contention of respondent Judge that the function of overseering the Prosecution Division of the
CIR in its work of filing and dismissing charges of unfair labor practice is purely administrative in
nature and falls within his exclusive competence is without merit. It is true that reference to the
court in the law must be construed to mean the Presiding Judge and not the court en banc when the
action contemplated is purely administrative in character, but, precisely, the point missed is that, as
already explained, the Industrial Peace Act does not consider the investigation by the CIR, either by
itself or thru an agent, as an administrative matter but a judicial one like the preliminary
investigations in election and anti-subversion cases.

Maybe the development in the United States recounted by respondent Judge whereby the Taft-
Hartley Law transferred from the National Labor Relations Board to its General Counsel the exclusive
function and power to determine with finality whether or not an unfair labor practice charge should
be filed with the Board is good, in the sense of avoiding that the Board be the accuser, investigator
and judge all rolled into one, but there is nothing in either Commonwealth Act 103 or the Industrial
Peace Act indicating that the American experience has influenced the enactment and phraseology of
the pertinent provisions of our laws. Quite on the contrary, as already pointed out, Section 5(b) of RA
875 very explicitly confers the function of investigating unfair labor charges upon the CIR itself, albeit
it allows the court to designate any other agency or agent for the purpose.

As regards the other impugned order of July 30, 1969, the result of the foregoing discussion and
ruling is that the same should first be submitted to the CIR en banc for appropriate action. Much as
the writer of this opinion feels that the objections thereto raised by petitioners are rather strained
and are not very consistent with the interests of justice, which would not permit the throwing out of
an unfair labor practice charge merely because of non-jurisdictional defects which can anyway be
corrected, the Court would not pre-empt the power of the CIR en banc to make the corresponding
ruling relative thereto in the first instance.

Before closing, it might be stated that, to be sure, the creation of the National Labor Relations
Commission, may have altered the procedure in cases involving alleged unfair labor practices, but
that point is not and cannot be raised anymore in this proceeding and We do not consider it
necessary to pass on it now.

WHEREFORE, the petition for certiorari and prohibition insofar as the assailed order of July 30, 1969
is concerned is denied, without prejudice to the appropriate action on petitioners' motion for
reconsideration thereof by the CIR en banc, but the petition for certiorari and mandamus relative to
the impugned order of respondent Presiding Judge of October 6, 1969 is granted, the said order is
hereby declared null and void and set aside, as in excess of jurisdiction, and respondent Presiding
Judge or whoever is acting in his stead is ordered to refer the motion for reconsideration of
petitioners dated August 16, 1969 to the CIR en banc for appropriate action. The writ of preliminary
injunction issued by the Court on November 24, 1969 is made permanent, without prejudice to the
resolution by the CIR of petitioners' motion for reconsideration just referred to. The manifestation of
Acting Presiding Judge Ansberto Paredes to the effect that he has desisted and continues to desist
from following the practice of former Presiding Judge Martinez declared illegal in this decision is
noted. Costs against private respondents.

Separate Opinions: ANTONIO, J., (concurring)

I concur in the main opinion, with the following additional observations:

In the United States, the provisions of the National Labor Relations Act, as amended by the Taft-
Hartley Act of 1947, separate the prosecuting authority from the judicial authority in unfair labor
practice proceedings.

According to Werne "the General Counsel, who has supervision of the regional directors in the
board's various regional offices and their staffs, constitutes the ultimate prosecuting arm of the
agency, while the board's functions in unfair labor practice cases are restricted exclusively to
decisional powers." Thus, the General Counsel is granted by said Act, "final authority to act in the
name of, but independently of any direction, control, or review by the Board in respect of the
prosecution of such complaints before the
Board."1 In other words, the aforesaid Act grants the General Counsel "final authority in the
investigation of charges and the issuance of complaints. 2

After showing the basic and fundamental difference between the "charge" and the "complaint,"
Rothenberg observes that "the proceedings (as the equivalent of litigation) commences only with the
issuance by the Board of a complaint, from which time forward the Board's judicial functions come
into play. Its prior acceptance of the charge and the resultant investigation are purely of an
administrative character."3

Such is not the case in this jurisdiction, however, because section 5(b) of the Industrial Peace Act
expressly confers upon the Court of Industrial Relations investigatory as well as decisional powers in
unfair labor practice cases. It is important, therefore, to comprehend the unique and dual nature of
the functional character of the court. In the exercise of its investigatory powers, in unfair labor
practice cases, the court may conduct the investigation itself or authorize any of its members or
designate any agent, such as its prosecutor, to conduct the investigation of the charges filed by the
aggrieved party. In the latter case, the designated agent acts on behalf of the court which retains the
final authority in the disposition of the charges and in the issuance of the complaint.

It is, therefore, a matter which is not embraced within the "administrative" authority of respondent
Presiding Judge of the Court of Industrial Relations. The term "administrative" connotes, or pertains,
to "administration, especially management, as by managing or conducting, directing or
superintending the execution, application, or conduct of persons or things." 4 It does not entail an
opportunity to be heard, the production and weighing of evidence, and a decision or resolution
thereon.
LIWAYWAY VINZONS-CHATO vs. FORTUNE TOBACCO CORPORATION
[June 19, 2007]

Petitioner assails the May 7, 1999 Decision1 of the Court of Appeals in CA-G.R. SP No. 47167, which
affirmed the September 29, 1997 Order 2 of the Regional Trial Court (RTC) of Marikina, Branch 272, in
Civil Case No. 97-341-MK, denying petitioner’s motion to dismiss. The complaint filed by respondent
sought to recover damages for the alleged violation of its constitutional rights arising from
petitioner’s issuance of Revenue Memorandum Circular No. 37-93 (RMC 37-93), which the Court
declared invalid in Commissioner of Internal Revenue v. Court of Appeals.3

Petitioner Liwayway Vinzons-Chato was then the Commissioner of Internal Revenue while
respondent Fortune Tobacco Corporation is an entity engaged in the manufacture of different brands
of cigarettes, among which are "Champion," "Hope," and "More" cigarettes.

On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on July
3, 1993. Prior to its effectivity, cigarette brands ‘Champion," "Hope," and "More" were considered
local brands subjected to an ad valorem tax at the rate of 20-45%. However, on July 1, 1993, or two
days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying "Champion," "Hope," and
"More" as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad
valorem tax.4 RMC 37-93 in effect subjected "Hope," "More," and "Champion" cigarettes to the
provisions of RA 7654, specifically, to Sec. 142,5 (c)(1) on locally manufactured cigarettes which
are currently classified and taxed at 55%, and which imposes an ad valorem tax of "55% provided
that the minimum tax shall not be less than Five Pesos (P5.00) per pack."6

On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr. sent via telefax a
copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On July 15, 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. On July 20, 1993,
respondent filed a motion for reconsideration requesting the recall of RMC 37-93, but was denied in
a letter dated July 30, 1993.7 The same letter assessed respondent for ad valorem tax deficiency
amounting to P9,598,334.00 (computed on the basis of RMC 37-93) and demanded payment within
10 days from receipt thereof.8 On August 3, 1993, respondent filed a petition for review with the
Court of Tax Appeals (CTA), which on September 30, 1993, issued an injunction enjoining the
implementation of RMC 37-93.9 In its decision dated August 10, 1994, the CTA ruled that RMC 37-93
is defective, invalid, and unenforceable and further enjoined petitioner from collecting the deficiency
tax assessment issued pursuant to RMC No. 37-93. This ruling was affirmed by the Court of Appeals,
and finally by this Court in Commissioner of Internal Revenue v. Court of Appeals.10 It was held,
among others, that RMC 37-93, has fallen short of the requirements for a valid administrative
issuance.

On April 10, 1997, respondent filed before the RTC a complaint 11 for damages against petitioner in
her private capacity. Respondent contended that the latter should be held liable for damages under
Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its constitutional
right against deprivation of property without due process of law and the right to equal protection of
the laws.

Petitioner filed a motion to dismiss12 contending that: (1) respondent has no cause of action against
her because she issued RMC 37-93 in the performance of her official function and within the scope
of her authority. She claimed that she acted merely as an agent of the Republic and therefore the
latter is the one responsible for her acts; (2) the complaint states no cause of action for lack of
allegation of malice or bad faith; and (3) the certification against forum shopping was signed by
respondent’s counsel in violation of the rule that it is the plaintiff or the principal party who should
sign the same.

On September 29, 1997, the RTC denied petitioner’s motion to dismiss holding that to rule on the
allegations of petitioner would be to prematurely decide the merits of the case without allowing the
parties to present evidence. It further held that the defect in the certification against forum shopping
was cured by respondent’s submission of the corporate secretary’s certificate authorizing its counsel
to execute the certification against forum shopping. The dispositive portion thereof, states:

WHEREFORE, foregoing premises considered, the motion to dismiss filed by the defendant
Liwayway Vinzons-Chato and the motion to strike out and expunge from the record the said
motion to dismiss filed by plaintiff Fortune Tobacco Corporation are both denied on the
grounds aforecited. The defendant is ordered to file her answer to the complaint within ten
(10) days from receipt of this Order. SO ORDERED. 13

The case was elevated to the Court of Appeals via a petition for certiorari under Rule 65. However,
same was dismissed on the ground that under Article 32 of the Civil Code, liability may arise even if
the defendant did not act with malice or bad faith. The appellate court ratiocinated that Section 38,
Book I of the Administrative Code is the general law on the civil liability of public officers while Article
32 of the Civil Code is the special law that governs the instant case. Consequently, malice or bad faith
need not be alleged in the complaint for damages. It also sustained the ruling of the RTC that the
defect of the certification against forum shopping was cured by the submission of the corporate
secretary’s certificate giving authority to its counsel to execute the same.

Undaunted, petitioner filed the instant recourse contending that the suit is grounded on her acts
done in the performance of her functions as a public officer, hence, it is Section 38, Book I of the
Administrative Code which should be applied. Under this provision, liability will attach only when
there is a clear showing of bad faith, malice, or gross negligence. She further averred that the Civil
Code, specifically, Article 32 which allows recovery of damages for violation of constitutional rights, is
a general law on the liability of public officers; while Section 38, Book I of the Administrative Code is
a special law on the superior public officers’ liability, such that, if the complaint, as in the instant
case, does not allege bad faith, malice, or gross negligence, the same is dismissible for failure to state
a cause of action. As to the defect of the certification against forum shopping, she urged the Court to
strictly construe the rules and to dismiss the complaint.

Conversely, respondent argued that Section 38 which treats in general the public officers’ "acts" from
which civil liability may arise, is a general law; while Article 32 which deals specifically with the public
officers’ violation of constitutional rights, is a special provision which should determine whether the
complaint states a cause of action or not. Citing the case of Lim v. Ponce de Leon,14 respondent
alleged that under Article 32 of the Civil Code, it is enough that there was a violation of the
constitutional rights of the plaintiff and it is not required that said public officer should have acted
with malice or in bad faith. Hence, it concluded that even granting that the complaint failed to allege
bad faith or malice, the motion to dismiss for failure to state a cause of action should be denied
inasmuch as bad faith or malice are not necessary to hold petitioner liable.
The issues for resolution are as follows:

(1) May a public officer be validly sued in his/her private capacity for acts done in connection
with the discharge of the functions of his/her office?

(2) Which as between Article 32 of the Civil Code and Section 38, Book I of the
Administrative Code should govern in determining whether the instant complaint states a
cause of action?

(3) Should the complaint be dismissed for failure to comply with the rule on certification
against forum shopping?

(4) May petitioner be held liable for damages?

On the first issue, the general rule is that a public officer is not liable for damages which a person
may suffer arising from the just performance of his official duties and within the scope of his
assigned tasks.15 An officer who acts within his authority to administer the affairs of the office which
he/she heads is not liable for damages that may have been caused to another, as it would virtually be
a charge against the Republic, which is not amenable to judgment for monetary claims without its
consent.16 However, a public officer is by law not immune from damages in his/her personal capacity
for acts done in bad faith which, being outside the scope of his authority, are no longer protected by
the mantle of immunity for official actions. 17

Specifically, under Section 38, Book I of the Administrative Code, civil liability may arise where there
is bad faith, malice, or gross negligence on the part of a superior public officer. And, under Section 39
of the same Book, civil liability may arise where the subordinate public officer’s act is characterized
by willfulness or negligence. Thus –

Sec. 38. Liability of Superior Officers. – (1) A public officer shall not be civilly liable for acts
done in the performance of his official duties, unless there is a clear showing of bad faith,
malice or gross negligence.

xxxx

Section 39. Liability of Subordinate Officers. – No subordinate officer or employee shall be

civilly liable for acts done by him in good faith in the performance of his duties. However, he
shall be liable for willful or negligent acts done by him which are contrary to law, morals,
public policy and good customs even if he acts under orders or instructions of his superior.

In addition, the Court held in Cojuangco, Jr. v. Court of Appeals,18 that a public officer who directly or
indirectly violates the constitutional rights of another, may be validly sued for damages under Article
32 of the Civil Code even if his acts were not so tainted with malice or bad faith.

Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity
for acts done in the course of the performance of the functions of the office, where said public
officer: (1) acted with malice, bad faith, or negligence; or (2) where the public officer violated a
constitutional right of the plaintiff.
Anent the second issue, we hold that the complaint filed by respondent stated a cause of action and
that the decisive provision thereon is Article 32 of the Civil Code.

A general statute is one which embraces a class of subjects or places and does not omit any subject
or place naturally belonging to such class. A special statute, as the term is generally understood, is
one which relates to particular persons or things of a class or to a particular portion or section of the
state only.19

A general law and a special law on the same subject are statutes in pari materia and should,
accordingly, be read together and harmonized, if possible, with a view to giving effect to both. The
rule is that where there are two acts, one of which is special and particular and the other general
which, if standing alone, would include the same matter and thus conflict with the special act, the
special law must prevail since it evinces the legislative intent more clearly than that of a general
statute and must not be taken as intended to affect the more particular and specific provisions of the
earlier act, unless it is absolutely necessary so to construe it in order to give its words any meaning at
all.20

The circumstance that the special law is passed before or after the general act does not change the
principle. Where the special law is later, it will be regarded as an exception to, or a qualification of,
the prior general act; and where the general act is later, the special statute will be construed as
remaining an exception to its terms, unless repealed expressly or by necessary implication. 21

Thus, in City of Manila v. Teotico,22 the Court held that Article 2189 of the Civil Code which holds
provinces, cities, and municipalities civilly liable for death or injuries by reason of defective
conditions of roads and other public works, is a special provision and should prevail over Section 4 of
Republic Act No. 409, the Charter of Manila, in determining the liability for defective street
conditions. Under said Charter, the city shall not be held for damages or injuries arising from the
failure of the local officials to enforce the provision of the charter, law, or ordinance, or from
negligence while enforcing or attempting to enforce the same. As explained by the Court:

Manila maintains that the former provision should prevail over the latter, because Republic
Act 409 is a special law, intended exclusively for the City of Manila, whereas the Civil Code is
a general law, applicable to the entire Philippines.

The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that,
insofar as its territorial application is concerned, Republic Act No. 409 is a special law and the
Civil Code a general legislation; but, as regards the subject matter of the provisions above
quoted, Section 4 of Republic Act 409 establishes a general rule regulating the liability of the
City of Manila for "damages or injury to persons or property arising from the failure of" city
officers "to enforce the provisions of" said Act "or any other law or ordinance, or from
negligence" of the city "Mayor, Municipal Board, or other officers while enforcing or
attempting to enforce said provisions." Upon the other hand, Article 2189 of the Civil Code
constitutes a particular prescription making "provinces, cities and municipalities . . . liable for
damages for the death of, or injury suffered by, any person by reason" — specifically — "of
the defective condition of roads, streets, bridges, public buildings, and other public works
under their control or supervision." In other words, said section 4 refers to liability arising
from negligence, in general, regardless of the object thereof, whereas Article 2189 governs
 liability due to "defective streets," in particular. Since the present action is based upon the
alleged defective condition of a road, said Article 2189 is decisive thereon.23

In the case of Bagatsing v. Ramirez,24 the issue was which law should govern the publication of a tax
ordinance, the City Charter of Manila, a special act which treats ordinances in general and which
requires their publication before enactment and after approval, or the Tax Code, a general law, which
deals in particular with "ordinances levying or imposing taxes, fees or other charges," and which
demands publication only after approval. In holding that it is the Tax Code which should prevail, the
Court elucidated that:

There is no question that the Revised Charter of the City of Manila is a special act since it
relates only to the City of Manila, whereas the Local Tax Code is a general law because it
applies universally to all local governments. Blackstone defines general law as a universal
rule affecting the entire community and special law as one relating to particular persons or
things of a class. And the rule commonly said is that a prior special law is not ordinarily
repealed by a subsequent general law. The fact that one is special and the other general
creates a presumption that the special is to be considered as remaining an exception of the
general, one as a general law of the land, the other as the law of a particular case. However,
the rule readily yields to a situation where the special statute refers to a subject in general,
which the general statute treats in particular. Th[is] exactly is the circumstance obtaining in
the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of
"ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section
43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other
charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of
the City of Manila is doubtless dominant, but, that dominant force loses its continuity
when it approaches the realm of "ordinances levying or imposing taxes, fees or other
charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. Special provision governs.

Let us examine the provisions involved in the case at bar. Article 32 of the Civil Code provides:

ART. 32. Any public officer or employee, or any private individual, who directly or indirectly
obstructs, defeats, violates, or in any manner impedes or impairs any of the following rights
and liberties of another person shall be liable to the latter for damages:

xxxx

(6) The right against deprivation of property without due process of law;

xxxx

(8) The right to the equal protection of the laws;

xxxx

The rationale for its enactment was explained by Dean Bocobo of the Code Commission, as follows:

"DEAN BOCOBO. Article 32, regarding individual rights, Attorney Cirilo Paredes proposes that
Article 32 be so amended as to make a public official liable for violation of another person’s
 constitutional rights only if the public official acted maliciously or in bad faith. The Code
Commission opposes this suggestion for these reasons:

"The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary
therefore that there should be malice or bad faith. To make such a requisite would defeat the
main purpose of Article 32 which is the effective protection of individual rights. Public
officials in the past have abused their powers on the pretext of justifiable motives or good
faith in the performance of their duties. Precisely, the object of the Article is to put an end to
official abuse by the plea of good faith. In the United States this remedy is in the nature of a
tort.

"Mr. Chairman, this article is firmly one of the fundamental articles introduced in the New
Civil Code to implement democracy. There is no real democracy if a public official is abusing
and we made the article so strong and so comprehensive that it concludes an abuse of
individual rights even if done in good faith, that official is liable. As a matter of fact, we know
that there are very few public officials who openly and definitely abuse the individual rights
of the citizens. In most cases, the abuse is justified on a plea of desire to enforce the law to
comply with one’s duty. And so, if we should limit the scope of this article, that would
practically nullify the object of the article. Precisely, the opening object of the article is to put
an end to abuses which are justified by a plea of good faith, which is in most cases the plea
of officials abusing individual rights."25

The Code Commission deemed it necessary to hold not only public officers but also private
individuals civilly liable for violation of the rights enumerated in Article 32 of the Civil Code. It is not
necessary that the defendant under this Article should have acted with malice or bad faith,
otherwise, it would defeat its main purpose, which is the effective protection of individual rights. It
suffices that there is a violation of the constitutional right of the plaintiff. 26

Article 32 was patterned after the "tort" in American law. 27 A tort is a wrong, a tortious act which has
been defined as the commission or omission of an act by one, without right, whereby another
receives some injury, directly or indirectly, in person, property, or reputation. 28 There are cases in
which it has been stated that civil liability in tort is determined by the conduct and not by the mental
state of the tortfeasor, and there are circumstances under which the motive of the defendant has
been rendered immaterial. The reason sometimes given for the rule is that otherwise, the mental
attitude of the alleged wrongdoer, and not the act itself, would determine whether the act was
wrongful.29 Presence of good motive, or rather, the absence of an evil motive, does not render lawful
an act which is otherwise an invasion of another’s legal right; that is, liability in tort is not precluded
by the fact that defendant acted without evil intent. 30

The clear intention therefore of the legislature was to create a distinct cause of action in the nature
of tort for violation of constitutional rights, irrespective of the motive or intent of the
defendant.31 This is a fundamental innovation in the Civil Code, and in enacting the Administrative
Code pursuant to the exercise of legislative powers, then President Corazon C. Aquino, could not
have intended to obliterate this constitutional protection on civil liberties.

In Aberca v. Ver,32 it was held that with the enactment of Article 32, the principle of accountability of
public officials under the Constitution acquires added meaning and assumes a larger dimension. No
longer may a superior official relax his vigilance or abdicate his duty to supervise his subordinates,
secure in the thought that he does not have to answer for the transgressions committed by the latter
against the constitutionally protected rights and liberties of the citizen. Part of the factors that
propelled people power in February 1986 was the widely held perception that the government was
callous or indifferent to, if not actually responsible for, the rampant violations of human rights. While
it would certainly be too naive to expect that violators of human rights would easily be deterred by
the prospect of facing damage suits, it should nonetheless be made clear in no uncertain terms that
Article 32 of the Civil Code makes the persons who are directly, as well as indirectly, responsible for
the transgression, joint tortfeasors.

On the other hand, Sections 38 and 39, Book I of the Administrative Code, laid down the rule on the
civil liability of superior and subordinate public officers for acts done in the performance of their
duties. For both superior and subordinate public officers, the presence of bad faith, malice, and
negligence are vital elements that will make them liable for damages. Note that while said provisions
deal in particular with the liability of government officials, the subject thereof is general, i.e., "acts"
done in the performance of official duties, without specifying the action or omission that may give
rise to a civil suit against the official concerned.

Contrarily, Article 32 of the Civil Code specifies in clear and unequivocal terms a particular specie of
an "act" that may give rise to an action for damages against a public officer, and that is, a tort for
impairment of rights and liberties. Indeed, Article 32 is the special provision that deals specifically
with violation of constitutional rights by public officers. All other actionable acts of public officers are
governed by Sections 38 and 39 of the Administrative Code. While the Civil Code, specifically, the
Chapter on Human Relations is a general law, Article 32 of the same Chapter is a special and specific
provision that holds a public officer liable for and allows redress from a particular class of wrongful
acts that may be committed by public officers. Compared thus with Section 38 of the Administrative
Code, which broadly deals with civil liability arising from errors in the performance of duties, Article
32 of the Civil Code is the specific provision which must be applied in the instant case precisely filed
to seek damages for violation of constitutional rights.

The complaint in the instant case was brought under Article 32 of the Civil Code. Considering that
bad faith and malice are not necessary in an action based on Article 32 of the Civil Code, the failure
to specifically allege the same will not amount to failure to state a cause of action. The courts below
therefore correctly denied the motion to dismiss on the ground of failure to state a cause of action,
since it is enough that the complaint avers a violation of a constitutional right of the plaintiff.

Anent the issue on non-compliance with the rule against forum shopping, the subsequent
submission of the secretary’s certificate authorizing the counsel to sign and execute the certification
against forum shopping cured the defect of respondent’s complaint. Besides, the merits of the
instant case justify the liberal application of the rules. 33

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals
dated May 7, 1999 which affirmed the Order of the Regional Trial Court of Marikina, Branch 272,
denying petitioner’s motion to dismiss, is AFFIRMED. The Presiding Judge, Regional Trial Court of
Marikina, Branch 272, is hereby DIRECTED to continue with the proceedings in Civil Case No. 97-341-
MK with dispatch.
With costs.

SO ORDERED.

INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, et al. vs. COMELEC

[January 13, 2004]

There is grave abuse of discretion (1) when an act is done contrary to the Constitution, the law or
jurisprudence;1 or (2) when it is executed whimsically, capriciously or arbitrarily out of malice, ill will
or personal bias.2 In the present case, the Commission on Elections approved the assailed Resolution
and awarded the subject Contract not only in clear violation of law and jurisprudence, but also in
reckless disregard of its own bidding rules and procedure. For the automation of the counting and
canvassing of the ballots in the 2004 elections, Comelec awarded the Contract to "Mega Pacific
Consortium" an entity that had not participated in the bidding. Despite this grant, the poll body
signed the actual automation Contract with "Mega Pacific eSolutions, Inc.," a company that joined
the bidding but had not met the eligibility requirements.

Comelec awarded this billion-peso undertaking with inexplicable haste, without adequately checking
and observing mandatory financial, technical and legal requirements. It also accepted the proferred
computer hardware and software even if, at the time of the award, they had undeniably failed to
pass eight critical requirements designed to safeguard the integrity of elections, especially the
following three items:

· They failed to achieve the accuracy rating criteria of 99.9995 percent set-up by the Comelec
itself

· They were not able to detect previously downloaded results at various canvassing or
consolidation levels and to prevent these from being inputted again

· They were unable to print the statutorily required audit trails of the count/canvass at
different levels without any loss of data

Because of the foregoing violations of law and the glaring grave abuse of discretion committed by
Comelec, the Court has no choice but to exercise its solemn "constitutional duty" 3 to void the
assailed Resolution and the subject Contract. The illegal, imprudent and hasty actions of the
Commission have not only desecrated legal and jurisprudential norms, but have also cast serious
doubts upon the poll body’s ability and capacity to conduct automated elections. Truly, the pith and
soul of democracy -- credible, orderly, and peaceful elections -- has been put in jeopardy by the
illegal and gravely abusive acts of Comelec.

The Case

Before us is a Petition4 under Rule 65 of the Rules of Court, seeking (1) to declare null and void
Resolution No. 6074 of the Commission on Elections (Comelec), which awarded "Phase II of the
Modernization Project of the Commission to Mega Pacific Consortium (MPC);" (2) to enjoin the
implementation of any further contract that may have been entered into by Comelec "either with
Mega Pacific Consortium and/or Mega Pacific eSolutions, Inc. (MPEI);" and (3) to compel Comelec to
conduct a re-bidding of the project.

The Facts

The following facts are not disputed. They were culled from official documents, the parties’
pleadings, as well as from admissions during the Oral Argument on October 7, 2003.

On June 7, 1995, Congress passed Republic Act 8046, 5 which authorized Comelec to conduct a
nationwide demonstration of a computerized election system and allowed the poll body to pilot-test
the system in the March 1996 elections in the Autonomous Region in Muslim Mindanao (ARMM).
On December 22, 1997, Congress enacted Republic Act 8436 6 authorizing Comelec to use an
automated election system (AES) for the process of voting, counting votes and
canvassing/consolidating the results of the national and local elections. It also mandated the poll
body to acquire automated counting machines (ACMs), computer equipment, devices and materials;
and to adopt new electoral forms and printing materials.

Initially intending to implement the automation during the May 11, 1998 presidential elections,
Comelec -- in its Resolution No. 2985 dated February 9, 1998 7 -- eventually decided against full
national implementation and limited the automation to the Autonomous Region in Muslim
Mindanao (ARMM). However, due to the failure of the machines to read correctly some automated
ballots in one town, the poll body later ordered their manual count for the entire Province of Sulu. 8

In the May 2001 elections, the counting and canvassing of votes for both national and local positions
were also done manually, as no additional ACMs had been acquired for that electoral exercise
allegedly because of time constraints.

On October 29, 2002, Comelec adopted in its Resolution 02-0170 a modernization program for the
2004 elections. It resolved to conduct biddings for the three (3) phases of its Automated Election
System; namely, Phase I - Voter Registration and Validation System; Phase II - Automated Counting
and Canvassing System; and Phase III - Electronic Transmission.

On January 24, 2003, President Gloria Macapagal-Arroyo issued Executive Order No. 172, which
allocated the sum of P2.5 billion to fund the AES for the May 10, 2004 elections. Upon the request of
Comelec, she authorized the release of an additional P500 million.

On January 28, 2003, the Commission issued an "Invitation to Apply for Eligibility and to Bid," which
we quote as follows:

"INVITATION TO APPLY FOR ELIGIBILITY AND TO BID

The Commission on Elections (COMELEC), pursuant to the mandate of Republic Act Nos.
8189 and 8436, invites interested offerors, vendors, suppliers or lessors to apply for eligibility
and to bid for the procurement by purchase, lease, lease with option to purchase, or
otherwise, supplies, equipment, materials and services needed for a comprehensive
Automated Election System, consisting of three (3) phases: (a) registration/verification of
voters, (b) automated counting and consolidation of votes, and (c) electronic transmission of
election results, with an approved budget of TWO BILLION FIVE HUNDRED MILLION
(Php2,500,000,000) Pesos.

Only bids from the following entities shall be entertained:

a. Duly licensed Filipino citizens/proprietorships;

b. Partnerships duly organized under the laws of the Philippines and of which at least
sixty percent (60%) of the interest belongs to citizens of the Philippines;

c. Corporations duly organized under the laws of the Philippines, and of which at
least sixty percent (60%) of the outstanding capital stock belongs to citizens of the
Philippines;
 d. Manufacturers, suppliers and/or distributors forming themselves into a joint
venture, i.e., a group of two (2) or more manufacturers, suppliers and/or distributors
that intend to be jointly and severally responsible or liable for a particular contract,
provided that Filipino ownership thereof shall be at least sixty percent (60%); and

e. Cooperatives duly registered with the Cooperatives Development Authority.

Bid documents for the three (3) phases may be obtained starting 10 February 2003, during
office hours from the Bids and Awards Committee (BAC) Secretariat/Office of Commissioner
Resurreccion Z. Borra, 7th Floor, Palacio del Governador, Intramuros, Manila, upon payment
at the Cash Division, Commission on Elections, in cash or cashier’s check, payable to the
Commission on Elections, of a non-refundable amount of FIFTEEN THOUSAND PESOS
(Php15,000.00) for each phase. For this purpose, interested offerors, vendors, suppliers or
lessors have the option to participate in any or all of the three (3) phases of the
comprehensive Automated Election System.

A Pre-Bid Conference is scheduled on 13 February 2003, at 9:00 a.m. at the Session Hall,
Commission on Elections, Postigo Street, Intramuros, Manila. Should there be questions on
the bid documents, bidders are required to submit their queries in writing to the BAC
Secretariat prior to the scheduled Pre-Bid Conference.

Deadline for submission to the BAC of applications for eligibility and bid envelopes for the
supply of the comprehensive Automated Election System shall be at the Session Hall,
Commission on Elections, Postigo Street, Intramuros, Manila on 28 February 2003 at 9:00
a.m.

The COMELEC reserves the right to review the qualifications of the bidders after the bidding
and before the contract is executed. Should such review uncover any misrepresentation
made in the eligibility statements, or any changes in the situation of the bidder to materially
downgrade the substance of such statements, the COMELEC shall disqualify the bidder upon
due notice without any obligation whatsoever for any expenses or losses that may be
incurred by it in the preparation of its bid." 9

On February 11, 2003, Comelec issued Resolution No. 5929 clarifying certain eligibility criteria for
bidders and the schedule of activities for the project bidding, as follows:

"1.) Open to Filipino and foreign corporation duly registered and licensed to do business and
is actually doing business in the Philippines, subject to Sec. 43 of RA 9184 (An Act providing
In the Modernization Standardization and Regulation of the Procurement Activities of the
Government and for other purposes etc.)

2.) Track Record:

a) For counting machines – should have been used in at least one (1) political
exercise with no less than Twenty Million Voters;
 b) For verification of voters – the reference site of an existing data base installation
using Automated Fingerprint Identification System (AFIS) with at least Twenty
Million.

3.) Ten percent (10%) equity requirement shall be based on the total project cost; and

4.) Performance bond shall be twenty percent (20%) of the bid offer.

RESOLVED moreover, that:

1) A. Due to the decision that the eligibility requirements and the rest of the Bid
documents shall be released at the same time, and the memorandum of Comm.
Resurreccion Z. Borra dated February 7, 2003, the documents to be released on
Friday, February 14, 2003 at 2:00 o’clock p.m. shall be the eligibility criteria, Terms of
Reference (TOR) and other pertinent documents;

B. Pre-Bid conference shall be on February 18, 2003; and

C. Deadline for the submission and receipt of the Bids shall be on March 5,
2003.

2) The aforementioned documents will be available at the following offices:

a) Voters Validation: Office of Comm. Javier

b) Automated Counting Machines: Office of Comm. Borra

c) Electronic Transmission: Office of Comm. Tancangco" 10

On February 17, 2003, the poll body released the Request for Proposal (RFP) to procure the election
automation machines. The Bids and Awards Committee (BAC) of Comelec convened a pre-bid
conference on February 18, 2003 and gave prospective bidders until March 10, 2003 to submit their
respective bids.

Among others, the RFP provided that bids from manufacturers, suppliers and/or distributors forming
themselves into a joint venture may be entertained, provided that the Philippine ownership thereof
shall be at least 60 percent. Joint venture is defined in the RFP as "a group of two or more
manufacturers, suppliers and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract."11

Basically, the public bidding was to be conducted under a two-envelope/two stage system. The
bidder’s first envelope or the Eligibility Envelope should establish the bidder’s eligibility to bid and its
qualifications to perform the acts if accepted. On the other hand, the second envelope would be the
Bid Envelope itself. The RFP outlines the bidding procedures as follows:

"25. Determination of Eligibility of Prospective Bidders

"25.1 The eligibility envelopes of prospective Bidders shall be opened first to

determine their eligibility. In case any of the requirements specified in Clause 20 is
missing from the first bid envelope, the BAC shall declare said prospective Bidder as
 ineligible to bid. Bid envelopes of ineligible Bidders shall be immediately returned
unopened.

"25.2 The eligibility of prospective Bidders shall be determined using simple

‘pass/fail’ criteria and shall be determined as either eligible or ineligible. If the
prospective Bidder is rated ‘passed’ for all the legal, technical and financial
requirements, he shall be considered eligible. If the prospective Bidder is rated
‘failed’ in any of the requirements, he shall be considered ineligible.

"26. Bid Examination/Evaluation

"26.1 The BAC will examine the Bids to determine whether they are complete,
whether any computational errors have been made, whether required securities
have been furnished, whether the documents have been properly signed, and
whether the Bids are generally in order.

"26.2 The BAC shall check the submitted documents of each Bidder against the
required documents enumerated under Clause 20, to ascertain if they are all present
in the Second bid envelope (Technical Envelope). In case one (1) or more of the
required documents is missing, the BAC shall rate the Bid concerned as ‘failed’ and
immediately return to the Bidder its Third bid envelope (Financial Envelope)
unopened. Otherwise, the BAC shall rate the first bid envelope as ‘passed’.

"26.3 The BAC shall immediately open the Financial Envelopes of the Bidders whose
Technical Envelopes were passed or rated on or above the passing score. Only Bids
that are determined to contain all the bid requirements for both components shall
be rated ‘passed’ and shall immediately be considered for evaluation and
comparison.

"26.4 In the opening and examination of the Financial Envelope, the BAC shall
announce and tabulate the Total Bid Price as calculated. Arithmetical errors will be
rectified on the following basis: If there is a discrepancy between words and figures,
the amount in words will prevail. If there is a discrepancy between the unit price and
the total price that is obtained by multiplying the unit price and the quantity, the
unit price shall prevail and the total price shall be corrected accordingly. If there is a
discrepancy between the Total Bid Price and the sum of the total prices, the sum of
the total prices prevail and the Total Bid Price shall be corrected accordingly.

"26.5 Financial Proposals which do not clearly state the Total Bid Price shall be
rejected. Also, Total Bid Price as calculated that exceeds the approved budget for the
contract shall also be rejected.

27. Comparison of Bids

27.1 The bid price shall be deemed to embrace all costs, charges and fees associated
with carrying out all the elements of the proposed Contract, including but not
limited to, license fees, freight charges and taxes.
 27.2 The BAC shall establish the calculated prices of all Bids rated ‘passed’ and rank
the same in ascending order.

xxxxxxxxx

"29. Postqualification

"29.1 The BAC will determine to its satisfaction whether the Bidder selected as
having submitted the lowest calculated bid is qualified to satisfactorily perform the
Contract.

"29.2 The determination will take into account the Bidder’s financial, technical and
production capabilities/resources. It will be based upon an examination of the
documentary evidence of the Bidder’s qualification submitted by the Bidder as well
as such other information as the BAC deems necessary and appropriate.

"29.3 A bid determined as not substantially responsive will be rejected by the BAC
and may not subsequently be made responsive by the Bidder by correction of the
non-conformity.

"29.4 The BAC may waive any informality or non-conformity or irregularity in a bid
which does not constitute a material deviation, provided such waiver does not
prejudice or affect the relative ranking of any Bidder.

"29.5 Should the BAC find that the Bidder complies with the legal, financial and
technical requirements, it shall make an affirmative determination which shall be a
prerequisite for award of the Contract to the Bidder. Otherwise, it will make a
negative determination which will result in rejection of the Bidder’s bid, in which
event the BAC will proceed to the next lowest calculated bid to make a similar
determination of that Bidder’s capabilities to perform satisfactorily." 12

Out of the 57 bidders,13 the BAC found MPC and the Total Information Management Corporation
(TIMC) eligible. For technical evaluation, they were referred to the BAC’s Technical Working Group
(TWG) and the Department of Science and Technology (DOST).

In its Report on the Evaluation of the Technical Proposals on Phase II, DOST said that both MPC and
TIMC had obtained a number of failed marks in the technical evaluation. Notwithstanding these
failures, Comelec en banc, on April 15, 2003, promulgated Resolution No. 6074 awarding the project
to MPC. The Commission publicized this Resolution and the award of the project to MPC on May 16,
2003.

On May 29, 2003, five individuals and entities (including the herein Petitioners Information
Technology Foundation of the Philippines, represented by its president, Alfredo M. Torres; and Ma.
Corazon Akol) wrote a letter14 to Comelec Chairman Benjamin Abalos Sr. They protested the award of
the Contract to Respondent MPC "due to glaring irregularities in the manner in which the bidding
process had been conducted." Citing therein the noncompliance with eligibility as well as technical
and procedural requirements (many of which have been discussed at length in the Petition), they
sought a re-bidding.
In a letter-reply dated June 6, 2003,15 the Comelec chairman -- speaking through Atty. Jaime Paz, his
head executive assistant -- rejected the protest and declared that the award "would stand up to the
strictest scrutiny."

Hence, the present Petition.16

The Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"1. The COMELEC awarded and contracted with a non-eligible entity; x x x

"2. Private respondents failed to pass the Technical Test as required in the RFP.
Notwithstanding, such failure was ignored. In effect, the COMELEC changed the rules after
the bidding in effect changing the nature of the contract bidded upon.

"3. Petitioners have locus standi.

"4. Instant Petition is not premature. Direct resort to the Supreme Court is justified." 17

In the main, the substantive issue is whether the Commission on Elections, the agency vested with
the exclusive constitutional mandate to oversee elections, gravely abused its discretion when, in the
exercise of its administrative functions, it awarded to MPC the contract for the second phase of the
comprehensive Automated Election System.

Before discussing the validity of the award to MPC, however, we deem it proper to first pass upon
the procedural issues: the legal standing of petitioners and the alleged prematurity of the Petition.

This Court’s Ruling

The Petition is meritorious.

First Procedural Issue:

Locus Standi of Petitioners

Respondents chorus that petitioners do not possess locus standi, inasmuch as they are not
challenging the validity or constitutionality of RA 8436. Moreover, petitioners supposedly admitted
during the Oral Argument that no law had been violated by the award of the Contract. Furthermore,
they allegedly have no actual and material interest in the Contract and, hence, do not stand to be
injured or prejudiced on account of the award.

On the other hand, petitioners -- suing in their capacities as taxpayers, registered voters and
concerned citizens -- respond that the issues central to this case are "of transcendental importance
and of national interest." Allegedly, Comelec’s flawed bidding and questionable award of the
Contract to an unqualified entity would impact directly on the success or the failure of the electoral
process. Thus, any taint on the sanctity of the ballot as the expression of the will of the people would
inevitably affect their faith in the democratic system of government. Petitioners further argue that
the award of any contract for automation involves disbursement of public funds in gargantuan
amounts; therefore, public interest requires that the laws governing the transaction must be
followed strictly.

We agree with petitioners. Our nation’s political and economic future virtually hangs in the balance,
pending the outcome of the 2004 elections. Hence, there can be no serious doubt that the subject
matter of this case is "a matter of public concern and imbued with public interest"; 18 in other words,
it is of "paramount public interest" 19 and "transcendental importance."20 This fact alone would justify
relaxing the rule on legal standing, following the liberal policy of this Court whenever a case involves
"an issue of overarching significance to our society." 21 Petitioners’ legal standing should therefore be
recognized and upheld.

Moreover, this Court has held that taxpayers are allowed to sue when there is a claim of "illegal
disbursement of public funds," 22 or if public money is being "deflected to any improper
purpose";23 or when petitioners seek to restrain respondent from "wasting public funds through the
enforcement of an invalid or unconstitutional law."24 In the instant case, individual petitioners, suing
as taxpayers, assert a material interest in seeing to it that public funds are properly and lawfully
used. In the Petition, they claim that the bidding was defective, the winning bidder not a qualified
entity, and the award of the Contract contrary to law and regulation. Accordingly, they seek to
restrain respondents from implementing the Contract and, necessarily, from making any
unwarranted expenditure of public funds pursuant thereto. Thus, we hold that petitioners
possess locus standi.

Second Procedural Issue:

Alleged Prematurity Due to Non-Exhaustion of Administrative Remedies

Respondents claim that petitioners acted prematurely, since they had not first utilized the protest
mechanism available to them under RA 9184, the Government Procurement Reform Act, for the
settlement of disputes pertaining to procurement contracts.

Section 55 of RA 9184 states that protests against decisions of the Bidding and Awards Committee in
all stages of procurement may be lodged with the head of the procuring entity by filing a verified
position paper and paying a protest fee. Section 57 of the same law mandates that in no case shall
any such protest stay or delay the bidding process, but it must first be resolved before any award is
made.

On the other hand, Section 58 provides that court action may be resorted to only after the protests
contemplated by the statute shall have been completed. Cases filed in violation of this process are to
be dismissed for lack of jurisdiction. Regional trial courts shall have jurisdiction over final decisions of
the head of the procuring entity, and court actions shall be instituted pursuant to Rule 65 of the 1997
Rules of Civil Procedure.

Respondents assert that throughout the bidding process, petitioners never questioned the BAC
Report finding MPC eligible to bid and recommending the award of the Contract to it (MPC).
According to respondents, the Report should have been appealed to the Comelc en banc, pursuant
to the aforementioned sections of RA 9184. In the absence of such appeal, the determination and
recommendation of the BAC had become final.
The Court is not persuaded.

Respondent Comelec came out with its en banc Resolution No. 6074 dated April 15, 2003, awarding
the project to Respondent MPC even before the BAC managed to issue its written report and
recommendation on April 21, 2003. Thus, how could petitioners have appealed the BAC’s
recommendation or report to the head of the procuring entity (the chairman of Comelec), when the
Comelec en banc had already approved the award of the contract to MPC even before petitioners
learned of the BAC recommendation?

It is claimed25 by Comelec that during its April 15, 2003 session, it received and approved the verbal
report and recommendation of the BAC for the award of the Contract to MPC, and that the BAC
subsequently re-affirmed its verbal report and recommendation by submitting it in writing on April
21, 2003. Respondents insist that the law does not require that the BAC Report be in writing before
Comelec can act thereon; therefore, there is allegedly nothing irregular about the Report as well as
the en banc Resolution.

However, it is obvious that petitioners could have appealed the BAC’s report and recommendation to
the head of the procuring entity (the Comelec chair) only upon their discovery thereof, which at the
very earliest would have been on April 21, 2003, when the BAC actually put its report in writing and
finally released it. Even then, what would have been the use of protesting/appealing the report to
the Comelec chair, when by that time the Commission en banc (including the chairman himself) had
already approved the BAC Report and awarded the Contract to MPC?

And even assuming arguendo that petitioners had somehow gotten wind of the verbal BAC report on
April 15, 2003 (immediately after the en banc session), at that point the Commission en banc had
already given its approval to the BAC Report along with the award to MPC. To put it bluntly, the
Comelec en banc itself made it legally impossible for petitioners to avail themselves of the
administrative remedy that the Commission is so impiously harping on. There is no doubt that they
had not been accorded the opportunity to avail themselves of the process provided under Section 55
of RA 9184, according to which a protest against a decision of the BAC may be filed with the head of
the procuring entity. Nemo tenetur ad impossible,26 to borrow private respondents’ favorite Latin
excuse.27

Some Observations on the BAC Report to the Comelec

We shall return to this issue of alleged prematurity shortly, but at this interstice, we would just want
to put forward a few observations regarding the BAC Report and the Comelec en banc’s approval
thereof.

First, Comelec contends that there was nothing unusual about the fact that the Report submitted by
the BAC came only after the former had already awarded the Contract, because the latter had been
asked to render its report and recommendation orally during the Commission’s en banc session on
April 15, 2003. Accordingly, Comelec supposedly acted upon such oral recommendation and
approved the award to MPC on the same day, following which the recommendation was
subsequently reduced into writing on April 21, 2003. While not entirely outside the realm of the
possible, this interesting and unique spiel does not speak well of the process that Comelec
supposedly went through in making a critical decision with respect to a multi-billion-peso contract.
We can imagine that anyone else standing in the shoes of the Honorable Commissioners would have
been extremely conscious of the overarching need for utter transparency. They would have
scrupulously avoided the slightest hint of impropriety, preferring to maintain an exacting regularity in
the performance of their duties, instead of trying to break a speed record in the award of multi-
billion-peso contracts. After all, between April 15 and April 21 were a mere six (6) days. Could
Comelec not have waited out six more days for the written report of the BAC, instead of rushing pell-
mell into the arms of MPC? Certainly, respondents never cared to explain the nature of the
Commission’s dire need to act immediately without awaiting the formal, written BAC Report.

In short, the Court finds it difficult to reconcile the uncommon dispatch with which Comelec acted to
approve the multi-billion-peso deal, with its claim of having been impelled by only the purest and
most noble of motives.

At any rate, as will be discussed later on, several other factors combine to lend negative credence to
Comelec’s tale.

Second, without necessarily ascribing any premature malice or premeditation on the part of the
Comelec officials involved, it should nevertheless be conceded that this cart-before-the-horse
maneuver (awarding of the Contract ahead of the BAC’s written report) would definitely serve as a
clever and effective way of averting and frustrating any impending protest under Section 55.

Having made the foregoing observations, we now go back to the question of exhausting
administrative remedies. Respondents may not have realized it, but the letter addressed to Chairman
Benjamin Abalos Sr. dated May 29, 200328 serves to eliminate the prematurity issue as it was an
actual written protest against the decision of the poll body to award the Contract. The letter was
signed by/for, inter alia, two of herein petitioners: the Information Technology Foundation of the
Philippines, represented by its president, Alfredo M. Torres; and Ma. Corazon Akol.

Such letter-protest is sufficient compliance with the requirement to exhaust administrative remedies
particularly because it hews closely to the procedure outlined in Section 55 of RA 9184.

And even without that May 29, 2003 letter-protest, the Court still holds that petitioners need not
exhaust administrative remedies in the light of Paat v. Court of Appeals. 29 Paat enumerates the
instances when the rule on exhaustion of administrative remedies may be disregarded, as follows:

"(1) when there is a violation of due process,

(2) when the issue involved is purely a legal question,

(3) when the administrative action is patently illegal amounting to lack or excess of
jurisdiction,

(4) when there is estoppel on the part of the administrative agency concerned,

(5) when there is irreparable injury,

(6) when the respondent is a department secretary whose acts as an alter ego of the
President bears the implied and assumed approval of the latter,
 (7) when to require exhaustion of administrative remedies would be unreasonable,

(8) when it would amount to a nullification of a claim,

(9) when the subject matter is a private land in land case proceedings,

(10) when the rule does not provide a plain, speedy and adequate remedy, and

(11) when there are circumstances indicating the urgency of judicial intervention." 30

The present controversy precisely falls within the exceptions listed as Nos. 7, 10 and 11: "(7) when to
require exhaustion of administrative remedies would be unreasonable; (10) when the rule does not
provide a plain, speedy and adequate remedy, and (11) when there are circumstances indicating the
urgency of judicial intervention." As already stated, Comelec itself made the exhaustion of
administrative remedies legally impossible or, at the very least, "unreasonable."

In any event, the peculiar circumstances surrounding the unconventional rendition of the BAC Report
and the precipitate awarding of the Contract by the Comelec en banc -- plus the fact that it was
racing to have its Contract with MPC implemented in time for the elections in May 2004 (barely four
months away) -- have combined to bring about the urgent need for judicial intervention, thus
prompting this Court to dispense with the procedural exhaustion of administrative remedies in this
case.

Main Substantive Issue:

Validity of the Award to MPC

We come now to the meat of the controversy. Petitioners contend that the award is invalid, since
Comelec gravely abused its discretion when it did the following:

1. Awarded the Contract to MPC though it did not even participate in the bidding

2. Allowed MPEI to participate in the bidding despite its failure to meet the mandatory
eligibility requirements

3. Issued its Resolution of April 15, 2003 awarding the Contract to MPC despite the issuance
by the BAC of its Report, which formed the basis of the assailed Resolution, only on April 21,
200331

4. Awarded the Contract, notwithstanding the fact that during the bidding process, there
were violations of the mandatory requirements of RA 8436 as well as those set forth in
Comelec’s own Request for Proposal on the automated election system

5. Refused to declare a failed bidding and to conduct a re-bidding despite the failure of the
bidders to pass the technical tests conducted by the Department of Science and Technology

6. Failed to follow strictly the provisions of RA 8436 in the conduct of the bidding for the
automated counting machines
After reviewing the slew of pleadings as well as the matters raised during the Oral Argument, the
Court deems it sufficient to focus discussion on the following major areas of concern that impinge on
the issue of grave abuse of discretion:

A. Matters pertaining to the identity, existence and eligibility of MPC as a bidder

B. Failure of the automated counting machines (ACMs) to pass the DOST technical tests

C. Remedial measures and re-testings undertaken by Comelec and DOST after the award, and
their effect on the present controversy

A.

Failure to Establish the Identity, Existence and Eligibility of the Alleged Consortium as a Bidder

On the question of the identity and the existence of the real bidder, respondents insist that, contrary
to petitioners’ allegations, the bidder was not Mega Pacific eSolutions, Inc. (MPEI), which was
incorporated only on February 27, 2003, or 11 days prior to the bidding itself. Rather, the bidder was
Mega Pacific Consortium (MPC), of which MPEI was but a part. As proof thereof, they point to the
March 7, 2003 letter of intent to bid, signed by the president of MPEI allegedly for and on behalf of
MPC. They also call attention to the official receipt issued to MPC, acknowledging payment for the
bidding documents, as proof that it was the "consortium" that participated in the bidding process.

We do not agree. The March 7, 2003 letter, signed by only one signatory -- "Willy U. Yu, President,
Mega Pacific eSolutions, Inc., (Lead Company/ Proponent) For: Mega Pacific Consortium" -- and
without any further proof, does not by itself prove the existence of the consortium. It does not show
that MPEI or its president have been duly pre-authorized by the other members of the putative
consortium to represent them, to bid on their collective behalf and, more important, to commit
them jointly and severally to the bid undertakings. The letter is purely self-serving and
uncorroborated.

Neither does an official receipt issued to MPC, acknowledging payment for the bidding documents,
constitute proof that it was the purported consortium that participated in the bidding. Such receipts
are issued by cashiers without any legally sufficient inquiry as to the real identity orexistence of the
supposed payor.

To assure itself properly of the due existence (as well as eligibility and qualification) of the putative
consortium, Comelec’s BAC should have examined the bidding documents submitted on behalf of
MPC. They would have easily discovered the following fatal flaws.

Two-Envelope,

Two-Stage System

As stated earlier in our factual presentation, the public bidding system designed by Comelec under its
RFP (Request for Proposal for the Automation of the 2004 Election) mandated the use of a two-
envelope, two-stage system. A bidder’s first envelope (Eligibility Envelope) was meant to establish its
eligibility to bid and its qualifications and capacity to perform the contract if its bid was accepted,
while the second envelope would be the Bid Envelope itself.
The Eligibility Envelope was to contain legal documents such as articles of incorporation, business
registrations, licenses and permits, mayor’s permit, VAT certification, and so forth; technical
documents containing documentary evidence to establish the track record of the bidder and its
technical and production capabilities to perform the contract; and financial documents, including
audited financial statements for the last three years, to establish the bidder’s financial capacity.

In the case of a consortium or joint venture desirous of participating in the bidding, it goes without
saying that the Eligibility Envelope would necessarily have to include a copy of the joint venture
agreement, the consortium agreement or memorandum of agreement -- or a business plan or some
other instrument of similar import -- establishing the due existence, composition and scope of such
aggrupation. Otherwise, how would Comelec know who it was dealing with, and whether these
parties are qualified and capable of delivering the products and services being offered for bidding? 32

In the instant case, no such instrument was submitted to Comelec during the bidding process. This
fact can be conclusively ascertained by scrutinizing the two-inch thick "Eligibility Requirements" file
submitted by Comelec last October 9, 2003, in partial compliance with this Court’s instructions given
during the Oral Argument. This file purports to replicate the eligibility documents originally
submitted to Comelec by MPEI allegedly on behalf of MPC, in connection with the bidding conducted
in March 2003. Included in the file are the incorporation papers and financial statements of the
members of the supposed consortium and certain certificates, licenses and permits issued to them.

However, there is no sign whatsoever of any joint venture agreement, consortium agreement,
memorandum of agreement, or business plan executed among the members of the purported
consortium.

The only logical conclusion is that no such agreement was ever submitted to the Comelec for its
consideration, as part of the bidding process.

It thus follows that, prior the award of the Contract, there was no documentary or other basis for
Comelec to conclude that a consortium had actually been formed amongst MPEI, SK C&C and
WeSolv, along with Election.com and ePLDT.33 Neither was there anything to indicate the exact
relationships between and among these firms; their diverse roles, undertakings and prestations, if
any, relative to the prosecution of the project, the extent of their respective investments (if any) in
the supposed consortium or in the project; and the precise nature and extent of their respective
liabilities with respect to the contract being offered for bidding. And apart from the self-serving letter
of March 7, 2003, there was not even any indication that MPEI was the lead company duly
authorized to act on behalf of the others.

So, it necessarily follows that, during the bidding process, Comelec had no basis at all for determining
that the alleged consortium really existed and was eligible and qualified; and that the arrangements
among the members were satisfactory and sufficient to ensure delivery on the Contract and to
protect the government’s interest.

Notwithstanding such deficiencies, Comelec still deemed the "consortium" eligible to participate in
the bidding, proceeded to open its Second Envelope, and eventually awarded the bid to it, even
though -- per the Comelec’s own RFP -- the BAC should have declared the MPC ineligible to bid and
returned the Second (Bid) Envelope unopened.
Inasmuch as Comelec should not have considered MPEI et al. as comprising a consortium or joint
venture, it should not have allowed them to avail themselves of the provision in Section 5.4 (b) (i) of
the IRR for RA 6957 (the Build-Operate-Transfer Law), as amended by RA 7718. This provision states
in part that a joint venture/consortium proponent shall be evaluated based on the individual or
collective experience of the member-firms of the joint venture or consortium and of the
contractor(s) that it has engaged for the project. Parenthetically, respondents have uniformly argued
that the said IRR of RA 6957, as amended, have suppletory application to the instant case.

Hence, had the proponent MPEI been evaluated based solely on its own experience, financial and
operational track record or lack thereof, it would surely not have qualified and would have been
immediately considered ineligible to bid, as respondents readily admit.

At any rate, it is clear that Comelec gravely abused its discretion in arbitrarily failing to observe its
own rules, policies and guidelines with respect to the bidding process, thereby negating a fair, honest
and competitive bidding.

Commissioners Not Aware of Consortium

In this regard, the Court is beguiled by the statements of Commissioner Florentino Tuason Jr., given in
open court during the Oral Argument last October 7, 2003. The good commissioner affirmed that he
was aware, of his own personal knowledge, that there had indeed been a written agreement among
the "consortium" members,34 although it was an internal matter among them,35 and of the fact that it
would be presented by counsel for private respondent. 36

However, under questioning by Chief Justice Hilario G. Davide Jr. and Justice Jose C. Vitug,
Commissioner Tuason in effect admitted that, while he was the commissioner-in-charge of Comelec’s
Legal Department, he had never seen, even up to that late date, the agreement he spoke of. 37 Under
further questioning, he was likewise unable to provide any information regarding the amounts
invested into the project by several members of the claimed consortium. 38 A short while later, he
admitted that the Commission had not taken a look at the agreement (if any). 39

He tried to justify his position by claiming that he was not a member of the BAC. Neither was he the
commissioner-in-charge of the Phase II Modernization project (the automated election system); but
that, in any case, the BAC and the Phase II Modernization Project Team did look into the aspect of
the composition of the consortium.

It seems to the Court, though, that even if the BAC or the Phase II Team had taken charge of
evaluating the eligibility, qualifications and credentials of the consortium-bidder, still, in all
probability, the former would have referred the task to Commissioner Tuason, head of Comelec’s
Legal Department. That task was the appreciation and evaluation of the legal effects and
consequences of the terms, conditions, stipulations and covenants contained in any joint venture
agreement, consortium agreement or a similar document -- assuming of course that any of these was
available at the time. The fact that Commissioner Tuason was barely aware of the situation bespeaks
the complete absence of such document, or the utter failure or neglect of the Comelec to examine it
-- assuming it was available at all -- at the time the award was made on April 15, 2003.

In any event, the Court notes for the record that Commissioner Tuason basically contradicted his
statements in open court about there being one written agreement among all the consortium
members, when he subsequently referred 40 to the four (4) Memoranda of Agreement (MOAs)
executed by them.41

At this juncture, one might ask: What, then, if there are four MOAs instead of one or none at all?
Isn’t it enough that there are these corporations coming together to carry out the automation
project? Isn’t it true, as respondent aver, that nowhere in the RFP issued by Comelec is it required
that the members of the joint venture execute a single written agreement to prove the existence of a
joint venture. Indeed, the intention to be jointly and severally liable may be evidenced not only by a
single joint venture agreement, but also by supplementary documents executed by the parties
signifying such intention. What then is the big deal?

The problem is not that there are four agreements instead of only one. The problem is that Comelec
never bothered to check. It never based its decision on documents or other proof that would
concretely establish the existence of the claimed consortium or joint venture or agglomeration. It
relied merely on the self-serving representation in an uncorroborated letter signed by only one
individual, claiming that his company represented a "consortium" of several different corporations. It
concluded forthwith that a consortium indeed existed, composed of such and such members, and
thereafter declared that the entity was eligible to bid.

True, copies of financial statements and incorporation papers of the alleged "consortium" members
were submitted. But these papers did not establish the existence of a consortium, as they could have
been provided by the companies concerned for purposes other than to prove that they were part of
a consortium or joint venture. For instance, the papers may have been intended to show that those
companies were each qualified to be a sub-contractor (and nothing more) in a major project. Those
documents did not by themselves support the assumption that a consortium or joint venture existed
among the companies.

In brief, despite the absence of competent proof as to the existence and eligibility of the alleged
consortium (MPC), its capacity to deliver on the Contract, and the members’ joint and several liability
therefor, Comelec nevertheless assumed that such consortium existed and was eligible. It then went
ahead and considered the bid of MPC, to which the Contract was eventually awarded, in gross
violation of the former’s own bidding rules and procedures contained in its RFP. Therein lies
Comelec’s grave abuse of discretion.

Sufficiency of the Four Agreements

Instead of one multilateral agreement executed by, and effective and binding on, all the five
"consortium members" -- as earlier claimed by Commissioner Tuason in open court -- it turns out
that what was actually executed were four (4) separate and distinct bilateral
Agreements.42 Obviously, Comelec was furnished copies of these Agreements only after the bidding
process had been terminated, as these were not included in the Eligibility Documents. These
Agreements are as follows:

· A Memorandum of Agreement between MPEI and SK C&C

· A Memorandum of Agreement between MPEI and WeSolv

· A "Teaming Agreement" between MPEI and Election.com Ltd.

 · A "Teaming Agreement" between MPEI and ePLDT

In sum, each of the four different and separate bilateral Agreements is valid and binding only
between MPEI and the other contracting party, leaving the other "consortium" members total
strangers thereto. Under this setup, MPEI dealt separately with each of the "members," and the
latter (WeSolv, SK C&C, Election.com, and ePLDT) in turn had nothing to do with one another, each
dealing only with MPEI.

Respondents assert that these four Agreements were sufficient for the purpose of enabling the
corporations to still qualify (even at that late stage) as a consortium or joint venture, since the first
two Agreements had allegedly set forth the joint and several undertakings among the parties,
whereas the latter two clarified the parties’ respective roles with regard to the Project, with MPEI
being the independent contractor and Election.com and ePLDT the subcontractors.

Additionally, the use of the phrase "particular contract" in the Comelec’s Request for Proposal (RFP),
in connection with the joint and several liabilities of companies in a joint venture, is taken by them to
mean that all the members of the joint venture need not be solidarily liable for the entire project or
joint venture, because it is sufficient that the lead company and the member in charge of a particular
contract or aspect of the joint venture agree to be solidarily liable.

At this point, it must be stressed most vigorously that the submission of the four bilateral
Agreements to Comelec after the end of the bidding process did nothing to eliminate the grave
abuse of discretion it had already committed on April 15, 2003.

Deficiencies Have Not Been "Cured"

In any event, it is also claimed that the automation Contract awarded by Comelec incorporates all
documents executed by the "consortium" members, even if these documents are not referred to
therein. The basis of this assertion appears to be the passages from Section 1.4 of the Contract,
which is reproduced as follows:

"All Contract Documents shall form part of the Contract even if they or any one of them is
not referred to or mentioned in the Contract as forming a part thereof. Each of the Contract
Documents shall be mutually complementary and explanatory of each other such that what
is noted in one although not shown in the other shall be considered contained in all, and
what is required by any one shall be as binding as if required by all, unless one item is a
correction of the other.

"The intent of the Contract Documents is the proper, satisfactory and timely execution and
completion of the Project, in accordance with the Contract Documents. Consequently, all
items necessary for the proper and timely execution and completion of the Project shall be
deemed included in the Contract."

Thus, it is argued that whatever perceived deficiencies there were in the supplementary contracts --
those entered into by MPEI and the other members of the "consortium" as regards their joint and
several undertakings -- have been cured. Better still, such deficiencies have supposedly been
prevented from arising as a result of the above-quoted provisions, from which it can be immediately
established that each of the members of MPC assumes the same joint and several liability as the
other members.

The foregoing argument is unpersuasive. First, the contract being referred to, entitled "The
Automated Counting and Canvassing Project Contract," is between Comelec and MPEI, not the
alleged consortium, MPC. To repeat, it is MPEI -- not MPC -- that is a party to the Contract. Nowhere
in that Contract is there any mention of a consortium or joint venture, of members thereof, much
less of joint and several liability. Supposedly executed sometime in May 2003, 43 the Contract bears a
notarization date of June 30, 2003, and contains the signature of Willy U. Yu signing as president of
MPEI (not for and on behalf of MPC), along with that of the Comelec chair. It provides in Section 3.2
that MPEI (not MPC) is to supply the Equipment and perform the Services under the Contract, in
accordance with the appendices thereof; nothing whatsoever is said about any consortium or joint
venture or partnership.

Second, the portions of Section 1.4 of the Contract reproduced above do not have the effect of
curing (much less preventing) deficiencies in the bilateral agreements entered into by MPEI with the
other members of the "consortium," with respect to their joint and several liabilities. The term
"Contract Documents," as used in the quoted passages of Section 1.4, has a well-defined meaning
and actually refers only to the following documents:

· The Contract itself along with its appendices

· The Request for Proposal (also known as "Terms of Reference") issued by the Comelec,
including the Tender Inquiries and Bid Bulletins

· The Tender Proposal submitted by MPEI

In other words, the term "Contract Documents" cannot be understood as referring to or including
the MOAs and the Teaming Agreements entered into by MPEI with SK C&C, WeSolv, Election.com
and ePLDT. This much is very clear and admits of no debate. The attempt to use the provisions of
Section 1.4 to shore up the MOAs and the Teaming Agreements is simply unwarranted.

Third and last, we fail to see how respondents can arrive at the conclusion that, from the above-
quoted provisions, it can be immediately established that each of the members of MPC assumes the
same joint and several liability as the other members. Earlier, respondents claimed exactly the
opposite -- that the two MOAs (between MPEI and SK C&C, and between MPEI and WeSolv) had set
forth the joint and several undertakings among the parties; whereas the two Teaming Agreements
clarified the parties’ respective roles with regard to the Project, with MPEI being the independent
contractor and Election.com and ePLDT the subcontractors.

Obviously, given the differences in their relationships, their respective liabilities cannot be the same.
Precisely, the very clear terms and stipulations contained in the MOAs and the Teaming Agreements
-- entered into by MPEI with SK C&C, WeSolv, Election.com and ePLDT -- negate the idea that these
"members" are on a par with one another and are, as such, assuming the same joint and several
liability.

Moreover, respondents have earlier seized upon the use of the term "particular contract" in the
Comelec’s Request for Proposal (RFP), in order to argue that all the members of the joint venture did
not need to be solidarily liable for the entire project or joint venture. It was sufficient that the lead
company and the member in charge of a particular contract or aspect of the joint venture would
agree to be solidarily liable. The glaring lack of consistency leaves us at a loss. Are respondents trying
to establish the same joint and solidary liability among all the "members" or not?

Enforcement of Liabilities Problematic

Next, it is also maintained that the automation Contract between Comelec and the MPEI confirms
the solidary undertaking of the lead company and the consortium member concerned for each
particular Contract, inasmuch as the position of MPEI and anyone else performing the services
contemplated under the Contract is described therein as that of an independent contractor.

The Court does not see, however, how this conclusion was arrived at. In the first place, the
contractual provision being relied upon by respondents is Article 14, "Independent Contractors,"
which states: "Nothing contained herein shall be construed as establishing or creating between the
COMELEC and MEGA the relationship of employee and employer or principal and agent, it being
understood that the position of MEGA and of anyone performing the Services contemplated under
this Contract, is that of an independent contractor."

Obviously, the intent behind the provision was simply to avoid the creation of an employer-employee
or a principal-agent relationship and the complications that it would produce. Hence, the Article
states that the role or position of MPEI, or anyone else performing on its behalf, is that of an
independent contractor. It is obvious to the Court that respondents are stretching matters too far
when they claim that, because of this provision, the Contract in effect confirms the solidary
undertaking of the lead company and the consortium member concerned for the particular phase of
the project. This assertion is an absolute non sequitur.

Enforcement of Liabilities Under the Civil Code Not Possible

In any event, it is claimed that Comelec may still enforce the liability of the "consortium" members
under the Civil Code provisions on partnership, reasoning that MPEI et al. represented themselves as
partners and members of MPC for purposes of bidding for the Project. They are, therefore, liable to
the Comelec to the extent that the latter relied upon such representation. Their liability as partners is
solidary with respect to everything chargeable to the partnership under certain conditions.

The Court has two points to make with respect to this argument. First, it must be recalled that SK
C&C, WeSolv, Election.com and ePLDT never represented themselves as partners and members of
MPC, whether for purposes of bidding or for something else. It was MPEI alone that represented
them to be members of a "consortium" it supposedly headed. Thus, its acts may not necessarily be
held against the other "members."

Second, this argument of the OSG in its Memorandum 44 might possibly apply in the absence of a joint
venture agreement or some other writing that discloses the relationship of the "members" with one
another. But precisely, this case does not deal with a situation in which there is nothing in writing to
serve as reference, leaving Comelec to rely on mere representations and therefore justifying a falling
back on the rules on partnership. For, again, the terms and stipulations of the MOAs entered into by
MPEI with SK C&C and WeSolv, as well as the Teaming Agreements of MPEI with Election.com and
ePLDT (copies of which have been furnished the Comelec) are very clear with respect to the extent
and the limitations of the firms’ respective liabilities.

In the case of WeSolv and SK C&C, their MOAs state that their liabilities, while joint and several with
MPEI, are limited only to the particular areas of work wherein their services are engaged or their
products utilized. As for Election.com and ePLDT, their separate "Teaming Agreements" specifically
ascribe to them the role of subcontractor vis-à-vis MPEI as contractor and, based on the terms of
their particular agreements, neither Election.com nor ePLDT is, with MPEI, jointly and severally liable
to Comelec.45 It follows then that in the instant case, there is no justification for anyone, much less
Comelec, to resort to the rules on partnership and partners’ liabilities.

Eligibility of a Consortium Based on the Collective Qualifications of Its Members

Respondents declare that, for purposes of assessing the eligibility of the bidder, the members of MPC
should be evaluated on a collective basis. Therefore, they contend, the failure of MPEI to submit
financial statements (on account of its recent incorporation) should not by itself disqualify MPC,
since the other members of the "consortium" could meet the criteria set out in the RFP.

Thus, according to respondents, the collective nature of the undertaking of the members of MPC,
their contribution of assets and sharing of risks, and the community of their interest in the
performance of the Contract lead to these reasonable conclusions: (1) that their collective
qualifications should be the basis for evaluating their eligibility; (2) that the sheer enormity of the
project renders it improbable to expect any single entity to be able to comply with all the eligibility
requirements and undertake the project by itself; and (3) that, as argued by the OSG, the RFP allows
bids from manufacturers, suppliers and/or distributors that have formed themselves into a joint
venture, in recognition of the virtual impossibility of a single entity’s ability to respond to the
Invitation to Bid.

Additionally, argues the Comelec, the Implementing Rules and Regulations of RA 6957 (the Build-
Operate-Transfer Law) as amended by RA 7718 would be applicable, as proponents of BOT projects
usually form joint ventures or consortiums. Under the IRR, a joint venture/consortium proponent
shall be evaluated based on the individual or the collective experience of the member-firms of the
joint venture/consortium and of the contractors the proponent has engaged for the project.

Unfortunately, this argument seems to assume that the "collective" nature of the undertaking of the
members of MPC, their contribution of assets and sharing of risks, and the "community" of their
interest in the performance of the Contract entitle MPC to be treated as a joint venture or
consortium; and to be evaluated accordingly on the basis of the members’ collective qualifications
when, in fact, the evidence before the Court suggest otherwise.

This Court in Kilosbayan v. Guingona46 defined joint venture as "an association of persons or
companies jointly undertaking some commercial enterprise; generally, all contribute assets and share
risks. It requires a community of interest in the performance of the subject matter, a right to direct
and govern the policy in connection therewith, and [a] duty, which may be altered by agreement to
share both in profit and losses."

Going back to the instant case, it should be recalled that the automation Contract with Comelec was
not executed by the "consortium" MPC -- or by MPEI for and on behalf of MPC -- but by MPEI,
period. The said Contract contains no mention whatsoever of any consortium or members thereof.
This fact alone seems to contradict all the suppositions about a joint undertaking that would
normally apply to a joint venture or consortium: that it is a commercial enterprise involving a
community of interest, a sharing of risks, profits and losses, and so on.

Now let us consider the four bilateral Agreements, starting with the Memorandum of Agreement
between MPEI and WeSolv Open Computing, Inc., dated March 5, 2003. The body of the MOA
consists of just seven (7) short paragraphs that would easily fit in one page! It reads as follows:

"1. The parties agree to cooperate in successfully implementing the Project in the substance
and form as may be most beneficial to both parties and other subcontractors involved in the
Project.

"2. Mega Pacific shall be responsible for any contract negotiations and signing with the
COMELEC and, subject to the latter’s approval, agrees to give WeSolv an opportunity to be
present at meetings with the COMELEC concerning WeSolv’s portion of the Project.

"3. WeSolv shall be jointly and severally liable with Mega Pacific only for the particular
products and/or services supplied by the former for the Project.

"4. Each party shall bear its own costs and expenses relative to this agreement unless
otherwise agreed upon by the parties.

"5. The parties undertake to do all acts and such other things incidental to, necessary or
desirable or the attainment of the objectives and purposes of this Agreement.

"6. In the event that the parties fail to agree on the terms and conditions of the supply of the
products and services including but not limited to the scope of the products and services to
be supplied and payment terms, WeSolv shall cease to be bound by its obligations stated in
the aforementioned paragraphs.

"7. Any dispute arising from this Agreement shall be settled amicably by the parties
whenever possible. Should the parties be unable to do so, the parties hereby agree to settle
their dispute through arbitration in accordance with the existing laws of the Republic of the
Philippines." (Underscoring supplied.)

Even shorter is the Memorandum of Agreement between MPEI and SK C&C Co. Ltd., dated March 9,
2003, the body of which consists of only six (6) paragraphs, which we quote:

"1. All parties agree to cooperate in achieving the Consortium’s objective of successfully
implementing the Project in the substance and form as may be most beneficial to the
Consortium members and in accordance w/ the demand of the RFP.

"2. Mega Pacific shall have full powers and authority to represent the Consortium with the
Comelec, and to enter and sign, for and in behalf of its members any and all agreement/s
which maybe required in the implementation of the Project.

"3. Each of the individual members of the Consortium shall be jointly and severally liable
with the Lead Firm for the particular products and/or services supplied by such individual
 member for the project, in accordance with their respective undertaking or sphere of
responsibility.

"4. Each party shall bear its own costs and expenses relative to this agreement unless
otherwise agreed upon by the parties.

"5. The parties undertake to do all acts and such other things incidental to, necessary or
desirable for the attainment of the objectives and purposes of this Agreement.

"6. Any dispute arising from this Agreement shall be settled amicably by the parties
whenever possible. Should the parties be unable to do so, the parties hereby agree to settle
their dispute through arbitration in accordance with the existing laws of the Republic of the
Philippines." (Underscoring supplied.)

It will be noted that the two Agreements quoted above are very similar in wording. Neither of them
contains any specifics or details as to the exact nature and scope of the parties’ respective
undertakings, performances and deliverables under the Agreement with respect to the automation
project. Likewise, the two Agreements are quite bereft of pesos-and-centavos data as to the amount
of investments each party contributes, its respective share in the revenues and/or profit from the
Contract with Comelec, and so forth -- all of which are normal for agreements of this nature. Yet,
according to public and private respondents, the participation of MPEI, WeSolv and SK C&C
comprises fully 90 percent of the entire undertaking with respect to the election automation project,
which is worth about P1.3 billion.

As for Election.com and ePLDT, the separate "Teaming Agreements" they entered into with MPEI for
the remaining 10 percent of the entire project undertaking are ironically much longer and more
detailed than the MOAs discussed earlier. Although specifically ascribing to them the role of
subcontractor vis-à-vis MPEI as contractor, these Agreements are, however, completely devoid of any
pricing data or payment terms. Even the appended Schedules supposedly containing prices of goods
and services are shorn of any price data. Again, as mentioned earlier, based on the terms of their
particular Agreements, neither Election.com nor ePLDT -- with MPEI -- is jointly and severally liable to
Comelec.

It is difficult to imagine how these bare Agreements -- especially the first two -- could be
implemented in practice; and how a dispute between the parties or a claim by Comelec against
them, for instance, could be resolved without lengthy and debilitating litigations. Absent any clear-
cut statement as to the exact nature and scope of the parties’ respective undertakings,
commitments, deliverables and covenants, one party or another can easily dodge its obligation and
deny or contest its liability under the Agreement; or claim that it is the other party that should have
delivered but failed to.

Likewise, in the absence of definite indicators as to the amount of investments to be contributed by

each party, disbursements for expenses, the parties’ respective shares in the profits and the like, it
seems to the Court that this situation could readily give rise to all kinds of misunderstandings and
disagreements over money matters.

Under such a scenario, it will be extremely difficult for Comelec to enforce the supposed joint and
several liabilities of the members of the "consortium." The Court is not even mentioning the
possibility of a situation arising from a failure of WeSolv and MPEI to agree on the scope, the terms
and the conditions for the supply of the products and services under the Agreement. In that
situation, by virtue of paragraph 6 of its MOA, WeSolv would perforce cease to be bound by its
obligations -- including its joint and solidary liability with MPEI under the MOA -- and could forthwith
disengage from the project. Effectively, WeSolv could at any time unilaterally exit from its MOA with
MPEI by simply failing to agree. Where would that outcome leave MPEI and Comelec?

To the Court, this strange and beguiling arrangement of MPEI with the other companies does not
qualify them to be treated as a consortium or joint venture, at least of the type that government
agencies like the Comelec should be dealing with. With more reason is it unable to agree to the
proposal to evaluate the members of MPC on a collective basis.

In any event, the MPC members claim to be a joint venture/consortium; and respondents have
consistently been arguing that the IRR for RA 6957, as amended, should be applied to the instant
case in order to allow a collective evaluation of consortium members. Surprisingly, considering these
facts, respondents have not deemed it necessary for MPC members to comply with Section 5.4 (a)
(iii) of the IRR for RA 6957 as amended.

According to the aforementioned provision, if the project proponent is a joint venture or consortium,
the members or participants thereof are required to submit a sworn statement that, if awarded the
contract, they shall bind themselves to be jointly, severally and solidarily liable for the project
proponent’s obligations thereunder. This provision was supposed to mirror Section 5 of RA 6957, as
amended, which states: "In all cases, a consortium that participates in a bid must present proof that
the members of the consortium have bound themselves jointly and severally to assume
responsibility for any project. The withdrawal of any member of the consortium prior to the
implementation of the project could be a ground for the cancellation of the contract." The Court has
certainly not seen any joint and several undertaking by the MPC members that even approximates
the tenor of that which is described above. We fail to see why respondents should invoke the IRR if it
is for their benefit, but refuse to comply with it otherwise.

B.

DOST Technical Tests Flunked by the Automated Counting Machines

Let us now move to the second subtopic, which deals with the substantive issue: the ACM’s failure to
pass the tests of the Department of Science and Technology (DOST).

After respondent "consortium" and the other bidder, TIM, had submitted their respective bids on
March 10, 2003, the Comelec’s BAC -- through its Technical Working Group (TWG) and the DOST --
evaluated their technical proposals. Requirements that were highly technical in nature and that
required the use of certain equipment in the evaluation process were referred to the DOST for
testing. The Department reported thus:

TEST RESULTS MATRIX47

 Technical Evaluation of Automated Counting Machine

MEGA-PACIFIC TOTAL INFORMATION

KEY REQUIREMENTS CONSORTIUM MANAGEMENT
QUESTIONS
YES NO YES NO

1. Does the machine have an accuracy rating of √ √

at least 99.995 percent

At COLD environmental condition √ √

At NORMAL environmental conditions √ √

At HARSH environmental conditions

2. Accurately records and reports the date and √ √

time of the start and end of counting of ballots
per precinct?

3. Prints election returns without any loss of √ √

date during generation of such reports?

4. Uninterruptible back-up power system, that

will engage immediately to allow operation of at √ √
least 10 minutes after outage, power surge or
abnormal electrical occurrences?

5. Machine reads two-sided ballots in one pass? √ √

Note: This
particular
requirement
needs further
verification

6. Machine can detect previously counted √ √

ballots and prevent previously counted ballots
from being counted more than once?

7. Stores results of counted votes by precinct in √ √

external (removable) storage device?
 Note: This
particular
requirement
needs further
verification

8. Data stored in external media is encrypted? √ √

Note: This
particular
requirement
needs further
verification

9. Physical key or similar device allows, limits, or √ √

restricts operation of the machine?

10. CPU speed is at least 400mHz? √ √

Note: This
particular
requirement
needs further
verification

11. Port to allow use of dot-matrix printers? √ √

12. Generates printouts of the election returns

in a format specified by the COMELEC?

Generates printouts √ √

In format specified by COMELEC √ √

13. Prints election returns without any loss of √ √

data during generation of such report?

14. Generates an audit trail of the counting

machine, both hard copy and soft copy?

Hard copy √ √
Soft copy √ √

Note: This
particular
requirement
needs further
verification

15. Does the City/Municipal Canvassing System √ √

consolidate results from all precincts within it
Note: This
using the encrypted soft copy of the data
generated by the counting machine and stored particular
requirement
on the removable data storage device?
needs further
verification

16. Does the City/Municipal Canvassing System √ √

consolidate results from all precincts within it
Note: This Note: This
using the encrypted soft copy of the data
generated by the counting machine and particular particular
requirement requirement
transmitted through an electronic transmission
media? needs further needs further
verification verification

17. Does the system output a Zero √ √

City/Municipal Canvass Report, which is printed
Note: This
on election day prior to the conduct of the
actual canvass operation, that shows that all particular
requirement
totals for all the votes for all the candidates and
other information, are indeed zero or null? needs further
verification

18. Does the system consolidate results from all √ √

precincts in the city/municipality using the data
Note: This
storage device coming from the counting
machine? particular
requirement
needs further
verification

19. Is the machine 100% accurate? √ √

Note: This
particular
requirement
 needs further
verification

20. Is the Program able to detect previously √ √

downloaded precinct results and prevent these
Note: This
from being inputted again into the System?
particular
requirement
needs further
verification

21. The System is able to print the specified

reports and the audit trail without any loss of
data during generation of the above-mentioned
reports?

Prints specified reports √ √

Audit Trail √ √

22. Can the result of the city/municipal √ √

consolidation be stored in a data storage device?
Note: This
particular
requirement
needs further
verification

23. Does the system consolidate results from all √ √

precincts in the provincial/district/ national
Note: This
using the data storage device from different
levels of consolidation? particular
requirement
needs further
verification

24. Is the system 100% accurate? √ √

Note: This
particular
requirement
needs further
verification
25. Is the Program able to detect previously √ √
downloaded precinct results and prevent these
Note: This
from being inputted again into the System?
particular
requirement
needs further
verification

26. The System is able to print the specified

reports and the audit trail without any loss of
data during generation of the abovementioned
reports?

Prints specified reports √ √

Audit Trail √ √

Note: This
particular
requirement
needs further
verification

27. Can the results of the √ √

provincial/district/national consolidation be
stored in a data storage device? Note: This
particular
requirement
needs further
verification

According to respondents, it was only after the TWG and the DOST had conducted their separate
tests and submitted their respective reports that the BAC, on the basis of these reports formulated
its comments/recommendations on the bids of the consortium and TIM.

The BAC, in its Report dated April 21, 2003, recommended that the Phase II project involving the
acquisition of automated counting machines be awarded to MPEI. It said:

"After incisive analysis of the technical reports of the DOST and the Technical Working Group
for Phase II – Automated Counting Machine, the BAC considers adaptability to advances in
modern technology to ensure an effective and efficient method, as well as the security and
integrity of the system.

"The results of the evaluation conducted by the TWG and that of the DOST (14 April 2003
report), would show the apparent advantage of Mega-Pacific over the other competitor, TIM.
"The BAC further noted that both Mega-Pacific and TIM obtained some ‘failed marks’ in the
technical evaluation. In general, the ‘failed marks’ of Total Information Management as
enumerated above affect the counting machine itself which are material in nature,
constituting non-compliance to the RFP. On the other hand, the ‘failed marks’ of Mega-
Pacific are mere formalities on certain documentary requirements which the BAC may waive
as clearly indicated in the Invitation to Bid.

"In the DOST test, TIM obtained 12 failed marks and mostly attributed to the counting
machine itself as stated earlier. These are requirements of the RFP and therefore the BAC
cannot disregard the same.

"Mega-Pacific failed in 8 items however these are mostly on the software which can be
corrected by reprogramming the software and therefore can be readily corrected.

"The BAC verbally inquired from DOST on the status of the retest of the counting machines
of the TIM and was informed that the report will be forthcoming after the holy week. The
BAC was informed that the retest is on a different parameters they’re being two different
machines being tested. One purposely to test if previously read ballots will be read again and
the other for the other features such as two sided ballots.

"The said machine and the software therefore may not be considered the same machine and
program as submitted in the Technical proposal and therefore may be considered an
enhancement of the original proposal.

"Advance information relayed to the BAC as of 1:40 PM of 15 April 2003 by Executive

Director Ronaldo T. Viloria of DOST is that the result of the test in the two counting machines
of TIM contains substantial errors that may lead to the failure of these machines based on
the specific items of the RFP that DOST has to certify.

OPENING OF FINANCIAL BIDS

"The BAC on 15 April 2003, after notifying the concerned bidders opened the financial bids in
their presence and the results were as follows:

Mega-Pacific:

Option 1 – Outright purchase: Bid Price if Php1,248,949,088.00

Option 2 – Lease option:

70% Down payment of cost of hardware or Php642,755,757.07

Remainder payable over 50 months or a total of Php642,755,757.07

Discount rate of 15% p.a. or 1.2532% per month.

Total Number of Automated Counting Machine – 1,769 ACMs (Nationwide)

TIM:
 Total Bid Price – Php1,297,860,560.00

Total Number of Automated Counting Machine – 2,272 ACMs (Mindanao and NCR only)

"Premises considered, it appears that the bid of Mega Pacific is the lowest calculated
responsive bid, and therefore, the Bids and Awards Committee (BAC) recommends that the
Phase II project re Automated Counting Machine be awarded to Mega Pacific eSolutions,
Inc."48

The BAC, however, also stated on page 4 of its Report: "Based on the 14 April 2003 report (Table 6) of
the DOST, it appears that both Mega-Pacific and TIM (Total Information Management Corporation)
failed to meet some of the requirements. Below is a comparative presentation of the requirements
wherein Mega-Pacific or TIM or both of them failed: x x x." What followed was a list of "key
requirements," referring to technical requirements, and an indication of which of the two bidders
had failed to meet them.

Failure to Meet the Required Accuracy Rating

The first of the key requirements was that the counting machines were to have an accuracy rating of
at least 99.9995 percent. The BAC Report indicates that both Mega Pacific and TIM failed to meet
this standard.

The key requirement of accuracy rating happens to be part and parcel of the Comelec’s Request for
Proposal (RFP). The RFP, on page 26, even states that the ballot counting machines and ballot
counting software "must have an accuracy rating of 99.9995% (not merely 99.995%) or better as
certified by a reliable independent testing agency."

When questioned on this matter during the Oral Argument, Commissioner Borra tried to wash his
hands by claiming that the required accuracy rating of 99.9995 percent had been set by a private
sector group in tandem with Comelec. He added that the Commission had merely adopted the
accuracy rating as part of the group’s recommended bid requirements, which it had not bothered to
amend even after being advised by DOST that such standard was unachievable. This excuse, however,
does not in any way lessen Comelec’s responsibility to adhere to its own published bidding rules, as
well as to see to it that the consortium indeed meets the accuracy standard. Whichever accuracy
rating is the right standard -- whether 99.995 or 99.9995 percent -- the fact remains that the
machines of the so-called "consortium" failed to even reach the lesser of the two. On this basis alone,
it ought to have been disqualified and its bid rejected outright.

At this point, the Court stresses that the essence of public bidding is violated by the practice of
requiring very high standards or unrealistic specifications that cannot be met -- like the 99.9995
percent accuracy rating in this case -- only to water them down after the bid has been award. Such
scheme, which discourages the entry of prospective bona fide bidders, is in fact a sure indication of
fraud in the bidding, designed to eliminate fair competition. Certainly, if no bidder meets the
mandatory requirements, standards or specifications, then no award should be made and a failed
bidding declared.

Failure of Software to Detect Previously Downloaded Data

Furthermore, on page 6 of the BAC Report, it appears that the "consortium" as well as TIM failed to
meet another key requirement -- for the counting machine’s software program to be able to detect
previously downloaded precinct results and to prevent these from being entered again into the
counting machine. This same deficiency on the part of both bidders reappears on page 7 of the BAC
Report, as a result of the recurrence of their failure to meet the said key requirement.

That the ability to detect previously downloaded data at different canvassing or consolidation levels
is deemed of utmost importance can be seen from the fact that it is repeated three times in the RFP.
On page 30 thereof, we find the requirement that the city/municipal canvassing system software
must be able to detect previously downloaded precinct results and prevent these from being
"inputted" again into the system. Again, on page 32 of the RFP, we read that
the provincial/district canvassing system software must be able to detect previously downloaded
city/municipal results and prevent these from being "inputted" again into the system. And once
more, on page 35 of the RFP, we find the requirement that the national canvassing system software
must be able to detect previously downloaded provincial/district results and prevent these from
being "inputted" again into the system.

Once again, though, Comelec chose to ignore this crucial deficiency, which should have been a cause
for the gravest concern. Come May 2004, unscrupulous persons may take advantage of and exploit
such deficiency by repeatedly downloading and feeding into the computers results favorable to a
particular candidate or candidates. We are thus confronted with the grim prospect of election fraud
on a massive scale by means of just a few key strokes. The marvels and woes of the electronic age!

Inability to Print the Audit Trail

But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate that the ACMs of both
bidders were unable to print the audit trail without any loss of data. In the case of MPC, the audit
trail system was "not yet incorporated" into its ACMs.

This particular deficiency is significant, not only to this bidding but to the cause of free and credible
elections. The purpose of requiring audit trails is to enable Comelec to trace and verify the identities
of the ACM operators responsible for data entry and downloading, as well as the times when the
various data were downloaded into the canvassing system, in order to forestall fraud and to identify
the perpetrators.

Thus, the RFP on page 27 states that the ballot counting machines and ballot counting software must
print an audit trail of all machine operations for documentation and verification purposes.
Furthermore, the audit trail must be stored on the internal storage device and be available on
demand for future printing and verifying. On pages 30-31, the RFP also requires that
the city/municipal canvassing system software be able to print an audit trail of the canvassing
operations, including therein such data as the date and time the canvassing program was started, the
log-in of the authorized users (the identity of the machine operators), the date and time the canvass
data were downloaded into the canvassing system, and so on and so forth. On page 33 of the RFP, we
find the same audit trail requirement with respect to the provincial/district canvassing
system software; and again on pages 35-36 thereof, the same audit trail requirement with respect to
the national canvassing system software.
That this requirement for printing audit trails is not to be lightly brushed aside by the BAC or
Comelec itself as a mere formality or technicality can be readily gleaned from the provisions of
Section 7 of RA 8436, which authorizes the Commission to use an automated system for elections.

The said provision which respondents have quoted several times, provides that ACMs are to possess
certain features divided into two classes: those that the statute itself considers mandatory and other
features or capabilities that the law deems optional. Among those considered mandatory are
"provisions for audit trails"! Section 7 reads as follows: "The System shall contain the following
features: (a) use of appropriate ballots; (b) stand-alone machine which can count votes and an
automated system which can consolidate the results immediately; (c) with provisions for audit trails;
(d) minimum human intervention; and (e) adequate safeguard/security measures." (Italics and
emphases supplied.)

In brief, respondents cannot deny that the provision requiring audit trails is indeed mandatory,
considering the wording of Section 7 of RA 8436. Neither can Respondent Comelec deny that it has
relied on the BAC Report, which indicates that the machines or the software was deficient in that
respect. And yet, the Commission simply disregarded this shortcoming and awarded the Contract to
private respondent, thereby violating the very law it was supposed to implement.

C.

Inadequacy of Post Facto Remedial Measures

Respondents argue that the deficiencies relating to the detection of previously downloaded data, as
well as provisions for audit trails, are mere shortcomings or minor deficiencies in software or
programming, which can be rectified. Perhaps Comelec simply relied upon the BAC Report, which
states on page 8 thereof that "Mega Pacific failed in 8 items[;] however these are mostly on the
software which can be corrected by re-programming x x x and therefore can be readily corrected."

The undersigned ponente’s questions, some of which were addressed to Commissioner Borra during
the Oral Argument, remain unanswered to this day. First of all, who made the determination that the
eight "fail" marks of Mega Pacific were on account of the software -- was it DOST or TWG? How can
we be sure these failures were not the results of machine defects? How was it determined that the
software could actually be re-programmed and thereby rectified? Did a qualified technical expert
read and analyze the source code49 for the programs and conclude that these could be saved and
remedied? (Such determination cannot be done by any other means save by the examination and
analysis of the source code.)

Who was this qualified technical expert? When did he carry out the study? Did he prepare a written
report on his findings? Or did the Comelec just make a wild guess? It does not follow that all defects
in software programs can be rectified, and the programs saved. In the information technology sector,
it is common knowledge that there are many badly written programs, with significant programming
errors written into them; hence it does not make economic sense to try to correct the programs;
instead, programmers simply abandon them and just start from scratch. There’s no telling if any of
these programs is unrectifiable, unless a qualified programmer reads the source code.

And if indeed a qualified expert reviewed the source code, did he also determine how much work
would be needed to rectify the programs? And how much time and money would be spent for that
effort? Who would carry out the work? After the rectification process, who would ascertain and how
would it be ascertained that the programs have indeed been properly rectified, and that they would
work properly thereafter? And of course, the most important question to ask: could the rectification
be done in time for the elections in 2004?

Clearly, none of the respondents bothered to think the matter through. Comelec simply took the
word of the BAC as gospel truth, without even bothering to inquire from DOST whether it was true
that the deficiencies noted could possibly be remedied by re-programming the software. Apparently,
Comelec did not care about the software, but focused only on purchasing the machines.

What really adds to the Court’s dismay is the admission made by Commissioner Borra during the Oral
Argument that the software currently being used by Comelec was merely the "demo" version,
inasmuch as the final version that would actually be used in the elections was still being developed
and had not yet been finalized.

It is not clear when the final version of the software would be ready for testing and deployment. It
seems to the Court that Comelec is just keeping its fingers crossed and hoping the final product
would work. Is there a "Plan B" in case it does not? Who knows? But all these software programs are
part and parcel of the bidding and the Contract awarded to the Consortium. Why is it that the
machines are already being brought in and paid for, when there is as yet no way of knowing if the
final version of the software would be able to run them properly, as well as canvass and consolidate
the results in the manner required?

The counting machines, as well as the canvassing system, will never work properly without the
correct software programs. There is an old adage that is still valid to this day: "Garbage in, garbage
out." No matter how powerful, advanced and sophisticated the computers and the servers are, if the
software being utilized is defective or has been compromised, the results will be no better than
garbage. And to think that what is at stake here is the 2004 national elections -- the very basis of our
democratic life.

Correction of Defects?

To their Memorandum, public respondents proudly appended 19 Certifications issued by DOST

declaring that some 285 counting machines had been tested and had passed the acceptance testing
conducted by the Department on October 8-18, 2003. Among those tested were some machines that
had failed previous tests, but had undergone adjustments and thus passed re-testing.

Unfortunately, the Certifications from DOST fail to divulge in what manner and by what standards or
criteria the condition, performance and/or readiness of the machines were re-evaluated and re-
appraised and thereafter given the passing mark. Apart from that fact, the remedial efforts of
respondents were, not surprisingly, apparently focused again on the machines -- the hardware.
Nothing was said or done about the software -- the deficiencies as to detection and prevention of
downloading and entering previously downloaded data, as well as the capability to print an audit
trail. No matter how many times the machines were tested and re-tested, if nothing was done about
the programming defects and deficiencies, the same danger of massive electoral fraud remains. As
anyone who has a modicum of knowledge of computers would say, "That’s elementary!"
And only last December 5, 2003, an Inq7.net news report quoted the Comelec chair as saying that
the new automated poll system would be used nationwide in May 2004, even as the software for the
system remained unfinished. It also reported that a certain Titus Manuel of the Philippine Computer
Society, which was helping Comelec test the hardware and software, said that the software for the
counting still had to be submitted on December 15, while the software for the canvassing was due in
early January.

Even as Comelec continues making payments for the ACMs, we keep asking ourselves: who is going
to ensure that the software would be tested and would work properly?

At any rate, the re-testing of the machines and/or the 100 percent testing of all machines (testing of
every single unit) would not serve to eradicate the grave abuse of discretion already committed by
Comelec when it awarded the Contract on April 15, 2003, despite the obvious and admitted flaws in
the bidding process, the failure of the "winning bidder" to qualify, and the inability of the ACMs and
the intended software to meet the bid requirements and rules.

Comelec’s Latest "Assurances" Are Unpersuasive

Even the latest pleadings filed by Comelec do not serve to allay our apprehensions. They merely
affirm and compound the serious violations of law and gravely abusive acts it has committed. Let us
examine them.

The Resolution issued by this Court on December 9, 2003 required respondents to inform it as to the
number of ACMs delivered and paid for, as well as the total payment made to date for the purchase
thereof. They were likewise instructed to submit a certification from the DOST attesting to the
number of ACMs tested, the number found to be defective; and "whether the reprogrammed
software has been tested and found to have complied with the requirements under Republic Act No.
8436."50

In its "Partial Compliance and Manifestation" dated December 29, 2003, Comelec informed the Court
that 1,991 ACMs had already been delivered to the Commission as of that date. It further certified
that it had already paid the supplier the sum of P849,167,697.41, which corresponded to 1,973 ACM
units that had passed the acceptance testing procedures conducted by the MIRDC-DOST 51 and which
had therefore been accepted by the poll body.

In the same submission, for the very first time, Comelec also disclosed to the Court the following:

"The Automated Counting and Canvassing Project involves not only the manufacturing of the
ACM hardware but also the development of three (3) types of software, which are intended
for use in the following:

1. Evaluation of Technical Bids

2. Testing and Acceptance Procedures

3. Election Day Use."

Purchase of the First Type of Software Without Evaluation

In other words, the first type of software was to be developed solely for the purpose of enabling the
evaluation of the bidder’s technical bid. Comelec explained thus: "In addition to the presentation of
the ACM hardware, the bidders were required to develop a ‘base’ software program that will enable
the ACM to function properly. Since the software program utilized during the evaluation of bids is not
the actual software program to be employed on election day, there being two (2) other types of
software program that will still have to be developed and thoroughly tested prior to actual election
day use, defects in the ‘base’ software that can be readily corrected by reprogramming are
considered minor in nature, and may therefore be waived."

In short, Comelec claims that it evaluated the bids and made the decision to award the Contract to
the "winning" bidder partly on the basis of the operation of the ACMs running a "base" software.
That software was therefore nothing but a sample or "demo" software, which would not be the
actual one that would be used on election day. Keeping in mind that the Contract involves the
acquisition of not just the ACMs or the hardware, but also the software that would run them, it is
now even clearer that the Contract was awarded without Comelec having seen, much less evaluated,
the final product -- the software that would finally be utilized come election day. (Not even the
"near-final" product, for that matter).

What then was the point of conducting the bidding, when the software that was the subject of the
Contract was still to be created and could conceivably undergo innumerable changes before being
considered as being in final form? And that is not all!

No Explanation for Lapses in the Second Type of Software

The second phase, allegedly involving the second type of software, is simply denominated "Testing
and Acceptance Procedures." As best as we can construe, Comelec is claiming that this second type
of software is also to be developed and delivered by the supplier in connection with the "testing and
acceptance" phase of the acquisition process. The previous pleadings, though -- including the DOST
reports submitted to this Court -- have not heretofore mentioned any statement, allegation or
representation to the effect that a particular set of software was to be developed and/or delivered by
the supplier in connection with the testing and acceptance of delivered ACMs.

What the records do show is that the imported ACMs were subjected to the testing and acceptance
process conducted by the DOST. Since the initial batch delivered included a high percentage of
machines that had failed the tests, Comelec asked the DOST to conduct a 100 percent testing; that is,
to test every single one of the ACMs delivered. Among the machines tested on October 8 to 18,
2003, were some units that had failed previous tests but had subsequently been re-tested and had
passed. To repeat, however, until now, there has never been any mention of a second set or type of
software pertaining to the testing and acceptance process.

In any event, apart from making that misplaced and uncorroborated claim, Comelec in the same
submission also professes (in response to the concerns expressed by this Court) that the
reprogrammed software has been tested and found to have complied with the requirements of RA
8436. It reasoned thus: "Since the software program is an inherent element in the automated
counting system, the certification issued by the MIRDC-DOST that one thousand nine hundred
seventy-three (1,973) units passed the acceptance test procedures is an official recognition by the
MIRDC-DOST that the software component of the automated election system, which has been
reprogrammed to comply with the provisions of Republic Act No. 8436 as prescribed in the Ad Hoc
Technical Evaluation Committee’s ACM Testing and Acceptance Manual, has passed the MIRDC-DOST
tests."

The facts do not support this sweeping statement of Comelec. A scrutiny of the MIRDC-DOST letter
dated December 15, 2003,52 which it relied upon, does not justify its grand conclusion. For clarity’s
sake, we quote in full the letter-certification, as follows:

"15 December 2003

"HON. RESURRECCION Z. BORRA

Commissioner-in-Charge

Phase II, Modernization Project

Commission on Elections

Intramuros, Manila

Attention: Atty. Jose M. Tolentino, Jr.

Project Director

"Dear Commissioner Borra:

"We are pleased to submit 11 DOST Test Certifications representing 11 lots and covering 158
units of automated counting machines (ACMs) that we have tested from 02-12 December
2003.

"To date, we have tested all the 1,991 units of ACMs, broken down as follow: (sic)

1st batch - 30 units 4th batch - 438 units

2nd batch - 288 units 5th batch - 438 units

3rd batch - 414 units 6th batch - 383 units

"It should be noted that a total of 18 units have failed the test. Out of these 18 units, only
one (1) unit has failed the retest.

"Thank you and we hope you will find everything in order.

"Very truly yours,

"ROLANDO T. VILORIA, CESO III

Executive Director cum

Chairman, DOST-Technical Evaluation Committee"

Even a cursory glance at the foregoing letter shows that it is completely bereft of anything that would
remotely support Comelec’s contention that the "software component of the automated election
system x x x has been reprogrammed to comply with" RA 8436, and "has passed the MIRDC-DOST
tests." There is no mention at all of any software reprogramming. If the MIRDC-DOST had indeed
undertaken the supposed reprogramming and the process turned out to be successful, that agency
would have proudly trumpeted its singular achievement.

How Comelec came to believe that such reprogramming had been undertaken is unclear. In any
event, the Commission is not forthright and candid with the factual details. If reprogramming has
been done, who performed it and when? What exactly did the process involve? How can we be
assured that it was properly performed? Since the facts attendant to the alleged reprogramming are
still shrouded in mystery, the Court cannot give any weight to Comelec’s bare allegations.

The fact that a total of 1,973 of the machines has ultimately passed the MIRDC-DOST tests does not
by itself serve as an endorsement of the soundness of the software program, much less as a proof
that it has been reprogrammed. In the first place, nothing on record shows that the tests and re-tests
conducted on the machines were intended to address the serious deficiencies noted earlier. As a
matter of fact, the MIRDC-DOST letter does not even indicate what kinds of tests or re-tests were
conducted, their exact nature and scope, and the specific objectives thereof. 53The absence of
relevant supporting documents, combined with the utter vagueness of the letter, certainly fails to
inspire belief or to justify the expansive confidence displayed by Comelec. In any event, it goes
without saying that remedial measures such as the alleged reprogramming cannot in any way
mitigate the grave abuse of discretion already committed as early as April 15, 2003.

Rationale of Public Bidding Negated

by the Third Type of Software

Respondent Comelec tries to assuage this Court’s anxiety in these words: "The reprogrammed
software that has already passed the requirements of Republic Act No. 8436 during the MIRDC-DOST
testing and acceptance procedures will require further customization since the following additional
elements, among other things, will have to be considered before the final software can be used on
election day: 1. Final Certified List of Candidates x x x 2. Project of Precincts x x x 3. Official Ballot
Design and Security Features x x x 4. Encryption, digital certificates and digital signatures x x x. The
certified list of candidates for national elective positions will be finalized on or before 23 January
2004 while the final list of projects of precincts will be prepared also on the same date. Once all the
above elements are incorporated in the software program, the Test Certification Group created by
the Ad Hoc Technical Evaluation Committee will conduct meticulous testing of the final software
before the same can be used on election day. In addition to the testing to be conducted by said Test
Certification Group, the Comelec will conduct mock elections in selected areas nationwide not only
for purposes of public information but also to further test the final election day program. Public
respondent Comelec, therefore, requests that it be given up to 16 February 2004 to comply with this
requirement."

The foregoing passage shows the imprudent approach adopted by Comelec in the bidding and
acquisition process. The Commission says that before the software can be utilized on election day, it
will require "customization" through addition of data -- like the list of candidates, project of
precincts, and so on. And inasmuch as such data will become available only in January 2004 anyway,
there is therefore no perceived need on Comelec’s part to rush the supplier into producing the final
(or near-final) version of the software before that time. In any case, Comelec argues that the
software needed for the electoral exercise can be continuously developed, tested, adjusted and
perfected, practically all the way up to election day, at the same time that the Commission is
undertaking all the other distinct and diverse activities pertinent to the elections.

Given such a frame of mind, it is no wonder that Comelec paid little attention to the counting and
canvassing software during the entire bidding process, which took place in February-March 2003.
Granted that the software was defective, could not detect and prevent the re-use of previously
downloaded data or produce the audit trail -- aside from its other shortcomings -- nevertheless, all
those deficiencies could still be corrected down the road. At any rate, the software used for bidding
purposes would not be the same one that will be used on election day, so why pay any attention to
its defects? Or to the Comelec’s own bidding rules for that matter?

Clearly, such jumbled ratiocinations completely negate the rationale underlying the bidding process
mandated by law.

At the very outset, the Court has explained that Comelec flagrantly violated the public policy on
public biddings (1) by allowing MPC/MPEI to participate in the bidding even though it was not
qualified to do so; and (2) by eventually awarding the Contract to MPC/MPEI. Now, with the latest
explanation given by Comelec, it is clear that the Commission further desecrated the law on public
bidding by permitting the winning bidder to change and alter the subject of the Contract (the
software), in effect allowing a substantive amendment without public bidding.

This stance is contrary to settled jurisprudence requiring the strict application of pertinent rules,
regulations and guidelines for public bidding for the purpose of placing each bidder, actual or
potential, on the same footing. The essence of public bidding is, after all, an opportunity for fair
competition, and a fair basis for the precise comparison of bids. In common parlance, public bidding
aims to "level the playing field." That means each bidder must bid under the same conditions; and be
subject to the same guidelines, requirements and limitations, so that the best offer or lowest bid may
be determined, all other things being equal.

Thus, it is contrary to the very concept of public bidding to permit a variance between the conditions
under which bids are invited and those under which proposals are submitted and approved; or, as in
this case, the conditions under which the bid is won and those under which the awarded Contract
will be complied with. The substantive amendment of the contract bidded out, without any public
bidding -- after the bidding process had been concluded -- is violative of the public policy on public
biddings, as well as the spirit and intent of RA 8436. The whole point in going through the public
bidding exercise was completely lost. The very rationale of public bidding was totally subverted by
the Commission.

From another perspective, the Comelec approach also fails to make sense. Granted that, before
election day, the software would still have to be customized to each precinct, municipality, city,
district, and so on, there still was nothing at all to prevent Comelec from requiring prospective
suppliers/bidders to produce, at the very start of the bidding process, the "next-to-final" versions of
the software (the best software the suppliers had) -- pre-tested and ready to be customized to the
final list of candidates and project of precincts, among others, and ready to be deployed thereafter.
The satisfaction of such requirement would probably have provided far better bases for evaluation
and selection, as between suppliers, than the so-called demo software.Respondents contend that
the bidding suppliers’ counting machines were previously used in at least one political exercise with
no less than 20 million voters. If so, it stands to reason that the software used in that past electoral
exercise would probably still be available and, in all likelihood, could have been adopted for use in
this instance. Paying for machines and software of that category (already tried and proven in actual
elections and ready to be adopted for use) would definitely make more sense than paying the same
hundreds of millions of pesos for demo software and empty promises of usable programs in the
future.

But there is still another gut-level reason why the approach taken by Comelec is reprehensible. It
rides on the perilous assumption that nothing would go wrong; and that, come election day, the
Commission and the supplier would have developed, adjusted and "re-programmed" the software to
the point where the automated system could function as envisioned. But what if such optimistic
projection does not materialize? What if, despite all their herculean efforts, the software now being
hurriedly developed and tested for the automated system performs dismally and inaccurately or,
worse, is hacked and/or manipulated? 54 What then will we do with all the machines and defective
software already paid for in the amount of P849 million of our tax money? Even more
important, what will happen to our country in case of failure of the automation?

The Court cannot grant the plea of Comelec that it be given until February 16, 2004 to be able to
submit a "certification relative to the additional elements of the software that will be customized,"
because for us to do so would unnecessarily delay the resolution of this case and would just give the
poll body an unwarranted excuse to postpone the 2004 elections. On the other hand, because such
certification will not cure the gravely abusive actions complained of by petitioners, it will be utterly
useless.

Is this Court being overly pessimistic and perhaps even engaging in speculation? Hardly. Rather, the
Court holds that Comelec should not have gambled on the unrealistic optimism that the supplier’s
software development efforts would turn out well. The Commission should have adopted a much
more prudent and judicious approach to ensure the delivery of tried and tested software, and
readied alternative courses of action in case of failure. Considering that the nation’s future is at stake
here, it should have done no less.

Epilogue

Once again, the Court finds itself at the crossroads of our nation’s history. At stake in this controversy
is not just the business of a computer supplier, or a questionable proclamation by Comelec of one or
more public officials. Neither is it about whether this country should switch from the manual to the
automated system of counting and canvassing votes. At its core is the ability and capacity of the
Commission on Elections to perform properly, legally and prudently its legal mandate to implement
the transition from manual to automated elections.

Unfortunately, Comelec has failed to measure up to this historic task. As stated at the start of this
Decision, Comelec has not merely gravely abused its discretion in awarding the Contract for the
automation of the counting and canvassing of the ballots. It has also put at grave risk the holding of
credible and peaceful elections by shoddily accepting electronic hardware and software that
admittedly failed to pass legally mandated technical requirements. Inadequate as they are, the
remedies it proffers post facto do not cure the grave abuse of discretion it already committed (1) on
April 15, 2003, when it illegally made the award; and (2) "sometime" in May 2003 when it executed
the Contract for the purchase of defective machines and non-existent software from a non-eligible
bidder.

For these reasons, the Court finds it totally unacceptable and unconscionable to place its imprimatur
on this void and illegal transaction that seriously endangers the breakdown of our electoral system.
For this Court to cop-out and to close its eyes to these illegal transactions, while convenient, would
be to abandon its constitutional duty of safeguarding public interest.

As a necessary consequence of such nullity and illegality, the purchase of the machines and all
appurtenances thereto including the still-to-be-produced (or in Comelec’s words, to be
"reprogrammed") software, as well as all the payments made therefor, have no basis whatsoever in
law. The public funds expended pursuant to the void Resolution and Contract must therefore be
recovered from the payees and/or from the persons who made possible the illegal disbursements,
without prejudice to possible criminal prosecutions against them.

Furthermore, Comelec and its officials concerned must bear full responsibility for the failed bidding
and award, and held accountable for the electoral mess wrought by their grave abuse of discretion in
the performance of their functions. The State, of course, is not bound by the mistakes and illegalities
of its agents and servants.

True, our country needs to transcend our slow, manual and archaic electoral process. But before it
can do so, it must first have a diligent and competent electoral agency that can properly and
prudently implement a well-conceived automated election system.

At bottom, before the country can hope to have a speedy and fraud-free automated election, it must
first be able to procure the proper computerized hardware and software legally, based on a
transparent and valid system of public bidding. As in any democratic system, the ultimate goal of
automating elections must be achieved by a legal, valid and above-board process of acquiring the
necessary tools and skills therefor. Though the Philippines needs an automated electoral process, it
cannot accept just any system shoved into its bosom through improper and illegal methods. As the
saying goes, the end never justifies the means. Penumbral contracting will not produce enlightened
results.

WHEREFORE, the Petition is GRANTED. The Court hereby declares NULL and VOID Comelec
Resolution No. 6074 awarding the contract for Phase II of the AES to Mega Pacific Consortium (MPC).
Also declared null and void is the subject Contract executed between Comelec and Mega Pacific
eSolutions (MPEI).55 Comelec is further ORDERED to refrain from implementing any other contract or
agreement entered into with regard to this project.

Let a copy of this Decision be furnished the Office of the Ombudsman which shall determine the
criminal liability, if any, of the public officials (and conspiring private individuals, if any) involved in
the subject Resolution and Contract. Let the Office of the Solicitor General also take measures to
protect the government and vindicate public interest from the ill effects of the illegal disbursements
of public funds made by reason of the void Resolution and Contract.

SO ORDERED.
FIDENCIO Y. BEJA, SR., vs. COURT OF APPEALS, REINERIO REYES (Secretary of DOTC), et al.
[March 31, 1992]
The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of
Transportation and Communications (DOTC) and/or its Administrative Action Board (AAB) over
administrative cases involving personnel below the rank of Assistant General Manager of the
Philippine Ports Authority (PPA), an agency attached to the said Department.

Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975. He
became Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In February
1988, as a result of the reorganization of the PPA, he was appointed Terminal Supervisor.

On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case No. 11-
04-88 against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave misconduct, willful
violation of reasonable office rules and regulations and conduct prejudicial to the best interest of the
service. Beja and Villaluz allegedly erroneously assessed storage fees resulting in the loss of
P38,150.77 on the part of the PPA. Consequently, they were preventively suspended for the charges.
After a preliminary investigation conducted by the district attorney for Region X, Administrative Case
No. 11-04-88 was "considered closed for lack of merit."

On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88, was
filed against Beja by the PPA General Manager also for dishonesty, grave misconduct, violation of
reasonable office rules and regulations, conduct prejudicial to the best interest of the service and for
being notoriously undesirable. The charge consisted of six (6) different specifications of
administrative offenses including fraud against the PPA in the total amount of P218,000.00. Beja was
also placed under preventive suspension pursuant to Sec. 41 of P.D. No. 807.

The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the PPA
general manager indorsed it to the AAB for "appropriate action." At the scheduled hearing, Beja
asked for continuance on the ground that he needed time to study the charges against him. The AAB
proceeded to hear the case and gave Beja an opportunity to present evidence. However, on February
20, 1989, Beja filed a petition for certiorari with preliminary injunction before the Regional Trial
Court of Misamis Oriental. 2 Two days later, he filed with the AAB a manifestation and motion to
suspend the hearing of Administrative Case No. PPA-AAB-1-049-89 on account of the pendency of
the certiorari proceeding before the court. AAB denied the motion and continued with the hearing of
the administrative case.

Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before
this Court a petition for certiorari with preliminary injunction and/or temporary restraining order.
The case was docketed as G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc.,
et al." In the en banc resolution of March 30, 1989, this Court referred the case to the Court of
Appeals for "appropriate action." 3 G.R. No. 87352 was docketed in the Court of Appeals as CA-G.R.
SP No. 17270.

Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89. Its
dispositive portion reads:

WHEREFORE, judgment is hereby rendered, adjudging the following, namely:

a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated from
the charge against them;
 b) That respondent Fidencio Y. Beja be dismissed from the service;

c) That his leave credits and retirement benefits are declared forfeited;

d) That he be disqualified from re-employment in the government service;

e) That his eligibility is recommended to be cancelled.

Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a
decision 4 in CA-G.R. SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence, Beja
elevated the case back to this Court through an "appeal by certiorari with preliminary injunction
and/or temporary restraining order."

We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence, the
filing of memoranda has been dispensed with.

In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a way
probably not in accord with law or with the applicable decisions" of this Court. 5 Specifically, Beja
contends that the Court of Appeals failed to declare that: (a) he was denied due process; (b) the PPA
general manager has no power to issue a preventive suspension order without the necessary
approval of the PPA board of directors; (c) the PPA general manager has no power to refer the
administrative case filed against him to the DOTC-AAB, and (d) the DOTC Secretary, the Chairman of
the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no jurisdiction to try the
administrative case against him. Simply put, Beja challenges the legality of the preventive suspension
and the jurisdiction of the DOTC Secretary and/or the AAB to initiate and hear administrative cases
against PPA personnel below the rank of Assistant General Manager.

Petitioner anchors his contention that the PPA general manager cannot subject him to a preventive
suspension on the following provision of Sec. 8, Art. V of Presidential Decree No. 857 reorganizing
the PPA:

(d) the General Manager shall, subject to the approval of the Board, appoint and
remove personnel below the rank of Assistant General Manager. (Emphasis
supplied.)

Petitioner contends that under this provision, the PPA Board of Directors and not the PPA General
Manager is the "proper disciplining authority. 6

As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive
suspension" as a remedial measure with "suspension" as a penalty for administrative dereliction. The
imposition of preventive suspension on a government employee charged with an administrative
offense is subject to the following provision of the Civil Service Law, P.D. No. 807:

Sec. 41. Preventive Suspension. — The proper disciplining authority may preventively
suspend any subordinate officer or employee under his authority pending an
investigation, if the charge against such officer or employee involves dishonesty,
oppression or grave misconduct, or neglect in the performance of duty, or if there
 are reasons to believe that the respondent is guilty of charges which would warrant
his removal from the service.

Imposed during the pendency of an administrative investigation, preventive suspension is not a

penalty in itself. It is merely a measure of precaution so that the employee who is charged may be
separated, for obvious reasons, from the scene of his alleged misfeasance while the same is being
investigated. 7 Thus, preventive suspension is distinct from the administrative penalty of removal
from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While the former may be imposed
on a respondent during the investigation of the charges against him, the latter is the penalty which
may only be meted upon him at the termination of the investigation or the final disposition of the
case.

The PPA general manager is the disciplining authority who may, by himself and without the approval
of the PPA Board of Directors, subject a respondent in an administrative case to preventive
suspension. His disciplinary powers are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted,
but also by Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction to investigate and
decide matters involving disciplinary actions against officers and employees" in the PPA.

Parenthetically, the period of preventive suspension is limited. It may be lifted even if the disciplining
authority has not finally decided the administrative case provided the ninety-day period from the
effectivity of the preventive suspension has been exhausted. The employee concerned may then be
reinstated. 8 However, the said ninety-day period may be interrupted. Section 42 of P.D. No. 807 also
mandates that any fault, negligence or petition of a suspended employee may not be considered in
the computation of the said period. Thus, when a suspended employee obtains from a court of
justice a restraining order or a preliminary injunction inhibiting proceedings in an administrative
case, the lifespan of such court order should be excluded in the reckoning of the permissible period
of the preventive suspension. 9

With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and hear
administrative cases against PPA Personnel below the rank of Assistant General Manager, the
Court qualifiedly rules in favor of petitioner.

The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate powers
of the PPA were vested in a governing Board of Directors known as the Philippine Port Authority
Council. Sec. 5(i) of the same decree gave the Council the power "to appoint, discipline and remove,
and determine the composition of the technical staff of the Authority and other personnel."

On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created the
Philippine Ports Authority which would be "attached" to the then Department of Public Works,
Transportation and Communication. When Executive Order No. 125 dated January 30, 1987
reorganizing the Ministry of Transportation and Communications was issued, the PPA retained its
"attached" status. 10 Even Executive Order No. 292 or the Administrative Code of 1987 classified the
PPA as an agency "attached" to the Department of Transportation and Communications (DOTC). Sec.
24 of Book IV, Title XV, Chapter 6 of the same Code provides that the agencies attached to the DOTC
"shall continue to operate and function in accordance with the respective charters or laws creating
them, except when they conflict with this Code."
Attachment of an agency to a Department is one of the three administrative relationships mentioned
in Book IV, Chapter 7 of the Administrative Code of 1987, the other two being supervision and
control and administrative supervision. "Attachment" is defined in Sec. 38 thereof as follows:

(3) Attachment. — (a) This refers to the lateral relationship between the Department
or its equivalent and the attached agency or corporation for purposes of policy and
program coordination. The coordination shall be accomplished by having the
department represented in the governing board of the attached agency or
corporation, either as chairman or as a member, with or without voting rights, if this
is permitted by the charter; having the attached corporation or agency comply with a
system of periodic reporting which shall reflect the progress of programs and
projects; and having the department or its equivalent provide general policies
through its representative in the board, which shall serve as the framework for the
internal policies of the attached corporation or agency;

(b) Matters of day-to-day administration or all those pertaining to internal operations

shall he left to the discretion or judgment of the executive officer of the agency or
corporation. In the event that the Secretary and the head of the board or the
attached agency or corporation strongly disagree on the interpretation and
application of policies, and the Secretary is unable to resolve the disagreement, he
shall bring the matter to the President for resolution and direction;

(c) Government-owned or controlled corporations attached to a department shall

submit to the Secretary concerned their audited financial statements within sixty
(60) days after the close of the fiscal year; and

(d) Pending submission of the required financial statements, the corporation shall
continue to operate on the basis of the preceding year's budget until the financial
statements shall have been submitted. Should any government-owned or controlled
corporation incur an operation deficit at the close of its fiscal year, it shall be subject
to administrative supervision of the department; and the corporation's operating
and capital budget shall be subject to the department's examination, review,
modification and approval. (emphasis supplied.)

An attached agency has a larger measure of independence from the Department to which it is
attached than one which is under departmental supervision and control or administrative
supervision. This is borne out by the "lateral relationship" between the Department and the attached
agency. The attachment is merely for "policy and program coordination." With respect to
administrative matters, the independence of an attached agency from Departmental control and
supervision is further reinforced by the fact that even an agency under a Department's
administrative supervision is free from Departmental interference with respect to appointments and
other personnel actions "in accordance with the decentralization of personnel functions" under the
Administrative Code of 1987. 11 Moreover, the Administrative Code explicitly provides that Chapter 8
of Book IV on supervision and control shall not apply to chartered institutions attached to a
Department. 12
Hence, the inescapable conclusion is that with respect to the management of personnel, an attached
agency is, to a certain extent, free from Departmental interference and control. This is more explicitly
shown by P.D. No. 857 which provides:

Sec. 8. Management and Staff. — a) The President shall, upon the recommendation
of the Board, appoint the General Manager and the Assistant General Managers.

(b) All other officials and employees of the Authority shall be selected and appointed
on the basis of merit and fitness based on a comprehensive and progressive merit
system to be established by the Authority immediately upon its organization and
consistent with Civil Service rules and regulations. The recruitment, transfer,
promotion, and dismissal of all personnel of the Authority, including temporary
workers, shall be governed by such merit system.

(c) The General Manager shall, subject to the approval of the Board, determine the
staffing pattern and the number of personnel of the Authority, define their duties
and responsibilities, and fix their salaries and emoluments. For professional and
technical positions, the General Manager shall recommend salaries and emoluments
that are comparable to those of similar positions in other government-owned
corporations, the provisions of existing rules and regulations on wage and position
classification notwithstanding.

(d) The General Manager shall, subject to the approval by the Board, appoint and
remove personnel below the rank of Assistant General Manager.

xxx xxx xxx

(emphasis supplied.)

Although the foregoing section does not expressly provide for a mechanism for an administrative
investigation of personnel, by vesting the power to remove erring employees on the General
Manager, with the approval of the PPA Board of Directors, the law impliedly grants said officials the
power to investigate its personnel below the rank of Assistant Manager who may be charged with an
administrative offense. During such investigation, the PPA General Manager, as earlier stated, may
subject the employee concerned to preventive suspension. The investigation should be conducted in
accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering sufficient
facts may the PPA General Manager impose the proper penalty in accordance with law. It is the latter
action which requires the approval of the PPA Board of Directors. 14

From an adverse decision of the PPA General Manager and the Board of Directors, the employee
concerned may elevate the matter to the Department Head or Secretary. Otherwise, he may appeal
directly to the Civil Service Commission. The permissive recourse to the Department Secretary is
sanctioned by the Civil Service Law (P.D. No. 807) under the following provisions:

Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon appeal all
administrative disciplinary cases involving the imposition of a penalty of suspension
for more than thirty days, or fine in an amount exceeding thirty days salary,
demotion in rank or salary or transfer, removal or dismissal from office. A complaint
 may be filed directly with the Commission by a private citizen against a government
official or employee in which case it may hear and decide the case or it may deputize
any department or agency or official or group of officials to conduct the
investigation. The results of the investigation shall be submitted to the Commission
with recommendation as to the penalty to be imposed or other action to be taken.

(b) The heads of departments, agencies and instrumentalities, provinces, cities and
municipalities shall have jurisdiction to investigate and decide matters involving
disciplinary action against officers and employees under their jurisdiction. The
decisions shall be final in case the penalty imposed is suspension for not more than
thirty days or fine in an amount not exceeding thirty days' salary. In case the decision
rendered by a bureau or office head is appealable to the Commission, the same may
be initially appealed to the department and finally to the Commission and pending
appeal, the same shall be executory except when the penalty is removal, in which
case the same shall be executory only after confirmation by the department head.

xxx xxx xxx

(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the AAB
was premature. The PPA General Manager should have first conducted an investigation, made the
proper recommendation for the imposable penalty and sought its approval by the PPA Board of
Directors. It was discretionary on the part of the herein petitioner to elevate the case to the then
DOTC Secretary Reyes. Only then could the AAB take jurisdiction of the case.

The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-318
dated July 1, 1988, was designed to act, decide and recommend to him "all cases of administrative
malfeasance, irregularities, grafts and acts of corruption in the Department." Composed of a
Chairman and two (2) members, the AAB came into being pursuant to Administrative Order No. 25
issued by the President on May 25, 1987. 15 Its special nature as a quasi-judicial administrative body
notwithstanding, the AAB is not exempt from the observance of due process in its proceedings. 16 We
are not satisfied that it did so in this case the respondents protestation that petitioner waived his
right to be heard notwithstanding. It should be observed that petitioner was precisely questioning
the AAB's jurisdiction when it sought judicial recourse.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the power of the
PPA General Manager to subject petitioner to preventive suspension and REVERSED insofar as it
validates the jurisdiction of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1-
049-89 and rules that due process has been accorded the petitioner.

The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED to the
PPA whose General Manager shall conduct with dispatch its reinvestigation.

The preventive suspension of petitioner shall continue unless after a determination of its duration, it
is found that he had served the total of ninety (90) days in which case he shall be reinstated
immediately.
SO ORDERED.

REMEDIOS BLAQUERA, et al. vs. ANGEL ALCALA (Secretary of DENR)

[September 11, 1998]

These are cases for certiorari and prohibition, challenging the constitutionality and validity of
Administrative Order Nos. 29 and 268 on various grounds.

The facts in G.R. Nos. 109406, 110642, 111494, and 112056 are undisputed, to wit:

Petitioners are officials and employees of several government departments and agencies who were
paid incentive benefits for the year 1992, pursuant to Executive Order No. 292 1 ("EO 292"),
otherwise known as the Administrative Code of 1987, and the Omnibus Rules Implementing Book
V 2 of EO 292. On January 19, 1993, then President Fidel V. Ramos ("President Ramos") issued
Administrative Order No. 29 ("AO 29") authorizing the grant of productivity incentive benefits for the
year 1992 in the maximum amount of P1,000.00 3 and reiterating the prohibition 4 under Section
7 5 of Administrative Order No. 268 ("AO 268"), enjoining the grant of productivity incentive benefits
without prior approval of the President. Section 4 of AO 29 directed "[a]ll departments, offices and
agencies which authorized payment of CY 1992 Productivity Incentive Bonus in excess of the amount
authorized under Section 1 hereof [are hereby directed] to immediately cause the return/refund of
the excess within a period of six months to commence fifteen (15) days after the issuance of this
Order." In compliance therewith, the heads of the departments or agencies of the government
concerned, who are the herein respondents, caused the deduction from petitioners' salaries or
allowances of the amounts needed to cover the alleged overpayments. To prevent the respondents
from making further deductions from their salaries or allowances, the petitioners have come before
this Court to seek relief.

In G.R. No. 119597, the facts are different but the petition poses a common issue with the other
consolidated cases. The petitioner, Association of Dedicated Employees of the Philippine Tourism
Authority ("ADEPT"), is an association of employees of the Philippine Tourism Authority ("PTA") who
were granted productivity incentive bonus for calendar year 1992 pursuant to Republic Act No. 6971
("RA 6971"), otherwise known as the Productivity Incentives Act of 1990. Subject bonus was,
however, disallowed by the Corporate Auditor on the ground that it was "prohibited under
Administrative Order No. 29 dated January 19, 1993." 6 The disallowance of the bonus in question
was finally brought on appeal to the Commission an Audit (COA) which denied the appeal in its
Decision 7 of March 6, 1995, ratiocinating, thus:

. . . Firstly, the provisions of RA #6971 insofar as the coverage is

concerned refer to business enterprises including government
owned and/or controlled corporations performing proprietary
functions.

Sec. 1a of the Supplemental Rules Implementing RA #6971 classified such coverage as:

All business enterprises, with or without existing duly certified labor organizations, including
government owned and/or controlled corporations performing proprietary functions which are
established solely for business or profit and accordingly excluding those created, maintained or
acquired in pursuance of a policy of the State enunciated in the Constitution, or by law and
those whose officers and employess are covered by the Civil Service. (emphasis supplied)

The PTrA is a GOCC created in pursuance of a policy of the State, Section 9 of Presidential
Decree No. 189 states that "To implement the policies and program of the Department (Dept.
of Tourism), there is hereby created a Philippine Tourism Authority, . . ." Likewise, Section 21 of
the same decree provides that "All officials and employees of the Authority, . . ., shall be
subject to Civil Service Law, rules and regulations, and the coverage of the Wage and Position
Classification Office.

Furthermore, although Supplemental Rules and Regulations implementing R.A. #6971 was
issued only on December 27, 1991, the law itself is clear that it pertains to private business
enterprises whose employees are covered by the Labor Code of the Philippines, as mentioned
in the following provisions:

Sec. 5. Labor Management Committee. . . . that at the reguest of any party to the negotiation,
the National Wages and Productivity Commission of the Department of Labor and Employment
shall provide the necessary studies, . . . .

Sec. 8. Notification. — A business enterprise which adopts a productivity incentive program

shall submit copies of the same to the National Wages and Productivity Commission and to the
Bureau of Internal Revenue for their information and record.

Sec. 9. Disputes and Grievances. — Whenever disputes, grievances, or other matters arise from
the interpretation or implementation of the productivity incentive program, . . . may seek the
assistance of the National Conciliation and Mediation Board of the Department of Labor and
Employment for such purpose. . . .

Therefore, considering the foregoing, the PTrA is within the "exclusion" provision of the
Implementing Rules of RA #6971 and so, it (PTrA) does not fall within its coverage as being
entitled to, the productivity incentive bonus under RA #6971.
 Secondly, Administrative Order No. 29 which is the basis for the grant of the productivity
incentive bonus/benefits for CY 1992 also explessly provides "prohibiting payments of similar
benefits in future years unless duly authorized by the President."

Thirdly, the disallowance of the Auditor, PTrA has already been resolved when this Commission
circularized thru COA Memorandum #92-758 dated April 3, 1992 the Supplemental to Rules
implementing RA 6971 otherwise known as the "Productivity Incentives Act of 1990." . . .

Lastly, considering the title of RA #6971, i.e. "An Act to encourage productivity and maintain
industrial peace by providing incentives to both labor and capital", and its implementing rules
and regulations prepared by the Department of Labor and Employment and the Department of
Finance, this Office concludes that said law/regulation pertains to agencies in the private
sector whose employees are covered by the Labor Code.

With the denial of its appeal, petitioner found its way here via the petition in G.R. No.
119597, to seek relief from the aforesaid decision of COA.

We will first resolve the issue on the applicability of RA 6971 to petitioner ADEPT in G.R. No. 119597
before passing upon the constitutionality or validity of Administrative Orders 29 and 268.

Sec. 3 of RA 6971, reads:

Sec. 3. Coverage. This Act shall apply to all business enterprises with or without existing and duly
recognized or certified labor organizations, including government-owned and controlled corporations
performing proprietary functions. It shall cover all employees and workers including casual, regular,
supervisory and managerial employees. (emphasis ours)

Pursuant to Section 10 8 of RA 6971, the Secretary of Labor and Secretary of Finance issued
Supplemental Rules to Implement the said law, as follows:

Sec. 1. — Paragraph (a) Section 1, Rule II of the Rules Implementing

RA 6971, shall be amended to read as follows:

Coverage. These Rules shall apply to:

(a) All business enterprises with or without existing duly certified

labor organizations, including government-owned and controlled
corporations performing proprietary functions which are established
solely for business or profit or gain and accordingly excluding those
created, maintained or acquired in pursuance of a policy of the state,
enunciated in the Constitution or by law, and those whose officers
and employees are covered by the Civil Service. (emphasis ours)

xxx xxx xxx

Petitioner contends that the PTA is a government-owned and controlled corporation performing
proprietary function, and therefore the Secretary of Labor and Employment and Secretary of Finance
exceeded their authority in issuing the aforestated Supplemental Rules Implementing RA 6971.
Government-owned and controlled corporations may perform governmental or proprietary functions
or both, depending on the purpose for which they have been created. If the purpose, is to obtain
special corporate benefits or earn pecuniary profit, the function is proprietary. If it is in the interest
of health, safety and for the advancement of public good and welfare, affecting the public in general,
the function is governmental. 9 Powers classified as "proprietary" are those intended for private
advantage and benefit. 10

The PTA was established by Presidential Decree No. 189, as amended by Presidential Decree No. 564
("PD 564").

Its general purposes 11 are:

1. To implement the policies and programs of the Department of Tourism

("Department");

2. To develop tourist zones;

3. To assist private enterprises in undertaking tourism projects;

4. To operate and maintain tourist facilities;

5. To assure rand availability for private investors in hotels and other tourist
facilities;

6. To coordinate all tourism project plans and operations.

Its specific functions and powers 12 are:

1. Planning and development of tourism projects

a. To assist the Department make a comprehensive survey of the physical and natural
tourism resources of the Philippines; to establish the order of priority for development of
said areas; to recommend to the President the proclamation of a tourist zone; and to define
and fix the boundaries of the zone;

b. To formulate a development plan for each zone;

c. To submit to the President through the National Economic and Development Athority for
review and approval all development plans before the same are enforced or implemented;

d. To submit to the President an Annual Progress Report;

e. To assist the Department to determine the additional capacity requirements for various
tourist facilities and services; to prepare a ten-year Tourism Priorities Plan; to update
annually the ten year Tourism Priorities Plan.

f. To gather, collate and analyze statistical data and other pertinent information for the
effective implementation of PD 564.

2. Acquisition and disposition of lands and other assets for tourist zone purposes
a. To acquire possession and ownership of all lands transferred to it from other government
corporations and institutions and any land having tourism potential and earmarked in the
Tourism Priorities Plans for intensive development into a tourist zone or as a part thereof,
subject to the approval of the President.

b. To acquire by purchase, by negotiation or by condemnation proceedings any private land

within and without the tourist zones for any of the following reasons: (a) consolidation of
lands for tourist zone development purposes, (b) prevention of land speculation in areas
declared as tourist zones, (c) acquisition of right of way to the zones, (d) protection of water
shed areas and natural assets with tourism value, and (e) for any other purpose expressly
authorized under PD 564.

c. For the purpose of providing land acquisition assistance to registered tourism enterprises,
to sell, subdivide, resell, lease, sublease, rent out, or otherwise, to said registered tourism
enterprises under sufficiently soft terms for use specifically in the development of hotels,
recreational facilities, and other tourist services.

d. To develop and/or subdivide any land in its name or undertake condominium projects
thereon, and sell subdivision lots or condominium units to private persons for investment
purposes.

e. To take over or transfer to a registered tourism enterprise in accordance with law any
lease on foreshore areas within a tourist zone or adjacent thereto, in cases said areas are
not being utilized in accordance with the PTA's approved zone development plan and
wherein the lessee concerned does not agree to conform accordingly.

f. To arrange for the reclamation of any land adjacent to or adjoining a tourist zone in
coordination with appropriate government agencies.

3. Infrastructure development for tourist zone purposes

a. To contract, supervise and pay for infrastructure works and civil works within a tourist
zone owned and operated by the PTA.

b. To coordinate with appropriate government agencies the development of infrastructure

requirements supporting a tourist zone.

c. To take water from any public stream, river, creek, lake, spring, or waterfall and to alter,
straighten, obstruct or increase the flow of water in streams.

4. Zone adminstration and control

a. To formulate and implement zoning regulations.

b. To determine and regulate the enterprises to be established within a tourist zone.

c. To ensure, through the proper authorities concerned, the ecological preservation,

maintenance and/or rehabilitation of the common and the public areas within a tourist
zone and the environment thereof.
d. To identify and recommend to the President the preservation and/or restoration of
national monuments or preserves; to arrange for the preservation and/or restoration of the
same with appropriate government agencies or with the private sector or with the owners
themselves of said tourist attractions; and to identify and recommend to the appropriate
authorities concerned the declaration of tourist areas and attractions as national
monuments and preserves.

5. Project and investment promotions

a. To identify, develop, invest in, own, manage and operate such projects as it may deem to
be vital for recreation and rest but not sufficiently attractive economically for private
investment.

b. To construct hotel buildings and other tourist facilities within a tourist zone and in turn
lease such facilities to registered tourism enterprises for operation, management and
maintenance.

c. To organize, finance, invest in, manage and operate wholly-owned subsidiary

corporations.

6. Direct assistance to registered enterprises

a. To administer the tax and other incentives granted to registered enterprises.

b. To evaluate, approve and register or reject any and all tourism projects or enterprises
established within the tourist zones.

c. To grant medium and long-term loans and/or re-lend any funds borrowed for the purpose
to duly qualified registered tourism enterprises.

d. To guarantee local and foreign borrowings of registered enterprises.

e. To provide equity investments in the form of cash and/or land.

f. To extend technical, management and financial assistance to tourism projects.

g. To identify, contact and assist in negotiations of suitable partners for both local and
foreign investors interested in investment or participation in the tourism industry.

h. To assist registered enterprises and prospective investors to have their papers processed
with dispatch by government offices.

7. Other powers and functions

a. To engage or retain the services of financial, management, legal, technical, and/or project
consultants from the private or government sector.

b. To have the power to succeed by its corparate name.

c. To adopt, alter, and use a corporate seal.

 d. To sue and be sued under its corporate name.

e. To enter into any contracts of any kind and description.

f. To own or possess personal and/or real property.

g. To make, adopt and enforce rules and regulations to execute its powers, duties and
functions.

h. To purchase, hold, and alienate shares of stock or bonds of any corporation.

i. To collect fees or charges as may be imposed under PD 564.

j. To contract indebtedness and issue bonds.

k. To fix and collect rentals for the lease, use or occupancy of lands, buildings, or other
property owned or administered by PTA.

l. To do any and all acts and things necessary to carry out the purposes for which the PTA is
created.

Categorited in light of the foregoing provisions of law in point, PTA's governmental functions include
the first, third, fourth, and sixth of the aforesaid general purposes. The second 13 and fifth general
purposes fall under its proprietary functions.

With respect to PTA's specific functions and powers, the first and fourth are governmental in nature
while the specific functions and powers are proprietary in character. The second, third, sixth, and
seventh specific functions and powers can be considered partly-governmental and partly-proprietary,
considering that 2(a), 2(b), 2(c), 2(d), 2(e), 3(a), 6(c), 6(d), 6(e), 7(h), 7(j), and 7(k) are proprietary
functions while 2(f), 3(b), 3(c), 6(a), 6(b), 6(f), 6(g), 6(h), 7(a), 7(b), 7(c), 7(d), 7(f), 7(g), and 7(l) are
governmental functions. The specific functions and powers treated in 7(e) and 7(i) may be classified
either as propietary or governmental, depending on the circumstances under which they are
exercised or performed.

The aforecited powers and functions of PTA are predominantly governmental, principally geared
towards the development and promotion of tourism in the scenic Philippine archipelago. But it is
irrefutable that PTA.also performs proprietary functions, as envisaged by its charter.

Reliance on the above analysis of the functions and powers of PTA does not suffice for the
determination of whether or not it is within the coverage of RA 6971. For us to resolve the issues
raised here solely on the basis of the classification of PTA's powers and functions may lead to the
rendition of judgment repugnant to the legislative intent and to established doctrines, as well, such
as on the prohibition against government workers to strike. 14 Under RA 6971, the workers have the
right to strike.

To ascertain whether PTA is within the ambit of RA 6971, there is need to find out the legislative
intent, and to refer to other provisions of RA 6971 and other pertinent laws, that may aid the Court
in ruling on the right or officials and employees of PTA to receive bonuses under RA 8971.
Petitioner cites an entry in the journal of the House of Representatives to buttress its submission that
PTA is within the coverage of RA 6971, to wit:

Chairman Veloso: The intent of including government-owned and

controlled corporations within the coverage of the Act is the
recognition of the principle that when government goes into
business, it (divests) itself of its immunity from suit and goes down
to the level of ordinary private enterprises and subjects itself to the
ordinary laws of the land just like ordinary private enterprises. Now,
when people work therefore in government-owned or controlled
corporations, it is as if they are also, just like in the private sector,
entitled to all the benefits of all laws that apply to workers in the
private sector. In my view, even including the right to organize,
bargain. . . . VELOSO (Bicameral Conference Committee on Labor and
Employment, pp. 15-16)

After a careful study, the Court is of the view, and go holds, that contrary to petitioner's
interpretation, the government-owned and controlled corporations Mr. Chairman Veloso had in mind
were government-owned and controlled corporations incorporated under the general corporation
law. This is so because only workers in private corporations and government-owned and controlled
corporations, incorporated under the general corporation law, have the right to bargain (collectively).
Those in government corporations with special charter, which are subject to Civil Service Laws, have
no right to bargain (collectively), except where the terms and conditions of employment are not fixed
by law 15. Their rights and duties are not comparable with those in the private sector.

Since the terms and conditions of government employment are fixed

by law, government workers cannot use the same weapons
employed by workers in the private sector to secure concessions
from their employers. The principle behind labor unionism in private
industry is that industrial peace cannot be secured through
compulsion by law. Relations between private employers and their
employees rest on an essentially voluntary basis. Subject to the
minimum requirements of wage laws and other labor and welfare
legislation, the terms and conditions of employment in the
unionized private sector are settled through the process of collective
bargaining. In government employment however, it is the legisleture
and, where properly given delegated power, the administrative
heads of government which fix the terms and conditions of
employment. And this is effected through statutes or administrative
circulars, rules, and regulations, not through collective bargaining
agreements. (Alliance of Government Workers v. Minister of Labor
and Employment, 124 SCRA 1) (emphasis ours)

Government corporations may be created by special charters or by incorporation under the general
corporation law. Those created by special charters are governed by the Civil Service Law while those
incorporated under the general corporation law are governed by the Labor Code. 16
The legislative intent to place only government-owned and controlled corporations performing
proprietary functions under the coverage of RA 6971 is gleanable from the other provisions of the
law. For instance, section 2 17 of said law envisions "industrial peace and harmony" and "to provide
corresponding incentives to both labor and capital;" section 4 18 refers to "representatives of labor
and management," section 5 19 mentions of "collective bargaining agent(s) of the bargaining
unit(s);" section 6 20 relates to "existing collective bargaining agreements," and "labor and
management;" section 7 21 speaks of "strike or lockout;" and section 9 22 purports to "seek the
assistance of the National Conciliation and Mediation Board of the Department of Labor and
Employment" and "include the name(s) of the voluntary arbitrators or panel of voluntary arbitrator."
All the aforecited provisions of law apply only to private corporations and government-owned and
controlled corporations organized under the general corporation law. Only they have collective
bargaining agents, collective bargaining units, collective bargaining agreements, and the right to
strike or lockout.

To repeat, employees of government corporations created by special charters have neither the right
to strike nor the right to bargain collectively, as defined in the Labor Code. The case of Social Security
System Employees Associalion indicates the following remedy of government workers not allowed to
strike or bargain collectively, to wit:

Government employees may, therefore, through their unions or

associations, either petition the Congress the betterment of the
terms and conditions of employment which are within the ambit of
legislation or negotiate with the appropriate government agencies
for the improvement of those which are not fixed by law. If there be
any unresolved grievances, the dispute may be referred to the Public
Sector Labor-Management Council for appropriate action. But
employees in the civil service may not resort to strikes, walkouts and
other temporary work stoppages, like workers in the private sector,
to pressure the Government to accede to their demands, (supra,
footnote 14, p. 698; emphasis ours)

It is a rule in statutory construction that every part of the statute must be interpreted with reference
to the context, i.e., that every part of the statute must be considered together with the other parts,
and kept subservient to the general intent of the whole enactment. 23 The provisions of RA 6971,
taken together, reveal the legislative intent to include only government-owned and controlled
corporations performing proprietary functions within its coverage.

Every statute must be construed harmonized with other statutes as to form a uniform system of
jurisprudence. 24 We note Section 1, Rule X of the Omnibus Rules Implementing Book V of EO 292,
which reads:

Sec. 1. — Each department or agency of government, whether

national or local, including bureaus and agencies, state colleges and
universities, and government owned and controlled corporations
with original charters, shall establish its own Department or Agency
Employee Suggestions and Incentives Award System in accordance
 with these Rules and shall submit the same to the Commission for
approval. (emphasis ours)

It is thus evident that PTA, being a government-owned and controlled corporation with
original charter subject to Civil Service Law, Rules and Regulations, 25 is already within the
scope of an incentives award systern under Section 1, Rule X of the Omnibus Rules
Implementing EO 292 issued by the Civil Service Commission ("Commission"). Since
government-owned and controlled corporations with original charters do have an incentive
award system, Congress enacted a law that would address the same concern of officials and
employees of government-owned and controlled corporations incorporated under the
general corporation law.

All things studiedly considered in proper perspective, the Court finds no reversible error in the
finding by respondent Commission that PTA is not within the purview of RA 6971. As regards the
promulgation of implementing rules and regulations, it bears stressing that the "power of
administrative officials to promulgate rules in the implementation of the statute is necessarily limited
to what is provided for in the legislative enactment." 26 In the case under scrutiny, the
Supplementary Rules Implementing RA 6971 issued by the Secretary of Labor and Employment and
the Secretary of Finance accord with the intendment and provisions of RA 6971. Consequently, not
being covered by RA 6971, AO 29 applies to the petitioner.

We now tackle the common issue posited by the consolidated petitions on the constitutionality of
AO 29 and AO 268.

Petitioners contend and argue, that:

I. AO 29 AND AO 268 ARE VIOLATIVE OF THE PROVISIONS OF EO 292 AND, HENCE, NULL AND
VOID.

II. AO 29 AND AO 268 UNLAWFULLY USURP THE CONSTITUTIONAL AUTHORITY GRANTED

SOLELY TO THE CIVIL SERVICE COMMISSION.

III. THE FORCED REFUND OF INCENTIVE PAY IS AN UNCONSTITUTIONAL IMPAIRMENT OF A

CONTRACTUAL OBLIGAITION.

IV. ASSUMING, FOR THE SAKE OF ARGUMENT ONLY, THAT THE GRANT OF PRODUCTIVITY
INCENTIVE BENEFITS WAS INVALID, THE SAME SHOULD BE THE PERSONAL LIABILITY OF
OFFICIALS DIRECTLY RESPONSIBLE THEREFOR IN ACCORDANCE WITH SECTION 9 OF AO 268.

Issued by the then President Corazon Aquino ("President Aquino") on July 25, 1987 in the exercise ol
her legislative powers under the 1987 Constitution, 27 EO 292, or the Administrative Code or 1987,
provided for the following incentive award system:

Sec. 31. Career and Personnel Development Plans. — Each

department or agency shall prepare a career and personnel
development plan which shall be integrated into a national plan by
the Commission. Such career and personnel development plans
which shall include provisions on merit promotions, performance
 evaluation, in-service training, including overseas and local
schorlarship and training grants, job rotation, suggestions and
incentive award systems, and such other provisions for employees'
health, welfare, counseling, recreation and similar services.

Sec. 35. Employee Suggestions and Incentive Award Syatem. —

There shall be established a government-wide employee suggestions
and incentive awards system which shall be administered under such
rules, regulations, and standards as maybe promulgated by the
Commssion.

In accordance with rules, regulations, and standards promulgated by

the Commission, the President or the head of each department or
agency is authorized to incur whatever necessary expensesd
involved in the honorary recognition of subordinate officers and
employees of the government who by their suggestions, inventions,
superior accomplishment, and other personal efforts contribute to
the efficiency, economy, or other improvement of government
operations, or who perform such other extraordinary acts or services
in the public interest in connection with, or in relations to, their
official employment.

Sec. 36. Personnel Relations. — (1) It shall be the concern of the

Commission to provide leadership and assistance in developing
employee relations programs in the department or agencies.

(2) Every Secretary or head of agency shall take all proper steps
toward the creation of an atmosphere conducive to good supervisor-
employee relations and the improvement of employee morale.

Pursuant to the provision of Section 12(2), 28 Chapter 3, Book V or EO 292, the commission
adopted and prescribed the Omnibus Rules Implementing Book V of EO 292 which, among
others, provide:

Sec. 1. — Each department or agency of government, whether

national or local, including bureaus and agencies, state colleges and
universities, and government owned and controlled corporations
with original charters, shall establish its own Department or Agency
Employee Suggestions and Incentives Award System in accordance
with these Rules and shall submit the same to the Commission for
approval.

Sec. 2. — The System is designed to encourage creativity,

innovativeness, efficiency, integrity and productivity in the public
service by recognizing and rewarding officials and employees,
individually or in groups, for their suggestions, inventions, superior
accomplishments, and other personal efforts which contribute to the
 efficiency, economy, or other improvement in government
operations, or for other extraordinary acts of services in the public
interest.

xxx xxx xxx

Sec. 7. — The incentive awards shall consist of, though not limited
to, the following:

xxx xxx xxx

(c) Productivity Incentive which shall be given to an employee or

group of employees who has exceeded their targets or has incurred
incremental improvement over existing targets.

On February 21, 1992, President Aquino issued AO 268 which granted "each official and employee of
the government the productivity incentive benefits in a maximum amount equivalent to thirty
percent (30%) of his one (1) month basic salary but in no case shall such amount be less than two
thousand pesos (P2,000.00)," 29 for those who have rendered at least one year of service as of
December 31, 1991. 30 Said AO carried the prohibition, provided in Section 7 thereof, which reads:

Sec. 7. The productivity incentive benefits herein authorized shall be

granted only for Calendar Year 1991. Accordingly, all heads of
agencies, including the governing boards of government-owned or
-controlled corporations and financial institutions, are hereby strictly
prohibited from authorizing/granting productivity incentive benefits
or other allowances of similar nature for Calendar Year 1992 and
future years pending the result of a comprehensive study being
undertaken by the Office of the President in coordination with the
Civil Service Commission and the Department of Budget and
Management on the matter.

The formulation of the necessary implementing guidelines for

Executive Order No. 486 dated 8 November 1991 establishing a
performance-based incentive system for government-owned or
-controlled corporations shall likewise be included in the
comprehensive study referred to in the preceding paragraph.

On January 19, 1993, President Ramos issued AO 29 which granted productivity incentive benefits to
government employees in the maximum amount of P1,000.00 31 for the calendar year 1992 but
reiterated the proscription under Section 7 of AO 268, thus:

Sec. 2. The prohibition prescribed under Section 7 of Administrative

Order No. 268 is hereby reiterated. Accordingly, all heads of
government offices/agencies, including government-owned and/or
controlled corporations, as well as their respective governing boards
are hereby enjoined and prohibited from authorizing/granting
Productivity Incentive Benefits or any and all similar forms of
 allowances/benefits without prior approval and authorization via
Administrative Order by the Office of the President. Henceforth,
anyone found violating any of the mandates in this Order, including
all officials/employees and the COA Auditor-in-Charge of such
government office/agency found to have taken part thereof, shall be
accordingly and severely dealt with in accordance with the
applicable provisions of existing penal laws.

Consequently, all administrative authorizations to grant any form of

allowances/benefits and all forms of additional compensation
usually paid outside of the prescribed basic salary under R.A. No.
6758, the Salary Standardization Law, that are inconsistent with the
legislated policy on the matter or are not covered by any legislative
action are hereby revoked.

The implementation of Executive Order No. 486 dated November 8,

1991, as amended by Executive Order No. 518 dated May 29, 1992,
is hereby deferred until a more comprehensive and equitable
scheme for the grant of the benefits that can be applied
government-wide is formulated by the Department of Budget and
Management.

Petitioners theorize that AO 29 and AO 268 violate EO 292 and since the latter is a law, it prevails
over executive issuances. Petitioners likewise assert that AO 29 and AO 268 encroach upon the
constitutional authority of the Civil Service Commission to adopt measures to strengthen the merit
and rewards system and to promulgate rules, regulations and standards governing the incentive
awards system of the civil service.

The Court is not impressed with petitioners' submission. AO 29 and AO 268 were issued in the valid
exercise of presidential control over the executive departments.

In establishing a Civil Service Commission, the 1987 Constitution delineated its function, as follows:

The Civil Service Commission, as the central personnel agency of the

Government, shall establish a career service and adopt measures to
promote morale, efficiency, integrity responsiveness,
progressiveness, and courtesy in the civil service. It shall strengthen
the merit and rewards system, integrate all human resources
development programs for all levels and ranks, and institutionalize a
management climate conducive to public accountability. It shall
submit to the President and the Congress an annual report on its
personnel programs. (Section 3, Article IX, B, 1987 Constitution)

The Commission handles personnel matters of the government. As the central personnel
agency of the Government, it is tasked to formulate and establish a system of incentives and
rewards for officials and employees in the public sector, alike.
The functions of the Commission have been decentralized to the different departments, offices, and
agencies of the government —

Sec. 1. Declaration of Policy. — The State shall insure and promote

the Constitutional mandate that appointment in the Civil Service
shall be made only according to merit and fitness; that the Civil
Service Commission, as the central personnel agency of the
Government shall establish a career service, adopt measures to
promote morale, efficiency, integrity, responsiveness, and courtesy
in the civil service, strengthen the merit and rewards system,
integrate all human resources development programs for all levels
and ranks, and institutionalize a management climate conducive to
public accountability; that public office is a public trust and public
officers and employees must at all times be accountable to the
people; and that personnel functions shall be decentralized,
delegating the corresponding authority to the departments, offices
and agencies where such functions can be effectively performed.
(Section 1, Chapter I, Subtitle A, Title I, EO 292) (emphasis ours)

Specifically, implementation of the Employee Suggestions and Incentive Award System has
been decentralized to the President or to the head of each department of agency —

Sec. 35. Employee Suggestions and Incentive Award System. —

There shall be established a government-wide employee suggestions
and incentive awards system which shall be administered under such
rules, regulations, and standards as maybe promulgated by the
Commission.

In accordance with rules, regulations, and standards promulgated by

the Commission, the President or the head of each department or
agency is authorized to incur whatever necessary expenses involved
in the honorary recognition of subordinate officers and employees of
the government who by their suggestions, inventions, superior
accomplishment, and other personal efforts contribute to the
efficiency, economy, or other improvement of government
operations or who perform such other extraordinary acts or services
in the public interest in connection with, or in relation to, their
official employment. (EO 292) (emphasis ours)

The President is the head of the government. Governmental power and authority are exercised and
implemented through him. His power includes the control executive departments —

The president shall have control of all the executive departments,

bureaus, and offices. He shall ensure that the laws be faithfully
execute. (Section 17, Article VII, 1987 Constitution)
Control means "the power of an officer to alter or modify or set aside what a subordinate officer had
done in the performance of his duties and to substitute the judgment of the former for that of the
latter." 32 It has been held that "[t]he President can, by virtue of his power of control, review, modify,
alter or nullify any action, or decision, of his subordinate in the executive departments, bureaus, or
offices under him. He can exercise this power motu proprio without need of any appeal from any
party." 33

When the President issued AO 29 limiting the amount of incentive benefits, enjoining heads of
government agencies from granting incentive benefits without prior approval from him, and directing
the refund of the excess over the prescribed amount, the President was just exercising his power of
control over executive departments. This is decisively clear from the WHEREAS CLAUSES of AO 268
and AO 29, to wit:

ADMINISTRATIVE ORDER NO. 268

xxx xxx xxx

WHEREAS, the Productivity incentive benefits granted by the

different agencies are of varying amounts, causing
dissension/demoralization on the part of those who had received
less and those who have not yet received any such benefit, thereby
defeating the purpose for which the same should be granted; and

WHEREAS, there exists the need to regulate the grant of the

productivity incentive benefits or other similar allowances in
conformity with the policy on standardization of compensation
pursuant to Republic Act No. 6758;

xxx xxx xxx

ADMINISTRATIVE ORDER NO. 29

xxx xxx xxx

WHEREAS the faithful implementation of statutes, including the

Administrative Code of 1987 and all laws governing all forms of
additional compensation and personnel benefits is a Constitutional
prerogative vested in the President of the Philippines under Section
17, Article VII of the, 1987 Constitution;

WHEREAS, the Constitutional prerogetive includes the determination

of the rates, the timing and schedule of payment, and final authority
to commit limited resources of government for the payment of
personnel incentives, cash awards, productivity bonus, and other
forms of additional compensation and fringe benefits;

WHEREAS, some government agencies have overlooked said

Constitutional prerogative and have unilaterally granted to their
respective officials and employees incentive awards;
 WHEREAS, the Offioe of the President issued Administrative Order
No. 268, dated February 21, 1992, strictly prohibiting the grant of
Productivity Incentive Bonus or other allowances of similar nature
for Calender Year 1992 and future years pending the issuance of the
requisite authorization by the President;

WHEREAS, notwithstanding said prohibition some government

offices/agencies and government-owned and/or controlled
corporations and financial institutions have granted productivity
incentive benefits in varying nomenclature and amounts without the
proper authorization/coordination with the Office of the President;

WHEREAS, the unilateral and uncoordinated grant of productivity

incentive benefits gave rise to discontentment, dissatisfaction and
demoralization among government personnel who have received
less or have not received at all such benefits;

xxx xxx xxx

The President issued subject Administrative Orders to regulate the grant of productivity
incentive benefits and to prevent discontentment, dissatisfaction and demoralization among
government personnel by committing limited resources of government for the equal
payment of incentives and awards. The President was only exercising his power of control by
modifying the acts of the respondents who granted incentive benefits to their employees
without appropriate clearance from the Office of the President, thereby resulting in the
uneven distribution of government resources. In the view of the President, respondents did a
mistake which had to be corrected. In so acting, the President exercised a constitutionally-
protected prerogative —

The President's duty to execute the law is of constitutional origin. So,

too, is his control of all executive departments. Thus it is, that
department heads are men of his confidence. His is the power to
appoint them; his, too, is the privilege to dismiss them at pleasure.
Naturally he controls and directs their acts. Implicit then is his
authority to go over, confirm, modify or reverse the action taken by
his department secretaries. In this context, it may not be said that
the President cannot rule on the correctness of a decision of a
department secretary. (Lacson-Magallanes Co., Inc. v. Paño, 21 SCRA
898)

Neither can it be said that the President encroached upon the authority of the Commission on Civil
Service to grant benefits to government personnel. AO 29 and AO 268 did not revoke the privilege of
employees to receive incentive benefits. The same merely regulated the grant and amount thereof.

Sound management and effective utilization of financial resources of government are basically
executive functions, 34 not the Commission's. Implicit is this recognition in EO 292, which states:
 Sec. 35. Employee Suggestions and Incentive Award System. —
There shall be established a government-wide employee suggestions
and incentive awards system which shall be administered under such
rules, regulations, and standards as maybe promulgated by the
Commission.

In accordance with rules, regulations and standards promulgeted by

the Commission, the President or the head of each department or
agency is authorized to incur whatever necessary expenses involved
in the honorary recognition of subordinate officers and employees of
the government who by their suggestions, inventions, superior
accomplishment, and other personal efforts contribute to the
efficiency, economy, or other improvement of government
operations, or who perform such other extraordinary acts or services
in the public interest in connection with, or in relation to their
official employment. (Chapter 5, Subtitle A, Book V) (emphasis ours)

Conformably, it is "the President or the head of each department or agency who is authorized to
incur the necessary expenses involved in the honorary recognition of subordinate officers and
employees of the government." It is not the duty of the Commission to fix the amount of the
incentives. Such function belongs to the President or his duly empowered alter ego.

Anent petitioners' contention that the forcible refund of incentive benefits is an unconstitutional
impairment of a contractual obligation, suffice it to state that "[n]ot all contracts entered into by the
government will operate as a waiver of its non-suability; distinction must be made between its
sovereign and proprietary acts (United States of America v. Ruiz, 136 SCRA 487)." 35 The acts
involved in this case are governmental. Besides, the Court is in agreement with the Solicitor General
that the incentive pay or benefit is in the nature of a bonus which is not a demandable or
enforceable obligation.

It is understood that the Judiciary, Civil Service Commission, Commission on Audit, Commission on
Elections, and Office of the Ombudsman, which enjoy fiscal autonomy, are not covered by the
amount fixed by the President. As explained in Bengzon vs. Drilon (208 SCRA 133):

As envisioned in the Constitution, the fiscal autonomy enjoyed by

the Judiciary, the Civil Service Commission, the Commission on
Audit, the Commission on Elections, and the Office of the
Ombudsman contemplates a guarantee of full flexibility to allocate
and utilize their resources with the wisdom and dispatch that their
needs require. It recognizes the power and authority to levy, assess
and collect fees, fix rates of compensation not exceeding the highest
rates authorized by law for compensation and pay plans of the
government and allocate and disburse such sums as may be
provided by law or prescribed by them in the course of the discharge
of their functions.
 Fiscal autonomy means freedom from outside control. If the
Supreme Court says it needs 100 typewriters but DBM rules we need
only 10 typewriters and sends its recommendations to Congress
without even informing us, the autonomy given by the Constitution
becomes an empty and illusory platitude.

The Judiciary, the Constitutional Commissions, and the Ombudsman

must have the independence and flexibility needed in the discharge
of their constitutional duties. The imposition of restrictions and
constraints on the manner the independent constitutional offices
allocate and utilize the funds appropriated for their operations is
anathema to fiscal autonomy and violative not only of the express
mandate of the Constitution but especially as regards the Supreme
Court, of the independence and separation of powers upon which
the entire fabric of our constitutional system is based. In the interest
of comity and cooperation, the Supreme Court, Constitutional
Commissions, and the Ombudsman have so far limited their
objections to constant reminders. We now agree with the
petitioners that this grant of autonomy should cease to be a
meaningless provision.

Untenable is petitioners' contention that the herein respondents be held personally liable for the
refund in question. Absent a showing of bad faith or malice, public officers are not personally liable
for damage resulting from the performance of official duties. 36

Every public official is entitled to the presumption of good faith in the discharge of official
duties. 37 Absent any showing of bad faith or malice, there is likewise a presumption of regularity in
the performance of official duties. 38

In upholding the constitutionality of AO 268 and AO 29, the Court reiterates the well-entrenched
doctrine that "in interpreting statutes, that which will avoid a finding of unconstitutionality is to be
preferred." 39

Considering, however, that all the parties here acted in good faith, we cannot countenance the
refund of subject incentive benefits for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under the attendant facts and
circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the
honest belief that the amounts given were due to the recipients and the latter accepted the same
with gratitude, confident that they richly deserve such benefits.

WHEREFORE, the Petitions in G.R. Nos. 109406, 110642, 111494, and 112056 are hereby DIMISSED,
and as above ratiocinated, further deductions from the salaries and allowances of petitioners are
hereby ENJOINED.

In G.R. No. 119597, the assailed Decision of respondent Commission on Audit is AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
GUALBERTO DE LA LLANA (Judge of City Court of Olongapo), et al. vs. MANUEL ALBA (Minister of
Budget), et al. [March 12, 1982]

This Court, pursuant to its grave responsibility of passing upon the validity of any executive or
legislative act in an appropriate cases, has to resolve the crucial issue of the constitutionality of Batas
Pambansa Blg. 129, entitled "An act reorganizing the Judiciary, Appropriating Funds Therefor and for
Other Purposes." The task of judicial review, aptly characterized as exacting and delicate, is never
more so than when a conceded legislative power, that of judicial reorganization, 1 may possibly
collide with the time-honored principle of the independence of the judiciary 2 as protected and
safeguarded by this constitutional provision: "The Members of the Supreme Court and judges of
inferior courts shall hold office during good behavior until they reach the age of seventy years or
become incapacitated to discharge the duties of their office. The Supreme Court shall have the
power to discipline judges of inferior courts and, by a vote of at least eight Members, order their
dismissal." 3 For the assailed legislation mandates that Justices and judges of inferior courts from the
Court of Appeals to municipal circuit courts, except the occupants of the Sandiganbayan and the
Court of Tax Appeals, unless appointed to the inferior courts established by such Act, would be
considered separated from the judiciary. It is the termination of their incumbency that for petitioners
justifies a suit of this character, it being alleged that thereby the security of tenure provision of the
Constitution has been ignored and disregarded,

That is the fundamental issue raised in this proceeding, erroneously entitled Petition for Declaratory
Relief and/or for Prohibition 4 considered by this Court as an action for prohibited petition, seeking to
enjoin respondent Minister of the Budget, respondent Chairman of the Commission on Audit, and
respondent Minister of Justice from taking any action implementing Batas Pambansa Blg. 129.
Petitioners 5 sought to bolster their claim by imputing lack of good faith in its enactment and
characterizing as an undue delegation of legislative power to the President his authority to fix the
compensation and allowances of the Justices and judges thereafter appointed and the determination
of the date when the reorganization shall be deemed completed. In the very comprehensive and
scholarly Answer of Solicitor General Estelito P. Mendoza, 6 it was pointed out that there is no valid
justification for the attack on the constitutionality of this statute, it being a legitimate exercise of the
power vested in the Batasang Pambansa to reorganize the judiciary, the allegations of absence of
good faith as well as the attack on the independence of the judiciary being unwarranted and devoid
of any support in law. A Supplemental Answer was likewise filed on October 8, 1981, followed by a
Reply of petitioners on October 13. After the hearing in the morning and afternoon of October 15, in
which not only petitioners and respondents were heard through counsel but also the amici
curiae, 7 and thereafter submission of the minutes of the proceeding on the debate on Batas
Pambansa Blg. 129, this petition was deemed submitted for decision.

The importance of the crucial question raised called for intensive and rigorous study of all the legal
aspects of the case. After such exhaustive deliberation in several sessions, the exchange of views
being supplemented by memoranda from the members of the Court, it is our opinion and so hold
that Batas Pambansa Blg. 129 is not unconstitutional.

1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana
is concerned, he certainly falls within the principle set forth in Justice Laurel's opinion in People v.
Vera. 8 Thus: "The unchallenged rule is that the person who impugns the validity of a statute must
have a personal and substantial interest in the case such that he has sustained, or will sustain, direct
injury as a result of its enforcement." 9 The other petitioners as members of the bar and officers of
the court cannot be considered as devoid of "any personal and substantial interest" on the matter.
There is relevance to this excerpt from a separate opinion in Aquino, Jr. v. Commission on
Elections: 10 "Then there is the attack on the standing of petitioners, as vindicating at most what they
consider a public right and not protecting their rights as individuals. This is to conjure the specter of
the public right dogma as an inhibition to parties intent on keeping public officials staying on the
path of constitutionalism. As was so well put by Jaffe: 'The protection of private rights is an essential
constituent of public interest and, conversely, without a well-ordered state there could be no
enforcement of private rights. Private and public interests are, both in substantive and procedural
sense, aspects of the totality of the legal order.' Moreover, petitioners have convincingly shown that
in their capacity as taxpayers, their standing to sue has been amply demonstrated. There would be a
retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by
the very decision of People v. Vera where the doctrine was first fully discussed, if we act differently
now. I do not think we are prepared to take that step. Respondents, however, would hark back to the
American Supreme Court doctrine in Mellon v. Frothingham with their claim that what petitioners
possess 'is an interest which is shared in common by other people and is comparatively so minute
and indeterminate as to afford any basis and assurance that the judicial process can act on it.' That is
to speak in the language of a bygone era even in the United States. For as Chief Justice Warren
clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not breached has
definitely been lowered." 11

2. The imputation of arbitrariness to the legislative body in the enactment of Batas Pambansa Blg.
129 to demonstrate lack of good faith does manifest violence to the facts. Petitioners should have
exercised greater care in informing themselves as to its antecedents. They had laid themselves open
to the accusation of reckless disregard for the truth, On August 7, 1980, a Presidential Committee on
Judicial Reorganization was organized. 12 This Executive Order was later amended by Executive Order
No. 619-A., dated September 5 of that year. It clearly specified the task assigned to it: "1. The
Committee shall formulate plans on the reorganization of the Judiciary which shall be submitted
within seventy (70) days from August 7, 1980 to provide the President sufficient options for the
reorganization of the entire Judiciary which shall embrace all lower courts, including the Court of
Appeals, the Courts of First Instance, the City and Municipal Courts, and all Special Courts, but
excluding the Sandigan Bayan." 13 On October 17, 1980, a Report was submitted by such Committee
on Judicial Reorganization. It began with this paragraph: "The Committee on Judicial Reorganization
has the honor to submit the following Report. It expresses at the outset its appreciation for the
opportunity accorded it to study ways and means for what today is a basic and urgent need, nothing
less than the restructuring of the judicial system. There are problems, both grave and pressing, that
call for remedial measures. The felt necessities of the time, to borrow a phrase from Holmes, admit
of no delay, for if no step be taken and at the earliest opportunity, it is not too much to say that the
people's faith in the administration of justice could be shaken. It is imperative that there be a greater
efficiency in the disposition of cases and that litigants, especially those of modest means — much
more so, the poorest and the humblest — can vindicate their rights in an expeditious and
inexpensive manner. The rectitude and the fairness in the way the courts operate must be manifest
to all members of the community and particularly to those whose interests are affected by the
exercise of their functions. It is to that task that the Committee addresses itself and hopes that the
plans submitted could be a starting point for an institutional reform in the Philippine judiciary. The
experience of the Supreme Court, which since 1973 has been empowered to supervise inferior
courts, from the Court of Appeals to the municipal courts, has proven that reliance on improved
court management as well as training of judges for more efficient administration does not suffice. I
hence, to repeat, there is need for a major reform in the judicial so stem it is worth noting that it will
be the first of its kind since the Judiciary Act became effective on June 16, 1901." 14 I t went to say: "I
t does not admit of doubt that the last two decades of this century are likely to be attended with
problems of even greater complexity and delicacy. New social interests are pressing for recognition in
the courts. Groups long inarticulate, primarily those economically underprivileged, have found legal
spokesmen and are asserting grievances previously ignored. Fortunately, the judicially has not proved
inattentive. Its task has thus become even more formidable. For so much grist is added to the mills of
justice. Moreover, they are likewise to be quite novel. The need for an innovative approach is thus
apparent. The national leadership, as is well-known, has been constantly on the search for solutions
that will prove to be both acceptable and satisfactory. Only thus may there be continued national
progress." 15 After which comes: "To be less abstract, the thrust is on development. That has been
repeatedly stressed — and rightly so. All efforts are geared to its realization. Nor, unlike in the past,
was it to b "considered as simply the movement towards economic progress and growth measured in
terms of sustained increases in per capita income and Gross National Product (GNP). 16 For the New
Society, its implication goes further than economic advance, extending to "the sharing, or more
appropriately, the democratization of social and economic opportunities, the substantiation of the
true meaning of social justice." 17 This process of modernization and change compels the government
to extend its field of activity and its scope of operations. The efforts towards reducing the gap
between the wealthy and the poor elements in the nation call for more regulatory legislation. That
way the social justice and protection to labor mandates of the Constitution could be effectively
implemented." 18 There is likelihood then "that some measures deemed inimical by interests
adversely affected would be challenged in court on grounds of validity. Even if the question does not
go that far, suits may be filed concerning their interpretation and application. ... There could be pleas
for injunction or restraining orders. Lack of success of such moves would not, even so, result in their
prompt final disposition. Thus delay in the execution of the policies embodied in law could thus be
reasonably expected. That is not conducive to progress in development." 19 For, as mentioned in such
Report, equally of vital concern is the problem of clogged dockets, which "as is well known, is one of
the utmost gravity. Notwithstanding the most determined efforts exerted by the Supreme Court,
through the leadership of both retired Chief Justice Querube Makalintal and the late Chief Justice
Fred Ruiz Castro, from the time supervision of the courts was vested in it under the 1973
Constitution, the trend towards more and more cases has continued." 20 It is understandable why.
With the accelerated economic development, the growth of population, the increasing urbanization,
and other similar factors, the judiciary is called upon much oftener to resolve controversies. Thus
confronted with what appears to be a crisis situation that calls for a remedy, the Batasang Pambansa
had no choice. It had to act, before the ailment became even worse. Time was of the essence, and
yet it did not hesitate to be duly mindful, as it ought to be, of the extent of its coverage before
enacting Batas Pambansa Blg. 129.

3. There is no denying, therefore, the need for "institutional reforms," characterized in the Report as
"both pressing and urgent." 21 It is worth noting, likewise, as therein pointed out, that a major
reorganization of such scope, if it were to take place, would be the most thorough after four
generations. 22 The reference was to the basic Judiciary Act generations . enacted in June of
1901, 23 amended in a significant way, only twice previous to the Commonwealth. There was, of
course, the creation of the Court of Appeals in 1935, originally composed "of a Presiding Judge and
ten appellate Judges, who shall be appointed by the President of the Philippines, with the consent of
the Commission on Appointments of the National Assembly, 24 It could "sit en banc, but it may sit in
two divisions, one of six and another of five Judges, to transact business, and the two divisions may
sit at the same time." 25 Two years after the establishment of independence of the Republic of the
Philippines, the Judiciary Act of 1948 26 was passed. It continued the existing system of regular
inferior courts, namely, the Court of Appeals, Courts of First Instance, 27 the Municipal Courts, at
present the City Courts, and the Justice of the Peace Courts, now the Municipal Circuit Courts and
Municipal Courts. The membership of the Court of Appeals has been continuously
increased. 28 Under a 1978 Presidential Decree, there would be forty-five members, a Presiding
Justice and forty-four Associate Justices, with fifteen divisions. 29 Special courts were likewise created.
The first was the Court of Tax Appeals in 1954, 30 next came the Court of Agrarian Relations in
1955, 31 and then in the same year a Court of the Juvenile and Domestic Relations for Manila in
1955, 32 subsequently followed by the creation of two other such courts for Iloilo and Quezon City in
1966. 33 In 1967, Circuit Criminal Courts were established, with the Judges having the same
qualifications, rank, compensation, and privileges as judges of Courts of First Instance. 34

4. After the submission of such Report, Cabinet Bill No. 42, which later became the basis of Batas
Pambansa Blg. 129, was introduced. After setting forth the background as above narrated, its
Explanatory Note continues: "Pursuant to the President's instructions, this proposed legislation has
been drafted in accordance with the guidelines of that report with particular attention to certain
objectives of the reorganization, to wit, the attainment of more efficiency in disposal of cases, a
reallocation of jurisdiction, and a revision of procedures which do not tend to the proper meeting
out of justice. In consultation with, and upon a consensus of, the governmental and parliamentary
leadership, however, it was felt that some options set forth in the Report be not availed of. Instead of
the proposal to confine the jurisdiction of the intermediate appellate court merely to appellate
adjudication, the preference has been opted to increase rather than diminish its jurisdiction in order
to enable it to effectively assist the Supreme Court. This preference has been translated into one of
the innovations in the proposed Bill." 35 In accordance with the parliamentary procedure, the Bill was
sponsored by the Chairman of the Committee on Justice, Human Rights and Good Government to
which it was referred. Thereafter, Committee Report No. 225 was submitted by such Committee to
the Batasang Pambansa recommending the approval with some amendments. In the sponsorship
speech of Minister Ricardo C. Puno, there was reference to the Presidential Committee on Judicial
Reorganization. Thus: "On October 17, 1980, the Presidential Committee on Judicial Reorganization
submitted its report to the President which contained the 'Proposed Guidelines for Judicial
Reorganization.' Cabinet Bill No. 42 was drafted substantially in accordance with the options
presented by these guidelines. Some options set forth in the aforesaid report were not availed of
upon consultation with and upon consensus of the government and parliamentary leadership.
Moreover, some amendments to the bill were adopted by the Committee on Justice, Human Rights
and Good Government, to which The bill was referred, following the public hearings on the bill held
in December of 1980. The hearings consisted of dialogues with the distinguished members of the
bench and the bar who had submitted written proposals, suggestions, and position papers on the bill
upon the invitation of the Committee on Justice, Human Rights and Good Government." 36 Stress was
laid by the sponsor that the enactment of such Cabinet Bill would, firstly, result in the attainment of
more efficiency in the disposal of cases. Secondly, the improvement in the quality of justice
dispensed by the courts is expected as a necessary consequence of the easing of the court's dockets.
Thirdly, the structural changes introduced in the bill, together with the reallocation of jurisdiction
and the revision of the rules of procedure, are designated to suit the court system to the exigencies
of the present day Philippine society, and hopefully, of the foreseeable future." 37 it may be observed
that the volume containing the minutes of the proceedings of the Batasang Pambansa show that 590
pages were devoted to its discussion. It is quite obvious that it took considerable time and effort as
well as exhaustive study before the act was signed by the President on August 14, 1981. With such a
background, it becomes quite manifest how lacking in factual basis is the allegation that its
enactment is tainted by the vice of arbitrariness. What appears undoubted and undeniable is the
good faith that characterized its enactment from its inception to the affixing of the Presidential
signature.

5. Nothing is better settled in our law than that the abolition of an office within the competence of a
legitimate body if done in good faith suffers from no infirmity. The ponencia of Justice J.B.L. Reyes
in Cruz v. Primicias, Jr. 38reiterated such a doctrine: "We find this point urged by respondents, to be
without merit. No removal or separation of petitioners from the service is here involved, but the
validity of the abolition of their offices. This is a legal issue that is for the Courts to decide. It is well-
known rule also that valid abolition of offices is neither removal nor separation of the incumbents. ...
And, of course, if the abolition is void, the incumbent is deemed never to have ceased to hold office.
The preliminary question laid at rest, we pass to the merits of the case. As well-settled as the rule
that the abolition of an office does not amount to an illegal removal of its incumbent is the principle
that, in order to be valid, the abolition must be made in good faith." 39 The above excerpt was quoted
with approval in Bendanillo, Sr. v. Provincial Governor, 40 two earlier cases enunciating a similar
doctrine having preceded it. 41 As with the offices in the other branches of the government, so it is
with the judiciary. The test remains whether the abolition is in good faith. As that element is
conspicuously present in the enactment of Batas Pambansa Blg. 129, then the lack of merit of this
petition becomes even more apparent. The concurring opinion of Justice Laurel in Zandueta v. De la
Costa 42 cannot be any clearer. This is a quo warranto proceeding filed by petitioner, claiming that he,
and not respondent, was entitled to he office of judge of the Fifth Branch of the Court of First
Instance of Manila. There was a Judicial Reorganization Act in 1936, 43 a year after the inauguration of
the Commonwealth, amending the Administrative Code to organize courts of original jurisdiction
known as the Courts of First Instance Prior to such statute, petitioner was the incumbent of such
branch. Thereafter, he received an ad interim appointment, this time to the Fourth Judicial District,
under the new legislation. Unfortunately for him, the Commission on Appointments of then National
Assembly disapproved the same, with respondent being appointed in his place. He contested the
validity of the Act insofar as it resulted in his being forced to vacate his position This Court did not
rule squarely on the matter. His petition was dismissed on the ground of estoppel. Nonetheless, the
separate concurrence of Justice Laurel in the result reached, to repeat, reaffirms in no uncertain
terms the standard of good faith to preclude any doubt as to the abolition of an inferior court, with
due recognition of the security of tenure guarantee. Thus: " I am of the opinion that Commonwealth
Act No. 145 in so far as it reorganizes, among other judicial districts, the Ninth Judicial District, and
establishes an entirely new district comprising Manila and the provinces of Rizal and Palawan, is valid
and constitutional. This conclusion flows from the fundamental proposition that the legislature may
abolish courts inferior to the Supreme Court and therefore may reorganize them territorially or
otherwise thereby necessitating new appointments and commissions. Section 2, Article VIII of the
Constitution vests in the National Assembly the power to define, prescribe and apportion the
jurisdiction of the various courts, subject to certain limitations in the case of the Supreme Court. It is
admitted that section 9 of the same article of the Constitution provides for the security of tenure of
all the judges. The principles embodied in these two sections of the same article of the Constitution
must be coordinated and harmonized. A mere enunciation of a principle will not decide actual cases
and controversies of every sort. (Justice Holmes in Lochner vs. New York, 198 U.S., 45; 49 Law. ed;
937)" 44 justice Laurel continued: "I am not insensible to the argument that the National Assembly
may abuse its power and move deliberately to defeat the constitutional provision guaranteeing
security of tenure to all judges, But, is this the case? One need not share the view of Story, Miller and
Tucker on the one hand, or the opinion of Cooley, Watson and Baldwin on the other, to realize that
the application of a legal or constitutional principle is necessarily factual and circumstantial and that
fixity of principle is the rigidity of the dead and the unprogressive. I do say, and emphatically,
however, that cases may arise where the violation of the constitutional provision regarding security
of tenure is palpable and plain, and that legislative power of reorganization may be sought to cloak
an unconstitutional and evil purpose. When a case of that kind arises, it will be the time to make the
hammer fall and heavily. But not until then. I am satisfied that, as to the particular point here
discussed, the purpose was the fulfillment of what was considered a great public need by the
legislative department and that Commonwealth Act No. 145 was not enacted purposely to affect
adversely the tenure of judges or of any particular judge. Under these circumstances, I am for
sustaining the power of the legislative department under the Constitution. To be sure, there was
greater necessity for reorganization consequent upon the establishment of the new government
than at the time Acts Nos. 2347 and 4007 were approved by the defunct Philippine Legislature, and
although in the case of these two Acts there was an express provision providing for the vacation by
the judges of their offices whereas in the case of Commonwealth Act No. 145 doubt is engendered
by its silence, this doubt should be resolved in favor of the valid exercise of the legislative power." 45

6. A few more words on the question of abolition. In the above-cited opinion of Justice Laurel in
Zandueta, reference was made to Act No. 2347 46 on the reorganization of the Courts of First Instance
and to Act No. 4007 47 on the reorganization of all branches of the government, including the courts
of first instance. In both of them, the then Courts of First Instance were replaced by new courts with
the same appellation. As Justice Laurel pointed out, there was no question as to the fact of abolition.
He was equally categorical as to Commonwealth Act No. 145, where also the system of the courts of
first instance was provided for expressly. It was pointed out by Justice Laurel that the mere creation
of an entirely new district of the same court is valid and constitutional. such conclusion flowing "from
the fundamental proposition that the legislature may abolish courts inferior to the Supreme Court
and therefore may reorganize them territorially or otherwise thereby necessitating new
appointments and commissions." 48 The challenged statute creates an intermediate appellate
court, 49 regional trial courts, 50 metropolitan trial courts of the national capital region, 51 and other
metropolitan trial courts, 52 municipal trial courts in cities, 53 as well as in municipalities, 54 and
municipal circuit trial courts. 55 There is even less reason then to doubt the fact that existing inferior
courts were abolished. For the Batasang Pambansa, the establishment of such new inferior courts
was the appropriate response to the grave and urgent problems that pressed for solution. Certainly,
there could be differences of opinion as to the appropriate remedy. The choice, however, was for the
Batasan to make, not for this Court, which deals only with the question of power. It bears mentioning
that in Brillo v. Eñage 56 this Court, in an unanimous opinion penned by the late Justice Diokno,
citing Zandueta v. De la Costa, ruled: "La segunda question que el recurrrido plantea es que la Carta
de Tacloban ha abolido el puesto. Si efectivamente ha sido abolido el cargo, entonces ha quedado
extinguido el derecho de recurente a ocuparlo y a cobrar el salario correspodiente. Mc Culley vs.
State, 46 LRA, 567. El derecho de un juez de desempenarlo hasta los 70 años de edad o se incapacite
no priva al Congreso de su facultad de abolir, fusionar o reorganizar juzgados no
constitucionales." 57 Nonetheless, such well-established principle was not held applicable to the
situation there obtaining, the Charter of Tacloban City creating a city court in place of the former
justice of the peace court. Thus: "Pero en el caso de autos el Juzgado de Tacloban no ha sido abolido.
Solo se le ha cambiado el nombre con el cambio de forma del gobierno local." 58 The present case is
anything but that. Petitioners did not and could not prove that the challenged statute was not within
the bounds of legislative authority.

7. This opinion then could very well stop at this point. The implementation of Batas Pambansa Blg.
129, concededly a task incumbent on the Executive, may give rise, however, to questions affecting a
judiciary that should be kept independent. The all-embracing scope of the assailed legislation as far
as all inferior courts from the Courts of Appeals to municipal courts are concerned, with the
exception solely of the Sandiganbayan and the Court of Tax Appeals 59 gave rise, and understandably
so, to misgivings as to its effect on such cherished Ideal. The first paragraph of the section on the
transitory provision reads: "The provisions of this Act shall be immediately carried out in accordance
with an Executive Order to be issued by the President. The Court of Appeals, the Courts of First
Instance, the Circuit Criminal Courts, the Juvenile and Domestic Relations Courts, the Courts of
Agrarian Relations, the City Courts, the Municipal Courts, and the Municipal Circuit Courts shall
continue to function as presently constituted and organized, until the completion of the
reorganization provided in this Act as declared by the President. Upon such declaration, the said
courts shall be deemed automatically abolished and the incumbents thereof shall cease to hold the
office." 60 There is all the more reason then why this Court has no choice but to inquire further into
the allegation by petitioners that the security of tenure provision, an assurance of a judiciary free
from extraneous influences, is thereby reduced to a barren form of words. The amended
Constitution adheres even more clearly to the long-established tradition of a strong executive that
antedated the 1935 Charter. As noted in the work of former Vice-Governor Hayden, a noted political
scientist, President Claro M. Recto of the 1934 Convention, in his closing address, in stressing such a
concept, categorically spoke of providing "an executive power which, subject to the fiscalization of
the Assembly, and of public opinion, will not only know how to govern, but will actually govern, with
a firm and steady hand, unembarrassed by vexatious interferences by other departments, or by
unholy alliances with this and that social group." 61 The above excerpt was cited with approval by
Justice Laurel in Planas v. Gil. 62 Moreover, under the 1981 Amendments, it may be affirmed that
once again the principle of separation of powers, to quote from the same jurist as ponente in Angara
v. Electoral Commission, 63 "obtains not through express provision but by actual division." 64 The
president, under Article VII, shall be the head of state and chief executive of the Republic of the
Philippines." 65Moreover, it is equally therein expressly provided that all the powers he possessed
under the 1935 Constitution are once again vested in him unless the Batasang Pambansa provides
otherwise." 66 Article VII of the 1935 Constitution speaks categorically: "The Executive power shall be
vested in a President of the Philippines." 67 As originally framed, the 1973 Constitution created the
position of President as the "symbolic head of state." 68 In addition, there was a provision for a Prime
Minister as the head of government exercising the executive power with the assistance of the
Cabinet 69 Clearly, a modified parliamentary system was established. In the light of the 1981
amendments though, this Court in Free Telephone Workers Union v. Minister of Labor 70 could state:
"The adoption of certain aspects of a parliamentary system in the amended Constitution does not
alter its essentially presidential character." 71 The retention, however, of the position of the Prime
Minister with the Cabinet, a majority of the members of which shall come from the regional
representatives of the Batasang Pambansa and the creation of an Executive Committee composed of
the Prime Minister as Chairman and not more than fourteen other members at least half of whom
shall be members of the Batasang Pambansa, clearly indicate the evolving nature of the system of
government that is now operative. 72 What is equally apparent is that the strongest ties bind the
executive and legislative departments. It is likewise undeniable that the Batasang Pambansa retains
its full authority to enact whatever legislation may be necessary to carry out national policy as
usually formulated in a caucus of the majority party. It is understandable then why in Fortun v.
Labang 73 it was stressed that with the provision transferring to the Supreme Court administrative
supervision over the Judiciary, there is a greater need "to preserve unimpaired the independence of
the judiciary, especially so at present, where to all intents and purposes, there is a fusion between
the executive and the legislative branches." 74

8. To be more specific, petitioners contend that the abolition of the existing inferior courts collides
with the security of tenure enjoyed by incumbent Justices and judges under Article X, Section 7 of
the Constitution. There was a similar provision in the 1935 Constitution. It did not, however, go as far
as conferring on this Tribunal the power to supervise administratively inferior courts. 75 Moreover,
this Court is em powered "to discipline judges of inferior courts and, by a vote of at least eight
members, order their dismissal." 76 Thus it possesses the competence to remove judges. Under the
Judiciary Act, it was the President who was vested with such power. 77 Removal is, of course, to be
distinguished from termination by virtue of the abolition of the office. There can be no tenure to a
non-existent office. After the abolition, there is in law no occupant. In case of removal, there is an
office with an occupant who would thereby lose his position. It is in that sense that from the
standpoint of strict law, the question of any impairment of security of tenure does not arise.
Nonetheless, for the incumbents of inferior courts abolished, the effect is one of separation. As to its
effect, no distinction exists between removal and the abolition of the office. Realistically, it is devoid
of significance. He ceases to be a member of the judiciary. In the implementation of the assailed
legislation, therefore, it would be in accordance with accepted principles of constitutional
construction that as far as incumbent justices and judges are concerned, this Court be consulted and
that its view be accorded the fullest consideration. No fear need be entertained that there is a failure
to accord respect to the basic principle that this Court does not render advisory opinions. No
question of law is involved. If such were the case, certainly this Court could not have its say prior to
the action taken by either of the two departments. Even then, it could do so but only by way of
deciding a case where the matter has been put in issue. Neither is there any intrusion into who shall
be appointed to the vacant positions created by the reorganization. That remains in the hands of the
Executive to whom it properly belongs. There is no departure therefore from the tried and tested
ways of judicial power, Rather what is sought to be achieved by this liberal interpretation is to
preclude any plausibility to the charge that in the exercise of the conceded power of reorganizing
tulle inferior courts, the power of removal of the present incumbents vested in this Tribunal is
ignored or disregarded. The challenged Act would thus be free from any unconstitutional taint, even
one not readily discernidble except to those predisposed to view it with distrust. Moreover, such a
construction would be in accordance with the basic principle that in the choice of alternatives
between one which would save and another which would invalidate a statute, the former is to be
preferred. 78 There is an obvious way to do so. The principle that the Constitution enters into and
forms part of every act to avoid any constitutional taint must be applied Nuñez v.
Sandiganbayan, 79 promulgated last January, has this relevant excerpt: "It is true that other Sections
of the Decree could have been so worded as to avoid any constitutional objection. As of now,
however, no ruling is called for. The view is given expression in the concurring and dissenting opinion
of Justice Makasiar that in such a case to save the Decree from the direct fate of invalidity, they must
be construed in such a way as to preclude any possible erosion on the powers vested in this Court by
the Constitution. That is a proposition too plain to be committed. It commends itself for
approval." 80Nor would such a step be unprecedented. The Presidential Decree constituting
Municipal Courts into Municipal Circuit Courts, specifically provides: "The Supreme Court shall carry
out the provisions of this Decree through implementing orders, on a province-to-province basis." 81 It
is true there is no such provision in this Act, but the spirit that informs it should not be ignored in the
Executive Order contemplated under its Section 44. 82 Thus Batas Pambansa Blg. 129 could stand the
most rigorous test of constitutionality. 83

9. Nor is there anything novel in the concept that this Court is called upon to reconcile or harmonize
constitutional provisions. To be specific, the Batasang Pambansa is expressly vested with the
authority to reorganize inferior courts and in the process to abolish existing ones. As noted in the
preceding paragraph, the termination of office of their occupants, as a necessary consequence of
such abolition, is hardly distinguishable from the practical standpoint from removal, a power that is
now vested in this Tribunal. It is of the essence of constitutionalism to assure that neither agency is
precluded from acting within the boundaries of its conceded competence. That is why it has long
been well-settled under the constitutional system we have adopted that this Court cannot, whenever
appropriate, avoid the task of reconciliation. As Justice Laurel put it so well in the previously cited
Angara decision, while in the main, "the Constitution has blocked out with deft strokes and in bold
lines, allotment of power to the executive, the legislative and the judicial departments of the
government, the overlapping and interlacing of functions and duties between the several
departments, however, sometimes makes it hard to say just where the one leaves off and the other
begins." 84 It is well to recall another classic utterance from the same jurist, even more emphatic in its
affirmation of such a view, moreover buttressed by one of those insights for which Holmes was so
famous "The classical separation of government powers, whether viewed in the light of the political
philosophy of Aristotle, Locke, or Motesquieu or of the postulations of Mabini, Madison, or Jefferson,
is a relative theory of government. There is more truism and actuality in interdependence than in
independence and separation of powers, for as observed by Justice Holmes in a case of Philippine
origin, we cannot lay down 'with mathematical precision and divide the branches into water-tight
compartments' not only because 'the great ordinances of the Constitution do not establish and
divide fields of black and white but also because 'even the more specific of them are found to
terminate in a penumbra shading gradually from one extreme to the other.'" 85 This too from Justice
Tuazon, likewise expressing with force and clarity why the need for reconciliation or balancing is well-
nigh unavodiable under the fundamental principle of separation of powers: "The constitutional
structure is a complicated system, and overlappings of governmental functions are recognized,
unavoidable, and inherent necessities of governmental coordination." 86 In the same way that the
academe has noted the existence in constitutional litigation of right versus right, there are instances,
and this is one of them, where, without this attempt at harmonizing the provisions in question, there
could be a case of power against power. That we should avoid.

10. There are other objections raised but they pose no difficulty. Petitioners would characterize as an
undue delegation of legislative power to the President the grant of authority to fix the compensation
and the allowances of the Justices and judges thereafter appointed. A more careful reading of the
challenged Batas Pambansa Blg. 129 ought to have cautioned them against raising such an issue. The
language of the statute is quite clear. The questioned provisions reads as follows: "Intermediate
Appellate Justices, Regional Trial Judges, Metropolitan Trial Judges, municipal Trial Judges, and
Municipal Circuit Trial Judges shall receive such receive such compensation and allowances as may be
authorized by the President along the guidelines set forth in Letter of Implementation No. 93
pursuant to Presidential Decree No. 985, as amended by Presidential Decree No. 1597." 87 The
existence of a standard is thus clear. The basic postulate that underlies the doctrine of non-
delegation is that it is the legislative body which is entrusted with the competence to make laws and
to alter and repeal them, the test being the completeness of the statue in all its terms and provisions
when enacted. As pointed out in Edu v. Ericta: 88 "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself determines matters of
principle and lays down fundamental policy. Otherwise, the charge of complete abdication may be
hard to repel. A standard thus defines legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which legislative purpose may be carried out.
Thereafter, the executive or administrative office designated may in pursuance of the above
guidelines promulgate supplemental rules and regulations. The standard may be either express or
implied. If the former, the non-delegation objection is easily met. The standard though does not have
to be spelled out specifically. It could be implied from the policy and purpose of the act considered
as a whole." 89 The undeniably strong links that bind the executive and legislative departments under
the amended Constitution assure that the framing of policies as well as their implementation can be
accomplished with unity, promptitude, and efficiency. There is accuracy, therefore, to this
observation in the Free Telephone Workers Union decision: "There is accordingly more receptivity to
laws leaving to administrative and executive agencies the adoption of such means as may be
necessary to effectuate a valid legislative purpose. It is worth noting that a highly-respected legal
scholar, Professor Jaffe, as early as 1947, could speak of delegation as the 'dynamo of modern
government.'" 90 He warned against a "restrictive approach" which could be "a deterrent factor to
much-needed legislation." 91 Further on this point from the same opinion" "The spectre of the non-
delegation concept need not haunt, therefore, party caucuses, cabinet sessions or legislative
chambers." 92 Another objection based on the absence in the statue of what petitioners refer to as a
"definite time frame limitation" is equally bereft of merit. They ignore the categorical language of
this provision: "The Supreme Court shall submit to the President, within thirty (30) days from the
date of the effectivity of this act, a staffing pattern for all courts constituted pursuant to this Act
which shall be the basis of the implementing order to be issued by the President in accordance with
the immediately succeeding section." 93 The first sentence of the next section is even more
categorical: "The provisions of this Act shall be immediately carried out in accordance with an
Executive Order to be issued by the President." 94 Certainly petitioners cannot be heard to argue that
the President is insensible to his constitutional duty to take care that the laws be faithfully
executed. 95 In the meanwhile, the existing inferior courts affected continue functioning as before,
"until the completion of the reorganization provided in this Act as declared by the President. Upon
such declaration, the said courts shall be deemed automatically abolished and the incumbents
thereof shall cease to hold office." 96 There is no ambiguity. The incumbents of the courts thus
automatically abolished "shall cease to hold office." No fear need be entertained by incumbents
whose length of service, quality of performance, and clean record justify their being named
anew, 97 in legal contemplation without any interruption in the continuity of their service. 98 It is
equally reasonable to assume that from the ranks of lawyers, either in the government service,
private practice, or law professors will come the new appointees. In the event that in certain cases a
little more time is necessary in the appraisal of whether or not certain incumbents deserve
reappointment, it is not from their standpoint undesirable. Rather, it would be a reaffirmation of the
good faith that will characterize its implementation by the Executive. There is pertinence to this
observation of Justice Holmes that even acceptance of the generalization that courts ordinarily
should not supply omissions in a law, a generalization qualified as earlier shown by the principle that
to save a statute that could be done, "there is no canon against using common sense in construing
laws as saying what they obviously mean." 99 Where then is the unconstitutional flaw

11. On the morning of the hearing of this petition on September 8, 1981, petitioners sought to have
the writer of this opinion and Justices Ramon C. Aquino and Ameurfina Melencio-Herrera
disqualified because the first-named was the chairman and the other two, members of the
Committee on Judicial Reorganization. At the hearing, the motion was denied. It was made clear then
and there that not one of the three members of the Court had any hand in the framing or in the
discussion of Batas Pambansa Blg. 129. They were not consulted. They did not testify. The challenged
legislation is entirely the product of the efforts of the legislative body. 100 Their work was limited, as
set forth in the Executive Order, to submitting alternative plan for reorganization. That is more in the
nature of scholarly studies. That the undertook. There could be no possible objection to such activity.
Ever since 1973, this Tribunal has had administrative supervision over interior courts. It has had the
opportunity to inform itself as to the way judicial business is conducted and how it may be improved.
Even prior to the 1973 Constitution, it is the recollection of the writer of this opinion that either the
then Chairman or members of the Committee on Justice of the then Senate of the
Philippines 101 consulted members of the Court in drafting proposed legislation affecting the judiciary.
It is not inappropriate to cite this excerpt from an article in the 1975 Supreme Court Review: "In the
twentieth century the Chief Justice of the United States has played a leading part in judicial reform. A
variety of conditions have been responsible for the development of this role, and foremost among
them has been the creation of explicit institutional structures designed to facilitate reform." 102 Also:
"Thus the Chief Justice cannot avoid exposure to and direct involvement in judicial reform at the
federal level and, to the extent issues of judicial federalism arise, at the state level as well." 103

12. It is a cardinal article of faith of our constitutional regime that it is the people who are endowed
with rights, to secure which a government is instituted. Acting as it does through public officials, it
has to grant them either expressly or impliedly certain powers. Those they exercise not for their own
benefit but for the body politic. The Constitution does not speak in the language of ambiguity: "A
public office is a public trust." 104 That is more than a moral adjuration It is a legal imperative. The law
may vest in a public official certain rights. It does so to enable them to perform his functions and
fulfill his responsibilities more efficiently. It is from that standpoint that the security of tenure
provision to assure judicial independence is to be viewed. It is an added guarantee that justices and
judges can administer justice undeterred by any fear of reprisal or untoward consequence. Their
judgments then are even more likely to be inspired solely by their knowledge of the law and the
dictates of their conscience, free from the corrupting influence of base or unworthy motives. The
independence of which they are assured is impressed with a significance transcending that of a
purely personal right. As thus viewed, it is not solely for their welfare. The challenged legislation Thus
subject d to the most rigorous scrutiny by this Tribunal, lest by lack of due care and circumspection, it
allow the erosion of that Ideal so firmly embedded in the national consciousness There is this farther
thought to consider. independence in thought and action necessarily is rooted in one's mind and
heart. As emphasized by former Chief Justice Paras in Ocampo v. Secretary of Justice, 105 there is no
surer guarantee of judicial independence than the God-given character and fitness of those
appointed to the Bench. The judges may be guaranteed a fixed tenure of office during good behavior,
but if they are of such stuff as allows them to be subservient to one administration after another, or
to cater to the wishes of one litigant after another, the independence of the judiciary will be nothing
more than a myth or an empty Ideal. Our judges, we are confident, can be of the type of Lord Coke,
regardless or in spite of the power of Congress — we do not say unlimited but as herein exercised —
to reorganize inferior courts." 106 That is to recall one of the greatest Common Law jurists, who at the
cost of his office made clear that he would not just blindly obey the King's order but "will do what
becomes [him] as a judge." So it was pointed out in the first leading case stressing the independence
of the judiciary, Borromeo v. Mariano, 107 The ponencia of Justice Malcolm Identified good judges
with "men who have a mastery of the principles of law, who discharge their duties in accordance
with law, who are permitted to perform the duties of the office undeterred by outside influence, and
who are independent and self-respecting human units in a judicial system equal and coordinate to
the other two departments of government." 108 There is no reason to assume that the failure of this
suit to annul Batas Pambansa Blg. 129 would be attended with deleterious consequences to the
administration of justice. It does not follow that the abolition in good faith of the existing inferior
courts except the Sandiganbayan and the Court of Tax Appeals and the creation of new ones will
result in a judiciary unable or unwilling to discharge with independence its solemn duty or one
recreant to the trust reposed in it. Nor should there be any fear that less than good faith will attend
the exercise be of the appointing power vested in the Executive. It cannot be denied that an
independent and efficient judiciary is something to the credit of any administration. Well and truly
has it been said that the fundamental principle of separation of powers assumes, and justifiably so,
that the three departments are as one in their determination to pursue the Ideals and aspirations
and to fulfilling the hopes of the sovereign people as expressed in the Constitution. There is wisdom
as well as validity to this pronouncement of Justice Malcolm in Manila Electric Co. v. Pasay
Transportation Company, 109 a decision promulgated almost half a century ago: "Just as the Supreme
Court, as the guardian of constitutional rights, should not sanction usurpations by any other
department or the government, so should it as strictly confine its own sphere of influence to the
powers expressly or by implication conferred on it by the Organic Act." 110 To that basic postulate
underlying our constitutional system, this Court remains committed. WHEREFORE, the
unconstitutionality of Batas Pambansa Blg. 129 not having been shown, this petition is dismissed.
No costs.

LAGUNA LAKE DEVELOPMENT AUTHORITY vs. COURT OF APPEALS

[March 16, 1994]

In 1991, the Task Force Camarin Dumpsite of Our Lady of Lourdes Parish filed a letter-complaint with
Laguna Lake Development Authority seeking to stop the operation of the 8.6-hectare open garbage
dumpsite in Tala Estate, Barangay Camarin, Caloocan City due to its harmful effects on the health of
the residents and the possibility of pollution of the water content of the surrounding area.

LLDA conducted an on-site investigation and found that the City Government of Caloocan was
maintaining an open dumpsite at the Camarin area without first securing an Environmental
Compliance Certificate from the Environmental Management Bureau of the DENR(PD 1586) and
clearance from LLDA (RA 4850). After a public hearing, the LLDA found that the water collected from
the leachate and the receiving streams could considerably affect the quality of the receiving waters
since it indicates the presence of bacteria. Thus, LLDA issued a Cease and Desist Order ordering the
City Government of Caloocan to completely desist from dumping any form of garbage at the
Camarin dumpsite. The dumping operation was stopped by the City Government of Caloocan, but
resumed in August 1992 after a meeting among the City Government of Caloocan, the
representatives of Task Force Camarin and LLDA at the Office of EMB Director Rodrigo Fuentes failed
to settle the problem.

LLDA issued another order reiterating the order and issued an Alias Cease and Desist Order
enjoining the City Government of Caloocan from continuing its dumping operations at the Camarin
area. With the assistance of PNP, LLDA enforced its Order by prohibiting the entry of all garbage
dump trucks into the dumpsite.

Thus, the City Government filed with RTC an action for the declaration of nullity of the cease and
desist order. In its complaint, the City Government sought to be declared as the sole authority
empowered to promote the health and safety and enhance the right of the people in Caloocan City
to a balanced ecology within its territorial jurisdiction.

RTC issued a temporary restraining order enjoining the LLDA from enforcing its cease and desist
order. The LLDA filed a motion to dismiss on the ground, among others, that under the Pollution
Control Law, the cease and desist order issued by it is reviewable both upon the law and the facts of
the case by the CA and not by the RTC. Upon denial of LLDA's motion to dismiss, LLDA filed a petition
for certiorari, prohibition and injunction with prayer for restraining order with the Supreme Court.

The Court referred the case to the CA for proper disposition. In the meantime, the Court issued a
TRO, ordering: (1) the RTC to cease and desist from exercising jurisdiction over the case; and (2)
City Government of Caloocan to cease and desist from dumping its garbage at the Tala Estate,
Barangay Camarin, Caloocan City. The City Government filed a motion for reconsideration in view of
the calamitous situation that would arise if the city government fails to collect 350 tons of garbage
daily for lack of dumpsite.

CA: promulgated its decision holding that: (1) RTC has no jurisdiction to try, hear and decide the
action for annulment of LLDA's cease and desist order, since appeal therefrom is within the exclusive
and appellate jurisdiction of the CA under Section 9(3), of BP. 129; and (2) the LLDA has no power
and authority to issue a cease and desist order under its enabling law, RA 4850. The Court of
Appeals ruled that under Sec. 4(d), of RA 4850, the LLDA is instead required "to institute the
necessary legal proceeding against any person who shall commence to implement or continue
implementation of any project, plan or program within the Laguna de Bay region without previous
clearance from the Authority." Thus, the TRO enjoining the City Government of Caloocan was lifted.

ISSUE: Whether or not the LLDA has power and authority to issue a cease and desist order under
RA 4850.

CITY GOVERNMENT OF CALOOCAN: claims that it is within its power as an LGU, pursuant to the
general welfare provision of the Local Government Code, to determine the effects of the operation of
the dumpsite on the ecological balance and to see that such balance is maintained. Thus, it questions
the power and authority of the LLDA to issue a cease and desist order enjoining the dumping of
garbage in the Barangay Camarin over which the City Government of Caloocan has territorial
jurisdiction.

LLDA: contends that, as an administrative agency which was granted regulatory and adjudicatory
powers and functions by RA 4850, it is invested with the power and authority to issue a cease and
desist order pursuant to EO 927 series of 1983.

The LLDA claims that CA suppressed and totally disregarded the above provisions of EO 927, series
of 1983, which granted administrative quasi-judicial functions to LLDA on pollution abatement
cases.

GENERAL RULE: the adjudication of pollution cases generally pertains to the Pollution Adjudication
Board, except in cases where the special law provides for another forum; EXCEPTION: LLDA, as a
specialized administrative agency, is SPECIFICALLY MANDATED under RA 4850 and its amendatory
laws to carry out and make effective the declared national policy of promoting and accelerating the
development and balanced growth of the Laguna Lake area and the surrounding provinces of Rizal
and Laguna and the cities of San Pablo, Manila, Pasay, Quezon and Caloocan with due regard and
adequate provisions for environmental management and control, preservation of the quality of
human life and ecological systems, and the prevention of undue ecological disturbances,
deterioration and pollution.

Under such a broad grant and power and authority, the LLDA, by virtue of its special charter, has the
responsibility to protect the inhabitants of the Laguna Lake region from the deleterious effects of
pollutants emanating from the discharge of wastes from the surrounding areas. In carrying out the
aforementioned declared policy, the LLDA is mandated, among others, to pass upon and approve or
disapprove all plans, programs, and projects proposed by local government offices/agencies within
the region.

HELD: YES. The cease and desist order issued by the LLDA requiring the City Government of Caloocan
to stop dumping its garbage in the Camarin open dumpsite found by the LLDA to have been done in
violation of RA 4850, as amended, and other relevant environment laws, cannot be stamped as an
unauthorized exercise by the LLDA of injunctive powers. By its express terms, RA 4850 authorizes
the LLDA to "make, alter or modify order requiring the discontinuance or pollution." Section 4, par.
(d) explicitly authorizes the LLDA to make whatever order may be necessary in the exercise of its
jurisdiction. EVENTHOUGH LLDA was not expressly conferred the power "to issue an ex-parte cease
and desist order" in a language similar to the express grant to the defunct National Pollution Control
Commission, it would be a mistake to draw therefrom the conclusion that there is a denial of the
power to issue the order in question when the power "to make, alter or modify orders requiring
the discontinuance of pollution" is expressly and clearly bestowed upon the LLDA by EO 927, series
of 1983.

While it is a fundamental rule that an administrative agency has only such powers as are expressly
granted to it by law, it is likewise a settled rule that an administrative agency has also such powers
as are necessarily implied in the exercise of its express powers. In the exercise, therefore, of its
express powers under its charter as a regulatory and quasi-judicial body with respect to pollution
cases in the Laguna Lake region, the authority of the LLDA to issue a "cease and desist order" is,
perforce, implied. Otherwise, it may well be reduced to a "toothless" paper agency.

The issuance of the cease and desist order by the LLDA, as a practical matter of procedure under the
circumstances of the case, is a proper exercise of its power and authority under its charter and its
amendatory laws. Had the cease and desist order issued by the LLDA been complied with by the City
Government of Caloocan as it did in the first instance, no further legal steps would have been
necessary.

The charter of LLDA, RA 4850, as amended, instead of conferring upon the LLDA the means of
directly enforcing such orders, has provided under its Section 4 (d) the power to institute "necessary
legal proceeding against any person who shall commence to implement or continue implementation
of any project, plan or program within the Laguna de Bay region without previous clearance from
the LLDA."

Clearly, said provision was designed to invest the LLDA with sufficiently broad powers in the
regulation of all projects initiated in the Laguna Lake region, whether by the government or the
private sector, insofar as the implementation of these projects is concerned. It was meant to deal
with cases which might possibly arise where decisions or orders issued pursuant to the exercise of
such broad powers may not be obeyed, resulting in the thwarting of its laudabe objective. To meet
such contingencies, then the writs of mandamus and injunction which are beyond the power of the
LLDA to issue, may be sought from the proper courts.

WHEREFORE, the petition is GRANTED. The temporary restraining order enjoining the City Mayor
of Caloocan and/or the City Government of Caloocan from dumping their garbage at the Tala
Estate, Barangay Camarin, Caloocan City is hereby made permanent.

RIZAL EMPIRE INSURANCE GROUP vs. NATIONAL LABOR RELATIONS COMMISSION

[May 29, 1987]

In 1977, Rogelio Coria was hired by Rizal Empire Insurance Group as a casual employee with a salary
of P10/day. On January 1, 1978, he was made a regular employee, having been appointed as clerk-
typist, with a monthly salary of P300. Being a permanent employee, he was furnished a copy of the
company's “Rules and Regulations." In the same year, without change in his position-designation, he
was transferred to the Claims Department and his salary was increased to P450/month. In 1980, he
was transferred to the Underwriting Department and his salary was increased to P580/month plus
cost of living allowance, until he was transferred to the Fire Department as filing clerk. In July, 1983,
he was made an inspector of the Fire Division with a monthly salary of P685 plus allowances. In
1983, Coria was dismissed from work, allegedly, on the grounds of tardiness and unexcused
absences. Accordingly, he filed a complaint with the Ministry of Labor and Employment.

Labor Arbiter: reinstated Coria to his position with back wages; NLRC: dismissed the appeal of RIZAL
EMPIRE INSURANCE for having been filed out of time. Hence, the instant petition.

ISSUE: W/N the current case is still within the jurisdiction of the SUPREME COURT to review.

HELD: NO. Rule VIII of the Revised Rules of the NLRC on appeal, provides:
 SECTION 1. (a) Appeal. — Decision or orders of a labor Arbiter shall be final and executory unless
appealed to the Commission by any or both of the parties within TEN calendar days from receipt
of notice thereof.

SECTION 6. No extension of period. — No motion or request for extension of the period within
which to perfect an appeal shall be entertained.

RIZAL EMPIRE received a copy of the decision of the Labor Arbiter on April 1, 1985. It filed a Motion
for Extension of Time to File Memorandum of Appeal on April 11, 1985 and filed the Memorandum
of Appeal on April 22, 1985. Pursuant to the "no extension policy" of the National Labor Relations
Commission, aforesaid motion for extension of time was denied in its resolution dated November
15, 1985 and the appeal was dismissed for having been filed out of time.

RIZAL EMPIRE: claims that NLRC committed a grave abuse of discretion amounting to lack of
jurisdiction in arbitrarily dismissing Rizal Empire’s appeal on a technicality. It invokes the Rules of
Court provision on liberal construction of the Rules in the interest of substantial justice.

HOWEVER, the Revised Rules of the NLRC are clear and explicit and leave no room for
interpretation.

Moreover, it is an elementary rule in administrative law that administrative regulations and policies
enacted by administrative bodies to interpret the law which they are entrusted to enforce, have the
force of law, and are entitled to great respect. (Espanol v. Philippine Veterans Administration)

Under the above-quoted provisions of the Revised NLRC Rules, the decision appealed from in this
case has become final and executory and can no longer be subject to appeal.

Even on the merits, the ruling of the Labor Arbiter appears to be correct. The consistent promotions
in rank and salary of Coria indicate he must have been a highly efficient worker, who should be
retained despite occasional lapses in punctuality and attendance. Perfection cannot after all be
demanded.

WHEREFORE, this petition is DISMISSED.

VALENTIN TIO vs. VIDEOGRAM REGULATORY BOARD

[June 18, 1987]

Valentin Tio filed the present petition on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of PD 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry. The rationale behind the enactment of the DECREE points to the proliferation
and unregulated circulation of videograms, which consequently have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by
at least 40%, and a tremendous drop in taxes, resulting in substantial losses in government revenues.

Videogram establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of P180 Million in taxes each year.

ISSUE: W/N PD 1987 contains, as per Tio, “an undue delegation of legislative power. “

HELD: NO. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation.

"The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution
to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid
objection can be made." Besides, in the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without adequate remedy in law.

All videogram establishments in the Philippines are hereby given a period of 45 days after
the effectivity of this Decree within which to register with and secure a permit from the
BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.

The VIDEOGRAM INDUSTRY, being a relatively new industry, the need for regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair competition posed
by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the
availability of unclassified and unreviewed video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are virtually untaxed
since mere payment of Mayor's permit and municipal license fees are required to engage in
business. The enactment of the Decree has not brought about the "demise" of the video industry.
On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In fine, TIO has not overcome the presumption of validity which attaches to a challenged statute.
We find no clear violation of the Constitution which would justify us in pronouncing PD 1987 as
unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

PEOPLE OF THE PHILIPPINES vs. HON. MAXIMO MACEREN (CFI-Sta. Cruz, Laguna)
[October 18, 1977]

This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water
fisheries, promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner
of Fisheries under the old Fisheries Law and the law creating the Fisheries Commission.

In 1969, Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito del
Rosario were charged in the municipal court of Sta. Cruz, Laguna with having violated Fisheries
Administrative Order No. 84-1. It was alleged that the five accused resorted to electro fishing, using
their motor banca and electrocuting device. With the use of these devices or equipments, they
would catch fish thru electric current, which would destroy any aquatic animals within its cuffed
reach, to the detriment and prejudice of the populace". Upon motion of the accused, the municipal
court quashed the complaint.

CFI: held that electro fishing cannot be penalized because electric current is not an obnoxious or
poisonous substance as contemplated in Sec. 11 of the Fisheries Law. It is not a substance at all but a
form of energy conducted or transmitted by substances. Since the law does not clearly prohibit
electro fishing, the executive and judicial departments cannot consider it unlawful.

Sec. 11 of the Fisheries Law - prohibits "the use of any obnoxious or poisonous substance" in fishing.

Section 76 of the Fisheries Law - punishes any person who uses an obnoxious or poisonous
substance in fishing with a fine of not [less] than P500, nor more than P5,000, and by imprisonment
for not less than six months nor more than five years.

It is noteworthy that the Fisheries Law does not expressly punish electro fishing." Notwithstanding
the silence of the law, the Secretary of Agriculture and Natural Resources, upon the recommendation
of the Commissioner of Fisheries, promulgated Fisheries Administrative Order No. 84, prohibiting
electro fishing in all Philippine waters. Fisheries Administrative Order No. 84-1, amended Sec. 2 of
Administrative Order No. 84, by restricting the ban against electro fishing to fresh water fisheries.

ISSUE: W/N Fisheries Administrative Orders Nos. 84 and 84-1, prohibiting electro fishing, is valid.

HELD: NO. The Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries
exceeded their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1 and that those
orders are not warranted under the Fisheries Commission, Republic Act No. 3512. The Fisheries Law
does not expressly prohibit electro fishing. As electro fishing is not banned under that law, the
Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries are powerless to
penalize it. In other words, Administrative Orders Nos. 84 and 84-1, in penalizing electro fishing, are
devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could
have been easily embodied in the old Fisheries Law. That law punishes (1) the use of obnoxious or
poisonous substance, or explosive in fishing; (2) unlawful fishing in deepsea fisheries; (3) unlawful
taking of marine molusca, (4) illegal taking of sponges; (5) failure of licensed fishermen to report the
kind and quantity of fish caught, and (6) other violations. Nowhere in that law is electro fishing
specifically punished.

Administrative Order No. 84, in punishing electro fishing, does not contemplate that such an offense
fails within the category of "other violations" because the penalty for electro fishing is the penalty
next lower to the penalty for fishing with the use of obnoxious or poisonous substances, fixed in
section 76, and is not the same as the penalty for "other violations" of the law and regulations fixed
in section 83 of the Fisheries Law. The lawmaking body cannot delegate to an executive official the
power to declare what acts should constitute an offense. It can authorize the issuance of
regulations and the imposition of the penalty provided for in the law itself.

However, at present, there is no more doubt that electro fishing is punishable under the Fisheries
Law and that it cannot be penalized merely by executive revolution because PD 704, which is a
revision and consolidation of all laws and decrees affecting fishing and fisheries and which was
promulgated on May 16, 1975 expressly punishes electro fishing in fresh water and salt water areas.

An examination of the rule-making power of executive officials and administrative agencies and, in
particular, of the Secretary of Agriculture and Natural Resources (now Secretary of Natural
Resources) under the Fisheries Law sustains the view that he exceeded his authority in penalizing
electro fishing by means of an administrative order.

Administrative agent are clothed with rule-making powers because the lawmaking body finds it
impracticable, if not impossible, to anticipate and provide for the multifarious and complex
situations that may be encountered in enforcing the law. All that is required is that the regulation
should be germane to the defects and purposes of the law and that it should conform to the
standards that the law prescribes.

The lawmaking body cannot possibly provide for all the details in the enforcement of a particular
statute. The grant of the rule-making power to administrative agencies is a relaxation of the
principle of separation of powers and is an exception to the non-delegation of legislative powers.
Administrative regulations or "subordinate legislation calculated to promote the public interest are
necessary because of "the growing complexity of modem life, the multiplication of the subjects of
governmental regulations, and the increased difficulty of administering the law"

Administrative regulations adopted under legislative authority by a particular department must be in

harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its
general provisions. By such regulations, the law itself cannot be extended. An administrative agency
cannot amend an act of Congress. The rule-making power must be confined to details for regulating
the mode or proceeding to carry into effect the law as it his been enacted. The power cannot be
extended to amending or expanding the statutory requirements or to embrace matters not covered
by the statute. Rules that subvert the statute cannot be sanctioned.

There is no question that the Secretary of Agriculture and Natural Resources has rule-making
powers. Section 4 of the Fisheries law provides that the Secretary "shall from time to time issue
instructions, orders, and regulations consistent" with that law, "as may be and proper to carry into
effect the provisions thereof.", but none of said rules or orders shall prescribe penalties for the
violation thereof, except as expressly authorized by law."

Administrative regulations issued by a Department Head in conformity with law have the force of
law. As he exercises the rule-making power by delegation of the lawmaking body, it is a requisite that
he should not transcend the bound demarcated by the statute for the exercise of that power;
otherwise, he would be improperly exercising legislative power in his own right and not as a
surrogate of the lawmaking body.

"Rules and regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and compliance therewith
may be enforced by a penal sanction provided in the law. In case of discrepancy between the basic
law and a rule or regulation issued to implement said law, the basic law prevails because said rule
or regulation cannot go beyond the terms and provisions of the basic law.

It has been held that "to declare what shall constitute a crime and how it shall be punished is a
power vested exclusively in the legislature, and it may not be delegated to any other body or
agency". In the instant case the regulation penalizing electro fishing is not strictly in accordance with
the Fisheries Law, under which the regulation was issued, because the law itself does not expressly
punish electro fishing.

As the said law does not penalize the act mentioned in the administrative order, the promulgation of
that provision by the Secretary "is equivalent to legislating on the matter, a power which has not
been and cannot be delegated to him, it being expressly reserved" to the lawmaking body. "Such an
act constitutes not only an excess of the regulatory power conferred upon the Secretary but also an
exercise of a legislative power which he does not have, and therefore" the said provision "is null and
void and without effect"..

A penal statute is strictly construed. While an administrative agency has the right to make ranks and
regulations to carry into effect a law already enacted, that power should not be confused with the
power to enact a criminal statute. An administrative agency can have only the administrative or
policing powers expressly or by necessary implication conferred upon it. e.

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS

[January 20, 1999]

Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the US, formed the corporation
"A. Soriano Y Cia", with a P1 million capitalization divided into 10,000 common shares. ANSCOR is
wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937,
Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued. 5

In 1945, ANSCOR's authorized capital stock was increased to P2.5 million divided into 25,000
common shares with the same par value of the additional 15,000 shares, only 10,000 was issued
which were all subscribed by Don Andres, after the other stockholders waived in favor of the former
their pre-emptive rights to subscribe to the new issues. This increased his subscription to 14,963
common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and
Andres, Jr., as their initial investments in ANSCOR. Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between
1949 and December 20, 1963. 11 On December 30, 1964 Don Andres died. As of that date, the
records revealed that he has a total shareholdings of 185,154 shares 12 — 50,495 of which are
original issues and the balance of 134.659 shares as stock dividend declarations. 13 Correspondingly,
one-half of that shareholdings or 92,577 14 shares were transferred to his wife, Doña Carmen Soriano,
as her conjugal share. The other half formed part of his estate. 15

A day after Don Andres died, ANSCOR increased its capital stock to P20M 16 and in 1966 further
increased it to P30M. 17 In the same year (December 1966), stock dividends worth 46,290 and 46,287
shares were respectively received by the Don Andres estate 18 and Doña Carmen from ANSCOR.
Hence, increasing their accumulated shareholdings to 138,867 and 138,864 19 common shares
each. 20

In 1967, Doña Carmen requested a ruling from the United States Internal Revenue Service (IRS),
inquiring if an exchange of common with preferred shares may be considered as a tax avoidance
scheme 21 under Section 367 of the 1954 U.S. Revenue Act. 22 By January 2, 1968, ANSCOR
reclassified its existing 300,000 common shares into 150,000 common and 150,000 preferred
shares. 23

In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization
scheme and not tax avoidance. 24 Consequently, 25 on March 31, 1968 Doña Carmen exchanged her
whole 138,864 common shares for 138,860 of the newly reclassified preferred shares. The estate of
Don Andres in turn, exchanged 11,140 of its common shares, for the remaining 11,140 preferred
shares, thus reducing its (the estate) common shares to 127,727. 26

On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from
the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to
P75M divided into 150,000 preferred shares and 600,000 common shares. 27 About a year later,
ANSCOR again redeemed 80,000 common shares from the Don Andres' estate, 28 further reducing
the latter's common shareholdings to 19,727. As stated in the Board Resolutions, ANSCOR's business
purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to
reduce the company's foreign exchange remittances in case cash dividends are declared. 29

In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report
proposing that ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to Sections 53
and 54 of the 1939 Revenue Code, 30 for the year 1968 and the second quarter of 1969 based on the
transactions of exchange 31 and redemption of stocks. 31 The Bureau of Internal Revenue (BIR) made
the corresponding assessments despite the claim of ANSCOR that it availed of the tax amnesty under
Presidential Decree
(P.D.) 23 32 which were amended by P.D.'s 67 and 157. 33 However, petitioner ruled that the invoked
decrees do not cover Sections 53 and 54 in relation to Article 83(b) of the 1939 Revenue Act under
which ANSCOR was assessed. 34 ANSCOR's subsequent protest on the assessments was denied in
1983 by petitioner. 35

Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax assessments on the
redemptions and exchange of stocks. In its decision, the Tax Court reversed petitioner's ruling, after
finding sufficient evidence to overcome the prima facie correctness of the questioned
assessments. 36 In a petition for review the CA as mentioned, affirmed the ruling of the CTA. 37 Hence,
this petition.

Section 83(b) of the 1939 Revenue Act provides:

Sec. 83. Distribution of dividends or assets by corporations. —

(b) Stock dividends — A stock dividend representing the transfer of surplus to capital account
shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a
dividend at such time and in such manner as to make the distribution and cancellation or
redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend,
the amount so distributed in redemption or cancellation of the stock shall be considered
as taxable income to the extent it represents a distribution of earnings or profits accumulated
after March first, nineteen hundred and thirteen.

ISSUE: W/N ANSCOR's redemption of stocks from its stockholder as well as the exchange of common
with preferred shares can be considered as "essentially equivalent to the distribution of taxable
dividend" making the proceeds thereof taxable under the provisions of the above-quoted law.

CIR: contends that the exchange transaction a tantamount to "cancellation" under Section 83(b)
making the proceeds thereof taxable. It also argues that the Section applies to stock dividends which
is the bulk of stocks that ANSCOR redeemed. Further, petitioner claims that under the "net effect
test," the estate of Don Andres gained from the redemption. Accordingly, it was the duty of ANSCOR
to withhold the tax-at-source arising from the two transactions, pursuant to Section 53 and 54 of the
1939 Revenue Act. 39

ANSCOR: avers that it has no duty to withhold any tax either from the Don Andres estate or from
Doña Carmen based on the two transactions, because the same were done for legitimate business
purposes which are (a) to reduce its foreign exchange remittances in the event the company would
declare cash dividends, 40 and to (b) subsequently "filipinize" ownership of ANSCOR, as allegedly,
envisioned by Don Andres. 41 It likewise invoked the amnesty provisions of P.D. 67.

We must emphasize that the application of Sec. 83(b) depends on the special factual circumstances
of each case.We will deal first with the issue of tax amnesty. Section 1 of P.D. 67 provides:

1. In all cases of voluntary disclosures of previously untaxed income and/or

wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any
source whatsoever which are taxable under the National Internal Revenue Code, as
 amended, realized here or abroad by any taxpayer, natural or judicial; the collection
of all internal revenue taxes including the increments or penalties or account of non-
payment as well as all civil, criminal or administrative liabilities arising from or
incident to such disclosures under the National Internal Revenue Code, the Revised
Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative
Code, the Civil Service laws and regulations, laws and regulations on Immigration
and Deportation, or any other applicable law or proclamation, are hereby condoned
and, in lieu thereof, a tax of ten (10%) per centum on such previously untaxed
income or wealth, is hereby imposed, subject to the following conditions: (conditions
omitted) [Emphasis supplied].

The decree condones "the collection of all internal revenue taxes including the increments or
penalties or account of non-payment as well as all civil, criminal or administrative liable
arising from or incident to" (voluntary) disclosures under the NIRC of previously untaxed
income and/or wealth "realized here or abroad by any taxpayer, natural or juridical."

May the withholding agent, in such capacity, be deemed a taxpayer for it to avail of the amnesty? An
income taxpayer covers all persons who derive taxable income. 47 ANSCOR was assessed by petitioner
for deficiency withholding tax under Section 53 and 54 of the 1939 Code. As such, it is being held
liable in its capacity as a withholding agent and not its personality as a taxpayer.

In the operation of the withholding tax system, the withholding agent is the payor, a separate entity
acting no more than an agent of the government for the collection of the tax 48 in order to ensure its
payments; 49 the payer is the taxpayer — he is the person subject to tax impose by law; 50 and the
payee is the taxing authority. 51 In other words, the withholding agent is merely a tax collector, not a
taxpayer. Under the withholding system, however, the agent-payor becomes a payee by fiction of
law. His (agent) liability is direct and independent from the taxpayer, 52 because the income tax is still
impose on and due from the latter. The agent is not liable for the tax as no wealth flowed into him —
he earned no income. The Tax Code only makes the agent personally liable for the tax 53 arising from
the breach of its legal duty to withhold as distinguish from its duty to pay tax since:

the government's cause of action against the withholding is not for the collection of
income tax, but for the enforcement of the withholding provision of Section 53 of
the Tax Code, compliance with which is imposed on the withholding agent and not
upon the taxpayer. 54

Not being a taxpayer, a withholding agent, like ANSCOR in this transaction is not protected by
the amnesty under the decree.

Codal provisions on withholding tax are mandatory and must be complied with by the withholding
agent. 55 The taxpayer should not answer for the non-performance by the withholding agent of its
legal duty to withhold unless there is collusion or bad faith. The former could not be deemed to have
evaded the tax had the withholding agent performed its duty. This could be the situation for which
the amnesty decree was intended. Thus, to curtail tax evasion and give tax evaders a chance to
reform, 56 it was deemed administratively feasible to grant tax amnesty in certain instances. In
addition, a "tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by a statute, the term of the amnesty like that of a tax exemption must be construed strictly
against the taxpayer and liberally in favor of the taxing authority. 57 The rule on strictissimi
juris equally applies. 58 So that, any doubt in the application of an amnesty law/decree should be
resolved in favor of the taxing authority.

Furthermore, ANSCOR's claim of amnesty cannot prosper. The implementing rules of

P.D. 370 which expanded amnesty on previously untaxed income under P.D. 23 is
very explicit, to wit:

Sec. 4. Cases not covered by amnesty. — The following cases are not covered by the
amnesty subject of these regulations:

xxx xxx xxx

(2) Tax liabilities with or without assessments, on withholding tax at source provided
under Section 53 and 54 of the National Internal Revenue Code, as amended; 59

ANSCOR was assessed under Sections 53 and 54 of the 1939 Tax Code. Thus, by specific
provision of law, it is not covered by the amnesty.

TAX ON STOCK DIVIDENDS

General Rule

Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of the U.S. Revenue Code of
1928. 60 It laid down the general rule known as the proportionate test 61 wherein stock dividends
once issued form part of the capital and, thus, subject to income tax. 62 Specifically, the general rule
states that:

A stock dividend representing the transfer of surplus to capital account shall not be
subject to tax.

Having been derived from a foreign law, resort to the jurisprudence of its origin may shed light.
Under the US Revenue Code, this provision originally referred to "stock dividends" only, without any
exception. Stock dividends, strictly speaking, represent capital and do not constitute income to its
recipient. 63 So that the mere issuance thereof is not yet subject to income tax 64 as they are nothing
but an "enrichment through increase in value of capital
investment." 65 As capital, the stock dividends postpone the realization of profits because the "fund
represented by the new stock has been transferred from surplus to capital and no longer available
for actual distribution." 66 Income in tax law is "an amount of money coming to a person within a
specified time, whether as payment for services, interest, or profit from investment." 67 It means cash
or its equivalent. 68 It is gain derived and severed from capital, 69 from labor or from both
combined 70 — so that to tax a stock dividend would be to tax a capital increase rather than the
income. 71 In a loose sense, stock dividends issued by the corporation, are considered unrealized
gain, and cannot be subjected to income tax until that gain has been realized. Before the realization,
stock dividends are nothing but a representation of an interest in the corporate properties. 72 As
capital, it is not yet subject to income tax. It should be noted that capital and income are different.
Capital is wealth or fund; whereas income is profit or gain or the flow of wealth. 73 The determining
factor for the imposition of income tax is whether any gain or profit was derived from a
transaction. 74

The Exception

However, if a corporation cancels or redeems stock issued as a dividend at such time

and in such manner as to make the distribution and cancellation or redemption, in
whole or in part, essentially equivalent to the distribution of a taxable dividend, the
amount so distributed in redemption or cancellation of the stock shall be considered
as taxable income to the extent it represents a distribution of earnings or profits
accumulated after March first, nineteen hundred and thirteen. (Emphasis supplied).

In a response to the ruling of the American Supreme Court in the case of Eisner v.
Macomber 75 (that pro rata stock dividends are not taxable income), the exempting clause above
quoted was added because provision corporation found a loophole in the original provision. They
resorted to devious means to circumvent the law and evade the tax. Corporate earnings would be
distributed under the guise of its initial capitalization by declaring the stock dividends previously
issued and later redeem said dividends by paying cash to the stockholder. This process of issuance-
redemption amounts to a distribution of taxable cash dividends which was lust delayed so as to
escape the tax. It becomes a convenient technical strategy to avoid the effects of taxation.

Thus, to plug the loophole — the exempting clause was added. It provides that the redemption or
cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially
equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to
the extent it represents profits". The exception was designed to prevent the issuance and
cancellation or redemption of stock dividends, which is fundamentally not taxable, from being made
use of as a device for the actual distribution of cash dividends, which is taxable. 76Thus,

the provision had the obvious purpose of preventing a corporation from avoiding
dividend tax treatment by distributing earnings to its shareholders in two
transactions — a pro rata stock dividend followed by a pro rata redemption — that
would have the same economic consequences as a simple dividend. 77

Although redemption and cancellation are generally considered capital transactions, as such.
they are not subject to tax. However, it does not necessarily mean that a shareholder may
not realize a taxable gain from such transactions. 78 Simply put, depending on the
circumstances, the proceeds of redemption of stock dividends are essentially distribution of
cash dividends, which when paid becomes the absolute property of the stockholder.
Thereafter, the latter becomes the exclusive owner thereof and can exercise the freedom of
choice. 79 Having realized gain from that redemption, the income earner cannot escape
income tax. 80

As qualified by the phrase "such time and in such manner," the exception was not intended to
characterize as taxable dividend every distribution of earnings arising from the redemption of stock
dividend. 81 So that, whether the amount distributed in the redemption should be treated as the
equivalent of a "taxable dividend" is a question of fact, 82 which is determinable on "the basis of the
particular facts of the transaction in question. 83 No decisive test can be used to determine the
application of the exemption under Section 83(b). The use of the words "such manner" and
"essentially equivalent" negative any idea that a weighted formula can resolve a crucial issue —
Should the distribution be treated as taxable dividend. 84 On this aspect, American courts developed
certain recognized criteria, which includes the following: 85

1) the presence or absence of real business purpose,

2) the amount of earnings and profits available for the declaration of

a regular dividends and the corporation's past record with respect to
the declaration of dividends,

3) the effect of the distribution, as compared with the declaration of

regular dividend,

4) the lapse of time between issuance and redemption, 86

5) the presence of a substantial surplus 87 and a generous supply of

cash which invites suspicion as does a meager policy in relation both
to current earnings and accumulated surplus, 88

REDEMPTION AND CANCELLATION

For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is
redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time
and manner" of the transaction makes it "essentially equivalent to a distribution of taxable
dividends." Of these, the most important is the third.

Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock 89 in

exchange for property, whether or not the acquired stock is cancelled, retired or held in the
treasury. 90Essentially, the corporation gets back some of its stock, distributes cash or property to the
shareholder in payment for the stock, and continues in business as before. The redemption of stock
dividends previously issued is used as a veil for the constructive distribution of cash dividends. In the
instant case, there is no dispute that ANSCOR redeemed shares of stocks from a stockholder (Don
Andres) twice (28,000 and 80,000 common shares). But where did the shares redeemed come from?
If its source is the original capital subscriptions upon establishment of the corporation or from initial
capital investment in an existing enterprise, its redemption to the concurrent value of acquisition
may not invite the application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere
return of capital. On the contrary, if the redeemed shares are from stock dividend declarations other
than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not
merely a return of capital but a gain thereon.

It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable
dividends. Here, it is undisputed that at the time of the last redemption, the original common shares
owned by the estate were only 25,247.5 91 This means that from the total of 108,000 shares
redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from
stock dividends. Besides, in the absence of evidence to the contrary, the Tax Code presumes that
every distribution of corporate property, in whole or in part, is made out of corporate profits 92such
as stock dividends. The capital cannot be distributed in the form of redemption of stock dividends
without violating the trust fund doctrine — wherein the capital stock, property and other assets of
the corporation are regarded as equity in trust for the payment of the corporate creditors. 93 Once
capital, it is always capital. 94 That doctrine was intended for the protection of corporate creditors. 95

With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier.
The time alone that lapsed from the issuance to the redemption is not a sufficient indicator to
determine taxability. It is a must to consider the factual circumstances as to the manner of both the
issuance and the redemption. The "time" element is a factor to show a device to evade tax and the
scheme of cancelling or redeeming the same shares is a method usually adopted to accomplish the
end sought. 96 Was this transaction used as a "continuing plan," "device" or "artifice" to evade
payment of tax? It is necessary to determine the "net effect" of the transaction between the
shareholder-income taxpayer and the acquiring (redeeming) corporation. 97 The "net effect" test is
not evidence or testimony to be considered; it is rather an inference to be drawn or a conclusion to
be reached. 98 It is also important to know whether the issuance of stock dividends was dictated by
legitimate business reasons, the presence of which might negate a tax evasion plan. 99

The issuance of stock dividends and its subsequent redemption must be separate, distinct, and not
related, for the redemption to be considered a legitimate tax scheme. 100Redemption cannot be used
as a cloak to distribute corporate earnings. 101 Otherwise, the apparent intention to avoid tax
becomes doubtful as the intention to evade becomes manifest. It has been ruled that:

[A]n operation with no business or corporate purpose — is a mere devise which put
on the form of a corporate reorganization as a disguise for concealing its real
character, and the sole object and accomplishment of which was the consummation
of a preconceived plan, not to reorganize a business or any part of a business, but to
transfer a parcel of corporate shares to a stockholder. 102

Depending on each case, the exempting provision of Sec. 83(b) of the 1939 Code may not be
applicable if the redeemed shares were issued with bona fide business purpose, 103which is judged
after each and every step of the transaction have been considered and the whole transaction does
not amount to a tax evasion scheme.

ANSCOR invoked two reasons to justify the redemptions — (1) the alleged "filipinization" program
and (2) the reduction of foreign exchange remittances in case cash dividends are declared. The Court
is not concerned with the wisdom of these purposes but on their relevance to the whole transaction
which can be inferred from the outcome thereof. Again, it is the "net effect rather than the motives
and plans of the taxpayer or his corporation" 104 that is the fundamental guide in administering Sec.
83(b). This tax provision is aimed at the result. 105 It also applies even if at the time of the issuance of
the stock dividend, there was no intention to redeem it as a means of distributing profit or avoiding
tax on dividends.106 The existence of legitimate business purposes in support of the redemption of
stock dividends is immaterial in income taxation. It has no relevance in determining "dividend
equivalence". 107 Such purposes may be material only upon the issuance of the stock dividends. The
test of taxability under the exempting clause, when it provides "such time and manner" as would
make the redemption "essentially equivalent to the distribution of a taxable dividend", is whether
the redemption resulted into a flow of wealth. If no wealth is realized from the redemption, there
may not be a dividend equivalence treatment. In the metaphor of Eisner v. Macomber, income is not
deemed "realize" until the fruit has fallen or been plucked from the tree.
The three elements in the imposition of income tax are: (1) there must be gain or and profit, (2) that
the gain or profit is realized or received, actually or constructively, 108 and (3) it is not exempted by
law or treaty from income tax. Any business purpose as to why or how the income was earned by the
taxpayer is not a requirement. Income tax is assessed on income received from any property, activity
or service that produces the income because the Tax Code stands as an indifferent neutral party on
the matter of where income comes
from. 109

As stated above, the test of taxability under the exempting clause of Section 83(b) is, whether
income was realized through the redemption of stock dividends. The redemption converts into
money the stock dividends which become a realized profit or gain and consequently, the
stockholder's separate property. 110 Profits derived from the capital invested cannot escape income
tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income
taxation regardless of the existence of any business purpose for the redemption. Otherwise, to rule
that the said proceeds are exempt from income tax when the redemption is supported by legitimate
business reasons would defeat the very purpose of imposing tax on income. Such argument would
open the door for income earners not to pay tax so long as the person from whom the income was
derived has legitimate business reasons. In other words, the payment of tax under the exempting
clause of Section 83(b) would be made to depend not on the income of the taxpayer, but on the
business purposes of a third party (the corporation herein) from whom the income was earned. This
is absurd, illogical and impractical considering that the Bureau of Internal Revenue (BIR) would be
pestered with instances in determining the legitimacy of business reasons that every income earner
may interposed. It is not administratively feasible and cannot therefore be allowed.

The ruling in the American cases cited and relied upon by ANSCOR that "the redeemed shares are
the equivalent of dividend only if the shares were not issued for genuine business purposes", 111 or
the "redeemed shares have been issued by a corporation bona fide" 112 bears no relevance in
determining the non-taxability of the proceeds of redemption ANSCOR, relying heavily and applying
said cases, argued that so long as the redemption is supported by valid corporate purposes the
proceeds are not subject to tax. 113 The adoption by the courts below 114 of such argument is
misleading if not misplaced. A review of the cited American cases shows that the presence or
absence of "genuine business purposes" may be material with respect to the issuance or declaration
of stock dividends but not on its subsequent redemption. The issuance and the redemption of stocks
are two different transactions. Although the existence of legitimate corporate purposes may justify a
corporation's acquisition of its own shares under Section 41 of the Corporation Code, 115 such
purposes cannot excuse the stockholder from the effects of taxation arising from the redemption. If
the issuance of stock dividends is part of a tax evasion plan and thus, without legitimate business
reasons, the redemption becomes suspicious which exempting clause. The substance of the whole
transaction, not its form, usually controls the tax consequences. 116

The two purposes invoked by ANSCOR, under the facts of this case are no excuse for its tax liability.
First, the alleged "filipinization" plan cannot be considered legitimate as it was not implemented until
the BIR started making assessments on the proceeds of the redemption. Such corporate plan was not
stated in nor supported by any Board Resolution but a mere afterthought interposed by the counsel
of ANSCOR. Being a separate entity, the corporation can act only through its Board of
Directors. 117 The Board Resolutions authorizing the redemptions state only one purpose — reduction
of foreign exchange remittances in case cash dividends are declared. Not even this purpose can be
given credence. Records show that despite the existence of enormous corporate profits no cash
dividend was ever declared by ANSCOR from 1945 until the BIR started making assessments in the
early 1970's. Although a corporation under certain exceptions, has the prerogative when to issue
dividends, yet when no cash dividends was issued for about three decades, this circumstance
negates the legitimacy of ANSCOR's alleged purposes. Moreover, to issue stock dividends is to
increase the shareholdings of ANSCOR's foreign stockholders contrary to its "filipinization" plan. This
would also increase rather than reduce their need for foreign exchange remittances in case of cash
dividend declaration, considering that ANSCOR is a family corporation where the majority shares at
the time of redemptions were held by Don Andres' foreign heirs.

Secondly, assuming arguendo, that those business purposes are legitimate, the same cannot be a
valid excuse for the imposition of tax. Otherwise, the taxpayer's liability to pay income tax would be
made to depend upon a third person who did not earn the income being taxed. Furthermore, even if
the said purposes support the redemption and justify the issuance of stock dividends, the same has
no bearing whatsoever on the imposition of the tax herein assessed because the proceeds of the
redemption are deemed taxable dividends since it was shown that income was generated therefrom.

Thirdly, ANSCOR argued that to treat as "taxable dividend" the proceeds of the redeemed stock
dividends would be to impose on such stock an undisclosed lien and would be extremely unfair to
intervening purchase, i.e. those who buys the stock dividends after their issuance. 118 Such argument,
however, bears no relevance in this case as no intervening buyer is involved. And even if there is an
intervening buyer, it is necessary to look into the factual milieu of the case if income was realized
from the transaction. Again, we reiterate that the dividend equivalence test depends on such "time
and manner" of the transaction and its net effect. The undisclosed lien 119 may be unfair to a
subsequent stock buyer who has no capital interest in the company. But the unfairness may not be
true to an original subscriber like Don Andres, who holds stock dividends as gains from his
investments. The subsequent buyer who buys stock dividends is investing capital. It just so happen
that what he bought is stock dividends. The effect of its (stock dividends) redemption from that
subsequent buyer is merely to return his capital subscription, which is income if redeemed from the
original subscriber.

After considering the manner and the circumstances by which the issuance and redemption of stock
dividends were made, there is no other conclusion but that the proceeds thereof are essentially
considered equivalent to a distribution of taxable dividends. As "taxable dividend" under Section
83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of
the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross
income". As income, it is subject to income tax which is required to be withheld at source. The 1997
Tax Code may have altered the situation but it does not change this disposition.

EXCHANGE OF COMMON WITH PREFERRED SHARES 121

Exchange is an act of taking or giving one thing for another involving 122 reciprocal transfer 123 and is
generally considered as a taxable transaction. The exchange of common stocks with preferred stocks,
or preferred for common or a combination of either for both, may not produce a recognized gain or
loss, so long as the provisions of Section 83(b) is not applicable. This is true in a trade between two
(2) persons as well as a trade between a stockholder and a corporation. In general, this trade must be
parts of merger, transfer to controlled corporation, corporate acquisitions or corporate
reorganizations. No taxable gain or loss may be recognized on exchange of property, stock or
securities related to reorganizations. 124

Both the Tax Court and the Court of Appeals found that ANSCOR reclassified its shares into common
and preferred, and that parts of the common shares of the Don Andres estate and all of Doña
Carmen's shares were exchanged for the whole 150.000 preferred shares. Thereafter, both the Don
Andres estate and Doña Carmen remained as corporate subscribers except that their subscriptions
now include preferred shares. There was no change in their proportional interest after the exchange.
There was no cash flow. Both stocks had the same par value. Under the facts herein, any difference in
their market value would be immaterial at the time of exchange because no income is yet realized —
it was a mere corporate paper transaction. It would have been different, if the exchange transaction
resulted into a flow of wealth, in which case income tax may be imposed. 125

Reclassification of shares does not always bring any substantial alteration in the subscriber's
proportional interest. But the exchange is different — there would be a shifting of the balance of
stock features, like priority in dividend declarations or absence of voting rights. Yet neither the
reclassification nor exchange per se, yields realize income for tax purposes. A common stock
represents the residual ownership interest in the corporation. It is a basic class of stock ordinarily and
usually issued without extraordinary rights or privileges and entitles the shareholder to a pro
rata division of profits. 126Preferred stocks are those which entitle the shareholder to some priority
on dividends and asset distribution. 127

Both shares are part of the corporation's capital stock. Both stockholders are no different from
ordinary investors who take on the same investment risks. Preferred and common shareholders
participate in the same venture, willing to share in the profits and losses of the
enterprise. 128 Moreover, under the doctrine of equality of shares — all stocks issued by the
corporation are presumed equal with the same privileges and liabilities, provided that the Articles of
Incorporation is silent on such differences. 129

In this case, the exchange of shares, without more, produces no realized income to the subscriber.
There is only a modification of the subscriber's rights and privileges — which is not a flow of wealth
for tax purposes. The issue of taxable dividend may arise only once a subscriber disposes of his entire
interest and not when there is still maintenance of proprietary interest. 130

WHEREFORE, premises considered, the decision of the Court of Appeals is MODIFIED in that
ANSCOR's redemption of 82,752.5 stock dividends is herein considered as essentially equivalent to a
distribution of taxable dividends for which it is LIABLE for the withholding tax-at-source. The decision
is AFFIRMED in all other respects.

SO ORDERED.
MAYNARD PERALTA vs. CIVIL SERVICE COMMISSION
[August 10, 1992]

Maynard Peralta was appointed Trade-Specialist II in the Department of Trade and Industry. His
appointment was classified as "Reinstatement/Permanent". Before said appointment, he was
working at the Philippine Cotton Corporation, a GOCC under the Department of Agriculture. In
December 1989, Peralta received his initial salary. Since he had no accumulated leave credits, DTI
deducted from his salary the amount corresponding to his absences. Peralta sent a memorandum to
Amando Alvis (Chief, General Administrative Service) on inquiring as to the law on salary
deductions, if the employee has no leave credits. Amando Alvis states that "when an employee is on
leave without pay on a day before or on a day immediately preceding a Saturday, Sunday or Holiday,
such Saturday, Sunday, or Holiday shall also be without pay. (CSC, 2nd Ind., February 12, 1965)."

Peralta in his said letter to the CSC Chairman argued that a reading of the General Leave Law as
contained in the Revised Administrative Code, as well as the old Civil Service Law (Republic Act No.
2260), the Civil Service Decree (Presidential Decree No. 807), and the Civil Service Rules and
Regulation fails to disclose a specific provision which supports the CSC rule at issue. That being the
case, the petitioner contented that he cannot be deprived of his pay or salary corresponding to the
intervening Saturdays, Sundays or Holidays (in the factual situation posed), and that the withholding
(or deduction) of the same is tantamount to a deprivation of property without due process of law.

CIVIL SERVICE COMMISSION: ruling that the action of the DTI in deducting from the salary of Peralta,
a part thereof corresponding to six days is in order. Petitioner filed a motion for reconsideration and
in Resolution No. 90-797, the respondent Commission denied said motion for lack of merit. The
respondent Commission in explaining its action held:

The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service
Commission rulings to be observed whenever an employee of the government who
has no more leave credits, is absent on a Friday and/or a Monday is enough basis for
the deduction of his salaries corresponding to the intervening Saturdays and
Sundays. What the Commission perceived to be without basis is the demand of
Peralta for the payment of his salaries corresponding to Saturdays and Sundays when
he was in fact on leave of absence without pay on a Friday prior to the said days. A
reading of Republic Act No. 2260 (sic) does not show that a government employee
who is on leave of absence without pay on a day before or immediately preceding
Saturdays, Sunday or legal holiday is entitled to payment of his salary for said days.
Further, a reading of Senate Journal No. 67 dated May 4, 1960 of House Bill No. 41
(Republic Act No. 2625) reveals that while the law excludes Saturdays, Sundays and
holidays in the computation of leave credits, it does not, however, include a case
where the leave of absence is without pay. Hence, applying the principle of inclusio
unius est exclusio alterius, the claim of Peralta has no merit. Moreover, to take a
different posture would be in effect giving more premium to employees who are
frequently on leave of absence without pay, instead of discouraging them from
incurring further absence without
pay. 4

Petitioner's motion for reconsideration having been denied, petitioner filed the present petition.

What is primarily questioned by the petitioner is the validity of the respondent Commission's policy
mandating salary deductions corresponding to the intervening Saturdays, Sundays or Holidays where
an employee without leave credits was absent on the immediately preceding working day.

During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-
540 dated 23 April 1991 amending the questioned policy, considering that employees paid on a
monthly basis are not required to work on Saturdays, Sunday or Holidays. In said amendatory
Resolution, the respondent Commission resolved "to adopt the policy that when an employee,
regardless of whether he has leave credits or not, is absent without pay on day immediately
preceding or succeeding Saturday, Sunday or holiday, he shall not be considered absent on those
days." Memorandum Circular No. 16 Series of 1991 dated 26 April 1991, was also issued by CSC
Chairman Sto. Tomas adopting and promulgating the new policy and directing the Heads of
Departments, Bureaus and Agencies in the national and local governments, including government-
owned or controlled corporations with original charters, to oversee the strict implementation of the
circular.

Because of these developments, it would seem at first blush that this petition has become moot and
academic since the very CSC policy being questioned has already been amended and, in effect,
Resolutions No. 90-497 and 90-797, subject of this petition for certiorari, have already been set aside
and superseded. But the issue of whether or not the policy that had been adopted and in force since
1965 is valid or not, remains unresolved. Thus, for reasons of public interest and public policy, it is the
duty of the Court to make a formal ruling on the validity or invalidity of such questioned policy.
The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the
following powers and duties:

Sec. 16 (e) with the approval by the President to prescribe, amend and enforce
suitable rules and regulations for carrying into effect the provisions of this Civil
Service Law, and the rules prescribed pursuant to the provisions of this law shall
become effective thirty days after publication in the Official Gazette;

xxx xxx xxx

(k) To perform other functions that properly belong to a central personnel agency. 5

Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy. Said
policy was embodied in a 2nd Indorsement dated 12 February 1965 of the respondent Commission
involving the case of a Mrs. Rosalinda Gonzales. The respondent Commission ruled that an employee
who has no leave credits in his favor is not entitled to the payment of salary on Saturdays, Sundays or
Holidays unless such non-working days occur within the period of service actually rendered. The
same policy is reiterated in the Handbook of Information on the Philippine Civil Service. 6 Chapter
Five on leave of absence provides that:

5.51. When intervening Saturday, Sunday or holiday considered as leave without pay
— when an employee is on leave without pay on a day before or on a day
immediately preceding a Saturday, Sunday or holiday, such Saturday, Sunday or
holiday shall also be without pay. (CSC, 2nd Ind., Feb. 12, 1965).

It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and
Answers on Leave of Absences, which states the following:

27. How is leave of an employee who has no more leave credits computed if:

(1) he is absent on a Friday and the following Monday?

(2) if he is absent on Friday but reports to work the following Monday?

(3) if he is absent on a Monday but present the preceding Friday?

- (1) He is considered on leave without pay for 4 days covering Friday to

Monday;

- (2) He is considered on leave without pay for 3 days from Friday to

Sunday;

- (3) He is considered on leave without pay for 3 days from Saturday to

Monday.

When an administrative or executive agency renders an opinion or issues a statement of policy, it

merely interprets a pre-existing law; and the administrative interpretation of the law is at best
advisory, for it is the courts that finally determine what the law means. 8 It has also been held that
interpretative regulations need not be published. 9
In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission
interpreted the provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending
the Revised Administrative Code, and which stated as follows:

Sec. 1. Sections two hundred eighty-four and two hundred eighty-five-A of the
Administrative Code, as amended, are further amended to read as follows:

Sec. 284. After at least six months' continues (sic) faithful, and satisfactory service, the
President or proper head of department, or the chief of office in the case of municipal
employees may, in his discretion, grant to an employee or laborer, whether permanent or
temporary, of the national government, the provincial government, the government of a
chartered city, of a municipality, of a municipal district or of government-owned or
controlled corporations other than those mentioned in Section two hundred sixty-eight,
two hundred seventy-one and two hundred seventy-four hereof, fifteen days vacation
leave of absence with full pay, exclusive of Saturdays, Sundays and holidays, for each
calendar year of service.

Sec. 285-A. In addition to the vacation leave provided in the two preceding sections each
employee or laborer, whether permanent or temporary, of the national government, the
provincial government, the government of a chartered city, of a municipality or municipal
district in any regularly and specially organized province, other than those mentioned in
Section two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four
hereof, shall be entitled to fifteen days of sick leave for each year of service with full pay,
exclusive of Saturdays, Sundays and holidays: Provided, That such sick leave will be
granted by the President, Head of Department or independent office concerned, or the
chief of office in case of municipal employees, only on account of sickness on the part of
the employee or laborer concerned or of any member of his immediate family.

The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as
referring only to government employees who have earned leave credits against which their absences
may be charged with pay, as its letters speak only of leaves of absence with full pay. The respondent
Commission ruled that a reading of R.A. 2625 does not show that a government employee who is on
leave of absence without pay on a day before or immediately preceding a Saturday, Sunday or legal
holiday is entitled to payment of his salary for said days.

Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of
an administrative agency may be disturbed or set aside by the judicial department if there is an error
of law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with
either the letter or the spirit of a legislative enactment. 10

We find this petition to be impressed with merit.

As held in Hidalgo vs. Hidalgo: 11

. . . . where the true intent of the law is clear that calls for the application of the
cardinal rule of statutory construction that such intent or spirit must prevail over the
letter thereof, for whatever is within the spirit of a statute is within the statute, since
 adherence to the letter would result in absurdity, injustice and contradictions and
would defeat the plain and vital purpose of the statute.

The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others,
the sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No.
41 (which became R.A. 2625). He said:

The law actually provides for sick leave and vacation leave of 15 days each year of
service to be with full pay. But under the present law, in computing these periods of
leaves, Saturday, Sunday and holidays are included in the computation so that if an
employee should become sick and absent himself on a Friday and then he reports for
work on a Tuesday, in the computation of the leave the Saturday and Sunday will be
included, so that he will be considered as having had a leave of Friday, Saturday,
Sunday and Monday, or four days.

The purpose of the present bill is to exclude from the computation of the leave those
days, Saturdays and Sundays, as well as holidays, because actually the employee is
entitled not to go to office during those days. And it is unfair and unjust to him that
those days should be counted in the computation of leaves. 12

With this in mind, the construction by the respondent Commission of R.A. 2625 is not in accordance
with the legislative intent. R.A. 2625 specifically provides that government employees are entitled to
fifteen (15) days vacation leave of absence with full pay and fifteen (15) days sick leave with full
pay, exclusive of Saturdays, Sundays and Holidays in both cases. Thus, the law speaks of the granting
of a right and the law does not provide for a distinction between those who have accumulated leave
credits and those who have exhausted their leave credits in order to enjoy such right. Ubi lex non
distinguit nec nos distinguere debemus. The fact remains that government employees, whether or
not they have accumulated leave credits, are not required by law to work on Saturdays, Sundays and
Holidays and thus they can not be declared absent on such non-working days. They cannot be or are
not considered absent on non-working days; they cannot and should not be deprived of their salary
corresponding to said non-working days just because they were absent without pay on the day
immediately prior to, or after said non-working days. A different rule would constitute a deprivation
of property without due process.

Furthermore, before their amendment by R.A. 2625, Sections 284 and 285-A of the Revised
Administrative Code applied to all government employee without any distinction. It follows that the
effect of the amendment similarly applies to all employees enumerated in Sections 284 and 285-A,
whether or not they have accumulated leave credits.

As the questioned CSC policy is here declared invalid, we are next confronted with the question of
what effect such invalidity will have. Will all government employees on a monthly salary basis,
deprived of their salaries corresponding to Saturdays, Sundays or legal holidays (as herein petitioner
was so deprived) since 12 February 1965, be entitled to recover the amounts corresponding to such
non-working days?
The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no office; it is in legal contemplation as
inoperative as though it had never been passed. 13

But, as held in Chicot County Drainage District vs. Baxter State

Bank:14

. . . . 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 determination is an operative fact and may have
consequences which cannot always 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 relations,
individual and corporate; and particular conduct, private and official.

To allow all the affected government employees, similarly situated as petitioner herein, to claim their
deducted salaries resulting from the past enforcement of the herein invalidated CSC policy, would
cause quite a heavy financial burden on the national and local governments considering the length of
time that such policy has been effective. Also, administrative and practical considerations must be
taken into account if this ruling will have a strict restrospective application. The Court, in this
connection, calls upon the respondent Commission and the Congress of the Philippines, if necessary,
to handle this problem with justice and equity to all affected government employees.

It must be pointed out, however, that after CSC Memorandum Circular No. 16 Series of 1991 —
amending the herein invalidated policy — was promulgated on 26 April 1991, deductions from
salaries made after said date in contravention of the new CSC policy must be restored to the
government employees concerned.

WHEREFORE, the petition is GRANTED, CSC Resolutions No. 90-497 and 90-797 are declared NULL
and VOID. The respondent Commission is directed to take the appropriate action so that petitioner
shall be paid the amounts previously but unlawfully deducted from his monthly salary as above
indicated. No costs.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE vs. BICOLANDIA DRUG CORPORATION

[July 21, 2006]

In cases of conflict between the law and the rules and regulations implementing the law, the law
shall always prevail. Should Revenue Regulations deviate from the law they seek to implement, they
will be struck down.

The Facts
In 1992, Republic Act No. 7432, otherwise known as "An Act to Maximize the Contribution of Senior
Citizens to Nation Building, Grant Benefits and Special Privileges and For Other Purposes," granted
senior citizens several privileges, one of which was obtaining a 20 percent discount from all
establishments relative to the use of transportation services, hotels and similar lodging
establishments, restaurants and recreation centers and purchase of medicines anywhere in the
country.1 The law also provided that the private establishments giving the discount to senior citizens
may claim the cost as tax credit.2 In compliance with the law, the Bureau of Internal Revenue issued
Revenue Regulations No. 2-94, which defined "tax credit" as follows:

Tax Credit – refers to the amount representing the 20% discount granted to a qualified senior
citizen by all establishments relative to their utilization of transportation services, hotels and
similar lodging establishments, restaurants, halls, circuses, carnivals and other similar places
of culture, leisure and amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross sales
for value-added tax or other percentage tax purposes. 3

In 1995, respondent Bicolandia Drug Corporation, a corporation engaged in the business of retailing
pharmaceutical products under the business style of "Mercury Drug," granted the 20 percent sales
discount to qualified senior citizens purchasing their medicines in compliance with R.A. No.
7432.4 Respondent treated this discount as a deduction from its gross income in compliance with
Revenue Regulations No. 2-94, which implemented R.A. No. 7432. 5 On April 15, 1996, respondent
filed its 1995 Corporate Annual Income Tax Return declaring a net loss position with nil income tax
liability.6

On December 27, 1996, respondent filed a claim for tax refund or credit in the amount of PhP
259,659.00 with the Appellate Division of the Bureau of Internal Revenue—because its net losses for
the year 1995 prevented it from benefiting from the treatment of sales discounts as a deduction
from gross sales during the said taxable year. 7 It alleged that the petitioner Commissioner of Internal
Revenue erred in treating the 20 percent sales discount given to senior citizens as a deduction from
its gross income for income tax purposes or other percentage tax purposes rather than as a tax
credit.8

On April 6, 1998, respondent appealed to the Court of Tax Appeals in order to toll the running of two
(2)-year prescriptive period to file a claim for refund pursuant to Section 230 of the Tax Code
then.9 Respondent argued that since Section 4 of R.A. No. 7432 provided that discounts granted to
senior citizens may be claimed as tax credit, Section 2(i) of Revenue Regulations No. 2-94, which
referred to the tax credit as the amount representing the 20 percent discount that "shall be deducted
by the said establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes," 10 is illegal, void and without effect for
being inconsistent with the statute it implements.

Petitioner maintained that Revenue Regulations No. 2-94 is valid since the law tasked the
Department of Finance, among other government offices, with the issuance of the necessary rules
and regulations to carry out the objectives of the law. 11

Ruling of the Court of Tax Appeals

The Court of Tax Appeals declared that the provisions of R.A. No. 7432 would prevail over Section 2(i)
of Revenue Regulations No. 2-94, whose definition of "tax credit" deviated from the intendment of
the law; and as a result, partially granted the respondent's claim for a refund. After examining the
evidence on record, the Court of Tax Appeals reduced the claimed 20 percent sales discount, thus
reducing the refund to be given. It ruled that "Respondent is hereby ORDERED to REFUND in favor of
Petitioner the amount of P236,321.52, representing overpaid income tax for the year 1995." 12

Ruling of the Court of Appeals

On appeal, the Court of Appeals modified the decision of the Court of Tax Appeals as the law
provided for a tax credit, not a tax refund. The fallo of the Decision states:

WHEREFORE, premises considered, the present appeal is hereby GRANTED and the Decision
of the Court of Tax Appeals in C.T.A. Case No. 5599 is hereby MODIFIED in the sense that the
award of tax refund is ANNULLED and SET ASIDE. Instead, the petitioner is hereby ORDERED
to issue a tax credit certificate in favor of the respondent in the amount of P 236,321.52.

No pronouncement as to costs.13

The Issue

Petitioner now argues that the Court of Appeals erred in holding that the 20 percent sales discount
granted to qualified senior citizens by the respondent pursuant to R.A. No. 7432 may be claimed as a
tax credit, instead of a deduction from gross income or gross sales. 14

The Court's Ruling

The petition is not meritorious.

Redefining "Tax Credit" as "Tax Deduction"

The problem stems from the issuance of Revenue Regulations No. 2-94, which was supposed to
implement R.A. No. 7432, and the radical departure it made when it defined the "tax credit" that
would be granted to establishments that give 20 percent discount to senior citizens. Under Revenue
Regulations No. 2-94, the tax credit is "the amount representing the 20 percent discount granted to a
qualified senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters,
cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said establishments from their gross income
for income tax purposes and from their gross sales for value-added tax or other percentage tax
purposes."15 It equated "tax credit" with "tax deduction," contrary to the definition in Black's Law
Dictionary, which defined tax credit as:

An amount subtracted from an individual's or entity's tax liability to arrive at the total tax
liability. A tax credit reduces the taxpayer's liability x x x, compared to a deduction which
reduces taxable income upon which the tax liability is calculated. A credit differs from
deduction to the extent that the former is subtracted from the tax while the latter is
subtracted from income before the tax is computed. 16
The interpretation of an administrative government agency, which is tasked to implement the
statute, is accorded great respect and ordinarily controls the construction of the courts. 17 Be that as it
may, the definition laid down in the questioned Revenue Regulations can still be subjected to
scrutiny. Courts will not hesitate to set aside an executive interpretation when it is clearly erroneous.
There is no need for interpretation when there is no ambiguity in the rule, or when the language or
words used are clear and plain or readily understandable to an ordinary reader. 18 The definition of
the term "tax credit" is plain and clear, and the attempt of Revenue Regulations No. 2-94 to define it
differently is the root of the conflict.

Tax Credit is not Tax Refund

Petitioner argues that the tax credit is in the nature of a tax refund and should be treated as a return
for tax payments erroneously or excessively assessed against a taxpayer, in line with Section 204(c) of
Republic Act No. 8424, or the National Internal Revenue Code of 1997. Petitioner claims that there
should first be payment of the tax before the tax credit can be claimed. However, in the National
Internal Revenue Code, we see at least one instance where this is not the case. Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax. 19 It speaks of a tax credit for
tax due, so payment of the tax has not yet been made in that particular example.

The Court of Appeals expressly recognized the differences between a "tax credit" and a "tax refund,"
and stated that the same are not synonymous with each other, which is why it modified the ruling of
the Court of Tax Appeals.

Revenue Regulations No. 2-94 vs. R.A. No. 7432 and

R.A. No. 7432 vs. the National Internal Revenue Code

Petitioner contends that since R.A. No. 7432 used the word "may," the availability of the tax credit to
private establishments is only permissive and not absolute or mandatory. From that starting point,
petitioner further argues that the definition of the term "tax credit" in Revenue Regulations No. 2-94
was validly issued under the authority granted by the law to the Department of Finance to formulate
the needed guidelines. It further explained that Revenue Regulations No. 2-94 can be harmonized
with R.A No. 7432, such that the definition of the term "tax credit" in Revenue Regulations No. 2-94
is controlling. It claims that to do otherwise would result in Section 4(a) of R.A. No. 7432 impliedly
repealing Section 204 (c) of the National Internal Revenue Code.

These arguments must also fail.

Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in cases of conflict, the
implementing rule will not prevail over the law it seeks to implement. While seemingly conflicting
laws must be harmonized as far as practicable, in this particular case, the conflict cannot be resolved
in the manner the petitioner wishes. There is a great divide separating the idea of "tax credit" and
"tax deduction," as seen in the definition in Black's Law Dictionary.

The claimed absurdity of Section 4(a) of R.A. No. 7432 impliedly repealing Section 204(c) of the
National Internal Revenue Code could only come about if it is accepted that a tax credit is akin to a
tax refund wherein payment of taxes must be made in order for it to be claimed. But as shown in
Section 112(a) of the National Internal Revenue Code, it is not always necessary for payment to be
made for a tax credit to be available.

Looking into R.A. No. 7432

Finally, petitioner argues that should private establishments, which count respondent in their
number, be allowed to claim tax credits for discounts given to senior citizens, they would be earning
and not just be reimbursed for the discounts given.

It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot be argued that it was
the intent of lawmakers for private establishments to be the primary beneficiaries of the law.
However, while the purpose of the law to benefit senior citizens is praiseworthy, the concerns of the
affected private establishments were also considered by the lawmakers. As in other cases wherein
private property is taken by the State for public use, there must be just compensation. In this
particular case, it took the form of the tax credit granted to private establishments, purposely chosen
by the lawmakers. In the similar case of Commissioner of Internal Revenue v. Central Luzon Drug
Corporation,20 scrutinizing the deliberations of the Bicameral Conference Committee Meeting on
Social Justice on February 5, 1992 which finalized R.A. No. 7432, the discussions of the lawmakers
clearly showed the intent that the cost of the 20 percent discount may be claimed by the private
establishments as a tax credit. An excerpt from the deliberations is as follows:

SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided
that, the private hospitals can claim the expense as a tax credit.

REP. AQUINO. Yah could be allowed as deductions in the preparation of (inaudible) income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out?

REP. AQUINO. Oo, tax credit. Tama. Okay. Hospitals ba o lahat ng establishments na covered.

THE CHAIRMAN. Sa kuwan lang yon, as private hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant, lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin `yung kuwan kung ganon. Can we go
back to Section 4 ha?

REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all
establishments et cetera, et cetera, provided that said establishments may claim the cost as
a tax credit. Ganon ba `yon?

REP. AQUINO. Yah.

 SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan – deduction, Okay. 21

It is clear that the lawmakers intended the grant of a tax credit to complying private establishments
like the respondent.

If the private establishments appear to benefit more from the tax credit than originally intended, it is
not for petitioner to say that they shouldn't. The tax credit may actually have provided greater
incentive for the private establishments to comply with R.A. No. 7432, or quicker relief from the cut
into profits of these businesses.

Revenue Regulations No. 2-94 Null and Void

From the above discussion, it must be concluded that Revenue Regulations No. 2-94 is null and void
for failing to conform to the law it sought to implement. In case of discrepancy between the basic
law and a rule or regulation issued to implement said law, the basic law prevails because said rule or
regulation cannot go beyond the terms and provisions of the basic law. 22

Revenue Regulations No. 2-94 being null and void, it must be ruled then that under R.A. No. 7432,
which was effective at the time, respondent is entitled to its claim of a tax credit, and the ruling of
the Court of Appeals must be affirmed.

But even as this particular case is decided in this manner, it must be noted that the concerns of the
petitioner regarding tax credits granted to private establishments giving discounts to senior citizens
have been addressed. R.A. No. 7432 has been amended by Republic Act No. 9257, the "Expanded
Senior Citizens Act of 2003." In this, the term "tax credit" is no longer used. The 20 percent discount
granted by hotels and similar lodging establishments, restaurants and recreation centers, and in the
purchase of medicines in all establishments for the exclusive use and enjoyment of senior citizens is
treated in the following manner:

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction
based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted. Provided, further, that the total amount of the claimed tax deduction net
of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended.23

This time around, there is no conflict between the law and the implementing Revenue Regulations.
Under Revenue Regulations No. 4-2006, "(o)nly the actual amount of the discount granted or a sales
discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of
value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the
business enterprise concerned, for VAT or other percentage tax purposes." 24 Under the new law,
there is no tax credit to speak of, only deductions.
Petitioner can find some vindication in the amendment made to R.A. No. 7432 by R.A. No. 9257,
which may be more in consonance with the principles of taxation, but as it was R.A. No. 7432 in force
at the time this case arose, this law controls the result in this particular case, for which reason the
petition must fail.

This case should remind all heads of executive agencies which are given the power to promulgate
rules and regulations, that they assume the roles of lawmakers. It is well-settled that a regulation
should not conflict with the law it implements. Thus, those drafting the regulations should study well
the laws their rules will implement, even to the extent of reviewing the minutes of the deliberations
of Congress about its intent when it drafted the law. They may also consult the Secretary of Justice or
the Solicitor General for their opinions on the drafted rules. Administrative rules, regulations and
orders have the efficacy and force of law so long as they do not contravene any statute or the
Constitution.25 It is then the duty of the agencies to ensure that their rules do not deviate from or
amend acts of Congress, for their regulations are always subordinate to law.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals
is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED.
HOLY SPIRIT HOMEOWNERS ASSOCIATION, INC. vs. SECRETARY MICHAEL DEFENSOR, in his capacity
as Chairman of the Housing and Urban Development Coordinating Council (HUDCC)
[August 3, 2006]

The instant petition for prohibition under Rule 65 of the 1997 Rules of Civil Procedure, with prayer
for the issuance of a temporary restraining order and/or writ of preliminary injunction, seeks to
prevent respondents from enforcing the implementing rules and regulations (IRR) of Republic Act No.
9207, otherwise known as the "National Government Center (NGC) Housing and Land Utilization Act
of 2003."

Petitioner Holy Spirit Homeowners Association, Inc. (Association) is a homeowners association from
the West Side of the NGC. It is represented by its president, Nestorio F. Apolinario, Jr., who is a co-
petitioner in his own personal capacity and on behalf of the association.

Named respondents are the ex-officio members of the National Government Center Administration
Committee (Committee). At the filing of the instant petition, the Committee was composed of
Secretary Michael Defensor, Chairman of the Housing and Urban Development Coordinating Council
(HUDCC), Atty. Edgardo Pamintuan, General Manager of the National Housing Authority (NHA), Mr.
Percival Chavez, Chairman of the Presidential Commission for Urban Poor (PCUP), Mayor Feliciano
Belmonte of Quezon City, Secretary Elisea Gozun of the Department of Environment and Natural
Resources (DENR), and Secretary Florante Soriquez of the Department of Public Works and Highways
(DPWH).

Prior to the passage of R.A. No. 9207, a number of presidential issuances authorized the creation and
development of what is now known as the National Government Center (NGC).

On March 5, 1972, former President Ferdinand Marcos issued Proclamation No. 1826, reserving a
parcel of land in Constitution Hills, Quezon City, covering a little over 440 hectares as a national
government site to be known as the NGC. 1

On August 11, 1987, then President Corazon Aquino issued Proclamation No. 137, excluding 150 of
the 440 hectares of the reserved site from the coverage of Proclamation No. 1826 and authorizing
instead the disposition of the excluded portion by direct sale to the bona fide residents therein. 2

In view of the rapid increase in population density in the portion excluded by Proclamation No. 137
from the coverage of Proclamation No. 1826, former President Fidel Ramos issued Proclamation No.
248 on September 7, 1993, authorizing the vertical development of the excluded portion to
maximize the number of families who can effectively become beneficiaries of the government’s
socialized housing program. 3
On May 14, 2003, President Gloria Macapagal-Arroyo signed into law R.A. No. 9207. Among the
salient provisions of the law are the following:

Sec. 2. Declaration of Policy. – It is hereby declared the policy of the State to secure the land tenure
of the urban poor. Toward this end, lands located in the NGC, Quezon City shall be utilized for
housing, socioeconomic, civic, educational, religious and other purposes.

Sec. 3. Disposition of Certain Portions of the National Government Center Site to Bona Fide Residents.
– Proclamation No. 1826, Series of 1979, is hereby amended by excluding from the coverage thereof,
184 hectares on the west side and 238 hectares on the east side of Commonwealth Avenue, and
declaring the same open for disposition to bona fide residents therein: Provided, That the
determination of the bona fide residents on the west side shall be based on the census survey
conducted in 1994 and the determination of the bona fide residents on the east side shall be based
on the census survey conducted in 1994 and occupancy verification survey conducted in 2000:
Provided, further, That all existing legal agreements, programs and plans signed, drawn up or
implemented and actions taken, consistent with the provisions of this Act are hereby adopted.

Sec. 4. Disposition of Certain Portions of the National Government Center Site for Local Government
or Community Facilities, Socioeconomic, Charitable, Educational and Religious Purposes. – Certain
portions of land within the aforesaid area for local government or community facilities,
socioeconomic, charitable, educational and religious institutions are hereby reserved for disposition
for such purposes: Provided, That only those institutions already operating and with existing facilities
or structures, or those occupying the land may avail of the disposition program established under the
provisions this Act; Provided, further, That in ascertaining the specific areas that may be disposed of
in favor of these institutions, the existing site allocation shall be used as basis
therefore: Provided, finally. That in determining the reasonable lot allocation of
such institutions without specific lot allocations, the land area that may be allocated to them shall be
based on the area actually used by said institutions at the time of effectivity of this Act. (Emphasis
supplied.)

In accordance with Section 5 of R.A. No. 9207, 4 the Committee formulated the Implementing Rules
and Regulations (IRR) of R.A. No. 9207 on June 29, 2004. Petitioners subsequently filed the instant
petition, raising the following issues:

WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL GOVERNMENT
CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE DECLARED NULL AND
VOID FOR BEING INCONSISTENT WITH THE LAW IT SEEKS TO IMPLEMENT.

WHETHER OR NOT SECTION 3.1 (A.4), 3.1 (B.2), 3.2 (A.1) AND 3.2 (C.1) OF THE RULES AND
REGULATIONS OF REPUBLIC ACT NO. 9207, OTHERWISE KNOWN AS "NATIONAL GOVERNMENT
CENTER (NGC) HOUSING AND LAND UTILIZATION ACT OF 2003" SHOULD BE DECLARED NULL AND
VOID FOR BEING ARBITRARY, CAPRICIOUS AND WHIMSICAL. 5

First, the procedural matters.

The Office of the Solicitor General (OSG) argues that petitioner Association cannot question the
implementation of Section 3.1 (b.2) and Section 3.2 (c.1) since it does not claim any right over the
NGC East Side. Section 3.1 (b.2) provides for the maximum lot area that may be awarded to a
resident-beneficiary of the NGC East Side, while Section 3.2 (c.1) imposes a lot price escalation
penalty to a qualified beneficiary who fails to execute a contract to sell within the prescribed
period. 6 Also, the OSG contends that since petitioner association is not the duly recognized people’s
organization in the NGC and since petitioners not qualify as beneficiaries, they cannot question the
manner of disposition of lots in the NGC. 7

"Legal standing" or locus standi has been defined as a personal and substantial interest in the case
such that the party has sustained or will sustain direct injury as a result of the governmental act that
is being challenged…. The gist of the question of standing is whether a party alleges "such personal
stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult constitutional
questions." 8

Petitioner association has the legal standing to institute the instant petition, whether or not it is the
duly recognized association of homeowners in the NGC. There is no dispute that the individual
members of petitioner association are residents of the NGC. As such they are covered and stand to
be either benefited or injured by the enforcement of the IRR, particularly as regards the selection
process of beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner association may
assail those provisions in the IRR which it believes to be unfavorable to the rights of its members.
Contrary to the OSG’s allegation that the failure of petitioner association and its members to qualify
as beneficiaries effectively bars them from questioning the provisions of the IRR, such circumstance
precisely operates to confer on them the legal personality to assail the IRR. Certainly, petitioner and
its members have sustained direct injury arising from the enforcement of the IRR in that they have
been disqualified and eliminated from the selection process. While it is true that petitioners claim
rights over the NGC West Side only and thus cannot be affected by the implementation of Section 3.1
(b.2), which refers to the NGC East Side, the rest of the assailed provisions of the IRR, namely,
Sections 3.1 (a.4), 3.2 (a.1) and 3.2 (c.1), govern the disposition of lots in the West Side itself or all
the lots in the NGC.

We cannot, therefore, agree with the OSG on the issue of locus standi. The petition does not merit
dismissal on that ground.

There are, however, other procedural impediments to the granting of the instant petition. The OSG
claims that the instant petition for prohibition is an improper remedy because the writ of prohibition
does not lie against the exercise of a quasi-legislative function. 9 Since in issuing the questioned IRR
of R.A. No. 9207, the Committee was not exercising judicial, quasi-judicial or ministerial function,
which is the scope of a petition for prohibition under Section 2, Rule 65 of the 1997 Rules of Civil
Procedure, the instant prohibition should be dismissed outright, the OSG contends. For their part,
respondent Mayor of Quezon City 10 and respondent NHA 11 contend that petitioners violated the
doctrine of hierarchy of courts in filing the instant petition with this Court and not with the Court of
Appeals, which has concurrent jurisdiction over a petition for prohibition.

The cited breaches are mortal. The petition deserves to be spurned as a consequence.

Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of non-delegability and separability of powers. 12

In questioning the validity or constitutionality of a rule or regulation issued by an administrative

agency, a party need not exhaust administrative remedies before going to court. This principle,
however, applies only where the act of the administrative agency concerned was performed
pursuant to its quasi-judicial function, and not when the assailed act pertained to its rule-making or
quasi-legislative power. 13

The assailed IRR was issued pursuant to the quasi-legislative power of the Committee expressly
authorized by R.A. No. 9207. The petition rests mainly on the theory that the assailed IRR issued by
the Committee is invalid on the ground that it is not germane to the object and purpose of the
statute it seeks to implement. Where what is assailed is the validity or constitutionality of a rule or
regulation issued by the administrative agency in the performance of its quasi-legislative function,
the regular courts have jurisdiction to pass upon the same. 14

Since the regular courts have jurisdiction to pass upon the validity of the assailed IRR issued by the
Committee in the exercise of its quasi-legislative power, the judicial course to assail its validity must
follow the doctrine of hierarchy of courts. Although the Supreme Court, Court of Appeals and the
Regional Trial Courts have concurrent jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not
give the petitioner unrestricted freedom of choice of court forum. 15

True, this Court has the full discretionary power to take cognizance of the petition filed directly with
it if compelling reasons, or the nature and importance of the issues raised, so warrant. 16 A direct
invocation of the Court’s original jurisdiction to issue these writs should be allowed only when there
are special and important reasons therefor, clearly and specifically set out in the petition. 17

In Heirs of Bertuldo Hinog v. Melicor, 18 the Court said that it will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate courts, and exceptional and
compelling circumstances, such as cases of national interest and of serious implications, justify the
availment of the extraordinary remedy of writ of certiorari, calling for the exercise of its primary
jurisdiction. 19 A perusal, however, of the petition for prohibition shows no compelling, special or
important reasons to warrant the Court’s taking cognizance of the petition in the first instance.
Petitioner also failed to state any reason that precludes the lower courts from passing upon the
validity of the questioned IRR. Moreover, as provided in Section 5, Article VIII of the

Constitution, 20 the Court’s power to evaluate the validity of an implementing rule or regulation is
generally appellate in nature. Thus, following the doctrine of hierarchy of courts, the instant petition
should have been initially filed with the Regional Trial Court.

A petition for prohibition is also not the proper remedy to assail an IRR issued in the exercise of a
quasi-legislative function. Prohibition is an extraordinary writ directed against any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial
functions, ordering said entity or person to desist from further proceedings when said proceedings
are without or in excess of said entity’s or person’s jurisdiction, or are accompanied with grave abuse
of discretion, and there is no appeal or any other plain, speedy and adequate remedy in the ordinary
course of law. 21 Prohibition lies against judicial or ministerial functions, but not against legislative or
quasi-legislative functions. Generally, the purpose of a writ of prohibition is to keep a lower court
within the limits of its jurisdiction in order to maintain the administration of justice in orderly
channels. 22 Prohibition is the proper remedy to afford relief against usurpation of jurisdiction or
power by an inferior court, or when, in the exercise of jurisdiction in handling matters clearly within
its cognizance the inferior court transgresses the bounds prescribed to it by the law, or where there
is no adequate remedy available in the ordinary course of law by which such relief can be
obtained. 23 Where the principal relief sought is to invalidate an IRR, petitioners’ remedy is an
ordinary action for its nullification, an action which properly falls under the jurisdiction of the
Regional Trial Court. In any case, petitioners’ allegation that "respondents are performing or
threatening to perform functions without or in excess of their jurisdiction" may appropriately be
enjoined by the trial court through a writ of injunction or a temporary restraining order.

In a number of petitions, 24 the Court adequately resolved them on other grounds without
adjudicating on the constitutionality issue when there were no compelling reasons to pass upon the
same. In like manner, the instant petition may be dismissed based on the foregoing procedural
grounds. Yet, the Court will not shirk from its duty to rule on the merits of this petition to facilitate
the speedy resolution of this case. In proper cases, procedural rules may be relaxed or suspended in
the interest of substantial justice. And the power of the Court to except a particular case from its
rules whenever the purposes of justice require it cannot be questioned. 25

Now, we turn to the substantive aspects of the petition. The outcome, however, is just as dismal for
petitioners.

Petitioners assail the following provisions of the IRR:

Section 3. Disposition of Certain portions of the NGC Site to the bonafide residents

3.1. Period for Qualification of Beneficiaries

xxxx

(a.4) Processing and evaluation of qualifications shall be based on the Code of Policies and subject to
the condition that a beneficiary is qualified to acquire only one (1) lot with a minimum of 36 sq. m.
and maximum of 54 sq. m. and subject further to the availability of lots.

xxxx

(b.2) Applications for qualification as beneficiary shall be processed and evaluated based on the Code
of Policies including the minimum and maximum lot allocation of 35 sq. m. and 60 sq. m.

xxxx

3.2. Execution of the Contract to Sell

(a) Westside

(a.1) All qualified beneficiaries shall execute Contract to Sell (CTS) within sixty (60) days from the
effectivity of the IRR in order to avail of the lot at P700.00 per sq. m.
 xxxx

(c) for both eastside and westside

(c.1) Qualified beneficiaries who failed to execute CTS on the deadline set in item a.1 above in case
of westside and in case of eastside six (6) months after approval of the subdivision plan shall be
subjected to lot price escalation.

The rate shall be based on the formula to be set by the National Housing Authority factoring therein
the affordability criteria. The new rate shall be approved by the NGC-Administration Committee
(NGC-AC).

Petitioners contend that the aforequoted provisions of the IRR are constitutionally infirm as they are
not germane to and/or are in conflict with the object and purpose of the law sought to be
implemented.

First. According to petitioners, the limitation on the areas to be awarded to qualified beneficiaries
under Sec. 3.1 (a.4) and (b.2) of the IRR is not in harmony with the provisions of R.A. No. 9207, which
mandates that the lot allocation to qualified beneficiaries shall be based on the area actually used or
occupied by bona fide residents without limitation to area. The argument is utterly baseless.

The beneficiaries of lot allocations in the NGC may be classified into two groups, namely, the urban
poor or the bona fide residents within the NGC site and certain government institutions including the
local government. Section 3, R.A. No. 9207 mandates the allocation of additional property within the
NGC for disposition to its bona fide residents and the manner by which this area may be distributed
to qualified beneficiaries. Section 4, R.A. No. 9207, on the other hand, governs the lot disposition to
government institutions. While it is true that Section 4 of R.A. No. 9207 has a proviso mandating that
the lot allocation shall be based on the land area actually used or occupied at the time of the law’s
effectivity, this proviso applies only to institutional beneficiaries consisting of the local government,
socioeconomic, charitable, educational and religious institutions which do not have specific lot
allocations, and not to the bona fide residents of NGC. There is no proviso which even hints that
a bona fide resident of the NGC is likewise entitled to the lot area actually occupied by him.

Petitioners’ interpretation is also not supported by the policy of R.A. No. 9207 and the prior
proclamations establishing the NGC. The government’s policy to set aside public property aims to
benefit not only the urban poor but also the local government and various government institutions
devoted to socioeconomic, charitable, educational and

religious purposes. 26 Thus, although Proclamation No. 137 authorized the sale of lots to bona
fide residents in the NGC, only a third of the entire area of the NGC was declared open for disposition
subject to the condition that those portions being used or earmarked for public or quasi-public
purposes would be excluded from the housing program for NGC residents. The same policy
of rational and optimal land use can be read in Proclamation No. 248 issued by then President
Ramos. Although the proclamation recognized the rapid increase in the population density in the
NGC, it did not allocate additional property within the NGC for urban poor housing but instead
authorized the vertical development of the same 150 hectares identified previously by Proclamation
No. 137 since the distribution of individual lots would not adequately provide for the housing needs
of all the bona fide residents in the NGC.
In addition, as provided in Section 4 of R.A. No. 9207, the institutional beneficiaries shall be allocated
the areas actually occupied by them; hence, the portions intended for the institutional beneficiaries
is fixed and cannot be allocated for other non-institutional beneficiaries. Thus, the areas not
intended for institutional beneficiaries would have to be equitably distributed among the bona
fide residents of the NGC. In order to accommodate all qualified residents, a limitation on the area to
be awarded to each beneficiary must be fixed as a necessary consequence.

Second. Petitioners note that while Sec. 3.2 (a.1) of the IRR fixes the selling rate of a lot at P700.00
per sq. m., R.A. No. 9207 does not provide for the price. They add Sec. 3.2 (c.1) penalizes a
beneficiary who fails to execute a contract to sell within six (6) months from the approval of the
subdivision plan by imposing a price escalation, while there is no such penalty imposed by R.A. No.
9207. Thus, they conclude that the assailed provisions conflict with R.A. No. 9207 and should be
nullified. The argument deserves scant consideration.

Where a rule or regulation has a provision not expressly stated or contained in the statute being
implemented, that provision does not necessarily contradict the statute. A legislative rule is in the
nature of subordinate legislation, designed to implement a primary legislation by providing the
details thereof. 27 All that is required is that the regulation should be germane to the objects and
purposes of the law; that the regulation be not in contradiction to but in conformity with the
standards prescribed by the law. 28

In Section 5 of R.A. No. 9207, the Committee is granted the power to administer, formulate
guidelines and policies, and implement the disposition of the areas covered by the law. Implicit in
this authority and the statute’s objective of urban poor housing is the power of the Committee to
formulate the manner by which the reserved property may be allocated to the beneficiaries. Under
this broad power, the Committee is mandated to fill in the details such as the qualifications of
beneficiaries, the selling price of the lots, the terms and conditions governing the sale and other key
particulars necessary to implement the objective of the law. These details are purposely omitted
from the statute and their determination is left to the discretion of the Committee because the latter
possesses special knowledge and technical expertise over these matters.

The Committee’s authority to fix the selling price of the lots may be likened to the rate-fixing power
of administrative agencies. In case of a delegation of rate-fixing power, the only standard which the
legislature is required to prescribe for the guidance of the administrative authority is that the rate be
reasonable and just. However, it has been held that even in the absence of an express requirement
as to reasonableness, this standard may be implied. 29 In this regard, petitioners do not even claim
that the selling price of the lots is unreasonable.

The provision on the price escalation clause as a penalty imposed to a beneficiary who fails to
execute a contract to sell within the prescribed period is also within the Committee’s authority to
formulate guidelines and policies to implement R.A. No. 9207. The Committee has the power to lay
down the terms and conditions governing the disposition of said lots, provided that these are
reasonable and just. There is nothing objectionable about prescribing a period within which the
parties must execute the contract to sell. This condition can ordinarily be found in a contract to sell
and is not contrary to law, morals, good customs, public order, or public policy.
Third. Petitioners also suggest that the adoption of the assailed IRR suffers from a procedural flaw.
According to them the IRR was adopted and concurred in by several representatives of people’s
organizations contrary to the express mandate of R.A. No. 9207 that only two representatives from
duly recognized peoples’ organizations must compose the NGCAC which promulgated the assailed
IRR. It is worth noting that petitioner association is not a duly recognized people’s organization.

In subordinate legislation, as long as the passage of the rule or regulation had the benefit of a
hearing, the procedural due process requirement is deemed complied with. That there is observance
of more than the minimum requirements of due process in the adoption of the questioned IRR is not
a ground to invalidate the same.

In sum, the petition lacks merit and suffers from procedural deficiencies.

WHEREFORE, the instant petition for prohibition is DISMISSED. Costs against petitioners.

SO ORDERED.

TEODORO SANTIAGO, JR. vs. JUANITA BAUTISTA

[March 30, 1970]
Appeal from the order of the Court of First Instance of Cotabato dismissing, on a motion to dismiss,
its Civil Case No. 2012 — for certiorari, injunction and damages — on the ground that the complaint
therein states no cause of action, and from the subsequent order of the court a quo denying the
motion for the reconsideration of the said order of dismissal.

The record shows that at the time Civil Case No. 2012 was commenced in the court below, appellant
Teodoro Santiago, Jr. was a pupil in Grade Six at the public school named Sero Elementary School in
Cotabato City. As the school year 1964-1965 was then about to end, the "Committee On The Rating
Of Students For Honor" was constituted by the teachers concerned at said school for the purpose of
selecting the "honor students" of its graduating class. With the school Principal, Mrs. Aurora Lorena,
as chairman, and Juanita Bautista, Rosalinda Alpas, Rebecca Matugas, Milkita Inamac, Romeo
Agustin, Aida Camino and Luna Sarmago, as members, the above-named committee deliberated and
finally adjudged Socorro Medina, Patricia Liñgat and Teodoro C. Santiago, Jr. as first, second and third
honors, respectively. The school's graduation exercises were thereafter set for May 21, 1965; but
three days before that date, the "third placer" Teodoro Santiago, Jr., represented by his mother, and
with his father as counsel, sought the invalidation of the "ranking of honor students" thus made, by
instituting the above-mentioned civil case in the Court of First Instance of Cotabato, against the
above-named committee members along with the District Supervisor and the Academic Supervisor
of the place.

The corresponding complaint filed alleged, inter alia: that plaintiff-petitioner Teodoro C. Santiago, Jr.
is a sixth grader at the Sero Elementary School in Cotabato City scheduled to be graduated on May
21st, 1965 with the honor rank of third place, which is disputed; that the teachers of the school had
been made respondents as they compose the "Committee on the Rating of Student for Honor",
whose grave abuse of official discretion is the subject of suit, while the other defendants were
included as Principal, District Supervisor and Academic Supervisor of the school; that Teodoro
Santiago, Jr. had been a consistent honor pupil from Grade I to Grade V of the Sero Elementary
School, while Patricia Liñgat (second placer in the disputed ranking in Grade VI) had never been a
close rival of petitioner before, except in Grade V wherein she ranked third; that Santiago, Jr. had
been prejudiced, while his closest rival had been so much benefited, by the circumstance that the
latter, Socorro Medina, was coached and tutored during the summer vacation of 1964 by Mrs. Alpas
who became the teacher of both pupils in English in Grade VI, resulting in the far lead Medina
obtained over the other pupil; that the committee referred to in this case had been illegally
constituted as the same was composed of all the Grade VI teachers only, in violation of the Service
Manual for Teachers of the Bureau of Public Schools which provides that the committee to select the
honor students should be composed of all teachers in Grades V and VI; that there are direct and
circumstantial matters, which shall be proven during the trial, wherein respondents have exercised
grave abuse of discretion and irregularities, such as the changing of the final ratings on the grading
sheets of Socorro Medina and Patricia Liñgat from 80% to 85%, and some teachers giving petitioner a
starting grade of 75% in Grade VI, which proves that there has already an intention to pull him to a
much lower rank at the end of the school year; that several district examinations outside of teachers'
daily units and other than periodical tests were given, ratings in which were heavily considered in the
determination of periodical ratings, whereas according to the Academic Supervisor and Acting
Division Superintendent of schools of the place such district examinations were not advisable; that
there was a unanimous agreement and understanding among the respondent teachers to insult and
prejudice the second and third honors by rating Socorro Medina with a perfect score, which is very
unnatural; that the words "first place" in petitioner's certificate in Grade I was erased and replaced
with the words "second place", which is an instance of the unjust and discriminating abuses
committed by the respondent teachers in the disputed selection of honor pupils they made; that
petitioner personally appealed the matter to the School Principal, to the District Supervisor, and to
the Academic Supervisor, but said officials "passed the buck to each other" to delay his grievances,
and as to appeal to higher authorities will be too late, there is no other speedy and adequate remedy
under the circumstances; and, that petitioner and his parents suffered mental and moral damages in
the amount of P10,000.00. They prayed the court, among others, to set aside the final list of honor
students in Grade VI of the Sero Elementary School for that school year 1964-1965, and, during the
pendency of the suit, to enjoin the respondent teachers from officially and formally publishing and
proclaiming the said honor pupils in Grade VI in the graduation exercises the school was scheduled to
hold on the 21st of May of that year 1965. The injunction prayed for was denied by the lower court
in its order of May 20, 1965, the said court reasoning out that the graduation exercises were then
already set on the following day, May 21, 1965, and the restraining of the same would be shocking to
the school authorities, parents, and the community who had eagerly looked forward to the coming
of that yearly happy event. As scheduled, the graduation exercises of the Sero Elementary School for
the school year 1964-1965 was held on May 21, with the same protested list of honor students.

Having been required by the above-mentioned order to answer the petition within ten (10) days,
respondents moved for the dismissal of the case instead. Under date of May 24, 1965, they filed a
motion to dismiss, on the grounds (1) that the action for certiorari was improper, and (2) that even
assuming the propriety of the action, the question brought before the court had already become
academic. This was opposed by petitioner.

In an order dated June 4, 1965, the motion to dismiss of respondents was granted, the court
reasoning thus:

The respondents now move to dismiss the petition for being improper and for being
academic. In order to resolve the motion to dismiss, the Court has carefully
examined the petition to determine the sufficiency of the alleged cause of action
constituting the special civil action of certiorari.

The pertinent portions of the petition alleging 'grave abuse of discretion' are found
in paragraphs 3, 4, 5, 6, 7, 8, 9 and 10. These allegations may be substantially
summarized as follows: Paragraph 3 alleges that since grades one to six, the students
closely contending for class honors were Socorro Medina, Teodoro Santiago, Jr.,
Dolores Dalican and Patricia Liñgat.

Socorro Medina obtained first honor thrice (grades I, V and VI); once second honor
(grade IV), and twice third place (grades II and III).

Teodoro Santiago, Jr. obtained first place once (grade IV); four times second place
(grades I, II, III, and V) and once third place (grade VI).

Dolores Dalican obtained twice first place (grades II, III); once third place (grade I).

Patricia Liñgat once third place (grade V); and once second place (grade VI).
That as now ranked in the graduation Liñgat is given second place while Teodoro
Santiago, Jr., is given the third place only. This is the ranking now disputed by
petitioner, Teodoro Santiago, Jr.

Paragraph 4 alleges that Socorro Medina was tutored in the summer of 1964 by Mrs.
Rosalinda Alpas who became her English teacher in the sixth grade; that as such,
Mrs. Alpas unjustly favored Socorro against her rivals.

Paragraph 5 alleges that the teachers who composed the committee on honor
students are all grade six teachers while the Service Manual For Teachers provides
that the committee shall be composed of the teachers from the fifth and sixth
grades.

Paragraph 6 alleges that there are direct and circumstantial evidence showing the
change of ratings of Socorro Medina and Patricia Liñgat from 80% to 85% and the
intention to junk petitioner to a lower rank.

Paragraph 7 alleges that the giving of district examinations upon which ratings were
partly based were not advisable.

Paragraph 8 alleges that the teachers rated Socorro Medina a perfect pupil which is
unnatural.

Paragraph 9 alleges that on the first grade certificate of the petitioner the word "First
Place" was erased and changed to "Second Place".

Paragraph 10 alleges that petitioner personally appealed to the school authorities

but they only 'passed the buck to each other.'

SECOND PARAGRAPH VIOLATED

Rule 65, Section 1 of the Rules of Court provides:

'Section 1. Petition for certiorari. — When any tribunal, board, or

officer exercising judicial functions, has acted without or in excess of
its or his jurisdiction, or with grave abuse of discretion and there is
no appeal, nor 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, as the law requires, of such tribunal, board or officer.'

'The petition shall be accompanied by a certified true copy of the

judgment or order subject thereof, together with copies of all
pleadings and documents relevant and pertinent thereto.'

It is striking, indeed, that this petition has not been accompanied by a certified true
copy of the judgment or order complained of, together with all pleadings and
documents which are relevant thereto, as required by the second, paragraph of the
 aforequoted rule. This violation renders the petition extremely indefinite and
uncertain. There is no written formal judgment or order of respondents that is
submitted for revision or correction of this Court. This violation is fatal to the
petition.

ADMINISTRATIVE REMEDIES NEGLECTED

All that the petition alleges is that the petitioner personally appealed to the school
authorities who only 'passed the buck to each other.' This allegation does not show
that petitioner formally availed of and exhausted the administrative remedies of the
Department of Education. The petition implies that this is the first formal complaint
of petitioner against his teachers. The administrative agencies of the Department of
Education could have investigated the grievances of the petitioner with dispatch and
give effective remedies, but petitioner negligently abandoned them. Petitioner
cannot now claim that he lacked any plain, speedy and adequate remedy.

NO GRAVE ABUSE OF DISCRETION

Allegations relating to the alleged 'grave abuse of discretion' on the part of teachers
refer to errors, mistakes, or irregularities rather than to real grave abuse of discretion
that would amount to lack of jurisdiction. Mere commission of errors in the exercise
of jurisdiction may not be corrected by means of certiorari.

In view of the foregoing, the Court is of the opinion, and so holds, that the petition
states no cause of action and should be, as it is hereby dismissed.

Upon receipt of a copy of the above-quoted order, the petitioner moved for the reconsideration
thereof, but the same proved to be futile, hence, this appeal.

Appellant here assails the holding of the lower court that his petition states no cause of action on the
grounds — discussed by the court a quo in the appealed order above-quoted — (1) that the petition
does not comply with the second paragraph of Sec. 1 of Rule 65 because it has not been
accompanied by a certified true copy of the judgment or order subject thereof, together with copies
of all pleadings and documents relevant and pertinent thereto; (2) that administrative remedies were
not first exhausted; and (3) that there was no grave abuse of discretion on the part of the teachers
who constituted the committee referred to. On the other hand, appellees maintain that the court
below did not err in dismissing the case on said grounds. Further, they argue in favor of the
questioned order of dismissal upon the additional ground that the "committee on the ratings of
students for honor" whose actions are here condemned by appellant is not the "tribunal, board or
officer exercising judicial functions" against which an action for certiorari may lie under Section 1 of
Rule 65.

The last point raised by appellees deserves first consideration, for if really the said committee of
teachers does not fall within the category of the tribunal, board, or officer exercising judicial
functions contemplated by Rule 65, further discussion of the issues raised by appellant may no
longer be necessary. To resolve this problem the following tests may be employed:
In this jurisdiction certiorari is a special civil action instituted against 'any tribunal,
board, or officer exercising judicial functions.' (Section 1, Rule 67.) A judicial function
is an act performed by virtue of judicial powers; the exercise of a judicial function is
the doing of something in the nature of the action of the court (34 C.J. 1182). In
order that a special civil action of certiorari may be invoked in this jurisdiction the
following circumstances must exist: (1) that there must be a specific controversy
involving rights of persons or property and said controversy is brought before a
tribunal, board or officer for hearing and determination of their respective rights and
obligations.

'Judicial action is an adjudication upon the rights of parties who in

general appear or are brought before the tribunal by notice or
process, and upon whose claims some decision or judgment is
rendered. It implies impartiality, disinterestedness, a weighing of
adverse claims, and is inconsistent with discretion on the one hand
— for the tribunal must decide according to law and the rights of the
parties — or with dictation on the other; for in the first instance it
must exercise its own judgment under the law, and not act under a
mandate from another power. ... The character of its action in a
given case must decide whether that action is judicial, ministerial, or
legislative, or whether it be simply that of a public agent of the
country or State, as in its varied jurisdictions it may by turns be
each.' (In Re Saline County Subscription, 100 Am. Dec. 337, 338,
cited in Southeastern Greyhound Lines v. Georgia Public Service
Commission, 181 S. E. 836-837.)

'It may be said generally that the exercise of judicial function is to

determine what the law is, and what the legal rights of parties are,
with respect to a matter in controversy; and whenever an officer is
clothed with that authority, and undertakes to determine those
questions, he acts judicially.' (State ex rel. Board of Commissioners of
St. Louis County, et al. v. Dunn, 90 N. W. 772-773.)

(2) the tribunal, board or officer before whom the controversy is brought must have
the power and authority to pronounce judgment and render a decision on the
controversy construing and applying the laws to that end.

'The phrase "judicial power" is not capable of a precise definition

which would be applicable to all cases. The term has been variously
defined as the authority to determine the rights of persons or
property by arbitrating between adversaries in specific controversies
at the instance of a party thereto; the authority exercised by that
department of government which is charged with the declaration of
what the law is and its construction so far as it is written law; the
authority or power vested in the judges or in the courts; the
authority vested in some court, officer, or persons to hear and
 determine when the rights of persons or property or the propriety of
doing an act is the subject matter of adjudication; the power
belonging to or emanating from a judge as such; the power
conferred upon a public officer, involving the exercise of judgment
and discretion in the determination of questions of right in specific
cases affecting the interest of persons or property, as distinguished
from ministerial power or authority to carry out the mandates of
judicial power or the law; the power exercised by courts in hearing
and determining cases before them, or some matter incidental
thereto, and of which they have jurisdiction; the power of a court to
decide and pronounce a judgment; the power which adjudicates
upon and protects the rights and interests of individual citizens, and
to that end construes and applies the law. "Judicial power" implies
the construction of laws and the adjudication of legal rights. It
includes the power to hear and determine but not everyone who
may hear and determine has judicial power. The term "judicial
power" does not necessarily include the power to hear and
determine a matter that is not in the nature of a suit or action
between the parties.' (34 C.J. 1183-1184.) .

(3) the tribunal, board or officer must pertain to that branch of the sovereign power
which belongs to the judiciary, or at least, which does not belong to the legislative or
executive department.

... the distinction between legislative or ministerial functions and

judicial functions is difficult to point out. What is a judicial function
does not depend solely upon the mental operation by which it is
performed or the importance of the act. In solving this question, due
regard must be had to the organic law of the state and the division
of power of government. In the discharge of executive and legislative
duties, the exercise of discretion and judgment of the highest order
is necessary, and matters of the greatest weight and importance are
dealt with. It is not enough to make a function judicial that it
requires discretion, deliberation, thought, and judgment. It must be
the exercise of discretion and judgment within that subdivision of
the sovereign power which belongs to the judiciary, or, at least,
which does not belong to the legislative or executive department. If
the matter, in respect to which it is exercised, belongs to either of
the two last-named departments of government, it is not judicial. As
to what is judicial and what is not seems to be better indicated by
the nature of a thing, than its definition.' (Whealing & Elm Grove
Railroad Co. Appt. v. Town of Triadelphia, et al., 4 L.R.A. (N. S.) pp.
321, 328-329.) [Emphasis supplied]1

'WHAT ARE JUDICIAL OR QUASI JUDICIAL ACTS. It is difficult, if not

impossible, precisely to define what are judicial or quasi judicial acts,
 and there is considerable conflict in the decisions in regard thereto,
in connection with the law as to the right to the writ of certiorari. It
is clear, however, that it is the nature of the act to be performed,
rather than of the office, board, or body which performs it, that
determines whether or not it is the discharge of a judicial or quasi-
judicial function. It is not essential that the proceedings should be
strictly and technically judicial, in the sense in which that word is
used when applied to the courts of justice, but it is sufficient if they
are quasi judicial. It is enough if the officers act judicially in making
their decision, whatever may be their public character. ...' "In State
ex rel. Board of Commrs. vs. Dunn (86 Minn. 301, 304), the following
statements were made:

'The precise line of demarkation between what are judicial and what
are administrative or ministerial functions is often difficult to
determine. The exercise of judicial functions may involve the
performance of legislative or administrative duties, and the
performance of administrative or ministerial duties, may, in a
measure, involve the exercise of judicial functions. It may be said
generally that the exercise of judicial functions is to determine what
the law is, and what the legal rights of parties are, with respect to a
matter in controversy; and whenever an officer is clothed with that
authority, and undertakes to determine those questions, he acts
judicially.'2

It is evident, upon the foregoing authorities, that the so called committee on the rating of students
for honor whose actions are questioned in this case exercised neither judicial nor quasi judicial
functions in the performance of its assigned task. From the above-quoted portions of the decision
cited, it will be gleaned that before tribunal board, or officer may exercise judicial or quasi judicial
acts, it is necessary that there be a law that give rise to some specific rights of persons or property
under which adverse claims to such rights are made, and the controversy ensuing therefrom is
brought, in turn, before the tribunal, board or officer clothed with power and authority to determine
what that law is and thereupon adjudicate the respective rights of the contending parties. As pointed
out by appellees,3 however, there is nothing on record about any rule of law that provides that when
teachers sit down to assess the individual merits of their pupils for purposes of rating them for
honors, such function involves the determination of what the law is and that they are therefore
automatically vested with judicial or quasi judicial functions. Worse still, this Court has not even been
appraised by appellant of the pertinent provisions of the Service Manual of Teachers for Public
Schools appellees allegedly violated in the composition of the committee they constituted
thereunder, and, in the performance of that committee's duties.

At any rate, the situation brought before Us in this case, the seemingly one of first impression, is not
without substantial parallel. In the case of Felipe vs. Leuterio, etc., et al.,4 the issue presented for
determination was whether or not the courts have the authority to reverse the award of the board of
judges of an oratorical contest, and this Court declared that the judiciary has no power to reverse the
award of the board of judges of that contest and, for that matter, it would not interfere in literary
contests, beauty contests and similar competitions. It was reasoned out thus:

For more than thirty years oratorical tilts have been held periodically by schools and
colleges in this islands. Inter-collegiate oratorical competitions are of more recent
origin. Members of this court have taken part in them either as contestants in their
school days (In the College of Law, U.P. annual oratorical contest, first prize was
awarded to Justice Montemayor in 1914 and to Justice Labrador in 1916), or as
members of the board of judges afterwards. They know some few verdicts did not
reflect the audience's preference and that errors have sometimes been ascribed to
the award of the judges. Yet no party ever presumed to invoke judicial intervention;
for it is unwritten law in such contests that the board's decision is final and
unappealable.

Like the ancient tournaments of the Sword, these tournaments of the Word apply
the highest tenets of sportsmanship: finality of referee's verdict. No alibis, no
murmurs of protest. The participants are supposed to join the competition to
contribute to its success by striving their utmost: the prizes are secondary.

No rights to the prizes may be asserted by the contestants, because theirs was
merely the privilege to compete for the prize, and that privilege did not ripen into a
demandable right unless and until they were proclaimed winners of the competition
by the appointed arbiters or referees or judges.

Incidentally, these school activities have been imported from the United States. We
found in American jurisprudence no litigation questioning the determination of the
board of judges.

Now, the fact that a particular action has had no precedent during a long period
affords some reason for doubting the existence of the right sought to be enforced,
especially where occasion for its assertion must have often arisen; and courts are
cautious before allowing it, being loath to establish a new legal principle not in
harmony with the generally accepted views thereon. (See C.J.S. Vol. 1, p. 1012.)

We observe that in assuming jurisdiction over the matter, the respondent judge
reasoned out that where there is a wrong there is a remedy and that courts of first
instance are courts of general jurisdiction.

The flaw in his reasoning lies in the assumption that Imperial suffered some wrong at
the hands of the board of judges. If at all, there was error on the part of one judge,
at most. Error and wrong do not mean the same thing. 'Wrong' as used in the
aforesaid principle is the deprivation or violation of a right. As stated before, a
contestant has no right to the prize unless and until he or she is declared winner by
the board of referees or judges.

Granting that Imperial suffered some loss or injury, yet in law there are instances
of 'damnum absque injuria'. This is one of them. If fraud or malice had been proven,
it would be a different proposition. But then her action should be directed against
 the individual judge or judges who fraudulently or maliciously injured her. Not
against the other judges.

But even were We to assume for the moment, as the court below apparently did, that judicial
intervention might be sought in cases of this nature, still, We are inclined to sustain the order of
dismissal appealed from for failure on the part of appellant to comply with the requirements of
Section 1 of Rule 65. To be sure, the lower court's holding that appellant's failure to accompany his
petition with a copy of the judgment or order subject thereof together with copies of all pleadings
and documents relevant and pertinent thereto "is fatal to his cause" is supported not only by the
provision of that Rule but by precedents as well. In the case of Alajar, et al. vs. Court of Industrial
Relations,5where it was claimed by therein petitioners that the respondent court had acted with
grave abuse of discretion in estimating certain rice harvests involved in the case in terms of cavans
instead of cans, allegedly in complete disregard of the decision of the Court of First Instance of
Batangas in Expropriation Proceedings No. 84 and of this Court in G.R. No.
L-6191,6 and in ordering thereafter the division of the said rice harvests on the ratio of 70-30 in favor
of the tenants, this Court denied the petition for certiorari on the ground, among others, of failure on
the part of said petitioners to attach to their petition copies of the decisions allegedly violated.
Speaking thru Mr. Justice J.B.L. Reyes then, this Court held:

The petition is patently without merit. In the first place, it is not even sufficient in
form and substance to justify the issuance of the writ of certiorari prayed for. It
charges that the Court of Industrial Relations abused its discretion in disregarding
the decision of the Court of First Instance of Batangas in Expropriation Proceedings
No. 84 and of this Court in G.R. No. L-6191; yet it does not attach to the petition the
decisions allegedly violated by the Court below and point out which particular
portion or portions thereof have been disregarded by the respondent Court.

The same principle was applied in the more recent case of NAWASA vs. Municipality of Libmanan, et
al.,7 wherein this Court dismissed (by Resolution) the petition for certiorari and mandamus filed by
the National Waterworks and Sewerage Authority against the Court of First Instance of Camarines
Sur, and the municipality of Libmanan. In the following language, this Court emphasized the
importance of complying with the said requirement of Rule 65:

While paragraph 3 of the petition speaks of the complaint filed by the respondent
municipality with the respondent court for recovery of property with damages (Civil
Case No. L-161) no copy thereof is attached to the petition.

Similarly, paragraph 4 of the petition mentions the decision rendered by the

respondent court on December 10, 1965, but no copy thereof is attached to the
petition.

Again, paragraph 5 of the petition speaks of the order of default entered by the
respondent court and of the motion for reconsideration filed by petitioner in the
case above-mentioned, but no copy of the order of default is attached to its petition.
 Bearing in mind that the petition under consideration was filed for the purpose of
enjoining the respondent court from executing the decision rendered in Civil Case
No. L-161, the importance of the missing pleadings is obvious.

Moreover, the petition is also for the purpose of securing an order commanding the
respondent court to approve either the original or the amended record on appeal
filed petition, but no copy of either is attached to its petition.

In view of the foregoing, the petition under consideration is dismissed.

It might be true, as pointed out by appellant, that he received a copy of the programme of the
graduation exercises held by the Sero Elementary School in the morning of the very day of that
graduation exercises, implying that he could not have attached then a copy thereof (to show the
decision of the committee of teachers in the ranking of students complained of) to his petition. The
stubborn fact remains, however, that appellant had known of such decision of the said committee of
teachers much earlier, as shown by the circumstance that according to him, even before the filing of
his petition with the lower court on the 19th of May, 1965, he had personally appealed the said
committee's decision with various higher authorities of the above-named school, who merely passed
the buck to each other. Moreover, appellant mentions in his petition various other documents or
papers — as the Service Manual for Teachers allegedly violated by appellees in the constitution of
their committee; altered grading sheets; and erasures in his Grade I certificate — which appellant
never bothered to attach to his petition. There could be no doubt then that he miserably failed to
comply with the requirement of Rule 65 above-mentioned. With this conclusion, it is no longer
necessary to pass upon the other two errors assigned by appellant.

FOR THE FOREGOING CONSIDERATIONS, the judgment appealed from is affirmed, with costs against
appellant.

ASST. EXEC. SEC. FOR LEGAL AFFAIRS OF THE OFFICE OF THE PRESIDENT vs. COURT OF APPEALS
[January 9, 1989]

The administrative Decisions of the Office of the President of the Philippines, dated 13 May 1969 and
28 September 1971, respectively, set aside by respondent Court of Appeals in its judgment, dated 28
November 1986, constitute the nucleus of the present controversy.

The antecedent proceedings may be summarized thus:

1. On 15 April 1948, Jesus M. Larrabaster applied with the National Land Settlement Administration
(NLSA) for a home lot at the Marbel Settlement District, Cotabato.

2. On 10 July 1950 Larrabaster's application was granted. Home Lot No. 336 (later known as Lot No.
355) with an area of 1,500 square meters (hereafter, the Disputed Property) was allocated to him on
the basis of a report of the supervisor of the Settlement District that the subject lot was vacant and
free from any claim or conflict.

Meanwhile, "Larrabaster leased the lot to private respondent, Basilio MENDOZA, and tolerated Jorge
Geller to squat on the portion thereof" (2nd Indorsement, February 10, 1969, Office of the President,
p. 1, Annex "C", Petition).
3. On 25 November 1952 the Land Settlement and Development Corporation (LASEDECO) took over
the functions of the NLSA.

4. On 29 June 1956 Larrabaster and his wife assigned their rights and interests over the Disputed
Property to Jose B. PEÑA. "Notwithstanding the transfer, PEÑA allowed Mendoza and Geller to stay
on the lot." (id., p. 2).

5. On 8 September 1956 a Supplementary Deed of Sale was executed by the same parties defining
the boundaries of the Disputed Property, thus:

On the North by Bulok creek and a street; on the South by Bulok creek and the
National Highway; on the East by a street beside the public plaza; and on the West
by Bulok creek, which lot is designated as formerly lot No. 336 and now lot No. 355
on the new sketch plan of the Townsite of Marbel, South Cotabato. (2nd
Indorsement, Office of the President, February 10, 1969, p. 2, Annex "C", Petition).

6. On 18 June 1954 Republic Act No. 1160 transferred the custody and administration of the Marbel
Townsite to the National Resettlement and Rehabilitation Administration (NARRA).

7. On 20 August 1956 PEÑA requested NARRA to approve the above-mentioned transfer of rights but
the latter did not act thereon in view of Proclamation No. 336, series of 1956, returning to the
Bureau of Lands the disposition of the lots which remained unallocated by the LASEDECO at the time
of its abolition.

8. The Bureau of Lands did not act on PEÑA's request either, prompting him to bring up the matter to
the Board of Liquidators (BOL), which was created to wind up the affairs of LASEDECO.

Although LASEDECO bad initially denied the request, it subsequently confirmed the sale to PEÑA in
its Resolution No. 139, series of 1964.

9. PEÑA must have realized that the Disputed Property contained an area bigger than 1,500 sq. ms.,
hence, his request to BOL that the area be adjusted from 1,500 to 3,616.93 sq. ms. to conform to its
actual area.

10. In its Resolution No. 139, series of 1964, the BOL denied the request.

PEÑA moved for reconsideration stressing that the award should be for 3,616.93 sq. ms., but the BOL
again denied the same under its Resolution No. 439, series of 1967.

11. Feeling aggrieved, PEÑA appealed to the Office of the President.

12. Requested by that Office to comment, the BOL conducted an investigation and reported (a) that
Lot No. 355, as awarded to Larrabaster, contained only 1,500 sq. ms. but due to accretion, since the
lot was almost surrounded by a creek, the area increased to 3,616.93 sq. ms.; and (b) since home lots
had an average area of 1,500 sq. ms. only, the Bureau of Lands subdivided the Disputed Property into
three [3] parts, namely: Lot No. 107 with an area of 1,455 sq. ms., was allocated to Basilio Mendoza;
Lot No. 108, with an area of 1,500 sq. ms., was allocated to PEÑA; and Lot No. 109, with an area of
661 sq. ms., was allocated to Arturo Roxas. The BOL then recommended that PEÑA be awarded Lot
No. 108 instead of the whole of former Lot No. 355.
13. Excepting to the above, PEÑA alleged that the lot transferred to him by Larrabaster contains
3,616.93 and not 1,500 sq. ms., this being the area embraced within the boundaries described in the
Supplementary Deed of Sale executed between him and Larrabaster on 8 September 1956.

14. On 10 February 1969 the Office of the President "ordered that the area of PEÑA's lot (Lot No.
108, formerly a part of Lot No. 355) be maintained at 1,500 sq. ms.. xxx' on the premise that
accretion belonged to the Government.

15. Upon PEÑA's motion for reconsideration, the same Office, on 13 May 1969, modified its Decision
of 10 February 1969 and held that "the award to PEÑA of the original Lot No. 355 is hereby
maintained" (p. 9, Annex "D", Petition). It reasoned out that the benefits of accretion, pursuant to
Article 457 of the Civil Code, accrue to the owner, PEÑA, and not to the Government. That Decision
of 13 May 1969 is the first judgment assailed in this Petition.

16. On 14 May 1969 the BOL approved Resolution No. 236, series of 1969, directing its LASEDECO
Unit to advise PEÑA accordingly. And on 3 September 1969 the BOL recommended to the Director of
Lands the issuance of a patent in PEÑA's favor.

17. On 1 August 1969 private respondent MENDOZA addressed a letter-protest to the BOL, to which
the latter in its Resolution No. 488, dated 6 August 1969, responded by advising MENDOZA to direct
its protest to the Office of the President.

18. MENDOZA did so and on 28 September 1971 said Office rendered its letter-decision (the second
one challenged herein) affirming its previous Decision of 13 May 1969, having found no cogent
reason to depart therefrom (Annex "E", Petition).

19. In the meantime, on 27 January 1970, and while his protest with the Office of the President was
still pending, MENDOZA resorted to Civil Case No. 98 for certiorari before the then Court of First
Instance of Cotabato against the petitioners-public officials and PEÑA.

On 23 June 1978, MENDOZA followed up with a Supplemental Petition to annul the administrative
Decision of 20 September 1971 denying his protest.

20. On 10 May 1985 the Trial Court 1 rendered its Decision in Civil Case No. 98 dismissing MENDOZA's
Petition for certiorari (Annex "B", Petition).

21. On appeal, respondent Court of Appeals reversed the Trial Court in its 28 November 1986
Decision, 2 with the following disposition:

WHEREFORE, finding the appeal of petitioner Basilio Mendoza to be meritorious, the

Decision of May 10, 1985 of the Regional Trial Court, Branch 24, of Koronadal, South
Cotabato, in Special Civil Case No. 98 is SET ASIDE. The Decisions of February 10,
1969, May 13, 1969 and September 28, 1971 of the Office of the President in the
administrative case are likewise SET ASIDE, without prejudice to the reopening of the
administrative case in said Office as to accord all parties concerned, including
petitioner, their constitutional rights to due process of law.

IT IS SO ORDERED. (pp. 23-31, Rollo)

Hence, this Petition for Review on certiorari by petitioners-public officials anchored on the following
submissions:

1. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT

PRIVATE RESPONDENT BASILIO MENDOZA HAS BEEN DENIED DUE
PROCESS OF LAW.

2. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

ADMINISTRATIVE DECISIONS OF THE OFFICE OF THE PRESIDENT IN
QUESTION ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.

3. THE COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE THE

ASSAILED DECISIONS OF THE REGIONAL TRIAL COURT OF SOUTH
COTABATO IN CIVIL CASE NO. 98 DATED MAY 10, 1985 AND OF THE
OFFICE OF THE PRESIDENT DATED FEBRUARY 10, 1969, MAY 13,
1969 AND SEPTEMBER 28, 1971 AND IMPLICITLY ORDERING A
REOPENING OF THE ADMINISTRATIVE CASE IN SAID OFFICE. (p. 9,
Petition, p. 13, Rollo)

We uphold petitioners' submissions.

1. In ruling that the Decisions of the Office of the President were vitiated by failure to accord due
process of law to MENDOZA, respondent Appellate Court relied on its observations that MENDOZA
was: (1) not made a party to the administrative case; (2) not served with a copy of the 10 February
1969 Decision; and (3) not notified of proceedings before the 13 May 1969 Decision nor served a
copy thereof.

The foregoing observations do not justify the conclusion arrived at. After the Office of the President
had rendered its Decision dated 13 May 1969, MENDOZA filed a letter-protest on 1 August 1969 with
the BOL. The latter office directed him to file his protest with the Office of the President, which he
did. On 28 September 1971, MENDOZA's request for reconsideration was denied by said Office. So
that, even assuming that there was absence of notice and opportunity to be present in the
administrative proceedings prior to the rendition of the 10 February 1969 and 13 May 1969
Decisions by the Office of the President, such procedural defect was cured when MENDOZA elevated
his letter protest to the Office of the President, which subjected the controversy to appellate review
but eventually denied reconsideration. Having thus been given a chance to be heard with respect to
his protest there is sufficient compliance with the requirements of due process.

There is no merit likeness to the point raised by petitioners that they were not
informed by respondent Judge of the petition by private respondent to set aside the
writ of execution. The order granting such petition was the subject of a motion for
reconsideration. 'The motion for reconsideration was thereafter denied. Under the
circumstances, the failure to give notice to petitioners had been cured. That is a well-
settled doctrine. Their complaint was that they were not beard. They were given the
opportunity to file a motion for reconsideration. So they did. That was to free the
order from the alleged infirmity. Petitioners then cannot be heard to claim that they
were denied procedural due process.' (Dormitorio v. Fernandez, L-25897, August 21,
 1976, 72 SCRA 388, 394-395; Montemayor vs. Araneta Univ. Foundation, L- 44251,
May 31, 1977, 77 SCRA 321 [1977]; also Sumpang v. Inciong, L-50992, June 19, 1985,
137 SCRA 56 [1985]).

It should also be recalled that MENDOZA filed his petition for certiorari before the then Court of First
Instance of Cotabato seeking to annul the 13 May 1969 Decision. At the time it was presented on 27
January 1970, MENDOZA's request for reconsideration with the Office of the President, involving the
same Decision, was still pending. In fact, it was only on 28 September 1971 that said Office denied
reconsideration. Evidently, MENDOZA had abandoned his pending administrative request for
reconsideration in favor of judicial proceedings. Again, therefore, MENDOZA cannot justifiably claim
that he was denied due process.

2. Substantial factual evidence support the questioned administrative rulings. The Office of the
President relied on the fact-finding report of the BOL made sometime in 1969 with respect to the
Disputed Property to the effect that although the area of Lot No. 355 awarded to Larrabaster was
1,500 sq. ms., it was found situated along a creek and that "it had increased in area to 3,616.93
square meters by accretion."

The question then which confronted the Office of the President was the ownership over the
increased area. In its Decision of 10 February 1969 it initially held, following the BOL
recommendation, that the accretion belonged to the government and that the excess of 2,116.93 sq.
ms. was an unallocated area which the Bureau of Lands had authority to dispose of so that said
Bureau was not remiss in subdividing the disputed Property into three (3 lots and allocating only Lot
No. 108, with an area of 1,500 sq. ms., to PEÑA, Lot No. 107 to MENDOZA, and Lot No. 109 to Arturo
Roxas.

Upon re-study, however, the Office of the President modified its conclusions in its Decision of 13 May
1969, and rightly so. It took into account Article 457 of the Civil Code, which provides:

To the owners of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters.

and opined that "creeks are included within the meaning of this Civil Code provision" (Letter-
Decision, 13 May 1969, p. 7, Annex 'D', Petition).

And as far as the ownership of the accretion is concerned, the Office of the President likewise
correctly held that "while it may be conceded that Lot No. 355 technically belongs to the government
because it was bought from the latter under an installment plan, it cannot be rightfully concluded
that the benefits of accretion must still be retained by the said seller" (Letter-Decision, 13 May 1969,
p. 7, Annex "D", Petition). In so ruling, that Office acted on the authority of Director of Lands, et al.
vs. Ricardo Rizal, et al., 87 Phil. 806, at 810, 814 [1950]), reading in part:

... When the lot bordering on a public stream is sold on installment basis by the
government, said stream is made the boundary. ... The stream may advance or
recede but it will always constitute the boundary or boundaries of the lot, and the
purchaser has the right to insist that the original boundaries be preserved, and all
the area inside said boundaries be considered as included in the sale.
 xxx xxx xxx

... In the sale of a friar land, lot or parcel ordering on rivers under Act. No. 1120
pending payment in full of the purchase price, although the government reserves
title thereto, merely for its protection, the beneficial and equitable title is in the
purchaser, and that any accretion by the lot even before payment of the last
installment belongs to the purchaser thereof.

Since the Disputed Property no longer belonged to the Government the subdivision thereof by the
Bureau of Lands into three lots, as well as the allocation of said lots to two other individuals, was
beyond the scope of its authority. Under Proclamation No. 336, series of 1956, the authority of the
Bureau of Lands to dispose of lots was limited to "unallocated areas." As the Letter-Decision of 28
September 1971 states: "however, it is equally true that the accretions took place after the land had
been allocated and assigned to Larrabaster. Clearly, therefore, when the accretion started.
Larrabaster had already acquired the beneficial and equitable title over the Lot No. 355, albeit the
Government still retained the naked title thereto. Consequently, to Larrabaster and now to his
assignee (Peña) belong the accretions to said lot which may no longer be allocated to others by the
Government." (Letter-Decision), 28 September 1971, Annex "E", Petition). Having been thus
allocated, the area within its original boundaries belong to the awardee whether the creek advances
or recedes. He is entitled to all the benefits which may accrue to the land as well as suffer the losses
that may befall it.

MENDOZA's filing of a Miscellaneous Sales Application over the Disputed Property with the Bureau
of Lands on 6 November 1962 must similarly be held to have been inappropriate and without any
legal force and effect since the same was no longer public land subject to disposition by the
Government. Contrary to the finding of respondent Appellate Court, no irregularity may be imputed
to the administrative decisions by reason of the fact that allegedly a copy of the investigation report
of the BOL was not among those elevated to the Trial Court or among those marked in evidence. It
can be safely assumed that the Office of the President could not have relied upon said report if the
same had not been before it when it rendered the questioned Decisions.

3. Finally, invariable is the rule that in reviewing administrative decisions of the Executive Branch of
the government, "the findings of fact made therein must be respected, as long as they are supported
by substantial evidence, even if not overwhelming or preponderant (Ang Tibay vs. Court of Industrial
Relations, 69 Phil. 635 [1940]); that it is not for the reviewing court to weigh the conflicting evidence,
determine the credibility of the witnesses, or otherwise substitute its own judgment for that of the
administrative agency on the sufficiency of the evidence (Lao Tang Bun, et al. vs. Fabre, 81 Phil. 682
[1948]); that the administrative decision in matters within the executive jurisdiction can only be set
aside on proof of gross abuse of discretion, fraud, or error of law (Lovina vs. Moreno L-17821,
November 29, 1963, 9 SCRA 557; Timbancaya vs. Vicente, L-19100, December 27, 1963, 9 SCRA 852),
which we find absent herein.

To reopen the case as ordered by the Court of Appeals would open wide the doors to a protracted
litigation of a controversy that has been pending for approximately nineteen (19) years now. It is high
time that a finish to the case be written.
WHEREFORE, the Decision of 28 November 1986 of respondent Court of Appeals is hereby SET ASIDE
and the Decision of 10 May 1985 of the Regional Trial Court, Branch 24, Koronadal, South Cotabato,
in Civil Case No. 98, is hereby ordered REINSTATED.

SO ORDERED.
OMBUDSMAN ANIANO DESIERTO vs. RONNIE SILVESTRE
[July 31, 2001]

The petition is one for review on certiorari 1 seeking to set aside (a) the decision of the Court of
Appeals2 nullifying the preventive suspension order issued by petitioner Ombudsman; and (b) the
resolution3 denying petitioner's motion for reconsideration.

The Ombudsman issued an order of preventive suspension 4 in connection with the administrative
charges for grave misconduct, dishonesty and conduct prejudicial to the best interest of the service
that Task Force Aduana filed with the Office of the Ombudsman against respondent Ronnie C.
Silvestre and Atty. Redempto Somera.

On February 14, 2000, respondent filed with the Ombudsman a motion for the lifting of the order of
preventive suspension. However, on April 03, 2000, the Ombudsman denied the motion.

On May 31, 2000, respondent filed with the Court of Appeals 5 a petition for certiorari and prohibition
with temporary restraining order and writ of preliminary injunction questioning the order of
preventive suspension issued by petitioner Ombudsman.

After due proceedings, on August 14, 2000, the Court of Appeals promulgated its decision 6 annulling
and setting aside the order of preventive suspension against respondent for having been issued by
the Ombudsman in grave abuse of discretion.

On October 06, 2000, the Court of Appeals denied a motion for reconsideration filed by the Solicitor
General.

Hence, this petition.7

The Facts

On January 26, 2000, elements of Task Force "Aduana" headed by petitioner Doctor conducted an
entrapment operation in a case of bribery involving Atty. Redempto C. Somera, Hearing Officer, Law
Division, Bureau of Customs, Manila, and Indian nationals who had pending cases of seizure with the
former.

After the pay-off materialized, petitioner Doctor announced the entrapment and then arrested Atty.
Somera and two (2) Indian nationals, namely, Murli Tejoomal Mohrani and Kumar Rupchand
Khiatani, for violation of Article 210 of the Revised Penal Code. As a consequence, the Task Force
filed with the Regional Trial Court, Manila, charges of bribery, violation of R. A. No. 3019, and
corruption of public officials against them.

Likewise, the Task Force filed with the Ombudsman administrative charges for grave misconduct,
dishonesty and conduct prejudicial to the best interest of the service against respondent Ronnie C.
Silvestre and Atty. Somera.

The Issue
The issue is whether the Ombudsman has authority to suspend from office respondent Ronnie C.
Silvestre indefinitely on the basis of the administrative complaint filed with his office showing that
evidence of guilt is strong.

The Court's Ruling

We need not resolve the issue presented. We dismiss the petition. It has become moot.

On February 14, 2001, the Ombudsman dismissed the administrative charges against respondent. In
dismissing the charges, the Ombudsman categorically ruled as follows:

"It is another story, however, as regards respondent SILVESTRE. In implicating respondent

SILVESTRE in the instant case, Atty. DOCTOR stated in his AFFIDAVIT OF ARREST AND
COMPLAINT, the following:

'6. That after the hearing of the case (S.I. No. 00-005) on January 20, 2000, ATTY.
SOMERA approached me and invited me to the room of ATTY. RONNIE SILVESTRE
(herein petitioner), Head of the Law Department of the Port of Manila wherein the
duo convinced me to cooperate with them in the withdrawal of the complaint and its
eventual dismissal;

'7. That I did not commit myself to their proposition to drop the case but I just
continued talking with them with the plan in mind to report the same to LT. GEN.
JOSE T. CALIMLIM, Task Force Commander of Presidential Anti-Smuggling Task Force
ADUANA;'

"Except this bare allegation of the complainant, however, practically no other evidence was
ever presented to substantiate the charge against respondent SILVESTRE. At this point, it may
be noted that well settled is the rule that within the field of administrative law, while strict
rules of evidence are not applicable to quasi-judicial proceedings, nevertheless, in adducing
evidence constitutive of substantial evidence, the basic rule that mere allegation is not
evidence cannot be disregarded.

"We are, therefore inclined to believe the defense of respondent SILVESTRE, that what was
discussed between him, respondent SOMERA and Atty. DOCTOR on January 20, 2000, was
the legal issue on the continued detention of some kitchen wares which were not covered by
the Warrant of Seizure and Detention (WSD). This, in light of subsequent Order of the District
Collector of the Port of Manila dated March 2, 2000, releasing the said kitchen wares which
were indeed, not covered by the Warrant of Seizure and Detention (WSD) x x x

"Worthy of note also is the DECISION of the Court of Appeals in CA-G. R. SP No. 58958 dated
August 14, 2000 entitled RONNIE C. SILVESTRE vs. OMBUDSMAN ANIANO A. DESIERTO,
(pages 253 to 254, Records) where in granting the petition for certiorari and prohibition
involving the preventive suspension order on respondent SILVESTRE, the said appellate court
stated, thus:

"xxx xxx xxx

 "While the above DECISION may not necessarily be controlling in the resolution of the merits
of the instant case insofar as it pertains to respondent SILVESTRE, we cannot help but note
its relevancy inasmuch as practically no other evidence was presented by the complainant,
other than his AFFIDAVIT OF ARREST AND COMPLAINT to support the charge against
respondent SILVESTRE. Needless to state, this is also the very same and only evidence
presented before the Court of Appeals which rendered the aforequoted DECISION."

WHEREFORE, the Court hereby DISMISSED the petition for mootness.

No costs.1âwphi1.nêt

SO ORDERED.

REALTY EXCHANGE VENTURE CORP. vs. LUCINA SENDINO

[July 5, 1994]

Private respondent Lucina C. Sendino entered into a reservation agreement with Realty Exchange
Venture, Inc. (REVI) for a 120-square meter lot in Raymondville Subdivision in Sucat, Paranaque for
P307,800.00 as its purchase price. 1 She paid P1,000.00 as partial reservation fee on January 15, 1989
and completed payment of this fee on January 20, 1989 by paying P4,000.00. 2

On July 18, 1989, private respondent paid REVI P16,600.00 as full downpayment on the purchase
price. 3 However, she was advised by REVI to change her co-maker, which she agreed, asking for an
extension of one month to do so.

For alleged non-compliance with the requirement of submission of the appropriate documents
under the terms of the original agreement, 4 REVI, through its Vice-President for Marketing, informed
respondent of the cancellation of the contract on the 31st of July 1989. 5
On April 20, 1990, private respondent filed a complaint for Specific Performance against REVI with
the office of Appeals, Adjudication and Legal Affairs (OAALA) of the Housing and Land Use Regulatory
Board (HLURB) asking that respondent be ordered:

1. To comply and continue with the sale of the house and lot, Block 4, Lot 17 at the
Raymondville Subdivision, Sucat Road, Paranaque, Metro Manila;

2. To pay complainant actual, nominal and moral damages, the amount of which will
be proved in the hearing;

3. To pay complainant attorney's fee in the sum of P10,000.00;

4. To pay complainant exemplary damages in the sum of P10,000.00 to set an

example and to avoid a repetition of such illegal and unsound business practices of
the respondent. 6

This petition was amended on August 17, 1990 by impleading petitioners Magdiwang Realty
Corporation (MRC) which appeared to be the registered owner of the subject lot as per TCT No.
76023.

On April 3, 1991 the HLURB, whose authority to hear and decide the complaint was challenged by
REVI in its answer, 7 rendered its judgment in favor of private respondent and ordered petitioners to
continue with the sale of the house and lot and to pay private respondent P5,000 as moral damages,
P5,000 as exemplary damages and P6,000 as attorney's fees and costs of the suit. 8 An appeal from
this decision was taken to the HLURB OAALA Arbiter, which affirmed the Board's decision. The
decision of the OAALA Arbiter was appealed to the Office of the President, herein public respondent.

On January 7, 1993, the public respondent rendered its decision dismissing the petitioners' appeal.
Motion for reconsideration of the decision was denied by the public respondent on January 26, 1993.
Consequently petitioners come before this Court, in this petition, which the Court resolves to treat as
a petition for certiorari, raising the following issues:

PUBLIC RESPONDENT COMMITTED SERIOUS ERROR IN DECLARING THAT THE

HOUSING AND LAND USE REGULATORY BOARD HAS QUASI-JUDICIAL FUNCTIONS,
NOTWITHSTANDING ABSENCE OF EXPRESS GRANT BY EXECUTIVE ORDER NO. 90 OF
DECEMBER 17, 1986 WHICH CREATED IT. AND EVEN IF THE HLURB HAS QUASI-
JUDICIAL FUNCTIONS, PUBLIC RESPONDENT LIKEWISE SERIOUSLY ERRED IN
DECLARING THAT THE BOARD OF COMMISSIONERS IS ALLOWED TO SIT IN A
DECISION TO RENDER JUDGMENT AND TO DELEGATE ITS QUASI-JUDICIAL
AUTHORITY TO A SUBORDINATE OFFICE.

II

PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION IN DECLARING THAT THE

LOT SUBJECT OF THE CONTRACT SOUGHT TO BE ENFORCED IS PARAPHERNAL
DESPITE ADMISSION OF ITS CONJUGAL NATURE.
 III

PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION IN DECLARING THAT ONLY

NOTARIAL NOTICE OF RESCISSION MAY VALIDLY CANCEL A RESERVATION
AGREEMENT PURSUANT TO REPUBLIC ACT NO. 6552.

As the first and third issues raised by the petitioners strike at the core of the case at bench, this Court
deems it appropriate to initially dispose of the issue of private respondent's capacity to bring her
complaint before the HLURB-OAALA.

It is settled that rules of procedure are as a matter of course construed liberally in proceedings
before administrative bodies. 9 In the instant case, the original suit for specific performance and
damages was filed by the private respondent with the HLURB-OAALA, an administrative body not
hamstrung by the strict procedural technicalities of the Rules of Court. Under the circumstances, it
was certainly appropriate for the HLURB-OAALA to have acted on the substantive questions relating
to the validity of petitioners' unilateral rescission of the contract without unduly concerning itself
with a mere procedural slip, the non-joinder of private petitioner's husband in the original complaint
before the HLURB. Moreover, since petitioners participated in the administrative proceedings
without objecting to or raising the procedural infirmity, they were certainly estopped from raising it
on appeal before the Office of the President and before this Court.

Proceeding to the principal issues raised by the petitioner, while E.O. 85 dated 12 December 1986
abolished the Ministry of Human Settlements (MHS), it is patently clear from a reading of its
provisions that the said executive order did not abolish the Human Settlements Regulatory
Commission (HSRC) which continued to exercise its powers and functions even after the Ministry of
Human Settlements ceased to exist. In spite of the Aquino Government's stated intention of
eradicating what it considered the vestiges of the previous regime, it was not its intention to create a
vacuum by abolishing those juridical entities, agencies, corporations, etc., attached to or supervised
by the MHS, which performed vital administrative functions. Pertinently, Section 3 of E.O. 85
mandates that:

. . . The final disposition and final organizational alignment or attachment of the

juridical entities, agencies, corporations and councils attached to, or under the
administrative supervision of the MHS including their respective existing projects,
appropriations and other assets shall be subject to subsequent enactments by the
President.

Pursuant to this provision therefore, the President subsequently issued Executive Order No. 90,
series of 1986, recognizing the Human Settlements Regulatory Commission (renamed the HLURB) as
one of the principal housing agencies of the government. Prior to this, Executive Order No. 648 in
1981 transferred all the functions of the National Housing Authority (pursuant to Presidential
Decrees Nos. 957, 1216 and 1344) to the Human Settlements Regulatory Commission (HSRC)
consolidating all regulatory functions relating to land use and housing development in a single
entity. 10 Being the sole regulatory body for housing and land development, the renamed body, the
HLURB, 11 would have been reduced to a functionally sterile entity if, as the petitioner contends, it
lacked the powers exercised by its predecessor which included the power to settle disputes
concerning land use and housing development and acquisition. Moreover, this Court has had the
occasion to definitively rule on the question as to whether or not the Housing and Land Use
Regulatory Board could exercise the same quantum of judicial or quasi-judicial powers possessed by
the HSRC under the Ministry of Human Settlements in the exercise of its regulatory functions when it
held, in United Housing Corporation vs. Hon. Dayrit 12 that:

As explicitly provided by law, jurisdiction over actions for specific performance of

contractual and statutory obligations filed by buyers of subdivision lot or
condominium unit against the owner or developer, is vested exclusively in the HSRC,
Section 1 of PD 1344, in no uncertain terms, provides:

Sec. 1. In the exercise of its functions to regulate real estate trade and business and
in addition to its powers provided for in Presidential Decree No. 957, the National
Housing Authority shall have exclusive jurisdiction to hear and decide cases of the
following nature:

A. Unsound real estate business practices;

B. Claims involving refund and any other claims filed by subdivision

lot or condominium unit buyer against the project owner, developer,
dealer, broker or salesman; and

C. Cases involving specific performance of contractual and statutory

obligations filed by buyers of subdivision lot or condominium unit
against the owner, developer, dealer, broker or salesman. (Emphasis
Ours)

This is reinforced by section 8 of EO 648 (otherwise known as the Charter of the

Human Settlements Regulatory Commission) which took effect on February 7, 1981,
thus:

Sec. 8. Transfer of Functions. — The Regulatory functions of the National Housing

Authority pursuant to Presidential Decree Nos. 957, 1216, 1344 and other related
laws are hereby transferred to the Human Settlements Regulatory Commission. . . .
Among the regulatory functions are . . . (11) Hear and decide cases of unsound real
estate business practices, claims involving refund filed against project owners,
developers, dealers, brokers, or salesmen and cases of specific
performance (Emphasis Ours).

Private respondents reliance, therefore, on sections 1 and 8 of the Judiciary

Reorganization Act of 1980 is untenable. Thus, as correctly pointed out by petitioner,
section 19, paragraph 6 of said law is material to the issue of where jurisdiction lies,
and We quote:

Sec. 19. . . .

(6) In all other cases not within the exclusive jurisdiction of any
court, tribunal, persons or body exercising judicial or quasi-judicial
functions.
 xxx xxx xxx

Neither can We accede to private respondents' claim that resort to

the courts is justified under section 41 of PD 957 specifically under
the phrase "legal remedies that may be available to aggrieved
subdivision lot buyers."

There is no question that a statute may vest exclusive original jurisdiction in an

administrative agency over certain disputes and controversies falling within the
agency's special expertise. The constitutionality of such grant of exclusive jurisdiction
to the National Housing Authority (now Housing and Land Use Regulatory Board)
over cases involving the sale of lots in commercial subdivisions was upheld
in Tropical Homes Inc. v. National Housing Authority (152 SCRA 540 [1987]) and again
sustained in a later decision in Antipolo Realty Corporation v. National Housing
Authority (153 SCRA 399 [1987]) where We restated that the National Housing
Authority (now HLURB) shall have exclusive jurisdiction to regulate the real estate
trade and business in accordance with the terms of PD No. 957 which defines the
quantum of judicial or quasi-judicial powers of said agency. 13

Clearly, therefore, the HLURB properly exercised its jurisdiction over the case filed by the petitioners
with its adjudicative body, the OAALA, in ordering petitioners to comply with their obligations arising
from the Reservation Agreement. In general, the quantum of judicial or quasi-judicial powers which
an administrative agency may exercise is defined in the agency's enabling act. In view of the Court's
pronouncement in United Housing Corporation vs. Hon. Dayrit, supra, recognizing the HLURB as the
successor agency of the HSRC's powers and functions, it therefore follows that the transfer of such
functions from the NHA to the HRSC effected by Section 8 of E.O. 648, series of 1981, thereby
resulted in the acquisition by the HLURB of adjudicatory powers which included the power to "(h)ear
and decide cases of unsound real estate business practices . . . and cases of specific
performance." 14 Obviously, in the exercise of its powers and functions, the HLURB must interpret
and apply contracts, determine the rights of the parties under these contracts, and award damages
whenever appropriate. 15We fail to see how the HSRC — which possessed jurisdiction over the
actions for specific performance for contractual and statutory obligations filed by buyers of
subdivision lots against developers — had suddenly lots its adjudicatory powers by the mere fiat of a
change in name through E.O. 90. One thrust of the multiplication of administrative agencies is that
the interpretation of such contracts and agreements and the determination of private rights under
these agreements is no longer a uniquely judicial function. 16 The absence of any provision, express
or implied, in E.O. 90, repealing those quasi-judicial powers inherited by the HSRC from the National
Housing Authority, furthermore militates against petitioners' position on the question.

Going to petitioners' contention that the decision of the OAALA should have been rendered by the
Board of Commissioners sitting en banc, we find ample authority — both in the statutes and in
jurisprudence-justifying the Board's act of dividing itself into divisions of three. Under Section 5 of
E.O. 648 which defines the powers and duties of the Commission, the Board is specifically mandated
to "(a)dopt rules of procedure for the conduct of its business" and perform such functions necessary
for the effective accomplishment of (its) above mentioned functions." Since nothing in the provisions
of either E.O. 90 or E.O. 648 denies or withholds the power or authority to delegate adjudicatory
functions to a division, we cannot see how the Board, for the purpose of effectively carrying out its
administrative responsibilities and quasi-judicial powers as a regulatory body should be denied the
power, as a matter of practical administrative procedure, to constitute its adjudicatory boards into
various divisions. After all, the power conferred upon an administrative agency to issue rules and
regulations necessary to carry out its functions has been held "to be an adequate source of authority
to delegate a particular function, unless by express provision of the Act or by implication it has been
withheld." 17 The practical necessity of establishing a procedure whereby cases are decided by three
(3) Commissioners furthermore assumes greater significance when one notes that the HLURB, as
constituted, only has four (4) full time commissioners and five (5) part time commissioners to deal
with all the functions, administrative, adjudicatory, or otherwise, entrusted to
it. 18 As the Office of the President noted in its February 26, 1993 Resolution denying petitioners'
Motion for Reconsideration, "it is impossible and very impractical to gather the four (4) full time and
five (5) part time commissioners (together) just to decide a case." Considering that its part time
commissioners act merely in an ex-officio capacity, requiring a majority of the Board to sit en banc on
each and every case brought before it would result in an administrative nightmare. 19

Finally, petitioners' assertion that RA 6552 is inapplicable in the instant case because the said law
does not apply to cases of reservation agreements finds no merit in the case at bench in view of
Section 24 of P.D. 957 which provides:

Sec. 24. Failure to Pay Installments — The rights of the buyer in the event of his
failure to pay the installments due for reasons other than the failure of the owner or
developer to develop the project shall be governed by Republic Act No. 6552.

As the Solicitor General correctly pointed out, RA 6552 makes no distinction between "option" and
"sale" 20 which, under P.D. 957 also includes "an exchange or attempt to sell, an option of sale or
purchase, a solicitation of a sale or an offer to sell directly." 21 This all-embracing definition virtually
includes all transactions concerning land and housing acquisition, including reservation agreements.
Since R.A. 6552 mandates cancellation by notarial
act — among other requirements — before any cancellation of a contract may be effected,
petitioners' precipitate cancellation of its contract with private respondent without observing the
conditions imposed by the said law was invalid and improper.

In fine, the HLURB-OAALA acted within the scope of its authority in ordering petitioners to comply
and continue with the sale of the house and lot subject of the contract between the original parties.
It cannot be gainsaid that the quasi-judicial functions exercised by the body are necessary incidents
to the proper exercise of its powers and functions under E.O. 90 and the laws enacted delineating
the scope of authority of its Board of Commissioners. Denying the body those functions so necessary
in carrying out its power to regulate housing and land use results in its effective emasculation as an
important regulatory body in an area vital to the national economy.

The acute housing shortage problem has prompted thousands of middle and lower class buyers of
houses and lots and condominium units to enter into all sorts of agreements with private housing
developers involving all manner of installment schemes under contracts drawn exclusively by these
developers. Many of these virtual contracts of adhesion entrap innocent buyers by requiring cash
deposits under reservation agreements which include, sometimes in the fine print, default clauses
guaranteeing huge monetary windfalls for the developers in the event that their buyers (oftentimes
for the flimsiest of reasons) default by failing to come up with certain requirements. While the Court
can take judicial notice of this pernicious practice, it can only hope that future legislation would
address the need to protect the innocent middle or lower class home purchaser. In the case of the
individual victim, this Court can only go to the extent of awarding such damages as may be proper
under the peculiar circumstances of the cases brought before it.

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. Costs against
petitioners.

SO ORDERED.
REPUBLIC OF THE PHILIPPINES v. EUTROPIO MIGRINO (RTC-Pasay City)
[August 30, 1990]

This case puts in issue the authority of the Presidential Commission on Good Government (PCGG),
through the New Armed Forces of the Philippines Anti-Graft Board (hereinafter referred to as the
"Board"), to investigate and cause the prosecution of petitioner, a retired military officer, for violation
of Republic Acts Nos. 3019 and 1379.

Assailed by the Republic in this petition for certiorari, prohibition and/or mandamus with prayer for
the issuance of a writ of preliminary injunction and/or temporary restraining order are the orders of
respondent judge in Civil Case No. 57092 Branch 151 of the Regional Trial Court of Pasig, Metro
Manila: (1) dated June 23, 1989, denying petitioners’ Motion to Dismiss and Opposition, and (2)
dated June 26, 1989, granting private respondent’s application for the issuance of a writ of
preliminary injunction. Thus, the petition seeks the annulment of the two orders, the issuance of an
injunction to enjoin respondent judge from proceeding with Civil Case No. 57092 and, finally, the
dismissal of the case before the trial court.

The controversy traces its roots to the order of then PCGG Chairman Jovito R. Salonga, dated May 13,
1986, which created the New Armed Forces of the Philippines Anti-Graft Board. The Board was
created to "investigate the unexplained wealth and corrupt practices of AFP personnel, both retired
and in active service." The order further stated that" [t]he Board shall be primarily charged with the
task of investigating cases of alleged violations of the Anti-Graft and Corrupt Practices Act (Republic
Act No. 3019, as amended) and shall make the necessary recommendations to appropriate
government agencies and instrumentalities with respect to the action to be taken thereon based on
its findings."cralaw virtua1aw library

Acting on information received by the Board, which indicated the acquisition of wealth beyond his
lawful income, private respondent Lt. Col. Troadio Tecson (ret.) was required by the Board to submit
his explanation/comment together with his supporting evidence by October 31, 1987 [Annex "B",
Petition]. Private respondent requested, and was granted, several postponements, but was unable to
produce his supporting evidence because they were allegedly in the custody of his bookkeeper who
had gone abroad.

Just the same, the Board proceeded with its investigation and submitted its resolution, dated June
30, 1988, recommending that private respondent be prosecuted and tried for violation of Rep. Act
No. 3019, as amended, and Rep. Act No. 1379, as amended.chanrobles lawlibrary : rednad

The case was set for preliminary investigation by the PCGG. Private respondent moved to dismiss the
case on the following grounds: (1) that the PCGG has no jurisdiction over his person; (2) that the
action against him under Rep. Act No. 1379 has already prescribed; (3) that E.O. No. 14, insofar as it
suspended the provisions of Rep. Act No. 1379 on prescription of actions, was inapplicable to his
case; and (4) that having retired from the AFP on May 9, 1984, he was now beyond the reach of Rep.
Act No. 3019. The Board opposed the motion to dismiss.

In a resolution dated February 8, 1989, the PCGG denied the motion to dismiss for lack of merit.
Private respondent moved for reconsideration but this was denied by the PCGG in a resolution dated
March 8, 1989. Private respondent was directed to submit his counter-affidavit and other
controverting evidence on March 20, 1989 at 2:00 p.m.

On March 13, 1989, private respondent filed a petition for prohibition with preliminary injunction
with the Regional Trial Court in Pasig, Metro Manila. The case was docketed as Case No. 57092 and
raffled to Branch 151, respondent judge’s court. Petitioner filed a motion to dismiss and opposed the
application for the issuance of a writ of preliminary injunction on the principal ground that the
Regional Trial Court had no jurisdiction over the Board, citing the case of PCGG v. Peña, G.R. No.
77663, April 12, 1988, 159 SCRA 556. Private respondent opposed the motion to dismiss. Petitioner
replied to the opposition.

On June 23, 1989, respondent judge denied petitioner’s motion to dismiss. On June 26, 1989,
respondent judge granted the application for the issuance of a writ of preliminary injunction,
enjoining petitioners from investigating or prosecuting private respondent under Rep. Acts Nos. 3019
and 1379 upon the filing of a bond in the amount of Twenty Thousand Pesos (P20,000.00).

Hence, the instant petition.

On August 29, 1989, the Court issued a restraining order enjoining respondent judge from enforcing
his orders dated June 23, 1989 and June 26, 1989 and from proceeding with Civil Case No. 57092.

Private respondent filed his comment, to which petitioners filed a reply. A rejoinder to the reply was
filed by private Respondent. The Court gave due course to the petition and the parties filed their
memoranda. Thereafter, the case was deemed submitted.

The issues raised in the petition are as follows:chanrob1es virtual 1aw library

I.

WHETHER OR NOT RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION OR ACTED WITHOUT OR
IN EXCESS OF JURISDICTION IN ASSUMING JURISDICTION OVER AND INTERFERING WITH THE
ORDERS AND FUNCTIONS OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT.
 II.

WHETHER, OR NOT RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION OR ACTED WITHOUT OR
IN EXCESS OF JURISDICTION IN ISSUING THE ASSAILED ORDER DATED JUNE 26, 1989 ENJOINING
PETITIONERS FROM INVESTIGATING AND PROSECUTING PRIVATE RESPONDENT FOR VIOLATION OF
REPUBLIC ACT NO. 3019, OTHERWISE KNOWN AS ANTI-GRAFT AND CORRUPT PRACTICES ACT AND
REPUBLIC ACT NO. 1379, OTHERWISE KNOWN AS AN ACT FOR THE FORFEITURE OF UNLAWFULLY
ACQUIRED PROPERTY [Rollo, p. 19].

As to the first issue, petitioner contends that following the ruling of the Court in PCGG v. Peña the
Board, being a creation and/or extension of the PCGG, is beyond the jurisdiction of the Regional Trial
Court. On the second issue, petitioner strongly argues that the private respondent’s case falls within
the jurisdiction of the PCGG.

The pivotal issue is the second one. On this point, private respondent’s position is as
follows:chanrob1es virtual 1aw library

1. . . . he is not one of the subordinates contemplated in Executive Orders 1 , 2 , 14 and 14-A as the
alleged illegal acts being imputed to him, that of alleged amassing wealth beyond his legal means
while Finance Officer of the Philippine Constabulary, are acts of his own alone, not connected with
his being a crony, business associate, etc. or subordinate as the petition does not allege so. Hence
the PCGG has no jurisdiction to investigate him.

If indeed private respondent amassed wealth beyond his legal means, the procedure laid down by
Rep. Act 1379 as already pointed out before be applied. And since, he has been separated from the
government more than four years ago, the action against him under Republic Act 1379 has already
prescribed.

2. . . . no action can be filed anymore against him now under Republic Act 1379 for recovery of
unexplained wealth for the reason that he has retired more than four years ago.

3. . . . The order creating the AFP Anti-Graft Board (Annex "A", Petition) is null and void. Nowhere in
Executive Orders 1, 2, 14 and 14-A is there any authority given to the commission, its chairman and
members, to create Boards or bodies to be invested with powers similar to the powers invested with
the commission .. [Comment, pp. 6-7; Rollo, pp. 117-118].

1. The most important question to be resolved in this case is whether or not private respondent may
be investigated and caused to be prosecuted by the Board, an agency of the PCGG, for violation of
Rep. Acts Nos. 3019 and 1379. According to petitioners, the PCGG has the power to investigate and
cause the prosecution of private respondent because he is a "subordinate" of former President
Marcos. They cite the PCGG’s jurisdiction over —

(a) The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the Philippines or
abroad, including the takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship. [E.O. No. 1, sec. 2.].

Undoubtedly, the alleged unlawful accumulation of wealth was done during the administration of
Pres. Marcos. However, what has to be inquired into is whether or not private respondent acted as a
"subordinate" of Pres. Marcos within the contemplation of E.O. No. 1, the law creating the PCGG,
when he allegedly unlawfully acquired the properties.

A close reading of E. O. No. 1 and related executive orders will readily show what is contemplated
within the term "subordinate."cralaw virtua1aw library

The Whereas Clauses of E. O. No. 1 express the urgent need to recover the ill-gotten wealth amassed
by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad.

E.O. No. 2 freezes "all assets and properties in the Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees have any interest or participation."cralaw virtua1aw
library

Applying the rule in statutory construction known as ejusdem generis, that is —

[W]here general words follow an enumeration of persons or things, by words of a particular and
specific meaning, such general words are not to be construed in their widest extent, but are to be
held as applying only to persons or things of the same kind or class as those specifically mentioned
[Smith, Bell & Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53, 58 (1954), citing Black on
Interpretation of Laws, 2nd Ed., 203].

the term "subordinate" as used in E.O. Nos. 1 and 2 would refer to one who enjoys a close
association or relation with former Pres. Marcos and/or his wife, similar to the immediate family
member, relative, and close associate in E.O. No. 1 and the close relative, business associate, dummy,
agent, or nominee in E.O. No. 2.

Thus, as stated by the Court in Bataan Shipyard & Engineering Co., Inc. v. PCGG, G.R. No. 75885, May
27, 1987, 150 SCRA 181, 205-206.

The situations envisaged and sought to be governed [by Proclamation No. 3 and E.O. Nos. 1, 2 and
14] are self-evident, these being:chanrob1es virtual 1aw library

1) that" (i)ll gotten properties (were) amassed by the leaders and supporters of the previous
regime" ;
a) more particularly, that" (i)ll-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates, and close associates, . . . located in the
Philippines or abroad, xx (and) business enterprises and entities (came to be) owned or controlled by
them, during . . . (the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship;"

b) otherwise stated, that "there are assets and properties pertaining to former President Ferdinand
E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees which had been or were acquired by them
directly or indirectly, through or as a result of the improper or illegal use of funds or properties
owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises,
banks or financial institutions, or by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the Philippines" ;

c) that "said assets and properties are in the form of bank accounts, deposits, trust accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds
of real and personal properties in the Philippines and in various countries of the world;" and.

2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos." [Footnotes
deleted].

It does not suffice, as in this case, that the respondent is or was a government official or employee
during the administration of former Pres. Marcos. There must be a prima facie showing that the
respondent unlawfully accumulated wealth by virtue of his close association or relation with former
Pres. Marcos and/or his wife. This is so because otherwise the respondent’s case will fall under
existing general laws and procedures on the matter. Rep. Act No. 3019, the Anti-Graft and Corrupt
Practices Act, penalizes the corrupt practices of any public officer. Under Rep. Act No. 1379 (An Act
Declaring Forfeited in Favor of the State Any Property Found to Have Been Unlawfully Acquired By
Any Public Officer or Employee and Providing for the Procedure Therefor), whenever any public
officer or employee has acquired during his incumbency an amount of property which is manifestly
out of proportion to his salary as such public officer or employee and to his other lawful income and
the income from legitimately acquired property, said property shall be presumed prima facie to have
been unlawfully acquired [Sec. 2]. The Solicitor General shall file the petition and prosecute the case
in behalf of the Republic, after preliminary investigation by the provincial or city prosecutor [Ibid].

Moreover, the record shows that private respondent was being investigated for unlawfully acquired
wealth under Rep. Acts Nos. 3019 and 1379, and not under E.O. Nos. 1, 2, 14 and 14-A.

Since private respondent was being investigated by the PCGG through the AFP Anti-Graft Board it
would have been presumed that this was under Rep. Acts Nos. 3019 and 1379 in relation to E.O. Nos.
1, 2, 14 and 14-A. But the record itself belies this presumption:chanrob1es virtual 1aw library
(a) The letter of the chairman of the AFP Anti-Graft Board to private respondent, dated October 16,
1987, states: "This letter is in connection with the alleged information received by the AFP Anti-Graft
Board indicating your acquisition of wealth beyond legal means of income in violation of Rep. Act No.
3019 known as the Anti-Graft and Corrupt Practices Act." [Rollo, p. 39].

(b) The Resolution dated June 30, 1988 of the Board categorically states:chanrob1es virtual 1aw
library

I. PRELIMINARY STATEMENT:chanrob1es virtual 1aw library

This refers to the case against Col Troadio B. Tecson PC (Ret) for alleged unexplained wealth pursuant
to R.A. 3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act and R.A. 1379, as
amended, otherwise known as the "Act for Forfeiture of Unlawfully Acquired Property." [Rollo, p.
43].

The resolution alleges that private respondent unlawfully accumulated wealth by taking advantage of
his office as Finance Officer of the Philippine Constabulary. No attempt is made in the Board’s
resolution to link him or his accumulation of wealth to former Pres. Marcos and/or his wife.

(c) The letter of the Board chairman to the chairman of the PCGG, dated July 28, 1988, is
clear:chanrob1es virtual 1aw library

Respectfully transmitted herewith for the prosecution before the Sandiganbayan is the case folder of
COLONEL TROADIO TECSON (Ret) who after preliminary investigation of the case by the Board, found
a prima facie evidence against subject officer for violating Section 8, R.A. 3019, as amended by BP
195, otherwise known as the Anti-Graft and Corrupt Practices Act and R.A. 1379, otherwise known as
an Act for the Forfeiture of Unlawfully Acquired Property." [Rollo, p. 46].

Moreover, from the allegations of petitioner in its memorandum, it would appear that private
respondent accumulated his wealth for his own account. Petitioner quoted the letter of Ignacio
Datahan, a retired PC sergeant, to General Fidel Ramos, the material portion of which
reads:chanrob1es virtual 1aw library

. . . After an official in the military unit received an Allotment Advice the same signed a cash advance
voucher, let us say in the amount of P5,000.00. Without much ado, outright, Col. Tecson paid the
amount. The official concerned was also made to sign the receipt portion on the voucher the amount
of which was left blank. Before the voucher is passed for routine processing by Mrs. Leonor Cagas,
clerk of Col. Tecson and its facilitator, the maneuver began. The amount on the face of the cash
advance voucher is altered or superimposed. The original amount of P5,000.00 was now made say,
P95,000.00. So it was actually the amount of P95,000.00 that appeared on the records. The
difference of P90,000.00 went to the syndicate.

. . . Boy Tanyag, bookkeeper in Col. Tecson’s office took care of the work.

. . . In the liquidation of the altered cash advance amount, names of persons found in the
Metropolitan Manila Telephone Directory with fictitious addresses appeared as recipients or payees.
Leonor and Boy got their shares on commission basis of the looted amount while the greater part
went to Col. Tecson. [Rollo, pp. 184-185.].

Clearly, this alleged unlawful accumulation of wealth is not that contemplated in E.O. Nos. 1, 2, 14
and 14-A.

2. It will not do to cite the order of the PCGG Chairman, dated May 13, 1986, creating the Board and
authorizing it to investigate the unexplained wealth and corrupt practices of AFP personnel, both
retired and in active service, to support the contention that PCGG has jurisdiction over the case of
private Respondent. The PCGG cannot do more than what it was empowered to do. Its powers are
limited. Its task is limited to the recovery of the ill-gotten wealth of the Marcoses, their relatives and
cronies. The PCGG cannot, through an order of its chairman, grant itself additional powers — powers
not contemplated in its enabling law.

3. Petitioner assails the trial court’s cognizance of the petition filed by private Respondent.
Particularly, petitioner argues that the trial court cannot acquire jurisdiction over the PCGG. This
matter has already been settled in Peña, supra, where the Court ruled that those who wish to
question or challenge the PCGG’s acts or orders must seek recourse in the Sandiganbayan, which is
vested with exclusive and original jurisdiction. The Sandiganbayan’s decisions and final orders are in
turn subject to review on certiorari exclusively by this Court. [Ibid, at pp. 564-565].

The ruling in Peña was applied in PCGG v. Aquino, G.R. No. 77816, June 30, 1988, 163 SCRA 363,
Soriano III v. Yuson, G.R. No. 74910 (and five other cases), August 10, 1988, 164 SCRA 226 and
Olaguer v. RTC, NCJR, Br. 48, G.R. No. 81385, February 21, 1989, 170 SCRA 478, among others, to
enjoin the regional trial courts from interfering with the actions of the PCGG.

Respondent judge clearly acted without or in excess of his jurisdiction when he took cognizance of
Civil Case No. 57092 and issued the writ of preliminary injunction against the PCGG.

4. Thus, we are confronted with a situation wherein the PCGG acted in excess of its jurisdiction and,
hence, may be enjoined from doing so, but the court that issued the injunction against the PCGG has
not been vested by law with jurisdiction over it and, thus, the injunction issued was null and void.

The nullification of the assailed order of respondent judge issuing the writ of preliminary injunction is
therefore in order. Likewise, respondent judge must be enjoined from proceeding with Civil Case No.
57092.

But in view of the patent lack of authority of the PCGG to investigate and cause the prosecution of
private respondent for violation of Rep. Acts Nos. 3019 and 1379, the PCGG must also be enjoined
from proceeding with the case, without prejudice to any action that may be taken by the proper
prosecutory agency. The rule of law mandates that an agency of government be allowed to exercise
only the powers granted it.

5. The pronouncements made above should not be taken to mean that the PCGG’s creation of the
AFP Anti-Graft Board is a nullity and that the PCGG has no authority to investigate and cause the
prosecution of members and former members of the Armed Forces of the Philippines for violations
of Rep. Acts Nos. 3019 and 1379. The PCGG may investigate and cause the prosecution of active and
retired members of the AFP for violations of Rep. Acts Nos. 3019 and 1379 only in relation to E.O.
Nos. 1, 2, 14 and 14-A, i.e., insofar as they involve the recovery of the ill-gotten wealth of former
Pres. Marcos and his family and "cronies." But the PCGG would not have jurisdiction over an ordinary
case falling under Rep. Acts Nos. 3019 and 1379, as in the case at bar. E.O. Nos. 1, 2, 14 and 14-A did
not envision the PCGG as the investigator and prosecutor of all unlawful accumulations of wealth.
The PCGG was created for a specific and limited purpose, as we have explained earlier, and
necessarily its powers must be construed with this in mind.

6. n his pleadings, private respondent contends that he may no longer be prosecuted because of
prescription. He relies on section 2 of Rep. Act No. 1379 which provides that" [t]he right to file such
petition [for forfeiture of unlawfully acquired wealth] shall prescribe within four years from the date
of resignation, dismissal or separation or expiration of the term of the officer or employee
concerned." He retired on May 9, 1984, or more than six (6) years ago. However, it must be pointed
out that section 2 of Rep. Act No. 1379 should be deemed amended or repealed by Article XI, section
15 of the 1987 Constitution which provides that" [t]he right of the State to recover properties
unlawfully acquired by public officials or employees, from them or from their nominees or
transferees, shall not be barred by prescription, laches, or estoppel." Considering that sec. 2 of Rep.
Act No. 1379 was deemed amended or repealed before the prescriptive period provided therein had
lapsed insofar as private respondent is concerned, we cannot say that he had already acquired a
vested right that may not be prejudiced by a subsequent enactment.

Moreover, to bar the Government from recovering ill-gotten wealth would result in the validation or
legitimization of the unlawful acquisition, a consequence at variance with the clear intent of Rep. Act
No. 1379, which provides:chanrobles virtual lawlibrary

SEC. 11. Laws on prescription. — The laws concerning acquisitive prescription and limitation of
actions cannot be invoked by, nor shall they benefit the respondent, in respect to any property
unlawfully acquired by him.

Thus, we hold that the appropriate prosecutory agencies, i.e., the city or provincial prosecutor and
the Solicitor General under sec. 2 of Rep. Act No. 1379, may still investigate the case and file the
petition for the forfeiture of unlawfully acquired wealth against private respondent, now a private
citizen. (On the other hand, as regards respondents for violations of Rep. Acts Nos. 3019 and 1379
who are still in the government service, the agency granted the power to investigate and prosecute
them is the Office of the Ombudsman [Rep. Act No. 6770]). Under Presidential Decree No. 1606, as
amended, and Batas Pambansa Blg. 195 violations of Rep. Acts Nos. 3019 and 1379 shall be tried by
the Sandiganbayan.

7. The Court hastens to add that this decision is without prejudice to the prosecution of private
respondent under the pertinent provisions of the Revised Penal Code and other related penal laws.

WHEREFORE, the order of respondent judge dated June 26, 1989 in Civil Case No. 57092 is NULLIFIED
and SET ASIDE. Respondent judge is ORDERED to dismiss Civil Case No. 57092. The temporary
restraining order issued by the Court on August 29, 1989 is MADE PERMANENT. The PCGG is
ENJOINED from proceeding with the investigation and prosecution of private respondent in I.S. No.
37, without prejudice to his investigation and prosecution by the appropriate prosecutory agency.

SO ORDERED.

ARROW TRANSPORTATION CORPORATION vs. BOARD OF TRANSPORTATION

[March 21, 1975]

[Basically, Arrow Transportation challenged the PROVISIONAL PERMIT issued by the BoT based on
the absence of a HEARING, drawing from the PLDT v. Medina ruling.]

Arrow Transportation has a certificate of public convenience to operate a public utility bus air-
conditioned-auto-truck service from Cebu City to Mactan International Airport and vice-versa with
the use of 20 units. Sultan Rent-a-Car filed a petition with the Board of Transporation for the
issuance of a certificate of public convenience to operate a similar service on the same line. Eight
days later, without the required publication, the Board issued an order granting it provisional permit
to operate such auto-truck service on the line applied for. There was a motion for reconsideration
and for the cancellation of such provisional permit filed, but without awaiting final action thereon,
this present petition was filed. Arrow Transportation explained that it has not waited for the
resolution of his MR before going to this Court considering that the question involved herein is
purely a legal one, aside from the fact that the issuance of the Order without the Board having
acquired jurisdiction of the case yet, is patently illegal or was performed without jurisdiction.

BOARD OF TRANSPORTATION: denied the allegation that there must be a publication before a
provisional permit can be issued, reference being made to PD 101, which authorized Board of
Transportation to grant provisional permits when warranted by compelling circumstances and to
proceed promptly along the method of legislative inquiry.

ISSUE: W/N the petition to for the cancellation of the provisional permit issued by BoT without
publication may prosper?

HELD: NO, [sorry Arrow]. The claim for relief on the asserted constitutional deficiency based on
procedural due process, not from the standpoint of the absence of a hearing but from the lack of
jurisdiction without the required publication having been made, do not suffice to justify the grant
of certiorari1.

A barrier to Arrow Transportation’s pretension is the well-settled doctrine that for a provisional
permit, an ex parte hearing suffices. The decisive consideration is the existence of the public
need. That was shown in this case, the Board of Transportation, on the basis of demonstrable data,
being satisfied of the pressing necessity for the grant of the provisional permit sought. There is no
warrant for the nullification of what was ordered by it.

[PLDT v. Medina] In this case, Araneta University seeks reexamination of the rates approved by the
defunct Public Service Commission. These rate-fixing and allied cases terminated with the final
judgment of January 9, 1964. Not being a party, Araneta could not have moved to reconsider nor
appeal said decision. The Court held that the Public Service Commission may not reduce or increase
rates established in a judgment that has become final, without proper notice." Under the facts of
that case, the procedural due process infirmity amounting to lack of jurisdiction is quite apparent.
The aforesaid case finds no application to this controversy dealing with a provisional permit.

ISSUE: W/N the controversy is ripe for judicial determination

At the time the petition was filed, there was pending with the Board of Transportation a motion for
reconsideration. Ordinarily, its resolution should be awaited. Prior thereto, an objection grounded
on prematurity can be raised. Nonetheless, counsel for Arrow Transportation would stress that
certiorari lies as the failure to observe procedural due process ousted the Board of Transportation of
whatever jurisdiction it could have had in the premises. This Court was impelled to go into the merits
of the controversy at this stage, not only because of the importance of the issue raised but also
because of the strong public interest in having the matter settled.

PD 101 prescribes the procedure to be followed by the BoT. It states that it is the policy of the State,
as swiftly as possible, to improve the deplorable condition of vehicular traffic, obtain maximum
utilization of existing public motor vehicles and eradicate the harmful and unlawful trade of
clandestine operators, as well as update the standard of those carrying such business, making it
1
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,
nor 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.
"imperative to provide, among other urgently needed measures, more expeditious methods in
prescribing, redefining, or modifying the lines and mode of operation of public utility motor vehicles
that now or thereafter, may operate in this country.

It is essential then both from the standpoint of the firms engaged as well as of the riding public to
ascertain whether or not the procedure followed in this case and very likely in others of a similar
nature satisfies the procedural due process requirement. Thus, its ripeness for adjudication becomes
apparent.

[Edu v. Ericta] Where the validity of a legislation was passed upon in a certiorari proceeding to annul
and set aside a writ of preliminary injunction, to so act would be to conserve both time and effort.
Those desiring to engage in public utility business as well as the public are both vitally concerned
with the final determination of the standards to be followed in the procedure that must be observed.
There is, to repeat, a great public interest in a definitive outcome of the crucial issue involved.

Professor Kenneth Culp Davis, discussing the RIPENESS CONCEPT, is of the view that the resolution
of what could be a debilitating uncertainty with the conceded ability of the judiciary to work out a
solution of the problem posed is a potent argument for minimizing the emphasis laid on its technical
aspect.

WHEREFORE, the petition for certiorari is dismissed.

CITIZEN J. ANTONIO CARPIO vs. EXECUTIVE SECRETARY [February
14, 1992]

Article XVI, Section 6: The State shall establish and maintain one police force, which stall be national
in scope and civilian in character, to be administered and controlled by a national police commission.
The authority of local executives over the police units in their jurisdiction shall be provided by law.

Congress passed RA 6975 entitled "AN ACT ESTABLISHING THE PNP UNDER A REORGANIZED DILG,
AND FOR OTHER PURPOSES". Following the said Act's approval by President Corazon Aquino, it was
published on December 17, 1990.

Three days after its publication, J. Antonio Carpio, as citizen, taxpayer and member of the
Philippine Bar, filed the petition seeking this Court's declaration of unconstitutionality of RA 6975
with prayer for TRO. The Court simply required the public respondents to file their comment. Hence,
the Act took effect.

In the past, the set-up whereby the Integrated National Police was placed under the command of the
military component, which is the Philippine Constabulary, severely eroded the INP's civilian
character and the multiplicity in the governance of the PC-INP resulted in inefficient police
service. Moreover, the integration of the national police forces with the PC also resulted in inequities
since the military component had superior benefits and privileges. The Constitutional Commission
of 1986 was fully aware of the structural errors that beset the system. Thus, a constitutional
postulate was made to the effect that the military cannot occupy any civil service position. Hence,
the "one police force, national in scope, and civilian in character" provision that is now Article XVI,
Section 6 of the 1987 Constitution.

J. CARPIO: advances the view that RA 6975 emasculated the National Police Commission by limiting
its power "to administrative control" over PNP, thus, "control" remained with the Department
Secretary under whom both the National Police Commission and the PNP were placed.

ISSUE: W/N RA 6975 is unconstitutional.

HELD: NO. The fundamentally accepted principle in Constitutional Law is that the President has
control of all executive departments, bureaus, and offices. This presidential power of control over the
executive branch of government extends over all executive officers from Cabinet Secretary to the
lowliest clerk. It has been held to mean the power to alter or modify or nullify or set aside what a
subordinate officer had done in the performance of his duties and to substitute the judgment of the
former with that of the latter.

Doctrine of Qualified Political Agency: As the President cannot be expected to exercise his control
powers all at the same time and in person, he will have to delegate some of them to his Cabinet
members. The multifarious executive and administrative functions of the Chief Executive are
performed by and through the executive departments, and the acts of the Secretaries of such
departments, performed and promulgated in the regular course of business, unless disapproved or
reprobated by the Chief Executive presumptively the acts of the Chief Executive ."

Additionally, the circumstance that the NAPOLCOM and the PNP are placed under the reorganized
DILG is merely an administrative realignment that would bolster a system of coordination and
cooperation among the citizenry, local executives and the integrated law enforcement agencies and
public safety agencies created under the assailed Act, the funding of the PNP being in large part
subsidized by the national government. Such organizational set-up does not detract from the
mandate of the Constitution that the national police force shall be administered and controlled by
a national police commission as at any rate, and in fact, the Act in question adequately provides
for administration and control at the commission level.

Carpio further asserts that in manifest derogation of the power of control of the NAPOLCOM over
the PNP, RA 6975 vested the power to choose the PNP Provincial Director and the Chiefs of Police
in the Governors and Mayors, respectively; the power of "operational supervision and control"
over police units in city and municipal mayors; in the Civil Service Commission, participation in
appointments to the positions of Senior Superintendent to Deputy Director-General as well as the
administration of qualifying entrance examinations; disciplinary powers over PNP members in the
"People's Law Enforcement Boards" and in city and municipal mayors.

Every presumption should be indulged in favor of constitutionality and the court in considering the
validity of the statute in question should give it such reasonable construction as can be reached to
bring it within the fundamental law. Under the questioned provisions, full control remains with the
National Police Commission.

There is no usurpation of the power of control of the NAPOLCOM because under this very same
provision, it is clear that the local executives are only acting as representatives of the NAPOLCOM.
As such deputies, they are answerable to the NAPOLCOM for their actions in the exercise of their
functions under that section. It is significant to note that the local officials, as NAPOLCOM
representatives, will choose the officers concerned from a list of eligibles (those who meet the
general qualifications for appointment to the PNP) to be recommended by PNP officials. The same
holding is true with respect to the contention on the operational supervision and control exercised
by the local officials. Those officials would simply be acting as representatives of the Commission.
As regards the assertion involving the Civil Service Commission, the questioned provisions, precisely
underscore the civilian character of the national police force, and will undoubtedly professionalize
the same.

The grant of disciplinary powers over PNP members to the "People's Law Enforcement Boards" (or
the PLEB) and city and municipal mayors is also not in derogation of the commission's power of
control over the PNP. Pursuant to the Act, the Commission exercises appellate jurisdiction, thru the
regional appellate boards, over decisions of both the PLEB and the said mayors. Furthermore, it is
the Commission which shall issue the implementing guidelines and procedures to be adopted by the
PLEB for in the conduct of its hearings, and it may assign NAPOLCOM hearing officers to act as legal
consultants of the PLEBs.

The national police force does not fall under the Commander-in-Chief powers of the President. This
is necessarily so since the police force, not being integrated with the military, is not a part of the
Armed Forces of the Philippines. As a civilian agency of the government, it properly comes within,
and is subject to, the exercise by the President of the power of executive control. The President, as
Commander-in-Chief, is not a member of the Armed Forces. He remains a civilian whose duties
under the Commander-in-Chief provision "represent only a part of the organic duties imposed
upon him. All his other functions are clearly civil in nature."

Finally, petitioner submits that the creation of a "Special Oversight Committee", especially the
inclusion therein of some legislators as members is an "unconstitutional encroachment upon and a
diminution of, the President's power of control over all executive departments, bureaus and
offices." HOWEVER, the Special Oversight Committee is simply an ad hoc or transitory body,
established and tasked solely with planning and overseeing the immediate "transfer, merger
and/or absorption" into the DILG of the "involved agencies." As an ad hoc body, its creation and the
functions it exercises, decidedly do not constitute an encroachment and in diminution of the power
of control which properly belongs to the President.

As a last word, under the Constitution, there are the so-called independent Constitutional
Commissions, namely: The Civil Service Commission, Commission on Audit, and the Commission on
Elections. (Article IX-A, Section 1) As these Commissions perform vital governmental functions, they
have to be protected from external influences and political pressures. Hence, they were made
constitutional bodies, independent of and not under any department of the government. Certainly,
they are not under the control of the President. The Constitution also created an independent office
called the "Commission on Human Rights." However, although it is independent like the latter
Commissions. It still had to be constituted thru Executive Order No. 163.

In contrast, Article XVI, Section 6 thereof, merely mandates the statutory creation of a national
police commission that will administer and control the national police force to be established
thereunder. This commission is not in the same category as the independent Constitutional
Commissions of Article IX and the other constitutionally created independent Office, namely, the
Commission on Human Rights.

By way of resume, the three Constitutional Commissions (Civil Service, Audit, Elections) and the
additional commission created by the Constitution (Human Rights) are all independent of the
Executive; but the National Police Commission is not. In fact, it was stressed during the CONCOM
deliberations that this commission would be under the President, and hence may be controlled by
the President, thru his or her alter ego, the Secretary of the Interior and Local Government.

WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.

INDUSTRIAL ENTERPRISES, INC. vs. COURT OF APPEALS

[April 18, 1990]
Industrial Enterprises Inc. was granted a coal operating contract by the Government through the
Bureau of Energy Development for the exploration of two coal blocks in Eastern Samar.
Subsequently, IEI also applied with the then Ministry of Energy for another coal operating contract
for the exploration of three additional coal blocks which, together with the original two blocks,
comprised the so-called "Giporlos Area."

IEI was later advised that with the objective of rationalizing the country's over-all coal supply-
demand balance, the logical coal operator in the area should be the Marinduque Mining and
Industrial Corporation, which was already developing the coal deposit in another area (Bagacay) and
that the Bagacay and Giporlos Areas should be awarded to MMIC. Thus, IEI and MMIC executed a
Memorandum of Agreement whereby IEI assigned and transferred to MMIC all its rights and
interests in the two coal blocks which are the subject of IEI's coal operating contract.

Subsequently, IEI filed an action for rescission of the Memorandum of Agreement with damages
against MMIC and the then Minister of Energy Geronimo Velasco before RTC-Makati, alleging that
MMIC took possession of the subject coal blocks even before the Memorandum of Agreement was
finalized and approved by the BED; that MMIC discontinued work thereon; that MMIC failed to apply
for a coal operating contract for the adjacent coal blocks; and that MMIC failed and refused to pay
the reimbursements agreed upon and to assume IEI's loan obligation as provided in the
Memorandum of Agreement. IEI also prayed that the Energy Minister be ordered to approve the
return of the coal operating contract from MMIC to IEI. Strangely enough, Jesus Cabarrus is the
President of both IEI and MMIC.

RTC: ordered the rescission of the Memorandum of Agreement, declared the continued efficacy of
the coal operating contract in favor of IEI. The RTC also ordered BED to give due course to IEI's
application for a coal operating contract and to IEI's application for three more coal blocks.

CA: reversed the RTC decision. The CA held that the rendition of the summary judgment was not
proper since there were genuine issues in controversy between the parties, and RTC had no
jurisdiction over the action considering that, under PD. 1206, it is the BED that has the power to
decide controversies relative to the exploration, exploitation and development of coal blocks.
[During the pendency of the appeal before the CA, the suit against the then Minister of Energy was
dismissed and that, in the meantime, IEI had applied with the BED for the development of certain
coal blocks.]

ISSUE: W/N the RTC had jurisdiction to hear and decide the suit for rescission of the Memorandum
of Agreement concerning a coal operating contract over coal blocks. A

HELD: NO. IEI's cause of action was not merely the rescission of a contract but the reversion or
return to it of the operation of the coal blocks, necessitating a determination of whether or not
such reversion would be in line with the integrated national program for coal-development and
with the objective of rationalizing the country's over-all coal-supply-demand balance. These are
matters properly falling within the domain of the BED.

For the BED, as the successor to the Energy Development Board(abolished by PD 1206), is tasked
with the function of establishing a comprehensive and integrated national program for the
exploration, exploitation, and development and extraction of fossil fuels, such as the country's coal
resources; adopting a coal development program; regulating all activities relative thereto; and
undertaking by itself or through service contracts such exploitation and development, all in the
interest of an effective and coordinated development of extracted resources.

P.D. No. 1206 provides that the powers and functions of the defunct Energy Development Board
relative to the implementation of P.D. No. 972 on coal exploration and development have been
transferred to the BED, provided that coal operating contracts including the transfer or assignment
of interest in said contracts, shall require the approval of the Secretary (Minister) of Energy (Sec.
12, P.D. No. 1206). P.D. No. 972 also provides: Each coal operating contract herein authorized shall be
executed by the Energy Development Board.

Considering the foregoing statutory provisions, the jurisdiction of the BED, in the first instance, to
pass upon any question involving the Memorandum of Agreement between IEI and MMIC,
revolving as its does around a coal operating contract, should be sustained.

In recent years, it has been the jurisprudential trend to apply the DOCTRINE OF PRIMARY
JURISDICTION in many cases involving matters that demand the special competence of
administrative agencies.

It may occur that the Court has jurisdiction to take cognizance of a particular case, which means that
the matter involved is also judicial in character. However, if the case is such that its determination
requires the expertise, specialized skills and knowledge of the proper administrative bodies
because technical matters or intricate questions of facts are involved, then relief must first be
obtained in an administrative proceeding before a remedy will be supplied by the courts even though
the matter is within the proper jurisdiction of a court. This is the doctrine of primary jurisdiction.

It applies "where a claim is originally cognizable in the courts, and comes into play whenever
enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have
been placed within the special competence of an administrative body, in such case the judicial
process is suspended pending referral of such issues to the administrative body for its view" (United
States v. Western Pacific Railroad Co).

Clearly, the DOCTRINE OF PRIMARY JURISDICTION finds application in this case since the question of
what coal areas should be exploited and developed and which entity should be granted coal
operating contracts over said areas involves a technical determination by the BED as the
administrative agency in possession of the specialized expertise to act on the matter.

RTC does not have the competence to decide matters concerning activities relative to the
exploration, exploitation, development and extraction of mineral resources like coal. These issues
preclude an initial judicial determination. It behooves the courts to stand aside even when
apparently they have statutory power to proceed, in recognition of the primary jurisdiction of an
administrative agency.

One thrust of the multiplication of administrative agencies is that the interpretation of contracts and
the determination of private rights thereunder is no longer a uniquely judicial function, exercisable
only by our regular courts (Antipolo Realty Corp. vs. National Housing Authority).
The APPLICATION OF THE DOCTRINE OF PRIMARY JURISDICTION, however, does not call for the
dismissal of the case below. It need only be SUSPENDED until after the matters within the
competence of the BED are threshed out and determined. Thereby, the principal purpose behind the
doctrine of primary jurisdiction is salutarily served.

Uniformity and consistency in the regulation of business entrusted to an administrative agency are
secured, and the limited function of review by the judiciary are more rationally exercised by
preliminary resort to agencies that are better equipped than courts by specialization, by insight
gained through experience, and by more flexible procedure (Far East Conference v. United States.

WHEREFORE, the Court Resolved to DENY the petition to review and reverse the APPELATE
COURT’S decision.

MAGNO MANUEL v. MARIANO VILLENA [February

27, 1971]

Magno Manuel had been in continuous possession of the land in question since 1939. Being an
ignorant farmer, he did not file his Tree Farm application until June 1954. The Director of Forestry
rejected the same because a prior application had been filed by Mariano Villena in November
1955. Two motions for reconsideration of the rejection order were turned down. Manuel thereafter
appealed to the Secretary of Agriculture and Natural Resources, but the appeal was dismissed by
him. On motion for reconsideration, the Secretary found that the previous investigation conducted
by the District Forester was not in accordance with the rules and regulations of the Bureau , and so
ordered another investigation to be made, but before said investigation was terminated, the
Secretary rendered a decision dismissing the appeal. Thus, Manuel filed the complaint, averring
that the administrative decision which rejected his application for a tree farm permit over a 20-
hectare parcel of public land violated his right to due process.
CFI: found the defendants’ objection meritorious, and that the complaint averred no sufficient facts
to show the court’s jurisdiction. HOWEVER, it allowed Manuel to file an amended complaint.

Section 1816 of the Administrative Code vests in the Director of Forestry the jurisdiction and
authority over the demarcation, protection, management, reproduction, reforestation, occupancy,
and use of all public forests and forest reserves and over the granting of licenses for game and fish,
and for the taking of forest products, including stone and earth, therefrom.

The decision of the Director of Forestry on the subject is not subject to judicial review unless in the
exercise of such jurisdiction he committed a grave abuse of his discretion which amounts to a
denial of due process of law to the party adversely affected. While the complaint alleges that the
Director of Forestry acted with ‘grave abuse of his discretion and in violation of due process of law
provision of the Constitution of the Philippines’ this allegation alone is insufficient for the court to
intervene and review the actuation of the Director of Forestry. Specific acts and instances from
which the grave abuse of discretion amounting to a denial of due process of law may be deduced,
must be alleged. The complaint does not allege any such fact.

The fact that the Secretary of Agriculture and Natural Resources decided the appeal without waiting
for the completion of the reinvestigation that he ordered does not constitute a violation of the due
process of law provision of the Constitution. The Secretary of Agriculture and Natural Resources
was not required to conduct a new investigation of the case. He and the Director of Forestry may
have committed an error in the appreciation of the evidence before them, but such an error is not
sufficient ground for the intervention of the court who likewise may fall into a similar mistake. There
is no allegation that Manuel was not heard nor that the Director of Forestry decided the case without
taking evidence. On the contrary, reinvestigations were even made after which the Director of
Forestry arrived at the conclusion subject of the present action. Clearly the plaintiff was given due
process.

Manuel filed an amended complaint, alleging that from the very inception of this case in the Bureau
of Forestry up to the filing of his appeal in the DANR, he has not been assisted by counsel in any of
the proceedings therein. Further, in the investigation conducted by the District Forester, there was
no showing that a notice has been sent to him so as to have afforded him an opportunity to solicit for
the services of a lawyer" Also, the Department conducted a formal investigation of the case, but the
investigation was not completed, thus, said investigation, not being completed, was not in
accordance with the due process of law provision of the Constitution.

Villena moved to dismiss the amended complaint on ground that it did not cure the defects of the
original one, and still contained insufficient allegations to make out a cause of action or to confer
jurisdiction upon the court to set aside the administrative decision complained of. CFI found the
motion meritorious and dismissed the complaint.
ISSUE: W/N the administrative decision complained of violated Manuel’s right to due process,
which in effect resulted to DANR acting with grave abuse of discretion and vesting jurisdiction
upon CFI.

HELD: NO. The proceedings challenged in the complaint refer to the approval or rejection of an
application for a Tree Farm Permit. Under Section 1838 of the Revised Administrative Code, this
function falls within the jurisdiction of the Director of Forestry with the approval of the Secretary of
Agriculture and Natural Resources.

The power thus conferred on the Director of Forestry with the approval of the Secretary of
Agriculture and Natural Resources is basically executive or administrative in nature. Courts, as a
rule, refuse to interfere with proceedings undertaken by administrative bodies or officials in the
exercise of administrative functions. This is so because such bodies are generally better equipped
technically to decide administrative questions and that non-legal factors, such as government policy
on the matter, are usually involved in the decisions.

There are, of course, limits to the exercise of administrative discretion. Administrative proceedings
may be reviewed by the courts upon a showing that "the board or official has gone beyond his
statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard
to his duty or with grave abuse of discretion" or that the decision is vitiated by fraud, imposition or
mistake.

The complaint alleges denial of due process and grave abuse of discretion, in that appellant was not
formally represented by counsel at any stage of the proceedings; that there was no showing that
notice was sent to him so as to afford him an opportunity to obtain the services of a lawyer; and that
the Secretary dismissed the appeal before the completion of the reinvestigation he had ordered.

The above circumstances however do not necessarily constitute a violation of due process or grave
abuse of discretion. Section 1838 of the Revised Administrative Code does not require that the
investigation be in the nature of a court trial. In deciding administrative questions, administrative
bodies or officials generally enjoy wide discretion. Technical rules of procedure are not strictly
enforced, and due process of law in the strict judicial sense is not indispensable. It is sufficient that
the substantive due process requirement of fairness and reasonableness be observed.

Appellant does not allege that he was denied opportunity to be heard, only that "there was no
showing that a notice was sent to him so as to afford him opportunity to solicit the services of a
lawyer" to represent him in all stages of the investigation. Absence of previous notice is not of itself
a substantial defect. What the law abhors is the lack of opportunity to be heard. In this case the
plaintiff was not denied such opportunity, as it appears that he filed two separate motions for
reconsideration before the Director of Forestry and then, upon their denial, appealed to the
Secretary of Agriculture and Natural Resources.
It was not essential, either, that appellant be represented by a lawyer. The investigation conducted by
the Bureau of Forestry under Section 1838 of the Revised Administrative Code was purely fact-
finding. It was not required to be in the form of a trial where both parties confront each other and
their witnesses.

Appellant says that the investigation was incomplete. He does not, however, point out how
incomplete it was, or in what aspect it had not been completed, or in what manner the
incompleteness constituted grave abuse of discretion or violated the requirement of due process.

DECISION OF SECRETARY OF AGRICULTURE AND NATURAL RESOURCES:

"We have thoroughly and carefully checked the findings of facts enumerated above against the
reverberating backdrop of the voluminous proofs, oral, documentary, presented and adduced by the
contending parties herein, and we found that the said findings of facts are sufficiently and fully
sustained by the evidence of the record. We are also in complete accord with the evaluation and
appreciation of the evidence and the discussion and elucidation on the merits of the case contained
in the investigator’s Remarks and Comments."

In order to justify a review of the aforesaid decision on the ground that it was based on an
investigation which was incomplete, it is not enough to make a bare allegation of incompleteness.
Was the appellant for instance, denied the right to present his evidence? If so, what evidence was it,
and how would it affect the result? What vital phase of the hearing if any, was omitted? No facts of
this or similar nature are alleged in the complaint. The trial court consequently did not err in ruling as
it did and issuing an order of dismissal.

WHEREFORE the order appealed from is affirmed.

EMMANUEL PELAEZ vs. THE AUDITOR GENERAL [December 24,

1965]

From September to October 1964 the President of the Philippines, purporting to act pursuant to
Section 68 of the Revised Administrative Code, issued EOs 93 to 121, 124 and 126 to 129, creating
33 municipalities. On November 1964, Emmanuel Pelaez, as Vice President of the Philippines and as
taxpayer, instituted the present special civil action, for a writ of prohibition with preliminary
injunction, against the Auditor General, to restrain him from passing in audit any expenditure of
public funds in implementation of said executive orders and/or any disbursement by said
municipalities. Pelaez alleges that said executive orders are null and void, upon the ground that
Section 68 has been impliedly repealed by RA 2370 and constitutes an undue delegation of
legislative power.

The Auditor General maintains the contrary view and avers that the present action is premature
and that not all proper parties (referring to the officials of the new political subdivisions in question)
have been impleaded. Subsequently, the mayors of several municipalities adversely affected by the
aforementioned executive orders — because the latter have taken away from the former the barrios
composing the new political subdivisions — intervened in the case.

Section 3 of Republic Act No. 2370, reads:

All barrios existing at the time of the passage of this Act shall come under the provisions hereof.

Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the
name of an existing one may be changed by the provincial board of the province, upon
recommendation of the council of the municipality or municipalities in which the proposed barrio is
stipulated. The recommendation of the municipal council shall be embodied in a resolution approved
by at least two-thirds of the entire membership of the said council: Provided, however, That no new
barrio may be created if its population is less than five hundred persons.

Barrios shall not be created or their boundaries altered nor their names changed except under the
provisions of this Act or by Act of Congress.

Hence, since January 1, 1960, when RA 2370 became effective, barrios may "not be created or their
boundaries altered nor their names changed" except by Act of Congress or of the corresponding
provincial board.

PELAEZ: "If the President, under this new law, cannot even create a barrio, can he create a
municipality which is composed of several barrios, since barrios are units of municipalities?"

AUDITOR: YES, upon the theory that a new municipality can be created without creating new barrios,
such as, by placing old barrios under the jurisdiction of the new municipality. Respondent alleges
that the power of the President to create municipalities under Sec. 68 of the RAC does not amount
to an undue delegation of legislative power. [This theory overlooks that the statutory denial of the
presidential authority to create a new barrio implies a negation of the bigger power to create
municipalities, each of which consists of several barrios. ]

[Municipality of Cardona vs. Municipality of Binañgonan] This case involved, not the creation of a
new municipality, but a mere transfer of territory — from an already existing municipality (Cardona)
to another municipality (Binañgonan), likewise, existing at the time of and prior to said transfer— in
consequence of the fixing and definition, pursuant to Act No. 1748, of the common boundaries of
two municipalities.

HOWEVER, whereas the power to fix such common boundary, in order to avoid or settle conflicts
of jurisdiction between adjoining municipalities, may partake of an administrative nature —
involving, as it does, the adoption of means and ways to carry into effect the law creating said
municipalities — the authority to create municipal corporations is essentially legislative in nature.
In the language of other courts, it is "strictly a legislative function" or "solely and exclusively the
exercise of legislative power". As the Supreme Court of Washington has put it, municipal
corporations are purely the creatures of statutes."

Although Congress may delegate to another branch of the Government the power to fill in the
details in the execution, enforcement or administration of a law, it is essential that said law: (a) be
complete in itself — it must set forth therein the policy to be executed, carried out or implemented
by the delegate — and (b) fix a standard — the limits of which are sufficiently determinate or
determinable — to which the delegate must conform in the performance of his functions. Indeed,
without a statutory declaration of policy, the delegate would in effect, make or formulate such policy,
which is the essence of every law; and, without the aforementioned standard, there would be no
means to determine, with reasonable certainty, whether the delegate has acted within or beyond
the scope of his authority.

Section 68 of the Revised Administrative Code does not meet these well settled requirements for a
valid delegation of the power to fix the details in the enforcement of a law. It does not enunciate
any policy to be carried out or implemented by the President. Neither does it give a standard
sufficiently precise to avoid the evil effects above referred to.

It is worth noting that Sec. 68 also provides that the President: “... may change the seat of the
government within any subdivision to such place therein as the public welfare may require.” It is true
that in Calalang vs. Williams, and Rosenthal this Court had upheld "public welfare" and "public
interest," respectively, as sufficient standards for a valid delegation of the authority to execute the
law. But, the doctrine laid down in these cases must be construed in relation to the specific facts and
issues involved therein. Both cases involved grants to administrative officers of powers related to the
exercise of their administrative functions, calling for the determination of questions of fact.

Such is not the nature of the powers dealt with in Section 68. The creation of municipalities is not
an administrative function, but one which is essentially and eminently legislative in character. The
question of whether or not "public interest" demands the exercise of such power is not one of fact. It
is "purely a legislative question" or a political question.

Section 10 (1) of Article VII of the Constitution states: “The President shall have control of all the
executive departments, bureaus, or offices, exercise general supervision over all local governments
as may be provided by law, and take care that the laws be faithfully executed.” The power of
control under this provision implies the right of the President to interfere in the exercise of such
discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of
the national government, as well as to act in lieu of such officers.

This power is denied by the Constitution to the Executive, insofar as local governments are
concerned. With respect to the latter, the fundamental law permits him to wield no more authority
than that of checking whether said local governments or the officers thereof perform their duties as
provided by statutory enactments. Hence, the President cannot interfere with local governments,
so long as the same or its officers act within the scope of their authority. He may not enact an
ordinance which the municipal council has failed or refused to pass, although he may see to it that
the corresponding provincial officials take appropriate disciplinary action therefor. Neither may he
vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no
matter how patently unwise it may be. He may not even suspend an elective official of a regular
municipality or take any disciplinary action against him, except on appeal from a decision of the
corresponding provincial board.

Upon the other hand if the President could create a municipality, he could, in effect, remove any of
its officials, by creating a new municipality and including therein the barrio in which the official
concerned resides, for his office would thereby become vacant. Thus, by merely brandishing the
power to create a new municipality , without actually creating it, he could compel local officials to
submit to his dictation, thereby, in effect, exercising over them the power of control denied to him
by the Constitution.

Then, also, the power of control of the President over executive departments, bureaus or offices
implies no more than the authority to assume directly the functions thereof or to interfere in the
exercise of discretion by its officials. Manifestly, such control does not include the authority either
to abolish an executive department or bureau, or to create a new one. As a consequence, the
alleged power of the President to create municipal corporations would necessarily connote the
exercise by him of an authority even greater than that of control which he has over the executive
departments, bureaus or offices. In other words, Section 68 of the Revised Administrative Code does
not merely fail to comply with the constitutional mandate above quoted. Instead of giving the
President less power over local governments than that vested in him over the executive
departments, bureaus or offices, it reverses the process and does the exact opposite, by conferring
upon him more power over municipal corporations than that which he has over said executive
departments, bureaus or offices.

In short, even if it did not entail an undue delegation of legislative powers, as it certainly does, said
Section 68, as part of the Revised Administrative Code, approved on March 10, 1917, must be
deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly
incompatible and inconsistent with said statutory enactment.

WHEREFORE, the Executive Orders in question are hereby declared null and void ab initio and the
respondent permanently restrained from passing in audit any expenditure of public funds in
implementation of said Executive Orders or any disbursement by the municipalities above referred
to.

PROVINCE OF BATANGAS vs. ALBERTO ROMULO (Chairman of Oversight Committee on Devolution)

[May 27, 2004]

On December 7, 1998, then President Joseph Estrada issued EO 48 entitled "ESTABLISHING A

PROGRAM FOR DEVOLUTION ADJUSTMENT AND EQUALIZATION." The program was established to
"facilitate the process of enhancing the capacities of LGUs in the discharge of the functions and
services devolved to them by the National Government Agencies concerned pursuant to the Local
Government Code (RA 7160)."1 The Oversight Committee (referred to as the Devolution Committee
in EO 48) has been tasked to formulate and issue the appropriate rules and regulations necessary
for its effective implementation. Further, to address the funding shortfalls of functions and services
devolved to the LGUs and other funding requirements of the program, the "Devolution Adjustment
and Equalization Fund" was created. For 1998, the DBM was directed to set aside an amount to be
determined by the Oversight Committee based on the devolution status appraisal surveys
undertaken by the DILG. The initial fund was to be sourced from the available savings of the
national government for CY 1998. For 1999 and the succeeding years, the corresponding amount
required to sustain the program was to be incorporated in the annual GAA. The Oversight Committee
has been authorized to issue the implementing rules and regulations governing the equitable
allocation and distribution of said fund to the LGUs.

In line with such, in the GAA of 1999, 2000, and 2001, P5 billion is earmarked for the Local
Government Service Equalization Fund for the funding requirements of projects and activities of
LGUs pursuant to the LGC of 1991: PROVIDED, FURTHER, That such amount shall be released to the
LGUs subject to the IRRs, including such mechanisms and guidelines for the equitable allocations
and distribution of said fund among LGUs subject to the guidelines that may be prescribed by the
Oversight Committee on Devolution. Thus, OCD resolutions were also promulgated, providing for
the allocation schemes covering the P5 billion and the IRR therefor.

Thereafter, the Province of Batangas, represented by its Governor, Hermilando Mandanas, filed the
present petition to declare as unconstitutional and void provisos contained in the GAA of 1999, 2000
and 2001, insofar as they uniformly earmarked for each corresponding year P5 billion Internal
Revenue Allotment for the Local Government Service Equalization Fund and imposed conditions for
the release thereof. The PROVINCE OF BATANGAS submits that the assailed provisos in the GAAs and
the OCD resolutions violate the Constitution and the LGC of 1991.

ALBERTO ROMULO: advance the view that Section 6, Article X of the Constitution does not specify
that the "just share" of the LGUs shall be determined solely by the Local Government Code of 1991
and that there exists no limitation on the power of Congress to determine what is the "just share" of
the LGUs in the national taxes.

LGUs have no vested right in a permanent or fixed percentage as Congress may increase or
decrease the "just share" of the LGUs in accordance with what it believes is appropriate for their
operation. There is nothing in the Constitution which prohibits Congress from making such
determination through the appropriations laws. If the provisions of a particular statute, the GAA in
this case, are within the constitutional power of the legislature to enact, they should be sustained
whether the courts agree or not in the wisdom of their enactment.

ISSUE: W/N the provisos in the GAAs of 1999, 2000 and 2001, relating to the LGSEF, and the OCD
resolutions infringe the Constitution and the Local Government Code of 1991.

Article X of the Constitution: “Sec. 6. Local government units shall have a just share, as determined
by law, in the national taxes which shall be automatically released to them.”

Local Government Code of 1991: “Sec. 18. Power to Generate and Apply Resources. Local
government units shall have the power and authority to establish an organization that shall be
responsible for the efficient and effective implementation of their development plans, program
objectives and priorities; to create their own sources of revenue and to levy taxes, fees, and charges
which shall accrue exclusively for their use and disposition and which shall be retained by them; to
have a just share in national taxes which shall be automatically and directly released to them without
need of further action;” . [Even the best intentions must be carried out within the parameters of the
Constitution and the law.]
“Sec. 286. Automatic Release of Shares. (a) The share of each local government unit SHALL be
released, without need of any further action, directly to the provincial, city, municipal or barangay
treasurer, as the case may be, on a quarterly basis within FIVE DAYS after the end of each
quarter, and which shall not be subject to any lien or holdback that may be imposed by the national
government for whatever purpose. (b) Nothing in this Chapter shall be understood to diminish the
share of local government units under existing laws.

Significantly, the LGSEF could not be released to the LGUs without the Oversight Committee's prior
approval. Further, with respect to the portion of the LGSEF allocated for various projects of the LGUs,
the Oversight Committee, through the assailed OCD resolutions, laid down guidelines and
mechanisms that the LGUs had to comply with before they could avail of funds from this portion of
the LGSEF.

The GUIDELINES required (a) the LGUs to identify the projects eligible for funding based on the
criteria laid down by the Oversight Committee; (b) the LGUs to submit their project proposals to the
DILG for appraisal; (c) the project proposals that passed the appraisal of the DILG to be submitted to
the Oversight Committee for review, evaluation and approval. It was only upon approval thereof
that the Oversight Committee would direct the DBM to release the funds for the projects.

SC: YES, the provisos in the GAAs of 1999, 2000 and 2001, relating to the LGSEF, and the OCD
resolutions infringe the Constitution and the Local Government Code of 1991. To the Court's mind,
the entire process involving the distribution and release of the LGSEF is constitutionally
impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national taxes. To
subject its distribution and release to the vagaries of the implementing rules and regulations,
including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from
time to time makes the release not automatic, a flagrant violation of the constitutional and statutory
mandate that the "just share" of the LGUs "shall be automatically released to them." The LGUs are,
thus, placed at the mercy of the Oversight Committee.

Indeed, the Oversight Committee exercising discretion, even control, over the distribution and
release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local
autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the
Oversight Committee was created merely to formulate the rules and regulations for the efficient and
effective implementation of the Local Government Code of 1991 to ensure "compliance with the
principles of local autonomy as defined under the Constitution." In fact, its creation was placed
under the title of "Transitory Provisions," signifying its ad hoc character.

LOCAL AUTONOMY 'means a more responsive and accountable local government structure
instituted through a system of decentralization.' The Constitution does nothing more than to break
up the monopoly of the national government over the affairs of local governments and to "liberate
the local governments from the imperialism of Manila." Autonomy, however, is not meant to end the
relation of partnership and interdependence between the central administration and local
government units, or otherwise, to usher in a regime of federalism. The Charter has not taken such a
radical step. Local governments, under the Constitution, are subject to regulation, however limited,
and for no other purpose than precisely, albeit paradoxically, to enhance self-government.
Decentralization means devolution of national administration – but not power – to the local levels.
Now, autonomy is either decentralization of administration or decentralization of power. There is
decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power, at the same time, it relieves
the central government of the burden of managing local affairs and enables it to concentrate on
national concerns. The President exercises 'general supervision' over them, but only to 'ensure that
local affairs are administered according to law.'.

Decentralization of power, on the other hand, involves an abdication of political power in favor of
LGUs declared to be autonomous. In that case, the autonomous government is free to chart its own
destiny and shape its future with minimum intervention from central authorities.

The assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions constitute a
"withholding" of a portion of the IRA. They put on hold the distribution and release of the five billion
pesos LGSEF and subject the same to the implementing rules and regulations, including the
guidelines and mechanisms prescribed by the Oversight Committee from time to time. They
effectively encroach on the fiscal autonomy enjoyed by the LGUs and must be struck down. They
cannot, therefore, be upheld. The assailed provisos in the GAAs of 1999, 2000 and 2001 and the
OCD resolutions cannot amend Section 285 of the Local Government Code of 1991.

The Local Government Code of 1991 is a substantive law. And while it is conceded that Congress may
amend any of the provisions therein, it may not do so through appropriations laws or GAAs. Any
amendment to the Local Government Code of 1991 should be done in a separate law, not in the
appropriations law, because Congress cannot include in a general appropriation bill matters that
should be more properly enacted in a separate legislation.

WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations Acts of
1999, 2000 and 2001, and the assailed OCD Resolutions, are declared UNCONSTITUTIONAL.

JOEL BITO-ONON vs. JUDGE NELIA YAP FERNANDEZ

[January 31, 2001]

Joel Bito-Onon is the Barangay Chairman of Barangay Tacras, and is the Municipal Liga Chapter
President for the Municipality of Narra, Palawan. Elegio Quejano, Jr. is the Barangay Chairman of
Barangay Rizal, and is the Municipal Liga Chapter President for the Municipality of Magsaysay,
Palawan. Both Onon and Quejano were candidates for the position of Executive Vice-President in
the 1997 election for the Liga ng Barangay Provincial Chapter of the province of Palawan. Onon was
proclaimed the winning candidate in the said election prompting Quejano to file a post proclamation
protest with the Board of Election Supervisors , which was decided against him.

Quejano filed a Petition for Review of the decision of the BES with the RTC. Onon filed a motion to
dismiss, claiming that the RTC had no jurisdiction. Onon claimed the Supplemental Guidelines for
the 1997 Liga ng mga Barangay election issued by the DILG in its Memorandum Circular No. 97-193,
providing for review of decisions or resolutions of the BES by the regular courts of law is an ultra
vires act and is void for being issued without or in excess of jurisdiction, as its issuance is not a mere
act of supervision but rather an exercise of control over the Liga's internal organization.

RTC: ruled that it had jurisdiction over the petition for review filed by Quejada and denied Onon's
motion to dismiss. RTC held that the Secretary of DILG is vested with the power "to establish and
prescribe rules, regulations and other issuances and implementing laws on the general supervision
of LGUs and the promotion of local autonomy and monitor compliance thereof by said units. The RTC
added that DILG Circular No. 97-193 was issued by the DILG Secretary pursuant to his rule-making
power as provided for under the Administrative Code.

ONON: argues that the "Supplemental Guidelines for the 1997 Synchronized Election of the
Provincial and Metropolitan Chapters and for the Election of the National Chapter of the Liga ng
mga Barangay" contradicts the "Implementing Rules and Guidelines for the 1997 General Elections
of the Liga ng mga Barangay Officers and Directors" and is therefore invalid. Onon alleges that the
Liga ng mga Barangay (LIGA) is not an LGU considering that a local government unit must have its
own source of income, a certain number of population, and a specific land area in order to exist or be
created as such. Thus, the DILG only has a limited supervisory authority over the LIGA.

Moreover, Onon Argues that even if the DILG has supervisory authority over the LIGA, the act of
the DILG in issuing the supplemental rules and guidelines for the conduct of the 1997 LIGA
elections had the effect of modifying, altering and nullifying the rules prescribed by the National
Liga Board. Onon posits that the issuance of said guidelines allowing an appeal of the decision of the
BES to the regular courts rather than to the National Liga Board is no longer an exercise of
supervision but an exercise of control.

ISSUE: W/N in issuing the questioned Memorandum Circular, the Secretary of the DILG effectively
amended the rules and guidelines promulgated by National Liga Board.

HELD: YES.

Memorandum Circular No. 97-193: "Any post-proclamation protest must be filed with the BES within
twenty-four (24) hours from the closing of the election. The BES shall decide the same within forty-
eight (48) hours from receipt thereof. The decision of the BES shall be final and immediately
executory without prejudice to the filing of a Petition for Review with the regular courts of law."

Guidelines for the 1997 General Elections of the Liga ng mga Barangay Officers: "To resolve any
post-proclamation electoral protest which must be submitted in writing to this Board within 24-hours
from the close of election; provided said Board shall render its decision within 48-hours from receipt
hereof; and provided further that the decision must be submitted to the National Liga Headquarters
within 24-hours from the said decision. The decision of the Board of Election Supervisors in this
respect shall be subject to review by the National Liga Board the decision of which shall be final and
executory."

Memorandum Circular No. 97-193 was issued by the DILG Secretary pursuant to the power of
general supervision of the President over all local government units which was delegated to the
DILG Secretary by virtue of Administrative Order No. 267 dated February 18, 1992. The President's
power of general supervision over local government units is conferred upon him by the Constitution.

The power of supervision is defined as "the power of a superior officer to see to it that lower officers
perform their functions in accordance with law." This is distinguished from the power of control or
"the power of an officer to alter or modify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former for the latter." 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.

Does the President's power of general supervision extend to the liga ng mga barangay, which is not
a local government unit? YES. Department of Justice ruled that the liga ng mga barangay is a
government organization, being an association, federation, league or union created by law or by
authority of law, whose members are either appointed or elected government officials. The ligas are
primarily governed by the provisions of the Local Government Code. However, their respective
constitution and by-laws shall govern all other matters affecting the internal organization of the liga
not otherwise provided for in the Local Government Code provided that the constitution and by-laws
shall be suppletory to the provisions of LGC.

HOWEVER, Memorandum Circular No. 97-193 of the DILG insofar as it authorizes the filing a
Petition for Review of the decision of the BES with the regular courts in a post proclamation
electoral protest is of doubtful constitutionality. In authorizing the filing of the petition for review
of the decision of the BES with the regular courts, the DILG Secretary in effect amended and
modified the GUIDELINES promulgated by the National Liga Board and adopted by the LIGA which
provides that the decision of the BES shall be subject to review by the National Liga Board. The
amendment of the GUIDELINES is more than an exercise of the power of supervision but is an
exercise of the power of control, which the President does not have over the LIGA.

Although the DILG is given the power to prescribe rules, regulations and other issuances, the
Administrative Code limits its authority to merely "monitoring compliance" by local government
units of such issuances. To monitor means "to watch, observe or check" and is compatible with the
power of supervision of the DILG Secretary over local governments, which is limited to checking
whether the local government unit concerned or the officers thereof perform their duties as per
statutory enactments. Besides, any doubt as to the power of the DILG Secretary to interfere with
local affairs should be resolved in favor of the greater autonomy of the local government.

[FERNANDEZ should have dismissed the petition ofQuejano.]

WHEREFORE, the instant petition is hereby GRANTED. The Order of the RTC is REVERSED and SET
ASIDE.
FRANCISCO ROSALES, JR. vs. MIGUEL MIJARES [November
17, 2004]

Francisco Rosales was elected mayor of Catarman, Northern Samar during the 1998 local elections.
After he assumed office, he summoned the department heads for a conference, among whom was
the municipal engineer, Miguel Mijares. During the meeting, Rosales told Mijares to resign under
pain of abolition of his position. Not wishing to antagonize the mayor, Mijares informed him that
he was "open" to the possibility of being transferred or detailed at the Provincial Engineering
Office. Then and there, Rosales instructed Mijares to prepare his papers.

Rosales then indorsed Mijares to the provincial governor of Northern Samar for consideration for the
position of Assistant Provincial Engineer. However, the provincial governor did not act on Rosales’
endorsement.

ROSALES’ FIRST LETTER: request to transfer to the Provincial Engineering Office is granted for a
period of 30 days from receipt hereof; SECOND LETTER: The 30-day period given to you to transfer
has now elapsed. In as much as you did not seek an extension of your permit to transfer, you are
considered resigned from this government unit.

Mijares requested Rosales to withdraw the separation letter.Rosales explained that Mijares was not
terminated and that his separation from the service was by operation of law, i.e., CSC Memorandum
Circular no. 38, S. 1993. In the same communication, Rosales offered to reinstate Mijares. MIJARES
filed a complaint for illegal termination against ROSALES before the CSC.

CSC: held in favor of MIJARES. The CSC held the respondent did not freely and voluntarily seek
permission to transfer to another office. Based on the record, the supposed transfer of the
respondent to the Office of the Provincial Engineer was a shrewd machination or clever ploy
resorted to by the petitioner to oust the respondent from his position as Municipal Engineer;
hence, such transfer was illegal.

The CSC also ruled that a request for transfer, under CSC Memorandum Circular No. 98-38, must be
in writing; and that even assuming that a verbal request for transfer may be made, Rosales failed to
adduce any proof that the respondent made such verbal request, as well as the date of the effectivity
of the transfer. The CSC cited its ruling in CSC Resolution No. 99-1616 dated July 20, 1999. The CSC
declared that the letter of the petitioner to the respondent dated August 12, 1998 was but a detail of
the respondent to the Office of the Provincial Engineer. After Rosales’ MR was denied by CSC, Rosales
filed a petition for review with the CA assailing the resolutions of the CSC.

CA: rendered a decision dismissing the petition and affirming the resolutions of the CSC. The CA held
that the ground relied upon to justify respondent's removal, i.e., expiration of his permit to transfer,
is purely technical and, therefore, too flimsy to override the constitutional mandate upholding an
employee's right to security of tenure (Art. IX-B, Sec. 2, par. 3, 1987 Constitution). The guarantee of
security of tenure is an important object of the civil service system because it affords a faithful
employee permanence of employment, at least for the period prescribed by law, and frees the
employee from the fear of political and personal prejudicial reprisal."

ISSUE: W/N Memorandum Circ. 93-98 of the CSC allows for a verbal request for an employee to
transfer to another office

CSC Memorandum Circular No. 93-38 reads:

Transfer – is a movement from one position without break in service involving the issuance of an
appointment.

The transfer may be from one agency to another or from one organizational unit to another in the
same agency. An employee who seeks transfer to another office shall first secure permission from
the head of the department or agency where he is employed stating the effective date of the
transfer. If the request to transfer of an employee is not granted by the head of the agency where
he is employed, it shall be deemed approved after the lapse of 30 days from the date of notice to
the agency head. If, for whatever reason, the employee fails to transfer on the specified date, he
shall be considered resigned and his reemployment in his former office shall be at the discretion of his
head.8

The CSC interpreted its Memorandum as requiring a written and not merely a verbal request for an
employee to transfer to another office. Moreover, such request must be express and unequivocal,
and cannot be merely implied or ambiguous. The request by an employee to transfer to another
office must be such that he intended to surrender his permanent office. Also, a transfer connotes an
absolute relinquishment of an office in exchange for another office. Such request must be voluntary
on the part of the officer concerned and not vitiated by force, coercion, or intimidation or even
deceit.

The Court also held that unconsented transfer is anathema to security of tenure. A transfer that
aims by indirect method to terminate services or to force resignation constitutes removal. An
employee cannot be transferred unless for causes provided for by law and after due process. The
right of employees to security of tenure should never be sacrificed merely at the whims and pleasure
of some unscrupulous and heartless politicians.

In this case, Rosales, who perceived that Mijares was a well-known supporter of the political party
opposed to his candidacy, coerced the respondent into resigning and even threatened to have his
position as Municipal Engineer abolished. In light of the demands and threats of the petitioner, the
respondent had only three options: to resign, to agree to transfer to another office, or to remain as
Municipal Engineer with the threat of the petitioner to have his position abolished hanging over his
head. Mijares opted to make himself available for appointment by the Provincial Governor as
Assistant Provincial Engineer. However, the Form 212 submitted by the respondent to the
Provincial Governor is not the written request envisaged in CSC Memorandum Circular No. 93-38
for the following reasons: (a) the respondent continued reporting and performing his duties as
Municipal Engineer of Catarman and receiving his salary as such; and (b) the respondent did not
send any written request to the petitioner for transfer to the Office of the Provincial Engineer.
Mijares did not want to risk unemployment by making a written request for transfer without first
being assured of his appointment by the Provincial Governor to the position of Assistant Provincial
Engineer; hence, he opted to wait for the Provincial Governor's approval for his appointment before
submitting a written request for transfer to the petitioner. As it were, the Governor failed to act on
the respondent's application.

By his September 24, 1998 letter to the respondent, the petitioner made it appear that he had
granted the respondent permission to transfer within thirty days, and that the respondent failed to
effect his transfer. This was done by the petitioner despite the absence of any letter from the
respondent requesting for such transfer. By his August 12, 1998 letter, the petitioner merely
detailed the respondent to the Office of the Provincial Engineer. It must be stressed that the only
legal effect of a detail of an employee, upon the lapse of the period of such detail, is for that
employee to return to his permanent station. Thus, the respondent retained his position as
Municipal Engineer despite his detail to the Office of the Provincial Engineer.

Well-settled is the rule that in reviewing administrative decisions, the findings of fact made therein
must be respected as long as they are supported by substantial evidence. We see no cogent reason
to depart from said principle.

It bears stressing that the case before the CSC involves the security of tenure of a public officer
sacrosanctly protected by the Constitution. Public interest requires a resolution of the merits of
the appeal instead of dismissing the same based on a strained and inordinate application of
Section 49(a) of the CSC Revised Rules of Procedure.

WHEREFORE, the petition is DENIED for lack of merit. The decision of the appellate court is
AFFIRMED.

CITY OF MANILA vs. INTERMEDIATE APPELLATE COURT [November

15, 1989]
Vivencio Sto. Domingo, Sr., deceased husband of Irene Sto. Domingo, died on June 4,1971 and buried
on June 6,1971 in Lot No. 159 of the North Cemetery. The lot was leased by the City of Manila to
Irene for the period from June 6, 1971 to June 6, 2021 per an Official Receipt for P50.

Believing in good faith that, in accordance with Administrative Order No. 5, Series of 1975, dated
March 6, 1975, of the City Mayor of Manila prescribing uniform procedure and guidelines in the
processing of documents pertaining to and for the use and disposition of burial lots and plots
within the North Cemetery, etc., the subject Lot was leased to the bereaved family for five years
only. Thus, subject lot was certified as ready for exhumation and the bones of Vivencio were placed
in a bag and kept the same in the depository of the cemetery.

Subsequently, the same lot in question was rented out to another lessee so that when Irene went to
said lot on All Souls Day, the resting place of their dear departed did not anymore bear the stone
marker which they lovingly placed on the tomb. Irene was offered another lot but was never
appeased. She was too aggrieved that she came to court for relief even before she could formally
present her claims and demands to the city government and to the other defendants named in the
present complaint.

RTC: rendered judgment ordering the City of Manila to give Irene, et al. the right to make use of
another single lot within the North Cemetery for a period of 43 years, 4 months and 11 days,
corresponding to the unexpired term of the fully paid lease sued upon; and to search for the
remains of the late Vivencio Sto. Domingo, Sr. and thereafter, to bury the same in the substitute lot
to be chosen by the plaintiffs pursuant to this decision.

CA: MODIFIED the decision of the RTC. The City of Manila was ordered to look for the bones and skull
of the late Vivencio Sto. Domingo, Sr., and to bury the same in the substitute lot adjudged in favor of
Irene, et. al. Further, defendants are jointly and severally held liable to pay Irene: for breach of
contract, for moral damages, exemplary damages, attorney’s fees, on the legal rate of interest
computed from filing hereof until fully paid.

CITY OF MANILA: alleged that the North Cemetery is exclusively devoted for public use or purpose.
Since the City is a political subdivision in the performance of its governmental function, it is immune
from tort liability which may be caused by its public officers and subordinate employees. Further
Section 4, Article I of the Revised Charter of Manila exempts the city from liability for damages or
injuries to persons or property arising from the fault or negligence of its officials and employees.

STO. DOMINGOS: maintain that the City of Manila entered into a contract of lease which involve the
exercise of proprietary functions with Irene. The city and its officers therefore can be sued for any-
violation of the contract.

ISSUE: W/N the City of Manila can be held responsible for the alleged torts of its officials and
employees, despite its charter providing otherwise. (Whether the operations and functions of a
public cemetery are a governmental/proprietary?)

HELD: YES. Under Philippine laws, the City of Manila is a political body corporate and as such
endowed with the faculties of municipal corporations to be exercised by and through its city
government in conformity with law, and in its proper corporate name. It may sue and be sued, and
contract and be contracted with. Its powers are twofold in character—public, governmental or
political on the one hand, and corporate, private and proprietary on the other.

Governmental powers are those exercised in administering the powers of the state and promoting
the public welfare and they include the legislative, judicial, public and political. Municipal powers are
exercised for the special benefit and advantage of the community and include those which are
ministerial, private and corporate.

"A municipal corporation proper has a public character as regards the state at large insofar as it is its
agent in government, and private insofar as it is to promote local necessities and conveniences for its
own community. In connection with the powers of a municipal corporation, it may acquire property
in its public or governmental capacity, and private or proprietary capacity. The New Civil Code divides
such properties into property for public use and patrimonial properties (Article 423), and further
enumerates the properties for public use as provincial roads, city streets, municipal streets, the
squares, fountains, public waters, promenades, and public works for public service paid for by said
provisions, cities or municipalities, all other property is patrimonial without prejudice to the
provisions of special laws.

Municipal corporations are subject to be sued upon contracts and in tort. The rule of law is a general
one, that the superior or employer must answer civilly for the negligence or want of skill of its agent
or servant in the course or line of his employment, by which another who is free from contributory
fault, is injured. Municipal corporations under the conditions herein stated, fall within tile operation
of this rule of law, and are liable accordingly, to civil actions for damages when the requisite
elements of liability co-exist.

While the following are corporate or proprietary in character, viz: municipal waterworks, slaughter
houses, markets, stables, bathing establishments, wharves, ferries and fisheries. Maintenance of
parks, golf courses, cemeteries and airports among others, are also recognized as municipal or city
activities of a proprietary character.

Under the foregoing considerations and in the absence of a special law, the North Cemetery is a
patrimonial property of the City of Manila which was created by resolution of the Municipal Board.
The administration and government of the cemetery are under the City Health Officer, the order and
police of the cemetery , the opening of graves, niches, or tombs, the exhuming of remains, and the
purification of the same are under the charge and responsibility of the superintendent of the
cemetery. The City of Manila furthermore prescribes the procedure and guidelines for the use and
dispositions of burial lots and plots within the North Cemetery through Administrative Order No. 5, s.
1975. With the acts of dominion, there is, therefore no doubt that the North Cemetery is within
the class of property which the City of Manila owns in its proprietary or private character.
Furthermore, there is no dispute that the burial lot was leased in favor of the private respondents.
Hence, obligations arising from contracts have the force of law between the contracting parties. Thus
a lease contract executed by the lessor and lessee remains as the law between them. Therefore, a
breach of contractual provision entitles the other party to damages even if no penalty for such
breach is prescribed in the contract.

FURTHER, it would have been but fair and equitable if the Sto. Domingos were notified of the
intention of the city government to transfer the skeletal remains of the late Vivencio Sto. Domingo to
give them an opportunity to demand the faithful fulfillment of their contract, or at least to prepare
and make provisions for said transfer in order that they would not lose track of the remains of
their beloved, as what has actually happened on this case.

As regards the issue of the validity of the contract of lease of grave lot No. 159, Block No. 195 of the
North Cemetery for 50 years beginning from June 6, 1971 to June 6, 2021 as clearly stated in the
receipt duly signed by the deputy treasurer of the City of Manila and sealed by the city government,
there is nothing in the record that justifies the reversal of the conclusion of both the trial court and
the Intermediate Appellate Court to the effect that the receipt is in itself a contract of lease.

Under the doctrine of respondent superior, the City of Manila is liable for the tortious act committed
by its agents who failed to verify and check the duration of the contract of lease. The contention of
the city that the lease is covered by Administrative Order No. 5, series of 1975 dated March 6, 1975
of the City of Manila for 5 years only beginning from June 6, 1971 is not meritorious for the said
administrative order covers new leases. When subject lot was certified on January 25, 1978 as ready
for exhumation, the lease contract for 50 years was still in full force and effect.

PREMISES CONSIDERED, the Decision of the Intermediate Appellate Court is hereby AFFIRMED.

METROPOLITAN MANILA DEVELOPMENT AUTHORITY vs. BEL-AIR VILLAGE ASSOCIATION, INC.

[March 27, 2000]

MMDA is a government agency tasked with the delivery of basic services in Metro Manila. Bel-Air
Village Association, Inc. (BAVA) is a non-stock, non-profit corporation whose members are
homeowners in Bel-Air Village, a private subdivision in Makati City. BAVA is the registered owner of
Neptune Street, a road inside Bel-Air Village.

On December 30, 1995, BAVA received from MMDA, through its Chairman, a notice requesting BAVA
to open Neptune Street to public vehicular traffic starting January 2, 1996. BAVA was also apprised
that the perimeter wall separating the subdivision from the adjacent Kalayaan Avenue would be
demolished. Thus, BAVA instituted against MMDA before the RTC, praying for the issuance of a TRO
and preliminary injunction enjoining the opening of Neptune Street and prohibiting the demolition
of the perimeter wall. The RTC granted said TRO.

RTC: after due hearing, denied issuance of a preliminary injunction.

CA: issued a writ of preliminary injunction enjoining the implementation of the MMDA's proposed
action. Thereafter, the appellate court rendered a Decision, finding that the MMDA has no authority
to order the opening of Neptune Street, a private subdivision road, and cause the demolition of its
perimeter walls. It held that the authority is lodged in the City Council of Makati by ordinance.

MMDA: claims that it has the authority to open Neptune Street to public traffic because it is an agent
of the state endowed with police power in the delivery of basic services in Metro Manila. One of
these basic services is traffic management which involves the regulation of the use of thoroughfares
to insure the safety, convenience and welfare of the general public. It is now urged that there is no
need for the City of Makati to enact an ordinance opening Neptune street to the public.

ISSUE: W/N MMDA has the power to order the opening of subdivision roads to public traffic.

HELD: NO. Police power is an inherent attribute of sovereignty. It has been defined as the power
vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome
and reasonable laws, statutes and ordinances, either with penalties or without, not repugnant to the
Constitution, as they shall judge to be for the good and welfare of the commonwealth, and for the
subjects of the same. The power is plenary and its scope is vast and pervasive, reaching and
justifying measures for public health, public safety, public morals, and the general welfare. Police
power is lodged primarily in the National Legislature. The National Legislature, however, may
delegate this power to the President and administrative boards as well as the lawmaking bodies of
municipal corporations or local government units.

A local government is a "political subdivision of a nation or state which is constituted by law and has
substantial control of local affairs." The Local Government Code of 1991 defines a local government
unit as a "body politic and corporate." — one endowed with powers as a political subdivision of the
National Government and as a corporate entity representing the inhabitants of its territory. Our
Congress delegated police power to the local government units in the Local Government Code of
1991 through Section 16 of the same Code, known as the general welfare clause. Local government
units exercise police power through their respective legislative bodies.

With the passage of RA 7924 in 1995, Metropolitan Manila was declared as a "special development
and administrative region" and the Administration of "metro-wide" basic services affecting the
region placed under "a development authority" referred to as the MMDA. "Metro-wide services" are
those "services which have metro-wide impact and transcend local political boundaries or entail
huge expenditures such that it would not be viable for said services to be provided by the individual
local government units comprising Metro Manila."

The implementation of the MMDA's plans, programs and projects is undertaken by the local
government units, national government agencies, accredited people's organizations, non-
governmental organizations, and the private sector as well as by the MMDA itself. For this purpose,
the MMDA has the power to enter into contracts, memoranda of agreement and other
arrangements with these bodies for the delivery of the required services Metro Manila.

It will be noted that the powers of the MMDA are limited to the following acts: formulation,
coordination, regulation, implementation, preparation, management, monitoring, setting of policies,
installation of a system and administration. There is no syllable in R.A. No. 7924 that grants the
MMDA police power, let alone legislative power. Even the Metro Manila Council has not been
delegated any legislative power. Unlike the legislative bodies of the local government units, there is
no provision in R.A. No. 7924 that empowers the MMDA or its Council to "enact ordinances, approve
resolutions appropriate funds for the general welfare" of the inhabitants of Metro Manila.

The MMDA is, as termed in the charter itself, "development authority." It is an agency created for
the purpose of laying down policies and coordinating with the various national government agencies,
people's organizations, non-governmental organizations and the private sector for the efficient and
expeditious delivery of basic services in the vast metropolitan area. All its functions are
administrative in nature.

[Sangalang v. Intermediate Appellate Court] The Court upheld a zoning ordinance issued by the
Metro Manila Commission (MMC), the predecessor of the MMDA, as an exercise of police power. In
the second Sangalang/Yabut decision, the Court held that the opening of Jupiter Street was
warranted by the demands of the common good in terms of "traffic decongestion and public
convenience."

The two Sangalang cases do not apply to the case at bar. Firstly, both involved zoning ordinances
passed by the municipal council of Makati and the MMC. In the instant case, the basis for the
proposed opening of Neptune Street is contained in the notice sent by MMDA to BAVA. The notice
does not cite any ordinance or law, either by the Sangguniang Panlungsod of Makati City or by the
MMDA, as the legal basis for the proposed opening of Neptune Street. MMDA simply relied on its
authority under its charter ".

Secondly, the MMDA is not the same entity as the MMC in Sangalang. Although the MMC is the
forerunner of the present MMDA, an examination of P. D. 824, the charter of the MMC, shows that
the latter possessed greater powers which were not bestowed on the present MMDA.

The MMC was the "central government" of Metro Manila for the purpose of establishing and
administering programs providing services common to the area. As a "central government" it had
the power to levy and collect taxes and special assessments, the power to charge and collect fees;
the power to appropriate money for its operation, and at the same time, review appropriations for
the city and municipal units within its jurisdiction. It was bestowed the power to enact or approve
ordinances, resolutions and fix penalties for violation of such ordinances and resolutions. It also had
the power to review, amend, revise or repeal all ordinances, resolutions and acts of any of the 4
cities and 13 municipalities comprising Metro Manila.

Clearly, the MMDA is not a political unit of government. The power delegated to the MMDA is that
given to the Metro Manila Council to promulgate administrative rules and regulations in the
implementation of the MMDA's functions. There is no grant of authority to enact ordinances and
regulations for the general welfare of the inhabitants of the metropolis. MMDA is a "development
authority" which is a "national agency, not a political government unit."

We stress that this decision does not make light of the MMDA's noble efforts to solve the chaotic
traffic condition in Metro Manila. Everyday, traffic jams and traffic bottlenecks plague the metropolis.
Even our once sprawling boulevards and avenues are now crammed with cars while city streets are
clogged with motorists and pedestrians. Traffic has become a social malaise affecting our people's
productivity and the efficient delivery of goods and services in the country. The MMDA was created
to put some order in the metropolitan transportation system but unfortunately the powers granted
by its charter are limited. Its good intentions cannot justify the opening for public use of a private
street in a private subdivision without any legal warrant. The promotion of the general welfare is not
antithetical to the preservation of the rule of law.

IN VIEW WHEREOF, the petition is denied. The Decision of the Court of Appeals is affirmed.

NATIONAL POWER CORPORATION vs. JUDGE ZAIN ANGAS

[May 8, 1992]

In 1974, National Power Corporation, through which the government undertakes the on-going
infrastructure and development projects throughout the country, filed two complaints for eminent
domain against private respondents with CFI-Lanao del Sur. The complaint which sought to
expropriate certain specified lots situated at Lanao del Sur was for the purpose of the development
of hydro-electric power and production of electricity as well as the erection of such subsidiary works
and constructions as may be necessarily connected therewith.

CFI: a decision was rendered, declaring that the lots described in the complaints have entirely been
lawfully condemned and expropriated by NAPOCOR, and ordering NAPOCOR to pay the private
respondents certain sums of money as just compensation for their lands expropriated "with legal
interest thereon until fully paid."

Upon finality of the decision, one of the private respondents (Sittie Sohra Batara) filed an ex-
parte motion for the execution of the decision, praying that NAPOCOR be directed to pay her the
unpaid balance of P14,300 for the lands expropriated from her, including legal interest which she
computed at 6% per annum. The said motion was granted by CFI and NAPOCOR was ordered to
deposit with its Clerk of Court the sums of money as adjudged, with interest computed at 6% per
annum.

In 1981, one of the private respondents (Pangonatan Cosna Tagol), filed with the trial court an ex-
parte motion, praying that the legal interest be computed at 12% per annum as allegedly "authorized
under and by virtue of Circular No. 416 of the Central Bank, issued pursuant to PD 116 and in a
decision of the SC that legal interest allowed in the judgment of the courts, in the absence of express
contract, shall be computed at 12% per annum." CFI granted the motion, allowing 12% interest per
annum, and the other private respondents filed motions also praying that the legal interest on the
just compensation awarded to them be computed at 12% per annum.

ISSUE: WHETHER in the computation of the legal rate of interest on just compensation for
expropriated lands, the law applicable is Article 2209 of the Civil Code which prescribes a 6% legal
interest rate or Central Bank Circular No. 416 which fixed the legal interest rate at 12% per annum.

CFI: denied NAPOCOR’s MR, stating that the rate of interest at the time of the promulgation of the
June 15, 1981 decision is that prescribed by Central Bank Circular No. 416 issued pursuant to PD No.
116, which is 12% per annum, and that it did not modify or change but merely amplified its order of
August 28, 1981 in the determination of the legal interest.

Central Bank Circular No. 416:

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise
known as the "Usury Law," the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has
prescribed that the rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be
12% per annum.

The Central Bank circular applies only to loan or forbearance of money, goods or credits. Private
respondents, however, take exception to the inclusion of the term "judgments" in the said circular,
claiming that such term refers to any judgment directing the payment of legal interest, which term
includes the questioned judgment of the lower court in the case at bar. HOWEVER, the term
"judgments" should be interpreted to mean only judgments involving loan or forbearance of money,
goods or credits, following the principle of ejusdem generis. Under this doctrine, where general
terms follow the designation of particular things or classes of persons or subjects, the general term
will be construed to comprehend those things or persons of the same class or of the same nature as
those specifically enumerated. Applying the said rule on statutory construction to Central Bank
Circular No. 416, the general term "judgments" can refer only to judgments in cases involving loans
or forbearance of any money, goods or credits.

Therefore, Art. 2209 of the Civil Code, and not Central Bank Circular No. 416, is the law applicable to
the case at bar.

Art. 2209:

If the obligation consists in the payment of a sum of money, and the debtor incurs a delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is 6% per annum.

The Central Bank circular applies only to loan or forbearance of money, goods or credits and to
judgments involving such loan or forbearance of money, goods or credits. This is evident not only
from said circular but also from Presidential Decree No. 116, which amended Act No. 2655,
otherwise known as the Usury Law. On the other hand, Art. 2209 of the Civil Code applies to
transactions requiring the payment of indemnities as damages, in connection with any delay in the
performance of the obligation arising therefrom other than those covering loan or forbearance of
money, goods or credits.

In the case at bar, the transaction involved is clearly not a loan or forbearance of money, goods or
credits but expropriation of certain parcels of land for a public purpose, the payment of which is
without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of
indemnity for damages. The legal interest required to be paid on the amount of just compensation
for the properties expropriated is manifestly in the form of indemnity for damages for the delay in
the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the
lower court sought to be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply.
As for private respondents' argument that Central Bank Circular No. 416 impliedly repealed or
modified Art. 2209 of the Civil Code, repeals or even amendments by implication are not favored if
two laws can be fairly reconciled. The Courts are slow to hold that one statute has repealed another
by implication, and they will not make such an adjudication if they can refrain from doing so, or if
they can arrive at another result by any construction which is just and reasonable.

Besides, the courts will not enlarge the meaning of one act in order to decide that it repeals another
by implication, nor will they adopt an interpretation leading to an adjudication of repeal by
implication unless it is inevitable and a clear and explicit reason therefor can be adduced. In this
case, Central Bank Circular No. 416 and Art. 2209 of the Civil Code contemplate different situations
and apply to different transactions.

In transactions involving loan or forbearance of money, goods or credits, as well as judgments

relating to such loan or forbearance of money, goods or credits, the Central Bank circular applies. On
the other hand, in cases requiring the payment of indemnities as damages, in connection with any
delay in the performance of an obligation other than those involving loan or forbearance of money,
goods or credits, Art. 2209 of the Civil Code applies. For the Court, this is the most fair, reasonable,
and logical interpretation of the two laws. We do not see any conflict between Central Bank Circular
No. 416 and Art. 2209 of the Civil Code or any reason to hold that the former has repealed the latter
by implication.

WHEREFORE, the petition is GRANTED. The Orders promulgated as to the recomputation of interest
at 12% per annum are ANNULLED and SET ASIDE. It is hereby declared that the computation of legal
interest at 6% per annum is the correct and valid legal interest allowed in payments of just
compensation for lands expropriated for public use to herein private respondents by the
Government through the National Power Corporation.

JOSE B. L. REYES vs. PEDRO ALMANZOR [April

26, 1991]

J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land in Tondo and Sta. Cruz
Districts, Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants
were paying monthly rentals not exceeding P300. On July 14, 1971, the National Legislature enacted
RA 6359, prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling
units or of lands on which another's dwelling is located, where such rentals do not exceed
P300/month, but allowing an increase in rent by not more than 10% thereafter. The said Act also
suspended Article 1673(1) of the Civil Code for two years from its effectivity thereby disallowing the
ejectment of lessees upon the expiration of the usual legal period of lease. Subsequently, PD No. 20
amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below
P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code, excepting
leases with a definite period. Consequently, the Reyeses were precluded from raising the rentals and
from ejecting the tenants.

In 1973, City Assessor of Manila re-classified and reassessed the value of the subject properties
based on the schedule of market values duly reviewed by the Secretary of Finance. The revision
entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments
made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering
that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the INCOME APPROACH should have been used in determining the
land values instead of the COMPARABLE SALES APPROACH which the City Assessor adopted.

BOARD OF TAX ASSESSMENT APPEALS: considered the assessments valid. Since the appellants failed
to submit concrete evidence which could overcome the presumptive regularity of the classification
and assessments appear to be in accordance with the base schedule of market values and of the
base schedule of building unit values, as approved by the Secretary of Finance, the cases should be,
as they are hereby, upheld.

CENTRAL BOARD OF ASSESSMENT APPEALS: It was found that, during ocular inspection, certain
parcels of land were below street level and were affected by the tides. Thus, the Central Board of
Assessment Appeals rendered its decision and AFFIRMED the decision of the Board of Tax Appeals as
to some lots, and MODIFIED it by allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the corresponding assessed value for other
lots.

ISSUE: W/N the levels of the values assigned to the properties of the Reyeses were justifiable.

While Board of Tax Assessment Appeals admits in its decision that the income approach is used in
determining land values in some vicinities, it maintains that when income is affected by some sort of
price control, the same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true market value in the open
market. Thus, respondents opted instead for the "Comparable Sales Approach" on the ground that
the value estimate of the properties predicated upon prices paid in actual, market transactions
would be a uniform and a more credible standards to use especially in case of mass appraisal of
properties.

In any event, it is unquestionable that both the "Comparable Sales Approach" and the "Income
Approach" are generally acceptable methods of appraisal for taxation purposes. However, it is
conceded that the propriety of one as against the other would of course depend on several factors.
Hence, it has been stressed that the assessors, in finding the value of the property, have to consider
all the circumstances and elements of value and must exercise a prudent discretion in reaching
conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not
only be uniform, but must also be equitable and progressive. UNIFORMITY has been defined as
that principle by which all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Taxation is said to be EQUITABLE when its burden falls on those better able to pay.
Taxation is PROGRESSIVE when its rate goes up depending on the resources of the person affected.

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude, the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. “If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power
to tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines ". In the same vein, the due process clause
may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution.
An obvious example is where it can be shown to amount to confiscation of property.

The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities
imposed.

Finally, under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property. Nothing can justify or support
their view as it is of judicial notice that for properties covered by P.D. 20 especially during the time in
question, there were hardly any willing buyers.

As a general rule, there were no takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential properties not burdened by P.D. 20.
Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed
under distressed conditions clearly implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more convincingly demonstrated by the fact
that the law has existed for around 20 years with no end to it in sight.

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which
is the promotion of the common good, may be achieved. Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359
and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result in the
forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the Board of Assessment Appeals of Manila and
the City Assessor of Manila are ordered to make a new assessment by the INCOME APPROACH
METHOD to guarantee a fairer and more realistic basis of computation.

Manila Mayor RAMON BAGATSING vs. JUDGE PEDRO RAMIREZ (CFI-Manila) [December
17, 1976]

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The City
Mayor, Ramon Bagatsing, approved the ordinance.

Federation of Manila Market Vendors, Inc. commenced a Civil Case before CFI-Manila, seeking the
declaration of nullity of Ordinance No. 7522 for the reason that (a) the PUBLICATION REQUIREMENT
under the Revised Charter of the City of Manila has not been complied with; (b) the MARKET
COMMITTEE WAS NOT GIVEN ANY PARTICIPATION in the enactment of the ordinance, as envisioned
by RA 6039; (c) Section 3(e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d)
the ordinance would violate PD No. 7, prescribing the collection of fees and charges on livestock and
animal products. [accompanied by a prayer for ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION]

CFI: issued an order denying the plea for PRELIMINARY INJUNCTION, for failure of the Federation of
Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
Upon trial on the merits, JUDGE RAMIREZ rendered its decision, declaring the nullity of Ordinance
No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement of
publication2 under the Revised City Charter.

BAGATSING: moved for reconsideration, stressing that (a) only post-publication is required by the
Local Tax Code; and (b) the Federation failed to exhaust all administrative remedies before
instituting an action in court. [Denied]

ISSUE: What law shall govern the publication of a tax ordinance enacted by the Municipal Board of
Manila, the Sec. 17 of the Revised City Charter 3 (RA 409), which requires publication before its
enactment and after its approval, or the Local Tax Code4 (PD 231), which only demands publication
after approval.

HELD: The LOCAL TAX CODE, PD 231 governs. The Revised Charter of the City of Manila is a special
act since it relates only to the City of Manila, whereas the Local Tax Code is a general law because it
applies universally to all local governments. The fact that one is special and the other general creates
a presumption that the special is to be considered as remaining an exception of the general, one as a
general law of the land, the other as the law of a particular case. However, the rule yields to a
situation where the special statute refers to a subject in general, which the general statute treats
in particular. The exactly is the circumstance obtaining in the case at bar.

Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, whereas,
Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other
charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the City
of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches
the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the
Local Tax Code controls. Here, as always, a general provision must give way to a particular
provision. Special provision governs. This is especially true where the law containing the particular
provision was enacted later than the one containing the general provision. The City Charter of Manila
was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973.

There is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. A charter provision may be impliedly modified or superseded by a later
statute, and where a statute is controlling, it must be read into the charter notwithstanding any
particular charter provision.

2
The ordinance in question was not published at all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although it was posted in the legislative hall and in all city public
markets and city public libraries. There being no compliance with the mandatory requirement of publication before and after approval, the
ordinance in question is invalid and, therefore, null and void.

3
Section 17 - Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and shall not be
discussed or enacted by the Board until after the 3rd day following such publication. * * * Each approved ordinance shall be published in
two daily newspapers of general circulation in the city, within 10 days after its approval; and shall take effect after the 20th day following
its publication, if no date is fixed in the ordinance.

4
Section 43 - Within 10 days after their approval, certified true copies of all provincial, city, municipal and barrio ordinances levying or
imposing taxes, fees or other charges shall be published for three consecutive days in a newspaper or publication widely circulated
within the jurisdiction of the local government, OR posted in the local legislative hall or premises and in two other conspicuous places
within the territorial jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio ordinances shall
be furnished the treasurers of the respective component and mother units of a local government for dissemination.
A subsequent general law similarly applicable to all cities prevails over any conflicting charter
provision, for the reason that a charter must not be inconsistent with the general laws and public
policy of the state. A chartered city is not an independent sovereignty. The state remains supreme in
all matters not purely local. Otherwise stated, a charter must yield to the constitution and general
laws of the state, it is to have read into it that general law which governs the municipal corporation
and which the corporation cannot set aside but to which it must yield. When a city adopts a charter,
it in effect adopts as part of its charter general law of such character.

PRINCIPLE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES: Sec. 47 of the Local Tax Code provides
that any question or issue raised against the legality of any tax ordinance, or portion thereof, shall be
referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city
fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless
contested before a competent court within 30 days.

HOWEVER, the controversy between the parties is deeply rooted in a pure question of law: whether
it is the Revised Charter of the City of Manila or the Local Tax Code that should govern the
publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of
the Revised City Charter or the Local Tax Code on the point at issue, and not on the legality of the
imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an
absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the
rule does not apply. The principle may also be disregarded when it does not provide a plain, speedy
and adequate remedy. It may and should be relaxed when its application may cause great and
irreparable damage.

Ordinance is not a "tax ordinance," because the imposition of rentals, permit fees, tolls and other
fees is not strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the Local Tax Code finds no application.

THE RAISING OF REVENUES IS THE PRINCIPAL OBJECT OF TAXATION. Under Sec. 5, Article XI of the
Constitution, "Each local government unit shall have the power to create its own sources of revenue
and to levy taxes, subject to such provisions as may be provided by law." One of those sources of
revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or
rentals for the occupancy or use of public markets and premises. They can provide for and regulate
market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license,
or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges.

NON-PARTICIPATION OF THE MARKET COMMITTEE: RA 6039, an amendment to the City Charter of

Manila, provides that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with any
germ of invalidity.

The function of the committee is purely recommendatory. Its recommendation is without binding
effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed
city ordinance is not a condition sine qua non before the Municipal Board could enact such
ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the
slightest degree. It can move in its own initiative and the Market Committee cannot demur. At
most, the Market Committee may serve as a LEGISLATIVE AIDE of the Municipal Board in the
enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the
necessary data, studies and the collection of consensus for the proposal of ordinances regarding city
markets.

Much less could it be said that RA 6039 intended to delegate to the Market Committee the adoption
of regulatory measures for the operation and administration of the city markets. Potestas delegata
non delegare potest.

Market stall fees imposed are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said
corporation in a "Management and Operating Contract." The fees collected do not go direct to the
private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the
purpose of raising revenues for the city. The entrusting of the collection of the fees does not
destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter
whether the agency through which the money is dispensed is public or private. The right to tax
depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent
on the nature or character of the person or corporation whose intermediate agency is to be used in
applying it. The people may be taxed for a public purpose, although it be under the direction of an
individual or private corporation.

Nor can the ordinance be stricken down as violative of Sec. 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation. We are concerned
only with the issue whether the ordinance in question is INTRA VIRES5. Once determined in the
affirmative, the measure may not be invalidated because of consequences that may arise from its
enforcement.

ACCORDINGLY, the decision of CFI is reversed and set aside. Ordinance No. 7522 of the City of
Manila, dated June 15, 1975, is hereby held to have been VALIDLY ENACTED.

CARLOS BALACUIT vs. CFI-AGUSAN DEL NORTE AND BUTUAN CITY

[June 30, 1988]

In 1969, Municipal Board of the City of Butuan enacted Ordinance no. 649 which penalize any
person, group of persons, entity, or corporation engaged in the business of selling admission tickets
to any movie or other public exhibitions, games, contests, or other performances to require children
between 7-12 years old to pay full payment for admission tickets intended for adults. [Children
should pay only one-half of the value of the said tickets; PENALTY: Fine of P200-P600 or
imprisonment of 2-6 months or BOTH.]

Carlos Balacuit, Lamberto Tan, and Sergio Carcel are managers of the Maya and Dalisay Theaters, the
Crown Theater, and the Diamond Theater, respectively. Aggrieved by the effect of Ordinance No.
5
INTRA VIRES – within the powers.
640, they filed a complaint before the CFI, praying that the subject ordinance be declared
unconstitutional and, therefore, void and unenforceable.

CFI: held in favor of the City of Butuan and declared Ordinance no. 640 constitutional and valid,
PROVIDED that the fine shall not exceed P200. Considering that, apart from size, children between
the ages of 7-12 cannot fully grasp the nuance of movies or other public exhibitions, games, contests
or other performances, the admission prices with respect to them ought to be reduced.

BALACUIT: contends that Ordinance No. 640 is not within the power of' the Municipal Board to enact
as provided for in Sec. 15(n) of Republic Act No. 523, the Charter of the City of Butuan, which states
under the “General powers and duties of the Board, the Municipal Board only has the legislative
power “(n) To regulate6 and fix the amount of the license fees for: theaters, theatrical performances,
cinematographs, public exhibitions and all other performances and places of amusements”.

CITY OF BUTUAN: attempts to justify the enactment of the ordinance by invoking the general welfare
clause embodied in Sec. 15 (nn) of the cited law, which provides:

(nn) To enact all ordinances it may deem necessary and proper for the sanitation and safety,
the furtherance of the prosperity, and the promotion of the morality, peace, good order,
comfort, convenience, and general welfare of the city and its inhabitants, and such others as
may be necessary to carry into effect and discharge the powers and duties conferred by this
Act, and to fix the penalties for the violation of the ordinances, which shall not exceed a P200-
fine or six months imprisonment, or both, for a single offense.

ISSUE: W/N Ordinance No. 640 is a valid exercise of police power.

NO, Ordinance no. 640 is NOT a valid exercise of POLICE POWER. [1. Lawful Subject, 2. Lawful
Means] While it is true that a business may be regulated, such regulation must be within the bounds
of reason. The regulatory ordinance must be reasonable, and its provisions cannot be oppressive
amounting to an arbitrary interference with the business or calling subject of regulation.

In this jurisdiction, it is already settled that the operation of theaters, cinematographs and other
places of public exhibition are subject to regulation by the municipal council in the exercise of
delegated police power by the local government. The City of Butuan, apparently realizing that it has
no authority to enact the ordinance in question under its POWER TO REGULATE EMBODIED IN SEC.
15(N), now invokes the police power as delegated to it under the GENERAL WELFARE CLAUSE to
justify the enactment of said ordinance.

To invoke the exercise of police power, not only must it appear that the interest of the public
generally requires an interference with private rights, but the means adopted must be reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. The
legislature may not, under the guise of protecting the public interest, arbitrarily interfere with private
business, or impose unusual and unnecessary restrictions upon lawful occupations.

[Homeowners' Association of the Philippines, Inc. v. Municipal Board of the City of Manila] : The
authority of municipal corporations to regulate is essentially police power. Inasmuch as the same
generally entails a curtailment of the liberty, the rights and/or the property of persons, which are
6
[Kwong Sing v. City of Manila]The word "REGULATE" was interpreted to include the power to control, to govern and to restrain
protected and even guaranteed by the Constitution, the exercise of police power is necessarily
subject to a qualification, limitation or restriction demanded by the regard, the respect and the
obedience due to the prescriptions of the fundamental law, particularly those forming part of the
Constitution of Liberty, otherwise known as the Bill of Rights.

[Minutes of the Municipal Board]: A certain Councilor Calo, the proponent of the measure, had taken
into account the complaints of parents that for them to pay the full price of admission for their
children is too financially burdensome.

There must be PUBLIC NECESSITY which demands the adoption of proper measures to secure the
ends sought to be attained by the enactment of the ordinance, and the large discretion is necessarily
vested in the legislative authority to determine not only what the interests of the public require, but
what measures are necessary for the protection of such interests. The methods or means used to
protect the public health, morals, safety or welfare, must have some relation to the end in view,
for under the guise of the police power, personal rights and those pertaining to private property will
not be permitted to be arbitralily invaded by the legislative department.

Ordinance no. 640 is not justified by any necessity for the public interest. The police power
legislation must be firmly grounded on public interest and welfare, and a reasonable relation must
exist between purposes and means. The evident purpose of the ordinance is to help ease the burden
of cost on the part of parents who have to shell out the same amount of money for the admission of
their children, as they would for themselves. A reduction in the price of admission would mean
corresponding savings for the parents; however, the petitioners are the ones made to bear the cost
of these savings. The ordinance does not only make the petitioners suffer the loss of earnings but it
likewise penalizes them for failure to comply with it. Furthermore, there will be difficulty in its
implementation because children over 12 years of age tried to pass off their age as below 12 years in
order to avail of the benefit of the ordinance. The ordinance does not provide a safeguard against
this undesirable practice and as such, the City of Butuan now suggests that birth certificates be
exhibited by movie house patrons to prove the age of children. We can see that the ordinance is
clearly unreasonable if not unduly oppressive upon the business of petitioners. Moreover, there is no
discernible relation between the ordinance and the promotion of public health, safety, morals and
the general welfare.

There is nothing pernicious in demanding equal price for both children and adults. The petitioners
are merely conducting their legitimate businesses. The object of every business entrepreneur is to
make a profit out of his venture. There is nothing immoral or injurious in charging the same price
for both children and adults. In fact, no person is under compulsion to purchase a ticket. It is a
totally voluntary act on the part of the purchaser if he buys a ticket to such performances.

City of Butuan claims that Ordinance No. 640 is reasonable and necessary to lessen the economic
burden of parents whose minor children are lured by the attractive nuisance being maintained by
the petitioners. How can the municipal authorities consider the movies an attractive nuisance and
yet encourage parents and children to patronize them by lowering the price of admission for
children? (LOL!)

Moreover, as a logical consequence of the ordinance, movie house and theater operators will be
discouraged from exhibiting wholesome movies for general patronage, much less children's pictures
if only to avoid compliance with the ordinance and still earn profits for themselves. For after all,
these movie house and theater operators cannot be compelled to exhibit any particular kind of film
except those films which may be dictated by public demand and those which are restricted by
censorship laws.

In this jurisdiction, legislation had been passed controlling the prices of goods commodities and
drugs during periods of emergency, as a matter of national policy in the interest of public health
and safety, economic security and the general welfare of the people. However, the same could not
be said of theaters, cinematographs and other exhibitions. In no sense could these businesses be
considered public utilities. The State has not found it appropriate as a national policy to interfere
with the admission prices to these performances. This does not mean however, that theaters and
exhibitions are not affected with public interest even to a certain degree. The government has seen it
fit to enact censorship laws to regulate the movie industry. Even police measures regulating the
operation of these businesses have been upheld in order to safeguard public health and safety.

A police measure for the regulation of the conduct, control and operation of a business should not
encroach upon the legitimate and lawful exercise by the citizens of their property rights. Ordinance
No. 640 clearly invades the personal and property rights of petitioners for even if We could assume
that, on its face, the interference was reasonable, from the foregoing considerations, it has been
fully shown that it is an unwarranted and unlawful curtailment of the property and personal rights
of citizens. For being unreasonable and an undue restraint of trade, it cannot, under the guise of
exercising police power, be upheld as valid.

WHEREFORE, the decision of the trial court is hereby REVERSED and SET ASIDE and a new judgment
is hereby rendered declaring Ordinance No. 640 UNCONSTITUTIONAL and, therefore, NULL and
VOID.

JOSE LINA, JR., SANGGUNIANG PANLALAWIGAN OF LAGUNA vs. JUDGE FRANCISCO PAÑO
[August 30, 2001]

In 1995, Tony Calvento was appointed agent by the Philippine Charity Sweepstakes Office to install
a Terminal for the operation of lotto. Calvento asked Mayor Calixto Cataquiz, Mayor of San Pedro,
Laguna, for a mayor's permit to open the lotto outlet. This was denied by Mayor Cataquiz, on the
ground that Kapasiyahan Blg. 508, T. 1995 was passed by the Sangguniang Panlalawigan of
Laguna, which prohibits ALL FORMS OF GAMBLING, INCLUDING LOTTO, in the province of Laguna.

Thus, Calvento filed a complaint for declaratory relief with prayer for preliminary injunction with
RTC-San Pedro. He prays, inter alia: (1) that the defendants refrain from implementing Kapasiyahan
Blg. 508, (2) for an order requiring Cataquiz to issue a business permit for the operation of a lotto
outlet; and (3) an order declaring as invalid Kapasiyahan Blg. 508.

RTC: promulgated his decision enjoining the petitioners from implementing or enforcing resolution
or Kapasiyahan Blg. 508, T. 1995 of the Sangguniang Panlalawigan ng Laguna, prohibiting the
operation of the lotto in the province of Laguna.

SANGGUNIANG PANLALAWIGAN: contend that the assailed resolution is a valid policy declaration of
the Provincial Government of Laguna of its vehement objection to the operation of lotto and all
forms of gambling. It is likewise a valid exercise of the provincial government's police power under
the General Welfare Clause of Republic Act 7160. They also maintain that respondent's lotto
operation is illegal because no prior consultations and approval by the local government were sought
before it was implemented contrary to the express provisions of R.A. 7160.

CALVENTO: argues that the questioned resolution is a curtailment of the power of the state since
the national legislature itself had already declared lotto as legal and permitted its operations around
the country. Calvento also contends that prior consultations and approval of the sangguniang
panlalawigan of Laguna is not mandatory since such a requirement is merely stated as a
declaration of policy and not a self-executing provision of the Local Government Code of 1991. He
also states that his operation of the lotto system is legal because of the authority given to him by the
PCSO, which in turn had been granted a franchise to operate the lotto by Congress.

OSG: contends that the Provincial Government of Laguna has no power to prohibit a form of
gambling which has been authorized by the national government. This is based on the principle
that ordinances should not contravene statutes as municipal governments are merely agents of the
national government. The local councils exercise only delegated legislative powers which have been
conferred on them by Congress. This being the case, these councils, as delegates, cannot be superior
to the principal or exercise powers higher than those of the latter. Since Congress has allowed the
PCSO to operate lotteries which PCSO seeks to conduct in Laguna, pursuant to its legislative grant of
authority, the province's Sangguniang Panlalawigan cannot nullify the exercise of said authority by
preventing something already allowed by Congress.

ISSUE: W/N Kapasiyahan Blg. 508, T. 1995 of the Sangguniang Panlalawigan of Laguna and the
denial of a mayor's permit based thereon are valid;

HELD: NO, a denial of a MAYOR’S PERMIT based thereon is not valid. The ordinance merely states
the "objection" of the council to the said game. It is but a mere policy statement on the part of the
local council, which is not self-executing. Nor could it serve as a valid ground to prohibit the
operation of the lotto system in the province of Laguna.

As a policy statement expressing the local government's objection to the lotto, such resolution is
valid. This is part of the local government's autonomy to air its views which may be contrary to that
of the national government's. However, this freedom to exercise contrary views does not mean that
local governments may actually enact ordinances that go against laws duly enacted by Congress.
Given this premise, the assailed resolution in this case could not and should not be interpreted as a
measure or ordinance prohibiting the operation of lotto.

The game of lotto is a game of chance duly authorized by the national government through an Act of
Congress. RA 1169, as amended by BP 42, is the law which grants a franchise to the PCSO and allows
it to operate the lotteries. This statute remains valid today.

While lotto is clearly a game of chance, the national government deems it wise and proper to
permit it. Hence, the Sangguniang Panlalawigan of Laguna, a local government unit, cannot issue a
resolution or an ordinance that would seek to prohibit permits. Stated otherwise, what the national
legislature expressly allows by law, such as lotto, a provincial board may not disallow by ordinance or
resolution.
In our system of government, the power of local government units to legislate and enact ordinances
and resolutions is merely a delegated power coming from Congress. Ordinances should not
contravene an existing statute enacted by Congress.

Municipal governments are only agents of the national government. Local councils exercise only
delegated legislative powers conferred upon them by Congress as the national lawmaking body. The
delegate cannot be superior to the principal or exercise powers higher than those of the latter. It is a
heresy to suggest that the local government units can undo the acts of Congress, from which they
have derived their power in the first place, and negate by mere ordinance the mandate of the
statute.

Nothing in the present constitutional provision enhancing local autonomy dictates a different
conclusion. The basic relationship between the national legislature and the local government units
has not been enfeebled by the new provisions in the Constitution strengthening the policy of local
autonomy. Congress retains control of the local government units although in significantly reduced
degree now than under our previous Constitutions. The power to create still includes the power to
destroy. The power to grant still includes the power to withhold or recall. True, there are certain
notable innovations in the Constitution, like the direct conferment on the LGUs of the power to tax
(Art. X, Sec. 5, Constitution), which cannot now be withdrawn by mere statute. By and large,
however, the national legislature is still the principal of the local government units, which cannot
defy its will or modify or violate it.

Ours is still a UNITARY FORM OF GOVERNMENT, not a federal state. Being so, any form of autonomy
granted to local governments will necessarily be limited and confined within the extent allowed by
the central authority. Besides, the principle of local autonomy under the 1987 Constitution simply
means "decentralization". It does not make local governments sovereign within the state or an
"imperium in imperio".

The Mayor of San Pedro, cannot avail of Kapasiyahan Bilang 508, Taon 1995, of the Provincial Board
of Laguna as justification to prohibit lotto in his municipality. For said resolution is nothing but an
expression of the local legislative unit concerned. The Board's enactment could not rise above its
source of power, the national legislature.

PERIODIC CONSULTATIONS: “It is the policy of the State to require all national agencies and offices to
conduct periodic consultations with appropriate local government units, non-governmental and
people's organizations, and other concerned sectors of the community before any project or
program is implemented in their respective jurisdictions.” xxx “No project or program shall be
implemented by government authorities unless the consultations mentioned are complied with,
and prior approval of the sanggunian concerned is obtained…”

These apply only to national programs and/or projects which are to be implemented in a particular
local community. Lotto is neither a program nor a project of the national government, but of a
charitable institution, the PCSO. Further, the projects and programs mentioned in Section 27 should
be interpreted to mean projects and programs whose effects are among those enumerated in
Section 26 and 27, to wit, those that: (1) may cause pollution; (2) may bring about climatic change;
(3) may cause the depletion of non-renewable resources; (4) may result in loss of crop land, range-
land, or forest cover; (5) may eradicate certain animal or plant species from the face of the planet;
and (6) other projects or programs that may call for the eviction of a particular group of people
residing in the locality where these will be implemented. Obviously, none of these effects will be
produced by the introduction of lotto in the province of Laguna.

There is NO ERROR in the RTC decision enjoining Mayor Cataquiz from enforcing Kapasiyahan Blg.
508, T. 1995, of the Sangguniang Panlalawigan of Laguna. That resolution expresses merely a policy
statement of the Laguna provincial board. It possesses no binding legal force nor requires any act
of implementation. It provides no sufficient legal basis for the mayor's refusal to issue the permit
sought by Calvento in connection with a legitimate business activity authorized by a law passed by
Congress.

WHEREFORE, the petition is DENIED. The Order of the RTC of San Pedro, Laguna enjoining the
petitioners from implementing or enforcing Resolution or Kapasiyahan Blg. 508, T. 1995, of the
Provincial Board of Laguna is hereby AFFIRMED.

CITY OF MANILA vs. JUDGE PERFECTO LAGUIO, JR. (RTC-Manila)

[April 12, 2005]

Malate Tourist Development Corporation (MTDC) is a corporation engaged in the business of

operating hotels, motels, hostels and lodging houses. It built and opened Victoria Court in Malate.
In 1993, the City Council of Manila enacted Ordinance 7783, which prohibited the
“establishment/operation of businesses providing certain forms of amusement, entertainments,
services and facilities in the Ermita-Malate area.” Consequently, MTDC filed a Petition with RTC-
Manila against City of Manila, Alfredo Lim, Joselito Atienza, and the members of the City Council of
Manila, praying that Ordinance 77837, insofar as it includes motels and inns as among its prohibited
establishments, be declared invalid and unconstitutional.

MTDC: argued that the Ordinance erroneously and improperly included in its enumeration of
prohibited establishments, motels and inns such as MTDC's Victoria Court considering that these
were not establishments for "amusement" or "entertainment" and they were not "services or
facilities for entertainment," nor did they use women as "tools for entertainment," and neither did
they "disturb the community," "annoy the inhabitants" or "adversely affect the social and moral
welfare of the community."

MTDC maintains that the Ordinance is ultra vires and void for being repugnant to the general law.
The Ordinance is not a valid exercise of police power; that it is violative of due process, confiscatory
and amounts to an arbitrary interference with its lawful business; that it is violative of the equal
protection clause; and that it confers on City Mayor unregulated discretion in the execution of
the Ordinance absent rules to guide and control his actions.

CITY OF MANILA: maintained that the City Council had the power to "prohibit certain forms of
entertainment in order to protect the social and moral welfare of the community" as provided for in
Section 458 (a) 4 (vii) of the Local Government Code. Petitioners likewise asserted that
the Ordinance was enacted by the City Council of Manila to protect the social and moral welfare of

7
SECTION 1. xxx no person, partnership, corporation or entity shall, in the Ermita-Malate area…be allowed or authorized to contract
and engage in, any .business providing certain forms of amusement, entertainment, services and facilities where women are used as
tools in entertainment and which tend to disturb the community, annoy the inhabitants, and adversely affect the social and moral
welfare of the community
the community in conjunction with its police power as found in the Revised Charter of the City of
Manila.

RTC: rendered a decision enjoining the petitioners from implementing the Ordinance.

ISSUE: W/N the subject ordinance is VALID and CONSTITUTIONAL.

HELD: NO. The Court held that the Ordinance is ultra vires and therefore null and void. The
prohibitions and sanctions therein transgress the cardinal rights of persons enshrined by the
Constitution. The Court is called upon to shelter these rights from attempts at rendering them
worthless.

TEST OF A VALID ORDINANCE: for an ordinance to be valid, it must not only be within the corporate
powers of the local government unit to enact and must be passed according to the procedure
prescribed by law, it must also conform to the following substantive requirements: (1) must not
contravene the Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be
partial or discriminatory; (4) must not prohibit but may regulate trade; (5) must be general and
consistent with public policy; and (6) must not be unreasonable.

The Ordinance was passed by the City Council in the exercise of its police power, an enactment of
the City Council acting as agent of Congress. Local government units, as agencies of the State, are
endowed with police power in order to effectively accomplish and carry out the declared objects of
their creation. This delegated police power is found in Section 16 of the Code, known as the general
welfare clause.

Local government units exercise police power through their respective legislative bodies; in this case,
the sangguniang panlungsod or the city council. The Code empowers the legislative bodies to "enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
province/city/municipality and its inhabitants pursuant to Section 16 of the Code and in the proper
exercise of the corporate powers of the province/city/ municipality provided under the Code. The
inquiry in this Petition is concerned with the validity of the exercise of such delegated power.

Procedural due process, refers to the procedures that the government must follow before it deprives
a person of life, liberty, or property. Classic procedural due pocess issues are concerned with what
kind of notice and what form of hearing the government must provide when it takes a particular
action.

Substantive due process, asks whether the government has an adequate reason for taking away a
person's life, liberty, or property. In other words, substantive due process looks to whether there is a
sufficient justification for the government's action.

To successfully invoke the exercise of police power as the rationale for the enactment of
the Ordinance, and to free it from the imputation of constitutional infirmity, not only must it appear
that the interests of the public generally, as distinguished from those of a particular class, require an
interference with private rights, but the means adopted must be reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals. It must be evident that
no other alternative for the accomplishment of the purpose less intrusive of private rights can
work. Lacking a concurrence of these two requisites, the police measure shall be struck down as an
arbitrary intrusion into private rightsa violation of the due process clause.

The Ordinance was enacted to address and arrest the social ills purportedly spawned by the
establishments in the Ermita-Malate area which are allegedly operated under the deceptive veneer
of legitimate, licensed and tax-paying nightclubs, bars, karaoke bars, girlie houses, cocktail lounges,
hotels and motels. The object of the Ordinance was, accordingly, the promotion and protection of
the social and moral values of the community.

Granting for the sake of argument that the objectives of the Ordinance are within the scope of the
City Council's police powers, the means employed for the accomplishment thereof were
unreasonable and unduly oppressive. The worthy aim of fostering public morals and the eradication
of the community's social ills can be achieved through means less restrictive of private rights; it can
be attained by reasonable restrictions rather than by an absolute prohibition. The closing down and
transfer of businesses or their conversion into businesses "allowed" under the Ordinance have no
reasonable relation to the accomplishment of its purposes. Otherwise stated, the prohibition of the
enumerated establishments will not per se protect and promote the social and moral welfare of the
community; it will not in itself eradicate the alluded social ills of prostitution, adultery, fornication
nor will it arrest the spread of sexual disease in Manila.

Conceding for the nonce that the Ermita-Malate area teems with houses of ill-repute and
establishments of the like which the City Council may lawfully prohibit, it is baseless and
insupportable to bring within that classification sauna parlors, massage parlors, karaoke bars, night
clubs, day clubs, super clubs, discotheques, cabarets, dance halls, motels and inns. This is not
warranted under the accepted definitions of these terms. The enumerated establishments are
lawful pursuits which are not per se offensive to the moral welfare of the community.

Immorality is not a thing, a building or establishment; it is in the hearts of men. The City Council
instead should regulate human conduct that occurs inside the establishments, but not to the
detriment of liberty and privacy which are covenants, premiums and blessings of democracy.

In addition, the Ordinance is unreasonable and oppressive as it substantially divests the respondent
of the beneficial use of its property. There are two different types of taking that can be identified. A
"possessory" taking occurs when the government confiscates or physically occupies property. A
"regulatory" taking occurs when the government's regulation leaves no reasonable economically
viable use of the property. While property may be regulated to a certain extent, if regulation goes
too far it will be recognized as a taking. A regulation which denies all economically beneficial or
productive use of land will require compensation under the takings clause.

All considered, the Ordinance invades fundamental personal and property rights and impairs
personal privileges. It is constitutionally infirm. The Ordinance contravenes statutes; it is
discriminatory and unreasonable in its operation; it is not sufficiently detailed and explicit that
abuses may attend the enforcement of its sanctions. And the City Council under the Code had no
power to enact the Ordinance and is therefore ultra vires, null and void.

Concededly, the Ordinance was enacted with the best of motives and shares the concern of the
public for the cleansing of the Ermita-Malate area of its social sins. Police power legislation of such
character deserves the full endorsement of the judiciar, BUT inspite of its virtuous aims, the
enactment of the Ordinance has no statutory or constitutional authority to stand on. Local legislative
bodies cannot prohibit the operation of the enumerated establishments under Section 1 or order
their transfer or conversion without infringing the constitutional guarantees of due process and
equal protection of laws not even under the guise of police power.

TEODULO PALMA, SR. vs. CARLOS FORTICH (Governor-Bukidnon)

[January 29, 1987]

On March 30, 1981, the Assistant Provincial Fiscal Vivencio Estrada of Bukidnon, at the instance of
Nelia Arandel (Clerk-typist) and Susan Palamine (Clerical Aide) both of the Office of the Mayor of the
Municipality of Don Carlos, Bukidnon, filed THREE CRIMINAL CASES against Teodulo Palma, Sr., the
duly elected and qualified Mayor of said Municipality with CFI-Bukidnon. By virtue of the aforesaid
cases, Arandel and Palamine requested the Provincial Governor for an immediate administrative
investigation for the purpose of suspending Mayor Palma from office pending final determination
of these cases.

Thus, the Governor formally informed the Mayor of the administrative charge against him for
Misconduct in Office. The record of the administrative case against the Mayor was forwarded to the
Sangguniang Panlalawigan of the province of Bukidnon and the case was set for hearing. After the
hearing, Arandel and Palamine petitioned for the preventive suspension of the Mayor, which was
granted by Sangguniang Panlalawigan in its Resolution. The Mayor accepted his preventive
suspension from office. Nonetheless, he filed this petition.

ISSUE: W/N the filing and pendency of the aforesaid THREE SEPARATE INFORMATION for “Acts of
Lasciviousness” against an elective local official would constitute “Misconduct in Office” within the
meaning of Sec. 5 of RA 5185, which may warrant the filing of an administrative complaint against
him and/or his suspension from office.

MAYOR: contends that "Acts of Lasciviousness" do not fall within the category of "malfeasance and
misfeasance" or "conduct in the office" contemplated in Section 5 of R.A. No. 5185, and therefore
cannot be the basis of the filing of a separate administrative case against an elective official and the
preventive suspension of the latter.

ARANDEL and PALAMINE: maintain that the lascivious acts of the Mayor constitute misconduct
under Article XIII, Section 1 of the 1973 Constitution, re: "Accountability of Public Officers."

However, on September 1, 1983, Mayor Palma filed a Manifestation and Prayer informing this Court
that the three criminal cases filed against him were all dismissed by RTC-Bukidnon. Thus, on the
premise that the administrative case in question as well as the resulting preventive suspension is
now bereft of any legal basis, Mayor Palma now prays that judgment be rendered in accordance
with his prayer in the petition. [Before the petition could be decided, the Provisional Constitution
was promulgated in Proclamation No. 3, dated March 25, 1986, by President Corazon Aquino.]

Article III, Section 2: All elective and appointive officials and employees under the 1973 Constitution
shall continue in office until otherwise provided by proclamation or executive order or upon the
designation or appointment and qualification of their successors, if such is made within a period of
one year from February 25, 1986. Thus, an incumbent Mayor, elected under the 1973 Constitution
may be replaced by an "Officer-in-Charge, a specie of successor considered as within the ambit of the
provision." Coming back to the case at bar, it appears from the records of the Ministry of Local
Government that Mayor Palma who was obviously elected under the 1973 Constitution has been
replaced by OIC Fabian Gardones as Mayor of Don Carlos, Cagayan.

As a GENERAL RULE, dismissal of an administrative case does not necessarily follow the dismissal
of a criminal case, the former requiring as it does, only preponderance of evidence while the latter
requires proof beyond reasonable doubt.

However, in administrative actions against municipal officers, the Supreme Court classified the
grounds for suspension under two categories, namely: (1) those related to the discharge of the
functions of the officer concerned (neglect of duty, oppression, corruption or other forms of
maladministration of office) and (2) those not so connected with said functions. Under the second
category, when the crime involving moral turpitude 8 is not linked with the performance of official
duties, conviction by final judgment is required as a condition precedent to administrative action.

The ground for filing of the administrative action in the case at bar and the suspension of Mayor
Palma is misconduct allegedly committed in the form of lascivious acts of the latter. Misconduct has
been defined as "such as affects his performance of his duties as an officer and not only as affects his
character as a private individual.” In such cases, it has been said at all times, it is necessary to
separate the character of the man from the character of the officer. "

ISSUE: W/N the misconduct of Mayor Palma affects his performance of his duties as an officer and
not only his character as a private individual

HELD: NO. While "it is true that the charges of rape and concubinage may involve moral turpitude of
which a municipal official may be proceeded against, but before the provincial governor and board
may act and proceed against the municipal official, a conviction by final judgment must precede the
filing by the provincial governor of the charges and trial by the provincial board."

The same ruling applies to acts of lasciviousness which falls under the same classification as crimes
against chastity. In the instant case, not only is a final judgment lacking, but the criminal cases filed
against the petitioner were all dismissed by the trial court, for insufficiency of evidence, on the basis
of its findings that the attendant circumstances logically point to the existence of consent on the part
of the offended parties.

Under the circumstances, there being no showing that the acts of Mayor Palma are linked with the
performance of official duties such as "neglect of duty, oppression, corruption, or other form of
maladministration of office", the pending administrative case against him should be dismissed for
lack of basis and the restraining order issued by the court should be made permanent.

Nonetheless, the replacement of Mayor Palma by the Officer-in-Charge Fabian Gardones has
rendered the issues of removal and suspension from office, moot and academic.
8
MORAL TURPITUDE - Act of baseness, vileness, or the depravity in private and social duties which man owes to his fellow man, or to
society in general, contrary to the accepted and customary rule of right and duty between man and man. xxx Act or behavior that gravely
violates moral sentiment or accepted moral standards of community and is a morally culpable quality held to be present in some criminal
offenses as distinguished from others.
PREMISES CONSIDERED, judgment is hereby rendered DISMISSING: (a) the administrative case filed
against the petitioner for lack of basis and (b) subject petition for having become moot and
academic.

EDGAR and TERESITA TEVES vs. SANDIGANBAYAN [December

17, 2004]

ISSUE: W/N a public official charged with violation of Section 3(h) of RA No. 3019 for unlawful
intervention, in his official capacity, in the issuance of a license in favor of a business enterprise in
which he has a pecuniary interest, may be convicted, together with his spouse, of violation of that
same provision premised on his mere possession of such interest.

In 2002, the Sandiganbayan in a Criminal Case convicted Edgar Teves, former Mayor of Valencia,
Negros Oriental, and his wife Teresita Teves, of violation of Section 3(h) of the Anti-Graft Law for
possessing direct pecuniary interest in the Valencia Cockpit and Recreation Center in Valencia.

The conviction was anchored on the finding that the petitioners possessed pecuniary interest in the
said business enterprise on the grounds that (a) nothing on record appears that Mayor Teves
divested himself of his pecuniary interest in said cockpit; (b) as of April 1992, Teresita Teves was of
record the "owner/licensee" of the cockpit; and (c) since Mayor Teves and Teresita remained married
to each other from 1983 until 1992, their property relations as husband and wife, in the absence of
evidence to the contrary, was that of the conjugal partnership of gains. Hence, the cockpit is a
conjugal property over which the petitioners have pecuniary interest. This pecuniary interest is
prohibited under Section 89(2) of R.A. No. 7160, otherwise known as the Local Government
Code (LGC) of 1991, and thus falls under the prohibited acts penalized in Section 3(h) of the Anti-
Graft Law. The Sandiganbayan, however, absolved the petitioners of the charge of causing the
issuance of a business permit or license to operate the Valencia Cockpit and Recreation Center for
not being well-founded. Petitioners thereafter filed the instant petition for review on certiorari,
seeking to annul and set aside the 2002 Decision of the Sandiganbayan.

TEVES: assert that the Sandiganbayan committed serious and palpable errors in convicting them. In
the first place, the charge was for alleged unlawful intervention of Mayor Teves in his official capacity
in the issuance of a cockpit license in violation of Section 3(h) of the Anti-Graft Law. But they were
convicted of having a direct financial or pecuniary interest in the Valencia Cockpit and Recreation
Center prohibited under Section 89(2) of the LGC of 1991, which is essentially different from the
offense with which they were charged. Thus, the petitioners insist that their constitutional right to
be informed of the nature and cause of the accusation against them was transgressed because
they were never apprised at any stage of the proceedings in the Sandiganbayan that they were
being charged with, and arraigned and tried for, violation of the LGC of 1991.

Second, according to the petitioners, their alleged prohibited pecuniary interest in the Valencia
Cockpit in 1992 was not proved. The Sandiganbayan presumed that since Mayor Teves was the
cockpit operator and licensee in 1989, said interest continued to exist until 1992. It also presumed
that the cockpit was the conjugal property of Mayor Teves and his wife, and that their pecuniary
interest thereof was direct. But under the regime of conjugal partnership of gains, any interest
thereon is at most inchoate and indirect. Also assigned as glaring error is the conviction of Teresita
Teves, who is not a public officer.

The essential elements of the crime of violation of Section 3(h) of the Anti-Graft Law are as
follows:

1. The accused is a public officer;

2. He has a direct or indirect financial or pecuniary interest in any business, contract, or

transaction;

3. He either:

a. intervenes or takes part in his official capacity in connection with such interest; or

b. is prohibited from having such interest by the Constitution or by any law.

There are, therefore, two modes by which a public officer who has a direct or indirect financial or
pecuniary interest in any business, contract, or transaction may violate Section 3(h) of the Anti-Graft
Law. The first mode is if in connection with his pecuniary interest in any business, contract or
transaction, the public officer intervenes or takes part in his official capacity. The second mode is
when he is prohibited from having such interest by the Constitution or any law.
The charge against Mayor Teves for causing the issuance of the business permit or license to operate
the Valencia Cockpit and Recreation Center is "not well-founded." Only the Sangguniang Bayan
could have issued a permit to operate the Valencia Cockpit in the year 1992. Under Section 447(3) of
the LGC of 1991, which took effect on January 1, 1992, it is the Sangguniang Bayan that has the
authority to issue a license for the establishment, operation, and maintenance of cockpits. Unlike in
the old LGC, Batas Pambansa Blg. 337, wherein the municipal mayor was the presiding officer of the
Sangguniang Bayan,16 under the LGC of 1991, the mayor is not so anymore and is not even a member
of the Sangguniang Bayan. Hence, Mayor Teves could not have intervened or taken part in his
official capacity in the issuance of a cockpit license during the material time, as alleged in the
information, because he was not a member of the Sangguniang Bayan.17

However, evidence overwhelmingly evinces that Mayor Teves had a pecuniary interest in the
Valencia Cockpit, which is prohibited under Section 89(2) of the LGC of 1991.

The evidence for the prosecution has established that Edgar Teves, then mayor of Valencia, Negros
Oriental, owned the cockpit in question. In his sworn application for registration of cockpit filed in
198319 with the Philippine Gamefowl Commission, as well as in his renewal application in 1989, he
stated that he is the owner and manager of the said cockpit. Absent any evidence that he divested
himself of his ownership over the cockpit, his ownership thereof is rightly to be presumed because
a thing once proved to exist continues as long as is usual with things of that nature. His affidavit is
NOT sufficient proof that he divested himself of ownership.

Even if the ownership of Edgar Teves over the cockpit were transferred to his wife, still he would have
a direct interest thereon because they remained married to each other from 1983 up to 1992, and as
such their property relation can be presumed to be that of conjugal partnership of gains in the
absence of evidence to the contrary. Article 160 of the Civil Code provides that all property of the
marriage is presumed to belong to the conjugal partnership unless it be proved that it pertains
exclusively to the husband or to the wife. Section 143 of the Civil Code declares all the property of
the conjugal partnership of gains to be owned in common by the husband and wife. Hence, his
interest in the Valencia Cockpit is direct and is, therefore, prohibited under Section 89(2) of the LGC
of 1991

Section 89. Prohibited Business and Pecuniary Interest. – (a) It shall be unlawful for any local
government official or employee, directly or indirectly, to: (2) Hold such interests in any cockpit or
other games licensed by a local government unit….

VARIANCE DOCTRINE: When there is a variance between the offense charged in the complaint or
information and that proved, and the offense as charged is included in or necessarily includes the
offense proved, the accused shall be convicted of the offense proved which is included in the offense
charged, or of the offense charged which is included in the offense proved. [UNLAWFUL
INTERVENTION v. PROHIBITED INTEREST]

It is clear that the essential ingredients of the offense proved constitute or form part of those
constituting the offense charged. Put differently, the first and second elements of the offense
charged, as alleged in the information, constitute the offense proved. Hence, the offense proved is
necessarily included in the offense charged, or the offense charged necessarily includes the offense
proved. The variance doctrine thus finds application to this case, thereby warranting the conviction
of Edgar Teves for the offense proved.

It must be observed that Section 3(h) of the Anti-Graft Law is a general provision, it being applicable
to all prohibited interests; while Section 89(2) of the LGC of 1991 is a special provision, as it
specifically treats of interest in a cockpit. It is a rule of statutory construction that where one statute
deals with a subject in general terms, and another deals with a part of the same subject in a more
detailed way, the two should be harmonized if possible; but if there is any conflict, the latter shall
prevail regardless of whether it was passed prior to the general statute.

Conformably with these rules, the LGC of 1991, which specifically prohibits local officials from
possessing pecuniary interest in a cockpit licensed by the local government unit and which, in itself,
prescribes the punishment for violation thereof, is paramount to the Anti-Graft Law, which penalizes
possession of prohibited interest in a general manner. Moreover, the latter took effect on 17 August
1960, while the former became effective on 1 January 1991. Being the earlier statute, the Anti-Graft
Law has to yield to the LGC of 1991, which is the later expression of legislative will.

NONETHELESS, we take judicial notice of the fact that under the old LGC, mere possession of
pecuniary interest in a cockpit was not among the prohibitions enumerated in Section 41thereof.
Such possession became unlawful or prohibited only upon the advent of the LGC of 1991, which took
effect on January 1, 1992.

RODOLFO GANZON vs. COURT OF APPEALS

[August 5, 1991]

Mayor Rodolfo Ganzon was charged with 10 administrative complaints, filed against him by various
city officials sometime in 1988, on various charges, among them, abuse of authority, oppression,
grave misconduct, disgraceful and immoral conduct, intimidation, culpable violation of the
Constitution, and arbitrary detention.

Finding probable grounds, Luis Santos, Secretary of DILG, issued a preventive suspension order on
August 11, 1988 for a period of 60 days. Thereafter, when prima facie evidence was found to exist in
the arbitrary detention case against Mayor Ganzon, Santos ordered Mayor Ganzon’s second
preventive suspension dated October 11, 1988 for another 60 days. Mayor Ganzon was able to
obtain a restraining order and a writ of preliminary injunction in the RTC so the second preventive
suspension was not enforced. Amidst the two successive suspensions, Mayor Ganzon instituted an
action for prohibition against the Secretary of DILG in the RTC, where he succeeded in obtaining a
writ of preliminary injunction.

Meanwhile, on May 3, 1990, the Secretary issued another order, preventively suspending Mayor
Ganzon for another 60 days, the third time in 20 months, and designating meantime Vice-Mayor
Mansueto Malabor as acting mayor. Thus, Mayor Ganzon commenced a petition for prohibition in
the Court of Appeals.

CA: rendered judgment, dismissing the two case; SC issued a TRO barring the Secretary from
implementing the suspension orders, and restraining the enforcement of the Court of Appeals' two
decisions.
ISSUE: W/N the Secretary of Local Government, as the President's alter ego, can suspend and/or
remove local officials.

MAYOR GANZON: argues that the 1987 Constitution no longer allows the President, as the 1935 and
1973 Constitutions did, to exercise the power of suspension and/or removal over local officials. The
Constitution is meant, first, to strengthen self-rule by local government units and second, by deleting
the phrase “as may be provided by law” to strip the President of the power of control over local
governments. The petitioners submit that the deletion (of "as may be provided by law") is
significant, as their argument goes, since: (1) the power of the President is "provided by law" and
(2) hence, no law may provide for it any longer.

ISSUE: W/N the 1987 Constitution, in deleting the phrase "as may be provided by law" intend to
divest the President of the power to investigate, suspend, discipline, and/or remove local officials.

HELD: NO. Notwithstanding the change in the constitutional language, the charter did not intend to
divest the legislature of its right or the President of her prerogative as conferred by existing
legislation to provide administrative sanctions against local officials. The omission (of "as may be
provided by law") signifies nothing more than to underscore local governments' autonomy from
congress and to break Congress' "control" over local government affairs. The Constitution did not,
however, intend, for the sake of local autonomy, to deprive the legislature of all authority over
municipal corporations, in particular, concerning discipline.

Autonomy does not contemplate making mini-states out of local government units, as in the federal
governments of the United States of America. Autonomy, in the constitutional sense, is subject to the
guiding star, though not control, of the legislature, albeit the legislative responsibility under the
Constitution and as the "supervision clause" itself suggest-is to wean local government units from
over-dependence on the central government.

CONTROL: has been defined as "the power of an officer to alter or modify or nullify or set aside what
a subordinate officer had done in the performance of his duties and to substitute the judgment of
the former for test of the latter.

SUPERVISION: means "overseeing or the power or authority of an officer to see that subordinate
officers perform their duties. However, "investigating" is not inconsistent with "overseeing", although
it is a lesser power than "altering". The President enjoyed no control powers but only supervision "as
may be provided by law".

ISSUE: W/N the successive 60-day period imposed on Mayor Ganzon is valid.

HELD: NO. The Mayor is facing 10 administrative charges. Thus, the Mayor is facing the possibility of
600 days of suspension, in the event that all 10 cases yield prima facie findings, which would in
effect suspend him out of office.

It is a basic assumption of the electoral process implicit in the right of suffrage that the people are
entitled to the services of elective officials of their choice. For misfeasance or malfeasance, any of
them could be proceeded against administratively or criminally. In either case, the culpability must
be established. Moreover, if there be a criminal action, he is entitled to the constitutional
presumption of innocence. A preventive suspension may be justified. Its continuance, however, for
an unreasonable length of time raises a due process question.

The sole objective of a suspension is simply "to prevent the accused from hampering the normal
cause of the investigation with his influence and authority over possible witnesses" or to keep him
off "the records and other evidence. It is a means, and no more, to assist prosecutors in firming up a
case, if any, against an erring local official. Suspension is temporary and as the Local Government
Code provides, it may be imposed for no more than 60 days.

What is intriguing is that the respondent Secretary has been cracking down, so to speak, on the
Mayor piecemeal apparently, to pin him down ten times the pain, when he, the respondent
Secretary, could have pursued a consolidated effort. We are not precluding the President, through
the Secretary of Interior from exercising a legal power, yet we are of the opinion that the Secretary
of Interior is exercising that power oppressively, and needless to say, with a grave abuse of
discretion.

Thus, Mayor Rodolfo Ganzon is alllowed to suffer the duration of his third suspension and lifting, for
the purpose, the TRO earlier issued. Insofar as the seven remaining charges are concerned, we are
urging the Department of Local Government, upon the finality of this Decision, to undertake steps to
expedite the same, subject to Mayor Ganzon's usual remedies of appeal, judicial or administrative, or
certiorari, if warranted, and meanwhile, we are precluding the Secretary from meting out further
suspensions based on those remaining complaints, notwithstanding findings of prima facie evidence.

In resume the Court is laying down the following rules:

1. Local autonomy, under the Constitution, involves a mere decentralization of administration, not
of power, in which local officials remain accountable to the central government in the manner the
law may provide;

2. The new Constitution does not prescribe federalism;

3. The change in constitutional language (with respect to the supervision clause) was meant but to
deny legislative control over local governments; it did not exempt the latter from legislative
regulations provided regulation is consistent with the fundamental premise of autonomy;

4. Since local governments remain accountable to the national authority, the latter may, by law, and
in the manner set forth therein, impose disciplinary action against local officials;

5. "Supervision" and "investigation" are not inconsistent terms; "investigation" does not signify
"control" (which the President does not have);

6. The petitioner, Mayor Rodolfo Ganzon. may serve the suspension so far ordered, but may no
longer be suspended for the offenses he was charged originally; provided:

a) that delays in the investigation of those charges "due to his fault, neglect or request, (the
time of the delay) shall not be counted in computing the time of suspension. [Supra, sec.
63(3)]
 b) that if during, or after the expiration of, his preventive suspension, the petitioner commits
another or other crimes and abuses for which proper charges are filed against him by the
aggrieved party or parties, his previous suspension shall not be a bar to his being
preventively suspended again, if warranted under subpar. (2), Section 63 of the Local
Government Code.

WHEREFORE, the petitions are DISMISSED. The TRO issued is LIFTED. The suspensions of the
petitioners are AFFIRMED, provided that Mayor Rodolfo Ganzon may not be made to serve future
suspensions on account of any of the remaining administrative charges pending against him for
acts committed prior to August 11, 1988.