STATCON CASE DIGESTS
Knights of Rizal v. DMCI
Liabilities of Municipal Corporations: Authority to Demolish Nuisance Per Se
G.R. No. 213948 – Knights of Rizal v. DMCI
CARPIO, J.
Knights of Rizal filed an injunction against the construction of Torre de Manila claiming
that it was a nuisance per se despoiling the view of the Rizal Monument. DMCI claims that
it has obtained all the necessary permits and clearances for the said construction. The court
treated the petition as one for mandamus. It held that the mandamus cannot lie as there is
no law prohibiting the construction of Torre de Manila and thus no legal duty for the city
officials to prohibit the construction. The Torre de Manila cannot also be regarded as
nuisance per se as it had followed all the health and safety standards and was issued the
necessary permits by the City.
DOCTRINE
There is no law prohibiting the construction of the Torre de Manila. What is not expressly
or impliedly prohibited by law may be done, except when the act is contrary to morals,
customs and public order.
The Torre de Manila is not a nuisance per se. It cannot be considered as a "direct menace
to public health or safety.
FACTS
1. Sep. 1, 2011 - DMCI Project Developers Inc acquired a lot near Taft Avenue, Ermita
Manila earmarked for the construction of its Torre de Manila condominium project.
2. DMCI secured its Barangay Clearance and obtained a Zoning Permit from the City of
Manila's City Planning and Development Office (CPDO).
3. City of Manila's Office of the Building Official granted DMCI a Building Permit,
allowing it to build a 49 Storey w/ Basement & 2 penthouse Level Res'l./Condominium
on the property.
4. Jul. 24, 2012 - the City Council of Manila issued Resolution No. 121 enjoining the
Office of the Building Official to temporarily suspend the Building Permit of DMCI-
PDI, citing that the Torre de Manila will “rise up high above the back of the national
monument, to clearly dwarf the statue of our hero… and ruin the line of sight of the
Rizal Shrine from the frontal Roxas Boulevard vantage point.”
5. His opinion being sought by the building official, City Legal Officer dela Cruz stated
in a letter that there is "no legal justification for the temporary suspension of the
Building Permit issued in favor of [DMCI-PDI]" since the construction "lies outside
the Luneta Park" and was “too far to be a repulsive distraction or have an objectionable
effect on the artistic and historical significance”.
6. NHCP also maintained that the Torre de Manila project site is outside the boundaries
of the Rizal Park and well to the rear of the Rizal Monument, and cannot possibly
obstruct the frontal view of the National Monument.
7. City Council of Manila issued Resolution No. 146, reiterating its directive in
Resolution No. 121.
8. Manila Zoning Board of Adjustments and Appeals (MZBAA) issued Zoning Board
Resolution No. 06, recommending the approval of DMCI-PDI's application for
variance.
9. City Council of Manila issued Resolution No. 5, Series of 2014, adopting Zoning
Board Resolution Nos. 06 and 06-A (amended resolution), confirming all issued
permits, licenses, and approvals issued by the City Council.
10. Sept. 12, 2014 – Knights of Rizal, an NGO created under RA 646, filed a petition for
injunction against the construction of Torre de Manila. One of its contentions is that
the project is a nuisance per se because "[t]he despoliation of the sight view of the
Rizal Monument is a situation that annoys or offends the senses' of every Filipino who
honors the memory of the National Hero Jose Rizal. It is a present, continuing,
worsening and aggravating status or condition. Being a nuisance per se, it deserves to
be abated summarily, even without need of judicial proceeding.
11. DMCI claims that an action for injunction is not the proper remedy for abatement of a
nuisance. It also asserts that the Torre de Manila is not a nuisance per se as it
obtained all the necessary permits, licenses, clearances, and certificates for its
construction.
12. The Court in its resolution to treat the petition as one for mandamus.
ISSUE with HOLDING
1. W/N the Court can issue a writ of mandamus against the officials of the City of Manila
to stop the construction of DMCI-PDI's Torre de Manila project? NO.
a) There is no law prohibiting the construction of Torre de Manila.
 What is not expressly or impliedly prohibited by law may be done, except when the
act is contrary to morals, customs and I public order. (Manila Electric Company v.
PSC).
 It is the law itself - Articles 1306 and 1409(1) CC, which prescribes that acts not
contrary to morals, good customs, public order, or public policy are allowed if also not
contrary to law.
o Here, there is no allegation or proof that the Torre de Manila project is "contrary
to morals, customs, and public order". On the contrary, the City of Manila has
determined that DMCI-PDI complied with the standards set under the pertinent
laws and local ordinances to construct its Torre de Manila project.
 Section 47 of Ordinance No. 8119 specifically regulates the "development of historic
sites and facilities." Section 48 regulates "large commercial signage and/or pylon."
o There is nothing in both Section that disallows the construction of a building
outside the boundaries of a historic site or facility, where such building may affect
the background of a historic site.
o Torre de Manila stands 870 meters outside and to the rear of the Rizal Monument
and "cannot possibly obstruct the front view of the [Rizal] Monument."
o Likewise, Torre de Manila is not in an area that has been declared as an
"anthropological or archeological area" or in an area designated as a heritage
zone, cultural property, historical landmark, or a national treasure by the NHCP.
 RA 10066 or the National Cultural Heritage Act of 2009 empowers the National
Commission for Culture and the Arts and other cultural agencies to issue a cease and
desist order "when the physical integrity of the national cultural treasures or important
cultural properties [is] found to be in danger of destruction or significant alteration
from its original state.
STATCON CASE DIGESTS
o Physical integrity refers to the structure itself - how strong and sound the structure
is. The same law does not mention that another project, not itself a heritage may
be the subject of a cease and desist order.
o Thus, it cannot apply to the Torre de Manila project.
b) Mandamus does not lie against the City of Manila.
 Mandamus only issues when there is a clear legal duty imposed upon the office or the
officer sought to be compelled to perform an act, and when the party seeking
mandamus has a clear legal right to the performance of such act.
 As there is nothing in Ordinance 8119 or any law prohibiting the said construction,
there is no legal duty on the part of the City of Manila to consider he standards set
under Ordinance No. 8119, which are standards that can never be applied outside the
boundaries of Rizal Park.
o Mandamus will lie only if the officials of the City of Manila have a ministerial
duty to consider these standards to buildings outside of the Rizal Park. There can
be no such ministerial duty because these standards are not applicable to buildings
outside of the Rizal Park.
 The exercise of the Court’s extraordinary certiorari power can neither be invoked as it
is limited to actual cases and controversies that necessarily involve a violation of the
Constitution or the determination of the constitutionality or validity of a governmental
act or issuance. Specific violation of a statute that does not raise the issue of
constitutionality or validity of the statute.
 Dissenting Opinion: The City, by reason of a mistaken or erroneous construction of
its own Ordinance, had failed to consider its duties under [Ordinance No. 8119] when
it issued permits in DMCI-PDI's favor.
 Such is disproved by the MBZAA Zoning Resolutions.The power of the Court in
mandamus petitions does not extend "to direct the exercise of judgment or discretion
in a particular way or the retraction or reversal of an action already taken in the exercise
of either."
o Without further proof that the MZBAA acted whimsically, capriciously, or
arbitrarily in issuing the resolution (Fact #8), the Court should respect MZBAA's
exercise of discretion.
 Dissenting Opinion: City of Manila should reevaluate, through the CPDO, the permits
previously issued in favor of the Torre de Manila project to determine compliance with
the standards under Ordinance No. 8119. The circumstances in this case warrant the
pro hac vice conversion of the proceedings in the issuance of the permits into a
"contested case" necessitating notice and hearing with all the parties involved.
 The decision of the Court in this case cannot be pro hac vice because by mandate of
the law every decision of the Court forms part of the legal system of the Philippines.
If another case comes up with the same facts as the present case, that case must be
decided in the same way as this case to comply with the constitutional mandate of
equal protection of the law.
 In exceptional cases, the Court has granted a prayer for mandamus to compel action in
matters involving judgment and discretion, only in cases where there has been a clear
showing of grave abuse of discretion, manifest injustice, or palpable excess of
authority.
o Here, there can be no determination by this Court that the City of Manila had
been negligent or remiss in its duty under Ordinance No. 8119 considering that
this determination will involve questions of fact.
o Even the KOR could not point to any law that City of Manila had violated and
could only point to declarations of policies by the NHCP and the Venice Charter
which do not constitute clear legal bases for the issuance of a writ of mandamus.
o The Venice Charter is merely a codification of guiding principles for the
preservation and restoration of ancient monuments, sites, and buildings. It is not
a treaty and therefore does not become enforceable as law.
 Though DMCI-PDI's Zoning Permit was granted without going through the process
under Ordinance No. 8119, such was rectified when City of Manila ratified the licenses
and permits already given to DMCI-PDI.
o Said ratification is a function of the City Council of Manila, an exercise of its
discretion and well within the authority granted it by law and the City's own
Ordinance No. 8119.
 The main purpose of zoning is the protection of public safety, health, convenience, and
welfare.
o There is no indication that the Torre de Manila project brings any harm, danger,
or hazard to the people in the surrounding areas except that the building allegedly
poses an unsightly view on the taking of photos or the visual appreciation of the
Rizal Monument by locals and tourists.
o The approval of MBZAA and subsequent ratification by City Council must be
taken as duly authorized exercise of discretion by the city officials.
c) The KOR is Estopped from Questioning the Torre de Manila Construction.
 The KOR itself came up with the idea to build a structure right behind the Rizal
Monument that would dwarf the Rizal Monument. It proposed the building of a 129.25
meter high national theater right behind the monument in the mid 1950s. KOR also
proposed to build a Rizal Center on the park as recently as 2013.
 In contrast, the Torre de Manila is located well outside the Rizal Park, and to the rear
of the Rizal Monument - approximately 870 meters from the Rizal Monument and 3 0
meters from the edge of Rizal Park.
2. W/N the Torre de Manila is a nuisance per se? NO.
 Article 694 CC defines a nuisance as any act, omission, establishment, business,
condition of property, or anything else which: (1) injures or endangers the health or
safety of others; (2) annoys or offends the senses; (3) shocks, defies or disregards
decency or morality; (4) obstructs or interferes with the free passage of any public
highway or street, or any body of water; or (5) hinders or impairs the use of property.
o 2 Kinds of nuisances:
1) nuisance per se - recognized as a nuisance under any and all circumstances,
because it constitutes a direct menace to public health or safety, and, for that
reason, may be abated summarily under the undefined law of necessity.
2) nuisance per accidens - depends upon certain conditions and circumstances,
and its existence being a question of fact, it cannot be abated without due
hearing thereon in a tribunal authorized to decide whether such a thing in
law constitutes a nuisance.
STATCON CASE DIGESTS
 The Torre de Manila is not a nuisance per se. It cannot be considered as a "direct
menace to public health or safety."
o Not only is a condominium project commonplace in the City of Manila, DMCI-
PDI has, according to the proper government agencies, complied with health and
safety standards set by law.
o DMCI-PDI has also been granted the following permits and clearances: 1) Height
Clearance Permit from the Civil Aviation Authority; (2) Development Permit
from the HLURB; (3) Zoning Certification from the HLURB; (4) Cert. of
Environmental Compliance Commitment from DENR; (5) Barangay Clearance
(6) Zoning Permit; (7) Building Permit; (8) and Electrical and Mechanical Permit.
DMCI-PDI also obtained the right to build under a variance recommended by the
MZBAA and granted by the City Council of Manila.
 Neither is Torre de Manila a nuisance per accidens as now being claimed by KOR.
o The conditions and circumstances determining a nuisance per accidens must be
well established, not merely alleged. The Court cannot simply accept these
conditions and circumstances as established facts.
o The authority to decide when a nuisance exists is an authority to find facts, to
estimate their force, and to apply rules of law to the case thus made. The Court is
no such authority and is not a trier of facts.
DISPOSITIVE PORTION
Petition for mandamus is DISMISSED for lack of merit. The TRO issued by the Court on
16 June 2015 is LIFTED effective immediately.
Knights of Rizal Vs. DMCI Homes, Inc., DMCI Project Developers, Inc., City of Manila,
National Commission for Culture and the Arts, National Museum, and National Historical
Commission of the Philippines
G.R. No. 213948
April 25, 2017
FACTS:
DMCI Project Developers, Inc. acquired a lot in the City of Manila. The said lot was
earmarked for the construction of Torre de Manila Condominium project. After having
acquired all the necessary permits and documents, the DMCI-PDI was ready to
commence the intended project. However, the City of Manila Council issued a resolution
to temporarily suspend the Building Permit until such time that issues had been
cleared. Consultations after consultations had he been initiated both by the City of
Manila and DMCI-PDI. Finally, On Jan. 2014, the City Council of Manila, issued
another resolution ratifying and confirming all previously issued permits, licenses and
approvals issued by the City for Torre de Manila.
Knights of Rizal, on the other hand, filed a petition for injunction seeking TRO, and later
a permanent injunction, against the construction of the project. The KOR argued that the
building, if completed, would be a sore to the view of the monument, an endangerment to
the nation’s cultural heritage, and a construction borne out of bad faith.
ISSUE: Whether or not the court should issue a writ of mandamus against the City
Officials to stop the construction of Torre de Manila.
RULING:
No, The SC ruled that there was no law prohibiting the construction of the project. It was
not even considered as contrary to morals, customs and public order. The project was
way well from the Park where the monument was located. The SC ruled further that a
mandamus did not lie against the City of Manila. It is categorically clear that “a
mandamus is issued when there is a clear legal duty imposed upon the office or the officer
sought to be compelled to perform an act, and the party seeking mandamus has a clear
legal right to the performance of such act.” In the case at bar, such factors were wanting.
Nowhere was it found in the ordinance, or in any Law or rule that the construction of such
building outside the Rizal Park was prohibited if the building was within the background
sightline or vision of the Rizal Monument. Thus, the petition was lacking of merit and,
thus dismissed.
B. PARTS OF A STATUTE
Eugenio v. Exec. Secretary – G.R. No. 109404, 22 January 1996
FLORENCIO EUGENIO, doing business under the name E & S Delta Village vs
EXECUTIVE SECRETARY FRANKLIN M. DRILON, HOUSING AND LAND
USE REGULATORY BOARD (HLURB) AND PROSPERO PALMIANO
G.R. No. 109404, January 22, 1996
PANGANIBAN, J.:
Facts:
Prospero Palmiano on installment basis from Eugenio, the petitioner, and his
coowner/developer Fermin Salazar, two lots in the E & S Delta Village in Quezon City.
He started to default on amortization payments beginning May 1975 due to the
petitioner’s nondevelopment of the said lots. Further, the petitioner sold one of the two
lots to Rodolfo and Adelina Relevo upon Palmiano’s cease of payment.
Eugenio then filed a petition to set aside the decision of the respondent which
affirmed the order of the Housing and Land Use Regulatory Board to “immediately
refund to the complainant-appellant Prospero Palmiano all payments made thereon, plus
interests computed at legal rates from date of receipt hereof until fully paid." Petitioner
avers that the Executive Secretary erred in applying P.D. 957 and in concluding that the
non-development of the E & S Delta Village justified private respondent's non-payment
of his amortizations. Further, the petitioner avers that inasmuch as the land purchase
agreements were entered into in 1972, prior to the effectivity of P.D. 957 in 1976, said
law cannot govern the transaction.
Issue:
WON Executive Secretary Drilon showed a grave abuse in discretion when he applied
P.D. 957 and concluded that the non-development of the E & S Delta Village justified
private respondent's non-payment of his amortizations.
STATCON CASE DIGESTS
Held:
The respondent Executive Secretary did not abuse his discretion, and that P.D. 957 is to
be given retroactive effect so as to cover even those contracts executed prior to its
enactment in 1976 given that the intent of the law, as culled from its preamble and from
the situation, circumstances and conditions it sought to remedy, must be enforced.
Moreover, the preamble of the law clearly expresses that the law’s intent is to protect
helpless citizens who may fall prey to the manipulations and machinations of
"unscrupulous subdivision and condominium sellers," suggesting that to remedy the said
alarming situations, P.D. 957 should operate retrospectively even upon contracts already
in existence at the time of its enactment.
-----------------------------------------------------------------------------------------------------
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 109404 January 22, 1996
FLORENCIO EUGENIO, doing business under the name E & S Delta
Village, petitioner,
vs.
EXECUTIVE SECRETARY FRANKLIN M. DRILON, HOUSING AND LAND
USE REGULATORY BOARD (HLURB) AND PROSPERO
PALMIANO, respondents.
RESOLUTION
PANGANIBAN, J.:
Did the failure to develop a subdivision constitute legal justification for the non-payment
of amortizations by a buyer on installment under land purchase agreements entered
into prior to the enactment of P.D. 957, "The Subdivision and Condominium Buyers'
Protective Decree"? This is the major question raised in the instant Petition seeking to set
aside the Decision of the respondent Executive Secretary dated March 10, 1992 in O.P.
Case No. 3761, which affirmed the order of the respondent HLURB dated September 1,
1987.
On May 10, 1972, private respondent purchased on installment basis from petitioner and
his co-owner/developer Fermin Salazar, two lots in the E & S Delta Village in Quezon
City.
Acting on complaints for non-development docketed as NHA Cases Nos. 2619 and 2620
filed by the Delta Village Homeowners' Association, Inc., the National Housing Authority
rendered a resolution on January 17, 1979 inter alia ordering petitioner to cease and desist
from making further sales of lots in said village or in any project owned by him.
While NHA Cases Nos. 2619 and 2620 were still pending, private respondent filed with
the Office of Appeals, Adjudication and Legal Affairs (OAALA) of the Human
Settlements Regulatory Commission (HSRC), a complaint (Case No. 80-589) against
petitioner and spouses Rodolfo and Adelina Relevo alleging that, in view of the above
NHA resolution, he suspended payment of his amortizations, but that petitioner resold
one of the two lots to the said spouses Relevo, in whose favor title to the said property
was registered. Private respondent further alleged that he suspended his payments because
of petitioner's failure to develop the village.
Private respondent prayed for the annulment of the sale to the Relevo spouses and for
reconveyance of the lot to him.
On October 11, 1983, the OAALA rendered a decision upholding the right of petitioner to
cancel the contract with private respondent and dismissed private respondent's complaint.
On appeal, the Commission Proper of the HSRC reversed the OAALA and, applying P.D.
957, ordered petitioner to complete the subdivision development and to reinstate private
respondent's purchase contract over one lot, and as to the other, "it appearing that
Transfer Certificate of Title No. 269546 has been issued to . . . spouses Rodolfo and
Ad(e)lina Relevo . . . , the management of E & S Delta Village is hereby ordered to
immediately refund to the complainant-appellant (herein private respondent) all payments
made thereon, plus interests computed at legal rates from date of receipt hereof until fully
paid."
The respondent Executive Secretary, on appeal, affirmed the decision of the HSRC and
denied the subsequent Motion for Reconsideration for lack of merit and for having been
filed out of time. Petitioner has now filed this Petition for review before the Supreme
Court.
Under Revised Administrative Circular No. 1-95, "appeals from judgments or final orders
of the . . . Office of the President . . . may be taken to the Court of Appeals . . . "
However, in order to hasten the resolution of this case, which was deemed submitted for
decision one and a half years ago, the Court resolved to make an exception to the said
Circular in the interest of speedy justice.
In his Petition before this Court, petitioner avers that the Executive Secretary erred in
applying P.D. 957 and in concluding that the non-development of the E & S Delta Village
justified private respondent's non-payment of his amortizations. Petitioner avers that
inasmuch as the land purchase agreements were entered into in 1972, prior to the
effectivity of P.D. 957 in 1976, said law cannot govern the transaction.
STATCON CASE DIGESTS
We hold otherwise, and herewith rule that respondent Executive Secretary did not abuse
his discretion, and that P.D. 957 is to be given retroactive effect so as to cover even those
contracts executed prior to its enactment in 1976.
P.D. 957 did not expressly provide for retroactivity in its entirety, but such can be plainly
inferred from the unmistakable intent of the law.
The intent of the law, as culled from its preamble and from the situation, circumstances
and conditions it sought to remedy, must be enforced. On this point, a leading authority
on statutory construction stressed:
The intent of a statute is the law. . . . The intent is the vital part, the essence of
the law, and the primary rule of construction is to ascertain and give effect to the
intent. The intention of the legislature in enacting a law is the law itself, and
must be enforced when ascertained, although it may not be consistent with the
strict letter of the statute. Courts will not follow the letter of a statute when it
leads away from the true intent and purpose of the legislature and to conclusions
inconsistent with the general purpose of the act. . . . In construing statutes the
proper course is to start out and follow the trite intent of the legislature and to
adopt that sense which harmonizes best with the context and promotes in the
fullest manner the apparent policy and objects of the legislature. 1 (emphasis
supplied.)
It goes without saying that, as an instrument of social justice, the law must favor the weak
and the disadvantaged, including, in this instance, small lot buyers and aspiring
homeowners. P.D. 957 was enacted with no other end in view than to provide a protective
mantle over helpless citizens who may fall prey to the manipulations and machinations of
"unscrupulous subdivision and condominium sellers", and such intent is nowhere
expressed more clearly than in its preamble, pertinent portions of which read as follows:
WHEREAS, it is the policy of the State to afford its inhabitants the requirements
of decent human settlement and to provide them with ample opportunities for
improving their quality of life;
WHEREAS, numerous reports reveal that many real estate subdivision owners,
developers, operators, and/or sellers have reneged on their representations and
obligations to provide and maintain properly subdivision roads, drainage,
sewerage, water systems, lighting systems, and other similar basic requirements,
thus endangering the health and safety of home and lot buyers;
WHEREAS, reports of alarming magnitude also show cases of swindling and
fraudulent manipulations perpetrated by unscrupulous subdivision and
condominium sellers and operators, such as failure to deliver titles to the buyers
or titles free from liens and encumbrances, and to pay real estate taxes, and
fraudulent sales of the same subdivision lots to different innocent purchasers for
value;2 (emphasis supplied.)
From a dedicated reading of the preamble, it is manifest and unarguable that the
legislative intent must have been to remedy the alarming situation by having P.D. 957
operate retrospectively even upon contracts already in existence at the time of its
enactment. Indeed, a strictly prospective application of the statute will effectively
emasculate it, for then the State will not be able to exercise its regulatory functions and
curb fraudulent schemes and practices perpetrated under or in connection with those
contracts and transactions which happen to have been entered into prior to P.D. 957,
despite obvious prejudice to the very subdivision lot buyers sought to be protected by said
law. It is hardly conceivable that the legislative authority intended to permit such a
loophole to remain and continue to be a source of misery for subdivision lot buyers well
into the future.
Adding force to the arguments for the retroactivity of P.D. 957 as a whole are certain of
its provisions, viz., Sections 20, 21 and 23 thereof, which by their very terms have
retroactive effect and will impact upon even those contracts and transactions entered into
prior to P.D. 957's enactment:
Sec. 20. Time of Completion. — Every owner or developer shall construct and
provide the facilities, improvements, infrastructures and other forms of
development, including water supply and lighting facilities, which are offered
and indicated in the approved subdivision or condominium plans, brochures,
prospectus, printed matters, letters or in any form of advertisement, within one
year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed by the
Authority.
Sec. 21. Sales Prior to Decree. — In cases of subdivision lots or condominium
units sold or disposed of prior to the effectivity of this Decree, it shall be
incumbent upon the owner or developer of the subdivision or condominium
project to complete compliance with his or its obligations as provided in the
preceding section within two years from the date of this Decree unless otherwise
extended by the Authority or unless an adequate performance bond is filed in
accordance with Section 6 hereof.
Failure of the owner or, developer to comply with the obligations under this and
the preceding provisions shall constitute a violation punishable under Section 38
and 39 of this Decree.
Sec. 23. Non-Forfeiture of Payments. — No installment payment made by a
buyer in a subdivision or condominium project for the lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer, when the buyer, after
due notice to the owner or developer, desists from further payment due to the
failure of the owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be reimbursed the total amount
paid including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate. (emphasis supplied)
STATCON CASE DIGESTS
On the other hand, as argued by the respondent Executive Secretary, the application of
P.D. 957 to the contracts in question will be consistent with paragraph 4 of the contracts
themselves, which expressly provides:
(4) The party of the First Part hereby binds himself to subdivide, develop and
improve the entire area covered by Transfer Certificate of Title No. 168119 of
which the parcels of lands subject of this contract is a part in accordance with the
provisions of Quezon City Ordinance No. 6561, S-66 and the Party of the First
Part further binds himself to comply with and abide by all laws, rules and
regulations respecting the subdivision and development of lots for residential
purposes as may be presently in force or may hereafter be required by laws
passed by the Congress of the Philippines or required by regulations of the
Bureau of Lands, the General Registration Office and other government
agencies. (emphasis supplied)
Moreover, as P.D. 957 is undeniably applicable to the contracts in question, it follows that
Section 23 thereof had been properly invoked by private respondent when he desisted
from making further payment to petitioner due to petitioner's failure to develop the
subdivision project according to the approved plans and within the time limit for
complying with the same. (Such incomplete development of the subdivision and non-
performance of specific contractual and statutory obligations on the part of the
subdivision-owner had been established in the findings of the HLURB which in turn were
confirmed by the respondent Executive Secretary in his assailed Decision.) Furthermore,
respondent Executive Secretary also gave due weight to the following matters: although
private respondent started to default on amortization payments beginning May 1975, so
that by the end of July 1975 he had already incurred three consecutive arrearages in
payments, nevertheless, the petitioner, who had the cancellation option available to him
under the contract, did not exercise or utilize the same in timely fashion but delayed until
May 1979 when he finally made up his mind to cancel the contracts. But by that time the
land purchase agreements had already been overtaken by the provisions of P.D. 957,
promulgated on July 12, 1976. (In any event, as pointed out by respondent HLURB and
seconded by the Solicitor General, the defaults in amortization payments incurred by
private respondent had been effectively condoned by the petitioner, by reason of the
latter's tolerance of the defaults for a long period of time.)
Likewise, there is no merit in petitioner's contention that respondent Secretary exceeded
his jurisdiction in ordering the refund of private respondent's payments on Lot 12
although (according to petitioner) only Lot 13 was the subject of the complaint.
Respondent Secretary duly noted that the supporting documents submitted substantiating
the claim of non-development justified such order inasmuch as such claim was also the
basis for non-payment of amortizations on said Lot 12.
Finally, since petitioner's motion for reconsideration of the (Executive Secretary's)
Decision dated March 10, 1992 was filed only on the 21st day from receipt thereof, said
decision had become final and executory, pursuant to Section 7 of Administrative Order
No. 18 dated February 12, 1987, which provides that "(d)ecisions/ resolutions/orders of
the Office of the President shall, except as otherwise provided for by special laws,
become final after the lapse of fifteen (15) days from receipt of a copy thereof . . . , unless
a motion for reconsideration thereof is filed within such period."
WHEREFORE, there being no showing of grave abuse of discretion, the petition is
DENIED due course and is hereby DISMISSED. No costs.
SO ORDERED.
Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.
Kuwait Airways Corporation v. Philippine Airlines - G.R. No. 156087 May 8,
2009
Kuwait Airways Corporation v. Philippine Airlines
Facts:
Kuwait Airways and Philippine Airlines (PAL) entered into a Commercial Agreement to
assist each other to develop traffic on the route Kuwait-Bangkok-Manila and vice-versa.
Under the said agreement, Kuwait Airways obligated itself to share with PAL revenue
earned from the uplift of passengers between Kuwait and Manila and vice-versa.
Sometime later, delegations from Philippines and Kuwait (Philippine Panel and Kuwait
Panel) met and agreed that effective upon the signing of the Confidential Memorandum of
Understanding (CMU), the exercise of the third and fourth freedom traffic rights shall not
be subject to any royalty payment or commercial agreements. The Philippine Panel
composed of officials from CAB, DFA, and PAL and headed by the Executive Director
of the CAB signed the CMU – in behalf of the Philippine Government. A month later,
petitioner sent a letter informing PAL that by virtue of the CMU the termination of the
royalty payment is in effect. PAL insisted that the Agreement should continue to be in
force and petitioner is still obligated to pay PAL revenue until such date. Petitioner
refusing to pay, PAL filed a complaint before the RTC which ruled in its favor. Hence
this petition.
Issue:
Whether or not CAB can compel PAL to terminate the Commercial Agreement with
petitioner.
Ruling: NO.
[We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to
compel Philippine Airlines to immediately terminate its Commercial Agreement with
Kuwait Airways pursuant to the CMU. Considering that it is the Philippine government
that has the sole authority to charter air policy and negotiate with foreign governments
with respect to air traffic rights, the government through the CAB has the indispensable
STATCON CASE DIGESTS
authority to compel local air carriers to comply with government determined policies,
even at the expense of economic rights.]
However, this is not a case where the CAB had duly exercised its regulatory authority
over a local airline in order to implement or further government air policy. What
happened instead was an officer of the CAB, acting in behalf not of the Board but of the
Philippine government, had committed to a foreign nation the immediate abrogation of
Philippine Airlines’ commercial agreement with Kuwait Airways.
Nor can we presume, simply because Dr. Linlingan, Executive Director of the CAB had
signed the CMU in behalf of the Philippine Panel that he could have done so bearing the
authority of the Board, in the exercise of regulatory jurisdiction over Philippine Airlines.
For one, the CAB is a collegial body composed of five members and no one member–
even the chairman–can act in behalf of the entire Board. The Board is disabled from
performing as such without a quorum. For another, the Executive Director of the CAB is
not even a member of the Board, per R.A. No. 776, as amended.
*The general rule is CAB has the power to regulate the airline companies/air
transportation industry BUT this case is an exception.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 156087 May 8, 2009
KUWAIT AIRWAYS, CORPORATION, Petitioner,
vs.
PHILIPPINE AIRLINES, INC., Respondent.
DECISION
TINGA, J.:
This petition for review1 filed by the duly designated air carrier of the Kuwait
Government assails a decision2 dated 25 October 2002 of the Makati Regional Trial Court
(RTC), Branch 60, ordering Kuwait Airways to pay respondent Philippine Airlines the
amount of US$1,092,690.00, plus interest, attorney’s fees, and cost of suit. 3 The principal
liability represents the share to Philippine Airlines in the revenues the foreign carrier had
earned for the uplift of passengers and cargo in its flights to and from Kuwait and Manila
which the foreign carrier committed to remit as a contractual obligation.
On 21 October 1981, Kuwait Airways and Philippine Airlines entered into a Commercial
Agreement,4 annexed to which was a Joint Services Agreement5 between the two airlines.
The Commercial Agreement covered a twice weekly Kuwait Airways flight on the route
Kuwait-Bangkok-Manila and vice versa.6 The agreement stipulated that "only 3rd and 4th
freedom traffic rights between Kuwait and Manila and vice versa will be exercised. No
5th freedom traffic rights will be exercised between Manila on the one hand and Bangkok
on the other."7
The "freedom traffic rights" referred to in the Agreement are the so-called "five
freedoms" contained in the International Air Transport Agreement (IATA) signed in
Chicago on 7 December 1944. Under the IATA, each contracting State agreed to grant to
the other contracting states, five "freedoms of air." Among these freedoms were "[t]he
privilege to put down passengers, mail and cargo taken on in
the territory of the State whose nationality the aircraft possesses" (Third Freedom); "[t]he
privilege to take on passengers, mail or cargo destined for the territory of the State whose
nationality the aircraft possesses" (Fourth Freedom); and the right to carry passengers
from one's own country to a second country, and from that country to a third country
(Fifth Freedom). In essence, the Kuwait Airways flight was authorized to board
passengers in Kuwait and deplane them in Manila, as well as to board passengers in
Manila and deplane them in Kuwait. At the same time, with the limitation in the exercise
of Fifth Freedom traffic rights, the flight was barred from boarding passengers in
Bangkok and deplaning them in Manila, or boarding passengers in Manila and deplaning
them in Bangkok.
The Commercial Agreement likewise adverted to the annexed Joint Services Agreement
covering the Kuwait-Manila (and vice versa) route, which both airlines had entered into
"[i]n order to reflect the high level of friendly relationships between [Kuwait Airways]
and [Philippine Airlines] and to assist each other to develop traffic on the route." 8 The
Agreement likewise stipulated that "[u]ntil such time as [Philippine Airlines] commences
its operations to or via Kuwait, the Joint Services shall be operated with the use of
[Kuwait Airways] aircraft and crew."9 By virtue of the Joint Services Agreement,
Philippine Airlines was entitled to seat allocations on specified
Kuwait Airways sectors, special prorates for use by Philippine Airlines to specified
Kuwait Airways sectors, joint advertising by both carriers in each other’s timetables and
other general advertising, and mutual assistance to each other with respect to the
development of traffic on the route.10
Most pertinently for our purposes, under Article 2.1 of the Commercial Agreement,
Kuwait Airways obligated itself to "share with Philippine Airlines revenue earned from
the uplift of passengers between Kuwait and Manila and vice versa." 11 The succeeding
paragraphs of Article 2 stipulated the basis for the shared revenue earned from the uplift
of passengers.
The Commercial Agreement and the annexed Joint Services Agreement was subsequently
amended by the parties six times between 1981 and 1994. At one point, in 1988, the
agreement was amended to authorize Philippine Airlines to operate provisional services,
STATCON CASE DIGESTS
referred to as "ad hoc joint services," on the Manila-Kuwait (and vice versa) route for the
period between April to June 1988.12 In 1989, another amendment was agreed to by the
parties, subjecting the uplift of cargo between Kuwait and Manila to the same revenue
sharing arrangement as the uplift of passengers.13 From 1981 until when the present
incidents arose in 1995, there seems to have been no serious disagreements relating to the
contract.
In April of 1995, delegations from the Philippines and Kuwait (Philippine Panel and
Kuwait Panel) met in Kuwait. The talks culminated in a Confidential Memorandum of
Understanding (CMU) entered into in Kuwait on 12 April 1995. Among the members of
the Philippine Panel were officials of the Civil Aeronautics Board (CAB), the Department
of Foreign Affairs (DFA), and four officials of Philippine Airlines: namely its Vice-
President for Marketing, Director for International Relations, Legal Counsel, and a Senior
International Relations Specialist. Dr. Victor S. Linlingan, the Head of the Delegation and
Executive Director of the CAB, signed the CMU in behalf of the Government of the
Republic of the Philippines.
The present controversy stems from the fourth paragraph of the CMU, which read:
4. The two delegations agreed that the unilateral operation and the exercise of third and
fourth freedom traffic rights shall not be subject to any royalty payment or commercial
arrangements, as from the date of signing of this [CMU].
The aeronautical authorities of the two Contracting Parties will bless and encourage any
cooperation between the two designated airlines.
The designated airlines shall enter into commercial arrangements for the unilateral
exercise of fifth freedom traffic rights. Such arrangements will be subject to the approval
of the aeronautical authorities of both contracting parties. 14
On 15 May 1995, Philippine Airlines received a letter from Dawoud M. Al-Dawoud, the
Deputy Marketing & Sales Director for International Affairs of Kuwait Airways,
addressed to Ms. Socorro Gonzaga, the Director for International Relations of Philippine
Airlines.15 Both Al-Dawoud and Gonzaga were members of their country’s respective
delegations that had met in Kuwait the previous month. The letter stated in part:
Regarding the [Kuwait Airways/Philippine Airlines] Commercial Agreement, pursuant to
item 4 of the new MOU[,] we will advise our Finance Department that the Agreement
concerning royalty for 3rd/4th freedom traffic will be terminated effective April 12, 1995.
Although the royalty agreement will no longer be valid, we are very keen on seeing that
[Philippine Airlines] continues to enjoy direct participation in the Kuwait/Philippines
market through the Block Space Agreement and to that extent we would like to maintain
the Jt. Venture (Block Space) Agreement, although with some minor modifications.16
To this, Gonzaga replied to Kuwait Airways in behalf of Philippine Airlines in a letter
dated 22 June 1995.17 Philippine Airlines called attention to Section 6.5 of the
Commercial Agreement, which read:
This agreement may be terminated by either party by giving ninety (90) days notice in
writing to the other party. However, any termination date must be the last day of any
traffic period, e.g.[,] 31st March or 31st October. 18
Pursuant to this clause, Philippine Airlines acknowledged the 15 May 1995 letter as the
requisite notice of termination. However, it also pointed out that the agreement could only
be effectively terminated on 31 October 1995, or the last day of the then current traffic
period. Thus, Philippine Airlines insisted that the provisions of the Commercial
Agreement "shall continue to be enforced until such date." 19
Subsequently, Philippine Airlines insisted that Kuwait Airways pay it the principal sum
of US$1,092,690.00 as revenue for the uplift of passengers and cargo for the period 13
April 1995 until 28 October 1995.20 When Kuwait Airways refused to pay, Philippine
Airlines filed a Complaint21 against the foreign airline with the Regional Trial Court
(RTC) of Makati City, seeking the payment of the aforementioned sum with interest,
attorney’s fees, and costs of suit. In its Answer,22 Kuwait Airways invoked the CMU and
argued that its obligations under the Commercial Agreement were terminated as of the
effectivity date of the CMU, or on 12 April 1995. Philippine Airlines countered in its
Reply that it was "not privy to the [CMU]," 23 though it would eventually concede the
existence of the CMU.24
An exhaustive trial on the merits was had. On 25 October 2002, the RTC rendered a
Decision in favor of Philippine Airlines. The RTC noted that "the only issue to resolve in
this case is a legal one," particularly whether Philippine Airlines is entitled to the sums
claimed under the terms of the Commercial Agreement. The RTC also considered as a
corollary issue whether Kuwait Airways "validly terminated the Commercial Agreement
x x x, plaintiff’s contention being that [Kuwait Airways] had not complied with the terms
of termination provided for in the Commercial Agreement."
The bulk of the RTC’s discussion centered on the Philippine Airlines’ claim that the
execution of the CMU could not prejudice its existing rights under the Commercial
Agreement, and that the CMU could only be deemed effective only after 31 October
1995, the purported effectivity date of termination under the Commercial Agreement. The
rationale for this position of Philippine Airlines was that the execution of the CMU could
not divest its proprietary rights under the Commercial Agreement.
On this crucial point, the RTC agreed with Philippine Airlines. It asserted the obligatory
force of contracts between contracting parties as the source of vested rights which may
not be modified or impaired. After recasting Kuwait Airway’s arguments on this point as
being that "the Confidential Memorandum of Understanding is superior to the
Commercial Agreement[,] the same having been supposedly executed by virtue of the
state’s sovereign power," the RTC rejected the argument, holding that "[t]he fact that the
[CMU] may have been executed by a Philippine Panel consisting of representative [sic] of
CAB, DFA, etc. does not necessarily give rise to the conclusion that the [CMU] is a
superior contract[,] for the exercise of the State’s sovereign power cannot be arbitrarily
and indiscriminately utilized specifically to impair contractual vested rights." 25
STATCON CASE DIGESTS
Instead, the RTC held that "[t]he Commercial Agreement and its specific provisions on
revenue sharing having been freely and voluntarily agreed upon by the affected parties x
x x has the force of law between the parties and they are bound to the fulfillment of what
has been expressly stipulated therein."26 Accordingly, "the provision of the [CMU] must
be applied in such a manner that it does not impair the vested rights of the parties."
From this Decision, Kuwait Airways directly filed with this Court the present Petition for
Review, raising pure questions of law. Kuwait Airways poses three questions of law for
resolution: whether the designated air carrier of the Republic of the Philippines can have
better rights than the government itself; whether the bilateral agreement between the
Republic of the Philippines and the State of Kuwait is superior to the Commercial
Agreement; and whether the enforcement of the CMU violates the non-impairment clause
of the Constitution.
Let us review the factual backdrop to appreciate the underlying context behind the
Commercial Agreement and the CMU. The Commercial Agreement was entered into in
1981 at a time when Philippine Airlines had not provided a route to Kuwait while Kuwait
Airways had a route to Manila. The Commercial Agreement established a joint
commercial arrangement whereby Philippine Airlines and Kuwait Airways were to jointly
operate the Manila-Kuwait (and vice versa) route, utilizing the planes and services of
Kuwait Airways. Based on the preambular paragraphs of the Joint Services Agreement, as
of 1981, Kuwait Airways was interested in establishing a "second frequency" (or an
increase of its Manila flights to two) and that "as a result of cordial and frank discussions
the concept of a joint service emerged as the most desirable alternative option." 27
As a result, the revenue-sharing agreement was reached between the two airlines, an
agreement which stood as an alternative to both carriers offering competing flights
servicing the Manila-Kuwait route. An apparent concession though by Philippine Airlines
was the preclusion of the exercise of one of the fundamental air traffic rights, the Fifth
Freedom traffic rights with respect to the Manila-Bangkok-Kuwait, thereby precluding
the deplaning of passengers from Manila in Bangkok and the boarding in Bangkok of
passengers bound for Manila.
The CMU effectively sought to end the 1981 agreement between Philippine Airlines and
Kuwait Airways, by precluding any commercial arrangements in the exercise of the Third
and Fourth freedom traffic rights. As a result, both Kuwait and the Philippines had the
respective right to board passengers from their respective countries and deplane them in
the other country, without having to share any revenue or enter into any commercial
arrangements to exercise such rights. In exchange, the designated airline or airlines of
each country was entitled to operate six frequencies per week in each direction. In
addition, the designated airlines were allowed to enter into commercial arrangements for
the unilateral exercise of the Fifth Freedom traffic rights.
Another notable point, one not touched upon by the parties or the trial court. It is well
known that at the time of the execution of the 1981 agreements, Philippine Airlines was
controlled by the Philippine government, with the Government Service Insurance System
(GSIS) holding the majority of shares. However, in 1992, Philippine Airlines was
privatized, with a private consortium acquiring 67% of the shares of the carrier. 28 Thus, at
the time of the signing of the CMU, Philippine Airlines was a private corporation no
longer controlled by the Government. This fact is significant. Had Philippine Airlines
remained a government owned or controlled corporation at the time the CMU was
executed in 1995, its status as such would have bound Philippine Airlines to the
commitments made in the document by no less than the Philippine government. However,
since Philippine Airlines had already become a private corporation at that juncture, the
question of impairment of private rights may come into consideration.
In this regard, we observe that the RTC appears to have been under the impression that
the CMU was brought about by machinations of the Philippine Panel and the Kuwait
Panel of which Philippine Airlines was not aware or in which it had a part. This
impression is not exactly borne by the record since no less than four of the nine members
of the Philippine Panel were officials of Philippine Airlines. It should be noted though
that one of these officials, Senior International Relations Specialist Arnel Vibar, testified
for Philippine Airlines that the airline voiced its opposition to the withdrawal of the
commercial agreements under the CMU even months before the signing of the CMU, but
the objections were overruled.
Now, the arguments raised in the petition.
One line of argument raised by Kuwait Airways can be dismissed outright. Kuwait
Airways points out that the third Whereas clause of the 1981 Commercial Agreement
stated: "NOW, it is hereby agreed, subject to and without prejudice to any existing or
future agreements between the Government Authorities of the Contracting Parties hereto
…" That clause, it is argued, evinces acknowledgement that from the beginning
Philippine Airlines had known fully well that its rights under the Commercial Agreement
would be limited by whatever agreements the Philippine and Kuwait governments may
enter into later.
But can a perambulatory clause, which is what the adverted "Whereas" clause is, impose
a binding obligation or limitation on the contracting parties? In the case of statutes, while
a preamble manifests the reasons for the passage of the statute and aids in the
interpretation of any ambiguities within the statute to which it is prefixed, it nonetheless
is not an essential part of an act, and it neither enlarges nor confers powers.29 Philippine
Airlines submits that the same holds true as to the preambular whereas clauses of a
contract.
What was the intention of the parties in forging the "Whereas" clause and the contexts the
parties understood it in 1981? In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered, 30 and in doing
so, the courts may consider the relations existing between the parties and the purpose of
the contract.31 In 1981, Philippine Airlines was still owned by the Philippine government.
In that context, it is evident that the Philippine government, as owner Philippine Airlines,
could enter into agreements with the Kuwait government that would supersede the
Commercial Agreement entered into by one of its GOCCs, a scenario that changed once
Philippine Airlines fell to private ownership. Philippine Airlines argues before us that the
cited preambular stipulation is in fact superfluous, and we can agree in the sense that as of
the time of the execution of the Commercial Agreement, it was evident, without need of
STATCON CASE DIGESTS
stipulation, that the Philippine government could enter into an agreement with the Kuwait
government that would prejudice the terms of the commercial arrangements between the
two airlines. After all, Philippine Airlines then would not have been in a position to
challenge the wishes of its then majority stockholder – the Philippine government.
Yet by the time ownership of Philippine Airlines was transferred into private hands, the
controverted "Whereas" clause had taken on a different complexion, for it was newly
evident that an act of the Philippine government negating the commercial arrangement
between the two airlines would infringe the vested rights of a private individual. The
original intention of the "Whereas" clause was to reflect what was then a given fact
relative to the nationalized status of Philippine Airlines. With the change of ownership of
Philippine Airlines, the "Whereas" clause had ceased to be reflective of the current
situation as it now stands as a seeming invitation to the Philippine government to erode
private vested rights. We would have no problem according the interpretation preferred
by Kuwait Airways of the "Whereas" clause had it been still reflective of the original
intent to waive vested rights of private persons, rather than the rights in favor of the
government by a GOCC. That is not the case, and we are not inclined to give effect to the
"Whereas" clause in a manner that does not reflect the original intention of the
contracting parties.
Thusly, the proper focus of our deliberation should be whether the execution of the CMU
between the Philippine and Kuwait governments could have automatically terminated the
Commercial Agreement, as well as the Joint Services Agreement between Philippine
Airlines and Kuwait Airways.
Philippine Airlines is the grantee of a legislative franchise authorizing it to provide
domestic and international air services.32 Its initial franchise was granted in 1935 through
Act No. 4271, which underwent substantial amendments in 1959 through Republic Act
No. 2360.33 It was granted a new franchise in 1979 through Presidential Decree No. 1590,
wherein statutory recognition was accorded to Philippine Airlines as the "national flag
carrier." P.D. No. 1590 also recognized that the "ownership, control, and management" of
Philippine Airlines had been reacquired by the Government. Section 19 of P.D. No. 1590
authorized Philippine Airlines to contract loans, credits and indebtedness from foreign
sources, including foreign governments, with the unconditional guarantee of the Republic
of the Philippines.
At the same time, Section 8 of P.D. No. 1590 subjects Philippine Airlines "to the laws of
the Philippines now existing or hereafter enacted." After pointing to this provision,
Kuwait Airways correlates it to Republic Act (R.A.) No. 776, or the Civil Aeronautics
Act of the Philippines, which grants the Civil Aeronautics Board (CAB) "the power to
regulate the economic aspect of air transportation, [its] general supervision and regulation
of, and jurisdiction and control over, air carriers as well as their property, property rights,
equipment, facilities, and franchise." R.A. No. 776 also mandates that the CAB "shall
take into consideration the obligation assumed by the Republic of the Philippines in any
treaty, convention or agreement with foreign countries on matters affecting civil
aviation."
There is no doubt that Philippine Airlines forebears under several regulatory perspectives.
First, its authority to operate air services in the Philippines derives from its legislative
franchise and is accordingly bound by whatever limitations that are presently in place or
may be subsequently incorporated in its franchise. Second, Philippine Airlines is subject
to the other laws of the Philippines, including R.A. No. 776, which grants regulatory
power to the CAB over the economic aspect of air transportation. Third, there is a very
significant public interest in state regulation of air travel in view of considerations of
public safety, domestic and international commerce, as well as the fact that air travel
necessitates steady traversal of international boundaries, the amity between nations.
At the same time, especially since Philippine Airlines was already under private
ownership at the time the CMU was entered into, we cannot presume that any and all
commitments made by the Philippine government are unilaterally binding on the carrier
even if this comes at the expense of diplomatic embarrassment. While it may have been,
prior to the privatization of Philippine Airlines, that the Philippine Government had the
authority to bind the airline in its capacity as owner of the airline, under the post-
privatization era, however, whatever authority of the Philippine Government to bind
Philippine Airlines can only come in its capacity as regulator.1awphi1
As with all regulatory subjects of the government, infringement of property rights can
only avail with due process of law. Legislative regulation of public utilities must not have
the effect of depriving an owner of his property without due process of law, nor of
confiscating or appropriating private property without due process of law, nor of
confiscating or appropriating private property without just compensation, nor of limiting
or prescribing irrevocably vested rights or privileges lawfully acquired under a charter or
franchise. The power to regulate is subject to these constitutional limits. 34
We can deem that the CAB has ample power under its organizing charter, to compel
Philippine Airlines to terminate whatever commercial agreements the carrier may have.
After all, Section 10 of R.A. No. 776 grants to the CAB the "general supervision and
regulation of, and jurisdiction and control over, air carriers as well as their property,
property rights, equipment, facilities and franchise," and this power correlates to Section
4(c) of the same law, which mandates that the Board consider in the exercise of its
functions "the regulation of air transportation in such manner as to recognize and preserve
the inherent advantages of, assure the highest degree of safety in, and foster sound
economic condition in, such transportation, and to improve the relations between, and
coordinate transportation by air carriers."
We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to
compel Philippine Airlines to immediately terminate its Commercial Agreement with
Kuwait Airways pursuant to the CMU. Considering that it is the Philippine government
that has the sole authority to charter air policy and negotiate with foreign governments
with respect to air traffic rights, the government through the CAB has the indispensable
authority to compel local air carriers to comply with government determined policies,
even at the expense of economic rights. The airline industry is a sector where government
abjuration is least desired.
STATCON CASE DIGESTS
However, this is not a case where the CAB had duly exercised its regulatory authority
over a local airline in order to implement or further government air policy. What
happened instead was an officer of the CAB, acting in behalf not of the Board but of the
Philippine government, had committed to a foreign nation the immediate abrogation of
Philippine Airlines’s commercial agreement with Kuwait Airways. And while we do not
question that ability of that member of the CAB to represent the Philippine government in
signing the CMU, we do question whether such member could have bound Philippine
Airlines in a manner that can be accorded legal recognition by our courts.
Imagine if the President of the Philippines, or one of his alter egos, acceded to the
demands of a foreign counterpart and agreed to shut down a particular Filipino business
or enterprise, going as far as to co-sign a document averring that the business "will be
shut down immediately." Granting that there is basis in Philippine law for the closure of
such business, could the mere declaration of the President have the legal effect of
immediately rendering business operations illegal? We, as magistrates in a functioning
democratic State with a fully fleshed Bill of Rights and a Constitution that emphatically
rejects "l’etat cest moi" as the governing philosophy, think not. There is nothing to
prevent the Philippine government from utilizing all the proper channels under law to
enforce such closure, but unless and until due process is observed, it does not have legal
effect in this jurisdiction. Even granting that the "agreement" between the two
governments or their representatives creates a binding obligation under international law,
it remains incumbent for each contracting party to adhere to its own internal law in the
process of complying with its obligations.
The promises made by a Philippine president or his alter egos to a foreign monarch are
not transubstantiated by divine right so as to ipso facto render legal rights of private
persons obviated. Had Philippine Airlines remained a government-owned or controlled
corporation, it would have been bound, as part of the executive branch, to comply with
the dictates of the President or his alter egos since the President has executive control and
supervision over the components of the executive branch. Yet Philippine Airlines has
become, by this time, a private corporation – one that may have labored under the
conditions of its legislative franchise that allowed it to conduct air services, but private in
character nonetheless. The President or his alter egos do not have the legal capacity to
dictate insuperable commands to private persons. And that undesirable trait would be
refuted on the President had petitioner’s position prevailed, since it is imbued with the
presumption that the commitment made to a foreign government becomes operative
without complying with the internal processes for the divestiture of private rights.
Herein, we do not see why the Philippine government could not have observed due
process of law, should it have desired to see the Commercial Agreement immediately
terminated in order to adhere to its apparent commitment to the Kuwait government. The
CAB, with its ample regulatory power over the economic affairs of local airliners, could
have been called upon to exercise its jurisdiction to make it so. A remedy even exists in
civil law–the judicial annulment or reformation of contracts–which could have been
availed of to effect the immediate termination of the Commercial Agreement. No such
remedy was attempted by the government.
Nor can we presume, simply because Dr. Linlingan, Executive Director of the CAB had
signed the CMU in behalf of the Philippine Panel, that he could have done so bearing the
authority of the Board, in the exercise of regulatory jurisdiction over Philippine Airlines.
For one, the CAB is a collegial body composed of five members,35 and no one member–
even the chairman–can act in behalf of the entire Board. The Board is disabled from
performing as such without a quorum. For another, the Executive Director of the CAB is
not even a member of the Board, per R.A. No. 776, as amended.
Even granting that the police power of the State, as given flesh in the various laws
governing the regulation of the airline industry in the Philippines, may be exercised to
impair the vested rights of privately-owned airlines, the deprivation of property still
requires due process of law. In order to validate petitioner’s position, we will have to
concede that the right to due process may be extinguished by executive command. While
we sympathize with petitioner, who reasonably could rely on the commitment made to it
by the Philippine government, we still have to respect the segregate identity of the
government and that of a private corporation and give due meaning to that segregation,
vital as it is to the very notion of democracy.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.
PKSMMN v. Exec. Secretary – G.R. Nos. 147036-37, 10 April 2012
PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN (PKSMMN), etc. v. EXECUTIVE SECRETARY,
etc. CONSOLIDATED WITH G.R. No. 147811.
FACTS: These are consolidated petitions to declare unconstitutional certain presidential
decrees and executive orders of the martial law era and under the incumbency of Pres.
Estrada relating to the raising and use of coco-levy funds, particularly: Section 2 of P.D.
755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313.
On June 19, 1971 Congress enacted R.A. 6260 that established a Coconut Investment
Fund (CI Fund) for the development of the coconut industry through capital financing.
Coconut farmers were to capitalize and administer the Fund through the Coconut
Investment Company (CIC) whose objective was, among others, to advance the coconut
farmers interests.For this purpose, the law imposed a levy ofP0.55on the coconut farmers
first domestic sale of every 100 kilograms of copra, or its equivalent, for which levy he
was to get a receipt convertible into CIC shares of stock.
In 1975 President Marcos enacted P.D. 755 which approved the acquisition of a
commercial bank for the benefit of the coconut farmersto enable such bank to promptly
and efficiently realize the industry's credit policy.Thus, the PCA bought 72.2% of the
shares of stock of First United Bank, headed by Pedro Cojuangco.Dueto changes in its
corporate identity and purpose, the banks articles of incorporation were amended in July
1975, resulting in a change in the banks name from First United Bank United Coconut
Planters Bank (UCPB).
STATCON CASE DIGESTS
In November 2000 then President Joseph Estrada issued Executive Order (E.O.) 312,
establishing a Sagip Niyugan Program which sought to provide immediate income
supplement to coconut farmers and encourage the creation of a sustainable local market
demand for coconut oil and other coconut products.The Executive Order sought to
establish aP1-billion fund by disposing of assets acquired using coco-levy funds or assets
of entities supported by those funds.A committee was created to manage the fund under
this program.A majority vote of its members could engage the services of a reputable
auditing firm to conduct periodic audits.
At about the same time, President Estrada issued E.O. 313, which created an irrevocable
trust fund known as the Coconut Trust Fund (the Trust Fund).This aimed to provide
financial assistance to coconut farmers, to the coconut industry, and to other agri-related
programs.The shares of stock of SMC were to serve as the Trust Funds initial
capital.These shares were acquired with CII Funds and constituted approximately 27% of
the outstanding capital stock of SMC.E.O. 313 designated UCPB, through its Trust
Department, as the Trust Funds trustee bank.The Trust Fund Committee would
administer, manage, and supervise the operations of the Trust Fund. The Committee
would designate an external auditor to do an annual audit or as often as needed but it may
also request the Commission on Audit (COA) to intervene.
To implement its mandate, E.O. 313 directed the Presidential Commission on Good
Government, the Office of the Solicitor General, and other government agencies to
exclude the 27% CIIF SMC shares from Civil Case 0033, entitled Republic of the
Philippines v. Eduardo Cojuangco, Jr., et al.,which was then pending before the
Sandiganbayan and to lift the sequestration over those shares.
On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the
suspension of E.O.s 312 and 313. This notwithstanding, on March 1, 2001 petitioner
organizations and individuals brought the present action in G.R. 147036-37 to declare
E.O.s 312 and 313 as well as Article III, Section 5 of P.D. 1468 unconstitutional.On April
24, 2001 the other sets of petitioner organizations and individuals instituted G.R. 147811
to nullify Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also for
being unconstitutional.
ISSUE: Are the coco-levy funds public funds?
Are (a) Section 2 of P.D. 755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O.
312, and (d) E.O. 313 unconstitutional?
Have petitioners legal standing to bring the same to court?
HELD: Coco-levy funds are public funds. The Court was satisfied that the coco-levy
funds were raised pursuant to law to support a proper governmental purpose.They were
raised with the use of the police and taxing powers of the State for the benefit of the
coconut industry and its farmers in general. The COA reviewed the use of the funds.The
BIR treated them as public funds and the very laws governing coconut levies recognize
their public character.
The Court has also recently declared that the coco-levy funds are in the nature of taxes
and can only be used for public purpose.Taxes are enforced proportional contributions
from persons and property, levied by the State by virtue of its sovereignty for the support
of the government and for all itspublic needs. Here, the coco-levy funds were imposed
pursuant to law, namely, R.A. 6260 and P.D. 276.The funds were collected and managed
by the PCA,an independent government corporation directly under the President.And, as
the respondent public officials pointed out, thepertinent laws used the termlevy, which
meansto tax, in describing the exaction.
R.A. 6260 and P.D. 276 did not raise money to boost the governments general funds butto
provide means for the rehabilitation and stabilization of a threatened industry, the coconut
industry, which is so affected with public interest as to be within the police power of the
State. The funds sought to support the coconut industry,one of the main economic
backbones of the country, and to secure economic benefits for the coconut farmers and
farm workers.
Lastly, the coco-levy funds are evidently special funds. Its character as such fund was
made clear by the fact that they were deposited in the PNB (then a wholly owned
government bank) and not in the Philippine Treasury.
***
The Court has already passed upon this question in Philippine Coconut Producers
Federation, Inc. (COCOFED) v. Republic of the Philippines. It held as unconstitutional
Section 2 of P.D. 755 for effectively authorizing the PCA to utilize portions of theCCS
Fundto pay the financial commitment of the farmers to acquire UCPB and to deposit
portions of the CCS Fund levies with UCPB interest free. And as there also provided, the
CCS Fund, CID Fund and like levies that PCA is authorized to collect shall be considered
as non-special or fiduciary funds to be transferred to the general fund of the Government,
meaning they shall be deemed private funds.
In any event, such declaration is void.There is ownership when a thing pertaining to a
person is completely subjected to his will in everything that is not prohibited by law or
the concurrence with the rights of another. An owner is free to exercise all attributes
ofownership: the right, among others, to possess, use and enjoy, abuse or consume, and
dispose or alienate the thing owned. The owner is free to waive all or some of these rights
in favor of others.But in the case of the coconut farmers, they could not, individually or
collectively, waive what have not been and could not be legally imparted to them.
Section 2 of P.D. 755, Article III,Section 5of P.D. 961, and Article III, Section 5 of P.D.
1468 completely ignore the fact that coco-levy funds are public funds raised through
taxation.And since taxes could be exacted only for a public purpose, they cannot be
declared private properties of individuals although such individuals fall within a distinct
group of persons.
These assailed provisions,which removed the coco-levy funds from the general funds of
the government and declared them private properties of coconut farmers,do not appear to
have a color of social justice for their purpose.The levy on copra that farmers produce
appears, in the first place, to be a business tax judging by its tax base.The concept of
farmers-businessmen is incompatible with the idea that coconut farmers are victims of
social injustice and so should be beneficiaries of the taxes raised from their earnings.
STATCON CASE DIGESTS
On another point, in stating that the coco-levy fund shall not be construed or interpreted,
under any law or regulation, as special and/or fiduciary funds, or as part of the general
funds of the national government,P.D.s 961 and 1468 seek to remove such fund from
COA scrutiny.
This is also the fault of President Estradas E.O. 312 which deals with P1 billion to be
generated out of the sale of coco-fund acquired assets.E.O. 313 has a substantially
identical provision governing the management and disposition of the Coconut Trust Fund
capitalized with the substantial SMC shares of stock that the coco-fund acquired.
But, since coco-levy funds are taxes, the provisions of P.D.s755,961 and 1468 as well as
those of E.O.s 312 and 313 that remove such funds and the assets acquired through them
from the jurisdiction of the COA violate Article IX-D, Section 2(1) of the 1987
Constitution.Section 2(1) vests in the COA the power and authority to examine uses of
government money and property.The cited P.D.s and E.O.s also contravene Section 2 of
P.D. 898 (Providing for the Restructuring of the Commission on Audit), which has the
force of a statute.And there is no legitimate reason why such funds should be shielded
from COA review and audit.The PCA, which implements the coco-levy laws and collects
the coco-levy funds, is a government-owned and controlled corporation subject to COA
review and audit.
E.O. 313 suffers from an additional infirmity.Apparently, it intends to create a trust fund
out of the coco-levy funds to provide economic assistance to the coconut farmers and,
ultimately, benefit the coconut industry.But on closer look, E.O. 313 strays from the
special purpose for which the law raises coco-levy funds in that it permits the use of coco-
levy funds for improving productivity in other food areas.
Clearly, E.O.313 above runs counter to the constitutional provision which directs thatall
money collected on any tax levied for a special purpose shall be treated as a special fund
and paid out for such purpose only.Assisting other agriculturally-related programs is way
off the coco-funds objective of promoting the general interests of the coconut industry
and its farmers.
A final point,the E.O.s also transgress P.D. 1445,Section 84(2),the first part by the
previously mentioned sections of E.O. 313 and the second part by Section 4 of E.O. 312
and Sections 6 and 7 of E.O. 313.E.O. 313 vests the power to administer, manage, and
supervise the operations and disbursements of the Trust Fund it established (capitalized
with SMC shares bought out of coco-levy funds) in a Coconut Trust Fund Committee.
Section 4 ofE.O. 312 does essentially the same thing.It vests the management and
disposition of the assistance fund generated from the sale of coco-levy fund-acquired
assets into a Committee of five members.
In effect, the provision transfers the power to allocate, use, and disburse coco-levy funds
that P.D. 232 vested in the PCA and transferred the same, without legislative
authorization and in violation of P.D. 232, to the Committees mentioned above.An
executive order cannot repeal a presidential decree which has the same standing as a
statute enacted by Congress.
***
The Court has to uphold petitioners right to institute these petitions.The petitioner
organizations in these cases represent coconut farmers on whom the burden of the coco-
levies attaches.It is also primarily for their benefit that the levies were imposed.
The individual petitioners, on the other hand, join the petitions as taxpayers.The Court
recognizes their right to restrain officials from wasting public funds through the
enforcement of an unconstitutional statute.This so-called taxpayers suit is based on the
theory that expenditure of public funds for the purpose of executing an unconstitutional
act is a misapplication of such funds.
The petition in G.R.147036-37 is granted; The petition in G.R. 147811 is partially
granted; the following are declared void: a) E.O. 312; and b)E.O. 313.
Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 have been
previously unconstitutional.
PKSMMN vs.EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012 coco
levy funds, substantive due process
FACTS:
In 1976 President Marcos enacted P.D. 961, the Coconut Industry Code, which
consolidated and codified existing laws relating to the coconut industry. The Code
provided that surpluses from the CCS Fund and the CID Fund collections, not used for
replanting and other authorized purposes, were to be invested by acquiring shares of stock
of corporations, including the San Miguel Corporation (SMC), engaged in undertakings
related to the coconut and palm oil industries. UCPB was to make such investments and
equitably distribute these for free to coconut farmers. These investments constituted the
Coconut Industry Investment Fund (CIIF). P.D. 961 also provided that the coconut levy
funds (coco-levy funds) shall be owned by the coconut farmers in their private capacities.
ISSUE: Does appropriating public funds violate substantive due process?
RULING: Yes.
The coco-levy funds were raised pursuant to law to support a proper governmental
purpose. They were raised with the use of the police and taxing powers of the State for
the benefit of the coconut industry and its farmers in general. The Court has also recently
declared that the coco-levy funds are in the nature of taxes and can only be used for
public purpose.
In COCOFED v. Republic, the Court held as unconstitutional Section 2 of P.D. 755 for
“effectively authorizing the PCA to utilize portions of the CCS Fund to pay the financial
commitment of the farmers to acquire UCPB and to deposit portions of the CCS Fund
levies with UCPB interest free. And as there also provided, the CCS Fund, CID Fund and
STATCON CASE DIGESTS
like levies that PCA is authorized to collect shall be considered as non-special or
fiduciary funds to be transferred to the general fund of the Government, meaning they
shall be deemed private funds.”
Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D.
1468 completely ignore the fact that coco-levy funds are public funds raised through
taxation. And since taxes could be exacted only for a public purpose, they cannot be
declared private properties of individuals although such individuals fall within a distinct
group of persons.
But the assailed provisions, which removed the coco-levy funds from the general funds of
the government and declared them private properties of coconut farmers, do not appear to
have a color of social justice for their purpose. The declarations do not distinguish
between wealthy coconut farmers and the impoverished ones. Consequently, such
declarations are void since they appropriate public funds for private purpose and,
therefore, violate the citizens’ right to substantive due process.
Chart of the Legislative Process
Introduction
According to the 1987 Constitution, legislative power shall be vested in the Congress of
the Philippines, which shall consist of a Senate and a House of Representatives.
The Senate shall be composed of twenty-four Senators who shall be elected at large by
the qualified voters of the Philippines, as may be provided by law; the House of
Representatives shall be composed of not more than 250 (unless otherwise fixed by law),
20 percent of whom must be Party-list representatives.
4. except the party-list representatives, a registered voter and a resident for at least
one year in the district where s/he shall be elected.
Legislative process
Congress is responsible for making enabling laws to make sure the spirit of the constitution
is upheld in the country and, at times, amend or change the constitution itself. In order to
craft laws, the legislative body comes out with two main documents: bills and resolutions.
Resolutions convey principles and sentiments of the Senate or the House of
Representatives. These resolutions can further be divided into three different elements:
 joint resolutions — require the approval of both chambers of Congress and the
signature of the President, and have the force and effect of a law if approved.
 concurrent resolutions — used for matters affecting the operations of both
chambers of Congress and must be approved in the same form by both houses, but
are not transmitted to the President for his signature and therefore have no force
and effect of a law.
 simple resolutions — deal with matters entirely within the prerogative of one
chamber of Congress, are not referred to the President for his signature, and
therefore have no force and effect of a law.
Bills are laws in the making. They pass into law when they are approved by both houses
and the President of the Philippines. A bill may be vetoed by the President, but the House
of Representatives may overturn a presidential veto by garnering a 2/3rds vote. If the
President does not act on a proposed law submitted by Congress, it will lapse into law after
30 days of receipt.

The qualifications to become a senator, as stipulated in the constitution, are:

1. a natural-born citizen of the Philippines;

2. at least thirty-five years old;
3. is able to read and write
4. a registered voter; and
5. a resident of the Philippines for not less than two years before election day.

Meanwhile, the constitution provides for the following criteria to become a member of
the House of Representatives:

1. a natural-born citizen of the Philippines;

2. at least twenty-five years old;
3. is able to read and write; and
STATCON CASE DIGESTS
STATCON CASE DIGESTS
STATUTORY ANALYSIS
Read Chapter 3, Legal Analysis and Writing by William Putman, 3rd edition
2009