A.

INTRODUCTION TO STATUTORY CONSTRUCTION AND

INTERPRETATION; POWER TO CONSTRUE; SUBJECTS
OF CONSTRUCTION; LEGISLATION

CALTEX (PHILIPPINES), INC., petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as THE POSTMASTER GENERAL, respondent-appellant.

In the year 1960 the Caltex (Philippines) Inc. (hereinafter referred to as Caltex) conceived and laid the
groundwork for a promotional scheme calculated to drum up patronage for its oil products. Denominated
"Caltex Hooded Pump Contest", it calls for participants therein to estimate the actual number of liters a
hooded gas pump at each Caltex station will dispense during a specified period. Employees of the Caltex
(Philippines) Inc., its dealers and its advertising agency, and their immediate families excepted,
participation is to be open indiscriminately to all "motor vehicle owners and/or licensed drivers". For the
privilege to participate, no fee or consideration is required to be paid, no purchase of Caltex products
required to be made. Entry forms are to be made available upon request at each Caltex station where a
sealed can will be provided for the deposit of accomplished entry stubs.
A three-staged winner selection system is envisioned. At the station level, called "Dealer Contest", the
contestant whose estimate is closest to the actual number of liters dispensed by the hooded pump thereat
is to be awarded the first prize; the next closest, the second; and the next, the third. Prizes at this level
consist of a 3-burner kerosene stove for first; a thermos bottle and a Ray-O-Vac hunter lantern for
second; and an Everready Magnet-lite flashlight with batteries and a screwdriver set for third. The firstprize winner in each station will then be qualified to join in the "Regional Contest" in seven different
regions. The winning stubs of the qualified contestants in each region will be deposited in a sealed can
from which the first-prize, second-prize and third-prize winners of that region will be drawn. The regional
first-prize winners will be entitled to make a three-day all-expenses-paid round trip to Manila,
accompanied by their respective Caltex dealers, in order to take part in the "National Contest". The
regional second-prize and third-prize winners will receive cash prizes of P500 and P300, respectively. At
the national level, the stubs of the seven regional first-prize winners will be placed inside a sealed can
from which the drawing for the final first-prize, second-prize and third-prize winners will be made. Cash
prizes in store for winners at this final stage are: P3,000 for first; P2,000 for second; Pl,500 for third; and
P650 as consolation prize for each of the remaining four participants.
Foreseeing the extensive use of the mails not only as amongst the media for publicizing the contest but
also for the transmission of communications relative thereto, representations were made by Caltex with
the postal authorities for the contest to be cleared in advance for mailing, having in view sections 1954(a),
1982 and 1983 of the Revised Administrative Code, the pertinent provisions of which read as follows:
SECTION 1954. Absolutely non-mailable matter. No matter belonging to any of the following
classes, whether sealed as first-class matter or not, shall be imported into the Philippines through
the mails, or to be deposited in or carried by the mails of the Philippines, or be delivered to its
addressee by any officer or employee of the Bureau of Posts:
Written or printed matter in any form advertising, describing, or in any manner pertaining to, or
conveying or purporting to convey any information concerning any lottery, gift enterprise, or
similar scheme depending in whole or in part upon lot or chance, or any scheme, device, or
enterprise for obtaining any money or property of any kind by means of false or fraudulent
pretenses, representations, or promises.

"SECTION 1982. Fraud orders.Upon satisfactory evidence that any person or company is
engaged in conducting any lottery, gift enterprise, or scheme for the distribution of money, or of
any real or personal property by lot, chance, or drawing of any kind, or that any person or
company is conducting any scheme, device, or enterprise for obtaining money or property of any
kind through the mails by means of false or fraudulent pretenses, representations, or promises,
the Director of Posts may instruct any postmaster or other officer or employee of the Bureau to
return to the person, depositing the same in the mails, with the word "fraudulent" plainly written or
stamped upon the outside cover thereof, any mail matter of whatever class mailed by or
addressed to such person or company or the representative or agent of such person or company.
SECTION 1983. Deprivation of use of money order system and telegraphic transfer service.
The Director of Posts may, upon evidence satisfactory to him that any person or company is
engaged in conducting any lottery, gift enterprise or scheme for the distribution of money, or of
any real or personal property by lot, chance, or drawing of any kind, or that any person or
company is conducting any scheme, device, or enterprise for obtaining money or property of any
kind through the mails by means of false or fraudulent pretenses, representations, or promise,
forbid the issue or payment by any postmaster of any postal money order or telegraphic transfer
to said person or company or to the agent of any such person or company, whether such agent is
acting as an individual or as a firm, bank, corporation, or association of any kind, and may provide
by regulation for the return to the remitters of the sums named in money orders or telegraphic
transfers drawn in favor of such person or company or its agent.
The overtures were later formalized in a letter to the Postmaster General, dated October 31, 1960, in
which the Caltex, thru counsel, enclosed a copy of the contest rules and endeavored to justify its position
that the contest does not violate the anti-lottery provisions of the Postal Law. Unimpressed, the then
Acting Postmaster General opined that the scheme falls within the purview of the provisions aforesaid and
declined to grant the requested clearance. In its counsel's letter of December 7, 1960, Caltex sought a
reconsideration of the foregoing stand, stressing that there being involved no consideration in the part of
any contestant, the contest was not, under controlling authorities, condemnable as a lottery. Relying,
however, on an opinion rendered by the Secretary of Justice on an unrelated case seven years before
(Opinion 217, Series of 1953), the Postmaster General maintained his view that the contest involves
consideration, or that, if it does not, it is nevertheless a "gift enterprise" which is equally banned by the
Postal Law, and in his letter of December 10, 1960 not only denied the use of the mails for purposes of
the proposed contest but as well threatened that if the contest was conducted, "a fraud order will have to
be issued against it (Caltex) and all its representatives".
Caltex thereupon invoked judicial intervention by filing the present petition for declaratory relief against
Postmaster General Enrico Palomar, praying "that judgment be rendered declaring its 'Caltex Hooded
Pump Contest' not to be violative of the Postal Law, and ordering respondent to allow petitioner the use of
the mails to bring the contest to the attention of the public". After issues were joined and upon the
respective memoranda of the parties, the trial court rendered judgment as follows:
In view of the foregoing considerations, the Court holds that the proposed 'Caltex Hooded Pump
Contest' announced to be conducted by the petitioner under the rules marked as Annex B of the
petitioner does not violate the Postal Law and the respondent has no right to bar the public
distribution of said rules by the mails.
The respondent appealed.

The parties are now before us, arrayed against each other upon two basic issues: first, whether the
petition states a sufficient cause of action for declaratory relief; and second, whether the proposed "Caltex
Hooded Pump Contest" violates the Postal Law. We shall take these up in seriatim.
1. By express mandate of section 1 of Rule 66 of the old Rules of Court, which was the applicable legal
basis for the remedy at the time it was invoked, declaratory relief is available to any person "whose rights
are affected by a statute . . . to determine any question of construction or validity arising under the . . .
statute and for a declaration of his rights thereunder" (now section 1, Rule 64, Revised Rules of Court). In
amplification, this Court, conformably to established jurisprudence on the matter, laid down certain
conditions sine qua non therefor, to wit: (1) there must be a justiciable controversy; (2) the controversy
must be between persons whose interests are adverse; (3) the party seeking declaratory relief must have
a legal interest in the controversy; and (4) the issue involved must be ripe for judicial determination
(Tolentino vs. The Board of Accountancy, et al., G.R. No. L-3062, September 28, 1951; Delumen, et al.
vs. Republic of the Philippines, 50 O.G., No. 2, pp. 576, 578-579; Edades vs. Edades, et al., G.R. No. L8964, July 31, 1956). The gravamen of the appellant's stand being that the petition herein states no
sufficient cause of action for declaratory relief, our duty is to assay the factual bases thereof upon the
foregoing crucible.
As we look in retrospect at the incidents that generated the present controversy, a number of significant
points stand out in bold relief. The appellee (Caltex), as a business enterprise of some consequence,
concededly has the unquestioned right to exploit every legitimate means, and to avail of all appropriate
media to advertise and stimulate increased patronage for its products. In contrast, the appellant, as the
authority charged with the enforcement of the Postal Law, admittedly has the power and the duty to
suppress transgressions thereof particularly thru the issuance of fraud orders, under Sections 1982
and 1983 of the Revised Administrative Code, against legally non-mailable schemes. Obviously pursuing
its right aforesaid, the appellee laid out plans for the sales promotion scheme hereinbefore detailed. To
forestall possible difficulties in the dissemination of information thereon thru the mails, amongst other
media, it was found expedient to request the appellant for an advance clearance therefor. However,
likewise by virtue of his jurisdiction in the premises and construing the pertinent provisions of the Postal
Law, the appellant saw a violation thereof in the proposed scheme and accordingly declined the request.
A point of difference as to the correct construction to be given to the applicable statute was thus reached.
Communications in which the parties expounded on their respective theories were exchanged. The
confidence with which the appellee insisted upon its position was matched only by the obstinacy with
which the appellant stood his ground. And this impasse was climaxed by the appellant's open warning to
the appellee that if the proposed contest was "conducted, a fraud order will have to be issued against it
and all its representatives."
Against this backdrop, the stage was indeed set for the remedy prayed for. The appellee's insistent
assertion of its claim to the use of the mails for its proposed contest, and the challenge thereto and
consequent denial by the appellant of the privilege demanded, undoubtedly spawned a live controversy.
The justiciability of the dispute cannot be gainsaid. There is an active antagonistic assertion of a legal
right on one side and a denial thereof on the other, concerning a real not a mere theoretical
question or issue. The contenders are as real as their interests are substantial. To the appellee, the
uncertainty occasioned by the divergence of views on the issue of construction hampers or disturbs its
freedom to enhance its business. To the appellant, the suppression of the appellee's proposed contest
believed to transgress a law he has sworn to uphold and enforce is an unavoidable duty. With the
appellee's bent to hold the contest and the appellant's threat to issue a fraud order therefor if carried out,
the contenders are confronted by the ominous shadow of an imminent and inevitable litigation unless their
differences are settled and stabilized by a tranquilizing declaration (Pablo y Sen, et al. vs. Republic of the
Philippines, G.R. No. L-6868, April 30, 1955). And, contrary to the insinuation of the appellant, the time is
long past when it can rightly be said that merely the appellee's "desires are thwarted by its own doubts, or

by the fears of others" which admittedly does not confer a cause of action. Doubt, if any there was, has
ripened into a justiciable controversy when, as in the case at bar, it was translated into a positive claim of
right which is actually contested (III Moran, Comments on the Rules of Court, 1963 ed., pp. 132-133,
citing: Woodward vs. Fox West Coast Theaters, 36 Ariz., 251, 284 Pac. 350).
We cannot hospitably entertain the appellant's pretense that there is here no question of construction
because the said appellant "simply applied the clear provisions of the law to a given set of facts as
embodied in the rules of the contest", hence, there is no room for declaratory relief. The infirmity of this
pose lies in the fact that it proceeds from the assumption that, if the circumstances here presented, the
construction of the legal provisions can be divorced from the matter of their application to the appellee's
contest. This is not feasible. Construction, verily, is the art or process of discovering and expounding the
meaning and intention of the authors of the law with respect to its application to a given case, where that
intention is rendered doubtful, amongst others, by reason of the fact that the given case is not explicitly
provided for in the law (Black, Interpretation of Laws, p. 1). This is precisely the case here. Whether or not
the scheme proposed by the appellee is within the coverage of the prohibitive provisions of the Postal
Law inescapably requires an inquiry into the intended meaning of the words used therein. To our mind,
this is as much a question of construction or interpretation as any other.
Nor is it accurate to say, as the appellant intimates, that a pronouncement on the matter at hand can
amount to nothing more than an advisory opinion the handing down of which is anathema to a declaratory
relief action. Of course, no breach of the Postal Law has as yet been committed. Yet, the disagreement
over the construction thereof is no longer nebulous or contingent. It has taken a fixed and final shape,
presenting clearly defined legal issues susceptible of immediate resolution. With the battle lines drawn, in
a manner of speaking, the propriety nay, the necessity of setting the dispute at rest before it
accumulates the asperity distemper, animosity, passion and violence of a full-blown battle which looms
ahead (III Moran, Comments on the Rules of Court, 1963 ed., p. 132 and cases cited), cannot but be
conceded. Paraphrasing the language in Zeitlin vs. Arnebergh 59 Cal., 2d., 901, 31 Cal. Rptr., 800, 383 P.
2d., 152, cited in 22 Am. Jur., 2d., p. 869, to deny declaratory relief to the appellee in the situation into
which it has been cast, would be to force it to choose between undesirable alternatives. If it cannot obtain
a final and definitive pronouncement as to whether the anti-lottery provisions of the Postal Law apply to its
proposed contest, it would be faced with these choices: If it launches the contest and uses the mails for
purposes thereof, it not only incurs the risk, but is also actually threatened with the certain imposition, of a
fraud order with its concomitant stigma which may attach even if the appellee will eventually be
vindicated; if it abandons the contest, it becomes a self-appointed censor, or permits the appellant to put
into effect a virtual fiat of previous censorship which is constitutionally unwarranted. As we weigh these
considerations in one equation and in the spirit of liberality with which the Rules of Court are to be
interpreted in order to promote their object (section 1, Rule 1, Revised Rules of Court) which, in the
instant case, is to settle, and afford relief from uncertainty and insecurity with respect to, rights and duties
under a law we can see in the present case any imposition upon our jurisdiction or any futility or
prematurity in our intervention.
The appellant, we apprehend, underrates the force and binding effect of the ruling we hand down in this
case if he believes that it will not have the final and pacifying function that a declaratory judgment is
calculated to subserve. At the very least, the appellant will be bound. But more than this, he obviously
overlooks that in this jurisdiction, "Judicial decisions applying or interpreting the law shall form a part of
the legal system" (Article 8, Civil Code of the Philippines). In effect, judicial decisions assume the same
authority as the statute itself and, until authoritatively abandoned, necessarily become, to the extent that
they are applicable, the criteria which must control the actuations not only of those called upon to abide
thereby but also of those in duty bound to enforce obedience thereto. Accordingly, we entertain no
misgivings that our resolution of this case will terminate the controversy at hand.

It is not amiss to point out at this juncture that the conclusion we have herein just reached is not without
precedent. In Liberty Calendar Co. vs. Cohen, 19 N.J., 399, 117 A. 2d., 487, where a corporation engaged
in promotional advertising was advised by the county prosecutor that its proposed sales promotion plan
had the characteristics of a lottery, and that if such sales promotion were conducted, the corporation
would be subject to criminal prosecution, it was held that the corporation was entitled to maintain a
declaratory relief action against the county prosecutor to determine the legality of its sales promotion
plan. In pari materia, see also: Bunis vs. Conway, 17 App. Div. 2d., 207, 234 N.Y.S. 2d., 435; Zeitlin vs.
Arnebergh, supra; Thrillo, Inc. vs. Scott, 15 N.J. Super. 124, 82 A. 2d., 903.
In fine, we hold that the appellee has made out a case for declaratory relief.
2. The Postal Law, chapter 52 of the Revised Administrative Code, using almost identical terminology in
sections 1954(a), 1982 and 1983 thereof, supra, condemns as absolutely non-mailable, and empowers
the Postmaster General to issue fraud orders against, or otherwise deny the use of the facilities of the
postal service to, any information concerning "any lottery, gift enterprise, or scheme for the distribution of
money, or of any real or personal property by lot, chance, or drawing of any kind". Upon these words
hinges the resolution of the second issue posed in this appeal.
Happily, this is not an altogether untrodden judicial path. As early as in 1922, in "El Debate", Inc. vs.
Topacio, 44 Phil., 278, 283-284, which significantly dwelt on the power of the postal authorities under the
abovementioned provisions of the Postal Law, this Court declared that
While countless definitions of lottery have been attempted, the authoritative one for this
jurisdiction is that of the United States Supreme Court, in analogous cases having to do with the
power of the United States Postmaster General, viz.: The term "lottery" extends to all schemes for
the distribution of prizes by chance, such as policy playing, gift exhibitions, prize concerts, raffles
at fairs, etc., and various forms of gambling. The three essential elements of a lottery are: First,
consideration; second, prize; and third, chance. (Horner vs. States [1892], 147 U.S. 449; Public
Clearing House vs. Coyne [1903], 194 U.S., 497; U.S. vs. Filart and Singson [1915], 30 Phil., 80;
U.S. vs. Olsen and Marker [1917], 36 Phil., 395; U.S. vs. Baguio [1919], 39 Phil., 962; Valhalla
Hotel Construction Company vs. Carmona, p. 233, ante.)
Unanimity there is in all quarters, and we agree, that the elements of prize and chance are too obvious in
the disputed scheme to be the subject of contention. Consequently as the appellant himself concedes, the
field of inquiry is narrowed down to the existence of the element of consideration therein. Respecting this
matter, our task is considerably lightened inasmuch as in the same case just cited, this Court has laid
down a definitive yard-stick in the following terms
In respect to the last element of consideration, the law does not condemn the gratuitous
distribution of property by chance, if no consideration is derived directly or indirectly from the
party receiving the chance, but does condemn as criminal schemes in which a valuable
consideration of some kind is paid directly or indirectly for the chance to draw a prize.
Reverting to the rules of the proposed contest, we are struck by the clarity of the language in which the
invitation to participate therein is couched. Thus
No puzzles, no rhymes? You don't need wrappers, labels or boxtops? You don't have to buy
anything? Simply estimate the actual number of liter the Caltex gas pump with the hood at your
favorite Caltex dealer will dispense from to , and win valuable prizes . . . ." .

Nowhere in the said rules is any requirement that any fee be paid, any merchandise be bought, any
service be rendered, or any value whatsoever be given for the privilege to participate. A prospective
contestant has but to go to a Caltex station, request for the entry form which is available on demand, and
accomplish and submit the same for the drawing of the winner. Viewed from all angles or turned inside
out, the contest fails to exhibit any discernible consideration which would brand it as a lottery. Indeed,
even as we head the stern injunction, "look beyond the fair exterior, to the substance, in order to unmask
the real element and pernicious tendencies which the law is seeking to prevent" ("El Debate", Inc. vs.
Topacio, supra, p. 291), we find none. In our appraisal, the scheme does not only appear to be, but
actually is, a gratuitous distribution of property by chance.
There is no point to the appellant's insistence that non-Caltex customers who may buy Caltex products
simply to win a prize would actually be indirectly paying a consideration for the privilege to join the
contest. Perhaps this would be tenable if the purchase of any Caltex product or the use of any Caltex
service were a pre-requisite to participation. But it is not. A contestant, it hardly needs reiterating, does not
have to buy anything or to give anything of value.1awphl.nt
Off-tangent, too, is the suggestion that the scheme, being admittedly for sales promotion, would naturally
benefit the sponsor in the way of increased patronage by those who will be encouraged to prefer Caltex
products "if only to get the chance to draw a prize by securing entry blanks". The required element of
consideration does not consist of the benefit derived by the proponent of the contest. The true test, as laid
down in People vs. Cardas, 28 P. 2d., 99, 137 Cal. App. (Supp.) 788, is whether the participant pays a
valuable consideration for the chance, and not whether those conducting the enterprise receive
something of value in return for the distribution of the prize. Perspective properly oriented, the standpoint
of the contestant is all that matters, not that of the sponsor. The following, culled from Corpus Juris
Secundum, should set the matter at rest:
The fact that the holder of the drawing expects thereby to receive, or in fact does receive, some
benefit in the way of patronage or otherwise, as a result of the drawing; does not supply the
element of consideration. Griffith Amusement Co. vs. Morgan, Tex. Civ. App., 98 S.W., 2d., 844"
(54 C.J.S., p. 849).
Thus enlightened, we join the trial court in declaring that the "Caltex Hooded Pump Contest" proposed by
the appellee is not a lottery that may be administratively and adversely dealt with under the Postal Law.
But it may be asked: Is it not at least a "gift enterprise, or scheme for the distribution of money, or of any
real or personal property by lot, chance, or drawing of any kind", which is equally prescribed? Incidentally,
while the appellant's brief appears to have concentrated on the issue of consideration, this aspect of the
case cannot be avoided if the remedy here invoked is to achieve its tranquilizing effect as an instrument
of both curative and preventive justice. Recalling that the appellant's action was predicated, amongst
other bases, upon Opinion 217, Series 1953, of the Secretary of Justice, which opined in effect that a
scheme, though not a lottery for want of consideration, may nevertheless be a gift enterprise in which that
element is not essential, the determination of whether or not the proposed contest wanting in
consideration as we have found it to be is a prohibited gift enterprise, cannot be passed over sub
silencio.
While an all-embracing concept of the term "gift enterprise" is yet to be spelled out in explicit words, there
appears to be a consensus among lexicographers and standard authorities that the term is commonly
applied to a sporting artifice of under which goods are sold for their market value but by way of
inducement each purchaser is given a chance to win a prize (54 C.J.S., 850; 34 Am. Jur., 654; Black, Law
Dictionary, 4th ed., p. 817; Ballantine, Law Dictionary with Pronunciations, 2nd ed., p. 55; Retail Section
of Chamber of Commerce of Plattsmouth vs. Kieck, 257 N.W., 493, 128 Neb. 13; Barker vs. State, 193

S.E., 605, 56 Ga. App., 705; Bell vs. State, 37 Tenn. 507, 509, 5 Sneed, 507, 509). As thus conceived, the
term clearly cannot embrace the scheme at bar. As already noted, there is no sale of anything to which
the chance offered is attached as an inducement to the purchaser. The contest is open to all qualified
contestants irrespective of whether or not they buy the appellee's products.
Going a step farther, however, and assuming that the appellee's contest can be encompassed within the
broadest sweep that the term "gift enterprise" is capable of being extended, we think that the appellant's
pose will gain no added comfort. As stated in the opinion relied upon, rulings there are indeed holding that
a gift enterprise involving an award by chance, even in default of the element of consideration necessary
to constitute a lottery, is prohibited (E.g.: Crimes vs. States, 235 Ala 192, 178 So. 73; Russell vs.
Equitable Loan & Sec. Co., 129 Ga. 154, 58 S.E., 88; State ex rel. Stafford vs. Fox-Great Falls Theater
Corporation, 132 P. 2d., 689, 694, 698, 114 Mont. 52). But this is only one side of the coin. Equally
impressive authorities declare that, like a lottery, a gift enterprise comes within the prohibitive statutes
only if it exhibits the tripartite elements of prize, chance and consideration (E.g.: Bills vs. People, 157 P.
2d., 139, 142, 113 Colo., 326; D'Orio vs. Jacobs, 275 P. 563, 565, 151 Wash., 297; People vs. Psallis, 12
N.Y.S., 2d., 796; City and County of Denver vs. Frueauff, 88 P., 389, 394, 39 Colo., 20, 7 L.R.A., N.S.,
1131, 12 Ann. Cas., 521; 54 C.J.S., 851, citing: Barker vs. State, 193 S.E., 605, 607, 56 Ga. App., 705; 18
Words and Phrases, perm. ed., pp. 590-594). The apparent conflict of opinions is explained by the fact
that the specific statutory provisions relied upon are not identical. In some cases, as pointed out in 54
C.J.S., 851, the terms "lottery" and "gift enterprise" are used interchangeably (Bills vs. People, supra); in
others, the necessity for the element of consideration or chance has been specifically eliminated by
statute. (54 C.J.S., 351-352, citing Barker vs. State, supra; State ex rel. Stafford vs. Fox-Great Falls
Theater Corporation, supra). The lesson that we derive from this state of the pertinent jurisprudence is,
therefore, that every case must be resolved upon the particular phraseology of the applicable statutory
provision.
Taking this cue, we note that in the Postal Law, the term in question is used in association with the word
"lottery". With the meaning of lottery settled, and consonant to the well-known principle of legal
hermeneutics noscitur a sociis which Opinion 217 aforesaid also relied upon although only insofar as
the element of chance is concerned it is only logical that the term under a construction should be
accorded no other meaning than that which is consistent with the nature of the word associated therewith.
Hence, if lottery is prohibited only if it involves a consideration, so also must the term "gift enterprise" be
so construed. Significantly, there is not in the law the slightest indicium of any intent to eliminate that
element of consideration from the "gift enterprise" therein included.
This conclusion firms up in the light of the mischief sought to be remedied by the law, resort to the
determination thereof being an accepted extrinsic aid in statutory construction. Mail fraud orders, it is
axiomatic, are designed to prevent the use of the mails as a medium for disseminating printed matters
which on grounds of public policy are declared non-mailable. As applied to lotteries, gift enterprises and
similar schemes, justification lies in the recognized necessity to suppress their tendency to inflame the
gambling spirit and to corrupt public morals (Com. vs. Lund, 15 A. 2d., 839, 143 Pa. Super. 208). Since in
gambling it is inherent that something of value be hazarded for a chance to gain a larger amount, it
follows ineluctably that where no consideration is paid by the contestant to participate, the reason behind
the law can hardly be said to obtain. If, as it has been held
Gratuitous distribution of property by lot or chance does not constitute "lottery", if it is not resorted
to as a device to evade the law and no consideration is derived, directly or indirectly, from the
party receiving the chance, gambling spirit not being cultivated or stimulated thereby. City of
Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258." (25 Words and Phrases, perm. ed., p. 695,
emphasis supplied).

we find no obstacle in saying the same respecting a gift enterprise. In the end, we are persuaded to hold
that, under the prohibitive provisions of the Postal Law which we have heretofore examined, gift
enterprises and similar schemes therein contemplated are condemnable only if, like lotteries, they involve
the element of consideration. Finding none in the contest here in question, we rule that the appellee may
not be denied the use of the mails for purposes thereof.
Recapitulating, we hold that the petition herein states a sufficient cause of action for declaratory relief,
and that the "Caltex Hooded Pump Contest" as described in the rules submitted by the appellee does not
transgress the provisions of the Postal Law.
ACCORDINGLY, the judgment appealed from is affirmed. No costs.

NICANOR G. SALAYSAY, Acting Municipal Mayor of San Juan del Monte, Rizal, Petitioner, vs.
HONORABLE FRED RUIZ CASTRO, Executive Secretary, Office of the President of the Philippines,
HONORABLE WENCESLAO PASCUAL, Provincial Governor of Rizal, and DOCTOR BRAULIO STO.
DOMINGO, Respondents.
The facts in this case are not disputed. Briefly stated, they are as follows. Engracio E. Santos is the duly
elected Municipal Mayor of San Juan del Monte, Rizal, and the Petitioner Nicanor G. Salaysay is the duly
elected Vice-Mayor. In the month of September, 1955 and for some time prior thereto, Santos was under
suspension from his office due to administrative charges filed against him and so Petitioner Salaysay
acted as Mayor under section 2195 of the Revised Administrative Code providing that in case of
temporary disability of the Mayor such as absence, etc., his duties shall be discharged by the Vice-Mayor.
On September 8, 1955, while acting as Mayor, Salaysay filed his certificate of candidacy for the same
office of Mayor.
Interpreting said action of Salaysay in running for the office of Mayor as an automatic resignation from his
office of Vice-Mayor under the provisions of section 27 of the Revised Election Code, as a consequence
of which he no longer had authority to continue acting as Mayor, the Office of the President of the
Philippines on September 12, 1955 designated Braulio Sto. Domingo acting Municipal Vice-Mayor of San
Juan del Monte, Rizal. On the same date Salaysay was advised by Respondent Provincial Governor
Wenceslao Pascual of Rizal that in view of his (Salaysays) automatic cessation as Vice-Mayor due to his
having filed his certificate of candidacy for the office of Mayor, and in view of the appointment of Sto.
Domingo, as acting Vice-Mayor by the President of the Philippines, and because he Pascual) had
directed Sto. Domingo to assume the office of Mayor during the suspension of Mayor Santos, he
(Salaysay) should turn over the office of Mayor to Sto. Domingo. On September 13, 1955, Salaysay was
also advised by Executive Secretary Fred Ruiz Castro to turn over the office of Mayor to Sto. Domingo
immediately, otherwise he might be prosecuted for violation of Article 237 of the Revised Penal Code for
prolonging performance of duties.
Salaysay refused to turn over the office of Mayor to Sto. Domingo and brought this action of Prohibition
with preliminary injunction against Executive Secretary Castro, Governor Pascual and Sto. Domingo, to
declare invalid, illegal and unauthorized the designation of Sto. Domingo as acting Vice-Mayor of San
Juan del Monte as well as his designation by Governor Pascual to assume the office of Mayor during the
suspension of Mayor Santos; chan roblesvirtualawlibraryto order Respondents to desist and refrain from
molesting, interfering or in any way preventing Petitioner from performing his duties as acting Municipal
Mayor and prohibiting Sto. Domingo from performing or attempting to perform any of those powers and
duties belonging to Petitioner. Acting upon a prayer contained in the petition, we issued a writ of
preliminary injunction.
Petitioner contends that his case does not come under section 27 of the Election Code for the reason that
when he filed his certificate of candidacy for the office of Mayor, he was actually holding said office.
The Respondents, however, maintain that the office Petitioner was actually holding when he filed his
certificate of candidacy for the office of Mayor was that of Vice-Mayor, the one to which he had been duly
elected; chan roblesvirtualawlibrarythat he was not actually holding the office of Mayor but merely
discharging the duties thereof and was merely acting as Mayor during the temporary disability of the
regular incumbent. Elaborating, Respondents claim that a Vice-Mayor acting as Mayor merely discharges
the duties of the office but does not exercise the powers thereof; chan roblesvirtualawlibrarythat his
tenure is provisional, lasting only during the temporary disability of the regular
incumbent. Petitioner counters with the argument that a Vice-Mayor acting as Mayor does not only
discharge the duties of the office of Mayor but also exercises the powers thereof; chan
roblesvirtualawlibraryand that while acting as Mayor, he actually holds the office of Mayor for all legal
purposes.
It is clear that Petitioners stand is taken from the point of view of his acting as Mayor and not of his office
of Vice-Mayor, while Respondents position is taken from the point of view of Petitioneractually holding the
office of Vice-Mayor though incidentally and temporarily discharging the duties of the office of Mayor.
We have given the case considerable study and thought because we find no precedents to aid and guide
us. The parties have ably adduced pertinent and extensive citations and arguments not only at the
original hearing but also at the re-hearing. As to whether a Vice- Mayor acting as Mayor may be regarded
as actually holding the office of Mayor, there are plausible arguments and good reasons for either side.
We are inclined to agree with Petitioner that one acting as Mayor not only discharges the duties of the

10

office but also exercises the powers of said office, and that in one sense and literally, he may legitimately
be considered as actually holding the office of Mayor. But there is also force and logic in the argument
of Respondents that inasmuch as a Vice-Mayor takes over the duties of the Mayor only temporarily and in
an acting capacity, he may not be regarded as actually holding the office, because the duly elected Mayor
incumbent though actually under temporary disability such as suspension, illness or absence (section
2195, Revised Administrative Code) could and should be considered as retaining his right to the office of
Mayor and actually holding the same; chan roblesvirtualawlibraryotherwise there would be a situation
where two officials at the same time would be having a right to the same office and actually holding the
same. In view of the possible uncertainty and doubt as to whether or not a Vice-Mayor by acting as Mayor
can be regarded as actually holding said office of Mayor, we have to go back and resort to the legislative
proceedings had, particularly the discussions and interpellations in both houses of Congress leading to
the enactment of section 27 of the Revised Election Code, with a view to ascertaining the intention of that
body. After all, in interpreting a law, the primary consideration is the ascertainment of the intent and the
purpose of the legislature promulgating the same.
Statute law is the will of the legislature; chan roblesvirtualawlibraryand the object of all judicial
interpretation of it is to determine what intention is conveyed, either expressly or by implication, by the
language used, so far as it is necessary for determining whether the particular case or state of facts
presented to the interpreter falls within it. (Black, Handbook on the Construction and Interpretation of the
Laws, 2nd ed., p. 11.)
HISTORY OR BACKGROUND OF SECTION 27
REVISED ELECTION CODE
Before the enactment of section 27 of the Revised Election Code, the law in force covering the point or
question in controversy was section 2, Commonwealth Act No. 666. Its burden was to allow an elective
provincial, municipal, or city official such as Mayor, running for the same office to continue in office until
the expiration of his term. The legislative intention as we see it was to favor re- election of the incumbent
by allowing him to continue in his office and use the prerogatives and influence thereof in his campaign
for re- election and to avoid a break in or interruption of his incumbency during his current term and
provide for continuity thereof with the next term of office if re-elected.
But section 2, Commonwealth Act No. 666 had reference only to provincial and municipal officials duly
elected to their offices and who were occupying the same by reason of said election at the time that they
filed their certificates of candidacy for the same position. It did not include officials who hold or occupy
elective provincial and municipal offices not by election but by appointment. We quote section 2,
Commonwealth Act No. 666:chanroblesvirtuallawlibrary
Any elective provincial, municipal or city official running for an office other than the one for which he has
been lastly elected, shall be considered resigned from his once from the moment of the filing of his
certificate of candidacy.
However, this was exactly the situation facing the Legislature in the year 1947 after the late President
Roxas had assumed office as President and before the elections coming up that year. The last national
elections for provincial and municipal officials were held in 1940, those elected therein to serve up to
December, 1943. Because of the war and the occupation by the Japanese, no elections for provincial and
municipal officials could be held in 1943. Those elected in 1940 could not hold-over beyond 1943 after the
expiration of their term of office because according to the views of the Executive department as later
confirmed by this Court in the case of Topacio Nueno vs. Angeles, 76 Phil., 12, through Commonwealth
Act No. 357, Congress had intended to suppress the doctrine or rule of hold- over. So, those provincial
and municipal officials elected in 1940 ceased in 1943 and their offices became vacant, and this was the
situation when after liberation, President Osmea took over as Chief Executive. He filled these vacant
positions by appointment. When President Roxas was elected in 1946 and assumed office in 1947 he
replaced many of these Osmea appointees with his own men. Naturally, his Liberal Party followers
wanted to extend to these appointees the same privilege of office retention thereto given by section 2,
Commonwealth Act No. 666 to local elective officials. It could not be done because section 2,
Commonwealth Act No. 666 had reference only to officials who had been elected. So, it was decided by
President Roxas and his party to amend said section 2, Commonwealth Act No. 666 by substituting the
phrase which he is actually holding, for the phrase for which he has been lastly elected found in
section 2 of Commonwealth Act No. 666. The amendment is now found in section 27 of the Revised
Election Code which we quote below:chanroblesvirtuallawlibrary

11

SEC. 27. Candidate holding office. Any elective provincial, municipal, or city official running for an
office, other than the one which he is actually holding, shall be considered resigned from his office from
the moment of the filing of his certificate of candidacy.
The purpose of the Legislature in making the amendment, in our opinion, was to give the benefit or
privilege of retaining office not only to those who have been elected thereto but also to those who have
been appointed; chan roblesvirtualawlibrarystated differently, to extend the privilege and benefit to the
regular incumbents having the right and title to the office either by election or by appointment. There can
be no doubt, in our opinion, about this intention. We have carefully examined the proceedings in both
Houses of the Legislature. The minority Nacionalista members of Congress bitterly attacked this
amendment, realizing that it was partisan legislation intended to favor those officials appointed by
President Roxas; chan roblesvirtualawlibrarybut despite their opposition the amendment was passed.
LEGISLATIVE INTENT
We repeat that the purpose of the Legislature in enacting section 27 of the Revised Election Code was to
allow an official to continue occupying an elective provincial, municipal or city office to which he had been
appointed or elected, while campaigning for his election as long as he runs for the same office. He may
keep said office continuously without any break, through the elections and up to the expiration of the term
of the office. By continuing in office, the office holder was allowed and expected to use the prerogatives,
authority and influence of his office in his campaign for his election or re-election to the office he was
holding. Another intention of the Legislature as we have hitherto adverted to was to provide for continuity
of his incumbency so that there would be no interruption or break, which would happen if he were
required to resign because of his filing his certificate of candidacy. Bearing this intention of the Legislature
in this regard in mind, can it be said that a Vice-Mayor like the Petitioner herein, merely acting as Mayor
because of the temporary disability of the regular incumbent, comes under the provision and exception of
section 27 of the Election Code? The answer must necessarily be in the negative. A Vice Mayor acts as
Mayor only in a temporary, provisional capacity. This tenure is indefinite, uncertain and precarious. He
may act for a few days, for a week or a month or even longer. But surely there, ordinarily, is no assurance
or expectation that he could continue acting as Mayor, long, indefinitely, through the elections and up to
the end of the term of the office because the temporary disability of the regular, incumbent Mayor may
end any time and he may resume his duties.
VICE-MAYOR ACTING AS MAYOR, OUTSIDE
LEGAL CONTEMPLATION
The case of a Vice-Mayor acting as Mayor could not have been within the contemplation and the intent of
the Legislature because as we have already stated, that lawmaking body or at least the majority thereof
intended to give the benefits and the privilege of section 27 to those officials holding their offices by their
own right and by a valid title either by election or by appointment, permanently continuously and up to the
end of the term of the office, not to an official neither elected nor appointed to that office but merely acting
provisionally in said office because of the temporary disability of the regular incumbent. In drafting and
enacting section 27, how could the Legislature have possibly had in mind a Vice-Mayor acting as Mayor,
and include him in its scope, and accord him the benefits of retaining the office of Mayor and utilizing its
authority and influence in his election campaign, when his tenure in the office of Mayor is so uncertain,
indefinite and precarious that there may be no opportunity or occasion for him to enjoy said benefits, and
how could Congress have contemplated his continuing in the office in which he is acting, when the very
idea of continuity is necessarily in conflict and incompatible with the uncertainty, precariousness and
temporary character of his tenure in the office of Mayor?
ACTUALLY HOLDING OFFICE EQUIVALENT
TO INCUMBENT
All these doubts about the meaning and application of the phrase actually holding office could perhaps
have been avoided had the intention of this Legislature been phrased differently. It could perhaps have
more happily used the term incumbent to refer to those provincial and municipal officials who were
holding office either by election or by appointment, and so had a legal title and right thereto. As a matter
of fact, this term incumbent was actually used by Congressman Laurel in explaining the idea of the
committee that drafted this amendment to section 2, Commonwealth Act No. 666, of which committee he
was the Chairman. The deliberations of the lower House as quoted by the very counsel
for Petitioner reads as follows:chanroblesvirtuallawlibrary
Mr. ROY. What must be the reason, then, Mr. Chairman of the Committee for deleting the words has
been lastly elected?

12

Mr. LAUREL. The idea is to cover the present incumbents of the local offices. (II Congressional Record
1143.)
In this connection, a happier phraseology of another portion of section 27 could have been used for
purposes
of
precision.
For
instance,
the
first
part
of
said
section
reads
thus:chanroblesvirtuallawlibrary Any elective provincial, municipal or city official running for an office,
and yet as we have already said, the Legislature intended said section to refer to officials who were
appointed by President Roxas to fill vacancies in provincial, municipal and city elective offices. In other
words, those officials were not really elected or elective officials but they were officials occupying or
holding local elective offices by appointment. All this goes to show that we should not and cannot always
be bound by the phraseology or literal meaning of a law or statute but at times may interpret, nay, even
disregard loose or inaccurate wording in order to arrive at the real meaning and spirit of a statute intended
and breathed into it by the law-making body.
MEANING OF PHRASE RESIGNED FROM HIS OFFICE
Section 27 of Republic Act No. 180 in providing that a local elective official running for an office other than
the one he is actually holding, is considered resigned from his office, must necessarily refer to an office
which said official can resign, or from which he could be considered resigned, even against his will. For
instance, an incumbent Mayor running for the office of Provincial Governor must be considered as having
resigned from his office of Mayor. He must resign voluntarily or be compelled to resign. It has to be an
office which is subject to resignation by the one occupying it. Can we say this of a Vice-Mayor acting as
Mayor? Can he or could he resign from the office of Mayor or could he be made to resign therefrom No.
As long as he holds the office of Vice-Mayor to which he has a right and legal title, he, cannot resign or be
made to resign from the office of Mayor because the law itself requires that as Vice- Mayor he must act as
Mayor during the temporary disability of the regular or incumbent Mayor. If he cannot voluntarily resign
the office of Mayor in which he is acting temporarily, or could not be made to resign therefrom, then the
provision of section 27 of the Code about resignation, to him, would be useless, futile and a dead letter. In
interpreting a law, we should always avoid a construction that would have this result, for it would violate
the fundamental rule that every legislative act should be interpreted in order to give force and effect to
every provision thereof because the Legislature is not presumed to have done a useless act.
A statute is a solemn enactment of the state acting through its legislature and it must be assumed that
this process achieve result. It cannot be presumed that the legislature would do a futile thing.
(Sutherland, Statutory Construction, Vol. 2, p. 237.)
EXAMPLE
To emphasize and illustrate this inapplicability of section 27 to a Vice-Mayor acting as Mayor, let us
consider an example. A Vice-Mayor while acting as Mayor files his certificate of candidacy for the office of
Vice-Mayor. In other words, he wants to run for re-election. The Provincial Governor, especially if
belonging to a different political party wants to keep him out of the office of Mayor, especially during the
electoral campaign, and instead have his party man, the councilor who obtained the highest number of
votes in the last elections, act as Mayor (section 2195, Revised Administrative Code). So, he hastens to
the Municipal building and enters the Mayors office where the Vice-Mayor has installed himself. Using the
same argument of herein Petitioner, he tells the Vice-Mayor that inasmuch as while acting as Mayor, he
was actually holding said office of Mayor, and because while thus holding it, he filed his certificate of
candidacy for Vice-Mayor which is a different office, he must be considered resigned from the office of
Mayor; chan roblesvirtualawlibraryand he even asks him to leave the Mayors room and office. The ViceMayor, a law abiding citizen acquiesces and obeys, he reluctantly, leaves and abandons the office of the
Mayor and repairs to his own room as Vice-Mayor. But he has a happy inspiration and remembers the law
(section 2195, Revised Administrative Code); chan roblesvirtualawlibraryhe rushes back to the office of
the Mayor and tells the Governor and the authorities that he is still the Vice-Mayor because when he filed
his certificate of candidacy for Vice-Mayor, he was also actually holding said office, and so did not lose
it; chan roblesvirtualawlibrarythat as such Vice-Mayor, he can act and must act as Mayor during the
temporary disability of the incumbent, because he cannot resign and no one can make him resign from
the office of Mayor; chan roblesvirtualawlibraryand he defies the Governor to oust him from the office and
room of the Mayor. The Governor is helpless for the Vice-Mayor is right, that is, if we apply section 27 of
the Election Code to him. This possible, undesirable and anomalous situation is another reason why
section 27 may not be applied to the case of a Vice-Mayor acting as Mayor.
In the above given example, the Governor might contend that when the Vice-Mayor filed his certificate of
candidacy for Mayor, he was actually holding only the office of Mayor and not that of Vice-Mayor and so

13

he lost his office of Vice-Mayor. But that contention of the Governor is untenable. Even counsel for
herein Petitioner in his memorandum admits that a Vice-Mayor while acting as Mayor, also actually holds
his office of Vice-Mayor. And it has to be that way. A Vice-Mayor acting as Mayor does not cease to be
Vice-Mayor. In fact, that is his real, principal and basic office or function. Acting as Mayor is only an
incident, an accessory. Let him cease holding the office of Vice-Mayor even for an instant, and he
automatically also ceases acting as Mayor. Furthermore, a Vice-Mayor has administrative duties to
perform. He is an ex-officio member of the Municipal Council and he is in charge of the barrio or district
where the town offices are located (section 2204, Revised Administrative Code). While acting as Mayor
he may not say that he ceases to hold the office of Vice- Mayor and so cannot look after the needs of the
residents of his district and present them to the town council.
ANOTHER EXAMPLE
The regular incumbent Mayor files his certificate of candidacy for the same office of Mayor. Then he goes
on leave of absence or falls sick and the Vice-Mayor acts in his place, and while thus acting he also files
his certificate of candidacy for the same office of Mayor. Then the Vice-Mayor also goes on leave or falls
sick or is suspended, and because the regular Mayor is still unable to return to office, under section 2195
of the Revised Administrative Code, the councilor who at the last general elections received the highest
number of votes, acts as Mayor and while thus acting he also files his certificate of candidacy for the
office of Mayor. The Vice-Mayor also campaigns for the same post of Mayor claiming like the
herein Petitioner that he did not lose his office of Vice-Mayor because he filed his certificate of candidacy
while acting as Mayor and thus was actually holding the office of Mayor. Using the same argument, the
councilor who had previously acted as Mayor also campaigns for his election to the same post of Mayor
while keeping his position as councilor. Thus we would have this singular situation of three municipal
officials occupying three separate and distinct offices, running for the same office of Mayor, yet keeping
their different respective offices, and strangely enough two of those offices (Vice- Mayor and Councilor)
are different from the office of Mayor they are running for. Could that situation have been contemplated by
the Legislature in enacting section 27 of the Revised Election Code? We do not think so, and yet that
would happen if the contention of the Petitioner about the meaning of actually holding office is to prevail.
CONGRESS CONTEMPLATED ONLY ONE OFFICE
ACTUALLY HELD
Another argument against the contention that a Vice-Mayor acting as Mayor actually holds the office of
Mayor, occurs to us. For purposes of ready reference we again quote section 27 in its
entirety:chanroblesvirtuallawlibrary
SEC. 27. Candidate holdings office. Any elective provincial, municipal, or city official running for an
office, other than the one which he is actually holding, shall be considered resigned from his office from
the moment of the filing of his certificate of candidacy.
It will readily be noticed from the quoted section, especially the words underlined by us that the
Legislature contemplated only one office, not two or more. To us, this is significant as well as important.
As we have previously stated, there is no question that a Vice-Mayor acting as Mayor still holds the office
of Vice-Mayor. Petitioner himself admits this in his written argument and even contends that there is
nothing wrong or illegal in an official holding two offices at the same time provided there is no
incompatibility between them. If the Legislature believed that a Vice-Mayor acting as Mayor actually holds
the office of Mayor and that he would thus be actually holding two offices, then it would have provided in
section 27 for offices in the plural instead of employing the words office, his office, and the one which it
used in the singular. Besides this clear expression of legislative intent for only one office being actually
held and to be resigned from, to say that the Vice-Mayor when acting as Mayor is actually holding two
offices would create confusion and uncertainty because we would not know which office he would be
considered resigned from.
TWO OFFICIALS ACTUALLY HOLDING THE SAME
ELECTIVE OFFICE
We have already said that a Mayor under temporary disability continues to be Mayor (Gamalinda vs. Yap
* No. L-6121, May 30, 1953) and actually holds the office despite his temporary disability to discharge the
duties of the office; chan roblesvirtualawlibraryhe receives full salary corresponding to his office, which
payment may not be legal if he were not actually holding the office, while the Vice-Mayor acting as Mayor
does not receive said salary but is paid only a sum equivalent to it (section 2187, Revised Administrative
Code). Now, if a Mayor under temporary disability actually holds the office of Mayor and the Vice- Mayor
acting as Mayor, according to his claim is also actually holding the office of Mayor, then we would have

14

the anomalous and embarrassing situation of two officials actually holding the very same local elective
office. Considered from this view point, and to avoid the anomaly, it is to us clear that the Vice-Mayor
should not be regarded as holding the office of Mayor but merely acting for the regular incumbent, a duty
or right as an incident to his office of Vice-Mayor and not as an independent right or absolute title to the
office by reason of election or appointment.
ACTING MAYOR AND ACTING AS MAYOR, DISTINGUISHED
Petitioner claims that he is the acting Mayor. Respondents insist that Petitioner is merely acting as Mayor.
It is pertinent and profitable, at least in the present case, to make a distinction between an Acting Mayor
and a Vice-Mayor acting as Mayor. When a vacancy occurs in the office of Mayor, the Provincial Governor
under section 21(a) or the President under section 21(b), (d) and (e) of the Election Code appoints or
designates an Acting Mayor. In that case the person designated or appointed becomes the Mayor and
actually holds the office for the unexpired term of the office (section 21 [f]) because when he was
appointed there was no regular incumbent to the office. However, when a Vice-Mayor acts as Mayor,
there is no vacancy in the post of Mayor. There is a regular incumbent Mayor only that the latter is under
temporary disability. So, strictly and correctly speaking, the Vice-Mayor may not be considered Acting
Mayor. He is only acting as Mayor temporarily, provisionally and during the temporary disability of the
regular incumbent. He is not the incumbent. In baseball parlance, Petitioner is only a pinch hitter,
pinch hitting for, say, the pitcher in an emergency. As a mere pinch hitter his name does not grace the
regular line up, he is not the pitcher, does not hold the position of pitcher, neither does he receive all the
benefits and privileges of the regular pitcher.
Ordinarily, this apparently fine and subtle distinction would seem unimportant and unnecessary. When a
Vice-Mayor acts as Mayor we usually call him Mayor or Acting Mayor and deal with him as though he
were the regular incumbent; chan roblesvirtualawlibrarybut there are times and occasions like the present
when it is necessary to make these distinction and use correct and precise language in order to determine
whether or not under section 27 of the Election Code a Vice-Mayor acting as Mayor like
the Petitioner herein comes within the phrase actually holding office used in that section.
EXCEPTION TO BE CONSTRUED STRICTLY
Section 26 of the Revised Election Code provides that every person holding an appointive office shall ipso
facto cease in his office on the date he files his certificate of candidacy. Then we have section 27 of the
same Code as well as section 2 of Commonwealth Act No. 666 which it amended, both providing that
local elective officials running for office shall be considered resigned from their posts, except when they
run for the same office they are occupying or holding. It is evident that the general rule is that all
Government officials running for office must resign. The authority or privilege to keep ones office when
running for the same office is the exception. It is a settled rule of statutory construction that an exception
or a proviso must be strictly construed specially when considered in an attempt to ascertain the legislative
intent.
Exceptions, as a general rule, should be strictly, but reasonably construed; chan
roblesvirtualawlibrarythey extend only so far as their language fairly warrants, and all doubts should be
resolved in favor of the general provision rather than the exception. Where a general rule is established
by statute with exceptions, the court will not curtail the former nor add to the latter by implication, and it is
a general rule that an express exception excludes all others, although it is always proper in determining
the applicability of this rule, to inquire whether, in the particular case, it accords with reason and
justice cralaw . (Francisco, Statutory Construction, p. 304, citing 69 C.J., section 643, pp. 10921093; chan roblesvirtualawlibraryItalics supplied.)
As in all other cases, a proviso should be interpreted consistently with the legislative intent. Where the
proviso itself must be considered. In an attempt to determine the intent of the Legislature, it should be
strictly construed. This is true because the legislative purpose set forth in the general enactment
expresses the legislative policy and only those subjects expressly exempted by the proviso should be
freed from the operation of the statute. (Sutherland, Statutory Construction, 3rd ed., Vol. 2, pp. 471-472.)
Applying this rule, inasmuch as Petitioner herein claimed the right to retain his office under the exception
above referred to, said claim must have to be judged strictly, whether or not his mere acting in the
office of Mayor may be legally interpreted as actually holding the same so as to come within the
exception. As we have already observed, literally and generally speaking, since he is discharging the
duties and exercising the powers of the office of Mayor he might be regarded as actually holding the
office; chan roblesvirtualawlibrarybut strictly speaking and considering the purpose and intention of the

15

Legislature behind section 27 of the Revised Election Code, he may not and cannot legitimately be
considered as actually holding the office of Mayor.
RETENTION OF OFFICE
We have, heretofore discussed the case as regards the resignation of an office holder from his office by
reason of his running for an office different from it; chan roblesvirtualawlibraryand our conclusion is that it
must be an office that he can or may resign or be considered resigned from; chan
roblesvirtualawlibraryand that the office of Mayor is not such an office from the stand point of a ViceMayor. Let us now consider the case from the point of view of retaining his office because he is running
for the same office, namely retention of his office. As we have already said, the Legislature intended to
allow an office holder and incumbent to retain his office provided that he runs for the same. In other
words, he is supposed to retain the office before and throughout the elections and up to the expiration of
the term of the office, without interruption. Can a Vice-Mayor acting as Mayor be allowed or expected to
retain the office of Mayor ? The incumbent Mayor running for the same office can and has a right to keep
and retain said office up to the end of his term. But a Vice-Mayor merely acting as Mayor and running for
said office of Mayor, may not and cannot be expected to keep the office up to the end of the term, even
assuming that by acting as Mayor he is actually holding the office of Mayor, for the simple reason that his
holding of the same is temporary, provisional and precarious and may end any time when the incumbent
Mayor returns to duty. Naturally, his temporary holding of the office of Mayor cannot be the retention or
right to keep the office intended by the Legislature in section 27 of Republic Act No. 180. So that, neither
from the point of view of resignation from the office of Mayor nor the standpoint of retention of said office,
may a Vice-Mayor acting as Mayor, like herein Petitioner, come within the provisions and meaning of
section 27 of the Election Code, particularly the exception in it.
SUPPOSED DISCRIMINATION AGAINST VICE-MAYOR
ACTING AS MAYOR
During the hearing and oral argument of this case, the suggestion was made, which suggestion was also
used as an argument during the deliberations among the members of this Tribunal, that to include in
section 27 particularly the phrase actually holding office one who has been appointed as acting official
such as Acting Mayor and at the same time exclude a Vice-Mayor who acts as Mayor, would be
discriminating against an official (Vice-Mayor) who by statutory provision and sanction is required to act
as Mayor, and give more importance to one merely appointed to said office. We fail to see any
discrimination for the reason that an appointee to the office of Mayor fills a vacancy and serves until the
end of the term of the office, whereas a Vice-Mayor acting as Mayor fills no vacancy because there is
none and he serves only temporarily until the disability of the incumbent, such as suspension, absence,
illness, etc. is removed. Now, if a vacancy is created in the office of Mayor by removal, resignation, death
or cessation of the incumbent, then the Vice-Mayor automatically fills the vacancy, becomes Mayor
(section 2195, Revised Administrative Code), and serves until the end of the term (section 21[f], Revised
Election Code). That is the time when he may invoke section 27 because he would then be actually
holding the office of Mayor.
CONCLUSION
In conclusion, we believe and hold that a Vice-Mayor acting as Mayor does not actually hold the office of
Mayor within the meaning of section 27 of Republic Act No. 180; chan roblesvirtualawlibrarythat a ViceMayor who files his certificate of candidacy for the office of Mayor, even while acting as Mayor, is
considered resigned from the office of Vice-Mayor for the reason that is the only office that he actually
holds within the contemplation of section 27 of the Revised Election Code and the office he is running for
(Mayor) is naturally other than the one he is actually holding (Vice-Mayor); chan roblesvirtualawlibraryand
that having ceased to be a Vice- Mayor, he automatically lost all right to act as Mayor.
A word of explanation. This decision should have been promulgated long before now. In truth, this
Tribunal was anxious and determined to decide this case before the last November elections, at least
before the newly elected local officials assumed office. However, after long, careful deliberations the court
was deadlocked, the vote standing five to five. The rehearing ordered by us as decreed by law failed to
break the deadlock. It was only when the new addition to the membership of the Tribunal, Mr. Justice
Endencia studied the case, weighed the arguments and considered the authorities on either side, that the
tie vote could be broken. He voted for and signed the present opinion which now becomes the majority
opinion.
The question involved in the present case may in a way be regarded as moot. Just the same, we doomed
it advisable to proceed with its final determination, even elaborate on the discussion of its different

16

aspects, by reason of its importance and for the information and guidance of local elective officials, and
perchance so that the Legislature, apprised of the judicial interpretation and meaning given to section 27
of the Revised Election Code, may be in a better position to decide whether to continue and leave it as it
stands on the statute books, or amend or change it before the next general elections.
In view of the foregoing, the petition for prohibition is denied, with costs. The writ of preliminary injunction
heretofore issued is hereby dissolved.

17

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
ALFONSO GATCHALIAN, defendant-appellee.

Alfonso Gatchalian was charged before the Court of First Instance of Zamboanga with a violation of
Section 3 of Republic Act No. 602 in four separate informations (Criminal Cases Nos. 2206, 2207, 2208
and 2209) committed as follows:
That on or about August 4, 1951, up to and including December 31, 1953 and within the
jurisdiction of this Court, viz, in the City of Zamboanga, Philippines, the above named accused,
owner or manager of the New Life Drug Store, a business establishment in the City of
Zamboanga and having under his employ one Expedito Fernandez as salesman in the said
establishment, did then and there willfully, and feloniously, pay and cause to be paid to said
Expedito Fernandez, a monthly salary of P60 to P90 for the period above-mentioned which is less
than that provided for by law, thereby leaving a difference of an unpaid salary to the latter in the
total amount of P1,016.64 for the period above-mentioned.
When arraigned on June 19, 1956, he pleaded not guilty to the charge. On August 29, 1956, his counsel,
in his behalf, filed a written motion to dismiss based on two grounds which in substance merely consist in
that the violation charged does not constitute a criminal offense but carries only a civil liability, and even if
it does, the section of the law alleged to have been violated does not carry any penalty penalizing it. On
September 25, 1956, the City Attorney of Zamboanga filed his answer to the motion to dismiss contending
that the law which was violated by the accused carries with it both civil and criminal liability, the latter
being covered by Section 15 which provides for the penalty for all willful violations of any of the provisions
of the Minimum Wage Law. On December 3, 1956, the Court, after hearing the arguments of both parties,
as well as some members of the local bar, issued an order dismissing the informations with costs de
oficio and cancelling the bail bond filed by the accused. The court in the same order directed the Regional
Representative of the Department of Labor to immediately institute a civil action against the erring
employer for the collection of the alleged underpayment of wages due the employees. A motion for
reconsideration having been denied, the Government took the present appeal.
The pertinent portion of Section 3 of Republic Act 602 under which appellee was prosecuted, reads as
follows:.
SEC. 3. Minimum wage. (a) Every employer shall pay to each of his employees who is
employed by an enterprise other than in agriculture wages at the rate of not less than
(1) Four pesos a day on the effective date of this Act and thereafter for employees of an
establishment located in Manila or its environs;
(2) Three pesos a day on the effective date of this Act and for one year after the effective date,
and thereafter P4 a day, for employees of establishment located outside of Manila or its
environs: Provided, That this Act shall not apply to any retail or service enterprise that regularly
employs not more than five employees.

18

Section 15 of the same law, which treats of "penalties and recovery of wages due", likewise provides:
SEC. 15. Penalties and recovery of wage due under this Act.
(a) Any person who wilfully violates any of the provisions of this Act shall upon conviction thereof
be subject to a fine of not more than two thousand pesos, or, upon second conviction, to
imprisonment of not more than one year, or to both fine and imprisonment, in the discretion of the
court.
(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the
manager or in his default, the person acting as such when the violation took place, shall be
responsible. In the case of a government corporation, the managing head shall be made
responsible, except when shown that the violation was due to an act or commission of some
other person, over whom he has no control, in which case the latter shall be held responsible.
(c) The Secretary is authorized to supervise the payment of the unpaid minimum wages or the
wages found owing to any employee under this Act.
(d) The Secretary may bring an action in any competent court to recover the wages owing to an
employee under this Act, with legal interest. Any sum thus recovered by the Secretary on behalf
of an employee pursuant to this subsection shall be held in a special deposit account and shall be
paid, on order of the Secretary, directly to the employee or employees affected. Any such sums
not paid to an employee because he cannot be located within a period of three years shall be
covered into the Treasury as miscellaneous receipts.
(e) Any employer who underpays an employee in violation of this Act shall be liable to the
employee affected in the amount of the unpaid wages with legal interest. Action to recover such
liability may be maintained in any competent court by anyone or more employees on behalf of
himself or themselves. The court in such action shall, in addition to any judgment awarded to the
plaintiff or plaintiffs, allow a reasonable attorney's fee which shall not exceed ten per cent of the
amount awarded to the plaintiffs, unless the amount awarded is less than one hundred pesos, in
which event the fee may be ten pesos, but not in excess of that amount. Payment of the amount
found due to the plaintiffs shall be made directly to the plaintiffs, in the presence of a
representative of the Secretary or the Court. In the event payment is witnessed by the court or its
representative, the Secretary shall be notified within ten days of payment that the payment has
been made.
(f) No employer, attorney, or any other person, other than the employee to whom underpayment
are found due, shall receive any part of the underpayment due the employee; and no attorney
shall receive any fee in excess of the maximum specified herein.
(g) In determining when an action is commenced under this section for the purpose of the statute
of limitation, it shall be considered to be commenced in the case of any individual claimant on the
date when the complaint is filed if he is specifically named as a party plaintiff in the complaint, or if
his name did not so appear, on the subsequent date on which his name is added as a party
plaintiff in such action.
It is clear from the above-quoted provisions that while Section 3 explicitly requires every owner of an
establishment located outside of Manila or its environs to pay each of its employees P3.00 a day on the
effective date of the Act, and one year thereafter P4.00 a day, Section 15 imposes both a criminal penalty
for a willful violation of any of the above provisions and a civil liability for any underpayment of wages due

19

an employee. The intention of the law is clear: to slap not only a criminal liability upon an erring employer
for any willful violation of the acts sought to be enjoined but to attach concurrently a civil liability for any
underpayment he may commit as a result thereof. The law speaks of a willful violation of "any of the
provisions of this Act", which is all-embracing, and the same must include what is enjoined in Section 3
thereof which embodies the very fundamental purpose for which the law has been adopted. A study of the
origin of our Minimum Wage Law (Republic Act 602) may be of help in arriving at an enlightened and
proper interpretation of the provisions under consideration. Our research shows that this Act was
patterned after the U. S. Fair Labor Standards Act of 1938, as amended, and so a comparative study of
the pertinent provisions of both would be enlightening.
The pertinent provisions of the U. S. Fair Labor Stardards Act of 1938, as amended, follow:
MINIMUM WAGES.
SEC. 6. (a) Every employer shall pay to each of his employees who is engaged in commerce or
in the production of goods for commerce wages at the following rates
(1) not less than 75 cents an hour;
xxx

xxx

xxx

PROHIBITED ACTS
SEC. 15. (a) After the expiration of one hundred and twenty days from the date of enactment of
this Act, it shall be unlawful for any person
(1) to transport, offer for transportation, ship, deliver, or sell in commerce, or to ship, deliver, or
sell with knowledge that shipment or delivery or sale thereof in commerce is intended, any goods
in the production of which any employee was employed in violation of section 6 or section 7, or in
violation of any regulation or order of the Administrator issued under section 14; . . . .
(2) to violate any of the provisions of section 6 or section 7, or any of the provisions of any
regulation or order of the Administrator issued under section 14;
(3) to discharge or in any other manner discriminate against any employee because such
employee has filed any complaint or instituted or cause to be instituted any proceeding under or
related to this Act, or has testified or is about to testify in any such proceeding, or has served or is
about to serve on an industry committee;
(4) to violate any of the provisions of section 11 (c) or any regulation or order made or continued
in effect under the provisions of section 11 (d), or to make any statement, report, or record filed or
kept pursuant to the provisions of such section or of any regulation or order thereunder, knowing
such statement, report, or record to be false in a material respect.
xxx

xxx

xxx

PENALTIES
SEC. 16. (a) Any person who willfully violates any of the provisions of section 15 shall upon
conviction thereof be subject to a line of not more than P10,000, or to imprisonment for not more

20

than six months, or both. No person shall be imprisoned under this subsection except for an
offense committed after the conviction of such person for a prior offense under this subsection.
(b) Any employer who violates the provisions of section 6 or 7 of this Act shall be liable to the
employee or employees affected in the amount of their unpaid minimum wages, or their unpaid
overtime compensation, as the case may be, and in additional equal amount as liquidated
damages. Action to recover such liability may be maintained in any court of competent jurisdiction
by any one or more employees for and in behalf of himself or themselves and other employees
similarly situated. No employee shall be a party plaintiff to any such action unless he gives his
consent in writing to become such a party and such consent is filed in the court in which such
action is brought. The court in such action shall, in addition to any judgment awarded to the
plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant costs of the
action.
The pertinent provisions of Republic Act 602 read:
SEC. 3. Minimum wage. (a) Every employer shall pay to each of his employees who is
employed by an enterprise other than in agriculture wages at the rate of not less than
xxx

xxx

xxx

(2) Three pesos a day on the effective date of this Act and for one year after the effective date,
and thereafter P4 a day, for employees of establishments located outside of Manila or its
environs: Provided, That this Act shall not apply to any retail or service enterprise that regularly
employs not more than five employees.
SEC. 15. Penalties and recovery of wage due under this Act.
(a) Any person who willfully violates any of the provisions of this Act shall upon conviction thereof
be subject to a fine of not more than two thousand pesos, or, upon second conviction, to
imprisonment of not more than one year, or to both fine and imprisonment, in the discretion of the
court.
xxx

xxx

xxx

(e) Any employer who underpays an employee in violation of this Act shall be liable to the
employee affected in the amount of the unpaid wages with legal interest. Action to recover such
liability may be maintained in any competent court by anyone or employees on behalf of himself
or themselves. The court in such action shall, in addition to any judgment awarded to the plaintiff
or plaintiffs, allow a reasonable attorney's fee which shall not exceed ten per cent of the amount
awarded to the plaintiffs, unless the amount awarded is less than one hundred pesos, in which
event the fee may be ten pesos, but not in excess of that amount. Payment of the amount found
due to the plaintiffs shall be made directly to the plaintiffs, in the presence of a representative of
the Secretary or of the Court. In the event payment is witnessed by the court or its representative,
the Secretary shall be notified within ten days of payment that the payment has been made.
An examination of the above-quoted provisions of the two Acts will show that while in substance they are
similar, they however contain some differences in their phraseology and in the apportionment of their
provisions. Thus, while Section 15 (a), paragraph 2, of the Fair Labor Standards Act makes it unlawful for
an employer not to pay the minimum wage prescribed therein, our Minimum Wage Law does not contain
a similar provision. Again, the Fair Labor Standards Act enumerates in one single section all those acts

21

which are declared unlawful and are not spread out in different sections as done in our law. Thus, the acts
that are declared unlawful by the former law as enumerated in Section 15(a) are: (1) to transport or
deliver any goods in the production of which any employee was employed in violation of Section 6 or
Section 7, or in violation of any regulation or order of the Administrator; (2) failure to pay the minimum
wage; (3) to discharge or in any other manner discriminate against an employee who has filed a
complaint against the employer in relation to the Act; and (4) failure to keep the record or report required
by law or to make a false record or report. On the other hand, our law declares unlawful the following
acts, to wit: (1) to pay wages in the form of promissory notes, vouchers, coupons, tokens or any other
form alleged to represent legal tender [Section 10 (a) (1)]; (2) to make any deduction or withhold any
amount from the wages of an employee, or induce any employee to give part of his wages by force or
intimidation [ Section 10 (g)]; (3) to commit any act of discrimination against an employee because of
certain complaint he has filed or caused to be filed against the employer (Section 13); and (4) to make
any false statement, report or record to subvert the purpose of the Act (Section 14), which acts are
contained in separate sections mentioned therein. The failure to pay the prescribed minimum wage is not
declared unlawful in our law.
It should also be noted that while Section 16 of the Fair Labor Standards Act which provides for the
penalties to be imposed for any willful violation of the provisions of the Act specifically states that those
penalties refer to acts declared unlawful under Section 15 of the same Act, our law does not contain such
specification. It merely provides in Section 15 (a) that "Any person who willfully violates any of the
provisions of this Act shall upon conviction" be subject to the penalty therein prescribed. This distinction is
very revealing. It clearly indicates that while the Fair Labor Standards Act intends to subject to criminal
action only acts that are declared unlawful, our law by legislative fiat intends to punish not only those
expressly declared unlawful but even those not so declared but are clearly enjoined to be observed to
carry out the fundamental purpose of the law. One such provision is undoubtedly that which refers to the
payment of the minimum wage embodied in Section 3. This is the only rational interpretation that can be
drawn from the attitude of our Congress in framing our law in a manner different from that appearing in
the mother law.
Indeed, the main objective of the law is to provide for a rock-bottom wage to be observed and by an
employers of an agricultural and industrial establishment. This objective would be defeated were we to
adopt a restrictive interpretation of the above penal clause, for an employer who knows that he cannot be
amenable to a criminal action would be prone to subvert the law because if he is detected it would be
easy for him to pay the underpayment and the corresponding interest as would be the case were he to
assume merely a civil liability. This would be a mockery and a derision of the law not contemplated by our
lawmaker which would certainly render it nugatory and abortive. We are not prepared to adopt an
interpretation which would give such adverse result to a legislation conceived in the lofty purpose of
protecting labor and giving it a living wage. If the law is to survive, it must be real, militant and effective.
The establishment of the maximum wage benefits directly the low-paid employees, who now rece
iveinadequate wages on which to support themselves and their families. It benefits all wage earn
ers indirectlyby setting a floor below which their remuneration cannot fail. It raises the standards o
f competition amongemployers, since it would protect the fair-minded employer who voluntarily pa
ys a wage that supports thewage earner from the competition of the employer, who operates at lo
wer cost by reasons of paying hisworkers a wage below subsistence. If, in fact, the employer can
not pay a subsistence wage, then he shouldnot continue his operation unless he improves his me
thods and equipment so as to make the payment ofthe minimum wage feasible for him; otherwise
the employer is wasting the toil of the worker and thematerial resources used in the employment.
Second methods of operation, progressive and fair-mindedmanagement, and an adequate minim
um wage go hand in hand. (Explanatory Note to H.B. No. 1476).

22

Counsel for appellee however entertains a different interpretation. He contends that if Section 15(a)
should be interpreted in a manner that would embrace a willful violation of any of the provisions of the law
we would have a situation where even the officials entrusted with its enforcement may be held criminally
liable which is not contemplated in the law. Thus, he contends, the Secretary of Labor may be criminally
prosecuted for willfully not using all available devices for investigation [Section 4 (c)], for not presenting to
the Wage Board all the evidence in his possession relating to the wages in the industries for which the
Wage Board is appointed and other information relevant to the establishment of the minimum wage
[Section 5 (p)], and for not doing all other acts which the law requires him to do under Section 6. This, he
emphasizes, is absurd and should not be entertained.
To begin with, the Minimum Wage Law is a social legislation which has been adopted for the benefit of
labor and as such it contains provisions that are enjoined to be observed by the employer. These
provisions are substantive in nature and had been adopted for common observance by the persons
affected. They cannot be eluded nor subverted lest the erring employer runs into the sanction of the law.
On the other hand, the provisions adverted to by counsel are merely administrative in character which
had been adopted to set the machinery by which the law is to be enforced. They are provisions
established for observance by the officials entrusted with its enforcement. Failure to comply with them
would therefore subject them merely to administrative sanction. They do not come under the penal clause
embodied in Section 15(a). This is clearly inferred from Section 18(c), of Republic Act No. 602, which
provides: "Any official of the Government to whom responsibility in administration and enforcement has
been delegated under this Act shall be removable on the sustaining of charges of malfeasance or nonfeasance in office." This specific provision should be interpreted as qualifying the penal clause provided
for in Section 15(a).
It is true that Section 3 under which appellee was charged does not state that it shall be unlawfull for an
employer to pay his employees wages below the minimum wage but merely requires that the employer
shall pay wages not below the minimum wage. But failure of such declaration does not make the nonobservance of the provisions less unlawful than otherwise, for such provision embodies precisely
the raison d'etre of the law itself. Indeed, Section 3 is the very provision on which all the other provisions
of the law are built. Thus, the prohibition against discriminating against any employee because he has
filed a complaint or caused to be instituted one against the employer is just a means to insure the
effective enforcement of that provision (Section 13); and so the prohibition against the making of a false
statement, report or record required to be filed or kept by the law (Section 13); the prohibition against the
payment of wages in the form of promissory notes, vouchers, coupons, tokens, or any other form to
represent legal tender (Section 10, par. a, sub-paragraph 1); and the prohibition against making
deductions or withholding any amount from the wages of an employee (Section 10, par. g). These are
acts which were declared unlawful because they may be resorted to by unscrupulous employers with the
evident purpose of subverting or defeating the payment of the minimum wage. If these supplementary
provisions are mere safeguards established by the lawmaker to close every avenue to trickery or
subversion on the part of the employer, they cannot be more important and imperative as the central
provision fixing the minimum wage without which the law will have no reason to exist. We cannot
therefore entertain the claim that because said provision was not declared unlawful it cannot be subject to
the penal sanction embodied in Section 15.
It is likewise true that the informations under which the accused was charged only mention Section 3 of
the law as the one violated and this section does not contain a penal clause, but this does not make the
informations defective. There is no law which requires that in order that an accused may be convicted the
specific provision which penalizes that act charged be mentioned in the information. The Rules of Court
do not require such designation. In fact, the rule provides that an information, to be sufficient, should
state only the name of the defendant, the designation of the offense by the statute, the acts or omissions
complained of as constituting the offense, the name of the offended party, the approximate time of the

23

commission of the offense, and the place wherein the offense was committed (Rule 106, Section 5). The
rule does not require that it should mention the particular penal provision penalizing the offense.
The final claim of appellee is that inasmuch as the provisions of the law under which he was prosecuted
are ambiguous and there is doubt as to their interpretation, that doubt should be resolved in his favor
because a penal statute should be strictly construed against the State. This contention must also fail if we
are to be consistent with our interpretation of the provisions of Section 15 (a) of the law. We have stated
that that section is clear and unambiguous and covers the provisions embodied in Section 3 of the law,
and if such is the case then there is no room for the application of the principle invoked by appellee.
We are therefore persuaded to conclude that the court a quo erred in dismissing the informations filed
against the appellee and, consequently, its order of December 3, 1956, subject of this appeal should be
set aside.
Wherefore, the order appealed from is hereby set aside. It is ordered that these cases be remanded to
the court a quo for further proceedings, with costs against appellee..

24

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National
Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May
7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of
P300,000. This special authorization was essential in view of the memorandum order of President
Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan,
to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased
to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with
the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion
contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel
S. Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as
member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with
a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge
of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of
P3,000, with subsidiary imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must
hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant
loans to any of the members of the board of directors of the bank nor to agents of the branch banks."
Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall
be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or
by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful
acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial court. These errors they
have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General
Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant
one by one.
The question presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section
35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was given, but
only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in
question speak of a "credito" (credit) and not of a " prestamo" (loan).

25

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed
by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law
Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a given sum of
money, upon an agreement, express or implied, to repay the sum loaned, with or without interest.
(Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the
granting of "loans" up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by
Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit
what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the
Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans.
The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred
to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to
discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction
comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual,
live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is
taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on
single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts,
yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C."
were not discount paper but were mere evidences of indebtedness, because (1) interest was not
deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name
and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not essentially different
from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted
a loan and not a discount, so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In
this connection, it should be recalled that the wife of the defendant held one-half of the capital of this
partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the
intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition
of the familiar maxim that no man may serve two masters that where personal interest clashes with
fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially
interested in the success or failure of his wife's business venture, a loan to partnership of which the wife
of a director is a member, falls within the prohibition.

26

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership.
(Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal and family
affairs with his official duties, and to permit the loan P300,000 to a partnership of no established
reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme
Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer should borrow of
the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this
section he shall be punished by fine and imprisonment?" We say to protect the stockholders,
depositors and creditors of the bank, against the temptation to which the directors and officers
might be exposed, and the power which as such they must necessarily possess in the control and
management of the bank, and the legislature unwilling to rely upon the implied understanding that
in assuming this relation they would not acquire any interest hostile or adverse to the most exact
and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the
bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it
was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as to himself
directly. The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of
section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No.
2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the
judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35
of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act. It
is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938
has served to take away the basis for criminal prosecution.
This same question has been previously submitted and has received an answer adverse to such
contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922],
43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil.,
1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the
Legislature which penalizes an offense, such repeals a former Act which penalized the same offense,
such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and
sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No.
2747, penalized by this law?

27

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since
section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law,
but on a personviolating any provisions of the same, and imposing imprisonment as a part of the penalty,
the prohibition contained in said section 35 is without penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the
board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in
extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal
defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because he was
misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the
copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine
National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has
violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of
public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated,
the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the
Insular Auditor, even conceding that such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not common to the other
stockholders. The law will not allow private profit from a trust, and will not listen to any proof of
honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and the errors
assigned by the appellant, and with reference to previous decisions of this court on the same subject, we
are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and
that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the
information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the
law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

28

CITY OF BAGUlO, REFORESTATION ADMINISTRATION,

FRANCISCO G. JOAQUIN, SR., FRANCISCO G. JOAQUIN, JR., and TERESITA J.
BUCHHOLZ petitioners,
vs.
HON. PIO R. MARCOS, Judge of the Court of First Instance of Baguio,
BELONG LUTES, and the HONORABLE COURT OF APPEALS, respondents.

Petitioners attack the jurisdiction of the Court of First Instance of Baguio to reopen cadastral proceedings
under Republic Act 931. Private petitioner's specifically question the ruling of the Court of Appeals that
they have no personality to oppose reopening. The three-pronged contentions of all the petitioners are:
(1) the reopening petition was filed outside the 40-year period next preceding the approval of Republic Act
931; (2) said petition was not published; and (3) private petitioners, as lessees of the public land in
question, have court standing under Republic Act 931. The facts follow:
On April 12, 1912, the cadastral proceedings sought to be reopened, Civil Reservation Case No. 1, GLRO
Record No. 211, Baguio Townsite, were instituted by the Director of Lands in the Court of First Instance of
Baguio. It is not disputed that the land here involved (described in Plan Psu-186187) was amongst those
declared public lands by final decision rendered in that case on November 13, 1922.
On July 25, 1961, respondent Belong Lutes petitioned the cadastral court to reopen said Civil Reservation
Case No. 1 as to the parcel of land he claims. His prayer was that the land be registered in his name
upon the grounds that: (1) he and his predecessors have been in actual, open, adverse, peaceful and
continuous possession and cultivation of the land since Spanish times, or before July 26, 1894, paying
the taxes thereon; and (2) his predecessors were illiterate Igorots without personal notice of the cadastral
proceedings aforestated and were not able to file their claim to the land in question within the statutory
period.
On December 18, 1961, private petitioners Francisco G. Joaquin, Sr., Francisco G. Joaquin, Jr., and
Teresita J. Buchholz registered opposition to the reopening. Ground: They are tree farm lessees upon
agreements executed by the Bureau of Forestry in their favor for 15,395.65 square meters on March. 16,
1959, for 12,108 square meters on July 24, 1959, and for 14,771 square meters on July 17, 1959,
respectively.
On May 5, 1962, the City of Baguio likewise opposed reopening.
On May 8, 1962, upon Lutes' opposition, the cadastral court denied private petitioners' right to intervene
in the case because of a final declaratory relief judgment dated March 9, 1962 in Yaranon vs.
Castrillo [Civil Case 946, Court of First Instance of Baguio] which declared that such tree farm leases
were null and void.
On May 18, 1962, private petitioners moved to reconsider. They averred that said declaratory relief
judgment did not bind them, for they were not parties to that action.
On September 14, 1962, the cadastral court reversed its own ruling of May 8, 1962, allowed petitioners to
cross-examine the witnesses of respondent Lutes.

29

On October 16, 1962, Lutes replied to and moved to dismiss private petitioners' opposition to his
reopening petition. On October 25, 1962, private petitioners' rejoinder was filed.
On August 5, 1963, the cadastral court dismissed private petitioners' opposition to the reopening. A
motion to reconsider was rejected by the court on November 5, 1963.
On January 6, 1964, it was the turn of the City of Baguio to lodge a motion to dismiss the petition to
reopen. This motion was adopted as its own by the Reforestation Administration. They maintained the
position that the declaratory judgment in Civil Case 946 was not binding on those not parties thereto.
Respondent Lutes opposed on February 24, 1964. On April 6, 1964, private petitioners reiterated their
motion to dismiss on jurisdictional grounds.
On September 17, 1964, the court denied for lack of merit the City's motion as well as the April 6, 1964
motion to dismiss made by private petitioners.
On November 13, 1964, all the petitioners went to the Court of Appeals on certiorari, prohibition, and
mandamus with preliminary injunction. 1 They then questioned the cadastral court's jurisdiction over the
petition to reopen and the latter's order of August 5, 1963 dismissing private petitioners' opposition. The
appellate court issued a writ of preliminary injunction upon a P500-bond.
Then came the judgment of the Court of Appeals of September 30, 1965. The court held that petitioners
were not bound by the declaratory judgment heretofore hated. Nevertheless, the appellate court ruled that
as lessees, private petitioners had no right to oppose the reopening of the cadastral case. Petitioners
moved to reconsider. It was thwarted on May 6, 1966.
Petitioners now seek redress from this Court. On July 6, 1966, respondents moved to dismiss the petition
before us. On August 5, 1966, petitioners opposed. On August 12, 1966, we gave due course.
1. Do private petitioners have personality to appear in the reopening proceedings?
First, to the controlling statute, Republic Act 931, effective June 20, 1953.
The title of the Act reads
AN ACT TO AUTHORIZE THE FILING IN THE PROPER COURT, UNDER CERTAIN CONDITIONS, OF
CERTAIN CLAIMS OF TITLE TO PARCELS OF LAND THAT HAVE BEEN DECLARED PUBLIC LAND,
BY VIRTUE OF JUDICIAL DECISIONS RENDERED WITHIN THE FORTY YEARS NEXT PRECEDING
THE APPROVAL OF THIS ACT.
Section 1 thereof provides
SECTION 1. All persons claiming title to parcels of land that have been the object of cadastral
proceedings, who at the time of the survey were in actual possession of the same, but for some
justifiable reason had been unable to file their claim in the proper court during the time limit
established by law, in case such parcels of land, on account of their failure to file such claims,
have been, or are about to be declared land of the public domain by virtue of judicial proceedings
instituted within the forty years next preceding the approval of this Act, are hereby granted the
right within five years 2 after the date on which this Act shall take effect, to petition for a reopening
of the judicial proceedings under the provisions of Act Numbered Twenty-two hundred and fiftynine, as amended, only with respect to such of said parcels of land as have not been alienated,

30

reserved, leased, granted, or otherwise provisionally or permanently disposed of by the

Government, and the competent Court of First Instance, upon receiving such petition, shall notify
the Government through the Solicitor General, and if after hearing the parties, said court shall find
that all conditions herein established have been complied with, and that all taxes, interests and
penalties thereof have been paid from the time when land tax should have been collected until
the day when the motion is presented, it shall order said judicial proceedings reopened as if no
action has been taken on such parcels. 3
We concede that in Leyva vs. Jandoc, L-16965, February 28, 1962, a land registration case where
oppositors were "foreshore lessees of public land", a principle was hammered out that although Section
34, Land Registration Act, 4 "apparently authorizes any person claiming any kind of interest to file an
opposition to an application for registration, ... nevertheless ... the opposition must be based on a right of
dominion or some other real right independent of, and not at all subordinate to, the rights of the
Government."5 The opposition, according to the Leyva decision, "must necessarily be predicated upon the
property in question being part of the public domain." Leyva thus pronounced that "it is incumbent upon
the duly authorized representatives of the Government to represent its interests as well as private claims
intrinsically dependent upon it."
But the Leyva case concerned an ordinary land registration proceeding under the provisions of the Land
Registration Act. Normally and logically, lessees cannot there present issues of ownership. The case at
bar, however, stands on a different footing. It involves a special statute R.A. 931, which allows a petition
for reopening on lands "about to be declared" or already "declared land of the public domain" by virtue of
judicial proceedings. Such right, however, is made to cover limited cases, i.e., "only with respect to such
of said parcels of land as have not been alienated, reserved, leased, granted, or
otherwise provisionally or permanently disposed of by the Government." 6 The lessee's right is thus
impliedly recognized by R.A. 931. This statutory phrase steers the present case clear from the impact of
the precept forged by Leyva. So it is, that if the land subject of a petition to reopen has already been
leased by the government, that petition can no longer prosper.
This was the holding in Director of Land vs. Benitez, L-21368, March 31, 1966. The reopening petition
there filed was opposed by the Director of Lands in behalf of 62 lessees of public land holding revocable
permits issued by the government. We struck down the petition in that Case because the public land,
subject-matter of the suit, had already been leased by the government to private persons.
Of course, the Benitez ruling came about not by representations of the lessees alone, but through the
Director of Lands. But we may well scale the heights of injustice or abet violations of R.A. 931 if we
entertain the view that only the Director of Lands 7 can here properly oppose the reopening petition.
Suppose the lands office fails to do so? Will legitimate lessees be left at the mercy of government
officials? Should the cadastral court close its eyes to the fact of lease that may be proved by the lessees
themselves, and which is enough to bar the reopening petition? R.A. 931 could not have intended that
this situation should happen. The point is that, with the fact of lease, no question of ownership need be
inquired into pursuant to R.A. 931. From this standpoint, lessees have sufficient legal interest in the
proceedings.
The right of private petitioners to oppose a reopening petition here becomes the more patent when we
take stock of their averment that they have introduced improvements on the land affected. It would seem
to us that lessees insofar as R.A. 931 is concerned, come within the purview of those who, according to
the Rules of Court, 8 may intervene in an action. For, they are persons who have "legal interest in the
matter in litigation, or in the success of either of the parties." 9 In the event herein private petitioners are
able to show that they are legitimate lessees, then their lease will continue. And this because it is

31

sufficient that it be proven that the land is leased to withdraw it from the operation of Republic Act 931
and place it beyond the reach of a petition for reopening. 10
In line with the Court of Appeals' conclusion, not disputed by respondent Lutes herein, the cadastral court
should have ruled on the validity of private petitioners 'tree farm leases on the merits. Because there is
need for Lutes' right to reopen and petitioners' right to continue as lessees to be threshed out in that
court.
We, accordingly, hold that private petitioners, who aver that they are lessees, have the necessary
personality to intervene in and oppose respondent Lutes' petition for reopening.
2. Petitioners next contend that the reopening petition below, filed under R.A. 931, should have been
published in accordance with the Cadastral Act.
To resolve this contention, we need but refer to a very recent decision of this Court in De Castro vs.
Marcos, supra, involving exactly the same set of facts bearing upon the question. We there held, after a
discussion of law and jurisprudence, that: "In sum, the subject matter of the petition for reopening a
parcel of land claimed by respondent Akia was already embraced in the cadastral proceedings filed by
the Director of Lands. Consequently, the Baguio cadastral court already acquired jurisdiction over the said
property. The petition, therefore, need not be published." We find no reason to break away from such
conclusion.
Respondent Lutes attached to the record a certified true copy of the November 13, 1922 decision in the
Baguio Townsite Reservation case to show, amongst others, that the land here involved was part of that
case. Petitioners do not take issue with respondent Lutes on this point of fact.
We here reiterate our ruling in De Castro, supra, that the power of the cadastral court below over petitions
to reopen, as in this case, is not jurisdictionally tainted by want of publication.
3. A question of transcendental importance is this: Does the cadastral court have power to reopen the
cadastral proceedings upon the application of respondent Lutes?
The facts are: The cadastral proceedings sought to be reopened were instituted on April 12, 1912. Final
decision was rendered on November 13, 1922. Lutes filed the petition to reopen on July 25, 1961.
It will be noted that the title of R.A. 931, heretofore transcribed, authorizes "the filing in the proper court,
under certain conditions, of certain claims of title to parcels of land that have been declared public
land, by virtue of judicial decisions rendered within the forty years next preceding the approval of this Act."
The body of the statute, however, in its Section 1, speaks of parcels of land that "have been, or are about
to be declared land of the public domain, by virtue of judicial proceedings instituted within the forty years
next preceding the approval of this Act." There thus appears to be a seeming inconsistency between title
and body.
It must be stressed at this point that R.A. 931 is not under siege on constitutional grounds. No charge has
been made hero or in the courts below that the statute offends the constitutional injunction that the
subject of legislation must be expressed in the title thereof. Well-entrenched in constitutional law is the
precept that constitutional questions will not be entertained by courts unless they are "specifically raised,
insisted upon and adequately argued." 11 At any rate it cannot be seriously disputed that the subject of
R.A. 931 is expressed in its title.

32

This narrows our problem down to one of legal hermeneutics.

Many are the principles evolved in the interpretation of laws. It is thus not difficult to stray away from the
true path of construction, unless we constantly bear in mind the goal we seek. The office of statutory
interpretation, let us not for a moment forget, is to determine legislative intent. In the words of a wellknown authority, "[t]he true object of all interpretation is to ascertain the meaning and will of the lawmaking body, to the end that it may be enforced." 12 In varying language, "the, purpose of all rules or
maxims" in interpretation "is to discover the true intention of the law." 13 They "are only valuable when they
subserve this purpose." 14 In fact, "the spirit or intention of a statute prevails over the letter thereof." 15 A
statute "should be construed according to its spirit and reason, disregarding as far as necessary, the letter
of the law." 16 By this, we do not "correct the act of the Legislature, but rather ... carry out and give due
course to" its true intent. 17
It should be certain by now that when engaged in the task of construing an obscure expression in the
law 18 or where exact or literal rendering of the words would not carry out the legislative intent, 19 the title
thereof may be resorted to in the ascertainment of congressional will. Reason therefor is that the title of
the law may properly be regarded as an index of or clue or guide to legislative intention. 20 This is
especially true in this jurisdiction. For the reason that by specific constitutional precept, "[n]o bill which
may be enacted into law shall embrace more than one subject which shall be expressed in the title of the
bill." 21 In such case, courts "are compelled by the Constitution to consider both the body and the title in
order to arrive at the legislative intention." 22
With the foregoing guideposts on hand, let us go back to the situation that confronts us. We take another
look at the title of R.A. 931, viz: "AN ACT TO AUTHORIZE THE FILING IN THE PROPER COURT,
UNDER CERTAIN CONDITIONS, OF CERTAIN CLAIMS OF TITLE TO PARCELS OF LAND THAT HAVE
BEEN DECLARED PUBLIC LAND, BY VIRTUE OF JUDICIAL DECISIONS RENDERED WITHIN THE
FORTY YEARS NEXT PRECEDING THE APPROVAL OF THIS ACT." Readily to be noted is that the title
is not merely composed of catchwords. 23 It expresses in language clear the very substance of the law
itself. From this, it is easy to see that Congress intended to give some effect to the title of R.A. 931.
To be carefully noted is that the same imperfection in the language of R.A. 931 aforesaid from which
surfaces a seeming inconsistency between the title and the body attended Commonwealth Act 276, the
present statute's predecessor. That prior law used the very same language in the body thereof and in its
title. We attach meaning to this circumstance. Had the legislature meant to shake off any legal effects that
the title of the statute might have, it had a chance to do so in the reenactment of the law. Congress could
have altered with great facility the wording of the title of R.A. 931. The fact is that it did not.
It has been observed that "in modern practice the title is adopted by the Legislature, more thoroughly read
than the act itself, and in many states is the subject of constitutional regulation." 24 The constitutional in
jurisdiction that the subject of the statute must be expressed in the title of the bill, breathes the spirit of
command because "the Constitution does not exact of Congress the obligation to read during its
deliberations the entire text of the bill." 25Reliance, therefore, may be placed on the title of a bill, which,
while not an enacting part, no doubt "is in some sort a part of the act, although only a formal
part." 26 These considerations are all the more valid here because R.A. 931 was passed without benefit of
congressional debate in the House from which it originated as House Bill 1410, 27 and in the Senate. 28
The title now under scrutiny possesses the strength of clarity and positiveness. It recites that it authorizes
court proceedings of claims to parcels of land declared public land "by virtue of
judicial decisions rendered within the forty years next preceding the approval of this Act." That title is
written "in capital letters" by Congress itself; such kind of a title then "is not to be classed with words or
titles used by compilers of statutes" because "it is the legislature speaking." 29 Accordingly, it is not hard to

33

come to a deduction that the phrase last quoted from R.A. 931 "by virtue of judicial decisions rendered"
was but inadvertently omitted from the body. Parting from this premise, there is, at bottom, no
contradiction between title and body. In line with views herein stated, the title belongs to that type of titles
which; should be regarded as part of the rules or provisions expressed in the body. 30At the very least, the
words "by virtue of judicial decisions rendered" in the title of the law stand in equal importance to the
phrase in Section 1 thereof, "by virtue of judicial proceedings instituted."
Given the fact then that there are two phrases to consider the choice of construction we must give to the
statute does not need such reflection. We lean towards a liberal view. And this, because of the principle
long accepted that remedial legislation should receive the blessings of liberal construction. 31 And, there
should be no quibbling as to the fact that R.A. 931 is a piece of remedial legislation. In essence, it
provides a mode of relief to landowners who, before the Act, had no legal means of perfecting their titles.
This is plainly evident from the explanatory note thereof, which reads:
This bill is intended to give an opportunity to any person or claimant who has any interest in any
parcel of land which has been declared as public land in cadastral proceeding for failure of said
person or claimant to present his claim within the time prescribed by law.
There are many meritorious cases wherein claimants to certain parcels of land have not had the
opportunity to answer or appear at the hearing of cases affecting their claims in the
corresponding cadastral proceedings for lack of sufficient notice or for other reasons and
circumstances which are beyond their control. Under C.A. No. 276, said persons or claimants
have no more legal remedy as the effectivity of said Act expired in 1940.
This measure seeks to remedy the lack of any existing law within said persons or claimants with
meritorious claims or interests in parcels of land may seek justice and protection. This bill
proposes to give said persons or claimants their day in court. Approval of this bill is earnestly
requested.
In fine, we say that lingual imperfections in the drafting of a statute should never be permitted to
hamstring judicial search for legislative intent, which can otherwise be discovered. Legal technicalities
should not abort the beneficent effects intended by legislation.
The sum of all the foregoing is that, as we now view Republic Act 931, claims of title that may be filed
thereunder embrace those parcels of land that have been declared public land "by virtue of judicial
decisions rendered within the forty years next preceding the approval of this Act." Therefore, by that
statute, the July 25, 1961 petition of respondent Belong Lutes to reopen Civil Reservation Case No. 1,
GLRO Record No. 211 of the cadastral court of Baguio, the decision on which was rendered on
November 13, 1922, comes within the 40-year period.lawphi1.nt
FOR THE REASONS GIVEN, the petition for certiorari is hereby granted; the cadastral court's orders of
August 5, 1963, November 5, 1963 and September 17, 1964 are hereby declared null and void and the
cadastral court is hereby directed to admit petitioners' oppositions and proceed accordingly. No costs. So
ordered.

34

JACINTO MOLINA, plaintiff-appellee,

vs.
JAMES J. RAFFERTY, Collector of Internal Revenue, defendant-appellant.

After the publication of the decision announced under the date of February 1st., 1918, 1 counsel for
appellee presented a petition for a rehearing. This petition was granted and oral argument of the motion
was permitted. Two of the members of the court, as constituted at the time of the argument on the motion
for a rehearing, were not present when the case was first submitted and did not participate in the original
decision.
Upon the facts, as correctly stated in the original majority decision, a majority of the members of the court
as now constituted is in favor of setting aside the original decision and affirming the judgment of the trial
court.
Plaintiff contends that the fish produced by him are to be regarded as an "agricultural product" within the
meaning of that term as used in paragraph (c) of section 41 of Act No. 2339 (now section 1460 of the
Administrative Code of 1917), in forced when the disputed tax was levied, and that he is therefore exempt
from the percentage tax on merchants' sales established by section 40 of Act No. 2339, as amended.
The provision upon which the plaintiff relies reads as follows:
In computing the tax above imposed transactions in the following commodities shall be
excluded: . . . (c) Agricultural products when sold by the producer or owner of the land where
grown, whether in their original state or not. (Act No. 2339, sec. 41.)
The same exemption, with a slight change in wording, is now embodied in section 1460 of the
Administrative Code, of 1917.
The question of law presented by this appeal, as we view, is not whether fish in general constitute an
agricultural products, but whether fish produced as were those upon which the tax in question was levied
are an agricultural product.
As stated by judged Cooley in his great work on taxation:
The underlying principle of all construction is that the intent of the legislature should be sought in
the words employed to express it, and that when found it should be made to govern, . . . . If the
words of the law seem to be of doubtful import, it may then perhaps become necessary to look
beyond them in order to ascertain what was in the legislative mind at the time the law was
enacted; what the circumstances were, under which the action was taken; what evil, if any, was
meant to be redressed; . . . . And where the law has contemporaneously been put into operation,
and in doing so a construction has necessarily been put upon it, this construction, especially if
followed for some considerable period, is entitled to great respect, as being very probably a true
expression of the legislative purpose, and is not lightly to be overruled, although it is not
conclusive. (Cooley on Taxation [Vol. 1] 3d. Ed., p. 450.)
The first inquiry, therefore, must relate to the purpose of the Legislative had in mind in establishing the
exemption contained in the clause now under consideration. It seems reasonable to assume that it was

35

due to the belief on the part of the law making body that by exempting agricultural products from this tax
the farming industry would be favored and the development of the resources of the country encouraged. It
is a fact, of which we take judicial cognizance, that there are immense tracts of public land in this country,
at present wholly unproductive, which might be made fruitful by cultivation, and that large sums of money
go abroad every year for the purchase of food substances which might be grown here. Every dollar's
worth of food which the farmer produces and sells in these Islands adds directly to the wealth of the
country. On the other hand, in the process of distribution of commodities to the ultimate consumer, no
direct increase in value results solely from their transfer from one person to another in the course of
commercial transactions. It is fairly to be inferred from the statute that the object and purpose of the
Legislature was, in general terms, to levy the tax in question, significantly termed the "merchant's tax,"
upon all persons engaged in making a profit upon goods produced by others, but to exempt from the tax
all persons directly producing goods from the land. In order to accomplish this purpose the Legislature,
instead of attempting an enumeration of exempted products, has grouped them all under the general
designation of "agricultural products."
It seems to require no argument to demonstrate that it is just as much to the public interest to encourage
the artificial propagation and growth of fish as of corn, pork, milk or any other food substance. If the
artificial production of fish is held not to be included within the exemption of the statute this conclusion
must be based upon the inadequacy of the language used by the Legislature to express its purpose,
rather than the assumption that it was actually intended to exclude producers of artificially grown fish from
the benefits conferred upon producers of other substances brought into the store of national wealth by the
arts of husbandry and animal industry.
While we have no doubt that the land occupied by the ponds in which the fish in question are grown is
agricultural land within the meaning of the Acts of Congress and of the Philippine Commission under
consideration in the case of Map vs. Insular Government (10 Phil. Rep., 175) and others cited in the
original majority opinion, it does not seem to us that this conclusion solves the problem. A man might
cultivate the surface of a tract of land patented to him under the mining law, but the products of such soil
would not for that reason, we apprehend, be any the less "agricultural products." Conversely, the
admission that the land upon which these fishponds are constructed is not to be classified as mineral or
forest land, does not lead of necessity to the conclusion that everything produced upon them is for that
reason alone to be deemed an "agricultural product" within the meaning of the statute under
consideration.
"Agriculture" is an English word made upon of Latin words "ager," a field, and "cultura," cultivation. It is
defined by Webster's New International Dictionary as meaning in its broader sense, "The science and art
of the production of plants and animal useful to man . . ."
In Dillard vs. Webb (55 Ala., 468) it is held that the words "agriculture" includes "the rearing, feeding and
managing of live stock." The same view was expressed in the case of Binzel vs. Grogan (67 Wis., 147).
Webster defines "product" to be "anything that is produced, whether as the result of generation, growth,
labor, or thought ... ," while "grow" is defined in the Century Dictionary as meaning "to cause to grow;
cultivate; produce, raise . . .."
While it is true that in a narrow and restricted sense agricultural products are limited to vegetable
substances directly resulting from the tillage of the soil, it is evident from the definitions quoted that the
term also includes animal which derived their sustenance from vegetable growths, and are
therefore indirectly the product of the land. Thus it has been held that "The product of the dairy and the
product of the poultry yard, while it does not come directly out of the soil is necessarily connected with the
soil . . . and is therefore farm produce. (District of Columbia vs. Oyster, 15 D. C., 285.)

36

In the case of Mayor vs. Davis (6 Watts & Sergeant [Penn. Rep.], 269) the court said:
Swine horses, meat cattle, sheep, manure, cordwood, hay, vegetables, fruits, eggs, milk, butter,
lard . . . are strictly produce of the farm . . .
Without attempting to further multiply examples, we think it may safely be asserted that courts and
lexicographers are in accord in holding that the term "agricultural products" is not limited in its meaning to
vegetable growth, but includes everything which serves to satisfy human needs which is grown upon the
land, whether it pertain to the vegetable kingdom, or to the animal kingdom. It is true that there is no
decision which as yet has held that the fish grown in ponds are an agricultural product, but that is no
reason why we should not so hold if we find that such fish fall within the scope of the meaning of the term.
Of necessity, the products of land tend constantly to multiply in number and variety, as population
increases and new demands spring up. In California there are farms devoted to the growth of frogs for the
market. In many places in North America foxes and other animals usually found wild are reared in
confinement for their fur. In Japan land is devoted to the culture of the silkworm and the growth of the
plants necessary for the food of those insects. Bees are everywhere kept for the wax and honey into
which the land is made to produce by those engaged in these occupations are "agricultural products" in
the same sense in which poultry, eggs, and butter have been held to be agricultural products.
Now, if the purpose of agriculture, in the broader sense of the term, is to obtain from the land the products
to which it is best adapted and through which it will yield the greatest return upon the expenditure of a
given amount of labor and capital, can it not be said that it is just as much an agricultural process to
enclose a given area of land with dykes, flood it with water, grow aquatic plants in it, and feed fish with the
plants so produced as to fence in it and allow poultry to feed upon the plants naturally or artificially grown
upon the surface? In the last analysis the result is the same a given area of land produces a certain
amount of food. In the one case it is the flesh of poultry, in the other the flesh of fish. It has been agreed
between the parties that an important article of diet consumed by fish grown in a pond consists of certain
marine plants which grow from roots which affix themselves to the bottom of the pond. In a real sense,
therefore, the fish are just as truly a product of the land as are poultry or swine, living upon its vegetable
growths, aquatic or terrestrial. Thus, land may truly be said to produce fish, although it is true that the
producer is not a fisherman. Neither is one who grows foxes for their pelts a hunter. As contended by
counsel, the inquiry is not whether fish in general constitute an agricultural product, but whether fish
artificially grown and fed in confinement are to be so regarded. Honey produced by one who devotes his
land to apiculture might be so regarded, even if we were to admit that wild honey gathered in the forest is
not. Pigeons kept in domestication and fed by the owner would fall within the definition. Wild pigeons
obtained by a hunter would not. Firewood gathered in a natural forest is not an agricultural product, but
firewood cut from bacauantrees planted for that purpose has been held to be such a product, and its
producer exempt from the merchant's tax. (Mercado vs. Collector of Internal Revenue, 32 Phil. Rep.,
271.) Other comparisons might be made, many of which will be found in the opinion in which two of the
members of the court expressed their dissent from the original majority opinion, but enough have been
given to make our position clear.
During the many hears that the statute before us has been in existence, since it first appeared,
substantially in its present form, in section 142 of Act No. 1189, passed in 1904, no attempt has been
made, until this case arose, to construe it as not applying to fish grown in ponds, and much weight should
be given to this long continued administrative interpretation. The opinion of the Attorney-General, cited by
Justice Malcolm, will be found on examination to have no bearing upon the present inquiry, as in that case
question was, not whether fish grown and fed in ponds were agricultural products, but whether
". . . fishermen, shell and pearl gatherers . . ." were liable to the occupation tax. There is nothing in the
opinion to indicate that the word "fishermen" was used to mean men growing fish in ponds, and it must,

37

therefore, be assumed that it was used in its proper grammatical sense to designate persons engaged in
catching fish not artificially produced.
The decision in the case of The United States vs. Laxa (36 Phil. Rep., 670) is not controlling, as the
reasoning upon which it is based was not concurred in by four members of the court. Furthermore, the
Laxa case might be distinguished from the one now under consideration, were it necessary to do so, in
that it has been stipulated in this case that fish cultivated in ponds subsist largely upon aquatic plants
which grow from roots which attach themselves to the bottom of the pond, and are therefore in a real
sense a product of the land, while in the Laxa case the evidence was that they subsisted solely upon free
floating algae.
We are therefore of the opinion, and so hold, that the decision heretofore rendered herein must be set
aside, and the judgment of the lower court affirmed. So ordered.

38

RODOLFO GENERAL and CARMEN GONTANG, petitioners,

vs.
LEONCIO BARRAMEDA, respondent.

Petition for certiorari to review the decision of the Court of Appeals (Second Division) in CA-G.R. No.
38363-R, entitled "Leoncio Barrameda, plaintiff-appellant, vs. Development Bank of the Philippines (Naga
Branch, Naga City), Rodolfo General and Carmen Gontang, defendants-appellees," which reversed the
decision of the Court of First Instance of Camarines Sur in its Civil Case No. 5697, "dismissing the
complaint with costs against plaintiff".
Appellate Court's decision has the following dispositive portion:
We therefore find that the appealed judgment should be reversed and set aside and
another one entered declaring (1) null and void the sale executed on September 3, 1963,
by defendant Development Bank of the Philippines in favor of its defendants Rodolfo
General and Carmen Gontang, (2) T.C.T. No. 5003 cancelled and (3) the mortgaged
property redeemed; and ordering the Clerk of the lower court to deliver the amount of
P7,271.22 deposited to defendants Rodolfo General and Carmen Gontang and the
Register of Deeds to issue a new Transfer Certificate of Title in the name of plaintiff in lieu
of T.C.T. No. 5003 upon payment by him of corresponding fees; with costs against the
defendants in both instances.
Undisputed facts are:
Plaintiff seeks to redeem the land formerly embraced in Transfer Certificate of Title No.
1418, containing an area of 59.4687 hectares, situated in barrio Taban, Minalabac
Camarines Sur; to annul any and all contracts affecting said property between the
Development Bank of the Philippines (DBP) and Rodolfo General and Carmen Gontang
and to recover damages, attorney's fees and costs.
The land in dispute was mortgaged by plaintiff to the DBP to secure a loan of P22,000.00.
For failure of the mortgagor to pay in full the installments as they fall due, the mortgagee
foreclosed extrajudicially pursuant to the provisions of Act 3135. On April 23, 1962, the
provincial sheriff conducted an auction sale in which the mortgagee, as the highest
bidder, bought the mortgaged property for P7,271.22. On May 13, 1963, the sheriff
executed a final deed of sale in favor of the DBP (Exhibit 2) and the DBP executed an
affidavit of consolidation of ownership (Exhibit 3). Upon registration of the sale and
affidavit on September 2, 1963 (Exhibit 1), TCT No. 1418 in the name of plaintiff was
cancelled and TCT No. 5003 issued to the DBP (Exhibit-5) in its stead. On September 3,
1963, defendants Rodolfo General and Carmen Gontang purchased the land from their
codefendant. The sale in their favor was annotated on TCT No. 5003 on November 26,
1963 only.
Prior to the date last mentioned, or on November 20, 1963, plaintiff offered to redeem the
land. In view of the refusal of the DBP to allow the redemption, plaintiff commenced this
suit. The original complaint was filed in court on November 23, 1963. On August 12,
1964, plaintiff deposited with the clerk of court the sum of P7,271.22, representing the
repurchase price of the land.

39

The trial court held that the one-year period of redemption began to run on April 23, 1962,
when the sale at public auction was held, and ended on April 24, 1963; that the plaintiff's
offer to redeem on November 20, 1963 and the deposit of the redemption price on August
12, 1964 were made beyond the redemption period; and that defendants Rodolfo
General and Carmen Gontang 'are legitimate purchasers for value.
Two principal issues raised are:
(1) In the interpretation and application of Section 31, Commonwealth Act 459 (Law that
created the Agricultural and Industrial Bank, now Development Bank of the Philippines)
which provides:
The Mortgagor or debtor to the Agricultural and Industrial Bank whose
real property was sold at public auction, judicially or extra- judicially, for
the full or partial payment of an obligation to said bank shall, within one
year from the date of' the auction sale, have the right to redeem the real
property ... (Emphasis supplied),
shall the period of redemption start from the date of auction sale or the date of the
registration of the sale in the register of deeds as the respondent Appellate Court held?
(2) Were petitioners under obligation to look beyond what appeared in the certificate of
title of their vendor the Development Bank of the Philippines and investigate the validity
of its title before they could be classified as purchasers in good faith?
Petitioners' principal contentions are: that Section 31 of Commonwealth Act No. 459 which created the
Agricultural and Industrial Bank, predecessor of the Rehabilitation Finance Corporation and the
Development Bank of the Philippines, clearly provides that the right to redeem the real property sold at
public auction judicially or extra-judicially may only be exercised "within one year from the date of the
auction sale"; that there is no provision in Commonwealth Act No. 459 expressly stating that the
redemption period of one year shall start from the registration of the certificate of sale in the register of
deeds; that Sec. 31 of C. A. 459 is a specific provision of law which governs redemption of real property
foreclosed by the Agricultural and Industrial Bank (now the Development Bank of the Philippines), and
prescribes the redemption period for both judicial and extra-judicial foreclosures of mortgage; that insofar
as foreclosures of mortgage by banking and financial institutions are concerned, the period of redemption
applicable must be the one prescribed in their respective charters as, in the case at bar, Section 31, C.A.
No. 459; that the ruling in the case of Agbulos vs. Alberto, G.R. No. L-17483, July 31, 1962, cited by
respondent Appellate Court as a basis for its decision, is not applicable to the case at bar because this
Court based its Agbulos ruling on Section 26 (now Sec. 90) of Rule 39 of the Rules of Court, wherein it is
not clear when the period of redemption should start (date when execution sale was conducted, or when
the certificate of sale was executed by sheriff, or when the certificate of sale was registered in the registry
of deeds), and this Court ruled that as the land involved in that case is registered under the Torrens
system, the date of redemption should begin to run from the date of registration, unlike in the case at bar
where Section 31 of Commonwealth Act 459 specifically and clearly provides that the running of the
redemption period shall start from the date of the auction sale; and that the ruling of this Court
in Gonzales vs. P.N.B., 48 Phil. 824, also invoked by respondent Appellate Court as a basis for its
decision, is likewise not applicable to the case at bar because the provisions on the matter of the P.N.B.
Charter, Act No. 2938, are different from that of Commonwealth Act 459. Section 32 of Act 2938, which is
now Section 20 of R.A. No. 1300 (PNB Charter) provides that the mortgagor shall have the right to
redeem within one year the sale of the real estate. This is Identical to the provision appearing in Sec. 26,
now Sec. 30, Rule 39, Rules of Court, while under Sec. 31 of Commonwealth Act 459, the period of

40

redemption should star, on the date of the auction sale, and the latter provision is applicable specifically
and expressly to the case at bar.
It is also petitioners' principal argument that the ruling in Metropolitan Insurance Company, substituted by
spouses Loreto Z. Marcaida and Miguel de Marcaida vs. Pigtain 101 Phil. 1111, 1115-1116, wherein this
Court, in construing Sec. 6 of Act No. 3135, categorically stated that the one year redemption period shall
start from the date of sale and not from the report of the sale or the registration of the sale certificate in
the office of the Register of Deeds, is more applicable to the present case. The pertinent portion of the
decision in the Marcaida case follows:
But again the appellants claim that in this particular case, the statutory redemption period
of one year should begin from December 17, 1954, when the auction sale was actually
recorded in the office of the Register of Deeds of Manila and not from December 15,
1953, when the sale at public auction of the properties in question took place. We find its
contention to be also untenable in view of the clear provision of the aforesaid Section 6 of
Act No. 3135 to the effect that the right of redemption should be exercised within one
year from the date of the sale. It should not be overlooked that the extrajudicial sale in
question was for foreclosure of a mortgage and was not by virtue of an ordinary writ of
execution in a civil case. ... And since the appeallants had failed to redeem the land in
question within the time allowed by Section 6 of Act 3135, the appellee has perfect right
to require the cancellation of the attachment lien in question. (Emphasis supplied)
Notwithstanding the impressive arguments presented by petitioners, the crucial issue to determine is the
choice of what rule to apply in determining the start of the one year redemption period, whether from the
date of the auction sale or from that of the registration of the sale with the registry of deeds. In other
words it is whether a literal interpretation of the provision of Section 31 of Commonwealth Act 459 that
the period of redemption shall start from the date of the auction sale shall govern, or whether the
words, "auction sale" shall be considered in their ordinary meaning or in the same sense that site is used
in the texts of Section 26, now 30, of Rule 39 of the Rules of Court, and Section 26 of Act 2938, now
Section 20, R.A. 1300 (Charter of PNB). Stated differently, should the word " sale" used in the above
indicated provisions of the Rules of Court and the PNB Charter, under whichWe ruled that the redemption
period shall start from the registration of the sale in the registry of deeds be applied to foreclosure sales
for the DBP and give to the words auction sale" in its charter the same meaning of "sale" as used in
connection with registered land?
We are of the view that a correct solution to the foregoing issue must entail not merely trying to determine
the meaning of the words auction sale" and "sale" in different legislative enactments, but, more
importantly, a determination of the legislative intent which is quite a task to achieve as it depends more on
a determination of the purpose and objective of the law in giving mortgagors a period of redemptiom of
their foreclosed properties. Mortgagors whose properties are foreclosed and are purchased by the
mortgagee as highest bidder at the auction sale are decidedly at a great disadvatage because almost
invariably mortgagors forfeit their properties at a great loss as they are purchased at nominal costs by the
mortgagee himself who ordinarily bids in no more than his credit or the balance threof at the auction sale.
That is the reason why the law gives them a chance to redeem their properties within a fixed period. It
cannot be denied that in all foreclosures of mortgages and sale of property pursuan to execution, whether
judicial or extrajudicial in nature, under different legislative enactments, a public auction sale is a
indispensable pre-requisite to the valid disposal of properties used as collateral for the obligation. So that
whether the legislators in different laws used as collateral for the obligation. So that whether the
legislators in different laws used the term "sale" or "auction sale" is of no moment, since the presumption
is that when they used those words "sale" and "auction sale" interchangeable in different laws they really

41

referred to only one act the sale at public auction indispensably necessary in the disposition of
mortgaged properties and those levied upon to pay civil obligations of their owners.
In the case of Ernesto Salazar, et al. vs. Flor
L-15378, promulgated July 31, 1963, this Court stated:

De

Lis

Meneses,

et

al.,G.R.

No.

The issue decisive of this appeal is the one raised by appellants in their third assignment
of error, which is to this effect: that the lower court erred in not holding that the period of
redemption in this case, as far as appellants are concerned, started only on May 26,
1956, registered. Should We rule to this effect, it is clear that hen appellants attempted to
exercise their right to redeem, as judgment creditors of the deceased mortgagor by
judgment subsequent to the extrajudicial foreclosure sale, and when they initiated the
present action on October 1, 1956, the period of redemption had not yer expired.
We find appellants' contention to be meritorious. In the case of Agbulos vs. Alberto, G.R.
No. L-17483, promulgated on July 31, 1962, We held:
The property involved in the present case is registered land. It is the law
in this jurisdiction that when property brought under the operation of the
Land Registration Act sold, the operative act is the registration of the
deed of conveyance. The deed of sale does not take effect this a
conveyance or bind the land it is registered. (Section 50, Act 496; Tuason
vs. Raymundo, 28 Phil. 635; Sikatuna vs. Guevara, 43 Phil. 371;
Worcester vs. Ocampo, 34 Phil. 646) (Emphasis supplied)
We find no compelling reason to deviate from the aforequoted ruling and not apply the same to the
present case. To Us petitioners' main contention that there is a great deal of difference in legislative intent
in the use of the words 94 auction sale" in Sec. 31 of Commonwealth Act 459 and the word "sale" in See.
32 of Act 2938, and See. 30 of Rule 39 of the Rules of Court, pales into insignificance in the light of Our
stand that those words used interchangeably refer to one thing, and that is the public auction sale
required by law in the disposition of properties foreclosed or levied upon. Our stand in the Salazar case
and in those mentioned therein (Garcia vs. Ocampo, G.R. No. L-13029, June 30, 1959; Gonzales et al.
vs. Philippine National Bank et al. 48 Phil. 824) is firmly planted on the premise that registration of the
deed of conveyance for properties brought under the Torrens System is the operative act to transfer title
to the property and registration is also the notice to the whole world that a transaction involving the same
had taken place.
To affirm the previous stand this Court has taken on the question of when the one year period of
redemption should start (from the time of registration of the sale) would better serve the ends of justice
and equity especially in this case, since to rule otherwise would result in preventing the respondentmortgagor from redeeming his 59.4687 hectares of land which was acquired by the Development Bank of
the Philippines as the highest bidder at the auction sale for the low price of only P7,271.22 which was
simply the unpaid balance of the mortgage debt of P22,000.00 after the respondent-mortgagor had paid
the sum of P14,728.78. As it is, affirmance of the Appellate Court's decision would not result in any loss to
petitioners since the amount of P7,271.22 they paid to the Bank will be returned to 'them. What further
strengthen's Our stand is the fact found by the respondent Appellate Court that respondent Barrameda
has always been in possession of the disputed land.
IN THE LIGHT OF THE FOREGOING, We find it no longer necessary to determine whether the
petitioners are purchasers in good faith of the land involved, since the respondent Barrameda redeemed
the mortgaged property within the legal period of redemption and, consequently the sale of the property

42

executed on September 3, 1963, by the Development Bank of the Philippine in favor of the petitioners is
null and void.
WHEREFORE, the decision of the respondent Appellate Court is affirmed, with costs against petitioners.

43

PASTOR M. ENDENCIA and FERNANDO JUGO, plaintiffs-appellees,

vs.
SATURNINO DAVID, as Collector of Internal Revenue, defendant-appellant.

This is a joint appeal from the decision of the Court of First Instance of Manila declaring section 13 of
Republic Act No. 590 unconstitutional, and ordering the appellant Saturnino David as Collector of Internal
Revenue to re-fund to Justice Pastor M. Endencia the sum of P1,744.45, representing the income tax
collected on his salary as Associate Justice of the Court of Appeals in 1951, and to Justice Fernando
Jugo the amount of P2,345.46, representing the income tax collected on his salary from January 1,1950
to October 19, 1950, as Presiding Justice of the Court of Appeals, and from October 20, 1950 to
December 31,1950, as Associate Justice of the Supreme Court, without special pronouncement as to
costs.
Because of the similarity of the two cases, involving as they do the same question of law, they were jointly
submitted for determination in the lower court. Judge Higinio B. Macadaeg presiding, in a rather
exhaustive and well considered decision found and held that under the doctrine laid down by this Court in
the case of Perfecto vs. Meer, 85 Phil., 552, the collection of income taxes from the salaries of Justice
Jugo and Justice Endencia was a diminution of their compensation and therefore was in violation of the
Constitution of the Philippines, and so ordered the refund of said taxes.
We see no profit and necessity in again discussing and considering the proposition and the arguments
pro and cons involved in the case of Perfecto vs. Meer, supra, which are raised, brought up and
presented here. In that case, we have held despite the ruling enunciated by the United States Federal
Supreme Court in the case of O 'Malley vs. Woodrought 307 U. S., 277, that taxing the salary of a judicial
officer in the Philippines is a diminution of such salary and so violates the Constitution. We shall now
confine our-selves to a discussion and determination of the remaining question of whether or not Republic
Act No. 590, particularly section 13, can justify and legalize the collection of income tax on the salary of
judicial officers.
According to the brief of the Solicitor General on behalf of appellant Collector of Internal Revenue, our
decision in the case of Perfecto vs. Meer, supra, was not received favorably by Congress, because
immediately after its promulgation, Congress enacted Republic Act No. 590. To bring home his point, the
Solicitor General reproduced what he considers the pertinent discussion in the Lower House of House Bill
No. 1127 which became Republic Act No. 590.
For purposes of reference, we are reproducing section 9, Article VIII of our Constitution:.
SEC. 9. The members of the Supreme Court and all 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. They shall receive such compensation as may be fixed by
law, which shall not be diminished during their continuance in office. Until the Congress shall
provide otherwise, the Chief Justice of the Supreme Court shall receive an annual compensation
of sixteen thousand pesos, and each Associate Justice, fifteen thousand pesos.
As already stated construing and applying the above constitutional provision, we held in the Perfecto case
that judicial officers are exempt from the payment of income tax on their salaries, because the collection
thereof by the Government was a decrease or diminution of their salaries during their continuance in
office, a thing which is expressly prohibited by the Constitution. Thereafter, according to the Solicitor

44

General, because Congress did not favorably receive the decision in the Perfecto case, Congress
promulgated Republic Act No. 590, if not to counteract the ruling in that decision, at least now to authorize
and legalize the collection of income tax on the salaries of judicial officers. We quote section 13 of
Republic Act No. 590:
SEC 13. No salary wherever received by any public officer of the Republic of the Philippines shall
be considered as exempt from the income tax, payment of which is hereby declared not to be
dimunition of his compensation fixed by the Constitution or by law.
So we have this situation. The Supreme Court in a decision interpreting the Constitution, particularly
section 9, Article VIII, has held that judicial officers are exempt from payment of income tax on their
salaries, because the collection thereof was a diminution of such salaries, specifically prohibited by the
Constitution. Now comes the Legislature and in section 13, Republic Act No. 590, says that "no salary
wherever received by any public officer of the Republic (naturally including a judicial officer) shall be
considered as exempt from the income tax," and proceeds to declare that payment of said income tax is
not a diminution of his compensation. Can the Legislature validly do this? May the Legislature lawfully
declare the collection of income tax on the salary of a public official, specially a judicial officer, not a
decrease of his salary, after the Supreme Court has found and decided otherwise? To determine this
question, we shall have to go back to the fundamental principles regarding separation of powers.
Under our system of constitutional government, the Legislative department is assigned the power to make
and enact laws. The Executive department is charged with the execution of carrying out of the provisions
of said laws. But the interpretation and application of said laws belong exclusively to the Judicial
department. And this authority to interpret and apply the laws extends to the Constitution. Before the
courts can determine whether a law is constitutional or not, it will have to interpret and ascertain the
meaning not only of said law, but also of the pertinent portion of the Constitution in order to decide
whether there is a conflict between the two, because if there is, then the law will have to give way and has
to be declared invalid and unconstitutional.
Defining and interpreting the law is a judicial function and the legislative branch may not limit or
restrict the power granted to the courts by the Constitution. (Bandy vs. Mickelson et al., 44N. W.,
2nd 341, 342.)
When it is clear that a statute transgresses the authority vested in the legislature by the
Constitution, it is the duty of the courts to declare the act unconstitutional because they cannot
shrink from it without violating their oaths of office. This duty of the courts to maintain the
Constitution as the fundamental law of the state is imperative and unceasing; and, as Chief
Justice Marshall said, whenever a statute is in violation of the fundamental law, the courts must
so adjudge and thereby give effect to the Constitution. Any other course would lead to the
destruction of the Constitution. Since the question as to the constitutionality of a statute is a
judicial matter, the courts will not decline the exercise of jurisdiction upon the suggestion that
action might be taken by political agencies in disregard of the judgment of the judicial tribunals.
(11 Am. Jur., 714-715.)
Under the American system of constitutional government, among the most important functions in
trusted to the judiciary are the interpreting of Constitutions and, as a closely connected power, the
determination of whether laws and acts of the legislature are or are not contrary to the provisions
of the Federal and State Constitutions. (11 Am. Jur., 905.).
By legislative fiat as enunciated in section 13, Republic Act NO. 590, Congress says that taxing the salary
of a judicial officer is not a decrease of compensation. This is a clear example of interpretation or

45

ascertainment of the meaning of the phrase "which shall not be diminished during their continuance in
office," found in section 9, Article VIII of the Constitution, referring to the salaries of judicial officers. This
act of interpreting the Constitution or any part thereof by the Legislature is an invasion of the well-defined
and established province and jurisdiction of the Judiciary.
The rule is recognized elsewhere that the legislature cannot pass any declaratory act, or act
declaratory of what the law was before its passage, so as to give it any binding weight with the
courts. A legislative definition of a word as used in a statute is not conclusive of its meaning as
used elsewhere; otherwise, the legislature would be usurping a judicial function in defining a term.
(11 Am. Jur., 914, emphasis supplied)
The legislature cannot, upon passing a law which violates a constitutional provision, validate it so
as to prevent an attack thereon in the courts, by a declaration that it shall be so construed as not
to violate the constitutional inhibition. (11 Am. Jur., 919, emphasis supplied)
We have already said that the Legislature under our form of government is assigned the task and the
power to make and enact laws, but not to interpret them. This is more true with regard to the interpretation
of the basic law, the Constitution, which is not within the sphere of the Legislative department. If the
Legislature may declare what a law means, or what a specific portion of the Constitution means,
especially after the courts have in actual case ascertain its meaning by interpretation and applied it in a
decision, this would surely cause confusion and instability in judicial processes and court decisions.
Under such a system, a final court determination of a case based on a judicial interpretation of the law of
the Constitution may be undermined or even annulled by a subsequent and different interpretation of the
law or of the Constitution by the Legislative department. That would be neither wise nor desirable,
besides being clearly violative of the fundamental, principles of our constitutional system of government,
particularly those governing the separation of powers.
So much for the constitutional aspect of the case. Considering the practical side thereof, we believe that
the collection of income tax on a salary is an actual and evident diminution thereof. Under the old system
where the in-come tax was paid at the end of the year or sometime thereafter, the decrease may not be
so apparent and clear. All that the official who had previously received his full salary was called upon to
do, was to fulfill his obligation and to exercise his privilege of paying his income tax on his salary. His
salary fixed by law was received by him in the amount of said tax comes from his other sources of
income, he may not fully realize the fact that his salary had been decreased in the amount of said income
tax. But under the present system of withholding the income tax at the source, where the full amount of
the income tax corresponding to his salary is computed in advance and divided into equal portions
corresponding to the number of pay-days during the year and actually deducted from his salary
corresponding to each payday, said official actually does not receive his salary in full, because the income
tax is deducted therefrom every payday, that is to say, twice a month. Let us take the case of Justice
Endencia. As Associate Justice of the Court of Appeals, his salary is fixed at p12,000 a year, that is to say,
he should receive P1,000 a month or P500 every payday, fifteenth and end of month. In the present
case, the amount collected by the Collector of Internal Revenue on said salary is P1,744.45 for one year.
Divided by twelve (months) we shall have P145.37 a month. And further dividing it by two paydays will
bring it down to P72.685, which is the income tax deducted form the collected on his salary each half
month. So, if Justice Endencia's salary as a judicial officer were not exempt from payment of the income
tax, instead of receiving P500 every payday, he would be actually receiving P427.31 only, and instead of
receiving P12,000 a year, he would be receiving but P10,255.55. Is it not therefor clear that every payday,
his salary is actually decreased by P72.685 and every year is decreased by P1,744.45?
Reading the discussion in the lower House in connection with House Bill No. 1127, which became
Republic Act No. 590, it would seem that one of the main reasons behind the enactment of the law was

46

the feeling among certain legislators that members of the Supreme Court should not enjoy any exemption
and that as citizens, out of patriotism and love for their country, they should pay income tax on their
salaries. It might be stated in this connection that the exemption is not enjoyed by the members of the
Supreme Court alone but also by all judicial officers including Justices of the Court of Appeals and judges
of inferior courts. The exemption also extends to other constitutional officers, like the President of the
Republic, the Auditor General, the members of the Commission on Elections, and possibly members of
the Board of Tax Appeals, commissioners of the Public Service Commission, and judges of the Court of
Industrial Relations. Compares to the number of all these officials, that of the Supreme Court Justices is
relatively insignificant. There are more than 990 other judicial officers enjoying the exemption, including
15 Justices of the Court of Appeals, about 107 Judges of First Instance, 38 Municipal Judges and about
830 Justices of the Peace. The reason behind the exemption in the Constitution, as interpreted by the
United States Federal Supreme Court and this Court, is to preserve the independence of the Judiciary,
not only of this High Tribunal but of the other courts, whose present membership number more than 990
judicial officials.
The exemption was not primarily intended to benefit judicial officers, but was grounded on public policy.
As said by Justice Van Devanter of the United States Supreme Court in the case of Evans vs. Gore (253
U. S., 245):
The primary purpose of the prohibition against diminution was not to benefit the judges, but, like
the clause in respect of tenure, to attract good and competent men to the bench and to promote
that independence of action and judgment which is essential to the maintenance of the
guaranties, limitations and pervading principles of the Constitution and to the administration of
justice without respect to person and with equal concern for the poor and the rich. Such being its
purpose, it is to be construed, not as a private grant, but as a limitation imposed in the public
interest; in other words, not restrictively, but in accord with its spirit and the principle on which it
proceeds.
Having in mind the limited number of judicial officers in the Philippines enjoying this exemption, especially
when the great bulk thereof are justices of the peace, many of them receiving as low as P200 a month,
and considering further the other exemptions allowed by the income tax law, such as P3,000 for a married
person and P600 for each dependent, the amount of national revenue to be derived from income tax on
the salaries of judicial officers, were if not for the constitutional exemption, could not be large or
substantial. But even if it were otherwise, it should not affect, much less outweigh the purpose and the
considerations that prompted the establishment of the constitutional exemption. In the same case
of Evans vs. Gore, supra, the Federal Supreme Court declared "that they (fathers of the Constitution)
regarded the independence of the judges as far as greater importance than any revenue that could come
from taxing their salaries.
When a judicial officer assumed office, he does not exactly ask for exemption from payment of income tax
on his salary, as a privilege . It is already attached to his office, provided and secured by the fundamental
law, not primarily for his benefit, but based on public interest, to secure and preserve his independence of
judicial thought and action. When we come to the members of the Supreme Court, this excemption to
them is relatively of short duration. Because of the limited membership in this High Tribunal, eleven, and
due to the high standards of experience, practice and training required, one generally enters its portals
and comes to join its membership quite late in life, on the aver-age, around his sixtieth year, and being
required to retire at seventy, assuming that he does not die or become incapacitated earlier, naturally he
is not in a position to receive the benefit of exemption for long. It is rather to the justices of the peace that
the exemption can give more benefit. They are relatively more numerous, and because of the meager
salary they receive, they can less afford to pay the income tax on it and its diminution by the amount of
the income tax if paid would be real, substantial and onerous.

47

Considering exemption in the abstract, there is nothing unusual or abhorrent in it, as long as it is based on
public policy or public interest. While all other citizens are subject to arrest when charged with the
commission of a crime, members of the Senate and House of Representatives except in cases of treason,
felony and breach of the peace are exempt from arrest, during their attendance in the session of the
Legislature; and while all other citizens are generally liable for any speech, remark or statement, oral or
written, tending to cause the dishonor, discredit or contempt of a natural or juridical person or to blacken
the memory of one who is dead, Senators and Congressmen in making such statements during their
sessions are extended immunity and exemption.
And as to tax exemption, there are not a few citizens who enjoy this exemption. Persons, natural and
juridical, are exempt from taxes on their lands, buildings and improvements thereon when used
exclusively for educational purposes, even if they derive income therefrom. (Art. VI, Sec. 22 [3].) Holders
of government bonds are exempted from the payment of taxes on the income or interest they receive
therefrom (sec. 29 (b) [4], National Internal Revenue Code as amended by Republic Act No. 566).
Payments or income received by any person residing in the Philippines under the laws of the United
States administered by the United States Veterans Administration are exempt from taxation. (Republic Act
No. 360). Funds received by officers and enlisted men of the Philippine Army who served in the Armed
Forces of the United States, allowances earned by virtue of such services corresponding to the taxable
years 1942 to 1945, inclusive, are exempted from income tax. (Republic Act No. 210). The payment of
wages and allowances of officers and enlisted men of the Army Forces of the Philippines sent to Korea
are also exempted from taxation. (Republic Act No. 35). In other words, for reasons of public policy and
public interest, a citizen may justifiably by constitutional provision or statute be exempted from his
ordinary obligation of paying taxes on his income. Under the same public policy and perhaps for the same
it not higher considerations, the framers of the Constitution deemed it wise and necessary to exempt
judicial officers from paying taxes on their salaries so as not to decrease their compensation, thereby
insuring the independence of the Judiciary.
In conclusion we reiterate the doctrine laid down in the case of Perfecto vs. Meer, supra, to the effect that
the collection of income tax on the salary of a judicial officer is a diminution thereof and so violates the
Constitution. We further hold that the interpretation and application of the Constitution and of statutes is
within the exclusive province and jurisdiction of the Judicial department, and that in enacting a law, the
Legislature may not legally provide therein that it be interpreted in such a way that it may not violate a
Constitutional prohibition, thereby tying the hands of the courts in their task of later interpreting said
statute, specially when the interpretation sought and provided in said statute runs counter to a previous
interpretation already given in a case by the highest court of the land.
In the views of the foregoing considerations, the decision appealed from is hereby affirmed, with no
pronouncement as to costs.

48

CEBU PORTLAND CEMENT COMPANY, plaintiff-appellant,

vs.
MUNICIPALITY OF NAGA, CEBU, ET AL., defendants-appellees.

In two separate actions, plaintiff-appellant Cebu Portland Cement Company sought to test the validity of
the distraint and thereafter the sale at public auction by the principal defendant-appellee, Municipality of
Naga, Cebu, of 100,000 bags of cement for the purpose of satisfying its alleged deficiency in the payment
of the municipal license tax for 1960, municipal license tax for 1961 as well as the penalty, all in the total
sum of P204,300.00. The lower court rendered a joint decision sustaining the validity of the action taken
by defendant-appellee Municipality of Naga. The case is now before us on appeal. We affirm.
According to the appealed decision: "From all the evidence, mostly documentary, adduced during the
hearing the following facts have been established. The efforts of the defendant Treasurer to collect from
the plaintiff the municipal license tax imposed by Amended Ordinance No. 21. Series of 1959 on cement
factories located within the Municipality of Naga, Cebu, have met with rebuff time and again. The
demands made on the taxpayer ... have not been entirely successful. Finally, the defendant Treasurer
decided on June 26, 1961 to avail of the Civil remedies provided for under Section 2304 of the Revised
Administrative Code and gave the plaintiff a period of ten days from receipt thereof within which to settle
the account, computed as follows ...: Deficiency Municipal License Tax for 1960 P80,250.00; Municipal
License Tax for 1961 P90,000.00; and 20% Penalty P34,050.00, stating in exasperation, "This is our
last recourse as we had exhausted all efforts for an amicable solution of our problem." " 1
It was further shown: "On July 6, 1961, at 11:00 A.M., the defendant Treasurer notified the Plant Manager
of the plaintiff that he was "distraining 100,000 bags of Apo cement in satisfaction of your delinquency in
municipal license taxes in the total amount of P204,300.00" ... This notice was received by the acting
officer in charge of the plaintiff's plant, Vicente T. Garaygay, according to his own admission. At first, he
was not in accord with the said letter, asking the defendant Treasurer for time to study the same, but in
the afternoon he [acknowledged the] distraint ..." 2
As was noted in the decision, the defendant Treasurer in turn "signed the receipt for goods, articles or
effects seized under authority of Section 2304 of the Revised Administrative Code, certifying that he has
constructively distrained on July 6, 1961 from the Cebu Portland Cement Company at its plant at Tina-an,
Naga, Cebu, 100,000 bags of Apo cement in tanks, and that "the said articles or goods will be sold at
public auction to the highest bidder on July 27, 1961, and the proceeds thereof will be utilized in part
satisfaction of the account of the said company in municipal licenses and penalties in the total amount of
P204,300.00 due the Municipality of Naga Province of Cebu" ..." 3
The lower court likewise found as a fact that on the same day, July 6, 1961, the municipal treasurer
posted the notice of sale to the effect that pursuant to the provisions of Section 2305 of the Revised
Administrative Code, he would sell at public auction for cash to the highest bidder at the main entrance of
the municipal building of the Municipality of Naga, Province of Cebu, Philippines on the 27th day of July,
1961, at 9 o'clock in the morning, the property seized and distrained or levied upon from the Cebu
Portland Cement Company in satisfaction of the municipal license taxes and penalties in the amount of
P204,300.00, specifying that what was to be sold was 100,000 bags of Apo cement. 4 No sale, as thus
announced, was held on July 27, 1961. It was likewise stated in the appealed decision that there was
stipulation by the parties to this effect: "1. The auction sale took place on January 30, 1962, ..." 5

49

In this appeal from the above joint decision, plaintiff-appellant Cebu Portland Cement Company upholds
the view that the distraint of the 100,000 bags of cement as well as the sale at public auction thereafter
made ran counter to the law. As earlier noted, we do not see it that way.
1. On the validity of the distraint In the first two errors assigned, plaintiff-appellant submits as illegal the
distraint of 100,000 bags of cement made on July 6, 1961. Its contention is premised on the fact that in
the letter of defendant-appellee dated June 26, 1961, requiring plaintiff-appellant to settle its account of
P204,300.00, it was given a period of 10 days from receipt within which it could pay, failure to do so being
the occasion for the distraint of its property. It is now alleged that the 10-day period of grace was not
allowed to lapse, the distraint having taken place on July 6, 1961.
It suffices to answer such a contention by referring to the explicit language of the law. According to the
Revised Administrative Code: "The remedy by distraint shall proceed as follows: Upon the failure of the
person owing any municipal tax or revenue to pay the same, at the time required, the municipal treasurer
may seize and distrain any personal property belonging to such person or any property subject to the tax
lien, in sufficient quantity to satisfy the tax or charge in question, together with any increment thereto
incident to delinquency, and the expenses of the distraint." 6
The clear and explicit language of the law leaves no room for doubt. The municipal treasurer "may seize
and distrain any personal property" of the individual or entity subject to the tax upon failure "to pay the
same, at the time required ..." There was such a failure on the part of plaintiff-appellant to pay the
municipal tax at the time required. The power of the municipal treasurer in accordance with the above
provision therefore came into play.1wph1.t
Whatever might have been set forth in the letter of the municipal treasurer could not change or amend the
law it has to be enforced as written. That was what the lower court did. What was done then cannot be
rightfully looked upon as a failure to abide by what the statutory provision requires. Time and time again, it
has been repeatedly declared by this Court that where the law speaks in clear and categorical language,
there is no room for interpretation. There is only room for application. That was what occurred in this
case.7
2. On the validity of the auction sale The validity of the auction sale held on January 30, 1962 is
challenged in the next two errors assigned as allegedly committed by the lower court. Plaintiff-appellant's
argument is predicated on the fact that it was not until January 16, 1962 that it was notified that the public
auction sale was to take place on January 29, 1962. It is its view that under the Revised Administrative
Code8 the sale of the distrained property cannot take place "less than twenty days after notice to the
owner or possessor of the property [distrained] ... and the publication or posting of such notice."
Why such a contention could not prosper is explained clearly by the lower court in the appealed decision.
Thus: "With respect to the claim that the auction sale held on January 30, 1962 pursuant to the distraint
was null and void for being contrary to law because not more than twenty days have elapsed from the
date of notice, it is believed that the defendant Municipality of Naga and Municipal Treasurer of Naga
have substantially complied with the requirements provided for by Section 2305 of the Revised
Administrative Code. From the time that the plaintiff was first notified of the distraint on July 6, 1961 up to
the date of the sale on January 30, 1962, certainly, more than twenty days have elapsed. If the sale did
not take place, as advertised, on July 27, 1961, but only on January 30, 1962, it was due to the requests
for deferment made by the plaintiff which unduly delayed the proceedings for collection of the tax, and the
said taxpayer should not be allowed now to complain that the required period has not yet elapsed when
the intention of the tax collector was already well-publicized for many months." 9 The reasonableness of
the above observation of the lower court cannot be disputed. Under the circumstances, the allegation that
there was no observance of the twenty-day period hardly carries conviction.

50

The point is further made that the auction sale took place not on January 29, 1962, as stated in the notice
of sale, but on the next day, January 30, 1962. According to plaintiff-appellant: "On this score alone, the
sale ..., was illegal as it was not made on the time stated in the notice." 10
There is no basis to sustain such a plea as the finding of the lower court is otherwise. Thus: "On January
16, 1962, the defendant Treasurer informed Garaygay that he would cause the readvertisement for sale
at public auction of the 100,000 bags of Apo cement which were under constructive distraint ... On
January 19, 1962, the said defendant issued the corresponding notice of sale, which fixed January 30,
1962, at 10:00 A.M., as the date of sale, posting the said notice in public places and delivering copies
thereof to the interested parties in the previous notice, ... Ultimately, the bidding was conducted on that
day, January 30, 1962, with the representatives of the Provincial Auditor and Provincial Treasurer present.
Only two bidders submitted sealed bids. After the bidding, the defendant-treasurer informed the plaintiff
that an award was given to the winning bidder, ..." 11
This being a direct appeal to us, plaintiff-appellant must be deemed to have accepted as conclusive what
the lower court found as established by the evidence, only questions of law being brought to us for review.
It is the established rule that when a party appeals directly to this Court, he is deemed to have waived the
right to dispute any finding of fact made by the court below. 12
WHEREFORE, the decision of the lower court dated 23, 1964, is affirmed in toto. With costs against
plaintiff-appellant.1wph1.t

51

ENRIQUE V. MORALES, petitioner,

vs.
ABELARDO SUBIDO, as Commissioner of Civil Service, respondent.

The petitioner's motions for reconsideration are directed specifically at the following portion of our
decision:
In the Senate, the Committee on Government Reorganization, to which House Bill 6951 was
referred, reported a substitute measure. It is to this substitute bill that section 10 of the Act owes
its present form and substance The provision of the substitute bill reads:
No person may be appointed chief of a city police agency unless he holds a bachelor's
degree and has served either in the Armed Forces of the Philippines or the National
Bureau of Investigation or police department of any city and has held the rank of captain
or its equivalent therein for at least three years or any high school graduate who has
served the police department of a city for at least 8 years with the rank of captain and/or
higher.
xxx

xxx

xxx

At the behest of Senator Francisco Rodrigo, the phrase "has served as officer in the Armed
Forces" was inserted so as to make the provision read:
No person may be appointed chief of a city police agency unless he holds a bachelor's
degree and has served either in the Armed Forces of the Philippines or the National
Bureau of Investigation or police department of any city and has held the rank of captain
or its equivalent therein for at least three years or any high school graduate who has
served the police department of a city or who has served as officer of the Armed Forces
for at least 8 years with the rank of captain and/or higher.
It is to be noted that the Rodrigo amendment was in the nature of an addition to the
phrase "who has served the police department of a city for at least 8 years with the rank
of captain and/or higher," under which the petitioner herein, who is at least a high school
graduate (both parties agree that the petitioner finished the second year of the law
course) could possibly qualify. However, somewhere in the legislative process the phrase
["who has served the police department of a city or"] was dropped and only the Rodrigo
amendment was retained.
The present insistence of the petitioner is that the version of the provision, as amended at the behest of
Sen. Rodrigo, was the version approved by the Senate on third reading, and that when the bill emerged
from the conference committee the only change made in the provision was the insertion of the phrase "or
has served as chief of police with exemplary record".
In support of this assertion, the petitioner submitted certified photostatic copies of the different drafts of
House Bill 6951 showing the various changes made. In what purport to be the page proofs of the bill as
finally approved by both Houses of Congress (annex G), the following provision appears:

52

SEC. 10. Minimum qualifications for appointment as Chief of a Police Agency. No person may
be appointed chief of a city police agency unless he holds a bachelor's degree from a recognized
institution of learning and has served either the Armed Forces of the Philippines or has served as
chief of police with exemplary record or the National Bureau of Investigation or the police
department of any city and has held the rank of captain or its equivalent therein for at least three
years or any high school graduate who has served the police department of a city or has served
as officer in the Armed Forces for at least eight years from the rank of captain and/or higher.
It is unmistakable up to this point that the phrase, "who has served the police department of a city or was
still part of the provision, but according to the petitioner the House bill division deleted the entire provision
and substituted what now is section 10 of the Police Act of 1966, which section reads:
Minimum qualification for appointment as Chief of Police Agency. No person may be appointed
chief of a city police agency unless he holds a bachelor's degree from a recognized institution of
learning and has served either in the Armed Forces of the Philippines or the National Bureau of
Investigation, or has served as chief of police with exemplary record, or has served in the police
department of any city with the rank of captain or its equivalent therein for at least three years; or
any high school graduate who has served as officer in the Armed Forces for at least eight years
with the rank of captain and/or higher.
The petitioner also submitted a certified photostatic copy of a memorandum which according to him was
signed by an employee in the Senate bill division, and can be found attached to the page proofs of the
bill, explaining the change in section 10, thus: .
Section 10 was recast for clarity (with the consent of Sen. Ganzon & Congressman Montano).
It would thus appear that the omission whether deliberate or unintended of the phrase, "who has
served the police department of a city or was made not at any stage of the legislative proceedings but
only in the course of the engrossment of the bill, more specifically in the proofreading thereof; that the
change was made not by Congress but only by an employee thereof; and that what purportedly was a
rewriting to suit some stylistic preferences was in truth an alteration of meaning. It is for this reason that
the petitioner would have us look searchingly into the matter.
The petitioner wholly misconceives the function of the judiciary under our system of government. As we
observed explicitly in our decision, the enrolled Act in the office of the legislative secretary of the
President of the Philippines shows that section 10 is exactly as it is in the statute as officially published in
slip form by the Bureau of Printing. We cannot go behind the enrolled Act to discover
what really happened. The respect due to the other branches of the Government demands that we act
upon the faith and credit of what the officers of the said branches attest to as the official acts of their
respective departments. Otherwise we would be cast in the unenviable and unwanted role of a sleuth
trying to determine what actually did happen in the labyrinth of law-making with consequent impairment of
the integrity of the legislative process. The investigation which the petitioner would like this Court to make
can be better done in Congress. After all, House cleaning the immediate and imperative need for which
seems to be suggested by the petitioner can best be effected by the occupants thereof. Expressed
elsewise, this is a matter worthy of the attention not of an Oliver Wendell Holmes but of a Sherlock
Holmes.
What the first Mr. Justice Harlan said in Hardwood v. Wentworth 1 might aptly be said in answer to the
petitioner: "If there be danger, under the principles announced in Field v. Clark, 143 U.S. 649, 671, that
the governor and the presiding officers of the two houses of a territorial legislature may impose upon the
people an act that was never passed in the form in which it is preserved in the published statutes, how

53

much greater is the danger of permitting the validity of a legislative enactment to be questioned by
evidence furnished by the general indorsements made by clerks upon bills previous to their final passage
and enrollment, indorsements usually so expressed as not to be intelligible to any one except those
who made them, and the scope and effect of which cannot in many cases be understood unless
supplemented by the recollection of clerks as to what occurred in the hurry and confusion often attendant
upon legislative proceedings." 2
Indeed the course suggested to us by the petitioner would be productive of nothing but mischief.
Both Marshall Field & Co. v. Clark and Harwood v. Wentworth involved claims similar to that made by the
petitioner in this case. In both the claims were rejected. Thus, in Marshall Field & Co. it was contended
that the Tariff Act of October 1, 1890 was a nullity because "it is shown by the congressional records of
proceedings, reports of committees of conference, and other papers printed by authority of Congress, and
having reference to House Bill 9416, that a section of the bill as it finally passed, was not in the bill
authenticated by the signatures of the presiding officers of the respective houses of Congress, and
approved by the President." 3 In rejecting the contention, the United States Supreme Court held that the
signing by the Speaker of the House of Representatives and by the President of the Senate of an enrolled
bill is an official attestation by the two houses that such bill is the one that has passed Congress. And
when the bill thus attested is signed by the President and deposited in the archives, its authentication as a
bill that has passed Congress should be deemed complete and peachable. 4
In Harwood the claim was that an act of the legislature of Arizona "contained, at the time of it final
passage, provisions that were omitted from it without authority of the council or the house, before it was
presented, to the governor for his approval." 5 The Court reiterated its ruling in Marshall Field & Co.
It is contended, however, that in this jurisdiction the journals of the legislature have been declared
conclusive upon the courts, the petitioner citing United States v. Pons. 6 The case cited is inapposite of it
does not involve a discrepancy between an enrolled bill and the journal. Rather the issue tendered was
whether evidence could be received to show that, contrary to the entries of the journals, the legislature did
not adjourn at midnight of February 28, 1914 but after, and that "the hands of the clock were stayed in
order to enable the legislature to effect an adjournment apparently within the time fixed by the Governor's
proclamation for the expiration of the special session." In answering in the negative this Court held that if
the clock was in fact stopped, "the resultant evil might be slight as compared with that of altering the
probative force and character of legislative records, and making the proof of legislative action depend
upon uncertain oral evidence, liable to loss by death or absence, and so imperfect on account of the
treachery of memory." 7 This Court "passed over the question" whether the enrolled bill was conclusive as
to its contents and mode of passage.
It was not until 1947 that the question was presented Mabanao v. Lopez-Vito, 8 and we there held that an
enrolled bill "imports absolute verity and is binding on the courts". This Court held itself bound by an
authenticated resolution despite the fact that the vote of three-fourths of the members of the Congress (as
required by the Constitution to approve proposals for constitutional amendments) was not actually
obtained on account of the suspension of some members of the House of Representative and the
Senate.lawphi1.nt
Thus in Mabanag the enrolled bill theory was adopted. Whatever doubt there might have been as to the
status and force of the theory in the Philippines, in view of the dissent of three Justices in Mabanag, 9 was
finally laid to rest by the unanimous decision in Casco Philippine Chemical Co. v. Gimenez. 10 Speaking
for the Court, the then Justice (now Chief Justice) Concepcion said:

54

Furthermore it is well settled that the enrolled bill which uses the term "urea formaldehyde"
instead of "urea and formaldehyde" is conclusive upon the courts as regards the tenor of the
measure passed by Congress and approved by the President (Primicias vs. Paredes, 61 Phil.
118, 120; Mabanag vs. Lopez Vito, 78 Phil. 1; Macias vs. Comm. on Elections, L-18684,
September 14, 1961). If there has been any mistake in the printing of the bill before it was
certified by the officers of Congress and approved by the Executive on which we cannot
speculate, without jeopardizing the principle of separation of powers and undermining one of the
cornerstones of our democratic system the remedy is by amendment or curative legislation,
not by judicial decree.
By what we have essayed above we are not of course to be understood as holding that in all cases the
journals must yield to the enrolled bill. To be sure there are certain matters which the
Constitution 11 expressly requires must be entered on the journal of each house. To what extent the
validity of a legislative act may be affected by a failure to have such matters entered on the journal, is a
question which we do not now decide. 12 All we hold is that with respect to matters not expressly required
to be entered on the journal, the enrolled bill prevails in the event of any discrepancy.
ACCORDINGLY, the motions for reconsideration are denied.

55

REPUBLIC FLOUR MILLS INC., petitioner,

vs.
THE COMMISSIONER OF CUSTOMS and THE COURT OF TAX APPEALS, respondents.

It is a novel question that this petition for the review of a decision of respondent Court of Tax Appeals
presents. Petitioner Republic Flour Mills, Inc. would have this Court construe the words "products of the
Philippines" found in Section 2802 of the Tariff and Custom Code 1 as excluding bran (ipa) and pollard
(darak) on the ground that, coming as they do from wheat grain which is imported in the Philippines, they
are merely waste and not the products, which is the flour produced. 2 That way, it would not be liable at all
for the wharfage dues assessed under such section by respondent Commission of Customs. It elevated
the matter to respondent Court, as the construction it would place on the aforesaid section appears too
strained and far remote from the ordinary meaning of the text, not to mention the policy of the Act. We
affirm.
In the decision of respondent Court now sought to be reviewed, after stating that what was before it was
an appeal from a decision of the Commissioner of Customs holding petitioner liable for the sum of
P7,948.00 as wharfage due the facts were set forth as follows: "Petitioner, Republic Flour Mills, Inc., is a
domestic corporation, primarily engaged in the manufacture of wheat flour, and produces pollard (darak)
and bran (ipa) in the process of milling. During the period from December, 1963 to July, 1964, inclusive,
petitioner exported Pollard and/or bran which was loaded from lighters alongside vessels engaged in
foreign trade while anchored near the breakwater The respondent assessed the petitioner by way of
wharfage dues on the said exportations in the sum of P7,948.00, which assessment was paid by
petitioner under protest." 3 The only issue, in the opinion of respondent Court, is whether or not such
collection of wharfage dues was in accordance with law. The main contention before respondent Court of
petitioner was "that inasmuch as no government or private wharves or government facilities [were] utilized
in exporting the pollard and/or bran, the collection of wharfage dues is contrary to law." 4 On the other
hand, the stand of respondent Commissioner of Customs was that petitioner was liable for wharfage dues
"upon receipt or discharge of the exported goods by a vessel engaged in foreign trade regardless of the
non-use of government-owned or private wharves." 5 Respondent Court of Tax Appeals sustained the
action taken by the Commissioner of Customs under the appropriate provision of the Tariff and Customs
Code, relying on our decision in Procter & Gamble Phil. Manufacturing Corp. v. Commissioner of
Customs. 6 It did not feel called upon to answer the question now before us as, in its opinion, petitioner
only called its attention to it for the first time in its memorandum.
Hence, this petition for review. The sole error assigned by petitioner is that it should not, under its
construction of the Act, be liable for wharfage dues on its exportation of bran and pollard as they are not
"products of the Philippines", coming as they did from wheat grain which were imported from abroad, and
being "merely parts of the wheat grain milled by Petitioner to produce flour which had become
waste." 7 We find, to repeat, such contention unpersuasive and affirm the decision of respondent Court of
Tax Appeals.
1. The language of Section 2802 appears to be quite explicit: "There shall be levied, collected and paid on
all articles imported or brought into the Philippines, and on products of the Philippines ... exported from
the Philippines, a charge of two pesos per gross metric ton as a fee for wharfage ...." One category refers
to what is imported. The other mentions products of the Philippines that are exported. Even without undue
scrutiny, it does appear quite obvious that as long as the goods are produced in the country, they fall
within the terms of the above section. Petitioner appeared to have entertained such a nation. In its petition
for review before respondent Court, it categorically asserted: "Petitioner is primarily engaged in the

56

manufacture of flour from wheat grain. In the process of milling the wheat grain into flour, petitioner also
produces 'bran' and 'pollard' which it exports abroad." 8 It does take a certain amount of hair-splitting to
exclude from its operation what petitioner calls "waste" resulting from the production of flour processed
from the wheat grain in petitioner's flour mills in the Philippines. It is always timely to remember that, as
stressed by Justice Moreland: "The first and fundamental duty of courts, in our judgment, is to apply the
law. Construction and interpretation come only after it has been demonstrated that application is
impossible or inadequate without them." 9 Petitioner ought to have been aware that deference to such a
doctrine precludes an affirmative response to its contention. The law is clear; it must be obeyed. It is as
simple, as that. 10
2. There is need of confining familiar language of a statute to its usual signification. While statutory
construction involves the exercise of choice, the temptation to roam at will and rely on one's predilections
as to what policy should prevail is to be resisted. The search must be for a reasonable interpretation. It is
best to keep in mind the reminder from Holmes that "there is no canon against using common sense in
construing laws as saying what obviously means." 11 To paraphrase Frankfurter, interpolation must be
eschewed but evisceration avoided. Certainly, the utmost effort should be exerted lest the interpretation
arrived at does violence to the statutory language in its total context. It would be then to ignore what has
been stressed time and time again as to limits of judicial freedom in the construction of statutes to accept
their view advanced by petitioner.
3. Then, again, there is the fundamental postulate in statutory construction requiring fidelity to the
legislative purpose. What Congress intended is not to be frustrates. Its objective must be carried out.
Even if there be doubt as to the meaning of the language employed, the interpretation should not be at
war with the end sought to be attained. No undue reflection is needed to show that if through an ingenious
argument, the scope of a statute may be contracted, the probability that other exceptions may be thought
of is not remote. If petitioner were to prevail, subsequent pleas motivated by the same desire to be
excluded from the operation of the Tariff and Customs Code would likewise be entitled to sympathetic
consideration. It is desirable then that the gates to such efforts at undue restriction of the coverage of the
Act be kept closed. Otherwise, the end result would be not respect for, but defiance of, a clear legislative
mandate. That kind of approach in statutory construction has never recommended itself. It does not
now. 12
WHEREFORE, the decision of respondent Court of Tax Appeals of November 27, 1967 is affirmed. With
costs against petitioner.

57

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
INTERMEDIATE APPELLATE COURT AND BF HOMES, INC., respondents.

On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing the
petition of Rizal Commercial Banking Corporation (RCBC), thereby affirming the decision of the Court of
Appeals which canceled the transfer certificate of title issued in favor of RCBC, and reinstating that of
respondent BF Homes.
This will now resolve petitioner's motion for reconsideration which, although filed in 1992 was not deemed
submitted for resolution until in late 1998. The delay was occasioned by exchange of pleadings, the
submission of supplemental papers, withdrawal and change of lawyers, not to speak of the case having
been passed from one departing to another retiring justice. It was not until May 3, 1999, when the case
was re-raffled to herein ponente, but the record was given to him only sometime in the late October 1999.
By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:
On September 28, 1984, BF Homes filed a "Petition for Rehabilitation and for Declaration
of Suspension of Payments" (SEC Case No. 002693) with the Securities and Exchange
Commission (SEC).
One of the creditors listed in its inventory of creditors and liabilities was RCBC.
On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially
foreclose its real estate mortgage on some properties of BF Homes. A notice of extrajudicial foreclosure sale was issued by the Sheriff on October 29, 1984, scheduled on
November 29, 1984, copies furnished both BF Homes (mortgagor) and RCBC
(mortgagee).
On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No.
002693 a temporary restraining order (TRO), effective for 20 days, enjoining RCBC and
the sheriff from proceeding with the public auction sale. The sale was rescheduled to
January 29, 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction
upon petitioner's filing of a bond. However, petitioner did not file a bond until January 29,
1985, the very day of the auction sale, so no writ of preliminary injunction was issued by
the SEC. Presumably, unaware of the filing of the bond, the sheriffs proceeded with the
public auction sale on January 29, 1985, in which RCBC was the highest bidder for the
properties auctioned.
On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the
auction sale and to cite RCBC and the sheriff for contempt. RCBC opposed the motion
Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a
certificate of sale covering the auctioned properties.

58

On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary
injunction stopping the auction sale which had been conducted by the sheriff two weeks
earlier.
On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial
Court, Br. 140, Rizal (CC 10042) an action for mandamus against the provincial sheriff of
Rizal and his deputy to compel them to execute in its favor a certificate of sale of the
auctioned properties.
In answer, the sheriffs alleged that they proceeded with the auction sale on January 29,
1985 because no writ of preliminary injunction had been issued by SEC as of that date,
but they informed the SEC that they would suspend the issuance of a certificate of sale to
RCBC.
On March 18, 1985, the SEC appointed a Management Committee for BF Homes.
On RCBC's motion in the mandamus case, the trial court issued on May 8, 1985 a
judgment on the pleadings, the dispositive portion of which states:
WHEREFORE, petitioner's Motion for Judgment on the pleadings is
granted and judgment is hereby rendered ordering respondents to
execute and deliver to petitioner the Certificate of the Auction Sale of
January 29, 1985, involving the properties sold therein, more particularly
those described in Annex "C" of their Answer." (p. 87, Rollo.)
On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section
9 of B.P. 129 praying for the annulment of the judgment, premised on the following:
. . .: (1) even before RCBC asked the sheriff to extra-judicially foreclose
its mortgage on petitioner's properties, the SEC had already assumed
exclusive jurisdiction over those assets, and (2) that there was extrinsic
fraud in procuring the judgment because the petitioner was not
impleaded as a party in the mandamus case, respondent court did not
acquire jurisdiction over it, and it was deprived of its right to be heard.
(CA Decision, p. 88, Rollo).
On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court,
dismissing the mandamus case and suspending issuance to RCBC of new land titles,
"until the resolution of case by SEC in Case No. 002693," disposing as follows:
WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042
is hereby annulled and set aside and the case is hereby dismissed. In
view of the admission of respondent Rizal Commercial Banking
Corporation that the sheriff's certificate of sale has been registered on BF
Homes' TCT's . . . (here the TCTs were enumerated) the Register of
Deeds for Pasay City is hereby ordered to suspend the issuance to the
mortgagee-purchaser, Rizal Commercial Banking Corporation, of the
owner's copies of the new land titles replacing them until the matter shall
have been resolved by the Securities and Exchange Commission in SEC
Case No. 002693. (p. 257-260, Rollo; also pp. 832-834, 213 SCRA 830
[1992]; Emphasis in the original.)

59

On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back to its
old revered name, the Court of Appeals) to this Court, arguing that:
1. Petitioner did not commit extrinsic fraud in excluding private
respondent as party defendant in Special Civil Case No. 10042 as
private respondent was not indispensable party thereto, its participation
not being necessary for the full resolution of the issues raised in said
case.
2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case
No. 10042, and for that matter, the extra-judicial foreclosure of the real
estate mortgage in petitioner's favor, as these do not constitute actions
against private respondent contemplated under Section 6(c) of
Presidential Decree No. 902-A.
3. Even assuming arguendo that the extra-judicial sale constitute an
action that may be suspended under Section 6(c) of Presidential Decree
No. 902-A, the basis for the suspension thereof did not exist so as to
adversely affect the validity and regularity thereof.
4. The Regional Trial court had jurisdiction to take cognizable of Special
Civil Case No. 10042.
5. The Regional Trial court had jurisdiction over Special Civil Case No.
10042. (p. 5, Rollo.)
On November 12, 1986, the Court gave due course to the petition. During the pendency of the case,
RCBC brought to the attention of the Court an order issued by the SEC on October 16, 1986 in Case No.
002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and the Sheriff for
Contempt, and ruling as follows:
WHEREFORE, the petitioner's "Consolidated Motion to Cite Sheriff and
Rizal Commercial Banking Corporation for Contempt and to Annul
Proceedings and Sale," dated February 5, 1985, should be as is, hereby
DENIED.
While we cannot direct the Register of Deeds to allow the consolidation
of the titles subject of the Omnibus Motion dated September 18, 1986
filed by the Rizal Commercial Banking Corporation, and therefore, denies
said Motion, neither can this Commission restrain the said bank and the
Register of Deeds from effecting the said consolidation.
SO ORDERED. (p. 143, Rollo.)
By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over
subject pieces of property to petitioner RCBC, and the issuance of new titles in its name. Thereafter,
RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said new
transfer certificates of title in its name rendered the petition moot and academic.

60

In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo
concurred with the ponente, Justice Medialdea; Chief Justice Narvasa, Justices Bidin, Regalado, and
Bellosillo concurred only in the result; while Justice Feliciano dissented and was joined by Justice Padilla,
then Justice, now Chief Justice Davide, and Justice Romero; Justices Grio-Aquino and Campos took no
part) denied petitioner's motion to dismiss, finding basis for nullifying and setting aside the TCTs in the
name of RCBC. Ruling on the merits, the Court upheld the decision of the Intermediate Appellate Court
which dismissed the mandamus case filed by RCBC and suspended the issuance of new titles to RCBC.
Setting aside RCBC's acquisition of title and nullifying the TCTs issued to it, the Court held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation
and suspension of payments, preferred creditors may no longer assert
such preference, but . . . stand on equal footing with other creditors.
Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. If foreclosure is undertaken despite
the fact that a petition, for rehabilitation has been filed, the certificate of
sale shall not be delivered pending rehabilitation. Likewise, if this has
also been done, no transfer of title shall be effected also, within the
period of rehabilitation. The rationale behind PD 902-A, as amended to
effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon
as a petition for rehabilitation is filed. Were it otherwise, what is to
prevent the petitioner from delaying the creation of a Management
Committee and in the meantime dissipate all its assets. The sooner the
SEC takes over and imposes a freeze on all the assets, the better for all
concerned. (pp. 265-266, Rollo; also p. 838, 213 SCRA 830 [1992].)
Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He
opined that the SEC acted prematurely and without jurisdiction or legal authority in enjoining RCBC and
the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6 (c) of
Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or
associations shall be suspended only upon the appointment of a management committee, rehabilitation
receiver, board or body. Thus, in the case under consideration, only upon the appointment of the
Management Committee for BF Homes on March 18, 1985, should the suspension of actions for claims
against BF Homes have taken effect and not earlier.
In support of its motion for reconsideration, RCBC contends:
The restraining order and the writ of preliminary injunction issued by the Securities and
Exchange Commission enjoining the foreclosure sale of the properties of respondent BF
Homes were issued without or in excess of its jurisdiction because it was violative of the
clear provision of Presidential Decree No. 902-A, and are therefore null and void; and
Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to refrain
from joining the unsecured creditors in SEC Case No. 002693, the petition for
rehabilitation filed by private respondent.
We find the motion for reconsideration meritorious.

61

The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all
other creditors gains relevance and materiality only upon the appointment of a management committee,
rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the provisions of
Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred
status because it foreclosed on the mortgage prior to the appointment of the management committee on
March 18, 1985. The Court, therefore, grants the motion for reconsideration on this score.
The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall posses the
following powers:
c) To appoint one or more receivers of the property, real and personal, which is the
subject of the action pending before the Commission in accordance with the pertinent
provisions of the Rules of Court in such other cases whenever necessary to preserve the
rights of the parties litigants to and/or protect the interest of the investing public and
creditors; Provided, however, that the Commission may, in appropriate cases, appoint a
rehabilitation receiver of corporations, partnerships or other associations not supervised
or regulated by other government agencies who shall have, in addition to the powers of a
regular receiver under the provisions of the Rules of Court, such functions and powers as
are provided for in the succeeding paragraph (d) hereof: Provided, finally, That upon
appointment of a management committee rehabilitation receiver, board or body, pursuant
to this Decree, all actions for claims against corporations, partnerships or associations
under management or receivership, pending before any court, tribunal, board or body
shall be suspended accordingly. (As amended by PDs No. 1673, 1758 and by PD No.
1799. Emphasis supplied.)
It is thus adequately clear that suspension of claims against a corporation under rehabilitation is counted
or figured up only upon the appointment of a management committee or a rehabilitation receiver. The
holding that suspension of actions for claims against a corporation under rehabilitation takes effect as
soon as the application or a petition for rehabilitation is filed with the SEC may, to some, be more
logical and wise but unfortunately, such is incongruent with the clear language of the law. To insist on
such ruling, no matter how practical and noble, would be to encroach upon legislative prerogative to
define the wisdom of the law plainly judicial legislation.
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear
and free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our
consistent ruling, where the law speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application (Cebu Portland Cement Co. vs. Municipality of Naga, 24
SCRA-708 [1968]).
Where the law is clear and unambiguous, it must be taken to mean exactly what it says
and the court has no choice but to see to it that its mandate is obeyed (Chartered Bank
Employees Association vs. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. vs. De
Garcia, 30 SCRA 111 [1969]; Quijano vs. Development Bank of the Philippines, 35 SCRA
270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent.
Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way, or
of referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or

62

more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions,
which is to interpret the law according to its true intent.
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does nor
always result in the appointment of a receiver or the creation of a management committee. The SEC has
to initially determine whether such appointment is appropriate and necessary under the circumstances.
Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to
exist before a management committee may be created or appointed, such as;
1. when there is imminent danger of dissipation, loss, wastage or
destruction of assets or other properties; or
2. when there is paralization of business operations of such corporations
or entities which may be prejudicial to the interest of minority
stockholders, parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 (c),
P.D. 902-A.)
These situations are rather serious in nature, requiring the appointment of a management committee or a
receiver to preserve the existing assets and property of the corporation in order to protect the interests of
its investors and creditors. Thus, in such situations, suspension of actions for claims against a corporation
as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we
borrow the words of the late Justice Medialdea, "so as not to render the SEC management Committee
irrelevant and inutile and to give it unhampered "rescue efforts" over the distressed firm" (Rollo, p. 265).
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger
of losing the corporate assets, a management committee or rehabilitation receiver need not be appointed
and suspension of actions for claims may not be ordered by the SEC. When the SEC does not deem it
necessary to appoint a receiver or to create a management committee, it may be assumed, that there are
sufficient assets to sustain the rehabilitation plan and, that the creditors and investors are amply
protected.
Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is entitled
to rely on its security and that it need not join the unsecured creditors in filing their claims before the SEC
appointed receiver. To support its position, petitioner cites the Court's ruling in the case of Philippine
Commercial International Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that an order of suspension
of payments as well as actions for claims applies only to claims of unsecured creditors and cannot extend
to creditors holding a mortgage, pledge, or any lien on the property.
Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBC's
second ground, and would rather limit itself only to the relevant issues by which the controversy may be
settled with finality.

63

In view, however, of the significance of such issue, and the conflicting decisions of this Court on the
matter, coupled with the fact that our decision of September 14, 1992, if not clarified, might mislead the
Bench and the Bar, the Court resolved to discuss further.
It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published
as RCBC vs. IAC, 213 SCRA 830 [1992]), we held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of
payments, preferred creditors may no longer assert such preference, but . . . stand on
equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice
other creditors, or cause discrimination among them. If foreclosure is undertaken despite
the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be
delivered pending rehabilitation. Likewise, if this has also, been done, no transfer of title
shall be effected also, within the period of rehabilitation. The rationale behind PD 902-A,
as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if
one creditor is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for
rehabilitation is filed. Were it otherwise, what is to prevent the petitioner from delaying the
creation of a Management Committee and in the meantime dissipate all its assets. The
sooner the SEC takes over and imposes a freeze on all the assets, the better for all
concerned. (pp. 265-266, Rollo; also p. 838, 213 SCRA 830 [1992] Emphasis supplied)
The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990]
per Cruz, J.: First Division) where it held that "when a corporation threatened by bankruptcy is taken over
by a receiver, all the creditors should stand on an equal footing. Not anyone of them should be given
preference by paying one or some of them ahead of the others. This is precisely the reason for the
suspension of all pending claims against the corporation under receivership. Instead of creditors vexing
the courts with suits against the distressed firm, they are directed to file their claims with the receiver who
is a duly appointed officer of the SEC(pp. 269-270; emphasis in the original). This ruling is a reiteration
of Alemar's Sibal & Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100; 186 SCRA 94 [1991] per
Fernan, C.J.: Third Division).
Taking the lead from Alemar's Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court
of Appeals (211 SCRA 390 [1992] per Nocon, J.: Second Division).
All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court of
Appeals(172 SCRA 436 [1989] per Medialdea, J.: First Division) where the Court categorically ruled
that:
SEC's order for suspension of payments of Philfinance as well as for all actions of claims
against Philfinance could only be applied to claims of unsecured creditors. Such
order can not extend to creditors holding a mortgage, pledge or any lien on the
property unless they give up the property, security or lien in favor of all the creditors of
Philfinance . . . (p. 440. Emphasis supplied)
Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] per Bellosilio, J.: First Division) the Court
explicitly stared that ". . . the doctrine in the PCIB Case has since been abrogated. In Alemar's Sibal &
Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals and RCBC v. Court of
Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and

64

suspension of payments, preferred creditors may no longer assert such preference, but shall stand on
equal footing with other creditors . . ." (pp. 227-228).
It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the
Court's ruling in PCIB, only the present case satisfies the constitutional requirement that "no doctrine or
principle of law laid down by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc" (Sec 4, Article VIII, 1987 Constitution). The rest were
division decisions.
It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for the
guidance of the Bench and the Bar, the following rules of thumb shall are laid down:
1. All claims against corporations, partnerships, or associations that are pending before any court,
tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be
suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or
body in accordance which the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference
is equally suspended upon the appointment of a management committee, rehabilitation receiver, board, or
body. In the event that the assets of the corporation, partnership, or association are finally liquidated,
however, secured and preferred credits under the applicable provisions of the Civil Code will definitely
have preference over unsecured ones.
In other words, once a management committee, rehabilitation receiver, board or body is appointed
pursuant to P.D. 902-A, all actions for claims against a distressed corporation pending before any court,
tribunal, board or body shall be suspended accordingly.
This suspension shall not prejudice or render ineffective the status of a secured creditor as compared
totally unsecured creditor P.D. 902-A does not state anything to this effect. What it merely provides is that
all actions for claims against the corporation, partnership or association shall be suspended. This should
give the receiver a chance to rehabilitate the corporation if there should still be a possibility of doing so.
(This will be in consonance with Alemar's BF Homes, Araneta, and RCBC insofar as enforcing liens by
preferred creditors are concerned.)
However, in the event that rehabilitation is no longer feasible and claims against the distressed
corporation would eventually have to be settled, the secured creditors shall enjoy preference over the
unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil Code on
Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals,
277 SCRA 209 [1997]).
The Majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way,
stand an equal footing with all other creditors, must be read and understood in the light of the foregoing
rulings. All claims of both a secured or unsecured creditors, without distinction on this score, are
suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be
allowed to assert such preference before the Securities and Exchange Commission. It may be stressed,
however, that this shall only take effect upon the appointment of a management committee, rehabilitation
receiver, board, or body, as opined in the dissent.
In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions
for claims commences only from the time a management committee or receiver is appointed by the SEC.
Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial foreclosure of its

65

mortgage on October 26, 1984 because a management committee was not appointed by the SEC until
March 18, 1985.
WHEREFORE, petitioner's motion for reconsideration is hereby GRANTED. The decision, dated
September 14, 1992 is vacated, the decision of Intermediate Appellate Court in AC-G.R. No. SP-06313
REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital Judicial
Region, Branch 140, in Civil Case No. 10042 REINSTATED.
SO ORDERED.

66

GOVERNOR MANUEL M. LAPID, petitioner, vs. HONORABLE COURT OF APPEALS, OFFICE OF

THE OMBUDSMAN, NATIONAL BUREAU OF INVESTIGATION, FACT-FINDING
INTELLIGENCE BUREAU (FFIB) of the Office of the Ombudsman, DEPARTMENT OF
INTERIOR AND LOCAL GOVERNMENT, respondents.

Before us are the Motions for Reconsideration filed by the National Bureau of Investigation and the
Department of the Interior and Local Government, represented by the Office of the Solicitor-General, and
the Office of the Ombudsman of our 5 April 2000 Resolution. [1] In this resolution, we ordered the
immediate reinstatement of petitioner Manuel Lapid to the position of Governor of Pampanga as the
respondents failed to establish the existence of a law mandating the immediate execution of a decision of
the Office of the Ombudsman in an administrative case where the penalty imposed is suspension for one
year.
The factual antecedents are as follows:
On the basis of an unsigned letter dated July 20, 1998, allegedly originating from the Mga
Mamamayan ng Lalawigan ng Pampanga, addressed to the National Bureau of Investigation, the latter
initiated an open probe on the alleged illegal quarrying in Pampanga & exaction of exorbitant fees
purportedly perpetrated by unscrupulous individuals with the connivance of high-ranking government
officials. The NBI Report was endorsed to the respondent Ombudsman and was docketed as OMB-1-982067.
On Oct. 26, 1998, a complaint was filed charging petitioner Gov. Manuel M. Lapid, Vice-Governor
Clayton Olalia, Provincial Administrator Enrico Quiambao, Provincial Treasurer Jovito Sabado, Mabalacat
Municipal Mayor Marino Morales and Senior Police Officer 4 Nestor Tadeo with alleged Dishonesty, Grave
Misconduct and Conduct Prejudicial to the Best Interest of the Service for allegedly having conspired
between and among themselves in demanding and collecting from various quarrying operators in
Pampanga a control fee, control slip, or monitoring fee of P120.00 per truckload of sand, gravel, or other
quarry material, without a duly enacted provincial ordinance authorizing the collection thereof and without
issuing receipts for its collection. They were also accused of giving unwarranted benefits to Nestor Tadeo,
Rodrigo Rudy Fernandez & Conrado Pangilinan who are neither officials/employees of the Provincial
Government. of Pampanga nor quarry operators by allowing them to collect the said amount which was
over and above the P40.00 prescribed under the present provincial ordinance and in allowing Tadeo,
Fernandez and Pangilinan to sell and deliver to various quarry operators booklets of official receipts which
were pre-stamped with SAND FEE P40.00.[2]
The Ombudsman issued an Order dated January 13, 1999 preventively suspending petitioner Lapid,
Olalia, Quiambao, Sabado, Morales and Tadeo for a period of six (6) months without pay pursuant to Sec.
24 of RA 6770. On Jan. 19, 1999, the Department of the Interior and Local Government (hereinafter the
DILG) implemented the suspension of petitioner Lapid [3].
On November 22, 1999 the Ombudsman rendered a decision [4] in the administrative case finding the
petitioner administratively liable for misconduct thus:
Wherefore, premises considered, respondent Manuel M. Lapid, Clayton A. Olalia, Jovito S. Sabado and
Nestor C. Tadeo are hereby found guilty of misconduct for which they are meted out the penalty of one (1)
year suspension without pay pursuant to section 25 (2) of R.A. 6770 (Ombudsman Act of 1989).
Respondent Marino P. Morales is hereby exonerated from the same administrative charge for

67

insufficiency of evidence. The complaint against respondent Enrico P. Quiambao, who resigned effective
June 30, 1998 was dismissed on March 12, 1999, without prejudice to the outcome of the criminal case. [5]
The copy of the said decision was received by counsel for the petitioner on November 25, 1999 and
a motion for reconsideration was filed on November 29, 1999. The Office of the Ombudsman, in an
Order[6] dated 12 January 2000, denied the motion for reconsideration.
Petitioner then filed a petition for review with the Court of Appeals on January 18, 2000 praying for
the issuance of a temporary restraining order to enjoin the Ombudsman from enforcing the questioned
decision. The temporary restraining order was issued by the appellate court on January 19, 2000. [7]
When the 60-day lifetime of the temporary restraining order lapsed on March 19, 2000 without the
Court of Appeals resolving the prayer for the issuance of a writ of preliminary injunction, a
petition[8] for certiorari, prohibition and mandamus was filed with this Court on March 20, 2000. The
petition asked for the issuance of a temporary restraining order to enjoin the respondents from enforcing
the assailed decision of the Ombudsman and prayed that after due proceedings, judgment be rendered
reversing and setting aside the questioned decision (of the Ombudsman) dated November 22, 1999 and
the order dated January 12, 2000.[9]
On March 22, 2000 the Third Division of this Court issued a Resolution requiring the respondents to
comment on the petition. That same day, the Court of Appeals issued a resolution [10] denying the
petitioners prayer for injunctive relief. The following day, or on March 23, 2000, the DILG implemented the
assailed decision of the Ombudsman and the highest ranking Provincial Board Member of Pampanga,
Edna David, took her oath of office as O.I.C.- Governor of the Province of Pampanga.
On March 24, 2000 a Motion for Leave to File Supplement to the Petition for Certiorari, Prohibition
and Mandamus[11] and the Supplement to the Petition [12] itself were filed in view of the resolution of the
Court of Appeals denying the petitioners prayer for preliminary injunction. In addition to the arguments
raised in the main petition, the petitioner likewise raised in issue the apparent pre-judgment of the case on
the merits by the Court of Appeals in its resolution denying the prayer for preliminary injunction. In so
doing, petitioner argued that the respondent court exceeded the bounds of its jurisdiction. Proceeding
from the premise that the decision of the Ombudsman had not yet become final, the petitioner argued that
the writs of prohibition and mandamus may be issued against the respondent DILG for prematurely
implementing the assailed decision. Finally, the petitioner prayed for the setting aside of the resolution
issued by the Court of Appeals dated March 22, 2000 and for the issuance of a new one enjoining the
respondents from enforcing the said decision or, if it has already been implemented, to withdraw any
action already taken until the issue of whether or not the said decision of the Ombudsman is immediately
executory has been settled.
The Solicitor-General and the Office of the Ombudsman filed their respective comments [13]to the
petition praying for the dismissal thereof. Regarding the issue of the immediate enforcement of the
decision of the Ombudsman, the Solicitor-General maintains that the said decision is governed by Section
12, Rule 43 of the Rules of Court and is therefore, immediately executory. For its part, the Office of the
Ombudsman maintains that the Ombudsman Law and its implementing rules are silent as to the
execution of decisions rendered by the Ombudsman considering that the portion of the said law cited by
petitioner pertains to the finality of the decision but not to its enforcement pending appeal. The Office of
the Ombudsman also stated that it has uniformly adopted the provisions in the Local Government Code
and Administrative Code that decisions in administrative disciplinary cases are immediately executory.
The Solicitor-General filed an additional comment[14] alleging that the petitioner did not question the
executory character of the decision of the Ombudsman and that he is presenting this argument for the

68

first time before the Supreme Court. The appellate court should be given an opportunity to review the
case from this standpoint before asking the Supreme Court to review the resolutions of the Court of
Appeals. The petitioner filed a consolidated Reply[15] to the Comments of the respondents.
After oral arguments before the Third Division of this Court on 5 April 2000, the Resolution [16] subject
of the instant Motions for Reconsideration was issued. The Resolution provides as follows:
From the pleadings filed by the parties and after oral arguments held on April 5, 2000, the petitioner
represented by Atty. Augusto G. Panlilio, the respondent Ombudsman represented by its Chief Legal
Counsel, and the National Bureau of Investigation and the Department of the Interior and Local
Government represented by the Solicitor General, and after due deliberation, the Court finds that the
respondents failed to establish the existence of a law mandating the immediate execution of a decision of
the Ombudsman in an administrative case where the penalty imposed is suspension for one year. The
immediate implementation of the decision of the Ombudsman against petitioner is thus premature.
WHEREFORE, the respondents are ordered to reinstate effective immediately the petitioner to the
position of Governor of the Province of Pampanga. This case is hereby remanded to the Court of Appeals
for resolution of the appeal in CA-GR. SP No. 564744 on the merits. Said court is hereby directed to
resolve the same with utmost deliberate dispatch.
This is without prejudice to the promulgation of an extended decision.
From this 5 April 2000 Resolution, the Offices of the Solicitor-General and the Ombudsman filed the
instant motions for reconsideration.
The sole issue addressed by our 5 April 2000 Resolution is whether or not the decision of the Office
of the Ombudsman finding herein petitioner administratively liable for misconduct and imposing upon him
a penalty of one (1) year suspension without pay is immediately executory pending appeal.
Petitioner was administratively charged for misconduct under the provisions of R.A. 6770, the
Ombudsman Act of 1989. Section 27 of the said Act provides as follows:
Section 27. Effectivity and Finality of Decisions. All provisionary orders of the Office of the Ombudsman
are immediately effective and executory.
A motion for reconsideration of any order, directive or decision of the Office of the Ombudsman must be
filed within five (5) days after receipt of written notice and shall be entertained only on the following
grounds:
XXX
Findings of fact of the Office of the Ombudsman when supported by substantial evidence are
conclusive. Any order, directive or decision imposing the penalty of public censure or reprimand,
suspension of not more than one months salary shall be final and unappealable.
In all administrative disciplinary cases, orders, directives or decisions of the Office of the Ombudsman
may be appealed to the Supreme Court by filing a petition for certiorari within ten (10) days from receipt of
the written notice of the order, directive or decision or denial of the motion for reconsideration in
accordance with Rule 45 of the Rules of Court.

69

The Rules of Procedure of the Office of the Ombudsman [17] likewise contain a similar
provision. Section 7, Rule III of the said Rules provides as follows:
Sec. 7. Finality of Decision where the respondent is absolved of the charge and in case of conviction
where the penalty imposed is public censure or reprimand, suspension of not more than one month, or a
fine not equivalent to one month salary, the decision shall be final and unappealable. In all other cases,
the decision shall become final after the expiration of ten (10) days from receipt thereof by the
respondent, unless a motion for reconsideration or petition for certiorari, shall have been filed by him as
prescribed in Section 27 of R.A. 6770.
It is clear from the above provisions that the punishment imposed upon petitioner, i.e. suspension
without pay for one year, is not among those listed as final and unappealable, hence, immediately
executory. Section 27 states that all provisionary orders of the Office of the Ombudsman are immediately
effective and executory; and that any order, directive or decision of the said Office imposing the penalty of
censure or reprimand or suspension of not more than one months salary is final and unappealable. As
such the legal maxim inclusion unius est exclusio alterus finds application.The express mention of the
things included excludes those that are not included. The clear import of these statements taken together
is that all other decisions of the Office of the Ombudsman which impose penalties that are not
enumerated in the said section 27 are not final, unappealable and immediately executory. An appeal
timely filed, such as the one filed in the instant case, will stay the immediate implementation of the
decision. This finds support in the Rules of Procedure issued by the Ombudsman itself which states that
(I)n all other cases, the decision shall become final after the expiration of ten (10) days from receipt
thereof by the respondent, unless a motion for reconsideration or petition for certiorari (should now be
petition for review under Rule 43) shall have been filed by him as prescribed in Section 27 of R.A. 6770.
The Office of the Solicitor General insists however that the case of Fabian vs. Desierto [18] has voided
Section 27 of R.A. 6770 and Section 7, Rule III of Administrative Order No. 07. As such, the review of
decisions of the Ombudsman in administrative cases is now governed by Rule 43 of the 1997 Rules of
Civil Procedure which mandates, under Section 12 [19] thereof, the immediately executory character of the
decision or order appealed from.
The contention of the Solicitor General is not well-taken. Our ruling in the case of Fabian vs.
Desierto invalidated Section 27 of Republic Act No. 6770 and Section 7, Rule III of Administrative Order
No.07 and any other provision of law implementing the aforesaid Act only insofar as they provide for
appeals in administrative disciplinary cases from the Office of the Ombudsman to the Supreme Court.
The only provision affected by the Fabian ruling is the designation of the Court of Appeals as the proper
forum and of Rule 43 of the Rules of Court as the proper mode of appeal. All other matters included in
said section 27, including the finality or non-finality of decisions, are not affected and still stand.
Neither can respondents find support in Section 12, Rule 43 of the 1997 Rules of Civil Procedure
which provides as follows:
Section 12. Effect of Appeal. The appeal shall not stay the award, judgment, final order or resolution
sought to be reviewed unless the Court of Appeals shall direct otherwise upon such terms as it may deem
just.
On this point, respondents contend that considering the silence of the Ombudsman Act on the matter
of execution pending appeal, the above-quoted provision of the Rules of Court, which allegedly mandates
the immediate execution of all decisions rendered by administrative and quasi-judicial agencies, should
apply suppletorily to the provisions of the Ombudsman Act. We do not agree.

70

A judgment becomes final and executory by operation of law.[20] Section 27 of the Ombudsman Act
provides that any order, directive or decision of the Office of the Ombudsman imposing a penalty of public
censure or reprimand, or suspension of not more than one months salary shall be final and
unappealable. In all other cases, the respondent therein has the right to appeal to the Court of Appeals
within ten (10) days from receipt of the written notice of the order, directive or decision. In all these other
cases therefore, the judgment imposed therein will become final after the lapse of the reglementary period
of appeal if no appeal is perfected [21] or, an appeal therefrom having been taken, the judgment in the
appellate tribunal becomes final. It is this final judgment which is then correctly categorized as a final and
executory judgment in respect to which execution shall issue as a matter of right. [22] In other words, the
fact that the Ombudsman Act gives parties the right to appeal from its decisions should generally carry
with it the stay of these decisions pending appeal. Otherwise, the essential nature of these judgments as
being appealable would be rendered nugatory.
The general rule is that judgments by lower courts or tribunals become executory only after it has
become final and executory,[23] execution pending appeal being an exception to this general rule. It is the
contention of respondents however that with respect to decisions of quasi-judicial agencies and
administrative bodies, the opposite is true. It is argued that the general rule with respect to quasi-judicial
and administrative agencies is that the decisions of such bodies are immediately executory even pending
appeal.
The contention of respondents is misplaced. There is no general legal principle that mandates that
all decisions of quasi-judicial agencies are immediately executory. Decisions rendered by the Securities
and Exchange Commission[24] and the Civil Aeronautics Board,[25] for example, are not immediately
executory and are stayed when an appeal is filed before the Court of Appeals. On the other hand, the
decisions of the Civil Service Commission, under the Administrative Code [26], and the Office of the
President under the Local Government Code [27], which respondents cite, are immediately executory even
pending appeal because the pertinent laws under which the decisions were rendered mandate them to be
so. The provisions of the last two cited laws expressly provide for the execution pending appeal of their
final orders or decisions. The Local Government Code, under Section 68 thereof provides as follows:
Section 68. Execution Pending Appeal. An appeal shall not prevent a decision from becoming final and
executory. The respondent shall be considered as having been placed under preventive suspension
during the pendency of an appeal in the event he wins such appeal. In the event the appeal results in an
exoneration, he shall be paid his salary and such other emoluments during the pendency of the appeal.
Similarly, Book V, Title I, Subtitle A, Chapter 6, Section 47, par. (4) of the Administrative Code of 1987
provides:
(4) An appeal shall not stop the decision from being executory, and in case the penalty is suspension or
removal, the respondent shall be considered as having been under preventive suspension during the
pendency of the appeal in the event he wins an appeal.
Where the legislature has seen fit to declare that the decision of the quasi-judicial agency is immediately
final and executory pending appeal, the law expressly so provides.
Section 12 of Rule 43 should therefore be interpreted as mandating that the appeal will not stay the
award, judgment, final order or resolution unless the law directs otherwise.
Petitioner was charged administratively before the Ombudsman and accordingly the provisions of the
Ombudsman Act should apply in his case. Section 68 of the Local Government Code only applies to
administrative decisions rendered by the Office of the President or the appropriate Sanggunian against

71

elective local government officials. Similarly, the provision in the Administrative Code of 1987 mandating
execution pending review applies specifically to administrative decisions of the Civil Service Commission
involving members of the Civil Service.
There is no basis in law for the proposition that the provisions of the Administrative Code of 1987 and
the Local Government Code on execution pending review should be applied suppletorily to the provisions
of the Ombudsman Act as there is nothing in the Ombudsman Act which provides for such suppletory
application. Courts may not, in the guise of interpretation, enlarge the scope of a statute and include
therein situations not provided or intended by the lawmakers. An omission at the time of enactment,
whether careless or calculated, cannot be judicially supplied however later wisdom may recommend the
inclusion.[28]
And while in one respect, the Ombudsman Law, the Administrative Code of 1987 and the Local
Government Code are in pari materia insofar as the three laws relate or deal with public officers, the
similarity ends there. It is a principle in statutory construction that where there are two statutes that apply
to a particular case, that which was specially designed for the said case must prevail over the other. [29] In
the instant case, the acts attributed to petitioner could have been the subject of administrative disciplinary
proceedings before the Office of the President under the Local Government Code or before the Office of
the Ombudsman under the Ombudsman Act. Considering however, that petitioner was charged under the
Ombudsman Act, it is this law alone which should govern his case.
Respondents, through the Office of the Solicitor General, argue that the ruling against execution
pending review of the Ombudsmans decision grants a one-sided protection to the offender found guilty of
misconduct in office and nothing at all to the government as the aggrieved party. The offender, according
to respondents, can just let the case drag on until the expiration of his office or his reelection as by then,
the case against him shall become academic and his offense, obliterated. As such, respondents
conclude, the government is left without further remedy and is left helpless in its own fight against graft
and corruption.
We find this argument much too speculative to warrant serious consideration. If it perceived that the
fight against graft and corruption is hampered by the inadequacy of the provisions of the Ombudsman Act,
the remedy lies not with this Court but by legislative amendment.
As regards the contention of the Office of the Ombudsman that under Sec. 13(8), Article XI of the
1987 Constitution, the Office of the Ombudsman is empowered to (p)romulgate its rules of procedure and
exercise such other powers or perform such functions or duties as may be provided by law, suffice it to
note that the Ombudsman rules of procedure, Administrative Order No. 07, mandate that decisions of the
Office of the Ombudsman where the penalty imposed is other than public censure or reprimand,
suspension of not more than one month salary or fine equivalent to one month salary are still appealable
and hence, not final and executory. Under these rules, which were admittedly promulgated by virtue of the
rule-making power of the Office of the Ombudsman, the decision imposing a penalty of one year
suspension without pay on petitioner Lapid is not immediately executory.
WHEREFORE, the Motions for Reconsideration filed by the Office of the Solicitor General and the
Office of the Ombudsman are hereby DENIED for lack of merit.
SO ORDERED.

72

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
HON. SIMEON. FERRER (in his capacity as Judge of the Court of First Instance of Tarlac, Branch
I), FELICIANO CO alias LEONCIO CO alias "Bob," and NILO S. TAYAG alias Romy Reyes alias
"Taba,"respondents.

I. Statement of the Case

Posed in issue in these two cases is the constitutionality of the Anti-Subversion
Act, 1 which outlaws the Communist Party of the Philippines and other "subversive associations," and
punishes any person who "knowingly, willfully and by overt acts affiliates himself with, becomes or
remains a member" of the Party or of any other similar "subversive" organization.
On March 5, 1970 a criminal complaint for violation of section 4 of the Anti-Subversion Act was filed
against the respondent Feliciano Co in the Court of First Instance of Tarlac. On March 10 Judge Jose C.
de Guzman conducted a preliminary investigation and, finding a prima facie case against Co, directed the
Government prosecutors to file the corresponding information. The twice-amended information, docketed
as Criminal Case No. 27, recites:
That on or about May 1969 to December 5, 1969, in the Municipality of Capas, Province
of Tarlac, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed
accused, feloniously became an officer and/or ranking leader of the Communist Party of
the Philippines, an outlawed and illegal organization aimed to overthrow the Government
of the Philippines by means of force, violence, deceit, subversion, or any other illegal
means for the purpose of establishing in the Philippines a totalitarian regime and placing
the government under the control and domination of an alien power, by being an
instructor in the Mao Tse Tung University, the training school of recruits of the New
People's Army, the military arm of the said Communist Party of the Philippines.
That in the commission of the above offense, the following aggravating circumstances are
present, to wit:
(a) That the crime has been committed in contempt of or with insult to public authorities;
(b) That the crime was committed by a band; and afford impunity.
(c) With the aid of armed men or persons who insure or afford impunity.
Co moved to quash on the ground that the Anti-Subversion Act is a bill of attainder.
Meanwhile, on May 25, 1970, another criminal complaint was filed with the same court, sharing the
respondent Nilo Tayag and five others with subversion. After preliminary investigation was had, an
information was filed, which, as amended, reads:
The undersigned provincial Fiscal of Tarlac and State Prosecutors duly designated by the
Secretary of Justice to collaborate with the Provincial Fiscal of Tarlac, pursuant to the
Order dated June 5, above entitled case, hereby accuse Nilo S. Tayag, alias Romy Reyes

73

alias TABA, ARTHUR GARCIA, RENATO (REY) CASIPE, ABELARDO GARCIA,

MANUEL ALAVADO, BENJAMIN BIE alias COMMANDER MELODY and several JOHN
DOES, whose identities are still unknown, for violation of REPUBLIC ACT No. 1700,
otherwise known as the Anti-Subversion Law, committed as follows:
That in or about March 1969 and for sometime prior thereto and thereafter, in the
Province of Tarlac, within the jurisdiction of this Honorable Court, and elsewhere in the
Philippines, the above-named accused knowingly, willfully and by overt acts organized,
joined and/or remained as offices and/or ranking leaders, of the KABATAANG
MAKABAYAN, a subversive organization as defined in Republic Act No. 1700; that
BENJAMIN BIE and COMMANDER MELODY, in addition thereto, knowingly, willfully and
by over acts joined and/or remained as a member and became an officer and/or ranking
leader not only of the Communist Party of the Philippines but also of the New People's
Army, the military arm of the Communist Party of the Philippines; and that all the abovenamed accused, as such officers and/or ranking leaders of the aforestated subversive
organizations, conspiring, confederating and mutually helping one another, did then and
there knowingly, willfully and feloniously commit subversive and/or seditious acts, by
inciting, instigating and stirring the people to unite and rise publicly and tumultuously and
take up arms against the government, and/or engage in rebellious conspiracies and riots
to overthrow the government of the Republic of the Philippines by force, violence, deceit,
subversion and/or other illegal means among which are the following:
1. On several occasions within the province of Tarlac, the accused conducted meetings
and/or seminars wherein the said accused delivered speeches instigating and inciting the
people to unite, rise in arms and overthrow the Government of the Republic of the
Philippines, by force, violence, deceit, subversion and/or other illegal means; and toward
this end, the said accused organized, among others a chapter of the KABATAANG
MAKABAYAN in barrio Motrico, La Paz, Tarlac for the avowed purpose of undertaking or
promoting an armed revolution, subversive and/or seditious propaganda, conspiracies,
and/or riots and/or other illegal means to discredit and overthrow the Government of the
Republic of the Philippines and to established in the Philippines a Communist regime.
2. The accused NILO TAYAG alias ROMY REYES alias TABA, together with
FRANCISCO PORTEM alias KIKO Gonzales and others, pursued the above subversive
and/or seditious activities in San Pablo City by recruiting members for the New People's
Army, and/or by instigating and inciting the people to organize and unite for the purpose
of overthrowing the Government of the Republic of the Philippines through armed
revolution, deceit, subversion and/or other illegal means, and establishing in the
Philippines a Communist Government.
That the following aggravating circumstances attended the commission of the offense: (a)
aid of armed men or persons to insure or afford impunity; and (b) craft, fraud, or disguise
was employed.
On July 21, 1970 Tayag moved to quash, impugning the validity of the statute on the grounds that (1) it is
a bill of attainder; (2) it is vague; (3) it embraces more than one subject not expressed in the title thereof;
and (4) it denied him the equal protection of the laws.
Resolving the constitutional issues raised, the trial court, in its resolution of September 15, 1970, declared
the statute void on the grounds that it is a bill of attainder and that it is vague and overboard, and

74

dismissed the informations against the two accused. The Government appealed. We resolved to treat its
appeal as a special civil action for certiorari.
II. Is the Act a Bill of Attainder?
Article III, section 1 (11) of the Constitution states that "No bill of attainder or ex port facto law shall be
enacted." 2A bill of attainder is a legislative act which inflicts punishment without trial. 3 Its essence is the
substitution of a legislative for a judicial determination of guilt. 4 The constitutional ban against bills of
attainder serves to implement the principle of separation of powers 5 by confining legislatures to
rule-making 6 and thereby forestalling legislative usurpation of the judicial function. 7 History in
perspective, bills of attainder were employed to suppress unpopular causes and political minorities, 8 and
it is against this evil that the constitutional prohibition is directed. The singling out of a definite class, the
imposition of a burden on it, and a legislative intent, suffice to stigmatizea statute as a bill of attainder. 9
In the case at bar, the Anti-Subversion Act was condemned by the court a quo as a bill of attainder
because it "tars and feathers" the Communist Party of the Philippines as a "continuing menace to the
freedom and security of the country; its existence, a 'clear, present and grave danger to the security of the
Philippines.'" By means of the Act, the trial court said, Congress usurped "the powers of the judge," and
assumed "judicial magistracy by pronouncing the guilt of the CCP without any of the forms or safeguards
of judicial trial." Finally, according to the trial court, "if the only issue [to be determined] is whether or not
the accused is a knowing and voluntary member, the law is still a bill of attainder because it has expressly
created a presumption of organizational guilt which the accused can never hope to overthrow."
1. When the Act is viewed in its actual operation, it will be seen that it does not specify the Communist
Party of the Philippines or the members thereof for the purpose of punishment. What it does is simply to
declare the Party to be an organized conspiracy for the overthrow of the Government for the purposes of
the prohibition, stated in section 4, against membership in the outlawed organization. The term
"Communist Party of the Philippines" issued solely for definitional purposes. In fact the Act applies not
only to the Communist Party of the Philippines but also to "any other organization having the same
purpose and their successors." Its focus is not on individuals but on conduct. 10
This feature of the Act distinguishes it from section 504 of the U.S. Federal Labor-Management Reporting
and Disclosure Act of 1959 11 which, in U.S. vs. Brown, 12 was held to be a bill of attainder and therefore
unconstitutional. Section 504 provided in its pertinent parts as follows:
(a) No person who
Party ... shall serve

is

or

has

been

member

of

the

Communist

(1) as an officer, director, trustee, member of any executive board or similar governing
body, business agent, manager, organizer, or other employee (other than as an employee
performing exclusively clerical or custodial duties) of any labor organization.
during or for five years after the termination of his membership in the Communist Party....
(b) Any person who willfully violates this section shall be fined not more than $10,000 or
imprisoned for not more than one year, or both.
This statute specified the Communist Party, and imposes disability and penalties on its members.
Membership in the Party, without more, ipso facto disqualifies a person from becoming an officer or a
member of the governing body of any labor organization. As the Supreme Court of the United States
pointed out:

75

Under the line of cases just outlined, sec. 504 of the Labor Management Reporting and
Disclosure Act plainly constitutes a bill of attainder. Congress undoubtedly possesses
power under the Commerce Clause to enact legislation designed to keep from positions
affecting interstate commerce persons who may use of such positions to bring about
political strikes. In section 504, however, Congress has exceeded the authority granted it
by the Constitution. The statute does not set forth a generally applicable rule decreeing
that any person who commits certain acts or possesses certain characteristics (acts and
characteristics which, in Congress' view, make them likely to initiate political strikes) shall
not hold union office, and leaves to courts and juries the job of deciding what persons
have committed the specified acts or possessed the specified characteristics. Instead, it
designates in no uncertain terms the persons who possess the feared characteristics and
therefore cannot hold union office without incurring criminal liability members of the
Communist Party.
Communist Party v. Subversive Activities Control Board, 367 US 1, 6 L ed 2d 625, 81 S
CT 1357, lend a support to our conclusion. That case involved an appeal from an order
by the Control Board ordering the Communist Party to register as a "Communist-action
organization," under the Subversive Activities Control Act of 1950, 64 Stat 987, 50 USC
sec. 781 et seq. (1958 ed). The definition of "Communist-action organization" which the
Board is to apply is set forth in sec. 3 of the Act:
[A]ny organization in the United States ... which (i)is substantially directed, dominated, or
controlled by the foreign government or foreign organization controlling the world
Communist movement referred to in section 2 of this title, and(ii) operates primarily to
advance the objectives of such world Communist movement... 64 Stat 989, 50 USC sec.
782 (1958 ed.)
A majority of the Court rejected the argument that the Act was a bill of attainder,
reasoning that sec. 3 does not specify the persons or groups upon which the deprivations
setforth in the Act are to be imposed, but instead sets forth a general definition. Although
the Board has determined in 1953 that the Communist Party was a "Communist-action
organization," the Court found the statutory definition not to be so narrow as to insure that
the Party would always come within it:
In this proceeding the Board had found, and the Court of Appeals has sustained its
conclusion, that the Communist Party, by virtud of the activities in which it now engages,
comes within the terms of the Act. If the Party should at anytime choose to abandon
these activities, after it is once registered pursuant to sec. 7, the Act provides adequate
means of relief. (367 US, at 87, 6 L ed 2d at 683)
Indeed, were the Anti-Subversion Act a bill of attainder, it would be totally unnecessary to charge
Communists in court, as the law alone, without more, would suffice to secure their punishment. But the
undeniable fact is that their guilt still has to be judicially established. The Government has yet to prove at
the trial that the accused joined the Party knowingly, willfully and by overt acts, and that they joined the
Party, knowing its subversive character and with specific intent to further its basic objective, i.e., to
overthrow the existing Government by force deceit, and other illegal means and place the country under
the control and domination of a foreign power.
As to the claim that under the statute organizationl guilt is nonetheless imputed despite the requirement of
proof of knowing membership in the Party, suffice it to say that is precisely the nature of conspiracy, which
has been referred to as a "dragneet device" whereby all who participate in the criminal covenant are

76

liable. The contention would be correct if the statute were construed as punishing mere membership
devoid of any specific intent to further the unlawful goals of the Party. 13 But the statute specifically
required that membership must be knowing or active, with specific intent to further the illegal objectives of
the Party. That is what section 4 means when it requires that membership, to be unlawful, must be shown
to have been acquired "knowingly, willfully and by overt acts." 14 The ingredient of specific intent to pursue
the unlawful goals of the Party must be shown by "overt acts." 15 This constitutes an element of
"membership" distinct from the ingredient of guilty knowledge. The former requires proof of direct
participation in the organization's unlawful activities, while the latter requires proof of mere adherence to
the organization's illegal objectives.
2. Even assuming, however, that the Act specifies individuals and not activities, this feature is not enough
to render it a bill of attainder. A statute prohibiting partners or employees of securities underwriting firms
from serving as officers or employees of national banks on the basis of a legislative finding that the
persons mentioned would be subject to the temptation to commit acts deemed inimical to the national
economy, has been declared not to be a bill of attainder. 16 Similarly, a statute requiring every secret, oathbound society having a membership of at least twenty to register, and punishing any person who
becomes a member of such society which fails to register or remains a member thereof, was declared
valid even if in its operation it was shown to apply only to the members of the Ku Klux Klan. 17
In the Philippines the validity of section 23 (b) of the Industrial Peace Act, 18 requiring labor unions to file
with the Department of Labor affidavits of union officers "to the effect that they are not members of the
Communist Party and that they are not members of any organization which teaches the overthrow of the
Government by force or by any illegal or unconstitutional method," was upheld by this Court. 19
Indeed, it is only when a statute applies either to named individuals or to easily ascertainable members of
a group in such a way as to inflict punishment on them without a judicial trial does it become a bill of
attainder. 20 It is upon this ground that statutes which disqualified those who had taken part in the rebellion
against the Government of the United States during the Civil War from holding office, 21 or from exercising
their profession, 22 or which prohibited the payment of further compensation to individuals named in the
Act on the basis of a finding that they had engages in subversive activities, 23 or which made it a crime for
a member of the Communist Party to serve as an officer or employee of a labor union, 24 have been
invalidated as bills of attainder.
But when the judgment expressed in legislation is so universally acknowledged to be certain as to be
"judicially noticeable," the legislature may apply its own rules, and judicial hearing is not needed fairly to
make such determination. 25
In New York ex rel. Bryant vs. Zimmerman, 26 the New York legislature passed a law requiring every
secret, oath-bound society with a membership of at least twenty to register, and punishing any person
who joined or remained a member of such a society failing to register. While the statute did not specify the
Ku Klux Klan, in its operation the law applied to the KKK exclusively. In sustaining the statute against the
claim that it discriminated against the Ku Klux Klan while exempting other secret, oath-bound
organizations like masonic societies and the Knights of Columbus, the United States Supreme Court
relied on common knowledge of the nature and activities of the Ku Klux Klan. The Court said:
The courts below recognized the principle shown in the cases just cited and reached the
conclusion that the classification was justified by a difference between the two classes of
associations shown by experience, and that the difference consisted (a) in a manifest
tendency on the part of one class to make the secrecy surrounding its purpose and
membership a cloak for acts and conduct inimical to personal rights and public welfare,
and (b) in the absence of such a tendency on the part of the other class. In pointing out

77

this difference one of the courts said of the Ku Klux Klan, the principal association in the
included class: "It is a matter of common knowledge that this organization functions
largely at night, its members disguised by hoods and gowns and doing things calculated
to strike terror into the minds of the people;" and later said of the other class: "These
organizations and their purposes are well known, many of them having been in existence
for many years. Many of them are oath-bound and secret. But we hear no complaint
against them regarding violation of the peace or interfering with the rights of others."
Another of the courts said: "It is a matter of common knowledge that the association or
organization of which the relator is concededly a member exercises activities tending to
the prejudice and intimidation of sundry classes of our citizens. But the legislation is not
confined to this society;" and later said of the other class: "Labor unions have a
recognized lawful purpose. The benevolent orders mentioned in the Benevolent Orders
Law have already received legislative scrutiny and have been granted special privileges
so that the legislature may well consider them beneficial rather than harmful agencies."
The third court, after recognizing "the potentialities of evil in secret societies," and
observing that "the danger of certain organizations has been judicially demonstrated,"
meaning in that state, said: "Benevolent orders, labor unions and college fraternities
have existed for many years, and, while not immune from hostile criticism, have on the
whole justified their existence."
We assume that the legislature had before it such information as was readily available
including the published report of a hearing, before a committee of the House of
Representatives of the 57th Congress relating to the formation, purposes and activities of
the Klu Klux Klan. If so it was advised putting aside controverted evidence that the
order was a revival of the Ku Klux Klan of an earlier time with additional features
borrowed from the Know Nothing and the A. P. A. orders of other periods; that its
memberships was limited to native-born, gentile, protestant whites; that in part of its
constitution and printed creed it proclaimed the widest freedom for all and full adherence
to the Constitution of the United States; in another exacted of its member an oath to
shield and preserve "white supremacy;" and in still another declared any person actively
opposing its principles to be "a dangerous ingredient in the body politic of our country and
an enemy to the weal of our national commonwealth;" that it was conducting a crusade
against Catholics, Jews, and Negroes, and stimulating hurtful religious and race
prejudices; that it was striving for political power and assuming a sort of guardianship
over the administration of local, state and national affairs; and that at times it was taking
into its own hands the punishment of what some of its members conceived to be
crimes. 27
In the Philippines the character of the Communist Party has been the object of continuing scrutiny by this
Court. In 1932 we found the Communist Party of the Philippines to be an illegal association. 28 In 1969 we
again found that the objective of the Party was the "overthrow of the Philippine Government by armed
struggle and to establish in the Philippines a communist form of government similar to that of Soviet
Russia and Red China." 29 More recently, in Lansang vs. Garcia, 30 we noted the growth of the Communist
Party of the Philippines and the organization of Communist fronts among youth organizations such as the
Kabataang Makabayan (KM) and the emergence of the New People's Army. After meticulously reviewing
the evidence, we said: "We entertain, therefore, no doubts about the existence of a sizeable group of men
who have publicly risen in arms to overthrow the government and have thus been and still are engaged in
rebellion against the Government of the Philippines.
3. Nor is it enough that the statute specify persons or groups in order that it may fall within the ambit of
the prohibition against bills of attainder. It is also necessary that it must apply retroactively and reach past

78

conduct. This requirement follows from the nature of a bill of attainder as a legislative adjudication of guilt.
As Justice Frankfurter observed, "frequently a bill of attainder was ... doubly objectionable because of
its ex post factofeatures. This is the historic explanation for uniting the two mischiefs in one
clause 'No Bill of Attainder or ex post facto law shall be passed.' ... Therefore, if [a statute] is a bill of
attainder it is also an ex post facto law. But if it is not an ex post facto law, the reasons that establish that
it is not are persuasive that it cannot be a bill of attainder." 31
Thus in Gardner vs. Board of Public Works, 32 the U.S. Supreme Court upheld the validity of the Charter
of the City of Los Angeles which provided:
... [N]o person shall hold or retain or be eligible for any public office or employment in the
service of the City of Los Angeles, in any office or department thereof, either elective or
appointive, who has within five (5) years prior to the effective date of this section advised,
advocated, or taught, or who may, after this section becomes effective, become a
member of or affiliated with any group, society, association, organization or party which
advises, advocates or teaches or has within said period of five (5) years advised,
advocated, or taught the overthrow by force or violence of the Government of the United
States of America or of the State of California.
In upholding the statute, the Court stressed the prospective application of the Act to the petitioner therein,
thus:
... Immaterial here is any opinion we might have as to the charter provision insofar as it
purported to apply restrospectively for a five-year period to its effective date. We assume
that under the Federal Constitution the Charter Amendment is valid to the extent that it
bars from the city's public service persons who, subsequently to its adoption in 1941,
advise, advocate, or reach the violent overthrow of the Government or who are or
become affiliated with any group doing so. The provisions operating thus prospectively
were a reasonable regulation to protect the municipal service by establishing an
employment qualification of loyalty to the State and the United States.
... Unlike the provisions of the charter and ordinance under which petitioners were
removed, the statute in the Lovett case did not declare general and prospectively
operative standards of qualification and eligibility for public employment. Rather, by its
terms it prohibited any further payment of compensationto named individuals or
employees. Under these circumstances, viewed against the legislative background, the
statutewas held to have imposed penalties without judicial trial.
Indeed, if one objection to the bill of attainder is thatCongress thereby assumed judicial magistracy, them
it mustbe demonstrated that the statute claimed to be a bill of attainderreaches past conduct and that the
penalties it imposesare inescapable. As the U.S. Supreme Court observedwith respect to the U.S.
Federal Subversive Activities ControlAct of 1950:
Nor is the statute made an act of "outlawry" or of attainderby the fact that the conduct
which it regulates is describedwith such particularity that, in probability, few
organizationswill come within the statutory terms. Legislatures may act tocurb behaviour
which they regard as harmful to the public welfare,whether that conduct is found to be
engaged in by manypersons or by one. So long as the incidence of legislation issuch that
the persons who engage in the regulated conduct, bethey many or few, can escape
regulation merely by altering thecourse of their own present activities, there can be no
complaintof an attainder. 33

79

This statement, mutatis mutandis, may be said of theAnti-Subversion Act. Section 4 thereof expressly
statesthat the prohibition therein applies only to acts committed"After the approval of this Act." Only those
who "knowingly,willfully and by overt acts affiliate themselves with,become or remain members of the
Communist Party of thePhilippines and/or its successors or of any subversive association"after June 20,
1957, are punished. Those whowere members of the Party or of any other subversive associationat the
time of the enactment of the law, weregiven the opportunity of purging themselves of liability
byrenouncing in writing and under oath their membershipin the Party. The law expressly provides that
such renunciationshall operate to exempt such persons from penalliability. 34 The penalties prescribed by
the Act are thereforenot inescapable.
III. The Act and the Requirements of Due Process
1. As already stated, the legislative declaration in section 2 of the Act that the Communist Party of the
Philippinesis an organized conspiracy for the overthrow of theGovernment is inteded not to provide the
basis for a legislativefinding of guilt of the members of the Party butrather to justify the proscription
spelled out in section 4. Freedom of expression and freedom of association are sofundamental that they
are thought by some to occupy a"preferred position" in the hierarchy of constitutional
values. 35 Accordingly, any limitation on their exercise mustbe justified by the existence of a substantive
evil. This isthe reason why before enacting the statute in question Congressconducted careful
investigations and then stated itsfindings in the preamble, thus:
... [T]he Communist Party of the Philippines althoughpurportedly a political party, is in fact
an organized conspiracyto overthrow the Government of the Republic of the
Philippinesnot only by force and violence but also by deceit, subversionand other illegal
means, for the purpose of establishing in thePhilippines a totalitarian regime subject to
alien dominationand control;
... [T]he continued existence and activities of the CommunistParty of the Philippines
constitutes a clear, present andgrave danger to the security of the Philippines;
... [I]n the face of the organized, systematice and persistentsubversion, national in scope
but international in direction,posed by the Communist Party of the Philippines and its
activities,there is urgent need for special legislation to cope withthis continuing menace to
the freedom and security of the country.
In truth, the constitutionality of the Act would be opento question if, instead of making these findings in
enactingthe statute, Congress omitted to do so.
In saying that by means of the Act Congress has assumed judicial magistracy, the trial courd failed to
takeproper account of the distinction between legislative fact and adjudicative fact. Professor Paul Freund
elucidatesthe crucial distinction, thus:
... A law forbidding the sale of beverages containingmore than 3.2 per cent of alcohol
would raise a question of legislativefact, i.e., whether this standard has a reasonable
relationto public health, morals, and the enforcement problem. Alaw forbidding the sale of
intoxicating beverages (assuming itis not so vague as to require supplementation by rulemaking)would raise a question of adjudicative fact, i.e., whether thisor that beverage is
intoxicating within the meaning of the statuteand the limits on governmental action
imposed by the Constitution. Of course what we mean by fact in each case is itselfan
ultimate conclusion founded on underlying facts and oncriteria of judgment for weighing
them.

80

A conventional formulation is that legislative facts those facts which are relevant to the
legislative judgment will not be canvassed save to determine whether there is a
rationalbasis for believing that they exist, while adjudicativefacts those which tie the
legislative enactment to the litigant are to be demonstrated and found according to the
ordinarystandards prevailing for judicial trials. 36
The test formulated in Nebbia vs. new York, 37 andadopted by this Court in Lansang vs. Garcia, 38 is that 'if
laws are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor
discriminatory, the requirements of due process are satisfied, and judicial determination to that effect
renders a court functus officio." The recital of legislative findings implements this test.
With respect to a similar statement of legislative findingsin the U.S. Federal Subversive Activities Control
Actof 1950 (that "Communist-action organizations" are controlledby the foreign government controlling the
worldCommunist movement and that they operate primarily to"advance the objectives of such world
Communist movement"),the U.S. Supreme Court said:
It is not for the courts to reexamine the validity of theselegislative findings and reject
them....They are the productof extensive investigation by Committes of Congress over
morethan a decade and a half. Cf. Nebbia v. New York, 291 U.S.502, 516, 530. We
certainly cannot dismiss them as unfoundedirrational imaginings. ... And if we accept
them, as we mustas a not unentertainable appraisal by Congress of the threatwhich
Communist organizations pose not only to existing governmentin the United States, but
to the United States as asovereign, independent Nation. ...we must recognize that
thepower of Congress to regulate Communist organizations of thisnature is
extensive. 39
This statement, mutatis mutandis, may be said of thelegislative findings articulated in the Anti-Subversion
Act.
That the Government has a right to protect itself againstsubversion is a proposition too plain to require
elaboration.Self-preservation is the "ultimate value" of society. It surpasses and transcendes every other
value, "forif a society cannot protect its very structure from armedinternal attack, ...no subordinate value
can be protected" 40 As Chief Justice Vinson so aptly said in Dennis vs. United States: 41
Whatever theoretical merit there may be to the argumentthat there is a 'right' to rebellion
against dictatorial governmentsis without force where the existing structure of
government provides for peaceful and orderly change. We rejectany principle of
governmental helplessness in the face of preparationfor revolution, which principle,
carried to its logical conclusion,must lead to anarchy. No one could conceive that it isnot
within the power of Congress to prohibit acts intended tooverthrow the government by
force and violence.
2. By carefully delimiting the reach of the Act to conduct (as explicitly described in sectin 4 thereof),
Congressreaffirmed its respect for the rule that "even throughthe governmental purpose be legitimate and
substantial,that purpose cannot be pursued by means that broadly stiflefundamental personal liberties
when the end can be more narrowly achieved." 42 The requirement of knowing membership,as
distinguished from nominalmembership, hasbeen held as a sufficient basis for penalizing membershipin a
subversive organization. 43 For, as has been stated:
Membership in an organization renders aid and encouragement to the organization; and
when membership is acceptedor retained with knowledge that the organization is

81

engaged inan unlawful purpose, the one accepting or retaining membershipwith such
knowledge makes himself a party to the unlawfulenterprise in which it is engaged. 44
3. The argument that the Act is unconstitutionallyoverbroad because section 2 merely speaks of
"overthrow"of the Government and overthrow may be achieved by peaceful means, misconceives the
function of the phrase"knowingly, willfully and by overt acts" in section 4. Section 2 is merely a legislative
declaration; the definitionsof and the penalties prescribed for the different acts prescribedare stated in
section 4 which requires that membershipin the Communist Party of the Philippines, to be unlawful, must
be acquired "knowingly, willfully and by overt acts." Indeed, the first "whereas" clause makes clear thatthe
overthrow contemplated is "overthrow not only by forceand violence but also be deceit, subversion and
other illegalmeans." The absence of this qualificatio in section 2 appearsto be due more to an oversight
rather than to deliberateomission.
Moreover, the word "overthrow' sufficiently connotesthe use of violent and other illegal means. Only in a
metaphoricalsense may one speak of peaceful overthrow ofgovernments, and certainly the law does not
speak in metaphors.In the case of the Anti-Subversion Act, the use ofthe word "overthrow" in a
metaphorical sense is hardlyconsistent with the clearly delineated objective of the "overthrow,"namely,
"establishing in the Philippines a totalitarianregime and place [sic] the Government under thecontrol and
domination of an alien power." What thisCourt once said in a prosecution for sedition is appropos: "The
language used by the appellant clearly imported anoverthrow of the Government by violence, and it
should beinterpreted in the plain and obvious sense in which it wasevidently intended to be understood.
The word 'overthrow'could not have been intended as referring to an ordinarychange by the exercise of
the elective franchise. The useof the whip [which the accused exhorted his audience to useagainst the
Constabulary], an instrument designed toleave marks on the sides of adversaries, is inconsistentwith the
mild interpretation which the appellant wouldhave us impute to the language." 45
IV. The Act and the Guaranty of Free Expression
As already pointed out, the Act is aimed against conspiracies to overthrow the Government by force,
violence orother illegal means. Whatever interest in freedom of speechand freedom of association is
infringed by the prohibitionagainst knowing membership in the Communist Party ofthe Philippines, is so
indirect and so insubstantial as to beclearly and heavily outweighed by the overriding considerationsof
national security and the preservartion of democraticinstitutions in his country.
The membership clause of the U.S. Federal Smith Actis similar in many respects to the membership
provision ofthe Anti-Subversion Act. The former provides:
Whoever organizes or helps or attempts to organize anysociety, group, or assembly of
persons who teach, advocate, orencourage the overthrow or destruction of any such
governmentby force or violence; or becomes or is a member of, or affiliatedwith, any such
society, group or assembly of persons, knowingthe purpose thereof
Shall be fined not more than $20,000 or imprisoned notmore than twenty years, or both,
and shall be ineligible for emplymentby the United States or any department or
agencythereof, for the five years next following his conviction.... 46
In sustaining the validity of this provision, the "Court said in Scales vs. United States: 47
It was settled in Dennis that advocacy with which we arehere concerned is not
constitutionally protected speech, and itwas further established that a combination to
promote suchadvocacy, albeit under the aegis of what purports to be a politicalparty, is

82

not such association as is protected by the firstAmendment. We can discern no reason

why membership, whenit constitutes a purposeful form of complicity in a group
engagingin this same forbidden advocacy, should receive anygreater degree of protection
from the guarantees of that Amendment.
Moreover, as was held in another case, where the problemsof accommodating the exigencies of selfpreservationand the values of liberty are as complex and intricate as inthe situation described in the
legislative findings stated inthe U.S. Federal Subversive Activities Control Act of 1950,the legislative
judgment as to how that threat may best bemet consistently with the safeguards of personal freedomsis
not to be set aside merely because the judgment of judgeswould, in the first instance, have chosen other
methods. 48 For in truth, legislation, "whether it restrains freedom tohire or freedom to speak, is itself an
effort at compromisebetween the claims of the social order and individual freedom,and when the
legislative compromise in either case isbrought to the judicial test the court stands one step removedfrom
the conflict and its resolution through law." 49
V. The Act and its Title
The respondent Tayag invokes the constitutional commandthat "no bill which may be enacted into law
shall embrace more than one subject which shall be expressed in the title of the bill." 50
What is assailed as not germane to or embraced in thetitle of the Act is the last proviso of section 4 which
reads:
And provided, finally, That one who conspires with anyother person to overthrow the
Government of the Republic ofthe Philippines, or the government of any of its political
subdivisionsby force, violence, deceit, subversion or illegal means,for the purpose of
placing such Government or political subdivisionunder the control and domination of any
lien power, shallbe punished by prision correccional to prision mayor with allthe
accessory penalties provided therefor in the same code.
It is argued that the said proviso, in reality, punishes notonly membership in the Communist Party of the
Philippinesor similar associations, but as well "any conspiracyby two persons to overthrow the national or
any local governmentby illegal means, even if their intent is not to establisha totalitarian regime, burt a
democratic regime, evenif their purpose is not to place the nation under an aliencommunist power, but
under an alien democratic power likethe United States or England or Malaysia or even an anticommunistpower like Spain, Japan, Thailand or Taiwanor Indonesia."
The Act, in addition to its main title ("An Act to Outlawthe Communist Party of the Philippines and
SimilarAssociations, Penalizing Membership Therein, and forOther Purposes"), has a short title. Section 1
providesthat
"This
Act
shall
be
known
as
the
Anti-Subversion Act."Together with the main title, the short title of the statuteunequivocally indicates that
the subject matter is subversionin general which has for its fundamental purpose the substitutionof a
foreign totalitarian regime in place of theexisting Government and not merely subversion by
Communistconspiracies..
The title of a bill need not be a catalogue or an indexof its contents, and need not recite the details of the
Act. 51 It is a valid title if it indicates in broad but clear termsthe nature, scope, and consequences of the
proposed lawand its operation. 52 A narrow or technical construction isto be avoided, and the statute will
be read fairly and reasonablyin order not to thwart the legislative intent. We holdthat the Anti-Subversion
Act fully satisfies these requirements.

83

VI. Conclusion and Guidelines

In conclusion, even as we uphold the validity of theAnti-Subversion Act, we cannot overemphasize the
needfor prudence and circumspection in its enforcement, operatingas it does in the sensitive area of
freedom of expressionand belief. Accordingly, we set the following basic guidelines to be observed in any
prosecution under the Act.The Government, in addition to proving such circumstancesas may affect
liability, must establish the following elementsof the crime of joining the Communist Party of the
Philippinesor any other subversive association:
(1) In the case of subversive organizations other thanthe Communist Party of the Philippines, (a) that
thepurpose of the organization is to overthrow the presentGovernment of the Philippines and to establish
in thiscountry a totalitarian regime under the domination of aforeign power; (b) that the accused joined
such organization;and (c) that he did so knowingly, willfully and byovert acts; and
(2) In the case of the Communist Party of the Philippines,(a) that the CPP continues to pursue the
objectiveswhich led Congress in 1957 to declare it to be an organizedconspiracy for the overthrow of the
Government by illegalmeans for the purpose of placing the country under thecontrol of a foreign power;
(b) that the accused joined theCPP; and (c) that he did so willfully, knowingly and byovert acts.
We refrain from making any pronouncement as to thecrime or remaining a member of the Communist
Party ofthe Philippines or of any other subversive association: weleave this matter to future determination.
ACCORDINGLY, the questioned resolution of September15, 1970 is set aside, and these two cases are
herebyremanded to the court a quo for trial on the merits. Costs de oficio.

84

EN BANC
[G.R. No. 45081. July 15, 1936.]
JOSE A. ANGARA, petitioner, vs. THE ELECTORAL COMMISSION, PEDRO
YNSUA, MIGUEL CASTILLO, and DIONISIO C. MAYOR, respondents.
Godofredo Reyes for petitioner.
Solicitor-General Hilado for respondent Electoral Commission.
Pedro Ynsua in his own behalf.
No appearance for other respondents.
SYLLABUS
1. CONSTITUTIONAL LAW; SEPARATION OF POWERS. The separation of powers is a
fundamental principle in our system of government. It obtains not through express provision but by
actual division in our Constitution. Each department of the government has exclusive cognizance of
matters within its jurisdiction, and is supreme within its own sphere.
2. ID.; ID.; SYSTEM OF CHECKS AND BALANCES. But it does not follow from the fact
that the three powers are to be kept separate and distinct that the Constitution intended them to be
absolutely unrestrained and independent of each other. The Constitution has provided for an
elaborate system of checks and balances to secure coordination in the workings of various
departments of government. For example, the Chief Executive under our Constitution is 80 far made
a check on the legislative power that his assent is required in the enactment of laws. This, however, is
subject to the further check that a bill may become a law notwithstanding the refusal of the President
to approve it, by a vote of two-thirds or three-fourths, as the case may be, of the National Assembly.
The President has also the right to convene the Assembly in special session whenever he chooses.
On the other hand, the National Assembly operates as a check on the Executive in the sense that its
consent through its Commission on Appointments is necessary in the appointment of certain officers;
and the concurrence of a majority of all its members is essential to the conclusion of treaties.
Furthermore, in its power to determine what courts other than the Supreme Court shall be
established, to define their jurisdiction and to appropriate funds for their support, the National
Assembly exercises to a certain extent control over the judicial department. The Assembly also
exercises the judicial power of trying impeachments. And the judiciary in turn, with the Supreme Court
as the final arbiter, effectively checks the other departments in the exercise of its power to determine
the law, and hence to declare executive and legislative acts void if violative of the Constitution.
3. ID.; ID.; ID.; JUDICIARY THE ONLY CONSTITUTIONAL ARBITER TO ALLOCATE
CONSTITUTIONAL BOUNDARIES. But 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. In times of social disquietude or political excitement, the great landmarks of the
Constitution are apt to be forgotten or marred, if not entirely obliterated. In cases of conflict, the
judicial department is the only constitutional organ which can be called upon to determine the proper
allocation of powers between the several departments and among the integral or constituent units
thereof.

85

4. ID.; ID.; ID.; ID.; MODERATING POWER OF THE JUDICIARY IS GRANTED, IF NOT
EXPRESSLY, BY CLEAR IMPLICATION. As any human production, our Constitution is of course
lacking perfection and perfectibility, but as much as it was within the power of our people, acting
through their delegates to so provide, that instrument which is the expression of their sovereignty
however limited, has established a republican government intended to operate and function as a
harmonious whole, under a system of checks and balances, and subject to specific limitations and
restrictions provided in the said instrument. The Constitution sets forth in no uncertain language the
restrictions and limitations upon governmental powers and agencies. If these restrictions and
limitations are transcended, it would be inconceivable if the Constitution had not provided for a
mechanism by which to direct the course of government along constitutional channels, for, then, the
distribution of powers would be mere verbiage, the bill of rights mere expressions of sentiment, and
the principles of good government mere political apothegms. Certainly, the limitations and restrictions
embodied in the Constitution are real as they should be in any living constitution. In the United States
where no express constitutional grant is found in their constitution, the possession of this moderating
power of the courts, not to speak of its historical origin and development there, has been set at rest
by popular acquiescence for a period of more than one and a half centuries. In our case, this
moderating power is granted, if not expressly, by clear implication from section 2 of article VIII of our
Constitution.
5. ID.; ID.; ID.; WHAT IS MEANT BY "JUDICIAL SUPREMACY". The Constitution is a
definition of the powers of government. Who is to determine the nature, scope and extent of such
powers? The Constitution itself has provided for the instrumentality of the judiciary as the rational
way. And when the judiciary mediates to allocate constitutional boundaries, it does not assert any
superiority over the other departments; it does not in reality nullify or invalidate an act of the
Legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution to
determine conflicting claims of authority under the Constitution and to establish for the parties in an
actual controversy the rights which that instrument secures and guarantees to them. This is in truth all
that is involved in what is termed "judicial supremacy" which properly is the power of judicial review
under the Constitution.
6. ID.; ID.; ID.; JUDICIAL REVIEW LIMITED TO ACTUAL LITIGATION; WISDOM, JUSTICE
OR EXPEDIENCY OF LEGISLATION. Even then, this power of judicial review is limited to actual
cases and controversies to be exercised after full opportunity of argument by the parties, and limited
further to the constitutional question raised or the very lis mota presented. Any attempt at abstraction
could only lead to dialectics and barren legal questions and to sterile conclusions unrelated to
actualities. Narrowed as its function is in this manner, the judiciary does not pass upon questions of
wisdom, justice or expediency of legislation. More than that, courts accord the presumption of
constitutionality to legislative enactments not only because the Legislature is presumed to abide by
the Constitution but also because the judiciary in the determination of actual cases and controversies
must reflect the wisdom and justice of the people as expressed through their representatives in the
executive and legislative departments of the government.
7. ID.; ID.; ID.; SYSTEM ITSELF NOT THE CHIEF PALLADIUM OF CONSTITUTIONAL
LIBERTY; SUCCESS MUST BE TESTED IN THE CRUCIBLE OF FILIPINO MINDS AND HEARTS.
But much as we might postulate on the internal checks of power provided in our Constitution, it
ought not the less to be remembered that, in the language of James Madison, the system itself is not
"the chief palladium of constitutional liberty . . . the people who are authors of this blessing must also
be its guardians . . . their eyes must be ever ready to mark, their voice to pronounce . . . aggression
on the authority of their constitution." In the last and ultimate analysis, then, must the success of our
government in the unfolding years to come be tested in the crucible of Filipino minds and hearts than
in the consultation rooms and court chambers.
8. ID.; OUR CONSTITUTION HAS ADOPTED THE AMERICAN TYPE OF
CONSTITUTIONAL GOVERNMENT. Discarding the English type and other European types of
constitutional government, the framers of our Constitution adopted the American type where the
written constitution is interpreted and given effect by the judicial department. In some countries which
have declined to follow the American example, provisions have been inserted in their constitutions
prohibiting the courts from exercising the power to interpret the fundamental law. This is taken as a

86

recognition of what otherwise would be the rule that in the absence of direct prohibition courts are
bound to assume what is logically their function. For instance, the Constitution of Poland of 1921,
expressly provides that courts shall have no power to examine the validity of statutes (article 81,
chapter IV). The former Austrian Constitution contained a similar declaration. In countries whose
constitutions are silent in this respect, courts have assumed this power. This is true in Norway,
Greece, Australia and South Africa. Whereas, in Czechoslovakia (arts. 2 and 3, Preliminary Law to
Constitutional Charter of the Czechoslovak Republic, February 29, 1920) and Spain (arts 121-123,
Title IX, Constitution of the Republic of 1931) especial constitutional courts are established to pass
upon the validity of ordinary laws.
9. ID.; JURISDICTION OVER THE ELECTORAL COMMISSION. The nature of the present
controversy shows the necessity of a final constitutional arbiter to determine the conflict of authority
between two agencies created by the Constitution. If the conflict were left undecided and
undetermined, a void would be created in our constitutional system which may in the long run prove
destructive of the entire framework. Natura vacuum abhorret, so must we avoid exhaustion in our
constitutional system. Upon principle, reason and authority, the Supreme Court has jurisdiction over
the Electoral Commission and the subject matter of the present controversy for the purpose of
determining the character, scope and extent of the constitutional grant to the Electoral Commission as
"the sole judge of all contests relating to the election, returns and qualifications of the members of the
National Assembly."
10. ID.; THE ELECTORAL COMMISSION; CONSTITUTIONAL GRANT OF POWER TO
THE ELECTORAL COMMISSION TO BE THE SOLE JUDGE OF ALL CONTESTS RELATING TO
THE ELECTION, RETURNS AND QUALIFICATIONS OF MEMBERS OF THE NATIONAL
ASSEMBLY. The original provision regarding this subject in the Act of Congress of July 1, 1902
(sec. 7, par. 5) laying down the rule that the assembly shall be the judge of the elections, returns, and
qualifications of its members", was taken from clause 1 of section 5, Article I of the Constitution of the
United States providing that "Each House shall be the Judge of the Elections, Returns, and
Qualifications of its own Members, . . . ." The Act of Congress of August 29, 1916 (sec. 18, par. 1)
modified this provision by the insertion of the word "sole" as follows: "That the Senate and House of
Representatives, respectively, shall be the sole judges of the elections, returns, and qualifications of
their elective members, . . ." apparently in order to emphasize the exclusive character of the
jurisdiction conferred upon each House of the Legislature over the particular cases therein specified.
This court has had occasion to characterize this grant of power to the Philippine Senate and House of
Representatives, respectively, as "full, clear and complete". (Veloso vs. Boards of Canvassers of
Leyte and Samar [1919], 39 Phil., 886, 888.)
11. ELECTORAL COMMISSION; HISTORICAL INSTANCES. The transfer of the power of
determining the election, returns and qualifications of the members of the Legislature long lodged in
the legislative body, to an independent, impartial and non-partisan tribunal, is by no means a mere
experiment in the science of government. As early as 1868, the House of Commons in England
solved the problem of insuring the non-partisan settlement of the controverted elections of its
members by abdicating its prerogative to two judges of the King's Bench of the High Court of Justice
selected from a rota in accordance with rules of court made for the purpose. Having proved
successful, the practice has become imbedded in English jurisprudence (Parliamentary Elections Act,
1868 [31 & 32 Vict. c. 125] as amended by Parliamentary Elections and Corrupt Practices Act, 1879
[42 & 43 Vict. c. 75], s. 2; Corrupt and Illegal Practices Prevention Act 1883 [46 & 47 Vict. c. 51], s.
70; Expiring Laws Continuance Act, 1911 [1 & 2 Geo. 5, c. 22]; Laws of England, vol. XII, p. 408, vol.
XXI, p. 787). In the Dominion of Canada, election contests which were originally heard by the
Committee of the House of Commons, are since 1922 tried in the courts. Likewise, in the
Commonwealth of Australia, election contests which were originally determined by each house, are
since 1922 tried in the High Court. In Hungary, the organic law provides that all protests against the
election of members of the Upper House of Diet are to be resolved by the Supreme Administrative
Court (Law 22 of 1916, chap. 2, art. 37, par. 6). The Constitution of Poland of March 17, 1921 (art. 19)
and the Constitution of the Free City of Danzig of May 13, 1922 (art. 10) vest the authority to decide
contested elections to the Diet or National Assembly in the Supreme Court. For the purpose of

87

deciding legislative contests, the Constitution of the German Reich of July 1, 1919 (art. 31), the
Constitution of the Czechoslovak Republic of February 29, 1920 (art. 19) and the Constitution of the
Grecian Republic of June 2, 1927 (art. 43) all provide for an Electoral Commission.
12. ID.; ELECTORAL COMMISSION IN THE UNITED STATES. The creation of
an Electoral Commission whose membership is recruited both from the legislature and the judiciary is
by no means unknown in the United States. In the presidential elections of 1876 there was a dispute
as to the number of electoral votes received by each of the two opposing candidates. As the
Constitution made no adequate provision for such a contingency, Congress passed a law on January
29, 1877 (United States Statutes at Large, vol. 19, chap. 37, pp. 227-229), creating a
special Electoral Commission composed of five members elected by the Senate, five members
elected by the House of Representatives, and five justices of the Supreme Court, the fifth justice to be
selected by the four designated in the Act. The decision of the commission was to be binding unless
rejected by the two houses voting separately. Although there is not much moral lesson to be derived
from the experience of America in this regard, the experiment has at least abiding historical interest.
13. ID.; ID.; FAMILIARITY OF THE MEMBERS OF THE CONSTITUTIONAL CONVENTION
WITH THE HISTORY AND POLITICAL DEVELOPMENT OF OTHER COUNTRIES OF THE
WORLD; ELECTORAL COMMISSION IS THE EXPRESSION OF THE WISDOM AND ULTIMATE
JUSTICE OF THE PEOPLE. The members of the Constitutional Convention who framed our
fundamental law were in their majority men mature in years and experience. To be sure, many of
them were familiar with the history and political development of other countries of the world. When,
therefore, they deemed it wise to create an Electoral Commission as a constitutional organ and
invested it with the exclusive function of passing upon and determining the election, returns and
qualifications of the members of the National Assembly, they must have done so not only in the light
of their own experience but also having in view the experience of other enlightened peoples of the
world. The creation of the Electoral Commission was designed to remedy certain evils of which the
framers of our Constitution were cognizant. Notwithstanding the vigorous opposition of some
members of the Convention to its creation, the plan was approved by that body by a vote of 98
against 58. All that can be said now is that, upon the approval of the Constitution, the creation of
the Electoral Commission is the expression of the wisdom and "ultimate justice of the people".
(Abraham Lincoln, First Inaugural Address, March 4, 1861.)
14. ID.; ID.; ID.; PURPOSE WAS TO TRANSFER IN ITS TOTALITY POWER EXERCISED
PREVIOUSLY BY THE LEGISLATURE OVER THE CONTESTED ELECTIONS OF THE MEMBERS
TO AN INDEPENDENT AND IMPARTIAL TRIBUNAL. From the deliberations of our Constitutional
Convention it is evident that the purpose was to transfer in its totality all the powers previously
exercised by the Legislature in matters pertaining to contested elections of its members, to an
independent and impartial tribunal. It was not so much the knowledge and appreciation of
contemporary constitutional precedents, however, as the long-felt need of determining legislative
contests devoid of partisan considerations which prompted the people acting through their delegates
to the Convention to provide for this body known as the Electoral Commission. With this end in view,
a composite body in which both the majority and minority parties are equally represented to off-set
partisan influence in its deliberations was created, and further endowed with judicial temper by
including in its membership three justices of the Supreme Court.
15. ID.; ID.; ID.; THE ELECTORAL COMMISSION IS AN INDEPENDENT
CONSTITUTIONAL CREATION ALTHOUGH FOR PURPOSES OF CLASSIFICATION IT IS CLOSER
TO THE LEGISLATIVE DEPARTMENT THAN TO ANY OTHER. The Electoral Commission is a
constitutional creation, invested with the necessary authority in the performance and execution of the
limited and specific function assigned to it by the Constitution. Although it is not a power in our
tripartite scheme of government, it is, to all intents and purposes, when acting within the limits of its
authority, an independent organ. It is, to be sure, closer to the legislative department than to any
other. The location of the provision (sec. 4) creating the Electoral Commission under Article VI entitled
"Legislative Department" of our Constitution is very indicative. Its composition is also significant in that
it is constituted by a majority of members of the Legislature. But it is a body separate from and
independent of the Legislature.

88

16. ID.; ID; ID.; GRANT OF POWER TO THE ELECTORAL COMMISSION INTENDED TO
BE AS COMPLETE AND UNIMPAIRED AS IF IT HAD REMAINED ORIGINALLY IN THE
LEGISLATURE. The grant of power to the ElectoralCommission to judge all contests relating to the
election, returns and qualifications of members of the National Assembly, is intended to be as
complete and unimpaired as if it had remained originally in the Legislature. The express lodging of
that power in the Electoral Commission is an implied denial of the exercise of that power by the
National Assembly. And this is as effective a restriction upon the legislative power as an express
prohibition in the constitution (Ex parte Lewis, 46 Tex. Crim. Rep., 1; State vs. Whisman, 33 S. D.,
260; L. R. A., 1917B, 1). If the power claimed for the National Assembly to regulate the proceedings
of the Electoral Commission and cut off the power of the ElectoralCommission to lay down a period
within which protest should be filed were conceded, the grant of power to the commission would be
ineffective. The Electoral Commission in such a case would be invested with the power to determine
contested cases involving the election, returns, and qualifications of the members of the National
Assembly but subject at all times to the regulative power of the National Assembly. Not only would the
purpose of the framers of our Constitution of totally transferring this authority from the legislative body
be frustrated, but a dual authority would be created with the resultant inevitable clash of powers from
time to time. A sad spectacle would then be presented of the Electoral Commission retaining the bare
authority of taking cognizance of cases referred to, but in reality without the necessary means to
render that authority effective whenever and wherever the National Assembly has chosen to act, a
situation worse than that intended to be remedied by the framers of our Constitution. The power to
regulate on the part of the National Assembly in procedural matters will inevitably lead to the ultimate
control by the Assembly of the entire proceedings of the Electoral Commission, and, by indirection, to
the entire abrogation of the constitutional grant. It is obvious that this result should not be permitted.
17. ID.; ID.; ID; ID.; THE POWER TO PROMULGATE INCIDENTAL RULES AND
REGULATIONS LODGED ALSO IN THE ELECTORAL COMMISSION BY NECESSARY
IMPLICATION. The creation of the Electoral Commission carried with it ex necesitate rei the power
regulative in character to limit the time within which protests intrusted to its cognizance should be
filed. It is a settled rule of construction that where a general power is conferred or duty enjoined,
every particular power necessary for the exercise of the one or the performance of the other is also
conferred (Cooley, Constitutional Limitations, eighth ed., vol. I, pp. 138, 139). In the absence of any
further constitutional provision relating to the procedure to be followed in filing protests before
the Electoral Commission, therefore, the incidental power to promulgate such rules necessary for the
proper exercise of its exclusive powers to judge all contests relating to the election, returns and
qualifications of members of the National Assembly, must be deemed by necessary implication to
have been lodged also in the Electoral Commission.
18. ID; ID.; ID.; POSSIBILITY OF ABUSE NO ARGUMENT AGAINST GRANT OF POWER.
The possibility of abuse is not an argument against the concession of the power as there is no
power that is not susceptible of abuse. If any mistake has been committed in the creation of
an Electoral Commission and in investing it with exclusive jurisdiction in all cases relating to the
election, returns, and qualifications of members of the National Assembly, the remedy is political, not
judicial, and must be sought through the ordinary processes of democracy. All the possible abuses of
the government are not intended to be corrected by the judiciary. The people in creating
the Electoral Commissionreposed as much confidence in this body in the exclusive determination of
the specified cases assigned to it, as it has given to the Supreme Court in the proper cases entrusted
to it for decision. All the agencies of the government were designed by the Constitution to achieve
specific purposes, and each constitutional organ working within its own particular sphere of
discretionary action must be deemed to be animated with same zeal and honesty in accomplishing
the great ends for which they were created by the sovereign will. That the actuations of these
constitutional agencies might leave much to be desired in given instances, is inherent in the
imperfections of human institutions. From the fact that the Electoral Commission may not be
interfered with in the exercise of its legitimate power, it does not follow that its acts, however illegal or
unconstitutional, may not be challenged in appropriate cases over which the courts may exercise
jurisdiction.

89

19. ID.; ID.; ID.; FACTS OF THE CASE; EQUITABLE CONSIDERATIONS. The
Commonwealth Government was inaugurated on November 15, 1935, on which date the
Constitution, except as to the provisions mentioned in section 6 of Article XV thereof, went into effect.
The new National Assembly convened on November 25, of that year, and the resolution confirming
the election of the petitioner was approved by that body on December 3, 1935. The protest by the
herein respondent against the election of the petitioner was filed on December 9 of the same year.
The pleadings do not show when the Electoral Commission was formally organized but it does
appear that on December 9, 1935, the Electoral Commission met for the first time and approved a
resolution fixing said date as the last day for the filing of election protests. When, therefore, the
National Assembly passed its resolution of December 3, 1935, confirming the election of the petitioner
to the National Assembly, the Electoral Commission had not yet met; neither does it appear that said
body had actually been organized. As a matter of fact, according to certified copies of official records
on file in the archives division of the National Assembly attached to the record of this case upon the
petition of the petitioner, the three justices of the Supreme Court and the six members of the National
Assembly constituting the Electoral Commission were respectively designated only on December 4
and 6, 1936. If Resolution No. 8 of the National Assembly confirming non-protested elections of
members of the National Assembly had the effect of limiting or tolling the time for the presentation of
protests, the result would be that the National Assembly on the hypothesis that it still retained the
incidental power of regulation in such cases had already barred the presentation of protests before
the Electoral Commission had had time to organize itself and deliberate on the mode and method to
be followed in a matter entrusted to its exclusive jurisdiction by the Constitution. This result was not
and could not have been contemplated, and should be avoided.
20. ID.; ID.; ID.; CONFIRMATION BY THE NATIONAL ASSEMBLY CAN NOT DEPRIVE
THE ELECTORAL COMMISSION OF ITS AUTHORITY TO FIX THE TIME WITHIN WHICH
PROTESTS AGAINST THE ELECTION, RETURNS AND QUALIFICATIONS OF MEMBERS OF THE
NATIONAL ASSEMBLY SHOULD BE FILED. Resolution No. 8 of the National Assembly confirming
the election of members against whom no protests has been filed at the time of its passage on
December 3, 1936, can not be construed as a limitation upon the time for the initiation of election
contests. While there might have been good reason for the legislative practice of confirmation of
members of the Legislature at the time the power to decide election contests was still lodged in the
Legislature, confirmation alone by the Legislature cannot be construed as depriving
the Electoral Commission of the authority incidental to its constitutional power to be "the sole judge of
all contests relating to the election, returns, and qualifications of the members of the National
Assembly", to fix the time for the filing of said election protests. Confirmation by the National
Assembly of the returns of its members against whose election no protests have been filed is, to all
legal purposes, unnecessary. Confirmation of the election of any member is not required by the
Constitution before he can discharge his duties as such member. As a matter of fact, certification by
the proper provincial board of canvassers is sufficient to entitle a member-elect to a seat in the
National Assembly and to render him eligible to any office in said body (No. 1, par. 1, Rules of the
National Assembly, adopted December 6, 1935).
21. ID.; EFFECT OF CONFIRMATION UNDER THE JONES LAW. Under the practice
prevailing when the Jones Law was still in force, each House of the Philippine Legislature fixed the
time when protests against the election of any of its members should be filed. This was expressly
authorized by section 18 of the Jones Law making each House the sole judge of the election, returns
and qualifications of its members, as well as by a law (sec. 478, Act No. 3387) empowering each
House respectively to prescribe by resolution the time and manner of filing contest the election of
members of said bodies. As a matter of formality, after the time fixed by its rules for the filing of
protests had already expired, each House passed a resolution confirming or approving the returns of
such members against whose election no protest had been filed within the prescribed time. This was
interpreted as cutting off the filing of further protests against the election of those members not
theretofore contested (Amistad vs. Claravall [Isabela], Second Philippine Legislature, Record First
Period, p. 89; Urgello vs. Rama [Third District, Cebu], Sixth Philippine Legislature; Fetalvero vs.
Festin [Romblon], Sixth Philippine Legislature, Record First Period, pp. 637-640; Kintanar vs.
Aldanese [Fourth District, Cebu], Sixth Philippine Legislature, Record First Period, pp. 1121, 1122;
Aguilar vs. Corpus [Masbate], Eighth Philippine Legislature, Record First Period, vol. III, No. 56,

90

pp. 892, 893). The Constitution has expressly repealed section 18 of the Jones Law. Act No. 3387,
section 478, must be deemed to have been impliedly abrogated also, for the reason that with the
power to determine all contests relating to the election, returns and qualifications of members of the
National Assembly, is inseparably linked the authority to prescribe regulations for the exercise of that
power. There was thus no law nor constitutional provision which authorized the National Assembly to
fix, as it is alleged to have fixed on December 3, 1935, the time for the filing of contests against the
election of its members. And what the National Assembly could not do directly, it could not do by
indirection through the medium of confirmation.

DECISION

LAUREL, J p:
This is an original action instituted in this court by the petitioner, Jose A. Angara, for the
issuance of a writ of prohibition to restrain and prohibit the Electoral Commission, one of the
respondents, from taking further cognizance of the protest filed by Pedro Ynsua, another respondent,
against the election of said petitioner as member of the National Assembly for the first assembly
district of the Province of Tayabas.
The facts of this case as they appear in the petition and as admitted by the respondents are
as follows:
(1) That in the elections of September 17, 1935, the petitioner, Jose A. Angara, and the
respondents, Pedro Ynsua, Miguel Castillo and Dionisio Mayor, were candidates voted for the
position of member of the National Assembly for the first district of the Province of Tayabas;
(2) That on October 7, 1935, the provincial board of canvassers, proclaimed the petitioner as
member-elect of the National Assembly for the said district, for having received the most number of
votes;
(3) That on November 15, 1935, the petitioner took his oath of office;
(4) That on December 3, 1935, the National Assembly in session assembled, passed the
following resolution:
"[No. 8]
"RESOLUTION CONFIRMANDO LAS ACTAS DE AQUELLOS DIPUTADOS
CONTRAQUIENES NO SE HA PRESENTADO PROTESTA.
"Se resuelve: Que las actas de eleccion de los Diputados contra quienes no se
hubiere presentado debidamente una protesta antes de la adopcion de la presente
resolucion sean, como por la presente, son aprobadas y confirmadas.
"Adoptada, 3 de diciembre, 1935."
(5) That on December 8, 1935, the herein respondent Pedro Ynsua, filed before
the Electoral Commission a "Motion of Protest" against the election of the herein petitioner, Jose
A. Angara, being the only protest filed after the passage of Resolution No. 8 aforequoted, and
praying, among other-things, that said respondent be declared elected member of the National
Assembly for the first district of Tayabas, or that the election of said position be nullified;
(6) That on December 9, 1935, the Electoral Commission adopted a resolution, paragraph 6
of which provides:
"6. La Comision no considerara ninguna protesta que no se haya presentado
en o antes de este dia."

91

(7) That on December 20, 1935, the herein petitioner, Jose A. Angara, one of the
respondents in the aforesaid protest, filed before the Electoral Commission a "Motion to Dismiss the
Protest", alleging (a) that Resolution No. 8 of the National Assembly was adopted in the legitimate
exercise of its constitutional prerogative to prescribe the period during which protests against the
election of its members should be presented; (b) that the aforesaid resolution has for its object, and is
the accepted formula for, the limitation of said period; and (c) that the protest in question was filed out
of the prescribed period;
(8) That on December 27, 1935, the herein respondent, Pedro Ynsua, filed an "Answer to the
Motion of Dismissal" alleging that there is no legal or constitutional provision barring the presentation
of a protest against the election of a member of the National Assembly, after confirmation;
(9) That on December 31, 1935, the herein petitioner, Jose A. Angara, filed a "Reply" to the
aforesaid "Answer to the Motion of Dismissal";
(10) That the case being submitted for decision, the Electoral Commission promulgated a
resolution on January 23, 1936, denying herein petitioner's "Motion to Dismiss the Protest."
The application of the petitioner sets forth the following grounds for the issuance of the writ
prayed for:
(a) That the Constitution confers exclusive jurisdiction upon the Electoral Commission solely
as regards the merits of contested elections to the National Assembly;
(b) That the Constitution excludes from said jurisdiction the power to regulate the proceedings
of said election contests, which power has been reserved to the Legislative Department of the
Government or the National Assembly;
(c) That like the Supreme Court and other courts created in pursuance of the Constitution,
whose exclusive jurisdiction relates solely to deciding the merits of controversies submitted to hem for
decision and to matters involving their internal organization, the Electoral Commission can regulate its
proceedings only if the National Assembly has not availed of its primary power to so regulate such
proceedings;
(d) That Resolution No. 8 of the National Assembly is, therefore, valid and should be
respected and obeyed;
(e) That under paragraph 13 of section 1 of the Ordinance appended to the Constitution and
paragraph 6 of article 7 of the Tydings-McDuffie Law (No. 127 of the 73rd Congress of the United
States) as well as under sections 1 and 3 (should be sections 1 and 2) of article VIII of the
Constitution, the Supreme Court has jurisdiction to pass upon the fundamental question herein raised
because it involves an interpretation of the Constitution of the Philippines.
On February 25, 1936, the Solicitor-General appeared and filed an answer in behalf of the
respondent Electoral Commission interposing the following special defenses:
(a) That the Electoral Commission has been created by the Constitution as an instrumentality
of the Legislative Department invested with the jurisdiction to decide "all contests relating to the
election, returns, and qualifications of the members of the National Assembly"; that in adopting its
resolution of December 9, 1935, fixing this date as the last day for the presentation of protests against
the election of any member of the National Assembly, it acted within its jurisdiction and in the
legitimate exercise of the implied powers granted it by the Constitution to adopt the rules and
regulations essential to carry out the powers and functions conferred upon the same by the
fundamental law; that in adopting its resolution of January 23, 1936, overruling the motion of the
petitioner to dismiss the election protest in question, and declaring itself with jurisdiction to take
cognizance of said protest, it acted in the legitimate exercise of its quasi-judicial functions as an
instrumentality of the Legislative Department of the Commonwealth Government, and hence said act
is beyond the judicial cognizance or control of the Supreme Court;
(b) That the resolution of the National Assembly of December 3, 1935, confirming the election
of the members of the National Assembly against whom no protest had thus far been filed, could not
and did not deprive the Electoral Commission of its jurisdiction to take cognizance of election protests
filed within the time that might be set by its own rules;

92

(c) That the Electoral Commission is a body invested with quasi- judicial functions, created by
the Constitution as an instrumentality of the Legislative Department, and is not an "inferior tribunal, or
corporation, or board, or person" within the purview of sections 226 and 516 of the Code of Civil
Procedure, against which prohibition would lie.
The respondent Pedro Ynsua, in his turn, appeared and filed an answer in his own behalf on
March 2, 1936, setting forth following as his special defense:
(a) That at the time of the approval of the rules of the Electoral Commission on December 9,
1935, there was no existing Law fixing the period within which protests against the election of
members of the National Assembly, the Electoral Commission was exercising a power impliedly
conferred upon it by the Constitution, by reason of its quasi-judicial attributes;
(b) That said respondent presented his motion of protest before the Electoral Commission on
December 9, 1935, the last day fixed by paragraph 6 of the rules of the said Electoral Commission;
(c) That therefore the Electoral Commission acquired jurisdiction over the protest filed by said
respondent and over the parties thereto, and the resolution of the Electoral Commission of January
23, 1936, denying petitioner's motion to dismiss said protest was an act within the jurisdiction of the
said commission, and is not reviewable by means of a writ of prohibition;
(d) That neither the law nor the Constitution requires confirmation by the National Assembly
of the election of its members, and that such confirmation does not operate to limit the period within
which protests should be filed as to deprive the Electoral Commission of jurisdiction over protests
filed subsequent thereto;
(e) That the Electoral Commission is an independent entity created by the Constitution,
endowed with quasi-judicial functions, whose decisions are final and unappeallable;
(f) That the Electoral Commission, as a constitutional creation, is not an inferior tribunal,
corporation, board or person, within the terms of sections 226 and 516 of the Code of Civil Procedure;
and that neither under the provisions of sections 1 and 2 of Article II (should be article VIII) of the
Constitution and paragraph 13 of section 1 of the Ordinance appended thereto could it be subject in
the exercise of its quasi-judicial functions to a writ of prohibition from the Supreme Court;
(g) That paragraph 6 of article 7 of the Tydings-McDuffie Law (No. 127 of the 73rd Congress
of the United States) has no application to the case at bar.
The case was argued before us on March 13, 1936. Before it was submitted for decision, the
petitioner prayed for the issuance of a preliminary writ of injunction against the
respondent Electoral Commission which petition was denied "without passing upon the merits of the
case" by resolution of this court of March 21, 1936.
There was no appearance for the other respondents. The issues to be decided in the case at
bar may be reduced to the following two principal propositions:
1. Has the Supreme Court jurisdiction over the Electoral Commission and the subject matter
of the controversy upon the foregoing related facts, and in the affirmative,
2. Has the said Electoral Commission acted without or in excess of its jurisdiction in
assuming to take cognizance of the protest filed against the election of the herein petitioner
notwithstanding the previous confirmation of such election by resolution of the National Assembly?
We could perhaps dispose of this case by passing directly upon the merits of the controversy.
However, the question of jurisdiction having been presented, we do not feel justified in evading the
issue. Being a case prim impressionis, it would hardly be consistent with our sense of duty to
overlook the broader aspect of the question and leave it undecided. Neither would we be doing justice
to the industry and vehemence of counsel were we not to pass upon the question of jurisdiction
squarely presented to our consideration.
The separation of powers is a fundamental principle in our system of government. It obtains
not through express provision but by actual division in our Constitution. Each department of the
government has exclusive cognizance of matters within its jurisdiction, and is supreme within its own
sphere. But it does not follow from the fact that the three powers are to be kept separate and distinct

93

that the Constitution intended them to be absolutely unrestrained and independent of each other. The
Constitution has provided for an elaborate system of checks and balances to secure coordination in
the workings of the various departments of the government. For example, the Chief Executive under
our Constitution is so far made a check on the legislative power that this assent is required in the
enactment of laws. This, however, is subject to the further check that a bill may become a law
notwithstanding the refusal of the President to approve it, by a vote of two-thirds or three-fourths, as
the case may be, of the National Assembly. The President has also the right to convene the Assembly
in special session whenever he chooses. On the other hand, the National Assembly operates as a
check on the Executive in the sense that its consent through its Commission on Appointments is
necessary in the appointment of certain officers; and the concurrence of a majority of all its members
is essential to the conclusion of treaties. Furthermore, in its power to determine what courts other
than the Supreme Court shall be established, to define their jurisdiction and to appropriate funds for
their support, the National Assembly controls the judicial department to a certain extent. The
Assembly also exercises the judicial power of trying impeachments. And the judiciary in turn, with the
Supreme Court as the final arbiter, effectively checks the other departments in the exercise of its
power to determine the law, and hence to declare executive and legislative acts void if violative of the
Constitution.
But 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. In times of social
disquietude or political excitement, the great landmarks of the Constitution are apt to be forgotten or
marred, if not entirely obliterated. In cases of conflict, the judicial department is the only constitutional
organ which can be called upon to determine the proper allocation of powers between the several
departments and among the integral or constituent units thereof.
As any human production, our Constitution is of course lacking perfection and perfectibility,
but as much as it was within the power of our people, acting through their delegates to so provide,
that instrument which is the expression of their sovereignty however limited, has established a
republican government intended to operate and function as a harmonious whole, under a system of
checks and balances, and subject to specific limitations and restrictions provided in the said
instrument. The Constitution sets forth in no uncertain language the restrictions and limitations upon
governmental powers and agencies. If these restrictions and limitations are transcended it would be
inconceivable if the Constitution had not provided for a mechanism by which to direct the course of
government along constitutional channels, for then the distribution of powers would be mere verbiage,
the bill of rights mere expressions of sentiment, and the principles of good government mere political
apothegms. Certainly, the limitations and restrictions embodied in our Constitution are real as they
should be in any living constitution. In the United States where no express constitutional grant is
found in their constitution, the possession of this moderating power of the courts, not to speak of its
historical origin and development there, has been set at rest by popular acquiescence for a period of
more than one and a half centuries. In our case, this moderating power is granted, if not expressly, by
clear implication from section 2 of article VIII of our Constitution.
The Constitution is a definition of the powers of government. Who is to determine the nature,
scope and extent of such powers? The Constitution itself has provided for the instrumentality of the
judiciary as the rational way. And when the judiciary mediates to allocate constitutional boundaries, it
does not assert any superiority over the other departments; it does not in reality nullify or invalidate an
act of the legislature, but only asserts the solemn and sacred obligation assigned to it by the
Constitution to determine conflicting claims of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument secures and guarantees to them. This
is in truth all that is involved in what is termed "judicial supremacy" which properly is the power of
judicial review under the Constitution. Even then, this power of judicial review is limited to actual
cases and controversies to be exercised after full opportunity of argument by the parties, and limited
further to the constitutional question raised or the very lis mota presented. Any attempt at abstraction
could only lead to dialectics and barren legal questions and to sterile conclusions of wisdom, justice

94

or expediency of legislation. More than that, courts accord the presumption of constitutionality to
legislative enactments, not only because the legislature is presumed to abide by the Constitution but
also because the judiciary in the determination of actual cases and controversies must reflect the
wisdom and justice of the people as expressed through their representatives in the executive and
legislative departments of the government.
But much as we might postulate on the internal checks of power provided in our Constitution,
it ought not the less to be remembered that, in the language of James Madison, the system itself is
not "the chief palladium of constitutional liberty . . . the people who are authors of this blessing must
also be its guardians . . . their eyes must be ever ready to mark, their voice to pronounce . . .
aggression on the authority of their constitution." In the last and ultimate analysis, then, must the
success of our government in the unfolding years to come be tested in the crucible of Filipino minds
and hearts than in consultation rooms and court chambers.
In the case at bar, the National Assembly has by resolution (No. 8) of December 3, 1935,
confirmed the election of the herein petitioner to the said body. On the other hand,
the Electoral Commission has by resolution adopted on December 9, 1935, fixed said date as the last
day for the filing of protests against the election, returns and qualifications of members of the National
Assembly, notwithstanding the previous confirmation made by the National Assembly as aforesaid. If,
as contended by the petitioner, the resolution of the National Assembly has the effect of cutting off the
power of the Electoral Commission to entertain protests against the election, returns and
qualifications of members of the National Assembly, submitted after December 3, 1935, then the
resolution of the Electoral Commission of December 9, 1935, is mere surplusage and had no effect.
But, if as contended by the respondents, the Electoral Commission has the sole power of regulating
its proceedings to the exclusion of the National Assembly, then the resolution of December 9, 1935,
by which the Electoral Commission fixed said date as the last day for filing protests against the
election, returns and qualifications of members of the National Assembly, should be upheld.
Here is then presented an actual controversy involving as it does a conflict of a grave
constitutional nature between the National Assembly on the one hand, and
the Electoral Commission on the other. From the very nature of the republican government
established in our country in the light of American experience and of our own, upon the judicial
department is thrown the solemn and inescapable obligation of interpreting the Constitution and
defining constitutional boundaries. The Electoral Commission, as we shall have occasion to refer
hereafter, is a constitutional organ, created for a specific purpose, namely to determine all contests
relating to the election, returns and qualifications of the members of the National Assembly. Although
the Electoral Commission may not be interfered with, when the while acting within the limits of its
authority, it does not follow that it is beyond the reach of the constitutional mechanism adopted by the
people and that it is not subject to constitutional restrictions. The Electoral Commission is not a
separate department of the government, and even if it were, conflicting claims of authority under the
fundamental law between departmental powers and agencies of the government are necessarily
determined by the judiciary in justiciable and appropriate cases. Discarding the English type and
other European types of constitutional government, the framers of our Constitution adopted the
American type where the written constitution is interpreted and given effect by the judicial department.
In some countries which have declined to follow the American example, provisions have been
inserted in their constitutions prohibiting the courts from exercising the power to interpret the
fundamental law. This is taken as a recognition of what otherwise would be the rule that in the
absence of direct prohibition courts are bound to assume what is logically their function. For instance,
the Constitution of Poland of 1921, expressly provides that courts shall have no power to examine the
validity of statutes (art. 81, chap. IV). The former Austrian Constitution contained a similar declaration.
In countries whose constitutions are silent in this respect, courts have assumed this power. This is
true in Norway, Greece, Australia and South Africa. Whereas, in Czechoslovakia (arts. 2 and 3,
Preliminary Law to Constitutional Charter of the Czechoslovak Republic, February 29, 1920) and
Spain (arts. 121-123, Title IX, Constitution of the Republic of 1931) especial constitutional courts are
established to pass upon the validity of ordinary laws. In our case, the nature of the present
controversy shows the necessity of a final constitutional arbiter to determine the conflict of authority
between two agencies created by the Constitution. Were we to decline to take cognizance of the
controversy, who will determine the conflict? And if the conflict were left undecided and undetermined,

95

would not a void be thus created in our constitutional system which may in the long run prove
destructive of the entire framework? To ask these questions is to answer them. Natura vacuum
abhorret, so must we avoid exhaustion in our constitutional system. Upon principle, reason and
authority, we are clearly of the opinion that upon the admitted facts of the present case, this court has
jurisdiction over the Electoral Commission and the subject matter of the present controversy for the
purpose of determining the character, scope and extent of the constitutional grant to
the Electoral Commission as "the sole judge of all contests relating to the election, returns and
qualifications of the members of the National Assembly."
Having disposed of the question of jurisdiction, we shall now proceed to pass upon the
second proposition and determine whether the Electoral Commission has acted without or in excess
of its jurisdiction in adopting its resolution of December 9, 1935, and in assuming to take cognizance
of the protest filed against the election of the herein petitioner notwithstanding the previous
confirmation thereof by the National Assembly on December 3, 1935. As able counsel for the
petitioner has pointed out, the issue hinges on the interpretation of section 4 of Article VI of the
Constitution which provides:
"SEC. 4. There shall be an Electoral Commission composed of three Justices of the Supreme
Court designated by the Chief Justice, and of six Members chosen by the National Assembly, three of
whom shall be nominated by the party having the largest number of votes, and three by the party
having the second largest number of votes herein. The senior Justice in the Commission shall be its
Chairman. The Electoral Commission shall be the sole judge of all contests relating to the election,
returns and qualifications of the members of the National Assembly." It is imperative, therefore, that
we delve into the origin and history of this constitutional provision and inquire into the intention of its
framers and the people who adopted it so that we may properly appreciate its full meaning, import
and significance.
The original provision regarding this subject in the Act of Congress of July 1, 1902 (sec. 7,
par. 5) laying down the rule that "the assembly shall be the judge of the elections, returns, and
qualifications of its members", was taken from clause 1 of section 5, Article I of the Constitution of the
United States providing that "Each House shall be the Judge of the Elections, Returns, and
Qualifications of its own Members, . . .." The Act of Congress of August 29, 1916 (sec. 18, par. 1)
modified this provision by the insertion of the word "sole" as follows: "That the Senate and House of
Representatives, respectively, shall be the sole judges of the elections, returns, and qualifications of
their elective members, . . ." apparently in order to emphasize the exclusive character of the
jurisdiction conferred upon each House of the Legislature over the particular cases therein specified.
This court has had occasion to characterize this grant of power to the Philippine Senate and House of
Representatives, respectively, as "full, clear and complete" (Veloso vs. Boards of Canvassers of Leyte
and Samar [1919], 39 Phil., 886, 888.).
The first step towards the creation of an independent tribunal for the purpose of deciding
contested elections to the legislature was taken by the sub-committee of five appointed by the
Committee on Constitutional Guarantees of the Constitutional Convention, which sub- committee
submitted a report on August 30, 1934, recommending the creation of a Tribunal of Constitutional
Security empowered to hear protests not only against the election of members of the legislature but
also against the election of executive officers for whose election the vote of the whole nation is
required, as well as to initiate impeachment proceedings against specified executive and judicial
officers. For the purpose of hearing legislative protests, the tribunal was to be composed of three
justices designated by the Supreme Court and six members of the house of the legislature to which
the contest corresponds, three members to be designated by the majority party and three by the
minority, to be presided over by the Senior Justice unless the Chief Justice is also a member in which
case the latter shall preside. The foregoing proposal was submitted by the Committee on
Constitutional Guarantees to the Convention on September 15, 1934, with slight modifications
consisting in the reduction of the legislative representation to four members, that is, two senators to
be designated one each from the two major parties in the Senate and two representatives to be
designated one each from the two major parties in the House of Representatives, and in awarding

96

representation to the executive department in the persons of two representatives to be designated by

the President.
Meanwhile, the Committee on Legislative Power was also preparing its report. As submitted
to the Convention on September 24, 1934, subsection 5, section 5, of the proposed Article on the
Legislative Department, reads as follows:
"The elections, returns and qualifications of the members of either House and
all cases contesting the election of any of their members shall be judged by
an Electoral Commission, constituted, as to each House, by three members elected by
the members of the party having the largest number of votes therein, three elected by
the members of the party having the second largest number of votes, and as to its
Chairman, one Justice of the Supreme Court designated by the Chief Justice."
The idea of creating a Tribunal of Constitutional Security with comprehensive jurisdiction as
proposed by the Committee on Constitutional Guarantees which was probably inspired by the
Spanish plan (art. 121, Constitution of the Spanish Republic of 1931), was soon abandoned in favor
of the proposition of the Committee on Legislative Power to create a similar body with reduced
powers and with specific and limited jurisdiction, to be designated as an Electoral Commission. The
Sponsorship Committee modified the proposal of the Committee on Legislative Power with respect to
the composition of the Electoral Commission and made further changes in phraseology to suit the
project of adopting a unicameral instead of a bicameral legislature. The draft as finally submitted to
the Convention on October 26, 1934, reads as follows:
"(6) The elections, returns and qualifications of the Members of the National
Assembly and all cases contesting the election of any of its Members shall be judged
by an Electoral Commission, composed of three members elected by the party having
the largest number of votes in the National Assembly, three elected by the members of
the party having the second largest number of votes, and three justices of the Supreme
Court designated by the Chief Justice, the Commission to be presided over by one of
said justices."
During the discussion of the amendment introduced by Delegates Labrador, Abordo, and
others, proposing to strike out the whole subsection of the foregoing draft and inserting in lieu thereof
the following: "The National Assembly shall be the sole and exclusive judge of the elections, returns,
and qualifications of the Members", the following illuminating remarks were made on the floor of the
Convention in its session of December 4, 1934, as to the scope of the said draft:
xxx xxx xxx
"Mr. VENTURA. Mr. President, we have a doubt here as to the scope of the meaning of
the first four lines, paragraph 6, page 11 of the draft, reading: 'The elections,
returns and qualifications of the Members of the National Assembly and all
cases contesting the election of any of its Members shall be judged by
an Electoral Commission, . . ..' I should like to ask from the gentleman from
Capiz whether the election and qualification of the member whose election is
not contested shall also be judged by the Electoral Commission.
"Mr. ROXAS. If there is no question about the election of the members, there is nothing
to be judged; that is why the word 'judge' is used to indicate a controversy. If
there is no question about the election of a member, there is nothing to be
submitted to the Electoral Commission and there is nothing to be determined.
"Mr. VENTURA. But does that carry the idea also that the Electoral Commission shall
confirm also the election of those who election is not contested?.
"Mr. ROXAS. There is no need of confirmation. As the gentleman knows, the action of
the House of Representatives confirming the election of its members is just a
matter of the rules of the assembly. It is not constitutional. It is not necessary.
After a man files his credentials that be has been elected, that is sufficient,
unless his election is contested.

97

"Mr. VENTURA. But I do not believe that that is sufficient, as we have observed that for
purposes of the auditor, in the matter of election of a member to a legislative
body, because he will not authorize his pay.
"Mr. ROXAS. Well, what is the case with regards to the municipal president who is
elected? What happens with regards to the councilors of a municipality? Does
anybody confirm their election? The municipal council does this: it makes a
canvass and proclaims-in this case the municipal council proclaims who has
been elected, and it ends there, unless there is a contest. It is the same case;
there is no need on the part of the Electoral Commission unless there is a
contest. The first clause refers to the case referred to by the gentleman from
Cavite where one person tries to be elected in place of another who was
declared elected. For example, in a case when the residence of the man who
has been elected is in question, or in case the citizenship of the man who has
been elected is in question.
"However, if the assembly desires to annul the power of the commission, it may
do so by certain maneuvers upon its first meeting when the returns are submitted to the
assembly. The purpose is to give to the Electoral Commission all the powers exercised
by the assembly referring to the elections, returns and qualifications of the members.
When there is no contest, there is nothing to be judged.
"Mr. VENTURA. Then it should be eliminated.
"Mr. ROXAS. But that is a different matter, I think Mr. Delegate.
"Mr. CINCO. Mr. President, I have a similar question as that propounded by the
gentleman from Ilocos Norte when I arose a while ago. However I want to ask
more questions from the delegate from Capiz. This paragraph 6 on page 11 of
the draft cites cases contesting the election as separate from the first part of
the section which refers to elections, returns and qualifications.
"Mr. ROXAS. That is merely for the sake of clarity. In fact the cases of contested
elections are already included in the phrase 'the elections, returns and
qualifications.' This phrase 'and contested elections' was inserted merely for
the sake of clarity.
"Mr. CINCO. Under this paragraph, may not the Electoral Commission, at its own
instance, refuse to confirm the election of the members?.
"Mr. ROXAS. I do not think so, unless there is a protest.
"Mr. LABRADOR. Mr. President, will the gentleman yield? .
"THE PRESIDENT. The gentleman may yield, if he so desires.
"Mr. ROXAS. Willingly.
"Mr. LABRADOR. Does not the gentleman from Capiz believe that unless this power is
granted to the assembly, the assembly on its own motion does not have the
right to contest the election and qualification of its members?
"Mr. ROXAS. I have no doubt but that the gentleman is right. If this draft is retained as it
is, even if two-thirds of the assembly believe that a member has not the
qualifications provided by law, they cannot remove him for that reason.
Mr. LABRADOR. So that the right to remove shall only be retained by
the Electoral Commission.
"Mr. ROXAS. By the assembly for misconduct.
"Mr. LABRADOR. I mean with respect to the qualification of the members.
"Mr. ROXAS. Yes, by the Electoral Commission.

98

"Mr. LABRADOR. So that under this draft, no member of the assembly has the right to
question the eligibility of its members?.
"Mr. ROXAS. Before a member can question the eligibility, he must go to
the Electoral Commission and make the question before
the Electoral Commission.
"Mr. LABRADOR. So that the Electoral Commission shall decide whether the election is
contested or not contested.
"Mr. ROXAS. Yes, sir: that is the purpose.
"Mr. PELAYO. Mr. President, I would like to be informed if
the Electoral Commission has power and authority to pass upon the
qualifications of the members of the National Assembly even though that
question has not been raised.
"Mr. ROXAS. I have just said that they have no power, because they can only judge."
In the same session, the first clause of the aforesaid draft reading "The election, returns and
qualifications of the members of the National Assembly and" was eliminated by the Sponsorship
Committee in response to an amendment introduced by Delegates Francisco, Ventura, Vinzons,
Rafols, Lim, Mumar and others. In explaining the difference between the original draft and the draft as
amended, Delegate Roxas speaking for the Sponsorship Committee said:
xxx xxx xxx
"Sr. ROXAS. La diferencia, seor Presidente, consiste solamente en obviar la objecion
apuntada por varios Delegados al efecto to que la primera clausula del draft
que dice: 'The election, returns and qualifications of the members of the
National Assembly' parece que da a la Comision Electoral la facultad de
determinar tambin la eleccion de los miembros que no han sido protestados y
para obviar esa dificultad, creemos que la enmienda tiene razon en ese
sentido, si enmendamos el draft, de tal modo que se lea como sigue: 'All cases
contesting the election', de modo que los jueces de la Comision Electoral se
limitaran solamente a los casos en que haya habido protesta contra las actas."
Before the amendment of Delegate Labrador was voted upon the following
interpellation also took place:
"El Sr. CONEJERO. Antes de votarse la enmienda, quisiera pedir informacion del
Subcomit de Siete.
"El Sr. PRESIDENTE. Qu dice el Comit?.
"El Sr. ROXAS. Con mucho gusto.
"El Sr. CONEJERO. Tal como esta el draft, dando tres miembros a la mayoria, y otros
tres a la minoria y tres a la Corte Suprema, no cre Su Seoria que esto
equivale practicamente a dejar el asunto a los miembros del Tribunal
Supremo?.
"El Sr. ROXAS. Si y no. Cremos que si el tribunal o la Comision esta constituido en esa
forma, tanto los miembros de la mayoria como los de la minoria asi como los
miembros de la Corte Suprema consideraran la cuestion sobre la base de sus
mritos, sabiendo que el partidismo no es suficiente para dar el triunfo.
"El Sr. CONEJERO. Cree Su Seoria que en un caso como ese, podriamos hacer
que tanto los de la mayoria como los de la minoria prescindieran del
partidismo?.
"El Sr. ROXAS. Creo que si, porque el partidismo no les daria el triunfo."
xxx xxx xxx

99

The amendment introduced by Delegates Labrador, Abordo and others seeking to restore the
power to decide contests relating to the election, returns and qualifications of members of the
National Assembly to the National Assembly itself, was defeated by a vote of ninety-eight (98) against
fifty-six (56).
In the same session of December 4, 1934, Delegate Cruz (C.) sought to amend the draft by
reducing the representation of the minority party and the Supreme Court in
the Electoral Commission to two members each, so as to accord more representation to the majority
party. The Convention rejected this amendment by a vote of seventy-six (76) against forty-six (46),
thus maintaining the non-partisan character of the commission.
As approved on January 31, 1935, the draft was made to read as follows:
"(6) All cases contesting the elections, returns and qualifications of the
Members of the National Assembly shall be judged by an Electoral Commission,
composed of three members elected by the party having the largest number of votes in
the National Assembly, three elected by the members of the party having the second
largest number of votes, and three justices of the Supreme Court designated by the
Chief Justice, the Commission to be presided over by one of said justices."
The Style Committee to which the draft was submitted revised it as follows:
"SEC. 4. There shall be an Electoral Commission composed of three Justices
of the Supreme Court designated by the Chief Justice, and of six Members chosen by
the National Assembly, three of whom shall be nominated by the party having the
largest number of votes, and three by the party having the second largest number of
votes therein. The senior Justice in the Commission shall be its chairman.
The Electoral Commission shall be the sole judge of the election, returns, and
qualifications of the Members of the National Assembly."
When the foregoing draft was submitted for approval on February 8, 1935, the Style
Committee, through President Recto, to effectuate the original intention of the Convention, agreed to
insert the phrase "All contests relating to" between the phrase "judge of" and the words "the election",
which was accordingly accepted by the Convention.
The transfer of the power of determining the election, returns and qualifications of the
members of the legislature long lodged in the legislative body, to an independent, impartial and nonpartisan tribunal, is by no means a mere experiment in the science of government.
Cushing, in his Law and Practice of Legislative Assemblies (ninth edition, chapter VI, pages
57, 58), gives a vivid account of the "scandalously notorious" canvassing of votes by political parties
in the disposition of contests by the House of Commons in the following passages which are partly
quoted by the petitioner in his printed memorandum of March 14, 1936:
"153. From the time when the commons established their right to be the
exclusive judges of the elections, returns, and qualifications of their members, until the
year 1770, two modes of proceeding prevailed, in the determination of controverted
elections, and rights of membership. One of the standing committee appointed at the
commencement of each session, was denominated the committee of privileges and
elections, whose function was to hear and investigate all questions of this description
which might be referred to them, and to report their proceedings, with their opinion
thereupon, to the house, from time to time. When an election petition was referred to
this committee, they heard the parties and their witnesses and other evidence, and
made a report of all the evidence, together with their opinion thereupon, in the form of
resolutions, which were considered and agreed or disagreed to by the house. The other
mode of proceeding was by a hearing at the bar of the house itself. When this court
was adopted, the case was heard and decided by the house, in substantially the same
manner as by a committee. The committee of privileges and elections although a select
committee was usually what is called an open one; that is to say, in order to constitute
the committee, a quorum of the members named was required to be present, but all the
members of the house were at liberty to attend the committee and vote if they pleased.

100

"154. With the growth of political parties in parliament questions relating to the
right of membership gradually assumed a political character; so that for many years
previous to the year 1770, controverted elections had been tried and determined by the
house of commons, as mere party questions, upon which the strength of contending
factions might be tested. Thus, for example, in 1741, Sir Robert Walpole, after repeated
attacks upon his government, resigned his office in consequence of an adverse vote
upon the Chippenham election. Mr. Hatsell remarks, of the trial of election, cases, as
conducted under this system, that 'Every principle of decency and justice were
notoriously and openly prostituted, from whence the younger part of the house were
insensibly, but too successfully, induced to adopt the same licentious conduct in more
serious matters, and in questions of higher importance to the public welfare.' Mr.
George Grenville, a distinguished member of the house of commons, undertook to
propose a remedy for the evil, and, on the 7th of March 1770, obtained the unanimous
leave of the house to bring in a bill, 'to regulate the trial of controverted elections, or
returns of members to serve in parliament.' In his speech to explain his plan, on the
motion for leave, Mr. Grenville alluded to the existing practice in the following terms:
'Instead of trusting to the merits of their respective causes, the principal dependence of
both parties is their private interest among us; and it is scandalously notorious that we
are an earnestly canvassed to attend in favor of the opposite sides, as if we were
wholly self-elective, and not bound to act by the principles of justice, but by the
discretionary impulse of our own inclinations; nay, it is well known, that in every
contested election, many members of this house, who are ultimately to judge in a kind
of judicial capacity between the competitors, enlist themselves as parties in the
contention, and take upon themselves the partial management of the very business,
upon which they should determine with the strictest impartiality.'
"155. It was to put an end to the practices thus described, that Mr. Grenville
brought in a bill which met with the approbation of both houses, and received the royal
assent on the 12th of April, 1770. This was the celebrated law since known by the
name of the Grenville Act; of which Mr. Hatsell declares, that it 'was one of the noblest
works, for the honor of the house of commons, and the security of the constitution, that
was ever devised by any minister or statesman.' It is probable, that the magnitude of
the evil, or the apparent success of the remedy, may have led many of the
contemporaries of the measure to the information of a judgment, which was not
acquiesced in by some of the leading statesmen of the day, and has not been entirely
confirmed by subsequent experience. The bill was objected to by Lord North, Mr. De
Grey, afterwards chief justice of the common pleas, Mr. Ellis, Mr. Dyson, who had been
clerk of the house, and Mr. Charles James Fox, chiefly on the ground, that the
introduction of the new system was an essential alteration of the constitution of
parliament, and a total abrogation of one of the most important rights and jurisdictions
of the house of commons."
As early as 1868, the House of Commons in England solved the problem of insuring the nonpartisan settlement of the controverted elections of its members by abdicating its prerogative to two
judges of the King's Bench of the High Court of Justice selected from a rota in accordance with rules
of court made for the purpose. Having proved successful, the practice has become imbedded in
English jurisprudence (Parliamentary Elections Act, 1868 [31 & 32 Vict. c. 125] as amended by
Parliamentary Elections and Corrupt Practices Act, 1879 [42 & 43 Vict. c. 75], s. 2; Corrupt and Illegal
Practices Prevention Act, 1883 [46 & 47 Vict. c. 51], s. 70; Expiring Laws Continuance Act, 1911 [1 &
2 Geo. 5, c. 22]; Laws of England, vol. XII, p. 408, vol. XXI, p. 787). In the Dominion of Canada,
election contests which were originally heard by the Committee of the House of Commons, are since
1922 tried in the courts. Likewise, in the Commonwealth of Australia, election contests which were
originally determined by each house, are since 1922 tried in the High Court. In Hungary, the organic
law provides that all protests against the election of members of the Upper House of the Diet are to
be resolved by the Supreme Administrative Court (Law 22 of 1916, chap. 2, art. 37, par. 6). The
Constitution of Poland of March 17, 1921 (art. 19) and the Constitution of the Free City of Danzig of

101

May 13, 1922 (art. 10) vest the authority to decide contested elections to the Diet or National
Assembly in the Supreme Court. For the purpose of deciding legislative contests, the Constitution of
the German Reich of July 1, 1919 (art. 31), the Constitution of the Czechoslovak Republic of
February 29, 1920 (art. 19) and the Constitution of the Grecian Republic of June 2, 1927 (art. 43), all
provide for an Electoral Commission.
The creation of an Electoral Commission whose membership is recruited both from the
legislature and the judiciary is by no means unknown in the United States. In the presidential
elections of 1876 there was a dispute as to the number of electoral votes received by each of the two
opposing candidates. As the Constitution made no adequate provision for such a contingency,
Congress passed a law on January 29, 1877 (United States Statutes at Large, vol. 19, chap. 37, pp.
227-229), creating a special Electoral Commission composed of five members elected by the Senate,
five members elected by the House of Representatives, and five justices of the Supreme Court, the
fifth justice to be selected by the four designated in the Act. The decision of the commission was to be
binding unless rejected by the two houses voting separately. Although there is not much of a moral
lesson to be derived from the experience of America in this regard, judging from the observations of
Justice Field, who was a member of that body on the part of the Supreme Court (Countryman, the
Supreme Court of the United States and its Appellate Power under the Constitution [Albany, 1913]Relentless Partisanship of Electoral Commission, p. 25 et seq.), the experiment has at least abiding
historical interest.
The members of the Constitutional Convention who framed our fundamental law were in their
majority men mature in years and experience. To be sure, many of them were familiar with the history
and political development of other countries of the world. When, therefore, they deemed it wise to
create an Electoral Commission as a constitutional organ and invested it with the exclusive function of
passing upon and determining the election, returns and qualifications of the members of the National
Assembly, they must have done so not only in the light of their own experience but also having in view
the experience of other enlightened peoples of the world. The creation of
the Electoral Commission was designed to remedy certain evils of which the framers of our
Constitution were cognizant. Notwithstanding the vigorous opposition of some members of the
Convention to its creation, the plan, as hereinabove stated, was approved by that body by a vote of
98 against 58. All that can be said now is that, upon the approval of the Constitution, the creation of
the Electoral Commission is the expression of the wisdom and "ultimate justice of the people".
(Abraham Lincoln, First Inaugural Address, March 4, 1861.).
From the deliberations of our Constitutional Convention it is evident that the purpose was to
transfer in its totality all the powers previously exercised by the legislature in matters pertaining to
contested elections of its members, to an independent and impartial tribunal. It was not so much the
knowledge and appreciation of contemporary constitutional precedents, however, as the long-felt
need of determining legislative contests devoid of partisan considerations which prompted the people,
acting through their delegates to the Convention, to provide for this body known as
the Electoral Commission. With this end in view, a composite body in which both the majority and
minority parties are equally represented to off-set partisan influence in its deliberations was created,
and further endowed with judicial temper by including in its membership three justices of the Supreme
Court.
The Electoral Commission is a constitutional creation, invested with the necessary authority
in the performance and execution of the limited and specific function assigned to it by the
Constitution. Although it is not a power in our tripartite scheme of government, it is, to all intents and
purposes, when acting within the limits of its authority, an independent organ. It is, to be sure, closer
to the legislative department than to any other. The location of the provision (section 4) creating
the Electoral Commission under Article VI entitled "Legislative Department" of our Constitution is very
indicative. Its composition is also significant in that it is constituted by a majority of members of the
legislature. But it is a body separate from and independent of the legislature.
The grant of power to the Electoral Commission to judge all contests relating to the election,
returns and qualifications of members of the National Assembly, is intended to be as complete and
unimpaired as if it had remained originally in the legislature. The express lodging of that power in
the Electoral Commission is an implied denial of the exercise of that power by the National Assembly.

102

And this is as effective a restriction upon the legislative power as an express prohibition in the
Constitution (Ex parte Lewis, 45 Tex. Crim. Rep., 1; State vs. Whisman, 36 S. D., 260; L. R. A.,
1917B, 1). If we concede the power claimed in behalf of the National Assembly that said body may
regulate the proceedings of the Electoral Commission and cut off the power of the commission to lay
down the period within which protests should be filed, the grant of power to the commission would be
ineffective. The Electoral Commission in such case would be invested with the power to determine
contested cases involving the election, returns and qualifications of the members of the National
Assembly but subject at all times to the regulative power of the National Assembly. Not only would the
purpose of the framers of our Constitution of totally transferring this authority from the legislative body
be frustrated, but a dual authority would be created with the resultant inevitable clash of powers from
time to time. A sad spectacle would then be presented of the Electoral Commission retaining the bare
authority of taking cognizance of cases referred to, but in reality without the necessary means to
render that authority effective whenever and wherever the National Assembly has chosen to act, a
situation worse than that intended to be remedied by the framers of our Constitution. The power to
regulate on the part of the National Assembly in procedural matters will inevitably lead to the ultimate
control by the Assembly of the entire proceedings of the Electoral Commission, and, by indirection, to
the entire abrogation of the constitutional grant. It is obvious that this result should not be permitted.
We are not insensible to the impassioned argument of the learned counsel for the petitioner
regarding the importance and necessity of respecting the dignity and independence of the National
Assembly as a coordinate department of the government and of according validity to its acts, to avoid
what he characterized would be practically an unlimited power of the commission in the admission of
protests against members of the National Assembly. But as we have pointed out hereinabove, the
creation of the Electoral Commission carried with it ex necesitate rei the power regulative in character
to limit the time within which protests intrusted to its cognizance should be filed. It is a settled rule of
construction that where a general power is conferred or duty enjoined, every particular power
necessary for the exercise of the one or the performance of the other is also conferred (Cooley,
Constitutional Limitations, eighth ed., vol. I, pp. 138, 139). In the absence of any further constitutional
provision relating to the procedure to be followed in filing protests before the Electoral Commission,
therefore, the incidental power to promulgate such rules necessary for the proper exercise of its
exclusive power to judge all contests relating to the election, returns and qualifications of members of
the National Assembly, must be deemed by necessary implication to have been lodged also in
the Electoral Commission.
It is, indeed, possible that, as suggested by counsel for the petitioner,
the Electoral Commission may abuse its regulative authority by admitting protests beyond any
reasonable time, to the disturbance of the tranquillity and peace of mind of the members of the
National Assembly. But the possibility of abuse is not an argument against the concession of the
power as there is no power that is not susceptible of abuse. In the second place, if any mistake has
been committed in the creation of an Electoral Commission and in investing it with exclusive
jurisdiction in all cases relating to the election, returns, and qualifications of members of the National
Assembly, the remedy is political, not judicial, and must be sought through the ordinary processes of
democracy. All the possible abuses of the government are not intended to be corrected by the
judiciary. We believe, however, that the people in creating the ElectoralCommission reposed as much
confidence in this body in the exclusive determination of the specified cases assigned to it, as they
have given to the Supreme Court in the proper cases entrusted to it for decision. All the agencies of
the government were designed by the Constitution to achieve specific purposes, and each
constitutional organ working within its own particular sphere of discretionary action must be deemed
to be animated with the same zealand honesty in accomplishing the great ends for which they were
created by the sovereign will. That the actuations of these constitutional agencies might leave much
to be desired in given instances, is inherent in the imperfections of human institutions. In the third
place, from the fact that the Electoral Commission may not be interfered with in the exercise of its
legitimate power, it does not follow that its acts, however illegal or unconstitutional, may not be
challenged in appropriate cases over which the courts may exercise jurisdiction.

103

But independently of the legal and constitutional aspects of the present case, there are
considerations of equitable character that should not be overlooked in the appreciation of the intrinsic
merits of the controversy. The Commonwealth Government was inaugurated on November 15, 1935,
on which date the Constitution, except as to the provisions mentioned in section 6 of Article XV
thereof, went into effect. The new National Assembly convened on November 25th of that year, and
the resolution confirming the election of the petitioner, Jose A. Angara, was approved by that body on
December 3, 11935. The protest by the herein respondent Pedro Ynsua against the election of the
petitioner was filed on December 9 of the same year. The pleadings do not show when
the Electoral Commission was formally organized but it does appear that on December 9, 1935,
the Electoral Commission met for the first time and approved a resolution fixing said date as the last
day for the filing of election protests. When, therefore, the National Assembly passed its resolution of
December 3, 1935, confirming the election of the petitioner to the National Assembly,
the Electoral Commission had not yet met; neither does it appear that said body has actually been
organized. As a matter of fact, according to certified copies of official records on file in the archives
division of the National Assembly attached to the record of this case upon the petition of the
petitioner, the three justices of the Supreme Court and the six members of the National Assembly
constituting the Electoral Commission were respectively designated only on December 4 and 6, 1935.
If Resolution No. 8 of the National Assembly confirming non-protested elections of members of the
National Assembly had the effect of limiting or tolling the time for the presentation of protests, the
result would be that the National Assembly on the hypothesis that it still retained the incidental
power of regulation in such cases had already barred the presentation of protests before
the Electoral Commission had had time to organize itself and deliberate on the mode and method to
be followed in a matter entrusted to is exclusive jurisdiction by the Constitution. This result was not
and could not have been contemplated,and should be avoided.
From another angle, Resolution No. 8 of the National Assembly confirming the election of
members against whom no protests had been filed at the time of its passage on December 3, 1935,
can not be construed as a limitation upon the time for the initiation of election contests. While there
might have been good reason for the legislative practice of confirmation of the election of members of
the legislature at the time when the power to decide election contests was still lodged in the
legislature, confirmation alone by the legislature cannot be construed as depriving
the Electoral Commission of the authority incidental to its constitutional power to be "the sole judge of
all contests relating to the election, returns, and qualifications of the members of the National
Assembly", to fix the time for the filing of said election protests. Confirmation by the National
Assembly of the returns of its members against whose election no protests have been filed is, to all
legal purposes, unnecessary. As contended by the Electoral Commission in its resolution of January
23, 1936, overruling the motion of the herein petitioner to dismiss the protest filed by the respondent
Pedro Ynsua, confirmation of the election of any member is not required by the Constitution before he
can discharge his duties as such member. As a matter of fact, certification by the proper provincial
board of canvassers is sufficient to entitle a member-elect to a seat in the National Assembly and to
render him eligible to any office in said body (No. 1, par. 1, Rules of the National Assembly, adopted
December 6, 1935).
Under the practice prevailing both in the English House of Commons and in the Congress of
the United States, confirmation is neither necessary in order to entitle a member-elect to take his
seat. The return of the proper election officers in sufficient, and the member-elect presenting such
return begins to enjoy the privileges of a member from the time that he takes his oath of office (Laws
of England, vol. 12, pp. 331, 332; vol. 21, pp. 694, 695; U. S. C. A., Title 2, secs. 21, 25, 26).
Confirmation is in order only in cases of contested elections where the decision is adverse to the
claims of the protestant. In England, the judges' decision or report in controverted elections is certified
to the Speaker of the House of Commons, and the House, upon being informed of such certificate or
report by the Speaker, is required to enter the same upon the Journals, and to give such directions for
confirming or altering the return, or for the issue of a writ for a new election, or for carrying into
execution the determination as circumstances may require (31 & 32 Vict., c. 125, sec. 13). In the
United States, it is believed, the order or decision of the particular house itself is generally regarded
as sufficient, without any actual alteration or amendment of the return (Cushing, Law and Practice of
Legislative Assemblies, 9th ed., sec. 166).

104

Under the practice prevailing when the Jones Law was still force, each house of the
Philippine Legislature fixed the time when protests against the election of any of its members should
be filed. This was expressly authorized by section 18 of the Jones Law making each house the sole
judge of the election, returns and qualifications of its members, as well as by a law (sec. 478, Act No.
3387) empowering each house to respectively prescribe by resolution the time and manner of filing
contest in the election of members of said bodies. As a matter of formality, after the time fixed by its
rules for the filing of protests had already expired, each house passed a resolution confirming or
approving the returns of such members against whose election no protests had been filed within the
prescribed time. This was interpreted as cutting off the filing of further protests against the election of
those members not theretofore contested (Amistad vs. Claravall [Isabela], Second Philippine
Legislature, Record-First Period, p. 89; Urgello vs. Rama [Third District, Cebu], Sixth Philippine
Legislature; Fetalvero vs. Festin [Romblon], Sixth Philippine Legislature, Record First Period, pp.
637-640; Kintanar vs. Aldanese [Fourth District, Cebu], Sixth Philippine Legislature, Record-First
Period, pp. 1121, 1122; Aguilar vs. Corpus [Masbate], Eighth Philippine Legislature, Record-First
Period, vol. III, No. 56, pp. 892, 893). The Constitution has repealed section 18 of the Jones Law. Act
No. 3387, section 478, must be deemed to have been impliedly abrogated also, for the reason that
with the power to determine all contests relating to the election, returns and qualifications of members
of the National Assembly, is inseparably linked the authority to prescribe regulations for the exercise
of that power. There was thus no law nor constitutional provision which authorized the National
Assembly to fix, as it is alleged to have fixed on December 3, 1935, the time for the filing of contests
against the election of its members. And what the National Assembly could not do directly, it could not
do by indirection through the medium of confirmation.
Summarizing, we conclude:
(a) That the government established by the Constitution follows fundamentally the theory of
separation of powers into the legislative, the executive and the judicial.
(b) That the system of checks and balances and the overlapping of functions and duties often
makes difficult the delimitation of the powers granted.
(c) That in cases of conflict between the several departments and among the agencies
thereof, the judiciary, with the Supreme Court as the final arbiter, is the only constitutional mechanism
devised finally to resolve the conflict and allocate constitutional boundaries.
(d) That judicial supremacy is but the power of judicial review in actual and appropriate cases
and controversies, and is the power and duty to see that no one branch or agency of the government
transcends the Constitution, which is the source of all authority.
(e) That the Electoral Commission is an independent constitutional creation with specific
powers and functions to execute and perform, closer for purposes of classification to the legislative
than to any of the other two departments of the government.
(f) That the Electoral Commission is the sole judge of all contests relating to the election,
returns and qualifications of members of the National Assembly.
(g) That under the organic law prevailing before the present Constitution went into effect,
each house of the legislature was respectively the sole judge of the elections, returns, and
qualifications of their elective members.
(h) That the present Constitution has transferred all the powers previously exercised by the
legislature with respect to contests relating to the election, returns and qualifications of its members,
to the Electoral Commission.
(i) That such transfer of power from the legislature to the Electoral Commission was full, clear
and complete, and carried with it ex necesitate rei the implied power inter alia to prescribe the rules
and regulations as to the time and manner of filing protests.
(j) That the avowed purpose in creating the Electoral Commission was to have an
independent constitutional organ pass upon all contests relating to the election, returns and
qualifications of members of the National Assembly, devoid of partisan influence or consideration,

105

which object would be frustrated if the National Assembly were to retain the power to prescribe rules
and regulations regarding the manner of conducting said contests.
(k) That section 4 of article VI of the Constitution repealed not only section 18 of the Jones
Law making each house of the Philippine Legislature respectively the sole judge of the elections,
returns and qualifications of its elective members, but also section 478 of Act No. 3387 empowering
each house to prescribe by resolution the time and manner of filing contests against the election of its
members, the time and manner of notifying the adverse party,and bond or bonds, to be required, if
any, and to fix the costs and expenses of contest.
(l) That confirmation by the National Assembly of the election of any member, irrespective of
whether his election is contested or not, is not essential before such member-elect may discharge the
duties and enjoy the privileges of a member of the National Assembly.
(m) That confirmation by the National Assembly of the election of any member against whom
no protest had been filed prior to said confirmation, does not and cannot deprive
the Electoral Commission of its incidental power to prescribe the time within which protest against the
election of any member of the National Assembly should be filed.
We hold, therefore, that the Electoral Commission was acting within the legitimate exercise of
its constitutional prerogative in assuming to take cognizance of the protest filed by the respondent
Pedro Ynsua against the election of the herein petitioner Jose A. Angara, and that the resolution of
the National Assembly of December 3, 1935 can not in any manner toll the time for filing protests
against the election, returns and qualifications of members of the National Assembly, nor prevent the
filing of a protest within such time as the rules of the Electoral Commission might prescribe.
In view of the conclusion reached by us relative to the character of
the Electoral Commission as a constitutional creation and as to the scope and extent of its authority
under the facts of the present controversy, we deem it unnecessary to determine whether
the Electoral Commission is an inferior tribunal, corporation, board or person within the purview of
sections 226 and 516 of the Code of Civil Procedure.
The petition for a writ of prohibition against the Electoral Commission is hereby denied, with
costs against the petitioner. So ordered.
Avancea, C.J., Diaz, Concepcion and Horrilleno, JJ., concur.
||| (Angara v. Electoral Commission, G.R. No. 45081, [July 15, 1936], 63 PHIL 139-187)

106

EN BANC
[G.R. No. 111097. July 20, 1994.]
MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners, vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND
GAMING CORPORATION, respondents.
SYLLABUS
DAVIDE, JR., J., separate opinion:
1.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; PRINCIPAL CAUSE OF ACTION IN CASE AT BAR ONE
FOR DECLARATORY RELIEF. It must at once be noted that private respondent Pryce Properties
Corporation (PRYCE) directly filed with the Court of Appeals its so-called petition for prohibition, thereby
invoking the said court's original jurisdiction to issue writs of prohibition under Section 9(1) of B.P. Blg.
129. As I see it, however, the principal cause of action therein is one for declaratory relief: to declare null
and unconstitutional for, inter alia, having been enacted without or in excess of jurisdiction, for
impairing the obligation of contracts, and for being inconsistent with public policy the challenged
ordinances enacted by the Sangguniang Panlungsod of the City of Cagayan de Oro. The intervention
therein of public respondent Philippine Amusement and Gaming Corporation (PAGCOR) further
underscores the "declaratory relief" nature of the action. PAGCOR assails the ordinances for being
contrary to the non-impairment and equal protection clauses of the Constitution, violative of the Local
Government Code, and against the State's national policy declared in P.D. No. 1869. Accordingly, the
Court of Appeals does not have jurisdiction over the nature of the action.
2.ID.; ID.; PROHIBITION; ESTABLISHED POLICY RELATIVE TO HIERARCHY OF COURTS NOT
OBSERVED IN FILING OF PETITION IN CASE AT BAR. Assuming arguendo that the case is one
for prohibition, then, under this Court's established policy relative to the hierarchy of courts, the petition
should have been filed with the Regional Trial Court of Cagayan de Oro City. I find no special or
compelling reason why it was not filed with the said court. I do not wish to entertain the thought that
PRYCE doubted a favorable verdict therefrom, in which case the filing of the petition with the Court of
Appeals may have been impelled by tactical considerations. A dismissal of the petition by the Court of
Appeals would have been in order pursuant to our decisions in People vs. Cuaresma (172 SCRA 415,
[1989]) and Defensor-Santiago vs. Vasquez (217 SCRA 633 1993]).
3.STATUTORY CONSTRUCTION; PRESIDENTIAL DECREE NO. 1869 NOT REPEALED PRO
TANTO BY LOCAL GOVERNMENT CODE. The challenged ordinances were enacted pursuant to the
Sangguniang Panglungsod's express powers conferred by Section 458paragraph (a)subparagraphs (1)(V), (3)-(ii), and (4)-(i), (iv), and (vii), Local Government Code,and pursuant to its implied power under
Section 16 thereof. . . . . The issue that necessarily arises is whether in granting local governments (such
as the City of Cagayan de Oro) the above powers and functions, the Local Government Code has, pro
tanto, repealed P.D. No. 1869 insofar as PAGCOR'S general authority to establish and maintain gambling
casinos anywhere in the Philippines is concerned. I join the majority in holding that the ordinances cannot
repeal P.D. No. 1869.
4.CONTRAVENTION OF LAW NOT NECESSARILY A CONTRAVENTION OF THE CONSTITUTION;
ORDINANCES IN CASE AT BAR RECONCILED WITH PRESIDENTIAL DECREE NO. 1869. The
nullification by the Court of Appeals of the challenged ordinances as unconstitutional primarily because it
is in contravention to P.D. No. 1869 is unwarranted. A contravention of a law is not necessarily a
contravention of the constitution. In any case, the ordinances can still stand even if they be conceded as
offending P.D. No. 1869. They can be reconciled, which is not impossible to do. So reconciled, the
ordinances should be construed as not applying to PAGCOR.

107

DECISION

CRUZ, J p:
There was instant opposition when PAGCOR announced the opening of a casino in Cagayan de Oro City.
Civic organizations angrily denounced the project, The religious elements echoed and objection and so
did the women's groups and the youth. Demonstrations were led by the mayor and the city legislators.
The media trumpeted the protest, describing the casino as an affront to the welfare of the city.
The trouble arose when in 1992, flush with its tremendous success in several cities, PAGCOR decided to
expand its operations to Cagayan de Oro City. To this end, it leased a portion of a building belonging to
Pryce Properties Corporation Inc., one of the herein private respondents, renovated and equipped the
same, and prepared to inaugurate its casino there during the Christmas season.
The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and hostile. On
December 7, 1992, it enacted Ordinance No. 3353 reading as follows:
ORDINANCE NO. 3353
AN ORDINANCE PROHIBITING THE ISSUANCE OF BUSINESS PERMIT AND
CANCELLING EXISTING BUSINESS PERMIT TO ANY ESTABLISHMENT FOR THE
USING AND ALLOWING TO BE USED ITS PREMISES OR PORTION THEREOF FOR
THE OPERATION OF CASINO.
BE IT ORDAINED by the Sangguniang Panlungsod of the City of Cagayan de Oro, in
session assembled that:
SECTION 1. That pursuant to the policy of the city banning the operation of casino
within its territorial jurisdiction, no business permit shall be issued to any person,
partnership or corporation for the operation of casino within the city limits.
SECTION 2. That it shall be violation of existing business permit by any persons,
partnership or corporation to use its business establishment or portion thereof, or allow
the use thereof by others for casino operation and other gambling activities.
SECTION 3. PENALTIES. Any violation of such existing business permit as defined
in the preceding section shall suffer the following penalties, to wit:
a)Suspension of the business permit for sixty (60) days for the first offense and
a fine of P1,000.00/day
b)Suspension of the business permit for Six (6) months for the second offense,
and a fine of P3,000.00/day
c)Permanent revocation of the business permit and imprisonment of One (1)
year, for the third and subsequent offenses.
SECTION 4. This Ordinance shall take effect ten (10) days from publication thereof.
Nor was this all. On January 4, 1993, it adopted a sterner Ordinance No. 3375-93 reading as follows:
ORDINANCE NO. 3375-93
AN ORDINANCE PROHIBITING THE OPERATION OF CASINO AND PROVIDING
PENALTY FOR VIOLATION THEREFOR.
WHEREAS, the City Council established a policy as early as 1990 against CASINO
under its Resolution No. 2295;

108

WHEREAS, on October 14, 1992, the City Council passed another Resolution No.
2673, reiterating its policy against the establishment of CASINO;
WHEREAS, subsequently, thereafter, it likewise passed Ordinance No. 3353,
prohibiting the issuance of Business Permit and to cancel existing Business Permit to
any establishment for the using and allowing to be used its premises or portion thereof
for the operation of CASINO.
WHEREAS, under Art. 3, section 458, No. (4), sub paragraph VI of the Local
Government Code of 1991 (Rep. Act 7160) and under Art. 99, No. (4), Paragraph VI of
the implementing rules of the Local Government Code, the City Council as the
Legislative Body shall enact measure to suppress any activity inimical to public morals
and general welfare of the people and/or regulate or prohibit such activity pertaining to
amusement or entertainment in order to protect social and moral welfare of the
community;
NOW THEREFORE,
BE IT ORDAINED by the City Council in session duly assembled that:
SECTION 1. The operation of gambling CASINO in the City of Cagayan de Oro is
hereby prohibited.
SECTION 2. Any violation of this Ordinance shall be subject to the following penalties:
a)Administrative fine of P5,000.00 shall be imposed against the proprietor,
partnership or corporation undertaking the operation, conduct, maintenance of
gambling CASINO in the City and closure thereof;
b)Imprisonment of not less than six (6) months nor more than one (1) year or a
fine in the amount of P5,000.00 or both at the discretion of the court against the
manager, supervisor, and/or any person responsible in the establishment,
conduct and maintenance of gambling CASINO.
SECTION 3. This Ordinance shall take effect ten (10) days after its publication in a
local newspaper of general circulation.
Pryce assailed the ordinances before the Court of Appeals, where it was joined by PAGCOR as intervenor
and supplemental petitioner. Their challenge succeeded. On March 31, 1993, the Court of Appeals
declared the ordinances invalid and issued the writ prayed for to prohibit their
enforcement. 1 Reconsideration of this decision was denied on July 13, 1993. 2
Cagayan de Oro City and its mayor are now before us in this petition for review under Rule 45 of the
Rules of Court. 3 They aver that the respondent Court of Appeals erred in holding that:
1.Under existing laws, the Sangguniang Panlungsod of the City of Cagayan de Oro
does not have the power and authority to prohibit the establishment and operation of a
PAGCOR gambling casino within the City's territorial limits.
2.The phrase "gambling and other prohibited games of chance" found in Sec. 458, par.
(a), sub-par. (1) - (v) of R.A. 7160 could only mean "illegal gambling."
3.The questioned Ordinances in effect annul P.D. 1869 and are therefore invalid on that
point.
4.The questioned Ordinances are discriminatory to casino and partial to cockfighting
and are therefore invalid on that point.
5.The questioned Ordinances are not reasonable, not consonant with the general
powers and purposes of the instrumentality concerned and inconsistent with the laws or
policy of the State.

109

6.It had no option but to follow the ruling in the case of Basco, et al. v. PAGCOR, G.R.
No. 91649, May 14, 1991, 195 SCRA 53 in disposing of the issues presented in this
present case.
PAGCOR is a corporation created directly by P.D. 1869 to help centralize and regulate all games of
chance, including casinos on land and sea within the territorial jurisdiction of the Philippines. In Basco v.
Philippine Amusements and Gaming Corporation, 4 this Court sustained the constitutionality of the decree
and even cited the benefits of the entity to the national economy as the third highest revenue-earner in
the government, next only to the BIR and the Bureau of Customs. cdasia

Cagayan de Oro City, like other local political subdivisions, is empowered to enact ordinances for the
purposes indicated in the Local Government Code.It is expressly vested with the police power under what
is known as the General Welfare Clause now embodied in Section 16 as follows:
SEC. 16.General Welfare. Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right of
the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment
among their residents, maintain peace and order, and preserve the comfort and
convenience of their inhabitants.
In addition, Section 458 of the said Code specifically declares that:
SEC. 458.Powers, Duties, Functions and Compensation. (1) The Sangguniang
Panlungsod, as the legislative body of the city, shall enact ordinances, approve
resolutions and appropriate funds for the general welfare of the city and its inhabitants
pursuant to Section 16 of this Code and in the proper exercise of the corporate powers
of the city as provided for under Section 22 of this Code, and shall:
(1)Approve ordinances and pass resolutions necessary for an efficient and
effective city government, and in this connection, shall:
xxx xxx xxx
(v)Enact ordinances intended to prevent, suppress and impose
appropriate penalties for habitual drunkenness in public places,
vagrancy, mendicancy, prostitution, establishment and maintenance of
houses of ill repute, gamblingand other prohibited games of chance,
fraudulent devices and ways to obtain money or property, drug
addiction, maintenance of drug dens, drug pushing, juvenile
delinquency, the printing, distribution or exhibition of obscene or
pornographic materials or publications, and such other activities
inimical to the welfare and morals of the inhabitants of the city;
This section also authorizes the local government units to regulate properties and businesses within their
territorial limits in the interest of the general welfare. 5
The petitioners argue that by virtue of these provisions, the Sangguniang Panlungsod may prohibit the
operation and casinos because they involve games of chance, which are detrimental to the people.
Gambling is not allowed by general law and even by the Constitution itself. The legislative power
conferred upon local government units may be exercised over all kinds of gambling and not only over
"illegal gambling" as the respondents erroneously argue. Even if the operation of casinos may have been

110

permitted under P.D. 1869, the government of Cagayan de Oro City has the authority to prohibit them
within its territory pursuant to the authority entrusted to it by the Local Government Code.
It is submitted that this interpretation is consonant with the policy of local autonomy as mandated in Article
II, Section 25, and Article X of the Constitution, as well as various other provisions therein seeking to
strengthen the character of the nation. In giving the local government units the power to prevent or
suppress gambling and other social problems, the Local Government Code has recognized the
competence of such communities to determine and adopt the measures best expected to promote the
general welfare of their inhabitants in line with the policies of the State.
The petitioners also stress that when the Code expressly authorized the local government units to prevent
and suppress gambling and other prohibited games of chance, like craps, baccarat, blackjack and
roulette, it meant all forms of gambling without distinction. Ubi lex non distinguit, nec nos distinguere
debemos. 6 Otherwise, it would have expressly excluded from the scope of their power casinos and other
forms of gambling authorized by special law, as it could have easily done. The fact that it did not do so
simply means that the local government units are permitted to prohibit all kinds of gambling within their
territories, including the operation of casinos. cdlex
The adoption of the Local Government Code, it is pointed out, had the effect of modifying the charter of
the PAGCOR. The Code is not only a later enactment than P.D. 1869 and so is deemed to prevail in case
of inconsistencies between them. More than this, the powers of the PAGCOR under the decree are
expressly discontinued by the Code insofar as they do not conform to its philosophy and provisions,
pursuant to Par. (f) of its repealing clause reading as follows:
(f)All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.
It is also maintained that assuming there is doubt regarding the effect of the Local Government
Code on P.D. 1869, the doubt must be resolved in favor of the petitioners, in accordance with the direction
in the Code calling for its liberal interpretation in favor of the local government units. Section 5 of the Code
specifically provides:
Sec. 5.Rules of Interpretation. In the interpretation of the provisions of this Code,
the following rules shall apply:
(a)Any provision on a power of a local government unit shall be liberally interpreted in
its favor, and in case of doubt, any question thereon shall be resolved in favor of
devolution of powers and of the lower local government unit. Any fair and reasonable
doubt as to the existence of the power shall be interpreted in favor of the local
government unit concerned;
xxx xxx xxx
(c)The general welfare provisions in this Code shall be liberally interpreted to give more
powers to local government units in accelerating economic development and upgrading
the quality of life for the people in the community; . . . (Emphasis supplied.)
Finally, the petitioners also attack gambling as intrinsically harmful and cite various provisions of the
Constitution and several decisions of this Court expressive of the general and official disapprobation of
the vice. They invoke the State policies on the family and the proper upbringing of the youth and, as might
be expected, call attention to the old case of U.S. v. Salaveria, 7 which sustained a municipal ordinance
prohibiting the playing of panguingue. The petitioners decry the immorality of gambling. They also impugn
the wisdom of P.D. 1869 (which they describe as "a martial law instrument") in creating PAGCOR and
authorizing it to operate casinos "on land and sea within the territorial jurisdiction of the
Philippines." LexLib
This is the opportune time to stress an important point.

111

The morality of gambling is not a justiciable issue. Gambling is not illegal per se. While it is generally
considered inimical to the interests of the people, there is nothing in the Constitution categorically
proscribing or penalizing gambling or, for that matter, even mentioning it at all. It is left to Congress to deal
with the activity as it sees fit. In the exercise of its own discretion, the legislature may prohibit gambling
altogether or allow it without limitation or it may prohibit some forms of gambling and allow others for
whatever reasons it may consider sufficient. Thus, it has prohibited jueteng and monte but permits
lotteries, cockfighting and horse-racing. In making such choices, Congress has consulted its own wisdom,
which this Court has no authority to review, much less reverse. Well has it been said that courts do no sit
to resolve the merits of conflicting theories. 8 That is the prerogative of the political departments. It is
settled that questions regarding the wisdom, morality, or practicibility of statutes are not addressed to the
judiciary but may be resolved only by the legislative and executive departments, to which the function
belongs in our scheme of government. That function is exclusive. Whichever way these branches decide,
they are answerable only to their own conscience and the constituents who will ultimately judge their acts,
and not to the courts of justice. cda
The only question we can and shall resolve in this petition is the validity of Ordinance No. 3355 and
Ordinance No. 3375-93 as enacted by the Sangguniang Panlungsod of Cagayan de Oro City. And we
shall do so only by the criteria laid down by law and not by our own convictions on the propriety of
gambling.
The tests of a valid ordinance are well established. A long line of decisions 9 has held to be valid, an
ordinance must conform to the following substantive requirements:
1)It must not contravene the constitution or any statute.
2)It must not be unfair or oppressive.
3)It must not be partial or discriminatory.
4)It must not prohibit but may regulate trade.
5)It must be general and consistent with public policy.
6)It must not be unreasonable.
We begin by observing that under Sec. 458 of the Local Government Code, local government units are
authorized to prevent or suppress, among others, "gambling and other prohibited games of chance."
Obviously, this provision excludes games of chance which are not prohibited but are in fact permitted by
law. The petitioners are less than accurate in claiming that the Code could have excluded such games of
chance but did not. In fact it does. The language of the section is clear and unmistakable. Under the rule
of noscitur a sociis, a word or phrase should be interpreted in relation to, or given the same meaning of,
words with which it is associated. Accordingly, we conclude that since the word "gambling" is associated
with "and other prohibited games of chance," the word should be read as referring to only illegal gambling
which, like the other prohibited games of chance, must be prevented or suppressed.

We could stop here as this interpretation should settle the problem quite conclusively. But we will not. The
vigorous efforts of the petitioners on behalf of the inhabitants of Cagayan de Oro City, and the
earnestness of their advocacy, deserve more than short shrift from this Court. LLpr
The apparent flaw in the ordinances in question is that they contravene P.D. 1869 and the public policy
embodied therein insofar as they prevent PAGCOR from exercising the power conferred on it to the
operate a casino in Cagayan de Oro City. The petitioners have an ingenious answer to this misgiving.
They deny that it is the ordinances that have changed P.D. 1869 for an ordinance admittedly cannot
prevail against a statute. Their theory is that the change has been made by the Local Government
Code itself, which was also enacted by the national lawmaking authority. In their view, the decree has
been, not really repealed by the Code, but merely "modified pro tanto" in the sense that PAGCOR cannot
now operate a casino over the objection of the local government unit concerned. This modification of P.D.
1869 by the Local Government Code is permissible because one law can change or repeal another law.

112

It seems to us that the petitioner are playing with words. While insisting that the decree has only been
"modified pro tanto," they are actually arguing that it is already dead, repealed and useless for all intents
and purposes because the Code has shorn PAGCOR of all power to centralize and regulate casinos.
Strictly speaking, its operations may now be not only prohibited by the local government unit; in fact, the
prohibition is not only discretionary by mandated by Section 458 of the Code if the word "shall" as used
therein is to be given its accepted meaning. Local government units have now on choice but to prevent
and suppress gambling, which in the petitioners' view includes both legal and illegal gambling. Under this
construction, PAGCOR will have no more games of chance to regulate or centralize as they must all be
prohibited by the local government units pursuant to the mandatory duty imposed upon them by the Code.
In this situation, PAGCOR cannot continue to exist except only as a toothless tiger or a white elephant
and will no longer be able to exercise its powers as a prime source of government revenue through the
operation of casinos.
It is noteworthy that the petitioners have cited only Par. (f) of the repealing clause, conveniently discarding
the rest of the provision which painstakingly mentions the specific laws or the parts thereof which are
repealed (or modified) by the Code. Significantly, P.D. 1869 is not one of them. A reading of the entire
repealing clause, which is reproduced below, will disclose the omission:
SEC. 534.Repealing Clause. (a) Batas Pambansa Blg. 337, otherwise known as
the Local Government Code." Executive Order No. 112 (1987), and Executive Order
No. 319 (1988) are hereby repealed.
(b)Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders,
instructions, memoranda and issuances related to or concerning the barangay are
hereby repealed. prLL
(c)The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding hospital
fund; Section 3, a (3) and b (2) of Republic Act No. 5447 regarding the Special
Education Fund; Presidential Decree No. 144 as amended by Presidential Decree Nos.
559 and 1741; Presidential Decree No. 231 as amended; Presidential Decree No. 436
as amended by Presidential Decree No. 558; and Presidential Decree Nos. 381,
436,464, 477, 526, 632, 752, and 1136 are hereby repealed and rendered of no force
and effect.
(d)Presidential Decree No. 1594 is hereby repealed insofar as it governs locally-funded
projects.
(e)The following provisions are hereby repealed or amended insofar as they are
inconsistent with the provisions of this Code: Sections 2, 16, and 29 of Presidential
Decree No. 704; Section 12 of Presidential Decree No. 87, as amended; Sections 52,
53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential Decree No. 463, as amended;
and Section 16 of Presidential Decree No. 972, as amended, and
(f)All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.
Furthermore, it is a familiar rule that implied repeals are not lightly presumed in the absence of a clear
and unmistakable showing of such intention. In Lichauco & Co. v. Apostol, 10 this Court explained:
The cases relating to the subject of repeal by implication all proceed on the assumption
that if the act of later date clearly reveals an intention of the part of the lawmaking
power to abrogate the prior law, this intention must be given effect; but there must
always be a sufficient revelation of this intention, and it has become an unbending rule
of statutory construction that the intention to repeal a former law will not be imputed to
the Legislature when it appears that the two statutes, or provisions, with reference to
which the question arises bear to each other the relation of general to special.

113

There is no sufficient indication of an implied repeal of P.D. 1869. On the contrary, as the private
respondent points, out, PAGCOR is mentioned as the source of funding in two later enactments of
Congress, to wit, R.A. 7309, creating a Board of Claims under the Department of Justice for the benefit of
victims of unjust punishment or detention or of violent crimes, and R.A. 7648, providing for measures for
the solution of the power crisis. PAGCOR revenues are tapped by these two statutes. This would show
that the PAGCOR charter has not been repealed by the Local Government Code but has in fact been
improved as it were to make the entity more responsive to the fiscal problems of the government.
It is a canon of legal hermeneutics that instead of pitting one statute against another in an inevitably
destructive confrontation, courts must exert every effort to reconcile them, remembering that both laws
deserve a becoming respect as the handiwork of a coordinate branch of the government. On the
assumption of a conflict between P.D. 1869 and the Code, the proper action is not to uphold one and
annul the other but to give effect to both by harmonizing them if possible. This is possible in the case
before us. The proper resolution of the problem at hand is to hold that under the Local Government Code,
local government units may (and indeed must) prevent and suppress all kinds of gambling within their
territories except only those allowed by statutes like P.D. 1869. The exception reserved in such laws must
be read in the Code, to make both the Code and such laws equally effective and mutually complementary.
This approach would also affirm that there are indeed two kinds of gambling, to wit, the illegal and those
authorized by law. Legalized gambling is not a modern concept; it is probably as old as illegal gambling, if
not indeed more so. The petitioners' suggestion that the Code authorizes them to prohibit all kinds of
gambling would erase the distinction between these two forms of gambling without a clear indication that
this is the will of the legislature. Plausibly, following this theory, the City of Manila could, by mere
ordinance, prohibit the Philippine Charity Sweepstakes Office from conducting a lottery as authorized
by R.A. 1169 and B.P. 42 or stop the races at the San Lazaro Hippodrome as authorized by R.A.
309 and R.A. 983. LexLib
In light of all the above considerations, we see no way of arriving at the conclusion urged on us by the
petitioners that the ordinances in question are valid. On the contrary, we find that the ordinances
violate P.D. 1869, which has the character and force of a statute, as well as the public policy expressed in
the decree allowing the playing of certain games of chance despite the prohibition of gambling in general.
The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal
governments are only agents of the national government. Local councils exercise only delegated
legislative powers conferred on 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.
Municipal corporations owe their origin to, and derive their powers and rights wholly
from the legislature. It breathes into them the breath of life, without which they cannot
exist. As it creates, so it may destroy. As it may destroy, it may abridge and control.
Unless there is some constitutional limitation on the right, the legislature might, by a
single act, and if we can suppose it capable of so great a folly and so great a wrong,
sweep from existence all of the municipal corporations in the State, and the corporation
could not prevent it. We know of no limitation on the right so far as to the corporation
themselves are concerned. They are, so to phrase it, the mere tenants at will of the
legislature. 11
This 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. Without
meaning to detract from that policy, we here confirm that 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 local
government units of the power to tax, 12 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.

114

The Court understands and admires the concern of the petitioners for the welfare of their constituents and
their apprehensions that the welfare of Cagayan de Oro City will be endangered by the opening of the
casino. We share the view that "the hope of large or easy gain, obtained without special effort, turns the
head of the workman" 13 and that "habitual gambling is a cause of laziness and ruin." 14 In People v.
Gorostiza, 15 we declared: "The social scourge of gambling must be stamped out. The laws against
gambling must be enforced to the limit." George Washington called gambling "the child of avarice, the
brother of iniquity and the father of mischief." Nevertheless, we must recognize the power of the
legislature to decide, in its own wisdom, to legalize certain forms of gambling, as was done in P.D. 1869 in
impliedly affirmed in the Local Government Code. That decision can be revoked by this Court only if it
contravenes the Constitution as the touchstone of all official acts. We do not find such contravention here.
We hold that the power of PAGCOR to centralize and regulate all games of chance, including casinos on
land and sea within the territorial jurisdiction of the Philippines, remains unimpaired. P.D. 1869 has not
been modified by the Local Government Code, which empowers the local government units to prevent or
suppress only those forms of gambling prohibited by law. llcd
Casino gambling is authorized by P.D. 1869. This decree has the status of a statute that cannot be
amended or nullified by a mere ordinance. Hence, it was not competent for the Sangguniang Panlungsod
of Cagayan de Oro City to enact Ordinance No. 3353 prohibiting the use of buildings for the operation of a
casino and Ordinance No. 3375-93 prohibiting the operation of casinos. For all their praiseworthy motives,
these ordinance are contrary to P.D. 1869 and the public policy announced therein and are therefore ultra
vires and void.
WHEREFORE, the petition is DENIED and the challenged decision of the respondent Court of Appeals is
AFFIRMED, with the costs against the petitioners. It is so ordered.
Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo, Melo, Quiason, Puno, Vitug,
Kapunan and Mendoza, JJ., concur.
Padilla, J. and Davide, Jr., JJ., see separate opinion.
||| (Magtajas v. Pryce Properties Corp., Inc., G.R. No. 111097, [July 20, 1994])

115

SECOND DIVISION
[G.R. No. L-34568. March 28, 1988.]
RODERICK DAOANG and ROMMEL DAOANG, assisted by their father,
ROMEO DAOANG, petitioners, vs. THE MUNICIPAL JUDGE, SAN NICOLAS, ILOCOS
NORTE, ANTERO AGONOY and AMANDA RAMOS-AGONOY,respondents.
SYLLABUS
1. STATUTORY CONSTRUCTION AND INTERPRETATION; ART. 335, (par. 1), CIVIL CODE; WORDS
USED IN ENUMERATING DISQUALIFIED TO ADOPT; CLEAR AND UNAMBIGUOUS. We find, that
the words used in paragraph (1) of Art. 335 of the Civil Code, in enumerating the persons who cannot
adopt, are clear and unambiguous. The children mentioned therein have a clearly defined meaning in law
and, as pointed out by the respondent judge, do not include grandchildren.
2. ID.; A STATUTE CLEAR AND UNAMBIGUOUS NEED NOT BE INTERPRETED. Well known is the
rule of statutory construction to the effect that a statute clear and unambiguous on its face need not be
interpreted; stated otherwise, the rule is that only statutes with an ambiguous or doubtful meaning may be
the subject of statutory construction.
3. CIVIL LAW; ADOPTION; OBJECT. Adoption used to be for the benefit of the adoptor. It was intended
to afford to persons who have no child of their own the consolation of having one, by creating through
legal fiction, the relation of paternity and filiation where none exists by blood relationship. The present
tendency, however, is geared more towards the promotion of the welfare of the child and the
enhancement of his opportunities for a useful and happy life, and every intendment is sustained to
promote that objective.
4. ID.; CHILD AND YOUTH WELFARE CODE; ADOPTION; HAVING A CHILD, NO LONGER A
DISQUALIFICATION TO ADOPT. Under the law now in force, having legitimate, legitimated,
acknowledged natural children, or children by legal fiction, is no longer a ground for disqualification to
adopt.
DECISION
PADILLA, J p:
This is a petition for review on certiorari of the decision, dated 30 June 1971, rendered by the
respondent judge * in Spec. Proc. No. 37 of the Municipal Court of San Nicolas, Ilocos Norte, entitled: "In
re Adoption of the Minors Quirino Bonilla and Wilson Marcos; Antero Agonoy and Amanda R. Agonoy,
petitioners", the dispositive part of which reads, as follows:
"Wherefore, Court renders judgment declaring that henceforth Quirino Bonilla and
Wilson Marcos be, to all legitimate intents and purposes, the children by adoption of the
joint petitioners Antero Agonoy and Amanda R. Agonoy and that the former be freed
from legal obedience and maintenance by their respective parents, Miguel Bonilla and
Laureana Agonoy for Quirino Bonilla and Modesto Marcos and Benjamina Gonzales for
Wilson Marcos and their family names 'Bonilla' and 'Marcos' be changed with 'Agonoy',
which is the family name of the petitioners.

116

"Successional rights of the children and that of their adopting parents shall be governed
by the pertinent provisions of the New Civil Code.
"Let copy of this decision be furnished and entered into the records of the Local Civil
Registry of San Nicolas, Ilocos Norte, for its legal effects at the expense of the
petitioners." 1
The undisputed facts of the case are as follows:
On 23 March 1971, the respondent spouses Antero and Amanda Agonoy filed a petition with
the Municipal Court of San Nicolas, Ilocos Norte, seeking the adoption of the minors Quirino Bonilla and
Wilson Marcos. The case, entitled: In re Adoption of the Minors Quirino Bonilla and Wilson Marcos, Antero
Agonoy and Amanda Ramos-Agonoy, petitioners", was docketed therein as Spec. Proc. No. 37. 2
The petition was set for hearing on 24 April 1971 and notices thereof were caused to be served upon the
Office of the Solicitor General and ordered published in the ILOCOS TIMES, a weekly newspaper of
general circulation in the province of Ilocos Norte, with editorial offices in Laoag City. 3
On 22 April 1971, the minors Roderick and Rommel Daoang, assisted by their father and guardian ad
litem, the petitioners herein, filed an opposition to the aforementioned petition for adoption, claiming that
the spouses Antero and Amanda Agonoy had a legitimate daughter named Estrella Agonoy, oppositors'
mother, who died on 1 March 1971, and therefore, said spouses were disqualified to adopt under Art. 335
of the Civil Code. 4
After the required publication of notice had been accomplished, evidence was presented. Thereafter,
the Municipal Court of San Nicolas, Ilocos Norte rendered its decision, granting the petition for adoption. 5
Hence, the present recourse by the petitioners (oppositors in the lower court).
The sole issue for consideration is one of law and it is whether or not the respondent spouses Antero
Agonoy and Amanda Ramos-Agonoy are disqualified to adopt under paragraph (1), Art. 335 of the Civil
Code. LexLib
The pertinent provision of law reads, as follows:
"Art. 335. The following cannot adopt:
(1) Those who have legitimate, legitimated, acknowledged natural children, or children
by legal fiction;
xxx xxx xxx"
In overruling the opposition of the herein petitioners, the respondent judge held that "to add grandchild or
grandchildren in this article where no grandchild is included would violate to (sic) the legal maxim that
what is expressly included would naturally exclude what is not included".
But, it is contended by the petitioners, citing the case of In re Adoption of Millendez, 6 that the adoption of
Quirino Bonilla and Wilson Marcos would not only introduce a foreign element into the family unit, but
would result in the reduction of their legitimes. It would also produce an indirect, permanent and
irrevocable disinheritance which is contrary to the policy of the law that a subsequent reconciliation

117

between the offender and the offended person deprives the latter of the right to disinherit and renders
ineffectual any disinheritance that may have been made.
We find, however, that the words used in paragraph (1) of Art. 335 of the Civil Code, in enumerating the
persons who cannot adopt, are clear and unambiguous. The children mentioned therein have a clearly
defined meaning in law and, as pointed out by the respondent judge, do not include grandchildren. LexLib
Well known is the rule of statutory construction to the effect that a statute clear and unambiguous on its
face need not be interpreted; stated otherwise, the rule is that only statutes with an ambiguous or doubtful
meaning may be the subject of statutory construction. 7
Besides, it appears that the legislator, in enacting the Civil Code of the Philippines, obviously intended
that only those persons who have certain classes of children, are disqualified to adopt. The Civil Code of
Spain, which was once in force in the Philippines, and which served as the pattern for the Civil Code of
the Philippines, in its Article 174, disqualified persons who have legitimate or
legitimated descendants from adopting. Under this article, the spouses Antero and Amanda Agonoy would
have been disqualified to adopt as they have legitimate grandchildren, the petitioners herein. But, when
the Civil Code of the Philippines was adopted, the word "descendants" was changed to "children", in
paragraph (1) of Article 335. LibLex
Adoption used to be for the benefit of the adoptor. It was intended to afford to persons who have no child
of their own the consolation of having one, by creating through legal fiction, the relation of paternity and
filiation where none exists by blood relationship. 8 The present tendency, however, is geared more
towards the promotion of the welfare of the child and the enhancement of his opportunities for a useful
and happy life, and every intendment is sustained to promote that objective. 9 Under the law now in force,
having legitimate, legitimated, acknowledged natural children, or children by legal fiction, is no longer a
ground for disqualification to adopt. 10
WHEREFORE, the petition is DENIED. The judgment of the Municipal Court of San Nicolas, Ilocos Norte
in Spec. Proc. No. 37 is AFFIRMED. Without pronouncement as to costs in this instance.
SO ORDERED.
||| (Daoang v. Municipal Judge, San Nicolas, Ilocos Norte, G.R. No. L-34568, [March 28, 1988], 242 PHIL
774-778)

118

G.R. No. L-26979

April 1, 1927

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiffs,

vs.
MILTON E. SPINGER, DALAMACIO COSTAS, and ANSELMO HILARIO, defendants.
Attorney-General Jaranilla, F. C. Fisher, and Hugh C. Smith for plaintiff.
Jose Abad Santos; Ross, Lawrence and Selph; Paredes, Buencamino and Yulo;
Araneta and Zaragoza; Charles E. Tenney; Camus, Delgado and Recto and Mariano H. de Joya for
defendants.
MALCOLM, J.:
This is an original action of quo warranto brought in the name of the Government of the Philippine Islands
against three directors of the National Coal Company who were elected to their positions by the legislative
members of the committee created by Acts. Nos. 2705 and 2822. The purpose of the proceeding is to test
the validity of the part of section 4 of Act No. 2705, as amended by section 2 of Act No. 2822, which
provides that "The voting power of all such stock (in the National Coal Company) owned by the
Government of the Philippine Islands shall be vested exclusively in a committee consisting of the
Governor-General, the President of the Senate, and the Speaker of the House of Representatives."
The material facts are averred in the complaint of the plaintiff and admitted in the demurrer of the
defendants.
The National Coal Company is a corporation organized and existing by virtue of Act No. 2705 of the
Philippine Legislature as amended by Act No. 2822, and of the Corporation law. By the terms of the
charter of the corporation, the Governor-General was directed to subscribe on behalf of the Government
of the Philippine Islands for at least fifty-one per cent of the capital of the corporation. The government
eventually became the owner of more than ninety-nine per cent of the thirty thousand outstanding shares
of stocks of the National Coal Company. Only nineteen shares stand in the names of private individuals.
On November 9, 1926, the Government-General promulgated Executive Order No. 37. Reference was
made therein to opinions of the Judge Advocate General of the United States Army and of the Acting
Attorney-General of the United States wherein it was held that the provisions of the statutes passed by
the Philippine Legislature creating a voting committee or board of control, and enumerating the duties and
powers thereof with respect to certain corporations in which the Philippine Government is the owner of
stock, are nullities. Announcement was made that on account of the invalidity of the portions of the Acts
creating the voting committee or board of control, the Governor-General would, thereafter, exercise
exclusivelythe duties and powers theretofore assumed by the voting committee or board of control. Notice
of the contents of this executive order was given to the President of the Senate and the Speaker of the
House of Representatives. (24 Off. Gaz., 2419.)
A special meeting of the stockholders of the National Coal Company was called for December 6, 1926, at
3 o'clock in the afternoon, for the purpose of electing directors and the transaction of such other business
as migh properly come before the meeting. Prior thereto, on November 29, 1926, the President of the
Senate and the Speaker of the House of Representatives as members of the voting committee, requested
the Governor-General to convene the committee at 2:30 p. m., on December 6, 1926, to decide upon the
manner in which the stock held by the Government in the National Coal Company should be voted.
TheGovernor-General acknowledged receipt of this communication but declined to participate in the
proposed meeting. The president of the Senate and the Speaker of the House of Representatives did in
fact meet at the time and place specified in their letter to the Governor-General. It was then and there
resolved by them that at the special meeting of the stockholders, the votes represented by the stock of

119

the Government in the National Coal Company, should be cast in favor of five specified persons for
directors of the company.
On December 6, 1926, at 3 o'clock in the afternoon, the special meeting of the stockholders of the
National Coal Company was held in accordance with the call. The Governor-General, through his
representative, asserted the sole power to vote the stock of the Government. The president of the Senate
and the Speaker of the House of Representatives attended the meeting and filed with the secretary of the
company a certified copy of the minutes of the meeting of the committee held at the office of the company
a half hour before. The Governor-General, through his representative, thereupon objected to the asserted
powers of the President of the Senate and the Speaker of the House of Representatives, and the latter
likewise objected to the assertion of the Governor-General.
The chair recognized the President of the Senate and the Speaker of the House of Representatives in
their capacity as majority members of the voting committee as the persons lawfully entitled to represent
and vote the Government stock. To this the representative of the Governor- General made protest and
demanded that it be entered of record in the minutes. The vote cast by the President of the Senate and
the Speaker of the House of Representatives was in favor of Alberto Barretto,Milton E. Springer, Dalmacio
Costas, Anselmo Hilario, and Frank B. Ingersoll. The Governor-General through his represetative,
alleging representation of the Government stock, cast his vote in favor of Alberto Barreto, Romarico
Agcaoili, Frank B. Ingersoll, H. L. Heath, and Salvador Lagdameo. The chair declared the ballot cast by
the President of the Senate and the Speaker of the House as electing the names therein indicated,
directors of the National Coal Company.
Immediately after the stockholder's meeting, the persons declared by the chairman to have been elected,
met and undertook to organized the board of directors of the National Coal Company by the election of
officers. All the directors for whom the President of the Senate and the Speaker of the House of
Representatives voted and who were declared elected at the meeting of the stockholders participated in
this meeting. Included among them, were the three defendants, Milton E. Springer, Dalmacio Costas, and
Anselmo Hilario.
The applicable legal doctrines are found in the Organic Law, particularly in the Organic Act, the Act of
Congress of August 29, 1916, and in statutes enacted under authority of that Act, and in decisions
interpretative of it.
The Government of the Philippine Islands is an agency of the Congress, the principal, has seen fit to
entrust to the Philippine Government, the agent, are distributed among three coordinate departments, the
executive, the legislative, and the judicial. It is true that the Organic Act contains no general distributing
clause. But the principle is clearly deducible from the grant of powers. It is expressly incorporated in our
Administrative Code. It has time and again been approvingly enforced by this court.
No department of the Government of the Philippine Islands may legally exercise any of the powers
conferred by the Organic Law upon any of the others. Again it is true that the Organic Law contains no
such explicit prohibition. But it is fairly implied by the division of the Government into three departments.
The effect is the same whether the prohibition is expressed or not. It has repeatedly been announced by
this court that each of the branches of the Government is in the main independent of the others. The
doctrine is too firmly imbedded in Philippine institutions to be debatable. (Administrative Code sec. 17;
Barcelon vs. Baker and Thompson [1905], 5 Phil., 87; U. S. vs. Bull [1910], 15 Phil., 7;
Severino vs. Governor-General and Provincial Board of Occidental Negros [1910], 16 Phil., 366;
Forbes vs. Chuoco Tiaco vs. Crossfield [1910], 16 Phil., 534; Province of Tarlac vs. Gale [1913], 26 Phil.,
338; Concepcion vs. Paredes [1921], 42 Phil., 599; U. S. vs. Ang Tang Ho [1922], 43 Phil., 1;
Abueva vs. Wood [1924], 45 Phil., 612; Alejandrino vs. Quezon [1924], 46 Phil., 83.)
It is beyond the power of any branch of the Government of the Philippine Islands to exercise its functions
in any other way than that prescribed by the Organic Law or by local laws which conform to the Organic

120

Law. The Governor-General must find his powers and duties in the fundamental law. An act of the
Philippine Legislature must comply with the grant from Congress. The jurisdiction of this court and other
courts is derived from the constitutional provisions.
These canons of political science have more than ordinary significance in the Philippines. To the
Government of the Philippine Islands has been delegated a large degree of autonomy, and the chief
exponent of that autonomy in domestic affairs is the Philippine Legislature. TheGovernor-General on the
other hand of the Government and symbolizes American sovereignty. That under such a political system,
lines of demarcation between the legislative and the executive departments are difficult to fix, and that
attempted encroachments of one on the other may occur, should not dissuade the Supreme Court, as the
guardian of the constitution, from enforcing fundamental principles.
The Organic Act vests "the supreme executive power" in the Governor- General of the Philippine Islands.
In addition to specified functions,he is given "general supervision and control of all the departments and
bureaus of the government of the Philippine Islands as far as is not inconsistent with the provisions of this
act. "He is also made "responsible for the faithful execution of the laws of the Philippine Islands and of the
United States operative within Philippine Islands."The authority of the Governor-General is made secure
by the important proviso "that all executive functionsof Government must be directly under the GovernorGeneral or within one of the executive departments under thesupervision and control of the GovernorGeneral. "(Organic Act, secs. 21, 22.) By the Administrative Code, "the Governor-General, as chief
Executive of the Islands, is charged with the executive control of the Philippine Government, to be
exercised in person or through the Secretaries of Departments, or other proper agency, according to law."
(Se.58)
The Organic Act grants general legislative power except as otherwise provided therein to the Philippine
Legislature. (Organic Act, secs. 8, 12.) Even before the approval of the existing Organic Act, it was held
that the Philippine Legislature has practically the same powersin the Philippine Islands within the sphere
in which it may operate as the Congress of the United States. (Chanco vs. Imperial [1916], 34 Phil., 329.)
The rule judicially stated is now that an Act of the Philippine Legislature which has not been expressly
disapproved by Congress is valid, unless the subject-matter has been covered by Congressional
legislation, or its enactment forbidden by some provision of the Organic Law. The legislative power of the
Philippine Government is granted in general terms subject to specific limitations. (Gaspar vs. Molina
[1905], 5 Phil., 197; U. S. vs. Bull, supra; In re Guarina [1913], 24 Phil., 37; U. S. vs. Limsiongco
[1920],41 Phil., 94; Concepcion vs. Paredes, supra.)
An independent judiciary completes the governmental system. Thejudicial power is conferred on the
Supreme Couts, Courts of FirstInstance, and inferior courts. (Organic Act, se. 26)
It is axiomatic that the Philippine Legislature was provided to make the law, the office of the GovernorGeneral to execute the law, and the judiciary to construe the law. What is legislative, an executive, or a
judicial act, as distinguished one from the other, is not alwayseasy to ascertain. A precise classification is
difficult. Negatively speaking, it has been well said that "The legislature has no authority to execute or
construe the law, the executive has no authority to make or construe the law, and the judiciary has no
power to make or execute the law." (U. S. vs. And Tang Ho, supra.)
It is legislative power which has been vested in the Philippine Legislature. What is legislative power?
Judge Cooley says he understands it "to be the authority, under the constitution, to make laws, and to
alter and repeal them." Those matters which the constitution specifically confides to the executive "the
legislature cannot directly or indirectly take from his control." (Cooley's Constitutional Limitations, 7th ed.,
pp. 126-131, 157-162.) President Wilson in his authoritative work, "The State", page 487, emphasizes by
italics that legislatures "are law makingbodies acting within the gifts of charters, and are by these charters
in most cases very strictly circumscribed in their action." If this is true, the converse that legislative power
is not executive or judicial or governmental power needs no demonstration. The Legislature essentially
executive or judicial. The Legislature cannot make a law and them take part in its execution or
construction. So the Philippine Legislature is not a partaker in either executive or judicial power, except as

121

thePhilippine Senate participates in the executive power through the Governor-General, and except as
the Philippine Senate participates in the executive power through having the right to confirm or reject
nominations made by the Governor-General, and except as the Legislature participates in the judicial
power through being made the sole judge of the elections, returns, and qualifications of its elective
members and through having the right to try its own members for disorderly behavior. The Philippine,
Legislature may nevertheless exercise such auxiliary powers as are necessary and appropriate to its
indenpdence and to make its express powers effective. (McGrain vs. Daugherty [1927], 273 U. S., 135;
71 Law. ed., 580.)
When one enters on a study of the abstract question, Where does the power to appoint to public office
reside?, one is nearly buried in a mass of conflicting authority. Yet we have been at pains to review all of
the cases cited by counsel and others which have not been cited. Shaking ourselves loose from the
encumbering details of the decisions, we discern through them a few elemental truths which distiguish
certain cases from others and which point the way for us in the Philippines.
The first principle which is noticed is that the particular wording of the constitution involved, and its correct
interpretation predetermines the result. Does the constitutions deny the legislative body the right of
exercising the appointing power. The legislature may not do so. (State vs. Kennon [1857], 7 O. St., 547;
Clark vs. Stanley[1872], 66 N. C., 28.) Does the constitution confer upon the government the power to
prescribe the manner of appointment. The authorities are in conflict as to whether the legislature the
power to prescribe the manner of appointment. The authourities are in conflict as to whether the
legislature may itself make the appointment. Does the constitution merely contain the usual clause
distributing the powers of government and no clause regulating appointments. The weight of judicial
opinion seems to be that the power of appointing to office is not exclusively an executive function and that
the legislature may not only create offices but may also fill them itself, but with a vigorous opposition in
most respectable quarters. (Contrast Pratt vs. Breckinridge [1901], 112 Ky., 1, and State vs.Washburn
[1901], 167 Mo., 680, with People vs. Freeman [1889], 80 Cal., 233, and Richardson vs. Young [1909],
122 Tenn., 471.)
The second thought running through the decisions is that in the state governments, the selection of
persons to perform the functions of government is primarily a prerogative of the people. The general
powerto appoint officers is not inherent in any branch of the government. The people may exercise their
political rights directly or by delegation. Should the people grant the exclusive right of appointment to the
governor, he possesses that right; but if they should otherwise dispose of it, it must be performed as the
sovereign has indicated. Inasmuch, however, as the legislative body is the repository of plenary power,
except as otherwise restricted, and the chief executive of the State is not, legislative bodies usually
possess wide latitude in the premises. But this situation does not obtain in the Philippines where the
people are not sovereign, and where constitutional rights do not flow from them but are granted by
delegation from Congress.
It may finally be inferred from the books that the appointment of public officials is generally looked upon
as properly an executive function. The power of appointment can hardly be considered a legislative
power. Appointments may be made by the Legislature of the courts, but when so made be taken as an
incident to the discharge of functions properly within their respective spheres. (State vs. Brill [1907], 100
Minn., 499; Stockman vs. Leddy [1912], 55 Colo., 24; Spartanburg County vs. Miller [1924], 132 S. E.,
673; Mechem on Public Officers, secs. 103-108; Mechem, The power of Appoint to Office; Its Location
and Limits, 1 Mich. Law Rev. [1903], 531.)
From the viewpoint of one outside looking in, it would seem that the State legislatures have all too often
been permitted to emasculate the powers properly belonging to the executive deparment, and that the
governor of the State has been placed with the responsibility of administering the government without the
means of doing so. The operations of the executive department have been fundamentally variedby the
legislative department. The legislature has absorbed strength, the executive has lost it. This tendency has
rather been tolerated than acquiesced in. The executive should be clothed with sufficient power to
administer efficiently the affairs of state. He should have complete control of the instrumentalities through

122

whom his responsibility is discharged. It is still true, as said by Hamilton, that "A feeble executive implies a
geeble execution of the government. A feeble execution is but another phrase for a bad execution; and a
government ill executed, whatever it may be intheory, must be in practice a bad government." The
mistakes of State governments need not be repeated here..
The history of the power of appointment and the stand taken by the judiciary on the question in the State
of Kentucky is of more than ordinary interest. Kentucky was permitted to become an independent State by
Virginia. The clause in the Kentucky constitution separating and guarding the powers of government
came from the pen of the author of the Declaration of Independence, Thomas Jefferson. He it was who, in
a letter to Samuel Kercheval, dated July 16, 1816, said: "Nomination to office iss an executive function. To
give it to thelegislature, as we do is Virginia, is a violation of the principle of the separation of powers. It
swerves the members from correctness by the temptation to intrigue for office for themselves, and to a
corrupt barter for votes, and destroys responsibility by dividing it among a multitude." Possibly inspired to
such action by the authorship of the portion of the State constitution which was under consideration, in the
early days of the Supreme Court of Kentucky, Mr. Chief Justice Robertson in the case of Taylor vs.
Commonwealth ([1830], 3 J. J.Marshall, 4010) announced that "Appointmets to office are intrinsically
executive," but that it might be performed by a judicial officer when the duties of the office pertains strictly
to the court. This opinion was shaken in the case of Sinking Fund Commissioners vs. George([1898], 104
Ky., 260) only to be afterwards reaffirmed in Pratt vs. Breckinridge ([1901], 112 Ky., 1), and in Sibert vs.
Garrett ([1922], 246 S. W., 455). in the decision in the latter case, one of the most recent on the subject,
the Supreme Court of Kentucky after reviewing the authorities refused to be frightened by the bugaboo
that numerically a greater number of courts take a contrary view. It said: "We are convinced that they by
doing so are inviting destruction of the constitutional barriers separating the departments of government,
and that our interpretation is much the sounder one and is essential to the future preservation of our
constitutional form of government as originally intended by the forefathers who conceived it. . . . Such
power (of appointment) on the part of the Legislature, if a full exercise of it should be persisted in, would,
enable it to gradually absorb to itself the patronage and control of the greater part of the functioning
agencies of the state and county governments, and, thus endowed, it would be little short of a legislative
oligarhy."
It is of importance, therefore, not to be confused by Statedecisions, and invariably to return to the exact
provisions of the Philippine Organic Law which should be searched out and effectuated.
The right to appoint to office has been confided, with certain well defined exceptions, by the Government
of the United States to the executive branch of the government which it has set up in the Philippines. Let
the Organic Law speak upon this proposition.
The original government inaugurated in the Philippines after American occupation was military in nature,
and exercised all the powers of government, including, of course, the right to select officers. The original
civil authority with administrative functions establishedhere was the second Philippine Commission.
President Mckinley, in his Instructions to the Commisions of April 7, 1900, ever since considered as the
initial step taken to introduce a constitutional government, provided that until further action should be
taken by congress or otherwise, "The Commission will also have power . . . . to appoint to office such
officers under the judicial, educational, and civil- service systems, and in the municipal and departmental
goernments, as shall be provided for." When the first Civil Governor was appointed on June 21, 1901, the
President again took account of the power of appointment in the following language: The power to appoint
civil officers, hererofore Governor, will be exercised by the Civil Governor with the advice and consent of
the commission." The Congress when it came to make legislative provision for the administration of the
affairs of civil government in the Philippine Islands, in the Act of Congress of July 1, 1902, the Philippine
Bill, "approved, ratified and confirmed," the action of the President, and in creating the office of Civil
Governor and authorizing said Civil Governor to exercise powers of government to the extent and in the
manner set forth in the exectutive order date June 21, 1901. (Philippine Bill, sec. 1.) Congress in the
same law provided that the Islands "shall continue to be governed as thereby and herein provided."
(See opinion of Attorney-General Araneta on the power of the Governor-General to appoint and remove
civil officers, 3 Op. Atty.-Gen., 563.)

123

Thus stood the right to appoint to office for fourteen years.

The Organic Act of August 29, 1916, included what follows on the subject of appointments. The governorGeneral "shall, unless otherwise herein provided, appoint, by and with the consent of the Philippine
Senate, such officers as may now be appointed by the Governor-General,or such as he is authorized by
law to appoint." (Organic Act, sec. 21.) The exception to the general grant is that the Philippine
Legislature "shall provide for the appointment and removal of the heads of the executive departments by
the Governor-General." (Organic Act, sec. 22.) Each House of the Philippine Legislature may also elect a
presiding officer, a clerk, a sergeant at arms, and such other officers and assistants as may be required.
(Organic Act, sec. 18.) The Philippine Legislature is authorized to choose two Residentcommissioners to
the United States. (Organic Act, sec. 20.) The prohibition on the local Legislature, which has been thought
of as referring to the Resident Commissioners, is that "No Senator or Representative shall, during the
time for which he may have been elected, be eligible to any office the election to which is vested in the
Legislature, nor shall be appointed to any office of trust or profit which shall have been created or the
emoluments of which shall have been increased during such term." (Organic Act, sec. 18.)
The Administrative Code provides the following: "In addition to his general supervisory authority, the
Governor-General shall have such specific powers and duties as are expressly conferred or imposed
onhim by law and also, in particular, the powers and duties set forth," including th special powers and
duties "(a) To nominate and appointofficials, conformably to law, to positions in the service of the
Government of the Philippine Islands. (b) To remove officials from office conformably to law and to declare
vacant the offices held by such removed officials. For disloyalty to the Government of theUnited States,
the Governor-General may at any time remove a personfrom any position of trust or authority under the
Government of the Philippine Islands." (Sec. 64 [a], [b].) The Administrative Code lists the officers
appointable by the Governor-General. (Sec. 66.)
It will be noticed that the Governor-General, in addition to being empowered to appoint the officers
authorized by the Organic Act and officers who thereafter he might be authorized to appoint, was to
continue to possess the power to appoint such officers as could be appointed him when the Organic Act
wa approved. The careful phraseology of the law and the connection provided by the word "now" with
prior Organic laws is noteworthy. It would not be at all illogical to apply the same rule to the GovernorGeneral in his relations with the Legislature which the judiciary uniformly applies to the courts in their
relations with the Legislature, which is, that the Legislature may add to, byt may not diminish, the
jurisdiction of the courts The Legislature may add to, but may not diminish, thepower of the GovernorGeneral. (Organic Act, sec. 26; Barrameda vs. Moir [1913], 25 Phil., 44; In re Guarina, supra; U.
S. vs. Limsiongco, supra.)
It will also not escape attention that the only reference made to appointments by the Legislature relates to
the selection of Secretaries of Departments, of officers and employees for the Legislature, and of
Resident Commissioners, from which it would naturally be inferred that no other officers and employees
may be chosen by it. The exceptions made in favor of the Legislature strengthen rather than weaken the
grant to the executive. The specific mention of the authority of the Legislature to name certainofficers is
indicative of a purpose to limit the legislative authority in the matter of selecting officers. The expression of
one things not expressed. Had it been intended to give to the Philippine Legislature the power to name
individuals to fill the offices which it has created, the grant would have been included among the
legislative powers and not among the executive powers. The administrative controlof the Government of
the Philippine Islands by the Governor-Generalto whom is confided the responsibility of executing the
laws excludes the idea of legislative control of administration.
Possibly, the situation may better be visualized by approching the question by a process of elimination. Is
the power of appointment judicial? No one so contends. Is the power of appointment legislative? Not so if
the intention of the Organic Law be carried out and if the Legislature be confined to its law-making
function. Is the power of appointment executive? It is.

124

The exact question of where the power of appointment to office is lodged has never heretofore arisen in
this jurisdiction. But a decision of this court and a controlling decision of the United States Supreme Court
are in point.
In Concepcion vs. Parades, supra, this court had before it a law which attempted to require a drawing of
lots for judicial positionss in derogation of executive power. The case was exhaustively argued andafter
prolonged consideration, the questioned portion of the law was held invalid as in violation of the
provisions of the Organic Act. Following the lead of Kentucky, it was announced that "Appointment to
office is intrinsically an executive actinvolving the exercise of discretion."
In the case of Myers vs. United States ([1926], 272 U. S., 52; 71 Law. ed., 160), the United States
Supreme Court had presented the question whether, under the Constitution, the President has the
exclusive power of removing executive officers of the United States whom he has appointed by and with
the advice and consent of the Senate. The answer was that he has. The decision is ephocal. The Chief
Justice quoted from Madison the following:
If there is a principle in our Constitution, indeed in any free Constitution more sacred than
another, it is that which separates the legislative, executive and judicial powers. If there is any
point inwhich the separation of the legislative and executive powers ought to be maintained with
great caution, it is that which relates to officers and offices.
'The powers relative to offices are partly legislative and partly executive. The legislature
creates the office, defines the powers, limits its duration and annexes a compensation.
This done, the legislative power ceases. They ought to have nothing to do with
designating the man to fill the office. That I conceive to be of an executive nature.
Although it be qualified in the Constitution, I would not extend or stain that qualification
beyond the limits precisely fixed for it. We ought always to consider the Constitution with
an eye to the principles upon which it was founded. In this point of view, we shall readily
conclude that if the legislaturedetermines the powers, the honors, and emoluments of an
office, we should be insecure if they were to designate the officer also. The nature of
things restrains and confines the legislative and executive authorities in this respect; and
hence it is that the Constitution stipulates for the independence of each branch of the
Government.' (1 Annals of Congress, 581, 582. Also see Madison in The Federalist, Nos.
47, 46.).
The distinguished Chief Justice said:
"* * * The Constitution was so framed as to vest in the Congress all legislative powers therein
granted, to vest in the President the executive power, and to vest in one Supreme Court and such
inferior courts as Congress might establish, the judicial power. From this division on principle, the
reasonable construction of the Constitutionmust be that the branches should be kept separate in
all cases in which they were not expressly blended, and the Constitution should be expounded to
blend them no more than it affirmatively requires. Madison, 1 Annals of Congress, 497.
xxx

xxx

xxx

The vesting of the executive power in the President was essentially a grant of the power to
execute the laws. But the President alone and unaided could not execute the laws. He must
execute them by the assistance of subordinates. This view has since been repeatedlyaffirmed by
this court. . . . As he is charged specifically to take care that they be faithfully executed, the
reasonable implication, even in the absence of express words, was that as part of his execute
power he should select those who werre to act for him under his direction in the execution of the
laws. The further implication must be, in the absence of any express limitation respecting
removals, that as his selection of administrative officers is essential to the execution of the laws

125

by him, so must be his power of removing those for whom he cannot continue to be responsible.
(Fisher Ames, 1 Annals of Congress, 474.) It was urged that the natural meaning of the term
"executive power" granted the President included the appointment and removal of executive
subordinates. If such appointments and removals were not an exercise of the executive power,
what were they? They cetainly were not the exercise of legislative or judicial power in
government as usually understood.
It is quite true that in state and colonial governments at the time of the Constitutional Convention,
power to make appointments and removals had sometimes been lodged in the legislatures or in
the courts, but such a disposition of it was really vesting part of the executive power in another
branch of the Government.
xxx

xxx

xxx

We come now to a period in the history of the Government when both Houses of Congress
attempted to removes this constitutionalconstruction and to subject the power of removing
executive officers appointed by the President and confirmed by the Senate to the control of the
Senate, indeed finally to the assumed power in Congress to place the removal of such officers
anywhere in the Government.
xxx

xxx

xxx

The extreme provisions of all this legislation were a full justification for the considerations so
strongly advanced by Mr. Madison and his associates in the First Congress, for insisting thatthe
power of removal of executive officers by the President alone wasessential in the division of
powers between the executive and the legislative bodies. It exhibited in a clear degree the
paralysis to which a partisan Senate and Congress could subject the executive arm and destroy
the principle of executive responsibility, and separation of the powers sought for by the framers of
our Government, if the President fhad no power of removal save by consent of the Senate. It was
an attempt to redistribute the powers and minimized those of the President.
xxx

xxx

xxx

For the reasons given, we must therefore hold that the provision of the law of 1876 by which the
unrestricted power of removal of first class postmasters is denied to the President is in violation of
the Constitution and invalid.
Membership in the Committee created by Acts Nos. 2705 and 2822 is an office. No attempt will be made
to accomplish the impossible, which is to formulate an exact judicial definitions of term "office." The point
is that the positions in question constitute an "office," whether within the meaning of that word as used in
the Code of Civil Procedure under the topic "Usurpation of Office," and in the jurisprudence of Ohio from
which these portions of the Code were taken; whether within the local definitions of "office" found in the
Administrative Code and the Penal Code; or whether within the constitutional definitions approved by the
United States Supreme Court. (Code of Civil Procedure, secs. 197 et seq., 519; Act No. 136, sec. 17;
State vs. Kennon, supra, cited approvingly in Sheboygran co. vs. Parker [1865], 3 Wall., 93;
Administrative Code, sec. 2; Penal Code, arts. 264, 401.) Paraphrasing the United States Supreme Court
in alate decision, there is not lacking the essential elements of a public station, permanent in character,
created by law, whose incidents and duties were prescribed by law. (Metcalf & Eddy vs. Mitchell [1926],
269 U. S., 514; U. S. vs. Maurice [1823], 2 Brock., 96; U. S. vs.Hartwel [1867], 6 Wall., 385.) The
Legislature did more than add incidentalor occasional duties to existing executive offices for two of the
members of the voting committee are representatives of thelegislative branch. The Supreme Court of
North Carolina has held that the Act of the General Assembly giving to the President of the Senate and
the Speaker of the House of Representatives the power to appoint proxies and directors in all
corporations in which the State has an interest, creates a public office and fills the same by appointment

126

of the Legislature. (Clark vs.Stanley [1872], 66 N. C., 28;Howerton vs. Tate [1873], 68 N. C., 498;
Shoemaker vs. U. S. [1892], 147 U. S., 282; Advisory Opinion to Governor [1905], 49 Fla., 269; Mechem
on Public Officers, Ch. I.)
To tell the truth, it is possible that the earnestness of counsel has just led us to decide too much. Not for a
moment should there be dismissed from our minds the unusual and potently effective proviso of section
22 of the Organic Act, "That all executive functions of the government must be directly under the
Governor-General or within one of the executive departments under the supervision and control of the
Governor-General." At the very least,the performance of duties appurtenant to membership in the voting
committee is an executive function on the Government, which the Organic Act requires must be subject to
the unhampered control of the Government-General. The administrative domination of a governmentally
organized and controlled corporation is clearly not a duty germane to the law-makingpower.
The incorporation of the National Coal Company has not served to disconnect the Company or the stock
which the Government owns in it from the Government and executive control. The Philippine Legislatureis
empowered to create and control private corporations. (Martinez vs. La Asociacion de Seoras Damas
del Santo Asilo de Ponce [1909], 213 U. S., 20.) The National Coal Company is a private corporation.
(National Coal Company is a private corporation. (National Coal Company vs. Collector of Internal
Revenue [1924], 46 Phil., 583.) By becoming a stockholder in the National Coal Company, the Goverment
divested itself of its sovereign character so far as respects the transactions of the corporation. (Bank of
the U. S. vs. Planters' Bank of Georgia [1824], 9 Wheat., 904.) 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. Mr. Chief Justice Marshall in speaking of the Bank of the United
States said, "It was not created for its own sake, or for private purposes. It has never been supposed that
Congress could create such a corporation." (Osborn vs. Bank of the U. S. [1824], 9 Wheat., 738; National
Bank vs. Commonwealth [1869], 9 Wall., 353; Railroad Co. vs. Peniston [1873], 18 Wall., 5; Chesapeake
& Delaware Canal Co. vs. U. S. [1918], 250 U. S., 123.) Of the National Coal Company, it has been said
by Mr. Justice Johnson as the organ of the court in National Coal Company vs. Collector of Interanl
Revenue, supra, that "The Government of the Philippine Islands is made the majority stockholder,
evidently in order to insure proper governmental supervision and control, and thus to place the
Government in a position to render all possible encouragement, assistance and help in the prosecution
and furtherance of the company's business.' The analogy is closer in the companionNational Bank case,
No. 27225.
It further is inconvertible that the Government, like any other stockholder, is justified in intervening in the
transactions in the corporation, and in protecting its property rights in the corporation. Public funds were
appropriated to create the National Coal Company. Those funds were used to purchase stock. The voting
of the government stock is the prerogative of the stockholder, not the prerogative of the corporation. It is
transaction in, but not of, the corporation. The stock is property. The Government, the owner of the
majority stock in the company, naturally dominates the management of its property. The Government may
enforce its policies and secure relief in and through the corporation and as stockholder.
The situation will be better understood if it be recalled that, in addition to the National Coal company (Acts
Nos. 2705 and 2822), the Philippine Legislature has created the Philippine National Bank (Acts Nos.
2612, 2747, 2938, and 3174), the National Petroleum Company (Act No. 2814), the National
Development Company (Act No. 2849), the National Cement Company (Act No. 2855), and the
NationalIron Company (Act No. 2862). The aggregate authorized capital stock of these companies is
P54,500,000. The Legislature has in each of these instances directed that a majority of the shares of
stock shall be purchased for the Government, and has appropriated money for this purpose. There have
likewise been authorized corporations for the promotion of the merchant marine (Act No. 2754). The stock
of the Manila Railroad Company has been purchased for the Government. (Acts Nos. 2574, 2752, and
2923.) All these are conspicuous instances of a paternally inclined government investing large sums in
business enterprises which after acquisition or organization have vitally concerned the Government. In all
of the companies mentioned, the stock is to be voted by a committee or board of control, consisting of the
Governor-General, the President of the Senate, and the Speaker of the House of Representatives. The

127

power of the majority stckholders to vote the government stock in the corporation carries with it the right,
under our Corporation Law, to elect all the directors, to remove any or all of them, and to dissolve the
corporation by voluntary proceedings. (Corporation Law, secs. 31, 34, 62.) In the case of the Philippine
National Bank, the law explicitly enumerates variousfunctions of the bank which may not be performed
without the express approval of the Board of Control. (Act No. 2938.)
Very important property rights are involved in the transactions in the governmental directed corporations.
Just as surely as the duty of caring for government property is neither judicial nor legislative in character
is it as surely executive. Yet a majority of the voting committee or board of control is made up of the
presiding officers of the two houses of the Legislature and they are in a position to dictate action to the
directors and subordinate personel of these corporations.
Based on all the foregoing considerations, we deduce that the power of appointment in the Philippines
appertains, with minor exceptions, to the executive department; that membership in the voting committee
in question is an office or executive function; that the National Coal Company and similar corporations are
instrumentalities of the Government; that the duty to look after government agencies and government
property belongs to the executive department; that the placing of members of the Philippine Legislature
on the voting committee constitutes an invasion by the Legislative Department of the provileges of the
Executive Department. Under a system of government of delegated powers, under which delagation
legislative power vests in the Philippine Legislature and executive power vests in the Governor-General,
and under which Governor-General and a specified power of appointment resides in the Philippine
Legislature, the latter cannot directly or indirectly perform functions of an executive nature through the
designation of its presiding officers as majority membersof a body which has executive functions. That is
the meaning we gather from the tri-partite theory of the division of powers. That is the purport of the
provisions of the Organic Law. That has been the decided trend of persuasive judicial opinion.
The intimation contained in the conclusions just reached does not necessarily mean that the plaintiff will
be privileged to substitute the directors designated by the Governor-General for those designated by the
two presiding officers in the Legislature. The burden has heretofore been on the defenfants. From this
point, it will be on the plaintiff. It is well established in quo warranto proceedingsthat the failure of the
defendant to prove his title does not established that of plaintiff. (People vs. Thacher [1874], 10 N. Y.,
525.)
The answer to the problem comes from two directions. The acting Attorney-General of the United States
finds the solutions in the supreme executive power entrusted to the Governor-General, while cousel for
the plaintiff advance the rule of statutory construction pertaining to partial invalidity. We are frank to say
that we experience difficulty in following the lead of the law officer of the Government of the United States.
The Governor-General since the approval of the last Organic Act has had no prerogative powers. His
powers are so clearly and distincly stated that there ought to be no doubt as to what they are. Like the
Legislature and the judiciary,like the most inconspicuous employee, the Governor-General must find
warrant for his every act in the law. At this stage of political development in the Philippines, no vague
residuum of power should be left to lurk in any of the provsions of the Organic Law.
Counsel for the plaintiff rely on a decision of this court (U. S. vs. Rodriguez [1918], 38 Phil., 759) as best
expressing the local rule regarding statutes void in part. Counsel for the defendants cite an earlier case
(Barrameda vs. Moir [1913], 25 Phil., 44). As the principle announced in the last cited case is the more
comprehensive and is much fairer to the defendants, we give it preference. It was there announce:
Where part of a statute is void, as repugnant to the Organic Law, while another part is valid, the
valid portion, if separable from the invalid, may stand and be enfored. But in order to do this, the
valid portion must be so far independent of the invalid portion that it is fair to presume that the
Legislature would have enacted it by itself if they had supposed that they could not
constitutionally enact the other. Enough must remain to make a complete, intelligible, and valid
statute, which carries out the legislative intent. The void provisions must be eliminated without
causing results affecting the main purpose of the Act in a manner contrary to the intention of the

128

Legislature. The language used in the invalid part of a statute can have no legal force or efficacy
for any purpose whatever, and what remains must express the legislative will independently of the
void part since the court has no power to legislate.
Omitting reference to the President of the Senate and the Speaker of the House of Representative in
section 4 of Act No. 2705, as amended by section 2 of Act No. 2822, it would then read: "The voting
powerof all such stock owned by the Government of the Philippine Islands shall be vested exclusively in a
committee consisting of the Governor- General." Would the court be justified in so enforcing the law
without itself intruding on the legislative field?
The Philippine Legislature, as we have seen is authourized to create corporations and offices. The
Legislature has lawfully provided for a National Coal Company, but has unlawfully provided for two of its
members to sit in the committee. Would this court be doing violence to the legislative will if the votig
power be continued solely in the hands of the Governor-General until different action is taken by the
Legislature? We conclude that we would not, for the reason that the primordial purpose of the Legislature
was "to promote the business of developing coal deposits . . . and of mining . . . and selling the coal
contained in said deposits." (Act No. 2705, sec 2; Act No.2822, sec.1.) The incidental purpose of the
Legislature was to provide a method to vote the stock owned by the Government in the National Coal
comapny. In the words of the United States Supreme Court, "The striking out is not necessarily by erasing
words, but it may be by disregarding the unconstitutional provision and reading the statute as if that
provision was not there." (Railroad companies vs. Schutte [1880], 103 U. S. 118; State vs.Westerfield
[1897], 23 Nev., 468; State vs. Washburn, supra; State vs. Wright [1913], 251 Mo., 325; State vs.Clausen
[1919], 107 Wash.,667; 1 Lewis Sutherland, Statutory construction, Second ed. Ch. IX.)
The decision of the United States Supreme Court in Clayton vs. People ([1890], 132 U. S., 632) is
particularly applicable on account of relating to the validity of an Act passed by a territorial legislature, the
question of partial invalidity, and the contention likewise here made, that since the law in question had
been on the statute books for a number of years, it must be considered as having been impliedly ratified
by the Congress. An Act of the Legislature of Utah of 1878 had declared that the auditor and the treasurer
shall be elected by the voters of the territory. In a decision handed down in 1886, the Supreme Court of
the territory of Utah held the act void because in conflict with the organic act creating the territory, which
provided that the governor, with the consent of the legislative council, shall appoint such officers. It further
held that a territorial statute invalid when enacted is not validated by the failureof the congress expressly
to disapprove it. (People vs. Clayton [1886], 4 Utah, 421.) The United States Supreme Court on appeal
affirmed the judgment. It said:
It can hardly be admitted as a general proposition that under the power of Congress reserved in
the Organic Acts of the territories to annul the Acts of their legislature the absence of any action
by Congress is to be construed to be a recognition of the power of the Legislature to pass laws in
conflict with the Act of Congress underwhich they were created. . . . We do not think that the
acquiescenceof the people, or of the Legislature of Utah, or of any of its officers, in the mode for
appointing the auditor of public accounts, is sufficient to do away with the clear requirements of
the organic Act on that subject. It is also, we think, very clear that only that part of the Statute of
Utah which is contrary to the Organic act, namely, that relating to the mode of appointment of the
officer, is invalid; that so much of it as creates the office of auditor of public accounts and
treasurer of the Territory is valid; and that it can successfully and appropriately be carried into
effect by an appointment made by the governor and the Council of the Territory, as required in the
Act of Congress.
On the assumption, however, that the entire provision authorizing the voting committee be considered as
wiped out, yet we think it would still devolve on the Governor-General to protect the public interests and
public property. He is made responsible for the execution of the laws, and he would be unfaithful to that
trust if, through inaction, instrumentalities of government should fail to function and government property
should be permitted to be dissipated.

129

Counsel for the dependants have injected the argument into the discussion that, as the President of the
Senate and the Speaker of the House of Representatives are at least de facto officers, their right to act as
members of the voting committee cannot be collaterally attacked, and that the defendants in this suit are
the de jure members of the board of directors of National Coal Company. Contentions such as there are
out of harmony with the avowed purpose to avoid technical obstruction, and to secure a definite
expression of opinion on the main issue. However, it remains to be said that this is a direct proceeding to
test the right of the defendants to the offices to which they consider themselves entitled. The inquiry then
may go, as is proper in quo warranto proceedings, to the extent of determining the validity of the act
authorizing the offices. The fallacy of the argument relating to the de facto doctrine is that, although there
may be a de facto officer in a de jure office, there cannot be a de factoofficer in a de fact office. There is
no such thing as de facto office under an unconstitutional law. (Norton vs.Shelby County [1886], 188 U.
S., 425.)
Before terminating, a few general observations may be appropriate.The case has been carefully prepared
and elaborately argued. All parties appear to desire to have the matter at issue definitely determined. We
have endeavored to accomodate them. But in such a bitterly fought contest, the ingenuity of counsel
presses collateralpoints upon us which the court need not resolve. We thus find it unnecessary to express
any opinion on the propriety or legality of Executive Order No. 37, on that portion of section 18 of the
Organic Act which disqualifies Senators or Representatives for election or appointment to office and no
other subsidiary matters. Need it be added that the court is solely concerned with arriving at a correct
decision on a purely legal question.
Every other consideration to one side, this remains certainThe congress of the United States clearly
intended that the Governor- General's power should be commensurate with his responsibility. The
Congress never intended that the Governor-General should be saddled with the responsibility of
administering the government and of executing the laws but shorn of the power to do so. The interests of
the Philippines will be best served by strict adherence to the basic principles of constitutional government.
We have no hesitancy in concluding that so much of section 4 of Act No. 2705, as amended by section 2
of Act No. 2822, as purports to vest the voting power of the government-owned stock in the National Coal
Company in the President of the Senate and the Speaker of the House of Representatives, is
unconstitutional and void. It results, therefore, in the demurrer being overruled, and as it would be
impractible for the defendants to answer, judgment shall be rendered ousting and excluding them from the
offices of directors of the National Coalcompany. So ordered, without costs.
Street, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions
JOHNSON, J., concurring:
Under the admitted facts the writ of quo warranto prayed for should be granted. Milton E. Epringer,
Dalmacio Costas, and Anselmo Hilario are unlawfully and illegally holding and exercising the position of
members of the Board of Directors of the National Coal Company andshould be ousted and altogether
excluded therefrom; that Romarico Agcaoili, H. L. Heath, and Salvador Lagdameo have been duly and
legally elected as members of the Board of Directors of the National Coal Company, and judgment is
rendered that they be inducted into said position to take charge thereof and to perform the duties
incumbent upon them as members of said board of directors.
The principal questions involved in this action are:

130

(a) May the Legislative Deparment of the Government of the Philippine Islands adopt a law and
provide that some of its members shall take part in its execution?
(b) Was the Governor-General of the Philippine Islands authorized, under the law, to promulgate
Executive Order No. 37? and,
(c) Were the respondents legally elected as members of the Board of Directors of the National
Coal Company?
Inasmuch as these questions involve respective powers of two great departments of the Government,
they should be seriously considered by this court and not to be lightly resolved on.
These questions were presented to the Supreme Court of the Philippine Islands for solution in an original
action, praying for the issuance of the extraordinary legal writ of quo warranto. In relation with the
questions involved, the specific and definite purpose of the action is (a) to inquire into the right of the
respondents, Milton E. Spinger, Dalmacio Costas, and Anselmo Hilario to act as members of the Board of
Directors of the National Coal Company, a private corporationcreated by special charter by an Act of the
Philippine Legislature; and (b) to have inducted into office, in their place and stead, said Romarico
Agcaoili, H. L. Heath, and Salvador Lagdameo.
To the petition presented by the Government of the Philippine Islands (ex rel. Romarico Agcaoili, H. L.
Heath and Salvador Lagdameo) the respondents demurred. The facts are therefore admitted. A question
of law only is presented for solution.
THE FACTS UPON WHICH THE ACTION IS BASED
The facts upon which the petition is based are few, clear, and well defined. There is no dispute upon the
facts. They are briefly: That the National Coal Company is a private corporation created by Act No. 2705
(vol. 2, Public Laws, p. 216, March 10, 1917) as amended by Act No. 2822 (vol. 14, Public Laws, p. 202,
March 5, 1919). Act No. 2705, as amended by Act No. 2822, constitutes the charter of said company.
Said Acts are not public laws. They are private Acts of the Philippine Legislature. They provide that said
company shall be subject to the provisions of the Corporation Law (Act No. 1459) in so far as they are not
inconsistent with the provisions of said charter, and shall have the general powers mentioned in said Act
(Act No. 1459) and such other powers as may be necessary to enable it to prosecute the business of
developing coal deposits in the Philippines Islands, and mining, extracting, transporting, and selling the
coal contained in said deposits. Said charter provided that the capital of said company shall be
P3,000,000, divided into 30,000 shares of stock with a par value of P100 per share.
Said charter further provided that the Governor-General on behalf of the Government of the Philippine
Islands, shall subscribe for 51 per centum of said capital stock, and that the "voting power of all such
stock owned by the Government of the Philippine Islands shall be vested exclusively in a committee
consisting of the Governor-General, the President of the Senate, and the Speaker of the House of
Representatives." At the time of the adoption of said charter the Philippine Legislature appropriated the
sum of P1,530,000 for investment in the stock of said company to be acquired by the Government of the
Philippine Islands.
The National Coal Company was organized in accordance with the provisions of its charter. A Board of
Directors was elected from time to time. Its business was carried on by said Board of Directors. Finally a
legal question arose concerning the right of the President of the Senate and the Speaker of the House of
Representatives to act with the Governor-General in voting the stock of said company. That question was
referred to the Judge Advocate General of the United States Army as well as to the Attorney-General of
the United States. Upon full consideration of the question, the Judge Advocate General and the AttorneyGeneral reached the conclusion that the President of the Senate and the Speaker of the House of
Representatives were without authority in law to take part in the voting of the stock owned by the

131

Government, for the reason that the particular provision of the charter granting or creating said power as
illegal and void, and that the participation of the President of the Senate and the Speaker of the House of
Representatives in voting said stock was an illegal encroachment upon the powers of the Executive
Department of the Government. Upon receiving said opinions, the Government-General evidently for the
purpose of avoiding criticism that he was permitting an illegal and void law to be enforced and, if possible,
impeachment proceedings for a failure or refusal on his part to comply with the law of the land, issued an
executive order, known as Executive Order No. 37. Executive Order No. 37 provides:
Whereas it is held in an opinion of the Judge Advocate General of the United States Army,
confirmed by an opinion of the Attorney-General of the United States, received at the Office of the
Executive, November seventh, nineteen hundred and twenty-six, that the provisions of the
statutes passed by the Philippine Legislature creating a 'Board of Control' or 'Committee' and
enumerating the duties and powers thereof, with respect to certain corporations in which the
Insular Government is the owner of stock, are nullities; that the remaining portions of said statutes
are valid; that the duties imposed by said statutes upon said Board or Committee are executive in
their nature, and subject to the provisions of the Organic Act relating to the executive functions;
that said executive duties and powers may be performed as in other cases not specifically
provided for by law.
Now, therefore, acting under authority of said opinions, the duties and powers heretofore
exercised by said 'Board of Control' or Committee' shall, from and after this date, be exercised
solely by the Governor-General pursuant to the executive power vested in him by the Organic
Act."
Notice of said Executive Order was duly and timely given by the Governor-General to the President of the
Senate and the Speaker of the House of Representatives. The Governor-General further notified the
President and Speaker that "he would thereafter exercise exclusively the duties and powers" with respect
to the voting of the stock held by the Government of the Philippine Islands in the National Coal Company.
At the time of the issuance of said Executive Order No. 37 or thereabouts the Government of the
Philippine Islands was the registered owner of about 29,975 shares of the total of 30,000 shares of said
company. The President of the Senate and the Speaker of the House of Representatives protested
against the alleged assumed authority on the part of the Governor-General to vote said government stock
and insisted upon their right to participate in the voting of the same.
Later, and without going into great detail, a meeting of the stockholders was called for the purpose of
electing members of the Board of Directors of said company. In accordance with the preannounced
intention, the President of the Senate and the Speaker of the House of Representatives attended the
meeting of the stockholders of the company and then and there asserted their right, as a majority of the
"Voting Committee," to vote the stock of the Government. Against the objections and protest of the
Governor-General they were permitted by the Chairman of the meeting to vote all of the stock held by the
Government of the Philippine Islands. They deposited a ballot purporting to be signed by them on behalf
of the said "Voting Committee" for the election as Directors of Alberto Barretto, Frank B. Ingersoll, Milton
E. Springer, Dalmacio Costas, and Anselmo Hilario. Notwithstanding the objection and protest of the
Governor-General to the acceptance of said ballot, the Chairman permitted it to be deposited in favor of
the persons for whom it was cast. At the same meeting of the stockholders and at the same time the
Governor-General, insisting upon his sole right to vote the stock owned by the Government of the
Philippine Islands, cast his ballot representing all of the stock of the Government, in favor of Alberto
Barretto, Frank B. Ingersoll, Romarico Agcaoili, H. L. Heath, and Salvador Lagdameo, which ballot was
rejected by the Chairman and the same was not allowed to be deposited.
Against the ruling of the Chairman, permitting the ballot of the President of the Senate and the Speaker of
the House of Representatives to be deposited on behalf of the said "Voting Committee" a protest of the
Governor-General was duly and timely presented. Notwithstanding said protest on the part of the
Governor-General, that the President of the Senate and the Speaker of the House of Representatives had

132

no authority to vote the stock of the Government nor to participate in the voting of the same, the Chairman
declared that Alberto Barretto, Frank B. Ingersoll, Milton E. Springer, Dalmacio Costas, and Anselmo
Hilario had each received a majority of the votes cast and that said persons had been duly elected as
members of the Board of Directors of the National Coal Company.
It will be noted that both the Governor-General, and the President of the Senate and Speaker of the
House of Representatives voted for the election of Alberto Barretto, and Frank B. Ingersoll. There is no
objection in this record to the right of said persons to act as members of the Board of Directors. The
contention of the Government is, that Romarico Agcaoili, H. L. Heath and Salvador Lagdameo had been
duly and legally elected as members of the Board of Directors by the vote of the Governor-General, and
that Milton E. Springer, Dalmacio Costas, and Anselmo Hilario had not been duly and legally elected as
members of the Board of Directors by the vote of the President of the Senate and the Speaker of the
House of Representatives, and that they should be ousted and altogether excluded from their office.
Considering the foregoing facts we have the question squarely presented, whether the persons elected by
the Governor-General in voting the stock owned by the Government had been duly and legally elected
directors of said company, or whether the persons elected by the President of the Senate and the
Speaker of the House of Representatives were legally elected as such Directors.
It can scarcely be contended that the President of the Senate and the Speaker of the House of
Representatives, when the Governor-General is present at a meeting of the stockholders of said
company, have a right to vote all of the stock of said company, to the entire exclusion of the GovernorGeneral. There is nothing in the law which indicates the manner in which the stock owned by the
Government of the Philippine Islands may be voted when a difference of opinion exists among the
members of the "Voting Committee" as to how the same shall be voted.
Without discussing the method of voting the stock when there is a difference of opinion in the "Voting
Committee" as to how it shall be voted, we pass to the question, whether or not the President of the
Senate and the Speaker of the House of Representatives, as members of the Legislative Department of
the Government, have any right whatever to participate in the voting of the stock belonging to the
Government of the Philippine Islands.
THE RIGHT OF THE LEGISLATIVE DEPARTMENT OF THE GOVERNMENT TO EXECUTE OR TO
ASSIST IN THE EXECUTION OF ITS LAWS.
The Legislative Department of the Government adopted the law creating the charter of the National Coal
Company. The Legislative Department of the Government provided a method, in said charter, by which it,
through the President of the Senate and the Speaker of the House of Representatives, should assist in
the execution of said law.
It has been stated so frequently by eminent statesmen and jurists, that it scarcely needs the citation of
authorities to support the doctrine, that wherever the American flag flies as an emblem of Government,
the powers of that Government are divided into three distinct and separate departments Executive,
Legislative and Judicial each acting in its own field, under its own authority and general powers of the
government. While the line of demarcation, by division, is easily discerned, it is at times difficult to follow
in actual cases. There is a constant overlapping of the different departments of the government which
cannot be avoided, and yet such overlapping generally results in the greater stability and permanency of
the government. It is also a statement, based upon political science, that scarcely needs repetition, that
one department overreaches its powers whenever it steps across the line of demarcation and attempts to
function within the field of another department of government under the American flag. Under the form of
government established in the Philippine Islands, one department of the government has no power or
authority to inquire into the acts of another, which acts are performed within the discretion of the other
department. It is the general duty of the legislative branch of the government to make such laws and
regulations as will effectually conserve the peace and good order and protect the lives and the property of

133

the citizens of the state. It is the duty of the governor-General to take such steps as he deems wise and
necessary for the purpose of enforcing such laws. Every delay and hindrance and obstacle which
prevents a strict enforcement of laws necessarily tends to jeopardize public interest and the safety of the
whole people. (Barcelon vs. Baker and Thompson, 5 Phil., 87.)
The different departments of the government are coordinate, coequal and each functions independently,
uncontrolled and uncontrollable by the other. To that statement, however, there exist exceptions. For
example, the executive department of the government may annul and set aside acts of the legislative
department of the government under its power of veto. So may the legislative department of the
government annul and set aside actions of the executive department of the government by repealing or
amending laws. So likewise the judicial department of the government may annul and set aside acts of
the legislative department of the government when such acts are contrary to the fundamental laws of the
state or beyond the powers of the legislative department. But in every case, where one department, as
above indicated, to any extent attempts to control the effects of acts of the other department or
departments, it is acting under its own power and within its own department.
The Constitution of the United States as well as the Constitution of each of the states of the United
provide that the government shall be divided into three departments: executive, legislative, and judicial.
George Washington, who was the President of the Constitutional Convention which adopted the United
States Constitution, in a letter written to his friend Lafayette in 1788, referring to the complete separation
of the powers of the government, said: "These powers are so distributed among the legislative, executive,
and judicial branches, in which the powers of the government are arranged that it can never be in danger
of denigrating into a monarchy, an oligarchy, an aristocracy, or any other despotic form of government as
long as there shall remain any virtue in the body of the people."
Mr. Thomas Jefferson, who has been quoted on questions relating to the meaning, force and application
of the provisions of the Constitution of the United States perhaps more than any other one person, said:
"The great principle established by the Constitution of the United States which was never before fully
established, was the separation of the delegated power into the hands of the executive, the legislative
department, and the judiciary. This is our system of check and balances which makes ours a 'government
of laws and not of men.'" On another occasion Mr. Thomas Jefferson said, in discussing the necessity of
limiting the power of government: "When it comes to a question of power trust no man, bind him down
from mischief, by the strong chains of the Constitution."
By the well known distribution of the powers of government among the executive, legislative, and judicial
departments by the constitution, there was provided that marvelous scheme of check and balances which
has been the wonder and admiration of the statesmen, diplomats, and jurists in every part of the civilized
world.
The balance of the powers of government provided for in the constitution as well as in the charter of the
Philippine Government was not the result of chance. The various parts did not fall into place merely
through the vicissitudes of circumstance. They were devised by careful foresight; each in a measure
dependent upon the others and not possessed of so much independence as to give freedom and courage
in the exercise of their functions. Each was to move within its respective spheres as the bodies of the
celestial system march along the pathways of the heaven. It is a fundamental rule of constitutional law
that no department of government has power to perform nor to assist in performing the functions of
another.
The executive department is limited to the execution of valid laws adopted by the legislative department of
the government. The legislative department is limited to the enactment of laws and to the investigation of
facts necessary for wise legislation. The judicial department of the government is limited to the
administration of justice and the interpretation of laws. In case of differences between the executive and
legislative departments as to their respective powers, it has long since been conceded that the Supreme
Court shall act as an umpire. (Marbury vs.Madison [1803], 1 Cranch [U.S.] 137; Rice vs. Austin, 19 Minn.,
74; Luther vs. Borden, 7 Howard [U.S.], 44; Martin vs. Mott, 12 Wheat. [U. S.], 19.)

134

No government, past or present, has more carefully and watchfully guarded and protected, by law, the
individual rights of life and property of its citizens than the governments under the American flag. Each of
the three departments of the government has had separate and distinct functions to perform in this great
labor. The history of the United States, covering nearly a century and a half, discloses the fact that each
department has performed its part well. No one department of the government can or ever has claimed,
within its discretionary power, a greater zeal than the others in its desire to promote the welfare of the
individual citizens, entities or corporations. They are all joined together in their respective spheres,
harmoniously working to maintain good government, peace and order, to the end that the rights of each
citizen be equally protected. No one department can claim that it has a monopoly of these benign
purposes of the government. Each department has an exclusive field within which it can perform its part
within certain legal and discretionary limits. No other department can claim a right to enter these legal and
discretionary limits and assume to act there. No presumption of an abuse of these legal and discretionary
powers by one department will be considered or entertained by another. Generally such conduct on the
part of one department, instead of tending to conserve the highest interest of the government and its
citizens and the rights of the people, would directly tend to destroy the confidence of the people in the
government and to undermine the very foundations of the government itself. (Barcelon vs. Baker and
Thompson, 5 Phil., 87, 115; Forbes vs. Chuoco Tiaco and Crossfield, 16 Phil., 534.)
The Government of the Philippine Islands, like the Government of the United States, is based upon the
fundamental principle of the separation of the executive, legislative, and judicial powers. Subject only to
the exceptions especially established by the organic act, neither of the great department of the
government may validly exercise any of the powers conferred upon either of the others. In the case
of Abueva vs. Wood (45 Phil., 612) it was said: "The duties of each department are well defined and
limited to certain filed of governmental operation." Each department exercises functions as independent
of each other as the Federal or state governments of the Union. It was not intended by the framers of the
theory of our government that the duties which had been assigned to the executive should be performed
by the legislative, nor that the duties which had been assigned to each of them should be performed and
directed by the judicial department. (Sinking Fund Cases, 99 U. S., 700, 718; Clough vs. Curtis, 134 U.
S., 361; Abueva vs. Wood, supra.)
No well organized government or business even can be well managed if one department can enter upon
the field of another and attempt to administer or interfere in the administration of the other.
(Abueva vs. Wood, supra; Barcelon vs. Baker and Thompson, 5 Phil., 87; U. S. vs. Bull, 15 Phil., 7, 27.)
In the case of Kilbourne vs. Thompson (103 U. S., 168) it was said: "It is also essential to the successful
working of the system, that the persons entrusted with power in any one of these branches shall not be
permitted to encroach upon the powers confided to the others, but that each shall by the law of its
creation be limited to the exercise of the powers appropriate to its own department and no other."
Section 17 of the Administrative Code of 1917 (Act No. 2711) provides: "The executive, legislative, and
judicial powers of the Philippine Government are distributed, respectively, among the executive,
legislative, and judicial branches, severally exercising the functions and powers conferred on them by law.
Each department of the government has an exclusive field within which it can perform its part within
certain discretionary limits. No other department can claim a right to enter these discretionary limits and
assume to act there. (Barcelon vs. Baker and Thompson, supra; U. S. vs. Bull, supra; Forbes vs. Chuoco
Tiaco and Crossfield, 16 Phil., 534; Borromeo vs. Mariano, 41 Phil., 322; Severino vs. Governor-General
and Provincial Board of Occidental Negros, 16 Phil., 366; Province of Tarlac vs. Gale, 26 Phil., 338.)
In the case of United States vs. Ang Tang Ho (43 Phil., 1) this court said that the legislature has no
authority to execute or construe the law, the executive has no authority to make or construe the law.
Subject to the constitution only, the power of each branch is supreme within its own jurisdiction, and it is
for the judiciary only to say when an act of the legislature is or is not constitutional. It is beyond the power
of any branch of the Government of the Philippine Islands to exercise its functions in any other way than

135

that prescribed by the Organic Law or by local laws which conform to the Organic Law.
(Alejandrino vs. Quezon, 46 Phil., 83, 96.)
It is not within the power of the Philippine Legislature to enact laws which either expressly or impliedly
diminish the authority conferred by an Act of Congress on the Chief Executive. (Concepcion vs. Paredes,
42 Phil., 599.)
From all of the foregoing, the conclusion is inevitable, that if any given act of the Philippine Legislature
does not, by its nature, pertain to the law-making function, but is either executive or judicial in character,
and does not fall within any of the express exceptions established by the Organic Act, such an act is ultra
vires and therefore null and void. (See, for a discussion of the powers of the executive department of the
Government, the opinion by the late Chief Justice Cayetano S. Arellano in the case of In re Patterson, 1
Phil., 93.)
POWERS OF THE LEGISLATIVE DEPARTMENT OF GOVERNMENTS UNDER THE AMERICAN FLAG
Some one has said that the powers of the legislative department of the Government, like the boundaries
of the ocean, are unlimited. In constitutional governments, however, as well as governments acting under
delegated authority, the powers of each of the departments of the same are limited and confined within
the four walls of the constitution or the charter, and each department can only exercise such powers as
are expressly given and such other powers as are necessarily implied from the given powers. The
constitution is the shore of legislative authority against which the waves of legislative enactment may
dash, but over which they cannot leap.
Mr. Justice Cooley, one of the greatest expounders of constitutional law, said: "The legislative power, we
understand, to be the authority, under the constitution, to make laws and to alter and repeal them."
Mr. Biddel, an eminent lawyer, said: "The legislature has no other duty nor power than to make laws. After
a law has been enacted, that department has no further power over the subject except to amend or repeal
it. It can neither adjudge the law nor execute it. All power of that department is ended."
Mr. James Wilson, who was a member of the convention which adopted the Constitution of the United
States, and later one of the first members of the Supreme Court of the United States, and one of the very
ablest of the members of that great body, in discussing the question of the powers of the legislative
department of the government, said, quoting from an able English statesman: "England can never be
ruined but by a Parliament (legislative department), which demonstrates the danger of allowing to the
legislative department any other (power) than strictly legislative powers."
Even the Justice of the Supreme Court joined in a letter addressed to President Washington upon the
general subject of the separation of the departments of government, and insisted upon a scrupulous and
undeviated maintenance of the separation of the departments.
Mr. Thomas Jefferson, James Madison, and Alexander Hamilton, who were among the great expounders
of the Constitution, wrote earnestly upon the question of the separation of the departments of
government, and, with many others, united in protesting against tolerating the claim of the legislative
department to exercise any other than purely legislative power.
It has been said in many of the leading cases decided by the highest courts of record that "the power of
the legislature is the power to legislate only and to make such investigations as are necessary for that
purpose."

136

Under a constitutional form of government it is believed that all will agree that the concentration of power
in the legislative department of government or in any one of the other departments will inevitably result in
despotism.
Mr. Bryce, who for many years was a close student of the system of government under the American flag,
said: "A legislature is a legislature and nothing more." Mr. Woodrow Wilson, in discussing the powers of
the executive and legislative departments of government, said: "The power of the legislative department
is to enact laws, while it is the duty of the President to see that the laws of Congress are failthfully
executed."
A careful reading of the debates, in the Constitutional Convention, by the greatest statesmen and
diplomats at that time shows clearly that one of their greatest concerns was the limitation upon the
powers of the executive and legislative departments. A reading of the Constitution itself adopted after a
long discussion shows clearly that its members intended to expressly limit the powers of said
departments. In the enumeration of the powers of the three departments the phrase that each "shall" or
"shall not" do a particular thing is frequently found. No general unlimited power is found. Experience had
shown that there was need of curbing the legislative body in order to prevent a violation of the citizens'
right of liberty and property. The members of the Constitution Convention made an effort to strike at the
very root of the evils which the people of the state had suffered by the madness of a sovereign legislative
body.
James Madison, a member of the Convention, and later President of the United States, said: "Experience
had proved a tendency in our governments (state governments) to throw all power into the legislative
vortex. The executives of the states are, in general, little more than ciphers; the legislature, omnipotent. If
no effectual check be devised in restraining the instability and encroachment of the latter, a revolution of
some kind or other would be inevitable."
Gouverneur Morris, one of the great statesmen of his time, said that "he concurred in thinking the public
liberty in greater danger from legislative usurpation than from any other source." (July 21, 1787.)
James Madison, in September, 1787, in speaking of the encroachments of the legislative department,
said: "The experience of the states had demonstrated that their checks are insufficient. The legislative
department is everywhere extending the spheres of its activity and draining all power into its impetuous
vortex. I have appealed to experience for the truth of what I advance on this subject."
Mr. James Wilson, a member of the Constitutional Convention and one of the first members of the
Supreme Court of the United States, said on the 16th day of June, 1787: "If the legislative authority be not
restrained there can be neither liberty nor stability."
The great statesmen who were among the members of the Constitutional Convention were as solicitous
about the limitations of the executive department of the government, as they were concerning the
limitations of the legislative department. They were exceedingly cautious in defining the powers of each of
said departments, and so far as their knowledge and experience aided them their work was complete.
POWERS OF THE PHILIPPINES LEGISLATURE, GRANTED BY THE PHILIPPINE CHARTER
Turning to the Act of Congress of August 29, 1916, commonly known as the "Jones Law," for the purpose
of ascertaining what power or authority to legislate was granted to the Philippine Legislature, we find that,
while the legislature was given "general legislative power" (secs. 7, 8, 12), "all laws enacted by the
Philippine Legislature shall be reported to the Congress of the United States, which reserved the power
and authority to annul the same." Not only must all laws enacted by the Philippine Legislature be reported
to Congress for approval but certain laws, in addition to the requirement that they must be submitted to
Congress, must be submitted to the President of the United States for approval (secs. 9, 10, and 19). In
other words, no act of the Philippine Legislature can have the force and effect of a law until it has been

137

either expressly or tacitly approved either by the Congress of the United Statesor by the President.
Neither will it be contended that the express or tacit approval by the Congress of the United States or by
the President, of a law otherwise illegal and void, will render such law valid if, in fact, it was adopted
without power or authority.
THE AUTHORITY OF THE PHILIPPINE LEGISLATURE TO ENACT LAWS IS WHOLLY A DELEGATED
AUTHORITY
The only legislative authority possessed by the Philippine Legislature is a delegated authority. The only
power or authority to legislate is granted by the Congress of the United States by the charter (Jones Law;
Act of July 2, 1902). To ascertain the power of the Philippine Legislature, therefore, an examination of its
charter must be made.
It is argued that when either the President or the Congress of the United States gives express or tacit
approval to an Act of the Philippine Legislature, that such an act thereby becomes a valid subsisting law.
That argument is tenable, except when such act is beyond the powers granted to the Legislature. The
approval by the President or Congress of an act of the Philippine Legislature does not render such an act
legal if, in fact, the same is beyond the powers of the Legislature or contrary to the fundamental law of the
land. If the provisions of the act extend beyond the powers of the Legislature, then certainly it cannot be
contended that the same is a valid and legal act even though the same has been expressly or tacitly
approved by the President or Congress, unless the same can be considered an act of the congress of the
United States and then only, when the same is within the power and authority of Congress. Such act of
the Philippine Legislature, even with such approval, can be no more valid and legal than if the Congress
of the United States itself had adopted a law which was beyond its power. The legality of such act,
notwithstanding the approval, may be decided in a proper proceeding for the purpose of determining
whether its provisions are beyond the powers of the legislative department of the government.
The general legislative powers granted to the Philippine Legislature and found in sections 6, 7, 8, and 12
of the Act of August 29, 1916, and those provisions of the Act of July 2, 1902, which have not been
repealed. Section 6 provides that the laws now in force in the Philippines shall continue in force, except
as altered, amended or modified herein, until altered, amended or repealed by the legislative authority
herein provided by the Act of Congress.
Section 7 provides that the legislative authority herein provided shall have power, when not inconsistent
with this Act, by due enactment, to amend, alter, modify or repeal any law, civil or criminal, continued in
force by this Act, as it may from time to time see fit.
Section 8 provides that general legislative power, except as otherwise herein provided, is hereby granted
to the Philippine Legislature, authorized by this Act. Section 12, among other things, provides that general
legislative power in the Philippines, except as herein otherwise provided, shall be vested in the
Legislature, which shall consist of two houses, one the Senate and the other, the House of
Representatives, and the two houses shall be designated "the Philippine Legislature."
From a reading of said sections 6, 7, 8, and 12 we have some difficulty in determining why it was
necessary to repeat practically the same idea concerning the legislative authority in said sections. The
provisions of sections 6, 7, and 12 add nothing to the provisions of section 8 which granted general
legislative power to the Philippine Legislature.
We have read said Act of Congress of August 29, 1916, in vain, to find the slightest reference to the
power of the Philippine Legislature to participate in the slightest degree, by legislation or otherwise, in the
execution of its laws even after they have been approved expressly or tacitly by the President or
Congress, unless such power is found in that provision of the law, and then only in the Philippine Senate,
which gives that branch of the Legislature the right to participate, with its advice and consent, in the

138

appointment of certain officers the Government. But even that provision can scarcely be construed to
mean that the Senate can participate in the execution of the laws.
THE ONLY SOVEREIGN IN THE PHILIPPINE ISLANDS IS THE SOVEREIGNTY OF THE UNITED
STATES
The people of the Philippine Islands exercise in all matter of government a delegated authority. The
executive, the legislative, and the judicial departments of the government are merely exercising a
delegated authority. These departments, unlike the departments of Government in the United States
under the Constitution, have received no authority from the people of the Philippine Islands. In the
absence of Congressional authority, these departments have no authority or power. They are each
creatures of the Congress of the United States. Like all agents, they must act within the authority given.
The title of acts of the Philippine Legislature, by which it assumes to enact laws "by its own authority" is
an assumption of authority not possessed in fact nor in law. It acts by authority of the Congress of the
United States and in the enactment of laws that authority should be recognized.
RIGHT OF PHILIPPINE LEGISLATURE TO APPOINT COMMITTEES TO MAKE INVESTIGATIONS IN
ORDER TO ENACT WISE LEGISLATION.
In addition to the power to enact, the Philippine Legislature has the inherent power on its own account, or
through committees appointed by it, to inquire into the general condition of the government, the
administration of governmental affairs and the general welfare of the people, to obtain information to aid it
in adopting wise legislation. When such investigation is terminated and laws are adopted, then the
authority of the legislature is ended and the execution of such laws is turned over to the Executive
Department of the Government.
THE POWER AND AUTHORITY OF THE EXECUTIVE UNDER THE CHARTER OF THE PHILIPPINE
GOVERNMENT
From a further examination of the Act of Congress of August 29, 1916, in relation with the Act of Congress
of July 2, 1902, we find a depository of power and authority created for the express purpose of executing
the laws of the Philippines. (Section 21 of said Act (August 29, 1916) provides "that the supreme
executive power shall be vested in an executive officer whose official title shall be the Governor-General
of the Philippine Islands." It occurs to us that when the Congress of the United States used the words
"supreme executive power" that the phrase was used after a careful consideration of its meaning. It was
not a haphazard use of the term. The use of that phrase was carefully considered by the Congress of the
United States when the Jones Bill was under consideration. In addition to the enumerated powers
conferred upon the "supreme executive power," we find that he is held responsible for the faithful
execution of the laws of the Philippine Islands." The language of section 22 is "he shall be responsible for
the faithful execution of the laws of the Philippine Islands." There is nothing in any of the provisions of the
Jones Law which authorizes or permits the "supreme executive power" to divide its responsibility for the
faithful execution of the laws of the Philippine Islands with any other department, legislative or judicial, or
with any of the bureaus of the Government. All executive functions of the Philippine Government are
expressly under the direction and control of the Governor-General.
Outside of the provisions for the internal regulation and control of the affairs of the legislature, its rules
and regulations in its relation with the confirmation of certain appointees by the Governor-General, there
is not a syllable, a word, a phrase, a line, nor a paragraph in the Jones Law which permits the legislature
to participate in the execution of its general or special laws.
It is a fundamental maxim of political science, recognized and carried into effect in the Federal
Constitution and the constitutions of all the states of the Union, that good government and the protection
of rights require that the legislative, executive, and the judicial powers should not be confided to the same

139

person or body, but should be apportioned to separate and mutually independent departments of the
government. (Black's Constitutional Law, p. 83.)
The idea of an apportionment of the powers of government, and of their separation into three coordinate
departments is not a modern invention of political science. It was suggested by Aristotle in his treatise on
"Politics." and was not unfamiliar to the more advanced of the medieval jurists. But the importance of this
division of powers, with the principle of classification, were never fully apprehended, in theory, until
Montesquieu gave to the world his great work "Spirit of the Laws." Since then his analysis of the various
powers of the state has formed part of the accepted political doctrine of the civilized world.
All American constitutions, state and Federal, provide for the separation of the three great powers of
government, and their apportionment to distinct and independent departments of government.
The principle of the separation of the three departments of the government imposes upon each the
limitation that it must not usurp the powers nor encroach upon the jurisdiction of either of the others.
The people of the United States ordained in their constitution that "all legislative powers herein granted
shall be vested in a Congress of the United States." The people also declared that "the executive power
shall be vested in a President" and that "the judicial power of the United States shall be vested in one
Supreme Court and in such inferior courts as Congress may from time to time ordain and establish." It is
made clear therefore that the power to legislate is given to the Congress and that the President and the
courts are prohibited from making laws. The legislature cannot lawfully usurp any of the functions granted
by the Constitution to the executive department. The true meaning of the constitutional division of
governmental powers is simply that the whole power of one of the three departments of government shall
not be exercised by the same hand which possesses the whole power of either of the other departments.
Mr. Baker, who was Secretary of War of the United States at the time the Jones Law was adopted, and
who perhaps was more familiar with its meaning and purpose than any other one person, wrote a letter to
Governor-General Harrison, in which he said in general terms that "it would seem to be the part of
wisdom for the President and the Governor-General to admit of no encroachment on those powers and
placed in their hands."
Energy and constancy in the executive department of the government is a leading element in the
definition of good government. They are essential to the protection of the people of the state against
foreign attack; they are not les essential to the steady administration of the law; to the protection of
property against those irregular and high-handed combinations which sometimes interrupt the ordinary
course of justice and administration of the law; to the security of liberty against the enterprises and
assaults of ambition, of faction, and of anarchy. A feeble executive in the administration of his department
implies a feeble execution of the government. A feeble execution is but another phrase for a bad
execution; and a government ill executed, whatever it may be in theory, must be, in practice, a bad
government. Delay in the administration of the laws will lead to injustice, dissensions, turmoils, and
disorder.
While the legislature has authority to adopt laws and the courts are possessed with power to construe
them, yet finally in its largest sense, the administration of a government and the execution of the laws so
adopted and construed is finally left in the hands of the executive department of the government.
FORMS OF GOVERNMENT WHICH HAVE EXISTED IN THE PHILIPPINE ISLANDS SINCE AMERICAN
OCCUPATION
Since the 13th day of August, 1898, there have existed in the Philippines several district forms of
Government.

140

First. A Military Government. From the 13th day of August, 1898, until the 1st day of September, 1900,
there existed a Military Government in the Philippine Islands under the authority of the President of the
United States. That Government exercised all of the powers of government, including executive,
legislative, and judicial.
Second. Divided Military and Civil Government. From the 1st day of September, 1900, to July 4, 1901,
the legislative department of the Government was transferred from the Military Governor to the United
States Philippine Commission, to be thereafter exercised by said Commission in the place and stead of
the Military Government, under such rules and regulations as the Secretary of War might prescribe, until
the establishment of the Civil Central Government for the Islands, or until Congress should otherwise
provide. During that period the executive authority was vested in the Military Governor while the
legislative authority was vested in the Philippine Commission. (See Instructions of the President of the
United States to the United States Philippine Commission, April 7, 1900.) On the 4th day of July, 1901,
the executive power theretofore possessed by the Military Governor was transferred to the President of
the United States Philippine Commission.
Third. Civil Government. From the 4th day of July, 1901, to the 16th day of October, 1907, the
executive and legislative powers of the Philippine Government were possessed by the United States
Philippine Commission. The President of the Commission not only possessed and exercised the
executive power of the Government but sat as a member of the United States Philippine Commission as a
member of the legislative department of the Government.
Fourth. Legislative Department of the Government Divided into Two Branches. On the 16th day of
October, 1907, the Legislative Department of the Government was divided into two branches the
United States Philippine Commission, and the Philippine Assembly which form continued up to the
16th day of October, 1916. The Governor-General during that period not only possessed the executive
powers of the Government, but acted as a member of the branch of the legislative department, known as
the United States Philippine Commission.
Fifth. Legislative Department of the Government Separated from the Executive Department. From the
16th day of October, 1916, until the present time, by virtue of the provisions of the Jones Law, the
executive and legislative departments of the Government have been separated, each constituting a
separate and distinct department of government; the first, represented by the Governor-General and the
second, by the Philippine Legislature.
In each of the separate forms of government above mentioned there existed the executive, legislative and
judicial powers fully established and recognized by the only authority for the existence of said
Government, the Government of the United States.
DUTY OF THE GOVERNOR-GENERAL OF THE PHILIPPINES WHEN ADVISED OF ILLEGALITY OF A
LAW HE MAY DISREGARD IT OR FORMULATE A PROPER ISSUE TO BE PRESENTED TO THE
COURT CONCERNING ITS LEGALITY.
It is the sworn duty of the Governor-General of the Philippines to execute the laws. That duty, however,
does not require him to execute an illegal act of the Legislature. When he is advised by his legal
department that a certain act, or any part thereof, of the Legislature is illegal and void, he may do one of
two things: (a) He may disregard it and refuse to executive it, or (b) he may formulate an issue upon the
alleged illegality and have that question presented to the courts for solution. He is acting within his powers
whichever to these courses he elects to take. To disregard an illegal and void act of the Legislature is
neither tyranny nor a violation of his sworn duty. It would be a violation of his sworn duty to enforce or
permit the enforcement of an illegal act.
RIGHT OF DIFFERENT DEPARTMENTS TO CONSTRUE POWERS GRANTED UNDER THE
CONSTITUTION OR CHARTER

141

While in many jurisdictions a provisions exists by virtue of which the executive and legislative
departments may, in case of doubt as to their powers, refer the question to the courts for decision, no
such provision exists in the Philippines. In the absence of such provision it becomes necessary therefore
in the first instance, when a duty is to be performed, for said departments to pass upon the question of
their power to act. Every department of government invested with constitutional or charter powers must, in
many instances, be the judge of their powers, or they could not act. Such interpretation of their powers is
not exclusive. The parties aggrieved may resort to the courts for a judicial interpretation. (Cooley's
Constitutional Limitations, 73.)
EXCLUSIVE DUTY OF THE GOVERNOR-GENERAL TO PROTECT THE PROPERTY OF THE
GOVERNMENT
It is the duty of the Governor-General, as the supreme executive power, to protect the property of the
Government. If he, by negligence or inattention to that responsibility, permits the property of the
Government to be wasted, destroyed or lost, he subjects himself to the danger of impeachment. His
responsibility is then one of great seriousness. He should not supinely disregard it. While the legislative
department of the Government may adopt laws for safeguarding and protecting the property, public and
private, it cannot intervene in the enforcement of such law. The legislative department would thereby be
taking part, not only in the enactment of laws but in the execution of the same, which is not permitted
under the American Constitution and system of laws.
WHAT HAS BEEN DONE BY LEGISLATIVE DEPARTMENT FURNISHES NO CRITERION AS TO REAL
POWERS
In support of the contention that the President of the Senate and the Speaker of the house of
Representatives, under Act No. 2705 as amended by Act No. 2822, have a right to intervene in the
execution of said laws, our attention is called to many acts of legislative bodies, where such bodies have
not only enacted laws but have made provisions in the same, by which they have intervened in their
execution. The cited cases support the allegations of the respondents. Our attention is called especially to
Acts Nos. 69, 1415, 1841, 1849, 1870, 1981, 2023, 2479, 2510, 2598, 2957 and 3208 as well as to many
acts of the legislatures of different states of the Union. It is true that in each of the various acts cited, of
the Philippine Legislature, a provision is made for the appointment of certain persons to assist in their
execution.
No question has ever been raised concerning the powers of the Legislature in respect of said acts. The
mere fact, however, that the legality of said acts has never been questioned and their legality has been
passed sub silentio, does not create a conclusive presumption that they were in fact adopted within the
powers of the legislative department of the Government. The fact that a statute has been accepted as
valid, and invoked and applied for many years in cases where its validity was not raised or passed on,
does not prevent a court from later passing on its validity where the question is properly raised and
presented. (McGirr vs. Hamilton and Abreu, 30 Phil., 563, and cases cited.)
LEGALITY OF THAT PROVISION OF ACT NO. 2705, AS AMENDED BY ACT NO. 2822, CREATING THE
"VOTING COMMITTEE"
In addition to the contention that the Legislature, by virtue of the provisions of Acts Nos. 2705 and 2822,
not only attempted to legislate but to participate in the execution of its laws, there is still another objection
of the legality of that provision of said acts which creates the "Voting Committee." One of the inhibitions
against the powers of the Philippine Legislature is found in one of the subparagraphs of section 3 of the
Jones Law. Said subparagraph provides: "That no bill (public or private) which may be enacted into law
shall embrace more than one subject, and that subject shall be expressed in the title of the bill." The title
of Act No. 2705 reads: "An Act to create the National Coal Company." The title of Act No. 2822 is: "An Act
to amend Certain Sections of Act No. 2705, Entitled 'An Act to create the National Coal Company.'" Act
No. 2822 does not amend that provision of Act No. 2705 relating to the "Voting Committee." The

142

inhibition, therefore, of the Jones Law need not be discussed with reference to the provisions of Act No.
2822.
Many of the states of the Union have adopted similar constitutional provisions. The purpose of this
legislative restriction and the evils sought to be remedied thereby are clearly stated by Mr. Sutherland,
now an Associate Justice of the Supreme Court of the United States, in his valuable work on Statutory
Construction. In section 111 he says that:
In the construction and application of this constitutional restriction the courts have kept steadily in
view the correction of the mischief against which it was aimed. The object is to prevent the
practice, which was common in all legislative bodies where no such restriction existed, of
embracing in the same bill incongruous matters having no relation to each other, or to the subject
specified in the title, by which measures were often adopted without attracting attention. Such
distinct subjects represented diverse interests, and were combined in order to unite the members
of the legislature who favor either in support of all. These combinations were corruptive of the
legislature and dangerous to the State. Such omnibus bills sometimes included more than a
hundred sections on as many different subjects, with a title appropriate to the first section, 'and for
other purposes.
The failure to indicate in the title of the bill the object intended to be accomplished by the
legislation often resulted in members voting ignorantly for measures which they would not
knowingly have approved. And not only were legislators thus misled, but the public also; so that
legislative provisions were stealthily pushed through in the closing hours of a session, which,
having no merit to commend them, would have been made odious by popular discussion and
remonstrance if their pendency had been reasonably announced. The constitutional clause under
discussion is intended to correct these evils; to prevent such corrupting aggregations of
incongruous measures by confining each act to one subject or object; to prevent surprise and
inadvertence by requiring that subject or object to be expressed in the title.
In the case of Walker vs. State (49 Ala., 329), the Supreme Court of Alabama stated the proposition as
follows citing and quoting from Cooley's Constitutional Limitations, p. 143:
The object sought to be accomplished and the mischief proposed to be remedied by this
provision are will known. Legislative assemblies for the dispatch of business often pass bills by
their titles only, without requiring them to be read. A specious title sometimes covered legislation
which, if its real character had been disclosed, would not have commanded assent. To prevent
surprise and fraud on the legislature is one of the purposes this provision was intended to
accomplish. Before the adoption of this provision, the title of a statute was often no indication of
its subject or contents.
An evil this constitutional requirement was intended to correct was the blending in one and the
same statute of such things as were diverse in their nature, and were connected only to combine
in favor of all the advocates of each, thus often securing the passage of several measures, no
one of which could have succeeded on its own merits. Mr. Cooley thus sums up his review of the
authorities defining the objects of this provision: "It may, therefore, be assumed as settled, that
the purpose of this provision was: First, to prevent hodge-podge, or log-rolling legislation; second,
to prevent surprise or fraud upon the legislature, by means of provisions in bills of which the titles
gave no information, and which might therefore be overlooked and carelessly and unintentionally
adopted; and, third, to fairly apprise the people, through such publication of legislative
proceedings as is usually made, of the subjects of legislation that are being considered, in order
that they may have opportunity of being heard thereon, by petition or otherwise, if they shall so
desire.'

143

"The practice," says the Supreme Court of Missouri, "of comprising in one bill subjects of a diverse and
antagonistic nature, in order to combine in its support members who were in favor of particular measures,
but neither of which measures could command the requisite majority on its own merits, was found to be
not only a corrupting influence in the Legislature itself, but destructive of the best interests of the State.
But this was not more detrimental than that other pernicious practice by which, though dexterous and
unscrupulous management, designing men inserted clauses in the bodies of bills, of the true meaning of
which the titles gave no indications, and by skillful maneuvering urged them on to their passage. These
things led to fraud, surprise, and injury, and it was found necessary to apply a corrective in the share of a
constitutional provision." (City of St. Louis vs. Tiefel, 42 Mo., 578, 590.)
The authorities are to all intents uniform that this constitutional requirement is mandatory and not
directory. Sutherland on Statutory Construction, section 112, states the rule correctly as follows:
The efficiency of this constitutional remedy to cure the evil and mischief which has been pointed
out, depends on judicial enforcement; on this constitutional injunction being regarded
as mandatory, and compliance with it essential to the validity of legislation. The mischief existed
notwithstanding the sworn official obligation of legislators; it might be expected to continue
notwithstanding that obligation is formulated and emphasized in this constitutional injunction, if it
be construed as addressed exclusively to them, and only directory. It would, in a general sense,
be a dangerous doctrine to announce that any of the provisions of the constitution may be obeyed
or disregarded at the mere will or pleasure of the legislature, unless it is clear beyond all question
that such was the intention of the framers of that instrument. It would seem to be a lowering of the
proper dignity of the fundamental law to say that it descends to prescribing rules of order in
unessential matters which may be followed or disregarded at pleasure. The fact is this: That
whatever constitutional provision can be looked upon as directory merely is very likely to be
treated by the legislature as if it was devoid of moral obligation, and to be therefore habitually
disregarded.
In the case of Walker vs. State, supra, the court said:
It is the settled law of this court, founded on reasoning which seems to us unanswerable, that this
provision of the constitution is not a mere rule of legislative procedure, directory to the general
assembly, but that it is mandatory, and it is the duty of courts to declare void any statute not
conforming to it.
Justice Cooley, in his work on Constitutional Limitations (pp. 179, 180) states that our courts have held,
without exception, that such constitutional provision is mandatory. (Central Capiz vs. Ramirez, 40 Phil.,
883.)
Inasmuch as the body of said Act contains a provision to which no reference is made in the title, in view of
the well established authorities, we are forced to the conclusion that, that provision creating the "Voting
Committee" is illegal. That illegality, however, is one which may be separated from the rest of the act
without affecting the legality of the other provisions.
THE "VOTING COMMITTEE" AS PUBLIC OFFICERS OF THE GOVERNMENT
It is argued most earnestly by the petitioner, and denied with equal earnestness by the respondents, that
the President of the Senate and the Speaker of the House of Representatives, acting as members of the
"Voting Committee" in participating in voting the stock of the National Coal Company, were acting
as public officials of the government and that the legislature is without authority to appoint public officials
for that purpose or to appoint public officials at all for any purpose. It is admitted by both parties that the
National Coal Company is a private corporation. It is admitted that the Government of the Philippine
Islands is a stockholder. The law provides that the Governor-General, the President of the Senate, and
the Speaker of the House of Representatives at a stockholders' meeting shall act as a committee for the

144

purpose of voting said stock. Does that fact make the President of the Senate and the Speaker of the
House of Representatives public officials? In the voting of the stock do they stand in any different relation
to the Government and the National Coal Company than any other holders of stock? Are they not
governed by the same laws, and by-laws of the corporation like other stockholders?
Mr. Justice Marshall, in the case of the Bank of the United States vs. Planters' Bank of Georgia (22 U. S.,
904 [Feb. 18, 1824]), in discussing the question of the relation of the Government to private corporation
when it becomes a stockholder in a private corporation, said, among other things: "It is, we think, a sound
principle, that when a government becomes a partner in any trading company, it divests itself, so far as
concerns the transactions of that company, of its sovereign character, and takes that of a private citizen.
Instead of communicating to the company (or corporation) its privileges and its (sovereign) prerogatives, it
descends to a level with those with whom its associates itself, and takes the character which belongs to
its associates, and to the business which is to be transacted . . . . . As a member of a corporation, a
Government never exercises its sovereignty. It acts merely as a corporator, and exercises no other
powers in the management of the affairs of the corporation, than are expressly given by the incorporating
act. The Government of the Union held shares in the old Bank of the United States; but the privileges of
the Government were not imparted by that circumstance to the bank. The State of Georgia, by giving to
the bank the capacity to sue and be sued, voluntarily strips itself of its sovereign character, so far as
respects the transactions of the bank, and waives all the privileges of that character."
The doctrine announced by Chief Justice Marshall in that case has been followed without modification not
only by the courts but by all of the eminent authors who have written upon that particular question.
(Thompson on Corporations, vol. 1, sec. 167; Bank of Kentucky vs. Wister, 27 U. S., 318, 322;
Briscoe vs. Bank of Kentucky, 36 U. S., 256, 324; Liuisville Railway Co. vs. Letson, 43 U. S., 497, 550;
Curran vs. State of Arkansas, 56 U. S., 302; Veazie Bank vs. Fenno, 75 U. S., 533; Railroad
Co. vs. Commissioner, 103 U. S., 1, 5; Hopkins vs. Clemson College, 221 U. S., 636, 644;
Putnan vs. Ruch, 56 Fed., 416; Wester Union Tel. Co. vs. Herderson, 68 Fed., 591; U. S. vs. Chesapeake
& D. Canal Co., 206 Fed., 964; Encyclopedia of the U. S. Supreme Court Rep., vol. 11, p. 225;
Encyclopedia of the U. S. Supreme Court Rep., vol. 3, p. 124; Encyclopedia of the U. S. Supreme Court
Rep., vol. 4, p. 643.)
The petitioner as well as the respondents cite many cases in support of their respective contentions. The
petitioner cites the following cases:
Pratt vs. Breckinridge (112 Ky., 1); State vs. Brill (100 Minn., 499); State vs. Denny (118 Ind., 382; 4 L. R.
A., 79); State vs. Washburn (167 Mo., 680); State vs. Stanley (66 N. C., 60); Welker vs. Bledsoe (68 N.
C., 457); Howerton vs. Tate (68 N. C., 546); Myers vs. United States (272 U. S., 52; 71 Law. ed., 160);
Concepcion vs.Paredes (42 Phil., 599).
Cases cited by respondents:
The Smithsonian Institution; Mechem's Public Officers, sec. 1; Olmstead vs. Mayor (42 N. Y. Sup. Ct.,
481); United States vs. Germaine (99 U. S., 508); McArthur vs. Nelson (81 Ky., 67); Congressional
Reports, vol. II; State vs. Kennon (7 Ohio State, 562).
See also:
Walker vs. City of Cincinnati (21 Ohio State, 14; 8 Am. Rep., 24); State vs. Hocker (39 Fla., 477; 63 Am.
St. rep., 174); Butler vs. Walker (98 Ala., 358).
After a careful analysis of all of the authorities cited, it is difficult to conclude just what is the weight of
authority, in view of the decision of chief Justice Marshall quoted above. If the Government acts merely as
one of the corporators of the National Coal Company and exercises no other power in the management of
the affairs of the corporation than the one expressly given by the Incorporatory Act, it is difficult to

145

understand how the "Voting Committee" is acting as a public officer. It was not the intention of the
Legislature to make the President and Speaker officers of the Government. The Legislature simply
intended to add additional duties to said officers. But after all, in our opinion, the fact that the Legislature
enacted the law and at the same time provided that, through the President and Speaker, it (the
Legislature) should assist in the execution of the same, is sufficient to nullify that provision. It is a matter
of no importance in what capacity they acted. The Legislature had no authority to take part in the
execution of the particular law.
THE RIGHT OF THE COURT OF DECIDE THE QUESTION, WHAT ARE THE RESPECTIVE POWERS
OF THE DIFFERENT DEPARTMENTS OF GOVERNMENT.
It is conceded by all of the eminent authorities upon constitutional law that the courts have authority to
finally determine what are the respective powers of the different departments of government.
The question of the validity of every statute is first determined by the legislative department of the
Government, and the courts will resolve every presumption in favor of its validity. Courts are not
justified in adjudging a statute invalid in the face of the conclusions of the legislature, when the
question of its validity is at all doubtful. The courts will assume that the validity of a statute was
fully considered by the legislature when adopted. Courts will not presume a statute invalid unless
it clearly appears that it falls within some of the inhibitions of the fundamental laws of the state.
The wisdom or advisability of a particular statute is not a question for the courts to determine. If a
particular statute is within the constitutional power of the legislature to enact, it should be
sustained whether the courts agree or not in the wisdom of its enactment. If the statute covers
subject not authorized by the fundamental laws of the land, or by the constitution, them the courts
are not only authorized but are justified in pronouncing the same illegal and void, no matter how
wise or beneficent such legislation may seem to be. Courts are not justified in measuring their
opinions with the opinion of the legislative department of the Government, as expressed in
statutes, upon questions of the wisdom, justice and advisability of a particular law. In exercising
the high authority conferred upon the courts to pronounce valid or invalid a particular statute, they
are only the administrators of the public will, as expressed in the fundamental law of the land. If
an act of the legislature is to be held illegal, it is not because the judges have any control over the
legislative power, but because the act is forbidden by the fundamental law of the land and
because the will of the people, as declared in such fundamental law, is paramount and must be
obeyed, even by the legislature. In pronouncing a statute illegal, the courts are simply interpreting
the meaning, force, and application of the fundamental law of the state. (Case vs. Board of Health
and Heiser, 24 Phil., 250, 251.)
The judicial department of the Government may examine every law enacted by the legislative branch of
the Government when the question is properly presented for the purpose of ascertaining:
(a) Whether or not such law came within the subject-matter upon which the legislative branch of the
Government might legislate; and
(b) Whether the provisions of such law were in harmony with the authority given the legislature.
If the judicial branch of the Government finds (a) that the legislative or executive branches of the
Government had authority to act upon the particular subject, and (b) that the particular law contained no
provisions in excess of the powers of such department and the acts of the executive were within his
powers, then that investigation, or that conclusion, conclusively terminates the investigation by the judicial
department of the Government.
SOLICITUDE OF THE GOVERNMENT OF THE UNITED STATES AND ITS REPRESENTATIVES IN THE
PHILIPPINE ISLANDS FOR THE WELFARE AND WELL BEING OF THE INHABITANTS.

146

No Government, past or present, has more carefully and watchfully guarded and protected, by law, the
individual rights of life and property of the citizens of the Philippine Islands than the Government of the
United States and its representatives. Each of the three departments of the Government has had
separate and distinct functions to perform in this great labor. The history of the Philippine Islands,
covering a period of more than a quarter of a century, discloses the fact that each department has
performed its part well. No one department of the Government can or ever has claimed, within its
discretionary and legal powers, a greater zeal than the others in its desire to promote the welfare of the
individual citizen. They are all joined together in their respective spheres and departments, harmoniously
working to maintain good government, peace, and order to the end that the rights of each citizen in his life
and property be equally protected. No one department can claim that it has a monopoly of these benign
purposes of the Government. Each department has an exclusive field, under the law, within which it can
perform its part, within certain discretionary limits. No other department can claim a right to enter these
discretionary and legal limits and assume to act there. No presumption of an abuse of these discretionary
powers by one department will be considered, permitted or entertained by another. Such conduct on the
part of one department, instead of tending to conserve good government and the rights of the people,
would directly tend to destroy the confidence of the people in the Government and to undermine the very
foundation of the Government itself.
CONCLUSIONS
For all of the foregoing reasons the petition for the extraordinary legal writ of quo warranto should be
granted, and that Milton E. Springer, Dalmacio Costas, and Anselmo Hilario are each illegally and
unlawfully occupying the position of members of the Board of Directors of the National Coal Company and
should be ousted and altogether excluded therefrom; that Romarico Agcaoili, H. L. Health, and Salvador
Lagdameo have been duly and legally elected as members of the Board of Directors of the National Coal
Company, and judgment is rendered that they be immediately inducted into said position, to take charge
thereof and to perform the duties incumbent upon them as members of the Board of Directors. The
demurrer is overruled. Considering the petition and demurrer in relation with the stipulated facts, there
seems to be no reason for permitting an answer to be filed. And without any finding as to costs, it is so
ordered.
AVANCEA, C.J., VILLAMOR and VILLA-REAL, JJ., dissenting:
Much to our regret we have to dissent from the majority whose opinion has always commanded our
respect.
In the case of National Coal Company vs. Collector of Internal Revenue (46 Phil., 583), this court said:
THE NATIONAL COAL COMPANY, A PRIVATE CORPORATION; SUBJECT TO THE PAYMENT
OF INTERNAL REVENUE UNDER THE PROVISIONS OF SECTION 1496 OF THE
ADMINISTRATIVE CODE. The National Coal Company is a private corporation. The fact that
the Government happens to be a stockholder therein does not make it a public corporation. It is
subject to all the provisions of the Corporation Law in so far as they are not inconsistent with Act
No. 2705. As a private corporation, it has no greater powers, rights, or privileges than any other
corporation which might be organized for the same purpose under the Corporation Law. It was
not the intention of the Legislature to give it a preference, or right, or privilege over other
legitimate private corporations in the mining of coal. The law made no provision for its occupation
and operation of coal-bearing lands, to the exclusion of other persons or corporation, under
proper permission. The National Coal Company being a private corporation, neither the lessee
nor the owner of the lands upon which it mined coal for the year in question, is subject to the
payment of the internal revenue duty provided for in section 1496 of the Administrative Code.
The National Coal Company, having been created and established by the Philippine Legislature for the
purpose of developing the coal industry in the Philippine Islands, in harmony with the general plan of the

147

Government to encourage the development of the natural resources of the country, what relation does it
bear with said Government? Is it an agency or instrumentality thereof empowered to perform some
government act or function for governmental purposes?
Agency or instrumentality is defined to be a means by which a certain act is done (2 C.J., 420; 32 C.J.,
947). So governmental agency or instrumentality may be defined as a means by which a government
acts, or by which a certain governmental act or function is performed. A governmental act is a term
sometimes used to describe an act done in pursuance of some duty imposed by the state on a person,
individual or corporate, which duty is one pertaining to the administration of government and as an
absolute obligation on a person who receives no profit or advantage peculiar to himself for its execution
(28 C.J., 753, n. 1). Naturally, when a government acts it does so for purposes of its own. Now, what is
the purpose of government? "A government does not exist in a personal sense, or as an entity in any
primary sense, for the purpose of acquiring, protecting, and enjoying property. It exists primarily for the
protection of the people in their individual rights, and it holds property not primarily for the enjoyment of
property accumulations, but as an incident to the purpose for which it exists that of serving the people
and protecting them in their rights." (Curley vs. U. S., 130 Fed., 1, 8; 28 C.J., 750.) "The term
governmental purposes, as used in the constitution which provides that public property taken for public
purposes is exempt from taxation, means, in its most extensive sense, the punishment for crime, for
prevention of a wrong, the enforcement of a private right, or in some manner preventing wrong from being
inflicted upon the public or an individual, or redressing some grievance, or in some way enforcing a legal
right, or redressing or preventing a public individual injury. (City of Owensboro vs. Com., 105 Ky., 344; 28
C.J., 753, n. 8).
In the light of the above definitions, let us inquire what governmental act or function does the National
Coal Company perform and for what governmental purposes.
As was stated by this court in the above cited case, "As a private corporation, it has no greater rights,
powers, or privileges than any other corporation which might be organized for the same purpose under
the Corporation Law. It was not the intention of the legislature to give it a preference, or right, or privilege
over other legitimate private corporations in the mining of coal. The law made no provision for its
occupation and operation of coal-bearing lands to the exclusion of other persons or corporations, under
proper permission." It is subject to the payment of internal revenue tax on its coal output. The Philippine
Government owns nothing in said corporation except the stock which it has purchased therein. The
National Coal Company cannot perform any governmental act, for it has not been authorized to do so.
The fact that it has been created and established for the purpose of developing the coal industry in the
Philippine Islands, in harmony with the general plan of the Government to encourage the development of
the natural resources of the country, and the fact that the Government owns a majority of the stock
thereof, are not alone sufficient to give the National Coal Company the distinction of being an agency or
instrumentality of said Government, just as the investment of government money in any other corporation
of the same nature or in a radio corporation to which it has given a charter for the purpose of encouraging
the development of radio communication in the Islands is not by itself sufficient to make of such a
corporation an agency or instrumentality of the Government in the political and administrative sense of the
term.
If the National Coal Company is a private corporation, and is not a government agency or instrumentality,
what standing has the Government in said corporation by virtue of its ownership of a majority of its stock.
In the case of the Bank of the United States vs. Planters' Bank of Georgia (6 Law. ed., 244), Chief Justice
Marshall said:
It is, we think, a sound principle, that when a government becomes a partner in any trading
company, it divests itself, so far as concerns the transactions of that company, of its sovereign
character, and takes that of a private citizen. Instead of communicating to the company its
privileges and its prerogatives, it descends to a level with those with whom it associates itself,
and takes the character which belongs to its associates, and to the business which is to be

148

transacted. Thus, many states of this Union who have an interest in banks, are not usable even in
their own courts; yet they never exempt the corporation from being sued. The State of Georgia,
by giving to the bank the capacity to sue and be sued, voluntarily strips itself of its sovereign
character, so far as respects the transactions of the bank, and waives all the privileges of that
character. As a member of a corporation, a government never exercise its sovereignty. It acts
merely as a corporator, and exercises no other power in the management of the affairs of the
corporation, than are expressly given by the incorporating act. (Bank of the United
States vs. Planters' Bank of Georgia [22-25 U.S.], 6 Law. ed., 244.)
In the case of the Bank of Kentucky vs. Wister (7 Law. ed., 323), the court, after citing the above
paragraph, added:
To which it may be added, that if a State did exercise any other power in or over a bank, or impart
to it its sovereign attributes, it would be hardly possible to distinguish the issue of the paper of
such banks from a direct issue of bills of credit; which violation of the Constitution, no doubt the
State here intended to avoid.
The Government of the Philippine Islands, as a stockholder, has a right to participate in the election of the
Directors of the National Coal Company by the exercise of its voting power. In so doing it acts merely as a
corporator with no other power than are expressly granted by the Corporation Law, and does not exercise
its sovereignty. It cannot impose its sovereign will, but it must act according to the by-laws of the
corporation. The only control it has is what is given to it by the amount of its stock.
The Government, as stockholder, has a right to appoint or designate a proxy to vote its stock in the
National Coal Company, and the Philippine Legislature has done this for it by creating in the same Act a
voting committee to be composed exclusively of the Governor-General, the President of the Senate, and
the Speaker of the House of Representatives. Now the question arises whether or not the position of a
proxy of the Government in said corporation is a public office.
An office is defined by good authority as involving a delegation to the individual of some of the
sovereign functions of government, to be exercised by him for the benefit of the public, by which it
is distinguished from employment or contract. (Mechem Pub. Off. quoted in
Barnhill vs. Thompson, 122 N. C., 403, 405; 29 S. E., 720.)
The word "office" mentioned in the constitution means a position having to do with the general
government of the State (Walker vs. Cincinnati, 21 Ohio St., 145), and that same meaning must be given
to the word "office" mentioned in the Jones Law, which has the character of a constitution.
Does the committee in voting the stock of the Government perform any sovereign function of
government?
The Government participates in the management of the affairs of the National Coal Company every time it
exercises by proxy the right of voting in the election of its directors, and, according to Chief Justice
Marshall, in so doing it acts as a corporator merely and does not exercise any sovereign power. Its proxy,
in performing his duty exercises no greater power. And it cannot be otherwise, for we would have the
absurd result of an agent exercising a higher power than that of the principal in the fulfillment of the
latter's mandate. If the voting of the stock of the Government in the election of the directors of the
National Coal Company is the act, not of the Government in its sovereign capacity, but of a corporator
merely, the designation of the members of the voting committee by the Government to vote its stock does
not involved a delegation of a sovereign function of government, for the function delegated is of a private
and not of a public nature.
The case of State vs. Stanley (66 N. C., 59; 8 Am. Rep., 488), cited in the brief for the plaintiff, wherein it
was held that membership in a committee, composed of the President of the Senate and the Speaker of

149

the House of Representatives of the State of North Carolina, is an office, is not in point, for said
committee was entrusted with the appointment of directors and proxies in all the corporations in which the
State was a stockholder; while the committee under consideration has no other power except to vote the
stock of the Government in the National Coal Company. In that case the committee was an appointer of
directors and proxies; in this case the committee is a mere proxy.
Is the public directly benefited by the exercise of the delegated power of voting the stock of the
Government by the committee? When the committee votes the stock of the Government, as a
stockholder, the corporation and its stockholder alone are directly benefited by the act, and the public only
indirectly by way of an increased material prosperity. But this is not the kind of benefit that is sought to be
obtained by the creation of a public office. It is the benefit that is deserved from the protection of life,
liberty, property, and the pursuit of happiness.
The voting of the stock of the Government which is delegated to the committee, not being a part of the
sovereign functions of the said Government, and not being exercised for the direct benefit of the public,
membership therein is not a public office.
Let us now examine into the question whether or not the designation of the President of the Senate and
the Speaker of the House of Representatives, as ex-officio members of said committee, by section 4 of
Act No. 2705, as amended by Act No. 2822, is constitutional, and therefore valid.
If the membership in the voting committee is not a public office, the designation by the Philippine
Legislature of its own members as members ex-oficio thereof is not in violation of the principle of
separation of powers. It will not be denied that the power of appointment to certain offices vested in the
Governor-General by the Jones Law refers only to public executive office; that his power of supervision
and control is limited to public executive functions, and that the responsibility imposed upon him for the
faithful execution of the laws refers only to laws of public nature. Membership in the voting committee, not
being a public office, the Governor-General has no power to appoint its members; the voting of the stock
of the Government not being a public executive function, he has no supervision and control over it; and
the law creating the National Coal Company and designating a voting committee not being a public law,
he is not charged with the responsibility of executing it. Therefore, in creating the voting committee and
designating the President of the Senate and the Speaker of the House of Representatives as ex-officio
members thereof the Philippine Legislature did not encroach upon any of the powers of the GovernorGeneral.
The contention that the Legislature cannot execute its own laws, is contrary to the congressional
interpretation expressed on various occasions, specially in the case of "The Smithsonian Institution." In
incorporating it, the Congress has provided for its management "by a Board of Regents" named the
Regent of the Smithsonian Institution, to be composed of the Vice-President, the Chief Justice of the
United States, and three members of the Senate and three members of the House of Representatives;
together with six other persons, other than members of the Congress, two of whom shall be resident of
the City of Washington; and the other four shall be inhabitants of same State, but no two of them in the
same State" (9 Fed. St. An., sec. 588 [a]). The members of the Senate were to be appointed by the
President thereof; and the member of the House, by the Speaker thereof. Granting, for the sake of
argument, that membership in the voting committee is a public office, does the designation of the
President of the Senate and of the Speaker of the House of Representatives as ex-officio members of the
said committee an encroachment upon the power of appointment to office vested in the GovernorGeneral.
No challenge seems to have been made to the power of the Philippine Legislature to designate the
Governor-General or any other executive officer to serve on said voting committee or any public office,
and a challenge of that nature, if made at all, will find no support in the authorities (12 C.J., 837).

150

What is vigorously attacked is the power of the Legislature to designate any of its members to serve on
said voting committee, the contention being that the exercise of such power is a violation of the principle
of separation of powers and an encroachment upon the power of appointment to office vested in the
Governor-General by the Jones Law.
By some authorities the power of appointment to office is regarded as per se an executive
function, which, therefore, may not be exercised, vested, or controlled by the legislature except in
so far as it is a necessary incident to the exercise of the legislative power or is vested by the
constitution in the legislature. By the great weight of authority, however, the power of appointment
is held not to be per se an executive function, and unless the appointment of particular officers is,
by the constitution, expressly conferred on the executive department or forbidden to the
legislature the latter may, by statute, vest the power of appointment in its discretion. The ordinary
constitutional distributive clause providing for the complete separation of governmental power has
generally been held insufficient to vest the appointing power solely in the executive. Thus a
statute conferring on a circuit judge the power to fill vacancies in a board of park commissioners
is valid. So a board of civil service commissioners may be appointed by the legislature for the
purpose of prescribing qualifications for offices except such as are otherwise provided for in the
constitution. (12 C.J., 836, par. 319, n. 1.)
A provision of the constitution precluding the legislature from electing or appointing officers does
not invalidate an act creating a board or commission of which certain state officers shall be exofficio members, nor prevent the legislature from imposing new functions on existing officers. (12
C.J., 837, par. 319, n. 5.)
Under the American system of government the chief executive has no prerogative powers, but is
confined to the exercise of those powers conferred upon him by the constitution and statutes. (12
C. J., 898, par. 402; State vs. Bowden, 92 S. C., 393; Richardson vs. Young, 122 Tenn., 471.)
This must be true of the Governor-General of the Philippine Islands, when section 21 of the Jones Law
says in part:
He shall, unless otherwise herein provided, appoint, by and with the consent of the Philippine
Senate, such officers as may now be appointed by the Governor-General, or such as he is
authorized by this Act to appoint, or whom he may hereafter be authorized by law to appoint.
The enumeration of the instances in which the Governor-General may make appointments, implies that
he has not been empowered to make all appointments. The expression "whom he may hereafter be
authorized by the law to appoint," implies clearly that there may be certain cases in which he may not be
authorized to make appointments.
It is contended that the legislature may make such appointments where the source of power is the people
or the constitution made by the people, as the residuum of power is entrusted in the legislature; but that
this may not be done in the Philippine Islands where the source of power is the Congress of the United
States, and the Philippine Legislature only acts by delegation of said body. The Congress of the United
States, after enumerating the powers pertaining to each of the three departments of the Government and
declaring which are the functions of each, has reserved to itself the power and authority annul the laws
enacted by the Philippine Legislature, which must be reported to it (Jones Law, sec. 19). If the Congress
of the United States had intended to limit the powers of the Philippine Legislature to those enumerated by
it in the Organic Act and to those of purely legislative character, it would seem that there would have been
no necessity for making such reservation; because all laws passed by the Philippine Legislature which
are within its powers will of necessity be valid, and all laws in excess of its powers will be null and void,
and the courts will so declare them. It is only when a residuum of power is left with a legislature which
does not owe its powers to the people or to a constitution made by the people, as the Philippine
Legislature, that such reservation becomes necessary; for it may exercise a power which the Congress

151

had not intended it should exercise, and which the latter may be powerless to correct, giving room to
doubts with no other means of solving them except by judicial decision, which may be precisely the
contrary of what the Congress may have intended. If such reservation of power and authority has any
meaning at all, as it must have, it cannot be other than to avoid doubts and undertainties as to the
authority of the legislature to enact certain laws, by permitting those affected by them to determine by the
action or inaction of Congress whether or not such power was one of those constituting the residuum.
Furthermore, nothing could have prevented the Congress of the United States from giving to the
Philippine Legislature the power of appointment to an office which have not previously been vested
expressly in the Governor-General, as nothing had prevented if from placing in the hands of the Philippine
Commission not only executive but legislative powers as well. If so, there is nothing that can prevent it
from ratifying any law by which executive officers are created and filled by the legislature with its own
members. Ratification may be made either expressly or impliedly. Act No. 2705, as amended by Act No.
2822, having been reported to Congress, the failure of the latter to annul it was equivalent to an implied
ratification.
In the case of Fajardo Sugar Co. of Porto rico vs. Holcomb, decided on Noveberm 23, 1926, the Federal
Court of the First Circuit said:
If, turning from the section specifically dealing with the powers of the auditor, we look more
broadly at the structure of the Government of Porto Rico provided under the Organic Act, we
are driven to the same conclusion. Under that Act, the Governor-General, Attorney-General,
Commissioner of Education, and Auditor are presidential appointees. The Governor has, in
general, the powers of the Governor of one of our states, and, besides, he is required annually to
make official report of the transactions of the government of Porto Rico to the executive
department of the United States, to be designated by the President, and the said annual report
shall be transmitted to the Congress. Moreover, in section 34 (Camp. St., par. 3803 n), it is
provided that if, after veto of the Governor, the Legislature shall by a two-thirds vote pass an Act
over the veto, the Governor, if he shall not then approve, shall transmit the proposed Act to the
President of the United States; that "if the President of the United States approve the same he
shall sign it and it shall become a law. If he shall not approve same, he shall return it to the
Governor so stating, and it shall not become a law." It follows that no Act can become a law
without the approval of the Porto Rican Governor, a presidential appointee, or the President of the
United States. There is also a provision in section 34 that:
'All laws enacted by the legislature of Porto Rico shall be reported to the Congress of the
United States . . . which hereby reserves the power and authority to annul same.'
If not thus annulled, within reasonable time, there is a presumption that they are approved.
(Tiaco vs.Forbes, 228 U. S., 549, 558; 33 S. Ct. 585; 57 Law. ed., 960; Porto Rico vs. American,
etc., R. R., 254 F., 369; 165 C. C. A., 589; Camunas vs. P. R. Ry., etc., Co. [C. C. A.], 272 F., 924,
931, and cases cited.)
The result is that all Porto Rican legislation now on the statute books is in a very real sense,
though indirectly the output of our Federal Government. Under such conditions, the court
should not lightly assume that the tax acts of Porto Rico, now contended to be in conflict with
section 20 of the Organic Act, are inconsistent and therefore invalid. Doubtless the relation of the
Organic Act to the Porto Rican Government is in certain respects, like the relation of a state
Constitution to a state Legislature. (Camunas vs. P. R. Ry., etc., Co. [C. C. A.], 272 F., 924, 928.)
But the analogy is not complete; for, after all, the Organic Act is nothing but federal legislation,
and Porto Rican legislation, approved expressly or impliedly by Congress, has exactly the same
import.

152

The only prohibition to the appointment of members of the Philippine Legislature to executive public
offices is that contained in section 18 of the Jones Law, which says that "No Senator or Representative
shall, during the time for which he may have been elected, be eligible to any office the election to which is
vested in the Legislature, nor shall be appointed to any office of trust or profit which shall have been
created or the emoluments of which shall have been increased during such term." The present Speaker of
the House of Representatives is clearly not within said prohibition, as Act No. 2705 creating said
committee was enacted in 1917, before his term of office began in 1922; so the now President of the
Senate, for which the said Act was passed during his term of office, that term had already expired in 1922,
and he is not serving another term (1922-1928).
Therefore, the Philippine Legislature may not only create the voting committee but designate the
President of the Senate and the Speaker of the House of Representatives as ex-officio members of said
committee, always granting, for the sake of argument, that membership therein is a public office.
It only remains now for us to dispose of another question, that of the power of the Governor-General to
vote the stock of the Government alone, granting again, for the sake of argument, that section 4 of Act
No. 2705, as amended by Act No. 2822, is unconstitutional in so far as it refers to the designation of the
President if the Senate and the Speaker of the House of Representatives as ex-officio members of the
voting committee.
The provision in constitutions as to distribution of powers, and as to the executive power of the
state being vested in the Governor, is declaratory and does not confer any specific powers" (12 C.
J., 898; Field vs.Peo, 3 Ill., 79). The power to vote the stock of the Government is delegated to a
committee to be composed exclusively of the Governor-General, the President of the Senate, and
the Speaker of the House of Representatives, and the rule is "Where the power is delegated for a
mere private purpose, all the persons (if more than one), upon whom the authority is conferred
must unite and concur in the exercise. In case of the delegation of a public authority to three or
more persons, the authority conferred may be exercised and performed by a majority of the whole
member. If the act to be done by virtue of such public authority requires the exercise of
discretions and judgment, in order words, if it is a judicial act, the persons to whom the
authority is delegated must meet and confer together, and be present when the act is performed;
or at least a majority must meet, confer, and be present after all have been notified to attend.
Where the act is to be done is merely ministerial, a majority must concur and unite in the
performance of the act, but they may act separately. (18 C. J., 472, note 3-a; Perry vs. Tynen, 22
Barb [N. Y., 137, 140].)
Whether we consider the delegation of the power to vote the stock of the Government as for public or
private purpose, the Governor-General alone cannot exercise it as the voting requires the exercise of
discretion and judgment, and at least a majority must concur after all have been notified.
To recapitulate, we believe that we have demonstrated the following propositions:
1. That the National Coal Company is not an agency or instrumentality of the Government of the
Philippine Islands.
2. That the Government of the Philippine Islands, as mere corporator, if it had to vote its own
stock would have to do so in the capacity of a private citizen, and not in its sovereign capacity.
3. That the voting committee in exercising the power delegated to it does so in the same capacity
as its principal.
4. That the voting of the stock of the Government is a private act, and the committee in doing so
performs a private function, and therefore membership therein is a private and not a public office.

153

5. That membership in the voting committee being a private position and not a public office, the
designation by the Philippine Legislature of the President of the Senate and the Speaker of the
House of Representatives as ex-officio members thereof was not an encroachment upon the
power of supervision and control over all executive functions of the Government vested in the
Governor-General.
6. That even granting that membership in said committee is a public office, still the Philippine
Legislature has the power to designate the President of the Senate and the Speaker of the House
of Representatives as ex-officio members of said committee, by virtue of the residuum of power
placed in its hands by the Congress of the United States.
7. That whether we consider the delegation of the voting power as for public or private purposes,
the Governor-General alone cannot exercise that power as it requires discretion and judgment,
and at least a majority must concur.
8. That, finally, the Congress of the United States by its reserved power and authority to annul
any law of the Philippine Legislature, has by its silence impliedly ratified Act No. 2705, as
amended by Act No. 2822.
For the foregoing considerations we are of the opinion that the demurrer should be sustained and the
complaint be dismissed.

154

EN BANC
[G.R. No. 127685. July 23, 1998.]
BLAS F. OPLE, petitioner, vs. RUBEN D. TORRES, ALEXANDER AGUIRRE,
HECTOR VILLANUEVA, CIELITO HABITO, ROBERT BARBERS, CARMENCITA
REODICA, CESAR SARINO, RENATO VALENCIA, TOMAS P. AFRICA, HEAD OF
THE NATIONAL COMPUTER CENTER and CHAIRMAN OF THE COMMISSION ON
AUDIT, respondents.
SYNOPSIS
Administrative Order No. 308, entitled "Adoption of a National Computerized Identification Reference
System," was issued by the President on December 12, 1996. Petitioner challenges the constitutionality
of said Administrative Order on two (2) grounds, namely: (1) it is a usurpation of the power of Congress to
legislate; and (2) its impermissibility intrudes on our citizenry's protected zone of privacy. Petitioner
contends that the Administrative Order is not a mere administrative order but a law and, hence, beyond
the power of the President to issue. He further alleges that said Administrative Order establishes a system
of identification that is all-encompassing in scope, affects the life and liberty of every Filipino citizen and
foreign resident, and more particularly, violates their right to privacy.
In declaring the Administrative Order null and void for being unconstitutional, the Supreme Court held that
the Administrative Order involves a subject that is not appropriate to be covered by said administrative
order. An administrative order is an ordinance issued by the President which relates to specific aspects in
the administrative operation of government. It must be in harmony with the law and should be for the sole
purpose of implementing the law and carrying out the legislative policy.
The essence of privacy is the right to be let alone. The right to privacy is recognized and enshrined in
several provisions of the Constitution. Zones of privacy are likewise recognized and protected in our laws.
Unlike the dissenters, we prescind from the premise that the right to privacy is a fundamental right
guaranteed by the Constitution, hence, it is the burden of government to show that A. O. No. 308 is
justified by some compelling state interest and that it is narrowly drawn. What is not arguable is the
broadness, the vagueness, the overbreath of A. O. No. 308 which if implemented will put our people's
right to privacy in clear and present danger. CaDSHE
A. O. No. 308 falls short of assuring that personal information which will be gathered about our people will
only be processed for unequivocally specified purposes. Even while we strike down A. O. No. 308, we
spell out that the Court is not per se against the use of computers to accumulate, store, process, retrieve
and transmit data to improve our bureaucracy. Given the record-keeping power of the computer, only the
indifferent will fail to perceive the danger that A. O. No. 308 gives the government the power to compile a
devastating dossier against unsuspecting citizens.
SYLLABUS
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; LEGISLATIVE POWER; CONSTRUED.
Legislative power is "the authority, under the Constitution, to make laws, and to alter and repeal
them." The Constitution, as the will of the people in their original, sovereign and unlimited capacity, has
vested this power in the Congress of the Philippines. The grant of legislative power to Congress is broad,
general and comprehensive. The legislative body possesses plenary power for all purposes of civil
government. Any power, deemed to be legislative by usage and tradition, is necessarily possessed by

155

Congress, unless the Constitution has lodged it elsewhere. In fine, except as limited by the Constitution,
either expressly or impliedly, legislative power embraces all subject and extends to matters of general
concern or common interest.
2. ID.; EXECUTIVE DEPARTMENT; EXECUTIVE POWER IS VESTED IN THE PRESIDENT. While
Congress is vested with the power to enact laws, the President executes the laws. The executive power is
vested in the President. It is generally defined as the power to enforce and administer the laws. It is the
power of carrying the laws into practical operation and enforcing their due observance. As head of the
Executive Department, the President is the Chief Executive. He represents the government as a whole
and sees to it that all laws are enforced by the officials and employees of this department. He has control
over the executive department, bureaus and offices. This means that he has the authority to assume
directly the functions of the executive department, bureau and office, or interfere with the discretion of its
officials. Corollary to the power of control, the President also has the duty of supervising the enforcement
of laws for the maintenance of general peace and public order. Thus, he is granted administrative
power over bureaus and offices under his control to enable him to discharge his duties
effectively. Administrative power is concerned with the work of applying policies and enforcing orders as
determined by proper governmental organs. It enables the President to fix a uniform standard of
administrative efficiency and check the official conduct of his agents. To this end, he can issue
administrative orders, rules and regulations.
3. ID.; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM (A. O. No. 308); DOES
NOT IMPLEMENT THE LEGISLATIVE POLICY OF THE ADMINISTRATIVE CODE OF 1987; REASONS
THEREFOR. Prescinding from these precepts, we hold that A.O. No. 308 involves a subject that is not
appropriate to be covered by an administrative order. An administrative order is an ordinance issued by
the President which relates to specific aspects in the administrative operation of government. It must be
in harmony with the law and should be for the sole purpose of implementing the law and carrying out the
legislative policy. We reject the argument that A.O. No. 308 implements the legislative policy of the
Administrative Code of 1987. The Code is a general law and "incorporates in a unified document the
major structural, functional and procedural principles of governance" and "embodies changes in
administrative structures and procedures designed to serve the people." The Code is divided into seven
(7) Books: Book I deals with Sovereignty and General Administration, Book II with the Distribution of
Powers of the three branches of Government, Book III on the Office of the President, Book IV on the
Executive Branch, Book V on the Constitutional Commissions, Book VI on National Government
Budgeting, and Book VII on Administrative Procedure. These Books contain provisions on the
organization, powers and general administration of the executive, legislative and judicial branches of
government, the organization and administration of departments, bureaus and offices under the executive
branch, the organization and functions of the Constitutional Commissions and other constitutional bodies,
the rules on the national government budget, as well as guidelines for the exercise by administrative
agencies of quasi-legislative and quasi-judicial powers. The Code covers both the internal administration
of government, i.e, internal organization, personnel and recruitment, supervision and discipline, and the
effects of the functions performed by administrative officials on private individuals or parties outside
government. It cannot be simplistically argued that A.O. No. 308 merely implements the Administrative
Code of 1987. It establishes for the first time a National Computerized Identification Reference System.
Such a System requires a delicate adjustment of various contending state policies the primacy of
national security, the extent of privacy interest against dossier-gathering by government, the choice of
policies, etc. Indeed, the dissent of Mr. Justice Mendoza states that the A.O. No. 308 involves the all
important freedom of thought. As said administrative order redefines the parameters of some basic rights
of our citizenry vis-a-vis the State as well as the line that separates the administrative power of the
President to make rules and the legislative power of Congress, it ought to be evident that it deals with a
subject that should be covered by law.

156

4. ID.; ID.; CANNOT PASS CONSTITUTIONAL MUSTER AS AN ADMINISTRATIVE LEGISLATION

BECAUSE FACIALLY IT VIOLATES THE RIGHT TO PRIVACY. Assuming, arguendo, that A.O. No.
308 need not be the subject of a law, still it cannot pass constitutional muster as an administrative
legislation because facially it violates the right to privacy. The essence of privacy is the "right to be let
alone.
5. ID.; ID.; ID.; REASON THEREFOR. The potential for misuse of the data to be gathered under A.O.
No. 308 cannot be underplayed as the dissenters do. Pursuant to said administrative order, an individual
must present his PRN everytime he deals with a government agency to avail of basic services and
security. His transactions with the government agency will necessarily be recorded whether it be in the
computer or in the documentary file of the agency. The individual's file may include his transactions for
loan availments, income tax returns, statement of assets and liabilities, reimbursements for medication,
hospitalization, etc. The more frequent the use of the PRN, the better the chance of building a huge and
formidable information base through the electronic linkage of the files. The data may be gathered for
gainful and useful government purposes; but the existence of this vast reservoir of personal information
constitutes a covert invitation to misuse, a temptation that may be too great for some of our authorities to
resist. We can even grant, arguendo, that the computer data file will be limited to the name, address and
other basic personal information about the individual. Even that hospitable assumption will not save. A.O.
No. 308 from constitutional infirmity for again said order does not tell us in clear and categorical terms
how these information gathered shall be handled. It does not provide who shall control and access the
data, under what circumstances and for what purpose. These factors are essential to safeguard the
privacy and guaranty the integrity of the information. Well to note, the computer linkage gives other
government agencies access to the information. Yet, there are no controls to guard against leakage of
information. When the access code of the control programs of the particular computer system is broken,
an intruder, without fear of sanction or penalty, can make use of the data for whatever purpose, or worse,
manipulate the data stored within the system. It is plain and we hold that A.O. No. 308 falls short of
assuring that personal information which will be gathered about our people will only be processed
for unequivocally specified purposes. The lack of proper safeguards in this regard of A.O. No. 308 may
interfere with the individual's liberty of abode and travel by enabling authorities to track down his
movement; it may also enable unscrupulous persons to access confidential information and circumvent
the right against self-incrimination; it may pave the way for "fishing expeditions" by government authorities
and evade the right against unreasonable searches and seizures. The possibilities of abuse and misuse
of the PRN, biometrics and computer technology are accentuated when we consider that the individual
lacks control over what can be read or placed on his ID, much less verify the correctness of the data
encoded. They threaten the very abuses that the Bill of Rights seeks to prevent. cSTHaE

6. ID.; ID.; ID.; THE USE OF BIOMETRICS AND COMPUTER TECHNOLOGY DOES NOT ASSURE THE
INDIVIDUAL OF A REASONABLE EXPECTATION OF PRIVACY. We reject the argument of the
Solicitor General that an individual has a reasonable expectation of privacy with regard to the National ID
and the use of biometrics technology as it stands on quicksand. The reasonableness of a person's
expectation of privacy depends on a two-part test: (1) whether by his conduct, the individual has exhibited
an expectation of privacy; and (2) whether this expectation is one that society recognizes an reasonable.
The factual circumstances of the case determines the reasonableness of the expectation. However, other
factors, such as customs, physical surroundings and practices of a particular activity, may serve to create
or diminish this expectation. The use of biometrics and computer technology in A.O. No. 308 does not
assure the individual of a reasonable expectation of privacy. As technology advances, the level of
reasonably expected privacy decreases. The measure of protection granted by the reasonable
expectation diminishes as relevant technology becomes more widely accepted. The security of the
computer data file depends not only on the physical inaccessibility of the file but also on the advances in

157

hardware and software computer technology. A.O. No. 308 is so widely drawn that a minimum standard
for a reasonable expectation of privacy, regardless of technology used, cannot be inferred from its
provisions.
ROMERO, J., separate opinion:
POLITICAL LAW; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM, VIOLATES A
PERSON'S RIGHT TO PRIVACY. Whether viewed as a personal or a property right, if found its way in
Philippine Constitutions and statutes; this, in spite of the fact that Philippine culture can hardly be said to
provide a fertile field for the burgeoning of said right. In fact, our lexicographers have yet to coin a word
for it in the Filipino language. Customs and practices, being what they have always been, Filipinos think it
perfectly natural and in good taste to inquire into each other's intimate affairs. One has only to sit through
a televised talk show to be convinced that what passes for wholesome entertainment is actually an
invasion into one's private life, leaving the interviewee embarrassed and outrage by turns. With the
overarching influence of common law and the recent advent of the Information Age with its high-tech
devices, the right to privacy has expanded to embrace its public law aspect. The Bill of Rights of our
evolving Charters, a direct transplant form that of the United States, contains in essence facets of the
right to privacy which constitutes limitations on the far-reaching powers government. So terrifying are the
possibilities of a law such as Administrative Order No. 308 in making inroads into the private lives of the
citizens, a virtual Big Brother looking over our shoulders, that it must without delay, be "slain upon sight"
before our society turns totalitarian with each of us, a mindless robot.
VITUG, J., separate opinion:
POLITICAL LAW; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM, AN UNDUE
AND IMPERMISSIBLE EXERCISE OF LEGISLATIVE POWER BY THE EXECUTIVE. Administrative
Order No. 308 appears to be so extensively drawn that could, indeed, allow unbridled options to become
available to its implementors beyond the reasonable comfort of the citizens and of residents alike.
Prescinding from the foregoing and most importantly to this instance, the subject covered by the
questioned administrative order can have far-reaching consequences that can tell on all individuals, their
liberty and privacy, that, to my mind, should make it indispensable and appropriate to have the matter
specifically addressed by the Congress of the Philippines, the policy-making body of our government, to
which the task should initially belong and to which the authority to formulate and promulgate that policy is
constitutionally lodged. Wherefore, I vote for the nullification of Administrative Order No. 308 for being an
undue and impermissible exercise of legislative power by the Executive.
PANGANIBAN, J., separate opinion:
POLITICAL LAW; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM (AO 308),
SUBJECT MATTER THEREOF IS BEYOND THE POWERS OF THE PRESIDENT TO REGULATE
WITHOUT A LEGISLATIVE ENACTMENT. I concur only in the result and only on the ground that an
executive issuance is not legally sufficient to establish an all encompassing computerized system of
identification in the country. The subject matter contained in AO 308 is beyond the powers of the
President to regulate without a legislative enactment.
KAPUNAN, J., dissenting opinion:
1. POLITICAL LAW; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM;
PURPOSE. The National Computerized Identification Reference System, to which the NSO, GSIS and
SSS are linked as lead members of the IACC is intended to establish uniform standards for ID cards
issued by key government agencies (like the SSS) for the "efficient identification of persons." Under the

158

new system, only on retaliate and tamper-proof I.D. need be presented by the cardholder instead of
several identification papers such as passports and driver's license, to able to transact with government
agencies. The improved ID can be used to facilitate public transactions such as: 1. Payment of SSS and
GSIS benefits 2. Applications for driver's license, BIR TIN, passport, marriage license, death certificate,
NBI and police clearance and business permits. 3. Availment of Medicare services in hospitals 4.
Availment of welfare services 5. Application for work/ employment 6. Pre-requisite for voter's ID. The card
may also be used for private transactions such as: 1. Opening of bank accounts 2. Encashment of checks
3. Applications for loans, credit cards, water, power, telephones, pagers, etc. 4. Purchase of stocks 5.
Application for work/employment 6. Insurance claims 7. Receipt of payments, checks, letters, valuables,
etc. The new identification system would tremendously improve and uplift public service in our country to
the benefit of Filipino citizens and resident aliens. It would promote, facilitate and speed up legitimate
transactions with government offices as well as with private and business entities. Experience tells us of
the constant delays and inconveniences the public has to suffer in availing of basic public services and
social security benefits because of inefficient and not too reliable means of identification of the
beneficiaries.
2. ID.; ID.; SALIENT FEATURES. Thus, in the "Primer on the Social Security Card and Administrative
Order No. 308" issued by the SSS, a lead agency in the implementation of the said order, the following
salient features are mentioned: 1. A.O. 308 merely establishes the standards for I.D. cards issued by key
government agencies such as SSS and GSIS. 2. It does not establish a national I.D. system; neither does
it require a national I.D. card for every person. 3. The use of the I.D. is voluntary. 4. The I.D. is not
required for delivery of any government service. Everyone has the right to basic government services as
long as he is qualified under existing laws. 5. The I.D. cannot and will not in any way be used to prevent
one to travel. 6. There will be no discrimination. Non-holders of the improved I.D. are still entitled to the
same services but will be subjected to the usual rigid identification and verification beforehand.
3. ID.; ID.; EXERCISE OF PRESIDENT'S QUASI-LEGISLATIVE POWER VESTED TO HIM UNDER
ADMINISTRATIVE CODE OF 1987. The Administrative Code of 1987 has unequivocally vested the
President with quasi-legislative powers in the form of executive orders, administrative orders,
proclamations, memorandum orders and circulars and general or special orders. An administrative order,
like the one under which the new identification system is embodied, has its peculiar meaning under the
1987 Administrative Code. The National Computerized Identification Reference system was established
pursuant to the aforequoted provision precisely because its principal purpose, as expressly stated in the
order, is to provide the people with "the facility to conveniently transact business" with the various
government agencies providing basic services. Being the "administrative head," it is unquestionably the
responsibility of the President to find ways and means to improve the government bureaucracy, and make
it more professional, efficient and reliable, specially those government agencies and instrumentalities
which provide basic services and which the citizenry constantly transact with, like the Government
Service Insurance System (GSIS), Social Security System (SSS) and National Statistic Office (NSO). The
National computerized ID system is one such advancement. To emphasize, the new identification
reference system is created to streamline the bureaucracy, cut the red tape and ultimately achieve
administrative efficiency. The project, therefore, relates to, is an appropriate subject and falls squarely
within the ambit of the Chief Executive's administrative power under which, in order to successfully carry
out his administrative duties, he has been granted by law quasi-legislative powers, quoted above. A.O.
No. 308 was promulgated by the President pursuant to the quasi-legislative powers expressly granted to
him by law and in accordance with his duty as administrative head. Hence, the contention that the
President usurped the legislative prerogatives of Congress has no firm basis.
4. ID.; ID.; PREMATURE FOR JUDICIAL INQUIRY. Having resolved that the President has the
authority and prerogative to issue A.O. No. 308, I submit that it is premature for the Court to determine the
constitutionality or unconstitutionality of the National Computerized Identification Reference System.

159

Basic in constitutional law is the rule that before the court assumes jurisdiction over and decide
constitutional issues, the following requisites must first be satisfied: 1) there must be an actual case or
controversy involving a conflict of rights susceptible of judicial determination; 2) the constitutional question
must be raised by a proper party; 3) the constitutional question must be raised at the earliest opportunity;
and 4) the resolution of the constitutional question must be necessary to the resolution of the case. In this
case, it is evident that the first element is missing. Judicial intervention calls for an actual case or
controversy which is defined as "an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory." Justice Isagani A. Cruz further expounds that "(a) justifiable
controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character or
from one that is academic or moot. The controversy must be definite and concrete, touching the legal
relations of parties having adverse legal interests. It must be a real and substantial controversy admitting
of special relief through a decree that is conclusive in character, as distinguished from an opinion advising
what the law would be upon a hypothetical state of facts. . . ." A.O. No. 308 does not create any concrete
or substantial controversy. It provides the general framework of the National Computerized Identification
Reference System and lays down the basic standards (efficiency, convenience and prevention of
fraudulent transactions) for its creation. But as manifestly indicated in the subject order, it is the InterAgency Coordinating Committee (IACC) which is tasked to research, study and formulate the guidelines
and parameters for the use of Biometrics Technology and in computer application designs that will define
and give substance to the new system. This petition is, thus, premature considering that the IACC is still
in the process of doing the leg work and has yet to codify and formalize the details of the new system.

5. ID.; ID.; DOES NOT VIOLATE THE CONSTITUTIONAL RIGHT TO PRIVACY. There is nothing
in A.O. No. 308, as it is worded, to suggest that the advanced methods of the Biometrics Technology.
Consequently, the choice of the particular form and extent of Biometrics Technology that may pose
danger to the right of privacy will be adopted. The standards set in A.O. No. 308 for the adoption of the
new system are clear-cut and unequivocably spelled out in the "WHEREASES" and body of the order,
namely, the need to provide citizens and foreign residents with the facility to conveniently transact
business with basic service and social security providers and other government instrumentalities; the
computerized system is intended to properly and efficiently identify persons seeking basic services or
social security and reduce, if not totally eradicate fraudulent transactions and misrepresentation; the
national identification reference system is established among the key basic services and social security
providers; and finally, the IACC Secretariat shall coordinate with different Social Security and Services
Agencies to establish the standards in the use of Biometrics Technology. Consequently, the choice of the
particular form and extent of Biometrics Technology that will be applied and the parameters for its use (as
will be defined in the guidelines) will necessarily and logically be guided, limited and circumscribed by the
afore-stated standards. The fear entertained by the majority on the potential dangers of this new
technology is thus securedly allayed by the specific limitations set by the above-mentioned standards.
More than this, the right to privacy is well-ensconced in and directly protected by various provisions of the
Bill of Rights, the Civil Code, the Revised Penal Code, and certain special laws, all so painstakingly and
resourcefully catalogued in the majority opinion. Many of these laws provide penalties for their violation in
the form of imprisonment, fines, or damages. These laws will serve as powerful deterrents not only in the
establishment of any administrative rule that will violate the constitutionally protected right to privacy, but
also to would-be transgressors of such right.
6. ID.; ID.; DOES NOT REQUIRE THE TRANSFER OF APPROPRIATION BUT A POOLING OF FUNDS
AND RESOURCES BY THE VARIOUS GOVERNMENT AGENCIES INVOLVED IN THE PROJECT.
On the issue of funding, the majority submits that Section 6 of A.O. No. 308, which allows the government
agencies included in the new system to obtain funding from their respective budgets, is unconstitutional
for being an illegal transfer of appropriations. It is not so. The budget for the national identification system

160

cannot be deemed a transfer of funds since the same is composed of and will be implemented by the
member government agencies. Moreover, these agencies particularly the GSIS and SSS have been
issuing some form of identification or membership card. The improved ID cards that will be issued under
this new system would just take place of the old identification cards and budget-wise, the funds that were
being used to manufactured the old ID cards, which are usually accounted for under the "Supplies and
Materials" item of the Government Accounting and Auditing Manual, could now be utilized to fund the new
cards. Hence, what is envisioned is not a transfer of appropriations but a pooling of funds and resources
by the various government agencies involved in the project.
MENDOZA, J., dissenting opinion:
1. POLITICAL LAW; NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE SYSTEM (A. O. NO.
308); BASED ON DATA WHICH THE GOVERNMENT AGENCIES INVOLVED HAVE ALREADY BEEN
REQUIRING INDIVIDUALS MAKING USE OF THEIR SERVICES TO GIVE. J. Mendoza does not see
how from the bare provisions of the Order, the full text of which is set forth in the majority opinion,
petitioner and the majority can conclude that the Identification Reference System establishes such
comprehensive personal information dossiers that can destroy individual privacy. So far as the Order
provides, all that is contemplated is an identification system based on data which the government
agencies involved have already been requiring individuals making use of their services to give.
2. ID.; ID.; SIMPLY ORGANIZES SERVICE AGENCIES OF THE GOVERNMENT TO FACILITATE THE
IDENTIFICATION OF PERSONS SEEKING BASIC SERVICES AND SOCIAL SECURITY. More
specifically, the question is whether the establishment of the Identification Reference System will not
result in the compilation of massive dossiers on individuals which, beyond their use for identification, can
become instruments of thought control. So far, the text of A.O. No. 308 affords no basis for believing that
the data gathered can be used for such sinister purpose. As already stated, nothing that is not already
being required by the concerned agencies of those making use of their services is required by the Order
in question. The Order simply organizes service agencies of the government into a System for the
purpose of facilitating the identification of persons seeking basic services and social security. Thus, the
whereas clauses of A.O. No. 308 state: . . . . . . . . . The application of biometric technology and the
standardization of computer designs can provide service agencies with precise identification of
individuals, but what is wrong with that?
3. ID.; ID.; NO MORE THAN A DIRECTIVE TO GOVERNMENT AGENCIES WHICH THE PRESIDENT
HAS ISSUED IN HIS CAPACITY AS ADMINISTRATIVE HEAD. A.O. No. 308 is no more than a
directive to government agencies which the President of the Philippines has issued in his capacity as
administrative head. It is not a statute. It confers no right; it imposes no duty; it affords no protection; it
creates no office. It is, as its name indicates, a mere administrative order, the precise nature of which is
given in the following excerpt from the decision in the early case of Olsen & Co. v. Herstein: [It] is nothing
more or less than a command from a superior to an inferior. It creates no relation except between the
official who issues it and the official who receives it. Such orders, whether executive or departmental,
have for their object simply the efficient and economical administration of the affairs of the department to
which or in which they are issued in accordance with the law governing the subject-matter. They are
administrative in their nature and do not pass beyond the limits of the department to which they are
directed or in which they are published, and, therefore, create no rights in third persons. They are based
on, and are the product of, a relationship in which power is their source and obedience their
object. Disobedience to or deviation from such an order can be punished only by the power which issued
it; and, if that power fails to administer the corrective, then the disobedience goes unpunished. In that
relationship no third person or official may intervene,. not even the courts. Such orders may be very
temporary, they being subject to instant revocation or modification by the power which published them.
Their very nature, as determined by the relationship which produced them, demonstrates clearly, the

161

impossibility of any other person enforcing them except the one who created them. An attempt on the part
of the courts to enforce such orders would result not only in confusion but, substantially, in departmental
anarchy also.
4. CONSTITUTIONAL LAW; BILL OF RIGHTS; RIGHT TO PRIVACY; DOES NOT BAR ALL
INCURSIONS INTO INDIVIDUAL PRIVACY. Indeed, the majority concedes that "the right of privacy
does not bar all incursions into individual privacy. . . [only that such] incursions into the right must be
accompanied by proper safeguards and well-defined standards to prevent unconstitutional invasions." In
the case of the Identification Reference System, the purpose is to facilitate the transaction of business
with service agencies of the government and to prevent fraud and misrepresentation. The personal
identification of an individual can facilitate his treatment in any government hospital in case of emergency.
On the other hand, the delivery of material assistance, such as free medicines, can be protected from
fraud or misrepresentation as the absence of a data base makes it possible for unscrupulous individuals
to obtain assistance from more than one government agency. caIDSH
DECISION
PUNO, J p:
The petition at bar is a commendable effort on the part of Senator Blas F. Ople to prevent the shrinking of
the right to privacy, which the revered Mr. Justice Brandeis considered as "the most comprehensive of
rights and the right most valued by civilized men.'' 1 Petitioner Ople prays that we
invalidate Administrative Order No. 308 entitled "Adoption of a National Computerized Identification
Reference System" on two important constitutional grounds, viz: one, it is a usurpation of the power of
Congress to legislate, and two, it impermissibly intrudes on our citizenry's protected zone of privacy. We
grant the petition for the rights sought to be vindicated by the petitioner need stronger barriers against
further erosion. cdphil
A.O. No. 308 was issued by President Fidel V. Ramos on December 12, 1996 and reads as follows:
"ADOPTION OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE
SYSTEM
WHEREAS, there is a need to provide Filipino citizens and foreign residents with the
facility to conveniently transact business with basic service and social security
providers and other government instrumentalities;
WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services on social security and reduce, if not totally eradicate,
fraudulent transactions and misrepresentations;
WHEREAS, a concerted and collaborative effort among the various basic services and
social security providing agencies and other government instrumentalities is required to
achieve such a system;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines,
by virtue of the powers vested in me by law, do hereby direct the following:

162

SEC. 1. Establishment of a National Computerized Identification Reference System.

A decentralized Identification Reference System among the key basic services and
social security providers is hereby established.
SEC. 2. Inter-Agency Coordinating Committee. An Inter-Agency Coordinating
Committee (IACC) to draw-up the implementing guidelines and oversee the
implementation of the System is hereby created, chaired by the Executive Secretary,
with the following as members:
Head, Presidential Management Staff
Secretary, National Economic Development Authority
Secretary, Department of the Interior and Local Government
Secretary, Department of Health
Administrator, Government Service Insurance System,
Administrator, Social Security System,
Administrator, National Statistics Office
Managing Director, National Computer Center.
SEC. 3. Secretariat. The National Computer Center (NCC) is hereby designated as
secretariat to the IACC and as such shall provide administrative and technical support
to the IACC.
SEC. 4. Linkage Among Agencies. The Population Reference Number (PRN)
generated by the NSO shall serve as the common reference number to establish a
linkage among concerned agencies. The IACC Secretariat shall coordinate with the
different Social Security and Services Agencies to establish the standards in the use of
Biometrics Technology and in computer application designs of their respective systems.
SEC. 5. Conduct of Information Dissemination Campaign. The Office of the Press
Secretary, in coordination with the National Statistics Office, the GSIS and SSS as lead
agencies and other concerned agencies shall undertake a massive tri-media
information dissemination campaign to educate and raise public awareness on the
importance and use of the PRN and the Social Security Identification Reference.
SEC. 6. Funding. The funds necessary for the implementation of the system shall be
sourced from the respective budgets of the concerned agencies.
SEC. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit
regular reports to the Office of the President, through the IACC, on the status of
implementation of this undertaking.
SEC. 8. Effectivity. This Administrative Order shall take effect immediately.

163

DONE in the City of Manila, this 12th day of December in the year of Our Lord,
Nineteen Hundred and Ninety-Six.
(SGD.) FIDEL V. RAMOS"
A.O. No. 308 was published in four newspapers of general circulation on January 22, 1997 and January
23, 1997. On January 24, 1997, petitioner filed the instant petition against respondents, then Executive
Secretary Ruben Torres and the heads of the government agencies, who as members of the Inter-Agency
Coordinating Committee, are charged with the implementation of A.O. No. 308. On April 8, 1997, we
issued a temporary restraining order enjoining its implementation.
Petitioner contends:
"A. THE ESTABLISHMENT OF A NATIONAL COMPUTERIZED IDENTIFICATION
REFERENCE SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUANCE OF A.O.
NO. 308 BY THE PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES IS,
THEREFORE, AN UNCONSTITUTIONAL USURPATION OF THE LEGISLATIVE
POWERS OF THE CONGRESS OF THE REPUBLIC OF THE PHILIPPINES.
B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE
IMPLEMENTATION OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF
THE EXCLUSIVE RIGHT OF CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR
EXPENDITURE.
C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE
GROUNDWORK FOR A SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS
ENSHRINED IN THE CONSTITUTION." 2
Respondents counter-argue:
A. THE INSTANT PETITION IS NOT A JUSTICIABLE CASE AS WOULD WARRANT A
JUDICIAL REVIEW;
B. A.O. NO. 308 [1996] WAS ISSUED WITHIN THE EXECUTIVE AND
ADMINISTRATIVE POWERS OF THE PRESIDENT WITHOUT ENCROACHING ON
THE LEGISLATIVE POWERS OF CONGRESS;
C. THE FUNDS NECESSARY FOR THE IMPLEMENTATION OF THE
IDENTIFICATION REFERENCE SYSTEM MAY BE SOURCED FROM THE BUDGETS
OF THE CONCERNED AGENCIES;
D. A.O. NO. 308 [1996] PROTECTS AN INDIVIDUAL'S INTEREST IN PRIVACY. 3
We now resolve.
I
As is usual in constitutional litigation, respondents raise the threshold issues relating to the standing to
sue of the petitioner and the justiciability of the case at bar. More specifically, respondents aver that

164

petitioner has no legal interest to uphold and that the implementing rules of A.O. No. 308 have yet to be
promulgated.
These submissions do not deserve our sympathetic ear. Petitioner Ople is a distinguished member of our
Senate. As a Senator, petitioner is possessed of the requisite standing to bring suit raising the issue that
the issuance of A.O. No. 308 is a usurpation of legislative power. 4 As taxpayer and member of the
Government Service Insurance System (GSIS), petitioner can also impugn the legality of the
misalignment of public funds and the misuse of GSIS funds to implement A.O. No. 308. 5
The ripeness for adjudication of the petition at bar is not affected by the fact that the implementing rules
of A.O. No. 308 have yet to be promulgated. Petitioner Ople assails A.O. No. 308 as invalid per se and as
infirmed on its face. His action is not premature for the rules yet to be promulgated cannot cure its fatal
defects. Moreover, the respondents themselves have started the implementation of A.O. No. 308 without
waiting for the rules. As early as January 19, 1997, respondent Social Security System (SSS) caused the
publication of a notice to bid for the manufacture of the National Identification (ID) card. 6 Respondent
Executive Secretary Torres has publicly announced that representatives from the GSIS and the SSS have
completed the guidelines for the national identification system. 7 All signals from the respondents show
their unswerving will to implement A.O. No. 308 and we need not wait for the formality of the rules to pass
judgment on its constitutionality. In this light, the dissenters insistence that we tighten the rule on standing
is not a commendable stance as its result would be to throttle an important constitutional principle and a
fundamental right.
II
We now come to the core issues. Petitioner claims that A.O. No. 308 is not a mere administrative order
but a law and hence, beyond the power of the President to issue. He alleges that A.O. No.
308 establishes a system of identification that is all-encompassing in scope, affects the life and liberty of
every Filipino citizen and foreign resident, and more particularly, violates their right to privacy.
Petitioner's sedulous concern for the Executive not to trespass on the lawmaking domain of Congress is
understandable. The blurring of the demarcation line between the power of the Legislature to make laws
and the power of the Executive to execute laws will disturb their delicate balance of power and cannot be
allowed. Hence, the exercise by one branch of government of power belonging to another will be given
a stricter scrutiny by this Court.
The line that delineates Legislative and Executive power is not indistinct. Legislative power is "the
authority, under the Constitution, to make laws, and to alter and repeal them." 8 The Constitution, as the
will of the people in their original, sovereign and unlimited capacity, has vested this power in the Congress
of the Philippines. 9 The grant of legislative power to Congress is broad, general and
comprehensive. 10 The legislative body possesses plenary power for all purposes of civil
government. 11 Any power, deemed to be legislative by usage and tradition, is necessarily possessed by
Congress, unless the Constitution has lodged it elsewhere. 12 In fine, except as limited by the
Constitution, either expressly or impliedly, legislative power embraces all subjects and extends to matters
of general concern or common interest. 13
While Congress is vested with the power to enact laws, the President executes the laws. 14 The
executive power is vested in the President. 15 It is generally defined as the power to enforce and
administer the laws. 16 It is the power of carrying the laws into practical operation and enforcing their due
observance. 17

165

As head of the Executive Department, the President is the Chief Executive. He represents the
government as a whole and sees to it that all laws are enforced by the officials and employees of his
department. 18 He has control over the executive department, bureaus and offices. This means that he
has the authority to assume directly the functions of the executive department, bureau and office, or
interfere with the discretion of its officials. 19 Corollary to the power of control, the President also has the
duty of supervising the enforcement of laws for the maintenance of general peace and public order. Thus,
he is granted administrative power over bureaus and offices under his control to enable him to discharge
his duties effectively. 20
Administrative power is concerned with the work of applying policies and enforcing orders as determined
by proper governmental organs. 21 It enables the President to fix a uniform standard of administrative
efficiency and check the official conduct of his agents. 22 To this end, he can issue administrative orders,
rules and regulations.
Prescinding from these precepts, we hold that A.O. No. 308 involves a subject that is not appropriate to
be covered by an administrative order. An administrative order is:
"Sec. 3. Administrative Orders. Acts of the President which relate to particular
aspects of governmental operation in pursuance of his duties as administrative head
shall be promulgated in administrative orders." 23
An administrative order is an ordinance issued by the President which relates to specific aspects in
the administrative operation of government. It must be in harmony with the law and should be for the
sole purpose of implementing the law and carrying out the legislative policy. 24 We reject the
argument that A.O. No. 308 implements the legislative policy of the Administrative Code of 1987. The
Code is a general law and "incorporates in a unified document the major structural, functional and
procedural principles of governance" 25 and "embodies changes in administrative structures and
procedures designed to serve the people." 26 The Code is divided into seven (7) Books: Book I deals
with Sovereignty and General Administration, Book II with the Distribution of Powers of the three
branches of Government, Book III on the Office of the President, Book IV on the Executive Branch,
Book V on the Constitutional Commissions, Book VI on National Government Budgeting, and Book
VII on Administrative Procedure. These Books contain provisions on the organization, powers and
general administration of the executive, legislative and judicial branches of government, the
organization and administration of departments, bureaus and offices under the executive branch, the
organization and functions of the Constitutional Commissions and other constitutional bodies, the
rules on the national government budget, as well as guidelines for the exercise by administrative
agencies of quasi-legislative and quasi-judicial powers. The Code covers both the internal
administration of government, i.e, internal organization, personnel and recruitment, supervision and
discipline, and the effects of the functions performed by administrative officials on private individuals
or parties outside government. 27

It cannot be simplistically argued that A.O. No. 308 merely implements the Administrative Code of 1987. It
establishes for the first time a National Computerized Identification Reference System. Such a System
requires a delicate adjustment of various contending state policies the primacy of national security, the
extent of privacy interest against dossier-gathering by government, the choice of policies, etc. Indeed, the
dissent of Mr. Justice Mendoza states that the A.O. No. 308 involves the all-important freedom of thought.
As said administrative order redefines the parameters of some basic rights of our citizenry vis-a-vis the
State as well as the line that separates the administrative power of the President to make rules and the

166

legislative power of Congress, it ought to be evident that it deals with a subject that should be covered by
law.
Nor is it correct to argue as the dissenters do that A.O. No. 308 is not a law because it confers no right,
imposes no duty, affords no protection, and creates no office. Under A.O. No. 308, a citizen cannot
transact business with government agencies delivering basic services to the people without the
contemplated identification card. No citizen will refuse to get this identification card for no one can avoid
dealing with government. It is thus clear as daylight that without the ID, a citizen will have difficulty
exercising his rights and enjoying his privileges. Given this reality, the contention that A.O. No. 308 gives
no right and imposes no duty cannot stand.
Again, with due respect, the dissenting opinions unduly expand the limits of administrative legislation and
consequently erodes the plenary power of Congress to make laws. This is contrary to the established
approach defining the traditional limits of administrative legislation. As well stated by Fisher: ". . . Many
regulations however, bear directly on the public. It is here that administrative legislation must be restricted
in its scope and application. Regulations are not supposed to be a substitute for the general policymaking that Congress enacts in the form of a public law. Although administrative regulations are entitled
to respect, the authority to prescribe rules and regulations is not an independent source of power to make
laws." 28
III
Assuming, arguendo, that A.O. No. 308 need not be the subject of a law, still it cannot pass constitutional
muster as an administrative legislation because facially it violates the right to privacy. The essence of
privacy is the "right to be let alone." 29 In the 1965 case of Griswold v. Connecticut, 30 the United States
Supreme Court gave more substance to the right of privacy when it ruled that the right has a constitutional
foundation. It held that there is a right of privacy which can be found within the penumbras of the First,
Third, Fourth, Fifth and Ninth Amendments, 31 viz:
"Specific guarantees in the Bill of Rights have penumbras formed by emanations from
these guarantees that help give them life and substance . . . Various guarantees create
zones of privacy. The right of association contained in the penumbra of the First
Amendment is one, as we have seen. The Third Amendment in its prohibition against
the quartering of soldiers 'in any house' in time of peace without the consent of the
owner is another facet of that privacy. The Fourth Amendment explicitly affirms the 'right
of the people to be secure in their persons, houses, papers, and effects, against
unreasonable searches and seizures.' The Fifth Amendment in its Self-Incrimination
Clause enables the citizen to create a zone of privacy which government may not force
him to surrender to his detriment. The Ninth Amendment provides: 'The enumeration
in the Constitution, of certain rights, shall not be construed to deny or disparage others
retained by the people.'"
In the 1968 case of Morfe v. Mutuc, 32 we adopted the Griswold ruling that there is a constitutional
right to privacy. Speaking thru Mr. Justice, later Chief Justice, Enrique Fernando, we held:
"xxx xxx xxx
The Griswold case invalidated a Connecticut statute which made the use of
contraceptives a criminal offense on the ground of its amounting to an unconstitutional
invasion of the right of privacy of married persons; rightfully it stressed "a relationship
lying within the zone of privacy created by several fundamental constitutional

167

guarantees." It has wider implications though. The constitutional right to privacy has
come into its own.
So it is likewise in our jurisdiction. The right to privacy as such is accorded recognition
independently of its identification with liberty; in itself, it is fully deserving of
constitutional protection. The language of Prof. Emerson is particularly apt: 'The
concept of limited government has always included the idea that governmental powers
stop short of certain intrusions into the personal life of the citizen. This is indeed one of
the basic distinctions between absolute and limited government. Ultimate and
pervasive control of the individual, in all aspects of his life, is the hallmark of the
absolute state. In contrast, a system of limited government safeguards a private sector,
which belongs to the individual, firmly distinguishing it from the public sector, which the
state can control. Protection of this private sector protection, in other words, of the
dignity and integrity of the individual has become increasingly important as modern
society has developed. All the forces of a technological age industrialization,
urbanization, and organization operate to narrow the area of privacy and facilitate
intrusion into it. In modern terms, the capacity to maintain and support this enclave of
private life marks the difference between a democratic and a totalitarian society.'"
Indeed, if we extend our judicial gaze we will find that the right of privacy is recognized and
enshrined in several provisions of our Constitution. 33 It is expressly recognized in Section 3(1) of the
Bill of Rights:
"Sec. 3. (1) The privacy of communication and correspondence shall be inviolable
except upon lawful order of the court, or when public safety or order requires otherwise
as prescribed by law."
Other facets of the right to privacy are protected in various provisions of the Bill of Rights, viz: 34
"Sec. 1. No person shall be deprived of life, liberty, or property without due process of
law, nor shall any person be denied the equal protection of the laws.
Sec. 2. The right of the people to be secure in their persons, houses, papers, and
effects against unreasonable searches and seizures of whatever nature and for any
purpose shall be inviolable, and no search warrant or warrant of arrest shall issue
except upon probable cause to be determined personally by the judge after
examination under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched and the persons or things
to be seized.
xxx xxx xxx
Sec. 6. The liberty of abode and of changing the same within the limits prescribed by
law shall not be impaired except upon lawful order of the court. Neither shall the right to
travel be impaired except in the interest of national security, public safety, or public
health, as may be provided by law.
xxx xxx xxx.

168

Sec. 8. The right of the people, including those employed in the public and private
sectors, to form unions, associations, or societies for purposes not contrary to law shall
not be abridged.
Sec. 17. No person shall be compelled to be a witness against himself."
Zones of privacy are likewise recognized and protected in our laws. The Civil Code provides that "[e]very
person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other
persons" and punishes as actionable torts several acts by a person of meddling and prying into the
privacy of another. 35 It also holds a public officer or employee or any private individual liable for
damages for any violation of the rights and liberties of another person, 36 and recognizes the privacy of
letters and other private communications. 37 The Revised Penal Code makes a crime the violation of
secrets by an officer, 38 the revelation of trade and industrial secrets, 39 and trespass to
dwelling.40 Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, 41 the Secrecy
of Bank Deposits Act 42 and the Intellectual Property Code. 43 The Rules of Court on privileged
communication likewise recognize the privacy of certain information. 44
Unlike the dissenters, we prescind from the premise that the right to privacy is a fundamental right
guaranteed by the Constitution, hence, it is the burden of government to show that A.O. No. 308 is
justified by some compelling state interest and that it is narrowly drawn. A.O. No. 308 is predicated on two
considerations: (1) the need to provide our citizens and foreigners with the facility to conveniently transact
business with basic service and social security providers and other government instrumentalities and (2)
the need to reduce, if not totally eradicate, fraudulent transactions and misrepresentations by persons
seeking basic services. It is debatable whether these interests are compelling enough to warrant the
issuance of A.O. No. 308. But what is not arguable is the broadness, the vagueness, the overbreadth of
A.O. No. 308 which if implemented will put our people's right to privacy in clear and present danger.
The heart of A.O. No. 308 lies in its Section 4 which provides for a Population Reference Number (PRN)
as a "common reference number to establish a linkage among concerned agencies" through the use of
"Biometrics Technology" and "computer application designs."
Biometry or biometrics is "the science of the application of statistical methods to biological facts; a
mathematical analysis of biological data." 45 The term "biometrics" has now evolved into a broad
category of technologies which provide precise confirmation of an individual's identity through the use of
the individual's own physiological and behavioral characteristics. 46 A physiological characteristic is a
relatively stable physical characteristic such as a fingerprint, retinal scan, hand geometry or facial
features. A behavioral characteristic is influenced by the individual's personality and includes voice print,
signature and keystroke. 47 Most biometric identification systems use a card or personal identification
number (PIN) for initial identification. The biometric measurement is used to verify that the individual
holding the card or entering the PIN is the legitimate owner of the card or PIN. 48

A most common form of biological encoding is finger-scanning where technology scans a fingertip and
turns the unique pattern therein into an individual number which is called a biocrypt. The biocrypt is stored
in computer data banks 49and becomes a means of identifying an individual using a service. This
technology requires one's fingertip to be scanned every time service or access is provided. 50 Another
method is the retinal scan. Retinal scan technology employs optical technology to map the capillary
pattern of the retina of the eye. This technology produces a unique print similar to a finger
print. 51 Another biometric method is known as the "artificial nose." This device chemically analyzes the
unique combination of substances excreted from the skin of people. 52 The latest on the list of biometric

169

achievements is the thermogram. Scientists have found that by taking pictures of a face using infrared
cameras, a unique heat distribution pattern is seen. The different densities of bone, skin, fat and blood
vessels all contribute to the individual's personal "heat signature." 53
In the last few decades, technology has progressed at a galloping rate. Some science fictions are now
science facts. Today, biometrics is no longer limited to the use of fingerprint to identify an individual. It is a
new science that uses various technologies in encoding any and all biological characteristics of an
individual for identification. It is noteworthy that A.O. No. 308 does not state what specific biological
characteristics and what particular biometrics technology shall be used to identify people who will seek its
coverage. Considering the banquet of options available to the implementors of A.O. No. 308, the fear that
it threatens the right to privacy of our people is not groundless.
A.O. No. 308 should also raise our antennas for a further look will show that it does not state whether
encoding of data is limited to biological information alone for identification purposes. In fact, the Solicitor
General claims that the adoption of the Identification Reference System will contribute to the "generation
of population data for development planning." 54 This is an admission that the PRN will not be used
solely for identification but for the generation of other data with remote relation to the avowed purposes
of A.O. No. 308. Clearly, the indefiniteness of A.O. No. 308 can give the government the roving authority
to store and retrieve information for a purpose other than the identification of the individual through his
PRN .
The potential for misuse of the data to be gathered under A.O. No. 308 cannot be underplayed as the
dissenters do. Pursuant to said administrative order, an individual must present his PRN everytime he
deals with a government agency to avail of basic services and security. His transactions with the
government agency will necessarily be recorded whether it be in the computer or in the documentary
file of the agency. The individual's file may include his transactions for loan availments, income tax
returns, statement of assets and liabilities, reimbursements for medication, hospitalization, etc. The more
frequent the use of the PRN, the better the chance of building a huge and formidable information base
through the electronic linkage of the files. 55 The data may be gathered for gainful and useful government
purposes; but the existence of this vast reservoir of personal information constitutes a covert invitation to
misuse, a temptation that may be too great for some of our authorities to resist. 56
We can even grant, arguendo, that the computer data file will be limited to the name, address and other
basic personal information about the individual. 57 Even that hospitable assumption will not save A.O. No.
308 from constitutional infirmity for again said order does not tell us in clear and categorical terms how
these information gathered shall be handled. It does not provide who shall control and access the data,
under what circumstances and for what purpose. These factors are essential to safeguard the privacy and
guaranty the integrity of the information. 58 Well to note, the computer linkage gives other government
agencies access to the information. Yet, there are no controls to guard against leakage of information.
When the access code of the control programs of the particular computer system is broken, an intruder,
without fear of sanction or penalty, can make use of the data for whatever purpose, or worse, manipulate
the data stored within the system. 59
It is plain and we hold that A.O. No. 308 falls short of assuring that personal information which will be
gathered about our people will only be processed for unequivocally specified purposes. 60 The lack of
proper safeguards in this regard of A.O. No. 308 may interfere with the individual's liberty of abode and
travel by enabling authorities to track down his movement; it may also enable unscrupulous persons to
access confidential information and circumvent the right against self-incrimination; it may pave the way for
"fishing expeditions" by government authorities and evade the right against unreasonable searches and
seizures. 61 The possibilities of abuse and misuse of the PRN, biometrics and computer technology are
accentuated when we consider that the individual lacks control over what can be read or placed on his ID,

170

much less verify the correctness of the data encoded. 62 They threaten the very abuses that the Bill of
Rights seeks to prevent. 63
The ability of a sophisticated data center to generate a comprehensive cradle-to-grave dossier on an
individual and transmit it over a national network is one of the most graphic threats of the computer
revolution. 64 The computer is capable of producing a comprehensive dossier on individuals out of
information given at different times and for varied purposes. 65 It can continue adding to the stored data
and keeping the information up to date. Retrieval of stored data is simple. When information of a
privileged character finds its way into the computer, it can be extracted together with other data on the
subject. 66 Once extracted, the information is putty in the hands of any person. The end of privacy
begins. cdphil
Though A.O. No. 308 is undoubtedly not narrowly drawn, the dissenting opinions would dismiss its danger
to the right to privacy as speculative and hypothetical. Again, we cannot countenance such a laidback
posture. The Court will not be true to its role as the ultimate guardian of the people's liberty if it would not
immediately smother the sparks that endanger their rights but would rather wait for the fire that could
consume them.
We reject the argument of the Solicitor General that an individual has a reasonable expectation of privacy
with regard to the National ID and the use of biometrics technology as it stands on quicksand. The
reasonableness of a person's expectation of privacy depends on a two-part test: (1) whether by his
conduct, the individual has exhibited an expectation of privacy; and (2) whether this expectation is one
that society recognizes as reasonable. 67 The factual circumstances of the case determines the
reasonableness of the expectation. 68 However, other factors, such as customs, physical surroundings
and practices of a particular activity, may serve to create or diminish this expectation. 69 The use of
biometrics and computer technology in A.O. No. 308 does not assure the individual of a reasonable
expectation of privacy. 70 As technology advances, the level of reasonably expected privacy
decreases. 71 The measure of protection granted by the reasonable expectation diminishes as relevant
technology becomes more widely accepted. 72 The security of the computer data file depends not only on
the physical inaccessibility of the file but also on the advances in hardware and software computer
technology. A.O. No. 308 is so widely drawn that a minimum standard for a reasonable expectation of
privacy, regardless of technology used, cannot be inferred from its provisions.
The rules and regulations to be drawn by the IACC cannot remedy this fatal defect. Rules and regulations
merely implement the policy of the law or order. On its face, A.O. No. 308 gives the IACC virtually
unfettered discretion to determine the metes and bounds of the ID System.
Nor do our present laws provide adequate safeguards for a reasonable expectation of
privacy. Commonwealth Act No. 591 penalizes the disclosure by any person of data furnished by the
individual to the NSO with imprisonment and fine. 73 Republic Act No. 1161 prohibits public disclosure of
SSS employment records and reports. 74 These laws, however, apply to records and data with the NSO
and the SSS. It is not clear whether they may be applied to data with the other government agencies
forming part of the National ID System. The need to clarify the penal aspect of A.O. No. 308 is another
reason why its enactment should be given to Congress.
Next, the Solicitor General urges us to validate A.O. No. 308's abridgment of the right of privacy by using
the rational relationship test. 75 He stressed that the purposes of A.O. No. 308 are: (1) to streamline and
speed up the implementation of basic government services, (2) eradicate fraud by avoiding duplication of
services, and (3) generate population data for development planning. He concludes that these purposes
justify the incursions into the right to privacy for the means are rationally related to the end. 76

171

We are not impressed by the argument. In Morfe v. Mutuc, 77 we upheld the constitutionality of R.A.
3019, the Anti-Graft and Corrupt Practices Act, as a valid police power measure. We declared that the
law, in compelling a public officer to make an annual report disclosing his assets and liabilities, his
sources of income and expenses, did not infringe on the individual's right to privacy. The law was enacted
to promote morality in public administration by curtailing and minimizing the opportunities for official
corruption and maintaining a standard of honesty in the public service. 78

The same circumstances do not obtain in the case at bar. For one, R.A. 3019 is a statute, not an
administrative order. Secondly, R.A. 3019 itself is sufficiently detailed. The law is clear on what practices
were prohibited and penalized, and it was narrowly drawn to avoid abuses. In the case at bar, A.O. No.
308 may have been impelled by a worthy purpose, but, it cannot pass constitutional scrutiny for it is not
narrowly drawn. And we now hold that when the integrity of a fundamental right is at stake, this court will
give the challenged law, administrative order, rule or regulation a stricter scrutiny. It will not do for the
authorities to invoke the presumption of regularity in the performance of official duties.Nor is it enough for
the authorities to prove that their act is not irrational for a basic right can be diminished, if not defeated,
even when the government does not act irrationally. They must satisfactorily show the presence of
compelling state interests and that the law, rule, or regulation is narrowly drawn to preclude abuses. This
approach is demanded by the 1987 Constitution whose entire matrix is designed to protect human rights
and to prevent authoritarianism. In case of doubt, the least we can do is to lean towards the stance that
will not put in danger the rights protected by the Constitution.
The case of Whalen v. Roe 79 cited by the Solicitor General is also off-line. In Whalen, the United States
Supreme Court was presented with the question of whether the State of New York could keep a
centralized computer record of the names and addresses of all persons who obtained certain drugs
pursuant to a doctor's prescription. The New York State Controlled Substances Act of 1972 required
physicians to identify patients obtaining prescription drugs enumerated in the statute, i.e., drugs with a
recognized medical use but with a potential for abuse, so that the names and addresses of the patients
can be recorded in a centralized computer file of the State Department of Health. The plaintiffs, who were
patients and doctors, claimed that some people might decline necessary medication because of their fear
that the computerized data may be readily available and open to public disclosure; and that once
disclosed, it may stigmatize them as drug addicts. 80 The plaintiffs alleged that the statute invaded a
constitutionally protected zone of privacy, i.e, the individual interest in avoiding disclosure of personal
matters, and the interest in independence in making certain kinds of important decisions. The U.S.
Supreme Court held that while an individual's interest in avoiding disclosure of personal matters is an
aspect of the right to privacy, the statute did not pose a grievous threat to establish a constitutional
violation. The Court found that the statute was necessary to aid in the enforcement of laws designed to
minimize the misuse of dangerous drugs. The patient-identification requirement was a product of an
orderly and rational legislative decision made upon recommendation by a specially appointed commission
which held extensive hearings on the matter. Moreover, the statute was narrowly drawn and contained
numerous safeguards against indiscriminate disclosure. The statute laid down the procedure and
requirements for the gathering, storage and retrieval of the information. It enumerated who were
authorized to access the data. It also prohibited public disclosure of the data by imposing penalties for its
violation. In view of these safeguards, the infringement of the patients' right to privacy was justified by a
valid exercise of police power. As we discussed above, A.O. No. 308 lacks these vital safeguards.
Even while we strike down A.O. No. 308, we spell out in neon that the Court is not per se against the use
of computers to accumulate, store, process, retrieve and transmit data to improve our bureaucracy.
Computers work wonders to achieve the efficiency which both government and private industry seek.
Many information systems in different countries make use of the computer to facilitate important social

172

objectives, such as better law enforcement, faster delivery of public services, more efficient management
of credit and insurance programs, improvement of telecommunications and streamlining of financial
activities. 81 Used wisely, data stored in the computer could help good administration by making accurate
and comprehensive information for those who have to frame policy and make key decisions. 82 The
benefits of the computer has revolutionized information technology. It developed the
internet, 83 introduced the concept of cyberspace 84 and the information superhighway where the
individual, armed only with his personal computer, may surf and search all kinds and classes of
information from libraries and databases connected to the net.
In no uncertain terms, we also underscore that the right to privacy does not bar all incursions into
individual privacy. The right is not intended to stifle scientific and technological advancements that
enhance public service and the common good. It merely requires that the law be narrowly focused 85 and
a compelling interest justify such intrusions. 86 Intrusions into the right must be accompanied by proper
safeguards and well-defined standards to prevent unconstitutional invasions. We reiterate that any law or
order that invades individual privacy will be subjected by this Court to strict scrutiny. The reason for this
stance was laid down in Morfe v. Mutuc, to wit:
"The concept of limited government has always included the idea that governmental
powers stop short of certain intrusions into the personal life of the citizen. This is indeed
one of the basic distinctions between absolute and limited government. Ultimate and
pervasive control of the individual, in all aspects of his life, is the hallmark of the
absolute state. In contrast, a system of limited government safeguards a private sector,
which belongs to the individual, firmly distinguishing it from the public sector, which the
state can control. Protection of this private sector protection, in other words, of the
dignity and integrity of the individual has become increasingly important as modern
society has developed. All the forces of a technological age industrialization,
urbanization, and organization operate to narrow the area of privacy and facilitate
intrusion into it. In modern terms, the capacity to maintain and support this enclave of
private life marks the difference between a democratic and a totalitarian society." 87
IV
The right to privacy is one of the most threatened rights of man living in a mass society. The threats
emanate from various sources governments, journalists, employers, social scientists, etc. 88 In the
case at bar, the threat comes from the executive branch of government which by issuing A.O. No.
308 pressures the people to surrender their privacy by giving information about themselves on the pretext
that it will facilitate delivery of basic services. Given the record-keeping power of the computer, only the
indifferent will fail to perceive the danger that A.O. No. 308 gives the government the power to compile a
devastating dossier against unsuspecting citizens. It is timely to take note of the well-worded warning of
Kalvin, Jr., "the disturbing result could be that everyone will live burdened by an unerasable record of his
past and his limitations. In a way, the threat is that because of its record-keeping, the society will have lost
its benign capacity to forget." 89 Oblivious to this counsel, the dissents still say we should not be too
quick in labelling the right to privacy as a fundamental right. We close with the statement that the right to
privacy was not engraved in our Constitution for flattery.
IN VIEW WHEREOF, the petition is granted and Administrative Order No. 308 entitled "Adoption of a
National Computerized Identification Reference System" declared null and void for being unconstitutional.
SO ORDERED.
||| (Ople v. Torres, G.R. No. 127685, [July 23, 1998], 354 PHIL 948-1015)

173

174

EN BANC
[G.R. No. 118577. March 7, 1995.]
JUANITO MARIANO, JR., et al., petitioners, vs. THE COMMISSION ON ELECTIONS,
THE MUNICIPALITY OF MAKATI, HON. JEJOMAR BINAY, THE MUNICIPAL
TREASURER, AND SANGGUNIANG BAYAN OF MAKATI,respondents.
[G.R. No. 118627. March 7, 1995.]
JOHN
R.
OSMEA, petitioner, vs. THE COMMISSION ON ELECTIONS,
THE
MUNICIPALITY OF MAKATI, HON. JEJOMAR BINAY, MUNICIPAL TREASURER,
AND SANGGUNIANG BAYAN OF MAKATI, respondents.
Villamor Legarda & Associates for petitioner in G.R. No. 118627.
Acosta & Corvera Law Offices for petitioners in G.R. No. 118577.
Emmanuel P.J . Tamase for private respondents.
The Solicitor General for public respondent.
SYLLABUS
1. ADMINISTRATIVE
LAW; LOCAL
GOVERNMENT
CODE;DRAWING
OF
TERRITORIAL
BOUNDARIES; REQUIRED; RATIONALE. The importance of drawing with precise strokes the
territorial boundaries of a local unit of government cannot be overemphasized. The boundaries must be
clear for they define the limits of the territorial jurisdiction of a local government unit. It can legitimately
exercise powers of government only within the limits of its territorial jurisdiction. Beyond these limits, its
acts are ultra vires. Needless to state, any uncertainty in the boundaries of local government units will
sow costly conflicts in the exercise of governmental powers which ultimately will prejudice the people's
welfare. This is the evil sought to be avoided by the Local Government Code in requiring that the land
area of a local government unit must be spelled out in metes and bounds, with technical descriptions.
2. STATUTORY CONSTRUCTION; RULE THAT LAW MUST BE ENFORCED WHEN ASCERTAINED,
ALTHOUGH IT MAY NOT BE CONSISTENT WITH THE STRICT LETTER OF THE STATUTE;
APPLICATION IN CASE AT BAR. Congress did not intend that laws creating new cities must contain
therein detailed technical descriptions similar to those appearing in Torrens titles, as petitioners seem to
imply. To require such description in the law as a condition sine qua non for its validity would be to defeat
the very purpose which the Local Government seeks to serve. The manifest intent of the Code is to
empower local government units and to give them their rightful due. It seeks to make local governments
more responsive to the needs of their constituents while at the same time serving as a vital cog in national
development. To invalidate R.A. No. 7854 on the mere ground that no cadastral type of description was
used in the law would serve the letter but defeat the spirit of the Code. It then becomes a case of the
master serving the slave, instead of the other way around. This could not be the intendment of the law.
Too well settled is the rule that laws 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 the statute when to do so
would depart from the true intent of the legislature or would otherwise yield conclusions inconsistent with
the general purpose of the act (Torres v. Limjap, 56 Phil. 141; Taada v. Cuenco, 103 Phil.

175

1051; Hidalgo v. Hidalgo, 33 SCRA 1105). Legislation is an active instrument of government which, for
purposes of interpretation, means that laws have ends to achieve, and statutes should be so construed as
not to defeat but to carry out such ends and purposes (Bocobo v. Estanislao, 72 SCRA 520).
3. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF LAW, WHEN CHALLENGED; REQUIREMENTS.
The requirements before a litigant can challenge the constitutionality of a law are well-delineated. They
are: (1) there must be an actual case or controversy; (2) the question of constitutionality must be raised
by the proper party; (3) the constitutional question must be raised at the earliest possible opportunity; and
(4) the decision on the constitutional question must be necessary to the determination of the case itself.
(Dumlao v. COMELEC, 95 SCRA 392 [1980]; Cruz, Constitutional Law, 1991 ed., p. 24)
4. ID.; REAPPORTIONMENT OF LEGISLATIVE DISTRICT; RULE; APPLICATION IN CASE AT BAR.
In the recent case of Tobias v. Abalos, G.R. No. 114783, December 8, 1994, this Court ruled that
reapportionment of legislative districts may be made through a special law, such as in the charter of a
new city. The Constitution (Section 5(1), Article VI) clearly provides that Congress shall be composed of
not more than two hundred fifty (250) members, unless otherwise fixed by law. As thus worded, the
Constitution did not preclude Congress from increasing its membership by passing a law, other than a
general reapportionment law. This is exactly what was done by Congress in enacting R.A. No. 7854 and
providing for an increase in Makati's legislative district. Moreover, to hold that reapportionment can only
be made through a general apportionment law, with a review of all the legislative districts allotted to each
local government unit nationwide, would create an unequitable situation where a new city or province
created by Congress will be denied legislative representation for an indeterminate period of time. That
intolerable situation will deprive the people of a new city or province a particle of their sovereignty.
Sovereignty cannot admit of any kind of subtraction. It is indivisible. It must be forever whole or it is not
sovereignty.
DAVIDE, JR., J ., concurring opinion:
1. CONSTITUTIONAL LAW; LOCAL GOVERNMENT CODE OF 1991 (R.A. No. 7160); REQUIREMENT
THAT TERRITORIAL BOUNDARIES BE IDENTIFIED BY METES AND BOUNDS WITH TECHNICAL
DESCRIPTION; WHEN NOT APPLICABLE; CASE AT BAR. Section 10, Article X of the Constitution
provides that "[n]o province, city, municipality or barangay may be created, divided, merged, abolished, or
its boundary substantially altered, except in accordance with the criteria established in the local
government code and subject to the approval by a majority of the votes cast in a plebiscite in the political
units directly affected." These criteria are now set forth in Section 7 of the Local Government Code of
1991(R.A. No. 7160). One of these is that the territorial jurisdiction of the local government unit to be
created or converted should be properly identified by metes and bounds with technical descriptions. The
omission of R.A. No. 7854 (An Act Converting the Municipality of Makati Into a Highly Urbanized City to
be Known as the City of Makati) to describe the territorial boundaries of the city by metes and bounds
does not make R.A. No. 7854 unconstitutional or illegal. The Constitution does not provide for a
description by metes and bounds as a condition sine qua non for the creation of a local government unit
or its conversion from one level to another. The criteria provided for in Section 7 of R.A. No. 7854 are not
absolute, for, as a matter of fact, the section starts with the clause "as a general rule." The petitioners'
reliance on Section 450 of R.A. No. 7160 is unavailing. Said section only applies to the conversion of a
municipality or a cluster of barangays into a COMPONENT CITY, not a highly urbanized city.
2. ID.; R.A. NO. 7854; INCREASE IN THE NUMBER OF LEGISLATIVE SEATS; JUSTIFIED. Strictly
speaking, the increase in the number of legislative seats for the City of Makati provided for in R.A. No.
7854 is not an increase justified by the clause unless otherwise fixed by law in paragraph 1, Section 5,
Article VI of the Constitution. That clause contemplates of the reapportionment mentioned in the
succeeding paragraph (4) of the said Section which reads in full as follows: "Within three years following

176

the return of every census, the Congress shall make a reapportionment of legislative districts
based on the standards provided in this section." In short, the clause refers to a general reapportionment
law. The increase under R.A. No. 7854 is a permissible increase under Sections 1 and 3 of the Ordinance
appended to the Constitution.
DECISION
PUNO, J p:
At bench are two (2) petitions assailing certain provisions of Republic Act No. 7854 as
unconstitutional. R.A. No. 7854 is entitled, "An Act Converting the Municipality of Makati Into a Highly
Urbanized City to be known as the City of Makati." 1
G.R. No. 118577 involves a petition for prohibition and declaratory relief. It was filed by
petitioners Juanito Mariano, Jr., Ligaya S. Bautista, Teresita Tibay, Camilo Santos, Frankie Cruz,
Ricardo Pascual, Teresita Abang, Valentina Pitalvero, Rufino Caldoza, Florante Alba, and Perfecto
Alba. Of the petitioners, only Mariano, Jr., is a resident of Makati. The others are residents of Ibayo
Ususan, Taguig, Metro Manila. Suing as taxpayers, they assail as unconstitutional Sections 2, 51 and
52 of R.A. No. 7854 on the following grounds:
"1. Section 2 of R.A. No. 7854 did not properly identify the land area or territorial
jurisdiction of Makati by metes and bounds, with technical descriptions, in violation of
Section 10, Article X of the Constitution, in relation to Sections 7 and 450 of the Local
Government Code;
2. Section 51 of R.A. No. 7854 attempts to alter or restart the 'three consecutive term'
limit for local elective officials, in violation of Section 8, Article X and Section 7, Article
VI of the Constitution.
3. Section 52 of R.A. No. 7854 is unconstitutional for:
(a) it increased the legislative district of Makati only by special law
(the Charter in violation of the constitutional provision requiring a
general reapportionment law to be passed by Congress within three
(3) years following the return of every census; dctai
(b) the increase in legislative district, was not expressed in the title of
the bill; and
(c) the addition of another legislative district in Makati is not in accord
with Section 5 (3), Article VI of the constitution for as of the latest
survey (1990 census), the population of Makati stands at only
450,000."
G.R. No. 118627 was filed by petitioner John H. Osmea as senator, taxpayer, and
concerned citizen. Petitioner assails Section 52 of R.A. No. 7854 as unconstitutional on the same
grounds as aforestated.

177

We find no merit in the petitions.

I
Section 2, Article I of R.A. No. 7854 delineated the land area of the proposed city of Makati,
thus:
"SEC. 2. The City of Makati. The Municipality of Makati shall be converted into a
highly urbanized city to be known as the City of Makati, hereinafter referred to as the
City, which shall comprise the present territory of the Municipality of Makati in
Metropolitan Manila Area over which it has jurisdiction bounded on the northeast by
Pasig River and beyond by the City of Mandaluyong and the Municipality of
Pasig; on the southeast by the municipalities of Pateros and Taguig; onthe southwest
by the City of Pasay and the Municipality of Taguig; and, on the northwest, by the City
of Manila.
The foregoing provision shall be without prejudice to the resolution by the appropriate
agency or forum of existing boundary disputes or cases involving questions of territorial
jurisdiction between the City of Makati and the adjoining local government units."
(Emphasis supplied)
In G.R. No. 118577, petitioners claim that this delineation violates Sections 7 and 450 of the
Local Government Code which require that the area of a local government unit should be made by
metes and bounds with technical descriptions. 2
The importance of drawing with precise strokes the territorial boundaries of a local unit of
government cannot be overemphasized. The boundaries must be clear for they define the limits of the
territorial jurisdiction of a local government unit. It can legitimately exercise powers of government
only within the limits of its territorial jurisdiction. Beyond these limits, its acts are ultra vires. Needless
to state, any uncertainty in the boundaries of local government units will sow costly conflicts in the
exercise of governmental powers which ultimately will prejudice the people's welfare. This is the evil
sought to be avoided by the Local Government Code in requiring that the land area of a local
government unit must be spelled out in metes and bounds, with technical descriptions.
Given the facts of the cases at bench, we cannot perceive how this evil can be brought about
by the description made in Section 2 of R.A. No. 7854. Petitioners have not demonstrated that the
delineation of the land area of the proposed City of Makati will cause confusion as to its boundaries.
We note that said delineation did not change even by an inch the land area previously covered by
Makati as a municipality. Section 2 did not add, subtract, divide, or multiply the established land area
of Makati. In language that cannot be any clearer, Section 2 stated that the city's land area "shall
comprise the present territory of the municipality."
The deliberations of Congress will reveal that there is a legitimate reason why the land area
of the proposed City of Makati was not defined by metes and bounds, with technical descriptions. At
the time of the consideration of R.A. No. 7854, the territorial dispute between the municipalities of
Makati and Taguig over Fort Bonifacio was under court litigation. Out of a becoming sense of respect
to a co-equal department of government, the legislations felt that the dispute should be left to the
courts to decide. They did not want to foreclose the dispute by making a legislative finding of fact
which could decide the issue. This would have ensued if they defined the land area of the proposed
city by its exact metes and bounds, with technical descriptions. 3 We take judicial notice of the fact

178

that Congress has also refrained from using the metes and bounds description of land areas of other
local government units with unsettled boundary disputes. 4
We hold that the existence of a boundary dispute does not per se present an unsurmountable
difficulty which will prevent Congress form defining with reasonable certitude the territorial jurisdiction
of a local government unit. In the cases at bench, Congress maintained the existing boundaries of the
proposed City of Makati but as an act of fairness, made them subject to the ultimate resolution by the
courts. Considering these peculiar circumstances, we are not prepared to hold that Section 2 of R.A.
7854 is unconstitutional. We sustain the submission of the Solicitor General in this regard, viz:
"Going now to Sections 7 and 450 of the Local Government Code, it is beyond cavil
that the requirement stated therein, viz: 'the territorial jurisdiction of newly created or
converted cities should be described by metes and bounds, with technical descriptions'
was made in order to provide a means by which the area of said cities may be
reasonably ascertained. In other words, the requirement on metes and bounds was
meant merely as tool in the establishment of local government units. It is not an end in
itself. Ergo, so long as the territorial jurisdiction of a city may be reasonably
ascertained, i.e., by referring to common boundaries with neighboring municipalities, as
in this case, then, it may be concluded that the legislative intent behind the law has
been sufficiently served.
Certainly, Congress did not intend that laws creating new cities must contain therein
detailed technical descriptions similar to those appearing in Torrens titles, as petitioners
seem to imply. To require such description in the law as a conditionsine qua non for its
validity would be to defeat the very purpose which the Local Government Code seeks
to serve. The manifest intent of the Code is to empower local government units and to
give them their rightful due. It seeks to make local governments more responsive to the
needs of their constituents while at the same time serving as a vital cog in national
development. To invalidate R.A. No. 7854 on the mere ground that no cadastral type of
description was used in the law would serve the letter but defeat the spirit of the Code.
It then becomes a case of the master serving the slave, instead of the other way
around. This could not be the intendment of the law.
Too well settled is the rule that laws 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 the statute when to do so would depart from the true intent of the legislature or would
otherwise yield conclusions inconsistent with the general purpose of the act.
(Torres v. Limjap, 56 Phil. 141; Taada v. Cuenco, 103 Phil. 1051; Hidalgo v. Hidalgo,
33 SCRA 1105). Legislation is an active instrument of government which, for purposes
of interpretation, means that laws have ends to achieve, and statutes should be so
construed as not to defeat but to carry out such ends and purposes
(Bocobo v. Estanislao, 72 SCRA 520). The same rule must indubitably apply to the
case at bar."
II
Petitioners in G.R. No. 118577 also assail the constitutionality of Section 51, Article X of R.A.
No. 7854. Section 51 states:
"SEC. 51. Officials of the City of Makati. The represent elective officials of the
Municipality of Makati shall continue as the officials of the City of Makati and shall

179

exercise their powers and functions until such time that a new election is held and the
duly elected officials shall have already qualified and assume their
offices: Provided, The new city will acquire a new corporate existence. The appointive
officials and employees of the City shall likewise continue exercising their functions and
duties and they shall be automatically absorbed by the city government of the City of
Makati."
They contend that this section collides with Section 8, Article X and Section 7, Article VI of the
Constitution which provide:
"SEC. 8. The term of office of elective local officials, except barangay officials, which
shall be determined by law, shall be three years and no such official shall serve for
more than three consecutive terms. Voluntary renunciation of the office for any length
of time shall not be considered as an interruption in the continuity of his service for the
full term for which he was elected.
xxx xxx xxx
SEC. 7. The Members of the House of Representatives shall be elected for a term of
three years which shall begin, unless otherwise provided by law at noon on the thirtieth
day of June next following their election.
No member of the House of Representatives shall serve for more than three
consecutive terms. Voluntary renunciation of the office for any length of time shall not
be considered as an interruption in the continuity of his service for the full term for
which he was elected." cdll
Petitioners stress that under these provisions, elective local officials, including Members of
the House of Representatives, have a term of three (3) years and are prohibited from serving for
more than three (3) consecutive terms. They argue that by providing that the new city shall acquire
a new corporate existence, Section 51 of R.A. No. 7854 restarts the term of the present municipal
elective officials of Makati and disregards the terms previously serve by them. In particular, petitioners
point that Section 51 favors the incumbent Makati Mayor, respondent Jejomar Binay, who has already
served for two (2) consecutive terms. They further argue that should Mayor Binay decide to run and
eventually win as city mayor in the coming elections, he can still run for the same position in 1998 and
seek another three-year consecutive term since his previous three-year consecutive term
as municipal mayor would not be counted. Thus, petitioners conclude that said Section 51 has been
conveniently crafted to suit the political ambitions of respondent Mayor Binay.
We cannot entertain this challenge to the constitutionality of Section 51. The requirements
before a litigant can challenge the constitutionality of a law are well-delineated. They are: (1) there
must be an actual case or controversy; (2) the question of constitutionality must be raised by the
proper party; (3) the constitutional question must be raised at the earliest possible opportunity; and
(4) the decision on the constitutional question must be necessary to the determination of the case
itself. 5

Petitioners have far from complied with these requirements. The petition is premised on the
occurrence of many contingent events, i.e., that Mayor Binay will run again in this coming
mayoralty elections; that he would be re-elected in said elections; and that he would seek re-election

180

for the same post in the 1998 elections. Considering that these contingencies may or may not
happen, petitioners merely pose a hypothetical issue which has yet to ripen to an actual case or
controversy. Petitioners who are residents of Taguig (except Mariano) are not also the proper parties
to raise this abstract issue. Worse, they hoist this futuristic issue in a petition for declaratory relief over
which this Court has no jurisdiction.
III
Finally, petitioners in the two (2) cases at bench assail the constitutionality of Section 52,
Article X of R.A. No. 7854. Section 52 of the Charter provides:
"SEC. 52. Legislative Districts. Upon its conversion into a highly-urbanized city,
Makati shall thereafter have at least two (2) legislative districts that shall initially
correspond to the two (2) existing districts created under Section 3 (a) of Republic Act
No. 7166 as implemented by the Commission on Elections to commence at the next
national elections to be held after the effectivity of this Act. Henceforth, barangays
Magallanes, Dasmarias, and Forbes shall be with the first district, in lieu of Barangay
Guadalupe-Viejo which shall form part of the second district." (Emphasis supplied)
They contend that the addition of another legislative district in Makati is unconstitutional for: (1)
reapportionment 6 cannot made by a special law; (2) the addition of a legislative district is not
expressed in the title of the bill; 7 and (3) Makati's population, as per the 1990 census, stands at only
four hundred fifty thousand (450,000).
These issues have been laid to rest in the recent case of Tobias v. Abalos. 8 In said case, we
ruled that reapportionment of legislative districts may be made through a special law, such as in the
charter of a new city. The Constitution 9 clearly provides that Congress shall be composed of not
more than two hundred fifty (250) members, unless otherwise fixed by law. As thus worded, the
Constitution did not preclude Congress from increasing its membership by passing a law, other than a
general reapportionment law. This is exactly what was done by Congress in enacting R.A. No.
7854 and providing for an increase in Makati's legislative district. Moreover, to hold that
reapportionment can only be made through a general apportionment law, with a review of all the
legislative districts allotted to each local government unit nationwide, would create an inequitable
situation where a new city or province created by Congress will be denied legislative representation
for an indeterminate period of time. 10 That intolerable situation will deprive the people of a new city
or province a particle of their sovereignty. 11 Sovereignty cannot admit of any kind of subtraction. It is
indivisible. It must be forever whole or it is not sovereignty.
Petitioners cannot insist that the addition of another legislative district in Makati is not in
accord with Section 5(3), Article VI 12 of the Constitution for as of the latest survey (1990 census), the
population of Makati stands at only four hundred fifty thousand (450,000). 13 Said section
provides, inter alia, that a city with a population of at least two hundred fifty thousand (250,000) shall
have at least one representative. Even granting that the population of Makati as of the 1990 census
stood at four hundred fifty thousand (450,000), its legislative district may still be increased since it has
met the minimum population requirement of two hundred fifty thousand (250,000). In fact, Section 3 of
the Ordinance appended to the Constitution provides that a city whose population has increased to
more than two hundred fifty thousand (250,000) shall be entitled to at least one congressional
representative. 14
Finally, we do not find merit in petitioners' contention that the creation of an additional
legislative district in Makati should have been expressly stated in the title of the bill. In the same case

181

of Tobias v. Abalos, op cit. we reiterated the policy of the Court favoring a liberal construction of the
"one title-one subject" rule so as not to impede legislation. To be sure, the Constitution does not
command that the title of a law should exactly mirror, fully index, or completely catalogue all its
details. Hence, we ruled that "it should be sufficient compliance if the title expresses the general
subject and all the provisions are germane to such general subject."
WHEREFORE, the petitions are hereby DISMISSED for lack of merit. No costs.
SO ORDERED.
||| (Mariano, Jr. v. Commission on Elections, G.R. No. 118577, 118627, [March 7, 1995], 312 PHIL 259276)

182

EN BANC
[G.R. No. 86889. December 4, 1990.]
LUZ FARMS, petitioner, vs. THE HONORABLE SECRETARY OF THE
DEPARTMENT OF AGRARIAN REFORM, respondent.
Enrique M. Belo for petitioner.
DECISION
PARAS, J p:
This is a petition for prohibition with prayer for restraining order and/or preliminary and permanent
injunction against the Honorable Secretary of the Department of Agrarian Reform for acting without
jurisdiction in enforcing the assailed provisions of R.A. No. 6657, otherwise known as
the Comprehensive Agrarian Reform Law of 1988 and in promulgating the Guidelines and Procedure
Implementing Production and Profit Sharing under R.A. No. 6657, insofar as the same apply to herein
petitioner, and further from performing an act in violation of the constitutional rights of the petitioner.
As gathered from the records, the factual background of this case, is as follows:
On June 10, 1988, the President of the Philippines approved R.A. No. 6657, which includes the
raising of livestock, poultry and swine in its coverage (Rollo, p. 80).
On January 2, 1989, the Secretary of Agrarian Reform promulgated the Guidelines and Procedures
Implementing Production and Profit Sharing as embodied in Sections 13 and 32 of R.A. No. 6657 (Rollo,
p. 80).
On January 9, 1989, the Secretary of Agrarian Reform promulgated its Rules and Regulations
implementing Section 11 of R.A. No. 6657 (Commercial Farms). (Rollo, p. 81).
Luz Farms, petitioner in this case, is a corporation engaged in the livestock and poultry business and
together with others in the same business allegedly stands to be adversely affected by the
enforcement of Section 3(b), Section 11, Section 13, Section 16(d) and 17 and Section 32 of R.A. No.
6657 otherwise known as Comprehensive Agrarian Reform Law and of the Guidelines and Procedures
Implementing Production and Profit Sharing under R.A. No. 6657promulgated on January 2, 1989 and the
Rules and Regulations Implementing Section 11 thereof as promulgated by the DAR on January 9, 1989
(Rollo, pp. 2-36). cdrep
Hence, this petition praying that aforesaid laws, guidelines and rules be declared unconstitutional.
Meanwhile, it is also prayed that a writ of preliminary injunction or restraining order be issued enjoining
public respondents from enforcing the same, insofar as they are made to apply to Luz Farms and other
livestock and poultry raisers.
This Court in its Resolution dated July 4, 1939 resolved to deny, among others, Luz Farms' prayer for the
issuance of a preliminary injunction in its Manifestation dated May 26, and 31, 1989. (Rollo, p. 98).

183

Later, however, this Court in its Resolution dated August 24, 1989 resolved to grant said Motion for
Reconsideration regarding the injunctive relief, after the filing and approval by this Court of an injunction
bond in the amount ofP100,000.00. This Court also gave due course to the petition and required the
parties to file their respective memoranda (Rollo, p. 119).
The petitioner filed its Memorandum on September 6, 1989 (Rollo, pp. 131-168).
On December 22, 1989, the Solicitor General adopted his Comment to the petition as his Memorandum
(Rollo, pp. 186-187).
Luz Farms questions the following provisions of R.A. 6657, insofar as they are made to apply to it:
(a) Section 3(b) which includes the "raising of livestock (and poultry)" in the
definition of "Agricultural, Agricultural Enterprise or Agricultural Activity."
(b) Section 11 which defines "commercial farms" as "private agricultural lands devoted
to commercial, livestock, poultry and swine raising . . ."
(c) Section 13 which calls upon petitioner to execute a production-sharing plan.
(d) Section 16(d) and 17 which vest on the Department of Agrarian Reform the
authority to summarily determine the just compensation to be paid for lands covered by
the Comprehensive Agrarian Reform Law.
(e) Section 32 which spells out the production-sharing plan mentioned in Section 13
". . . (W)hereby three percent (3%) of the gross sales from the
production of such lands are distributed within sixty (60) days of the end of the
fiscal year as compensation to regular and other farmworkers in such lands
over and above the compensation they currently receive: Provided, That these
individuals or entities realize gross sales in excess of five million pesos per
annum unless the DAR, upon proper application, determine a lower ceiling.
In the event that the individual or entity realizes a profit, an additional
ten (10%) of the net profit after tax shall be distributed to said regular and other
farmworkers within ninety (90) days of the end of the fiscal year . . ."
The main issue in this petition is the constitutionality of Sections 3(b), 11, 13 and 32 of R.A. No. 6657 (the
Comprehensive Agrarian Reform Law of 1988), insofar as the said law includes the raising of livestock,
poultry and swine in its coverage as well as the Implementing Rules and Guidelines promulgated in
accordance therewith. prLL
The constitutional provision under consideration reads as follows:
ARTICLE XIII
xxx xxx xxx
AGRARIAN AND NATURAL RESOURCES REFORM

184

Section 4. The State shall, by law, undertake an agrarian reform program founded on
the right of farmers and regular farmworkers, who are landless, to own directly or
collectively the lands they till or, in the case of other farmworkers, to receive a just
share of the fruits thereof. To this end, the State shall encourage and undertake the just
distribution of all agricultural lands, subject to such priorities and reasonable retention
limits as the Congress may prescribe, taking into account ecological, developmental, or
equity considerations, and subject to the payment of just compensation. In determining
retention limits, the State shall respect the rights of small landowners. The State shall
further provide incentives for voluntary land-sharing.
xxx xxx xxx"
Luz Farms contended that it does not seek the nullification of R.A. 6657 in its entirety. In fact, it
acknowledges the correctness of the decision of this Court in the case of the Association of Small
Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform (G.R. 78742, 14 July 1989) affirming
the constitutionality of the Comprehensive Agrarian Reform Law.It, however, argued that Congress in
enacting the said law has transcended the mandate of the Constitution, in including land devoted to the
raising of livestock, poultry and swine in its coverage (Rollo, p. 131). Livestock or poultry raising is not
similar to crop or tree farming. Land is not the primary resource in this undertaking and represents no
more than five percent (5%) of the total investment of commercial livestock and poultry raisers. Indeed,
there are many owners of residential lands all over the country who use available space in their residence
for commercial livestock and raising purposes, under "contract-growing arrangements," whereby
processing corporations and other commercial livestock and poultry raisers (Rollo, p. 10). Lands support
the buildings and other amenities attendant to the raising of animals and birds. The use of land is
incidental to but not the principal factor or consideration in productivity in this industry. Including backyard
raisers, about 80% of those in commercial livestock and poultry production occupy five hectares or less.
The remaining 20% are mostly corporate farms (Rollo, p. 11).
On the other hand, the public respondent argued that livestock and poultry raising is embraced in the term
"agriculture" and the inclusion of such enterprise under Section 3(b) of R.A. 6657 is proper. He cited that
Webster's International Dictionary, Second Edition (1954), defines the following words:
"Agriculture the art or science of cultivating the ground and raising and harvesting
crops, often, including also, feeding, breeding and management of livestock, tillage,
husbandry, farming.
It includes farming, horticulture, forestry, dairying, sugarmaking . . .
Livestock domestic animals used or raised on a farm, especially for profit.
Farm a plot or tract of land devoted to the raising of domestic or other animals."
(Rollo, pp. 82-83).
The petition is impressed with merit.
The question raised is one of constitutional construction. The primary task in constitutional construction is
to ascertain and thereafter assure the realization of the purpose of the framers in the adoption of the
Constitution (J.M. Tuazon & Co. vs. Land Tenure Administration, 31 SCRA 413 [1970]). cdrep
Ascertainment of the meaning of the provision of Constitution begins with the language of the document
itself. The words used in the Constitution are to be given their ordinary meaning except where technical

185

terms are employed in which case the significance thus attached to them prevails (J.M. Tuazon & Co. vs.
Land Tenure Administration, 31 SCRA 413 [1970]).
It is generally held that, in construing constitutional provisions which are ambiguous or of doubtful
meaning, the courts may consider the debates in the constitutional convention as throwing light on the
intent of the framers of the Constitution. It is true that the intent of the convention is not controlling by
itself, but as its proceeding was preliminary to the adoption by the people of the Constitution the
understanding of the convention as to what was meant by the terms of the constitutional provision which
was the subject of the deliberation, goes a long way toward explaining the understanding of the people
when they ratified it (Aquino, Jr. v. Enrile, 59 SCRA 183 [1974]).
The transcripts of the deliberations of the Constitutional Commission of 1986 on the meaning of the word
"agricultural," clearly show that it was never the intention of the framers of the Constitution to include
livestock and poultry industry in the coverage of the constitutionally-mandated agrarian reform
program of the Government.
The Committee adopted the definition of "agricultural land" as defined under Section 166 of R.A. 3844, as
laud devoted to any growth, including but not limited to crop lands, saltbeds, fishponds, idle and
abandoned land (Record, CONCOM, August 7, 1986, Vol. III, p. 11).

The intention of the Committee is to limit the application of the word "agriculture." Commissioner Jamir
proposed to insert the word "ARABLE" to distinguish this kind of agricultural land from such lands as
commercial and industrial lands and residential properties because all of them fall under the general
classification of the word "agricultural". This proposal, however, was not considered because the
Committee contemplated that agricultural lands are limited to arable and suitable agricultural lands and
therefore, do not include commercial, industrial and residential lands (Record, CONCOM, August 7, 1986,
Vol. III, p. 30).
In the interpellation, then Commissioner Regalado (now a Supreme Court Justice), posed several
questions, among others, quoted as follows:
xxx xxx xxx
"Line 19 refers to genuine reform program founded on the primary right of farmers and
farmworkers. I wonder if it means that leasehold tenancy is thereby proscribed under
this provision because it speaks of the primary right of farmers and farmworkers to own
directly or collectively the lands they till. As also mentioned by Commissioner Tadeo,
farmworkers include those who work in piggeries and poultry projects.
I was wondering whether I am wrong in my appreciation that if somebody puts up a
piggery or a poultry project and for that purpose hires farmworkers therein, these
farmworkers will automatically have the right to own eventually, directly or ultimately or
collectively, the land on which the piggeries and poultry projects were constructed.
(Record, CONCOM, August 2, 1986, p. 618).
xxx xxx xxx

186

The questions were answered and explained in the statement of then Commissioner Tadeo, quoted as
follows:
xxx xxx xxx
"Sa pangalawang katanungan ng Ginoo ay medyo hindi kami nagkaunawaan.
Ipinaaalam ko kay Commissioner Regalado na hindi namin inilagay ang agricultural
worker sa kadahilanang kasama rito ang piggery, poultry at livestock workers. Ang
inilagay namin dito ay farm worker kaya hindi kasama ang piggery, poultry at livestock
workers (Record, CONCOM, August 2, 1986, Vol. II, p. 621).
It is evident from the foregoing discussion that Section 11 of R.A. 6657 which includes "private agricultural
lands devoted to commercial livestock, poultry and swine raising" in the definition of "commercial farms" is
invalid, to the extent that the aforecited agro-industrial activities are made to be covered by
the agrarian reform program of the State. There is simply no reason to include livestock and poultry lands
in the coverage of agrarian reform. (Rollo, p. 21).
Hence, there is merit in Luz Farms' argument that the requirement in Sections 13 and 32 of R.A.
6657 directing "corporate farms" which include livestock and poultry raisers to execute and implement
"production-sharing plans" (pending final redistribution of their landholdings) whereby they are called
upon to distribute from three percent (3%) of their gross sales and ten percent (10%) of their net profits to
their workers as additional compensation is unreasonable for being confiscatory, and therefore
violative of due process (Rollo, p. 21). cdphil
It has been established that this Court will assume jurisdiction over a constitutional question only if it is
shown that the essential requisites of a judicial inquiry into such a question are first satisfied. Thus, there
must be an actual case or controversy involving a conflict of legal rights susceptible of judicial
determination, the constitutional question must have been opportunely raised by the proper party, and the
resolution of the question is unavoidably necessary to the decision of the case itself (Association of Small
Landowners of the Philippines, Inc. v. Secretary of Agrarian Reform, G.R. 78742; Acuna v. Arroyo, G.R.
79310; Pabico v. Juico, G.R. 79744; Manaay v. Juico, G.R. 79777, 14 July 1989, 175 SCRA 343).
However, despite the inhibitions pressing upon the Court when confronted with constitutional issues, it will
not hesitate to declare a law or act invalid when it is convinced that this must be done. In arriving at this
conclusion, its only criterion will be the Constitution and God as its conscience gives it in the light to probe
its meaning and discover its purpose. Personal motives and political considerations are irrelevancies that
cannot influence its decisions. Blandishment is as ineffectual as intimidation, for all the awesome
power of the Congress and Executive, the Court will not hesitate "to make the hammer fall heavily," where
the acts of these departments, or of any official, betray the people's will as expressed in the
Constitution (Association of Small Landowners of the Philippines, Inc. v. Secretary of Agrarian Reform,
G.R. 78742; Acuna v. Arroyo, G.R. 79310; Pabico v. Juico, G.R. 79744; Manaay v. Juico, G.R. 79777, 14
July 1989).
Thus, where the legislature or the executive acts beyond the scope of its constitutional powers, it
becomes the duty of the judiciary to declare what the other branches of the government had assumed to
do, as void. This is the essence ofjudicial power conferred by the Constitution "(I)n one Supreme Court
and in such lower courts as may be established by law" (Art. VIII, Section 1 of the 1935
Constitution; Article X, Section 1 of the 1973 Constitution and which was adopted as part of the Freedom
Constitution,and Article VIII, Section 1 of the 1987 Constitution) and which power this Court has exercised
in many instances (Demetria v. Alba, 148 SCRA 208 [1987]).

187

PREMISES CONSIDERED, the instant petition is hereby GRANTED. Sections 3(b), 11, 13 and 32 of R.A.
No. 6657 insofar as the inclusion of the raising of livestock, poultry and swine in its coverage as well as
the Implementing Rules and Guidelines promulgated in accordance therewith, are hereby DECLARED
null and void for being unconstitutional and the writ of preliminary injunction issued is hereby MADE
permanent.
SO ORDERED.
||| (Luz Farms v. Secretary of the Department of Agrarian Reform, G.R. No. 86889, [December 4, 1990],
270 PHIL 151-164)

188

EN BANC
[G.R. No. 166471. March 22, 2011.]
TAWANG MULTI-PURPOSE COOPERATIVE, petitioner, vs. LA TRINIDAD WATER
DISTRICT, respondent.
DECISION
CARPIO, J p:
The Case
This is a petition for review on certiorari under Rule 45 of the Rules of Court. The
petition 1 challenges the 1 October 2004 Judgment 2 and 6 November 2004 Order 3 of the Regional
Trial Court (RTC), Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03-CV-1878.
The Facts
Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with the Cooperative
Development Authority, and organized to provide domestic water services in Barangay Tawang, La
Trinidad, Benguet.
La Trinidad Water District (LTWD) is a local water utility created under Presidential Decree
(PD) No. 198, as amended. It is authorized to supply water for domestic, industrial and commercial
purposes within the municipality of La Trinidad, Benguet.
On 9 October 2000, TMPC filed with the National Water Resources Board (NWRB) an
application for a certificate of public convenience (CPC) to operate and maintain a waterworks system
in Barangay Tawang. LTWD opposed TMPC's application. LTWD claimed that, under Section 47
of PD No. 198, as amended, its franchise is exclusive. Section 47 states that: EDCcaS
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or
agency for domestic, industrial or commercial water service within the district or any
portion thereof unless and except to the extent that the board of directors of said district
consents thereto by resolution duly adopted, such resolution, however, shall be subject
to review by the Administration.
In its Resolution No. 04-0702 dated 23 July 2002, the NWRB approved TMPC's application
for a CPC. In its 15 August 2002 Decision, 4 the NWRB held that LTWD's franchise cannot be
exclusive since exclusive franchises are unconstitutional and found that TMPC is legally and
financially qualified to operate and maintain a waterworks system. NWRB stated that:
With respect to LTWD's opposition, this Board observes that:
1. It is a substantial reproduction of its opposition to the application for water permits
previously filed by this same CPC applicant, under WUC No. 98-17 and 98-62 which
was decided upon by this Board on April 27, 2000. The issues being raised by

189

Oppositor had been already resolved when this Board said in pertinent portions of its
decision:
"The authority granted to LTWD by virtue of P.D. 198 is not Exclusive. While
Barangay Tawang is within their territorial jurisdiction, this does not mean that all others
are excluded in engaging in such service, especially, if the district is not capable of
supplying water within the area. This Board has time and again ruled that the
"Exclusive Franchise" provision under P.D. 198 has misled most water districts to
believe that it likewise extends to be [sic] the waters within their territorial boundaries.
Such ideological adherence collides head on with the constitutional provision that "ALL
WATERS AND NATURAL RESOURCES BELONG TO THE STATE". (Sec. 2, Art. XII)
and that "No franchise, certificate or authorization for the operation of public [sic] shall
be exclusive in character".
xxx xxx xxx
All the foregoing premises all considered, and finding that Applicant is legally and
financially qualified to operate and maintain a waterworks system; that the said
operation shall redound to the benefit of the homeowners/residents of the subdivision,
thereby, promoting public service in a proper and suitable manner, the instant
application for a Certificate of Public Convenience is, hereby, GRANTED. 5
LTWD filed a motion for reconsideration. In its 18 November 2002 Resolution, 6 the NWRB
denied the motion.
LTWD appealed to the RTC.
The RTC's Ruling
In its 1 October 2004 Judgment, the RTC set aside the NWRB's 23 July 2002 Resolution and
15 August 2002 Decision and cancelled TMPC's CPC. The RTC held that Section 47 is valid. The
RTC stated that: HSDaTC
The Constitution uses the term "exclusive in character". To give effect to this provision,
a reasonable, practical and logical interpretation should be adopted without disregard
to the ultimate purpose of the Constitution. What is this ultimate purpose? It is for the
state, through its authorized agencies or instrumentalities, to be able to keep and
maintain ultimate control and supervision over the operation of public utilities. Essential
part of this control and supervision is the authority to grant a franchise for the operation
of a public utility to any person or entity, and to amend or repeal an existing franchise to
serve the requirements of public interest. Thus, what is repugnant to the Constitution is
a grant of franchise "exclusive in character" so as to preclude the State itself from
granting a franchise to any other person or entity than the present grantee when public
interest so requires. In other words, no franchise of whatever nature can preclude the
State, through its duly authorized agencies or instrumentalities, from granting franchise
to any person or entity, or to repeal or amend a franchise already granted.
Consequently, the Constitution does not necessarily prohibit a franchise that is
exclusive on its face, meaning, that the grantee shall be allowed to exercise this
present right or privilege to the exclusion of all others. Nonetheless, the grantee cannot
set up its exclusive franchise against the ultimate authority of the State. 7

190

TMPC filed a motion for reconsideration. In its 6 November 2004 Order, the RTC denied the
motion. Hence, the present petition.
Issue
TMPC raises as issue that the RTC erred in holding that Section 47 of PD No. 198, as
amended, is valid.
The Court's Ruling
The petition is meritorious.
What cannot be legally done directly cannot be done indirectly. This rule is basic and, to a
reasonable mind, does not need explanation. Indeed, if acts that cannot be legally done directly can
be done indirectly, then all laws would be illusory.
In Alvarez v. PICOP Resources, Inc., 8 the Court held that, "What one cannot do directly, he
cannot do indirectly." 9 In Akbayan Citizens Action Party v. Aquino, 10 quoting Agan, Jr. v. Philippine
International Air Terminals Co., Inc., 11the Court held that, "This Court has long and consistently
adhered to the legal maxim that those that cannot be done directly cannot be done
indirectly." 12 In Central Bank Employees Association, Inc. v. Bangko Sentral ng Pilipinas, 13the
Court held that, "No one is allowed to do indirectly what he is prohibited to do directly." 14
The President, Congress and the Court cannot create directly franchises for the operation of
a public utility that are exclusive in character. The 1935, 1973 and 1987 Constitutions expressly and
clearly prohibit the creation of franchises that are exclusive in character. Section 8, Article XIII of
the 1935 Constitution states that:
No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines, sixty per centum of the capital of
which is owned by citizens of the Philippines, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years.
(Emphasis supplied)
Section 5, Article XIV of the 1973 Constitution states that:
No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of the
capital of which is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years.
(Emphasis supplied)
Section 11, Article XII of the 1987 Constitution states that:
No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or

191

authorization be exclusive in character or for a longer period than fifty years.

(Emphasis supplied)
Plain words do not require explanation. The 1935, 1973 and 1987 Constitutions are clear
franchises for the operation of a public utility cannot be exclusive in character. The 1935, 1973
and 1987 Constitutions expressly and clearly state that, "nor shall such franchise . . . be exclusive
in character." There is no exception.
When the law is clear, there is nothing for the courts to do but to apply it. The duty of the
Court is to apply the law the way it is worded. In Security Bank and Trust Company v. Regional Trial
Court of Makati, Branch 61, 15 the Court held that:
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the same
according to its clear language. As we have held in the case of Quijano v.
Development Bank of the Philippines:
". . . We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is
the application of the law according to its express terms, interpretation
being called for only when such literal application is impossible. No process of
interpretation or construction need be resorted to where a provision of law
peremptorily calls for application. Where a requirement or condition is made
in explicit and unambiguous terms, no discretion is left to the judiciary. It
must see to it that its mandate is obeyed." 16 (Emphasis supplied)
In Republic of the Philippines v. Express Telecommunications Co., Inc., 17 the Court held
that, "The Constitution is quite emphatic that the operation of a public utility shall not be
exclusive." 18 In Pilipino Telephone Corporation v. National Telecommunications Commission, 19 the
Court held that, "Neither Congress nor the NTC can grant an exclusive 'franchise, certificate, or any
other form of authorization' to operate a public utility." 20 In National Power Corp. v. Court of
Appeals, 21 the Court held that, "Exclusivity of any public franchise has not been favored by this
Court such that in most, if not all, grants by the government to private corporations, the interpretation
of rights, privileges or franchises is taken against the grantee." 22 In Radio Communications of the
Philippines, Inc. v. National Telecommunications Commission, 23 the Court held that, "The
Constitution mandates that a franchise cannot be exclusive in nature." 24
Indeed, the President, Congress and the Court cannot create directly franchises that are
exclusive in character. What the President, Congress and the Court cannot legally do directly they
cannot do indirectly. Thus, the President, Congress and the Court cannot create indirectly franchises
that are exclusive in character by allowing the Board of Directors (BOD) of a water district and the
Local Water Utilities Administration (LWUA) to create franchises that are exclusive in
character. ECSHID
In PD No. 198, as amended, former President Ferdinand E. Marcos (President Marcos)
created indirectly franchises that are exclusive in character by allowing the BOD of LTWD and the
LWUA to create directly franchises that are exclusive in character. Section 47 of PD No. 198, as
amended, allows the BOD and the LWUA to create directly franchises that are exclusive in character.
Section 47 states:

192

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person
or agency for domestic, industrial or commercial water service within the district or any
portion thereof unless and except to the extent that the board of directors of said
district consents thereto by resolution duly adopted, such resolution, however,
shall be subject to review by the Administration. (Emphasis supplied)
In case of conflict between the Constitution and a statute, the Constitution always prevails
because the Constitution is the basic law to which all other laws must conform to. The duty of the
Court is to uphold the Constitution and to declare void all laws that do not conform to it.
In Social Justice Society v. Dangerous Drugs Board, 25 the Court held that, "It is basic that if
a law or an administrative rule violates any norm of the Constitution, that issuance is null and void
and has no effect. The Constitution is the basic law to which all laws must conform; no act shall be
valid if it conflicts with the Constitution." 26 In Sabio v. Gordon, 27 the Court held that, "the
Constitution is the highest law of the land. It is the 'basic and paramount law to which all other laws
must conform.'" 28 In Atty. Macalintal v. Commission on Elections, 29 the Court held that, "The
Constitution is the fundamental and paramount law of the nation to which all other laws must conform
and in accordance with which all private rights must be determined and all public authority
administered. Laws that do not conform to the Constitution shall be stricken down for being
unconstitutional." 30 In Manila Prince Hotel v. Government Service Insurance System, 31 the Court
held that:
Under the doctrine of constitutional supremacy, if a law or contract violates any norm
of the constitution that law or contract whether promulgated by the legislative or
by the executive branch or entered into by private persons for private purposes is
null and void and without any force and effect. Thus, since the Constitution is the
fundamental, paramount and supreme law of the nation, it is deemed written in
every statute and contract." 32 (Emphasis supplied)
To reiterate, the 1935, 1973 and 1987 Constitutions expressly prohibit the creation of
franchises that are exclusive in character. They uniformly command that "nor shall such
franchise . . . be exclusive in character." This constitutional prohibition is absolute and accepts no
exception. On the other hand, PD No. 198, as amended, allows the BOD of LTWD and LWUA to
create franchises that are exclusive in character. Section 47 states that, "No franchise shall be
granted to any other person or agency . . . unless and except to the extent that the board of
directors consents thereto . . . subject to review by the Administration." Section 47 creates a
glaring exception to the absolute prohibition in the Constitution. Clearly, it is patently unconstitutional.
Section 47 gives the BOD and the LWUA the authority to make an exception to the absolute
prohibition in the Constitution. In short, the BOD and the LWUA are given the discretion to create
franchises that are exclusive in character. The BOD and the LWUA are not even legislative bodies.
The BOD is not a regulatory body but simply a management board of a water district. Indeed, neither
the BOD nor the LWUA can be granted the power to create any exception to the absolute prohibition
in the Constitution, a power that Congress itself cannot exercise.
In Metropolitan Cebu Water District v. Adala, 33 the Court categorically declared Section 47
void. The Court held that:
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of
CPCs for the reasons discussed above, the same provision must be deemed void ab
initio for being irreconcilable with Article XIV, Section 5 of the 1973

193

Constitution which was ratified on January 17, 1973 the constitution in force
when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973
Constitution reads:
"SECTION 5. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines
at least sixty per centum of the capital of which is owned by such citizens, nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Batasang Pambansa when the
public interest so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof."
This provision has been substantially reproduced in Article XII Section 11 of the 1987
Constitution, including the prohibition against exclusive franchises.
xxx xxx xxx
Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public
utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it
is unconstitutional and may not, therefore, be relied upon by petitioner in support of
its opposition against respondent's application for CPC and the subsequent grant
thereof by the NWRB.
WHEREFORE, Section 47 of P.D. 198 is unconstitutional. 34 (Emphasis supplied)
The dissenting opinion declares Section 47 valid and constitutional. In effect, the dissenting
opinion holds that (1) President Marcos can create indirectly franchises that are exclusive in
character; (2) the BOD can create directly franchises that are exclusive in character; (3) the LWUA
can create directly franchises that are exclusive in character; and (4) the Court should allow the
creation of franchises that are exclusive in character.
Stated differently, the dissenting opinion holds that (1) President Marcos can violate
indirectly the Constitution; (2) the BOD can violate directly the Constitution; (3) the LWUA can violate
directly the Constitution; and (4) the Court should allow the violation of the Constitution.
The dissenting opinion states that the BOD and the LWUA can create franchises that are
exclusive in character "based on reasonable and legitimate grounds," and such creation "should not
be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise"
because it "merely refers to regulation" which is part of "the government's inherent right to exercise
police power in regulating public utilities" and that their violation of the Constitution "would carry with it
the legal presumption that public officers regularly perform their official functions." The dissenting
opinion states that:
To begin with, a government agency's refusal to grant a franchise to another entity,
based on reasonable and legitimate grounds, should not be construed as a violation of
the constitutional mandate on the non-exclusivity of a franchise; this merely refers to

194

regulation, which the Constitution does not prohibit. To say that a legal provision is
unconstitutional simply because it enables a government instrumentality to determine
the propriety of granting a franchise is contrary to the government's inherent right to
exercise police power in regulating public utilities for the protection of the public and the
utilities themselves. The refusal of the local water district or the LWUA to consent to the
grant of other franchises would carry with it the legal presumption that public officers
regularly perform their official functions. CHTcSE
The dissenting opinion states two "reasonable and legitimate grounds" for the creation of
exclusive franchise: (1) protection of "the government's investment," 35 and (2) avoidance of "a
situation where ruinous competition could compromise the supply of public utilities in poor and remote
areas." 36
There is no "reasonable and legitimate" ground to violate the Constitution. The
Constitution should never be violated by anyone. Right or wrong, the President, Congress, the Court,
the BOD and the LWUA have no choice but to follow the Constitution. Any act, however noble its
intentions, is void if it violates the Constitution. This rule is basic.
In Social Justice Society, 37 the Court held that, "In the discharge of their defined
functions, the three departments of government have no choice but to yield obedience to the
commands
of the
Constitution.
Whatever
limits
it
imposes
must
be
observed." 38 In Sabio, 39 the Court held that, "the Constitution is the highest law of the land. It is
'the basic and paramount law to which . . . all persons, including the highest officials of the
land, must defer. No act shall be valid, however noble its intentions, if it conflicts with the
Constitution.'" 40 In Bengzon v. Drilon, 41 the Court held that, "the three branches of government
must discharge their respective functions within the limits of authority conferred by the
Constitution." 42 In Mutuc v. Commission on Elections, 43 the Court held that, "The three
departments of government in the discharge of the functions with which it is [sic] entrusted
have no choice but to yield obedience to [the Constitution's] commands. Whatever limits it
imposes must be observed." 44
Police power does not include the power to violate the Constitution. Police power is the
plenary power vested in Congress to make laws not repugnant to the Constitution. This rule is basic.
In Metropolitan Manila Development Authority v. Viron Transportation Co., Inc., 45 the Court
held that, "Police power is the plenary power vested in the legislature to make, ordain, and establish
wholesome and reasonable laws, statutes and ordinances, not repugnant to the
Constitution." 46 In Carlos Superdrug Corp. v. Department of Social Welfare and
Development, 47 the Court held that, police power "is 'the power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes,
and ordinances . . . not repugnant to the constitution.'" 48 In Metropolitan Manila Development
Authority v. Garin, 49 the Court held that, "police power, as an inherent attribute of sovereignty, is the
power vested by the Constitution in the legislature to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes and ordinances . . . not repugnant to the
Constitution." 50
There is no question that the effect of Section 47 is the creation of franchises that are
exclusive in character. Section 47 expressly allows the BOD and the LWUA to create franchises that
are exclusive in character.

195

The dissenting opinion explains why the BOD and the LWUA should be allowed to create
franchises that are exclusive in character to protect "the government's investment" and to avoid "a
situation where ruinous competition could compromise the supply of public utilities in poor and remote
areas." The dissenting opinion declares that these are "reasonable and legitimate grounds." The
dissenting opinion also states that, "The refusal of the local water district or the LWUA to consent to
the grant of other franchises would carry with it the legal presumption that public officers regularly
perform their official functions."
When the effect of a law is unconstitutional, it is void. In Sabio, 51 the Court held that, "A
statute may be declared unconstitutional because it is not within the legislative power to enact; or
it creates or establishes methods or forms that infringe constitutional principles; or its purpose
or effect violates the Constitution or its basic principles." 52 The effect of Section 47 violates the
Constitution, thus, it is void.
In Strategic Alliance Development Corporation v. Radstock Securities Limited, 53 the Court
held
that,
"This
Court
must
perform
its
duty
to
defend
and
uphold the
Constitution." 54 In Bengzon, 55 the Court held that, "The Constitution expressly confers on the
judiciary the power to maintain inviolate what it decrees." 56 In Mutuc, 57 the Court held that:
The concept of the Constitution as the fundamental law, setting forth the criterion for
the validity of any public act whether proceeding from the highest official or the lowest
functionary, is a postulate of our system of government. That is to manifest fealty to the
rule of law, with priority accorded to that which occupies the topmost rung in the legal
hierarchy. The three departments of government in the discharge of the functions with
which it is [sic] entrusted have no choice but to yield obedience to its commands.
Whatever limits it imposes must be observed. Congress in the enactment of statutes
must ever be on guard lest the restrictions on its authority, whether substantive or
formal, be transcended. The Presidency in the execution of the laws cannot ignore or
disregard what it ordains. In its task of applying the law to the facts as found in deciding
cases, the judiciary is called upon to maintain inviolate what is decreed by the
fundamental law. Even its power of judicial review to pass upon the validity of the acts
of the coordinate branches in the course of adjudication is a logical corollary of this
basic principle that the Constitution is paramount. It overrides any governmental
measure that fails to live up to its mandates. Thereby there is a recognition of its being
the supreme law. 58
Sustaining the RTC's ruling would make a dangerous precedent. It will allow Congress to do
indirectly what it cannot do directly. In order to circumvent the constitutional prohibition on franchises
that are exclusive in character, all Congress has to do is to create a law allowing the BOD and the
LWUA to create franchises that are exclusive in character, as in the present case.
WHEREFORE, we GRANT the petition. We DECLARE Section 47 of Presidential Decree
No. 198 UNCONSTITUTIONAL. We SET ASIDE the 1 October 2004 Judgment and 6 November
2004 Order of the Regional Trial Court, Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil
Case No. 03-CV-1878 and REINSTATE the 23 July 2002 Resolution and 15 August 2002 Decision of
the National Water Resources Board.
SO ORDERED. SaTAED
||| (Tawang Multi-purpose Cooperative v. La Trinidad Water District, G.R. No. 166471, [March 22, 2011],
661 PHIL 390-426)

196

197

EN BANC
[G.R. Nos. 156556-57. October 4, 2011.]
ENRIQUE U. BETOY, petitioner, vs. THE BOARD OF DIRECTORS, NATIONAL
POWER CORPORATION, respondent.
DECISION
PERALTA, J p:
Before this Court is a special civil action for certiorari 1 and supplemental petition
for mandamus, 2 specifically assailing National Power Board Resolutions No. 2002-124 and No.
2002-125, as well as Sections 11, 34, 38, 48, 52 and 63 of Republic Act (R.A.) No. 9136, otherwise
known as the Electric Power Industry Reform Act of 2001 (EPIRA). Also assailed is Rule 33 of the
Implementing Rules and Regulations (IRR) of the EPIRA.
The facts of the case are as follows:
On June 8, 2001, the EPIRA was enacted by Congress with the goal of restructuring the
electric power industry and privatization of the assets of the National Power Corporation (NPC).
Pursuant to Section 48 3 of the EPIRA, a new National Power Board of Directors (NPB) was
created. On February 27, 2002, pursuant to Section 77 4 of the EPIRA, the Secretary of the
Department of Energy promulgated the IRR.
On the other hand, Section 63 of the EPIRA provides for separation benefits to officials and
employees who would be affected by the restructuring of the electric power industry and the
privatization of the assets of the NPC, to wit: cIaCTS
Section 63. Separation Benefits of Officials and Employees of Affected
Agencies. National Government employees displaced or separated from the
service as a result of the restructuring of the electricity industry and privatization
of NPC assets pursuant to this Act, shall be entitled to either a separation pay
and other benefits in accordance with existing laws, rules or regulations or be
entitled to avail of the privileges provided under a separation plan which shall be
one and one-half month salary for every year of service in the
government: Provided, however, That those who avail of such privileges shall start
their government service anew if absorbed by any government-owned successor
company. In no case shall there be any diminution of benefits under the separation plan
until the full implementation of the restructuring and privatization.
Displaced or separated personnel as a result of the privatization, if qualified, shall be
given preference in the hiring of the manpower requirements of the privatized
companies. . . . 5
Rule 33 6 of the IRR provided for the coverage and the guidelines for the separation benefits
to be given to the employees affected.

198

On November 18, 2002, pursuant to Section 63 of the EPIRA and Rule 33 of the IRR, the
NPB passed NPB Resolution No. 2002-124 7 which, among others, resolved that all NPC personnel
shall be legally terminated on January 31, 2003 and shall be entitled to separation benefits. On the
same day, the NPB passed NPB Resolution No. 2002-125 8 which created a transition team to
manage and implement the separation program.
As a result of the foregoing NPB Resolutions, petitioner Enrique U. Betoy, together with
thousands of his co-employees from the NPC were terminated.
Hence, herein petition for certiorari with petitioner praying for the grant of the following reliefs
from this Court, to wit:
1. Declaring National Power Board Resolution Nos. 2002-124 and 2002-125 and its
Annex "B" Null and Void, the fact [that] it was done with extraordinary haste and in
secrecy without the able participation of the Napocor Employees Consolidated Union
(NECU) to represent all career civil service employees on issues affecting their rights to
due process, equity, security of tenure, social benefits accrued to them, and as well as
the disclosure of public transaction provisions of the 1987 Constitution because during
its proceeding the National Power Board had acted with grave abuse of discretion and
disregarding constitutional and statutory injunctions on removal of public servants and
non-diminution of social benefits accrued to separated employees, thus, amounting to
excess of jurisdiction; IHCDAS
2. Striking down Section 11, Section 48 and Section 52 of RA 9136 (EPIRA) for being
violative of Section 13, Article VII of the 1987 Constitution and, therefore,
unconstitutional;
3. Striking Section 34 of RA 9136 (EPIRA) for being exorbitant display of State Power
and was not premised on the welfare of the FILIPINO PEOPLE or principle of salus
populi est suprema lex;
4. Striking down Section 38 for RA 9136 (EPIRA) for being a prelude to Charter
Change without a valid referendum for ratification of the entire voter citizens of the
Philippine Republic;
5. Striking down all other provisions of RA 9136 (EPIRA) found repugnant to the 1987
Constitution;
6. Striking down all provisions of the Implementing Rules and Regulations (IRR) of
the EPIRA found repugnant to the 1987 Constitution;
7. Striking down Section 63 of RA 9136 (EPIRA) for classifying such provisions in the
same vein with Proclamation No. 50 used against MWSS employees and its failure to
classify which condition comes first whether the restructuring effecting total
reorganization of the electric power industry making NPC financially viable or the
privatization of NPC assets where manpower reduction or sweeping/lay-off or
termination of career civil service employees follows the disposal of NPC assets. This
is a clear case of violation of the EQUAL PROTECTION CLAUSE, therefore,
unconstitutional;

199

8. Striking down Rule 33 of the Implementing Rules [and] Regulations (IRR) for
disregarding the constitutional and statutory injunction on arbitrary removal of career
civil service employees; and
9. For such other reliefs deemed equitable with justice and fairness to more than
EIGHT THOUSAND (8,000) EMPLOYEES of the National Power Corporation (NPC)
whose fate lies in the sound disposition of the Honorable Supreme Court. 9
In addition, petitioner also filed a supplemental petition for mandamus praying for his
reinstatement.
The petition is without merit.
Before anything else, this Court shall first tackle whether it was proper for petitioner to directly
question the constitutionality of the EPIRA before this Court.
Section 5 (1) and (2), Article VIII of the 1987 Constitution provides that:
SECTION 5. The Supreme Court shall have the following powers:
1. Exercise original jurisdiction over cases affecting ambassadors, other public
ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo
warranto, and habeas corpus.
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the
rules of court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international
or executive agreement, law, presidential decree, proclamation, order,
instruction, ordinance, or regulation is in question. 10 CSIDTc
Based on the foregoing, this Court's jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, and habeas corpus, while concurrent with that of the Regional
Trial Courts and the Court of Appeals, does not give litigants unrestrained freedom of choice of forum
from which to seek such relief. 11 The determination of whether the assailed law and its implementing
rules and regulations contravene the Constitution is within the jurisdiction of regular courts.
The Constitution vests the power of judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the Regional Trial Courts. 12
It has long been established that this Court will not entertain direct resort to it unless the
redress desired cannot be obtained in the appropriate courts, or where exceptional and compelling
circumstances justify availment of a remedy within and call for the exercise of our primary
jurisdiction. 13 Thus, herein petition should already be dismissed at the outset; however, since similar
petitions have already been resolved by this Court tackling the validity of NPB Resolutions No. 2002124 and No. 2002-125, as well as the constitutionality of certain provisions of the EPIRA, this Court
shall disregard the procedural defect.
Validity of NPB Resolutions No. 2002-124 and No. 2002-125

200

The main issue raised by petitioner deals with the validity of NPB Resolutions No. 2002-124
and No. 2002-125.
In NPC Drivers and Mechanics Association (NPC DAMA) v. National Power Corporation
(NPC), 14 this Court had already ruled that NPB Resolutions No. 2002-124 and No. 2002-125 are
void and of no legal effect.
NPC Drivers involved a special civil action for Injunction seeking to enjoin the implementation
of the same assailed NPB Resolutions. Petitioners therein put in issue the fact that the NPB
Resolutions were not concluded by a duly constituted Board of Directors since no quorum in
accordance with Section 48 of the EPIRA existed. In addition, petitioners therein argued that the
assailed NPB Resolutions cannot be given legal effect as it failed to comply with Section 47 of
the EPIRA which required the endorsement of the Joint Congressional Power Commission and the
President of the Philippines. Ruling in favor of petitioners therein, this Court ruled that NPB
Resolutions No. 2002-124 and No. 2002-125 are void and of no legal effect for failure to comply with
Section 48 of the EPIRA, to wit:
We agree with petitioners. In enumerating under Section 48 those who shall compose
the National Power Board of Directors, the legislature has vested upon these persons
the power to exercise their judgment and discretion in running the affairs of the NPC.
Discretion may be defined as "the act or the liberty to decide according to the principles
of justice and one's ideas of what is right and proper under the circumstances, without
willfulness or favor. Discretion, when applied to public functionaries, means a power or
right conferred upon them by law of acting officially in certain circumstances, according
to the dictates of their own judgment and conscience, uncontrolled by the judgment or
conscience of others. It is to be presumed that in naming the respective department
heads as members of the board of directors, the legislature chose these secretaries of
the various executive departments on the basis of their personal qualifications and
acumen which made them eligible to occupy their present positions as department
heads. Thus, the department secretaries cannot delegate their duties as members of
the NPB, much less their power to vote and approve board resolutions, because it is
their personal judgment that must be exercised in the fulfilment of such responsibility.
xxx xxx xxx
In the case at bar, it is not difficult to comprehend that in approving NPB Resolutions
No. 2002-124 and No. 2002-125, it is the representatives of the secretaries of the
different executive departments and not the secretaries themselves who exercised
judgment in passing the assailed Resolution, as shown by the fact that it is the
signatures of the respective representatives that are affixed to the questioned
Resolutions. This, to our mind, violates the duty imposed upon the specifically
enumerated department heads to employ their own sound discretion in exercising the
corporate powers of the NPC. Evidently, the votes cast by these mere representatives
in favor of the adoption of the said Resolutions must not be considered in determining
whether or not the necessary number of votes was garnered in order that the assailed
Resolutions may be validly enacted. Hence, there being only three valid votes cast out
of the nine board members, namely those of DOE Secretary Vincent S. Perez, Jr.;
Department of Budget and Management Secretary Emilia T. Boncodin; and NPC OICPresident Rolando S. Quilala, NPB Resolutions No. 2002-124 and No. 2002-125 are
void and are of no legal effect. 15

201

However, a supervening event occurred in NPC Drivers when it was brought to this Court's
attention that NPB Resolution No. 2007-55 was promulgated on September 14, 2007 confirming and
adopting the principles and guidelines enunciated in NPB Resolutions No. 2002-124 and No. 2002125.
On December 2, 2009, this Court promulgated a Resolution 16 clarifying the amount due the
individual employees of NPC in view of NPB Resolution No. 2007-55. In said Resolution, this Court
clarified the exact date of the legal termination of each class of NPC employees, thus:
From all these, it is clear that our ruling, pursuant to NPB Resolution No. 2002-124,
covers all employees of the NPC and not only the 16 employees as contended by the
NPC. However, as regards their right to reinstatement, or separation pay in lieu of
reinstatement, pursuant to a validly approved Separation Program, plus backwages,
wage adjustments, and other benefits, the same shall be computed from the date of
legal termination as stated in NPC Circular No. 2003-09, to wit:
a) The legal termination of key officials, i.e., the Corporate Secretary, Vice-Presidents
and Senior Vice-Presidents who were appointed under NP Board Resolution No. 200312, shall be at the close of office hours of January 31, 2003. SHCaEA
b) The legal termination of personnel who availed of the early leavers' scheme shall
be on the last day of service in NPC but not beyond January 15, 2003.
c) The legal termination of personnel who were no longer employed in NPC after
June 26, 2001 shall be the date of actual separation in NPC.
d) For all other NPC personnel, their legal termination shall be at the close of office
hours/shift schedule of February 28, 2003. 17
As to the validity of NPB Resolution No. 2007-55, this Court ruled that the same will have a
prospective effect, to wit:
What then is the effect of the approval of NPB Resolution No. 2007-55 on 14
September 2007? The approval of NPB Resolution No. 2007-55, supposedly by a
majority of the National Power Board as designated by law, that adopted, confirmed
and approved the contents of NPB Resolutions No. 2002-124 and No. 2002-125 will
have a prospective effect, not a retroactive effect. The approval of NPB Resolution
No. 2007-55 cannot ratify and validate NPB Resolutions No. 2002-124 and No. 2002125 as to make the termination of the services of all NPC personnel/employees on 31
January 2003 valid, because said resolutions were void.
The approval of NPB Resolution No. 2007-55 on 14 September 2007 means that
the services of all NPC employees have been legally terminated on this date. All
separation pay and other benefits to be received by said employees will be deemed cut
on this date. The computation thereof shall, therefore, be from the date of their illegal
termination pursuant to NPB Resolutions No. 2002-124 and No. 2002-125 as clarified
by NPB Resolution No. 2003-11 and NPC Resolution No. 2003-09 up to 14 September
2007. Although the validity of NPB Resolution No. 2007-55 has not yet been passed
upon by the Court, same has to be given effect because NPB Resolution No. 2007-55
enjoys the presumption of regularity of official acts. The presumption of regularity of
official acts may be rebutted by affirmative evidence of irregularity or failure to perform

202

a duty. Thus, until and unless there is clear and convincing evidence that rebuts
this presumption, we have no option but to rule that said resolution is valid and
effective as of 14 September 2007. 18
Based on the foregoing, this Court concluded that the computation of the amounts due the
employees who were terminated and/or separated as a result of, or pursuant to, the nullified NPB
Board Resolutions No. 2002-124 and No. 2002-125 shall be from their date of illegal termination up to
September 14, 2007 when NPB Resolution No. 2007-55 was issued.
Thus, the resolution of the validity of NPB Board Resolutions No. 2002-124 and No. 2002-125
is, therefore, moot and academic in view of the Court's pronouncements in NPC Drivers.
Anent the question of the constitutionality of Section 63 of RA 9136, as well as Rule 33 of the
IRR, this Court finds that the same is without merit.
A reorganization involves the reduction of personnel, consolidation of offices, or abolition
thereof by reason of economy or redundancy of functions. 19 It could result in the loss of one's
position through removal or abolition of an office. However, for a reorganization for the purpose of
economy or to make the bureaucracy more efficient to be valid, it must pass the test of good faith;
otherwise, it is void ab initio. 20 CHDTIS
It is undisputed that NPC was in financial distress and the solution found by Congress was to
pursue a policy towards its privatization. The privatization of NPC necessarily demanded the
restructuring of its operations. To carry out the purpose, there was a need to terminate employees
and re-hire some depending on the manpower requirements of the privatized companies. The
privatization and restructuring of the NPC was, therefore, done in good faith as its primary purpose
was for economy and to make the bureaucracy more efficient.
In Freedom from Debt Coalition v. Energy Regulatory Commission, 21 this Court discussed
why there was a need for a shift towards the privatization and restructuring of the electric power
industry, to wit:
One of the landmark pieces of legislation enacted by Congress in recent years is
the EPIRA. It established a new policy, legal structure and regulatory framework for the
electric power industry.
The new thrust is to tap private capital for the expansion and improvement of the
industry as the large government debt and the highly capital-intensive character of the
industry itself have long been acknowledged as the critical constraints to the program.
To attract private investment, largely foreign, the jaded structure of the industry had to
be addressed. While the generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130 utilities, mostly small
and uneconomic. The pervasive flaws have caused a low utilization of existing
generation capacity; extremely high and uncompetitive power rates; poor quality of
service to consumers; dismal to forgettable performance of the government power
sector; high system losses; and an inability to develop a clear strategy for overcoming
these shortcomings.
Thus, the EPIRA provides a framework for the restructuring of the industry, including
the privatization of the assets of the National Power Corporation (NPC), the transition
to a competitive structure, and the delineation of the roles of various government

203

agencies and the private entities. The law ordains the division of the industry into four
(4) distinct sectors, namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to be privatized and its transmission
business spun off and privatized thereafter. 22
Petitioner argues that bad faith is clearly manifested as the reorganization has an eye to
replace current favorite less competent appointees. In addition, petitioner contends that qualifications
and behavioral aspect were being set aside. 23
Section 2 of R.A. No. 6656 24 cites certain circumstances showing bad faith in the removal of
employees as a result of any reorganization, thus:
Sec. 2. No officer or employee in the career service shall be removed except for a valid
cause and after due notice and hearing. A valid cause for removal exist when, pursuant
to a bona fide reorganization, a position has been abolished or rendered redundant or
there is a need to merge, divide, or consolidate positions in order to meet the
exigencies of the service, or other lawful causes allowed by the Civil Service Law. The
existence of any or some of the following circumstances may be considered as
evidence of bad faith in the removals made as a result of the reorganization, giving rise
to a claim for reinstatement or reappointment by an aggrieved party: CaTSEA
a) Where there is a significant increase in the number of positions in the new staffing
pattern of the department or agency concerned;
b) Where an office is abolished and another performing substantially the same
functions is created;
c) Where incumbents are replaced by those less qualified in terms of status of
appointment, performance and merit;
d) Where there is a reclassification of offices in the department or agency concerned
and the reclassified offices perform substantially the same functions as the original
offices; and
e) Where the removal violates the order of separation provided in Section 3 hereof.
The Solicitor General, however, argues that petitioner has not shown any circumstance to
prove that the restructuring of NPC was done in bad faith. We agree.
Petitioner's allegation that the reorganization was merely undertaken to accommodate new
appointees is at most speculative and bereft of any evidence on record. It is settled that bad faith
must be duly proved and not merely presumed. It must be proved by clear and convincing
evidence, 25 which is absent in the case at bar.
In addition, petitioner has no legal or vested right to be reinstated as Section 63 of
the EPIRA as well as Section 5, Rule 33 of the IRR clearly state that the displaced or separated
personnel as a result of the privatization, if qualified, shall be given preference in the hiring of the
manpower requirements of the privatized companies. Clearly, the law only speaks of preference and
by no stretch of the imagination can the same amount to a legal right to the position. Undoubtedly, not
all the terminated employees will be re-hired by the selection committee as the manpower

204

requirement of the privatized companies will be different. As correctly observed by the Solicitor
General, the selection of employees for purposes of re-hiring them necessarily entails the exercise of
discretion or judgment. 26 Such being the case, petitioner, cannot, by way of mandamus, compel the
selection committee to include him in the re-hired employees, more so, since there is no evidence
showing that said committee acted with grave abuse of discretion or that the re-hired employees were
merely accommodated and not qualified.
Validity of Sections 11, 48, and 52 of RA 9136
Petitioner argues that Sections 11, 27 48, 28 and 52 29 of the EPIRA are unconstitutional for
violating Section 13, Article VII of the 1987 Constitution.
Section 13, Article VII of the 1987 Constitution provides:
Sec. 13. The President, Vice-President, the Members of the Cabinet, and their deputies
or assistants shall not, unless otherwise provided in this Constitution, hold any other
office or employment during their tenure. They shall not, during said tenure, directly or
indirectly practice any other profession, participate in any business, or be financially
interested in any contract with, or in any franchise, or special privilege granted by the
Government or any subdivision, agency, or instrumentality thereof, including
government-owned or controlled corporations or their subsidiaries. They shall strictly
avoid conflict of interest in the conduct of their office. SIcCEA
xxx xxx xxx. 30
In Civil Liberties Union v. Executive Secretary, 31 this Court explained that the prohibition
contained in Section 13, Article VII of the 1987 Constitution does not apply to posts occupied by the
Executive officials specified therein without additional compensation in an ex-officio capacity as
provided by law and as required by the primary function of said official's office, to wit:
The prohibition against holding dual or multiple offices or employment under Section
13, Article VII of the Constitution must not, however, be construed as applying to posts
occupied by the Executive officials specified therein without additional compensation in
an ex-officio capacity as provided by law and as required by the primary functions of
said officials' office. The reason is that these posts do not comprise "any other office"
within the contemplation of the constitutional prohibition but are properly an imposition
of additional duties and functions on said officials. To characterize these posts
otherwise would lead to absurd consequences, among which are: The President of the
Philippines cannot chair the National Security Council reorganized under Executive
Order No. 115 (December 24, 1986). Neither can the Vice-President, the Executive
Secretary, and the Secretaries of National Defense, Justice, Labor and Employment
and Local Government sit in this Council, which would then have no reason to exist for
lack of a chairperson and members. The respective undersecretaries and assistant
secretaries, would also be prohibited.
xxx xxx xxx
The term "primary" used to describe "functions" refers to the order of importance and
thus means chief or principal function. The term is not restricted to the singular but may
refer to the plural. The additional duties must not only be closely related to, but must be
required by the official's primary functions. Examples of designations to positions by

205

virtue of one's primary functions are the Secretaries of Finance and Budget, sitting as
members of the Monetary Board, and the Secretary of Transportation and
Communications, acting as Chairman of the Maritime Industry Authority and the Civil
Aeronautics Board. 32
The designation of the members of the Cabinet to form the NPB does not violate the
prohibition contained in our Constitution as the privatization and restructuring of the electric power
industry involves the close coordination and policy determination of various government agencies.
Section 2 of the EPIRA clearly shows that the policy toward privatization would involve financial,
budgetary and environmental concerns as well as coordination with local government units, to wit:
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:
(a) To ensure and accelerate the total electrification of the country;
(b) To ensure the quality, reliability, security and affordability of the supply of
electric power;
(c) To ensure transparent and reasonable prices of electricity in a regime of
free and fair competition and full public accountability to achieve greater
operational and economic efficiency and enhance the competitiveness of
Philippine products in the global market; EITcaD
(d) To enhance the inflow of private capital and broaden the ownership base of
the power generation, transmission and distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and private sector
entities in the process of restructuring the electric power industry;
(f) To protect the public interest as it is affected by the rates and services of
electric utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources and
infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy
resources in power generation in order to reduce dependence on imported
energy;
(i) To provide for an orderly and transparent privatization of the assets and
liabilities of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and system to
ensure consumer protection and enhance the competitive operation of the
electricity market; and
(k) To encourage the efficient use of energy and other modalities of demand
side management.

206

As can be gleaned from the foregoing enumeration, the restructuring of the electric power
industry inherently involves the participation of various government agencies. In Civil Liberties, this
Court explained that mandating additional duties and functions to Cabinet members which are not
inconsistent with those already prescribed by their offices or appointments by virtue of their special
knowledge, expertise and skill in their respective executive offices, is a practice long-recognized in
many jurisdictions. It is a practice justified by the demands of efficiency, policy direction, continuity
and coordination among the different offices in the Executive Branch in the discharge of its
multifarious tasks of executing and implementing laws affecting national interest and general welfare
and delivering basic services to the people. 33
The production and supply of energy is undoubtedly one of national interest and is a basic
commodity expected by the people. This Court, therefore, finds the designation of the respective
members of the Cabinet, as ex-officiomembers of the NPB, valid.
This Court is not unmindful, however, that Section 48 of the EPIRA is not categorical in
proclaiming that the concerned Cabinet secretaries compose the NPB Board only in an exofficio capacity. It is only in Section 52 creating the Power Sector Assets and Liabilities Management
Corporation (PSALM) that they are so designated in an ex-officio capacity. Sections 4 and 6 of
the EPIRA provides:
Section 4. TRANSCO Board of Directors.
All the powers of the TRANSCO shall be vested in and exercised by a Board of
Directors. The Board shall be composed of a Chairman and six (6) members. The
Secretary of the DOF shall be the ex-officio Chairman of the Board. The other
members of the TRANSCO Board shall include the Secretary of the DOE, the
Secretary of the DENR, the President of TRANSCO, and three (3) members to be
appointed by the President of the Philippines, each representing Luzon, Visayas and
Mindanao, one of whom shall be the President of PSALM.
xxx xxx xxx.
Section 6. PSALM Board of Directors.
PSALM shall be administered, and its powers and functions exercised, by a Board of
Directors which shall be composed of the Secretary of the DOF as the Chairman, and
the Secretary of the DOE, the Secretary of the DBM, the Director-General of the NEDA,
the Secretary of the DOJ, the Secretary of the DTI and the President of the PSALM
as ex-officio members thereof. cDCEIA
Nonetheless, this Court agrees with the contention of the Solicitor General that the constitutional
prohibition was not violated, considering that the concerned Cabinet secretaries were merely imposed
additional duties and their posts in the NPB do not constitute "any other office" within the
contemplation of the constitutional prohibition.
The delegation of the said official to the respective Board of Directors were designation by
Congress of additional functions and duties to the officials concerned, i.e., they were designated as
members of the Board of Directors. Designation connotes an imposition of additional duties, usually
by law, upon a person already in the public service by virtue of an earlier appointment. 34 Designation
does not entail payment of additional benefits or grant upon the person so designated the right to
claim the salary attached to the position. Without an appointment, a designation does not entitle the

207

officer to receive the salary of the position. The legal basis of an employee's right to claim the salary
attached thereto is a duly issued and approved appointment to the position, and not a mere
designation. 35
Hence, Congress specifically intended that the position of member of the Board of NPB shall
be ex-officio or automatically attached to the respective offices of the members composing the board.
It is clear from the wordings of the law that it was the intention of Congress that the subject posts will
be adjunct to the respective offices of the official designated to such posts.
The foregoing discussion, notwithstanding, the concerned officials should not receive any
additional compensation pursuant to their designation as ruled in Civil Liberties, thus:
The ex-officio position being actually and in legal contemplation part of the principal
office, it follows that the official concerned has no right to receive additional
compensation for his services in the said position. The reason is that these services are
already paid for and covered by the compensation attached to his principal office. It
should be obvious that if, say, the Secretary of Finance attends a meeting of the
Monetary Board as an ex-officio member thereof, he is actually and in legal
contemplation performing the primary function of his principal office in defining policy in
monetary and banking matters, which come under the jurisdiction of his department.
For such attendance, therefore, he is not entitled to collect any extra compensation,
whether it be in the form of a per diem or an honorarium or an allowance, or some
other such euphemism. By whatever name it is designated, such additional
compensation is prohibited by the Constitution.
In relation thereto, Section 14 of the EPIRA provides:
SEC. 14. Board Per Diems and Allowances. The members of the Board shall receive
per diem for each regular or special meeting of the board actually attended by them
and, upon approval of the Secretary of the Department of Finance, such other
allowances as the Board may prescribe. SHECcT
Section 14 relates to Section 11 which sets the composition of the TRANSCO Board naming
the Secretary of the Department of Finance as the ex officio Chairman of the Board. The other
members of the TRANSCO Board include the Secretary of the Department of Energy and the
Secretary of the Department of Environment and Natural Resources. However, considering the
constitutional prohibition, it is clear that such emoluments or additional compensation to be received
by the members of the NPB do not apply and should not be received by those covered by the
constitutional prohibition, i.e., the Cabinet secretaries. It is to be noted that three of the members of
the NPB are to be appointed by the President, who would be representing the interests of those in
Luzon, Visayas, and Mindanao, who may be entitled to such honorarium or allowance if they do not
fall within the constitutional prohibition.
Hence, the said cabinet officials cannot receive any form of additional compensation by way
of per diems and allowances. Moreover, any amount received by them in their capacity as members
of the Board of Directors should be reimbursed to the government, since they are prohibited from
collecting additional compensation by the Constitution.
These interpretations are consistent with the fundamental rule of statutory construction that a
statute is to be read in a manner that would breathe life into it, rather than defeat it, 36 and is

208

supported by the criteria in cases of this nature that all reasonable doubts should be resolved in favor
of the constitutionality of a statute. 37
Constitutionality of Section 34 38 of the EPIRA
The Constitutionality of Section 34 of the EPIRA has already been passed upon by this Court
in Gerochi v. Department of Energy, 39 to wit:
Finally, every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution and not
one that is doubtful, speculative, or argumentative. Indubitably, petitioners failed to
overcome this presumption in favor of the EPIRA. We find no clear violation of
the Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and
Rule 18 of its IRR are unconstitutional and void. 40 TaCDcE
In Gerochi, this Court ruled that the Universal Charge is not a tax but an exaction in the
exercise of the State's police power. The Universal Charge is imposed to ensure the viability of the
country's electric power industry.
Petitioner argues that the imposition of a universal charge to address the stranded debts and
contract made by the government through the NCC-IPP contracts or Power Utility-IPP contracts or
simply the bilateral agreements or contracts is an added burden to the electricity-consuming public on
their monthly power bills. It would mean that the electricity-consuming public will suffer in carrying this
burden for the errors committed by those in power who runs the affairs of the State. This is an
exorbitant display of State Power at the expense of its people. 41
It is basic that the determination of whether or not a tax is excessive oppressive or
confiscatory is an issue which essentially involves a question of fact and, thus, this Court is precluded
from reviewing the same.
Validity of Section 38 42 of the EPIRA
Petitioner argues that the abolishment of the ERB and its replacement of a very powerful
quasi-judicial body named the Energy Regulatory Commission (ERC), pursuant to Section 38 up to
Section 43 of the EPIRA or RA 9136, which is tasked to dictate the day-to-day affairs of the entire
electric power industry, seems a prelude to Charter Change. Petitioner submits that under the 1987
Constitution, there are only three constitutionally-recognized Commissions, they are: the Civil Service
Commission (CSC), the Commission on Audit (COA) and the Commission on Elections
(COMELEC). 43
Petitioner's argument that the creation of the ERC seems to be a prelude to charter change is
flimsy and finds no support in law. This Court cannot subscribe to petitioner's thesis that "in order for
the newly-enacted RA 9136 or EPIRA to become a valid law, we should have to call first a
referendum to amend or totally change the People's Charter." 44
In any case, the constitutionality of the abolition of the ERB and the creation of the ERC has
already been settled in Kapisanan ng mga Kawani ng Energy Regulatory Board v. Commissioner Fe
Barin, 45 to wit:

209

All laws enjoy the presumption of constitutionality. To justify the nullification of a law,
there must be a clear and unequivocal breach of the Constitution. KERB failed to show
any breach of the Constitution.
A public office is created by the Constitution or by law or by an officer or tribunal to
which the power to create the office has been delegated by the legislature. The power
to create an office carries with it the power to abolish. President Corazon C. Aquino,
then exercising her legislative powers, created the ERB by issuing Executive Order No.
172 on 8 May 1987. DcHaET
The question of whether a law abolishes an office is a question of legislative intent.
There should not be any controversy if there is an explicit declaration of abolition in the
law itself. Section 38 of RA 9136 explicitly abolished the ERB. . . . 46
Moreover, in Kapisanan, this Court ruled that because of the expansion of the ERC's
functions and concerns, there was a valid abolition of the ERB. 47
Validity of Section 63 48
Contrary to petitioner's argument, Section 63 of the EPIRA and Section 33 of the IRR of
the EPIRA did not impair the vested rights of NPC personnel to claim benefits under existing laws.
Neither does the EPIRA cut short the years of service of the employees concerned. If an employee
availed of the separation pay and other benefits in accordance with existing laws or the superior
separation pay under the NPC restructuring plan, it is but logical that those who availed of such
privilege will start their government service anew if they will later be employed by any governmentowned successor company or government instrumentality.
It is to be noted that this Court ruled in the case of Herrera v. National Power
Corporation, 49 that Section 63 of the EPIRA precluded the receipt by the terminated employee of
both separation and retirement benefits under the Government Service Insurance System (GSIS)
organic law, or Commonwealth Act (C.A.) No. 186. 50
However, it must be clarified that this Court's pronouncements in Herrera that separated and
retired employees of the NPC "are not entitled to receive retirement benefits under C.A. No. 186,"
referred only to the gratuity benefits granted by R.A. No. 1616, 51 which was to be paid by NPC as
the last employer. It did not proscribe the payment of retirement benefits to qualified retirees
under R.A. No. 660, 52 Presidential Decree (P.D.) No. 1146, 53 R.A. No. 8291, 54 and other GSIS
and social security laws.
The factual and procedural antecedents of Herrera reveal that it arose from a case between
NPC and several of its separated employees who were asking additional benefits from NPC
under R.A. No. 1616 after receiving from the former separation benefits under Section 63 of R.A. No.
9136.
Unable to resolve the issue with its former employees amicably, NPC filed a petition for
declaratory relief, docketed as Civil Case SCA No. Q-03-50681, 55 before the Regional Trial Court of
Quezon City, raising the issue of whether or not the employees of NPC are entitled to receive
retirement benefits under R.A. No. 1616 over and above the separation benefits granted by R.A. No.
9136. 56

210

Under R.A. No. 1616, a gratuity benefit is given to qualified retiring members of the GSIS,
which is payable by the last employer. In addition to said gratuity benefits, the qualified employee
shall also be entitled to a refund of retirement premiums paid, consisting of personal contributions of
the employee plus interest, and government share without interest, payable by the GSIS. It effectively
amended Section 12 (c) of C.A. No. 186, as follows:
(c) Retirement is likewise allowed to any official or employee, appointive or elective,
regardless of age and employment status, who has rendered a total of at least twenty
years of service, the last three years of which are continuous. The benefit shall, in
addition to the return of his personal contributions with interest compounded monthly
and the payment of the corresponding employer's premiums described in subsection
(a) of Section five hereof, without interest, be only a gratuity equivalent to one
month's salary for every year of the first twenty years of service, plus one and
one-half months' salary for every year of service over twenty but below thirty
years and two months' salary for every year of service over thirty years in case of
employees based on the highest rate received and in case of elected officials on
the rates of pay as provided by law. This gratuity is payable on the rates of pay as
provided by law. This gratuity is payable by the employer or officer concerned
which is hereby authorized to provide the necessary appropriation or pay the
same from any unexpended items of appropriations or savings in its
appropriations. Officials and employees retired under this Act shall be entitled to the
commutation of the unused vacation and sick leave, based on the highest rate
received, which they may have to their credit at the time of
retirement. . . . 57 (Emphasis supplied.) cADEHI
After trial, the RTC rendered a Decision ruling against the NPC employees, the decretal
portion of which reads:
WHEREFORE, premises considered, Republic Act No. 9136 DID NOT SPECIFICALLY
AUTHORIZE the National Power Corporation to grant retirement benefits
under Republic Act No. 1616 in addition to separation pay under Republic Act No.
9136.
SO ORDERED. 58
Petitioners therein then sought recourse directly to this Court on a pure question of law. In the
preparatory statement of the Petition for Review on Certiorari, 59 it is apparent that the case was
limited only to the interpretation of Section 63 of R.A. No. 9136, in relation to R.A. No. 1616, on the
matter of retirement benefits, to wit:
This is a case of first impression limited to the interpretation of Section 63, R.A.
9136 (EPIRA), granting separation pay to terminated NAPOCOR employees, in relation
to R.A. 1616, on the matter of retirement benefits. Respondents NAPOCOR and
DEPARTMENT OF BUDGET AND MANAGEMENT erroneously contend that the
entitlement to the separation pay under R.A. 9136 forfeits the retirement benefit
under R.A. 1616. Petitioners most respectfully submit that since R.A. 9136 andR.A.
1616 are not inconsistent with each other and they have distinct noble purposes,
entitlement to separation pay will not disqualify the separated employee who is
qualified to retire from receiving retirement benefits allowed under another law. . . . 60

211

However, in the Decision dated December 18, 2009, it was held that petitioners therein were
not only entitled to receive retirement benefits under R.A. No. 1616 but also were "not entitled to
receive retirement benefits under Commonwealth Act No. 186, as amended," which, in effect, might
lead to the conclusion that the declaration encompassed all other benefits granted by C.A. No. 186 to
its qualified members.
In relation to R.A. No. 1616, Herrera should have affected only the payment of gratuity
benefits by NPC, being the last employer, to its separated employees. It was even categorically
stated that petitioners therein were "entitled to a refund of their contributions to the retirement fund,
and the monetary value of any accumulated vacation and sick leaves," 61 which is clearly congruous
to the mandate of R.A. No. 1616. The matter of availment of retirement benefits of qualified
employees under any other law to be paid by the GSIS should not and was not covered by the
decision. In the first place, it was never an issue.
In the case of Santos v. Servier Philippines, Inc., 62 citing Aquino v. National Labor Relations
Commission, 63 We declared that the receipt of retirement benefits does not bar the retiree from
receiving separation pay. Separation pay is a statutory right designed to provide the employee with
the wherewithal during the period that he/she is looking for another employment. On the other
hand, retirement benefits are intended to help the employee enjoy the remaining years of his life,
lessening the burden of worrying about his financial support, and are a form of reward for his loyalty
and service to the employer. A separation pay is given during one's employable years, while
retirement benefits are given during one's unemployable years. Hence, they are not mutually
exclusive. 64
Even in the deliberations of Congress during the passage of R.A. No. 9136, it was manifest
that it was not the intention of the law to infringe upon the vested rights of NPC personnel to claim
benefits under existing laws. To assure the worried and uneasy NPC employees, Congress
guaranteed their entitlement to a separation pay to tide them over in the meantime. 65 More
importantly, to further allay the fears of the NPC employees, especially those who were nearing
retirement age, Congress repeatedly assured them in several public and congressional hearings that
on top of their separation benefits, they would still receive their retirement benefits, as long as they
would qualify and meet the requirements for its entitlement.
The transcripts of the Public Consultative Meeting on the Power Bill held on February 16,
2001, disclose the following:
xxx xxx xxx
THE CHAIRMAN (SEN. J. OSMEA).
Well, the other labor representation here is Mr. Anguluan. DHCcST
MR. ANGULUAN:
Yes, Your Honor.
THE CHAIRMAN (SEN. J. OSMEA).
Okay. Will you present your paper?

212

MR. ANGULUAN:
We have prepared a paper which we have sent to the honorable members of the
Bicam. . . . .
THE CHAIRMAN (SEN. J. OSMEA).
I don't think anyone is going to deprive you of your rights under the law. You will
enjoy all your rights. You will receive retirement benefits, separation pay,
and all of the rights that are provided to you by law. What we have
objected to in the Senate is retirement benefits higher than what everybody
else gets, like 150 percent or subject to the approval of the board which means
sky is the limit. So, we have objected to that. But what you are entitled to
under the law, you will get under the law and nobody will deprive you of
that. 66
A year later, on February 12, 2002, the Joint Congressional Power Commission was held.
The transcripts of the hearing bare the following:
xxx xxx xxx
THE CHAIRMAN (REP. BADELLES).
They will still be subject to the same conditions. Meaning, NPC has the discretion
whether to reabsorb or hire back those that avail of the separation benefits.
SEN. OSMEA (J).
No. But they are not being the plants are not being sold, so they are but what we
are giving them is a special concession of retiring early.
No, okay. You consider . . .
THE CHAIRMAN (REP. BADELLES).
We are not speaking of retirement here, we are speaking of their separation
benefits . . . THaCAI
SEN. OSMEA (J).
Okay, separation benefits.
THE CHAIRMAN (REP. BADELLES).
Precisely, if they are considered terminated.
SEN. OSMEA (J).
All right. Separation . . .

213

THE CHAIRMAN (REP. BADELLES).

A retirement plan is a different program than separation. DHEaTS
SEN. OSMEA (J).
Separation benefits, okay.
THE CHAIRMAN (REP. BADELLES).
All right. 67
Thus, it is clear that a separation pay at the time of the reorganization of the NPC and
retirement benefits at the appropriate future time are two separate and distinct entitlements. Stated
otherwise, a retirement plan is a different program from a separation package.
There is a whale of a difference between R.A. No. 1616 and C.A. No. 186, together with its
amendatory laws. They have different legal bases, different sources of funds and different intents.
In R.A. No. 1616, which is the subject issue in Herrera, the retirees are entitled to gratuity
benefits to be paid by the last employer and refund of premiums to be paid by the GSIS. On the other
hand, retirement benefits under C.A. No. 186, as amended by R.A. No. 8291, are to be paid by the
GSIS. Stated otherwise, under R.A. No. 1616, what would be paid by the last employer, NPC, would
be gratuity benefits, and GSIS would merely refund the retirement premiums consisting of personal
contributions of the employee plus interest, and the employer's share without interest. Under C.A. No.
186, as amended, it is the GSIS who would pay the qualified employees their retirement
benefits.TcHEaI
Indeed, with several amendments to C.A. No. 186, 68 the Court finds it necessary to
clarify Herrera and categorically declare that it affected only those seeking benefits under R.A. No.
1616. 69 It could not have meant to affect those employees who retired, and who will retire, under the
different amendatory laws of C.A. No. 186 like R.A. No. 660, 70 P.D. No. 1146 71 and R.A. No.
8291. 72
At any rate, entitlement of qualified employees to receive separation pay and retirement
benefits is not proscribed by the 1987 Constitution. Section 8 of Article IX (B) of the 1987
Constitution reads:
SEC. 8. No elective or appointive public officer or employee shall receive additional,
double or indirect compensation, unless specifically authorized by law, nor accept
without the consent of the Congress, any present, emolument, office, or title of any kind
from any foreign government.
Pensions or gratuities shall not be considered as additional, double, or indirect
compensation. 73
Moreover, retirement benefits under C.A. No. 186 are not even considered as compensation.
Section 2 (e) of C.A. No. 186 categorically states that

214

Benefits granted by this Act by virtue of such life or retirement insurance shall not be
considered as compensation or emolument. 74
Under the GSIS law, the retired employees earned their vested right under their contract of
insurance after they religiously paid premiums to GSIS. Under the contract, GSIS is bound to pay the
retirement benefits as it received the premiums from the employees and NPC.
In Marasigan v. Cruz, 75 this Court ratiocinated that:
A retirement law such as C.A. 186 and amendatory laws is in the nature of
a contract between the government and its employees. When an employee joins
the government service, he has a right to expect that after rendering the required length
of service and fulfilled the conditions stated in the laws on retirement, he would be able
to enjoy the benefits provided in said laws. He regularly pays the dues prescribed
therefore. It would be cruel to deny him the benefits he had been expecting at the
end of his service by imposing conditions for his retirement, which are not found
in the law. It is believed to be a legal duty as well as a moral obligation on the
part of the government to honor its commitments to its employees when as in
this case, they have met all the conditions prescribed by law and are
therefore entitled to receive their retirement benefits. 76 aSEDHC
Thus, where the employee retires and meets the eligibility requirements, he acquires a vested
right to benefits that is protected by the due process clause. Retirees enjoy a protected property
interest whenever they acquire a right to immediate payment under pre-existing law. Thus, a
pensioner acquires a vested right to benefits that have become due as provided under the terms of
the public employees' pension statute. No law can deprive such person of his pension rights without
due process of law, that is, without notice and opportunity to be heard. 77 Verily, when an employee
has complied with the statutory requirements to be entitled to receive his retirement benefits, his right
to retire and receive what is due him by virtue thereof becomes vested and may not thereafter be
revoked or impaired.
Moreover, Section 63 of the EPIRA law, if misinterpreted as proscribing payment of retirement
benefits under the GSIS law, would be unconstitutional as it would be violative of Section 10, Article
III of the 1987 Constitution 78 or the provision on non-impairment of contracts.
In view of the fact that separation pay and retirement benefits are different entitlements, as
they have different legal bases, different sources of funds, and different intents, the "exclusiveness of
benefits" rule provided under R.A. No. 8291 is not applicable. Section 55 of R.A. No. 8291 states:
"Whenever other laws provide similar benefits for the same contingencies covered by this Act, the
member who qualifies to the benefits shall have the option to choose which benefits will be paid to
him."
Accordingly, the Court declares that separated, displaced, retiring, and retired employees of
NPC are legally entitled to the retirement benefits pursuant to the intent of Congress and as
guaranteed by the GSIS laws. Thus, the Court reiterates:
1] that the dispositive portion in Herrera holding that separated and retired employees "are
not entitled to receive retirement benefits under Commonwealth Act No. 186," referred only to the
gratuity benefits under R.A. No. 1616, which was to be paid by NPC, being the last employer;

215

2] that it did not proscribe the payment of the retirement benefits to qualified retirees
under R.A. No. 660, P.D. No. 1146, R.A. No. 8291, and other GSIS and social security laws; and
3] that separated, rehired, retiring, and retired employees should receive, and continue to
receive, the retirement benefits to which they are legally entitled. ESITcH
Petition for Mandamus
As for petitioner's prayer that he be reinstated, suffice it to state that the issue has been
rendered moot by the Decision and Resolutions of this Court in the case of NPC Drivers and
Mechanics Association (NPC DAMA) v. National Power Corporation (NPC) 79 and by the above
disquisitions.
In Conclusion
While we commend petitioner's attempt to argue against the privatization of the NPC, it is not
the proper subject of herein petition. Petitioner belabored on alleging facts to prove his point which,
however, go into policy decisions which this Court must not delve into less we violate separation of
powers. The wisdom of the privatization of the NPC cannot be looked into by this Court as it would
certainly violate this guarded principle. The wisdom and propriety of legislation is not for this Court to
pass upon. 80 Every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution, and not one that is
doubtful, speculative or argumentative. 81
As in National Power Corporation Employees Consolidated Union (NECU) v. National Power
Corporation (NPC), 82 this Court held:
Whether the State's policy of privatizing the electric power industry is wise, just, or
expedient is not for this Court to decide. The formulation of State policy is a legislative
concern. Hence, the primary judge of the necessity, adequacy, wisdom,
reasonableness and expediency of any law is primarily the function of the
legislature. 83 ADcSHC
WHEREFORE, premises considered and subject to the above disquisitions, the Petition
for Certiorari and the Supplemental Petition for Mandamus are DISMISSED for lack of merit.
SO ORDERED.
||| (Betoy v. Board of Directors, National Power Corp., G.R. Nos. 156556-57, [October 4, 2011], 674 PHIL
204-257)

216

EN BANC
[G.R. No. 168056. September 1, 2005.]
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO, petitioners, vs. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO,
JR., respondents.
[G.R. No. 168207. September 1, 2005.]
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.
ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO R. OSMEA III, petitioners, vs. EXECUTIVE SECRETARY EDUARDO
R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, respondents.
[G.R. No. 168461. September 1, 2005.]
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its
President, ROSARIO ANTONIO; PETRON DEALERS' ASSOCIATION represented
by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS' OF
THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA;
ROSARIO ANTONIO doing business under the name and style of "ANB NORTH
SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the
name and style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN doing
business under the name and style of "ADVANCE SHELL STATION"; REYNALDO
P. MONTOYA doing business under the name and style of "NEW LAMUAN SHELL
SERVICE STATION"; EFREN SOTTO doing business under the name and style of
"RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented by
its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business
under the name and style of "CLASSIC STAR GASOLINE SERVICE STATION";
MARIAN SHEILA A. LEE doing business under the name and style of "NTE
GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business
under the name and style of "STARCARGA ENTERPRISES"; ADORACION
MAEBO doing business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the name and style of
"LEONA'S GASOLINE STATION and SERVICE CENTER"; CARMELITA
BALDONADO doing business under the name and style of "FIRST CHOICE
SERVICE CENTER"; MERCEDITAS A. GARCIA doing business under the name
and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing business
under the name and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO
doing business under the name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS' HEART CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS' HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;

217

MOTORISTS' HERITAGE CORPORATION represented by its Vice-President for

Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing business under the name and style of
"ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business
under the name and style of "TRUE SERVICE STATION", petitioners, vs. CESAR V.
PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue,respondents.
[G.R. No. 168463. September 1, 2005.]
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR
G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III,
RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A.
CASIO, petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary, respondents.
[G.R. No. 168730. September 1, 2005.]
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs. HON. EDUARDO R.
ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in
his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity
as the OIC Commissioner of the Bureau of Internal Revenue; and HON.
ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the Bureau
of Customs, respondents.
Carlos G. Banigued and Laura Victoria Yuson-Layug for petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosalie Taguian, Agustin C. Bacungan
III and Roland Allan C. Abarguez for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for petitioners in 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
SYLLABUS
1.TAXATION; VALUE-ADDED TAX (VAT); TAX ON SPENDING OR CONSUMPTION. The VAT is a tax
on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and
services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of
tax paid to the buyer, with the seller acting merely as a tax collector. The burden of VAT is intended to fall
on the immediate buyers and ultimately, the end-consumers. In contrast, a direct tax is a tax for which a

218

taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to
someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes.
2.POLITICAL LAW; LEGISLATIVE DEPARTMENT; POWER OF INTERNAL REGULATION AND
DISCIPLINE ARE INTRINSIC IN ANY LEGISLATIVE BODY. It should be borne in mind that the power
of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by
Justice Story, "[i]f the power did not exist, it would be utterly impracticable to transact the business of the
nation, either at all, or at least with decency, deliberation, and order." Thus, Article VI, Section 16 (3) of the
Constitution provides that "each House may determine the rules of its proceedings." Pursuant to this
inherent constitutional power to promulgate and implement its own rules of procedure, the respective
rules of each house of Congress provided for the creation of a Bicameral Conference Committee.
3.ID.; SEPARATION OF POWERS; EXPANDED JURISDICTION OF THE SUPREME COURT CANNOT
APPLY TO QUESTIONS REGARDING ONLY INTERNAL OPERATION OF CONGRESS. [O]ne of the
most basic and inherent power of the legislature is the power to formulate rules for its proceedings and
the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole concern of Congress to instill discipline
among the members of its conference committee if it believes that said members violated any of its rules
of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the
internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a
co-equal branch of government.
4.ID.; LEGISLATIVE DEPARTMENT; CONGRESS FINDS THE PRACTICES OF THE BICAMERAL
CONFERENCE COMMITTEE TO BE VERY USEFUL FOR PURPOSES OF PROMPT AND EFFICIENT
LEGISLATIVE ACTION. [A]s far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Secretary of Finance, the Court already made the pronouncement that "[i]f a change is desired in the
practice [of the Bicameral Conference Committee] it must be sought in Congress since this question is not
covered by any constitutional provision but is only an internal rule of each house." To date, Congress has
not seen it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the
practices of the bicameral conference committee to be very useful for purposes of prompt and efficient
legislative action.
5.ID.; ID.; ID.; MANDATED TO SETTLE THE DIFFERENCES BETWEEN THE DISAGREEING
PROVISIONS IN THE HOUSE BILL AND THE SENATE BILL. Under the provisions of both the Rules
of the House of Representatives and Senate Rules, the Bicameral Conference Committee is mandated to
settle the differences between the disagreeing provisions in the House bill and the Senate bill. The term
"settle" is synonymous to "reconcile" and "harmonize." To reconcile or harmonize disagreeing provisions,
the Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or
Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would be
carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
6.TAXATION; REPUBLIC ACT NO. 9337 (EXPANDED VALUE-ADDED TAX LAW); THE STAND-BY
AUTHORITY OF THE PRESIDENT IS STILL TOTALLY WITHIN THE SUBJECT OF WHAT RATE OF
VALUE-ADDED TAX SHOULD BE IMPOSED ON THE TAXPAYERS. The so-called stand-by authority
in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time
that certain conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed on
taxpayers.

219

7.POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE COMMITTEE; IT IS

WITHIN ITS POWER TO INCLUDE IN ITS REPORT AN ENTIRELY NEW PROVISION THAT IS NOT
FOUND EITHER IN THE HOUSE BILL OR IN THE SENATE BILL. All the changes or modifications
made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it
for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting
to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases
of Philippine Judges Association vs. Prado and Tolentino vs. Secretary of Finance, the Court recognized
the long-standing legislative practice of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case, it was held that: . . . it is
within the power of a conference committee to include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting
of one or two provisions, there is no reason why it cannot propose several provisions, collectively
considered as an "amendment in the nature of a substitute," so long as such amendment is germane to
the subject of the bills before the committee. After all, its report was not final but needed the approval of
both houses of Congress to become valid as an act of the legislative department. The charge that in this
case the Conference Committee acted as a third legislative chamber is thus without any basis.
8.ID.; ID.; "NO-AMENDMENT RULE"; CANNOT BE TAKEN TO MEAN THAT THE INTRODUCTION BY
THE BICAMERAL COMMITTEE OF AMENDMENTS AND MODIFICATIONS TO DISAGREEING
PROVISIONS IN BILLS THAT HAVE BEEN ACTED UPON BY BOTH HOUSES OF CONGRESS IS
PROHIBITED. The Court reiterates here that the "no-amendment rule" refers only to the procedure to
be followed by each house of Congress with regard to bills initiated in each of said respective houses,
before said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead
to absurdity as this would mean that the other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be
taken to mean that the introduction by the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is
prohibited.
9.ID.; ID.; CONSTITUTION DOES NOT CONTAIN ANY PROHIBITION OR LIMITATION ON THE
EXTENT OF THE AMENDMENTS THAT MAY BE INTRODUCED BY THE SENATE TO THE HOUSE
REVENUE BILL. Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain
any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the
House revenue bill.
10.ID.; ID.; REVENUE BILLS; THE SENATE CAN INTRODUCE AMENDMENTS WITHIN THE
PURPOSES OF THOSE BILLS. Notably therefore, the main purpose of the bills emanating from the
House of Representatives is to bring in sizeable revenues for the government to supplement our country's
serious financial problems, and improve tax administration and control of the leakages in revenues from
income taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can introduce amendments within the
purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders
of the consumers.
11.ID.; PRINCIPLE OF SEPARATION OF POWERS; ELUCIDATED. The principle of separation of
powers ordains that each of the three great branches of government has exclusive cognizance of and is

220

supreme in matters falling within its own constitutionally allocated sphere. A logical corollary to the
doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated. This doctrine is based on the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the instrumentality of his own judgment
and not through the intervening mind of another.
12.ID.; LEGISLATIVE DEPARTMENT; CONGRESS IS PROHIBITED FROM DELEGATING THOSE
WHICH ARE STRICTLY, OR INHERENTLY AND EXCLUSIVELY, LEGISLATIVE. With respect to the
Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall be vested
in the Congress of the Philippines which shall consist of a Senate and a House of Representatives." The
powers which Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has been described as
the authority to make a complete law complete as to the time when it shall take effect and as to whom
it shall be applicable and to determine the expediency of its enactment. Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it
must appear that the power involved is purely legislative in nature that is, one appertaining exclusively
to the legislative department. It is the nature of the power, and not the liability of its use or the manner of
its exercise, which determines the validity of its delegation.
13.ID.; ID.; ID.; EXCEPTIONS. Nonetheless, the general rule barring delegation of legislative powers is
subject to the following recognized limitations or exceptions: (1) Delegation of tariff powers to the
President under Section 28 (2) of Article VI of the Constitution; (2) Delegation of emergency powers to the
President under Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people at large; (4)
Delegation to local governments; and (5) Delegation to administrative bodies.
14.ID.; ID.; TESTS OF VALID DELEGATION. In every case of permissible delegation, there must be a
showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth
therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard
the limits of which are sufficiently determinate and determinable to which the delegate must conform in
the performance of his functions. A sufficient standard is one which 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. Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
15.ID.; ID.; ID.; THE LEGISLATURE MAY DELEGATE TO EXECUTIVE OFFICERS OR BODIES THE
POWER TO DETERMINE CERTAIN FACTS OR CONDITIONS ON WHICH THE OPERATION OF A
STATUTE IS MADE TO DEPEND. Clearly, the legislature may delegate to executive officers or bodies
the power to determine certain facts or conditions, or the happening of contingencies, on which the
operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority. While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an exercise of such power may
be left to them, including the power to determine the existence of facts on which its operation depends.
16.ID.; ID.; ID.; ID.; RATIONALE. The rationale for this is that the preliminary ascertainment of facts as
basis for the enactment of legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and making recommendations is the kind of
subsidiary activity which the legislature may perform through its members, or which it may delegate to
others to perform. Intelligent legislation on the complicated problems of modern society is impossible in
the absence of accurate information on the part of the legislators, and any reasonable method of securing

221

such information is proper. The Constitution as a continuously operative charter of government does not
require that Congress find for itself every fact upon which it desires to base legislative action or that it
make for itself detailed determinations which it has declared to be prerequisite to application of legislative
policy to particular facts and circumstances impossible for Congress itself properly to investigate.
17.ID.; STATUTORY CONSTRUCTION; THE USE OF THE WORD "SHALL" IN A STATUTE DENOTES
AN IMPERATIVE OBLIGATION AND IS INCONSISTENT WITH THE IDEA OF DISCRETION. No
discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use
in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. Where the law
is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to
see to it that the mandate is obeyed.
18.TAXATION; REPUBLIC ACT NO. 9337; IT IS THE MINISTERIAL DUTY OF THE PRESIDENT TO
IMMEDIATELY IMPOSE THE 12% RATE UPON THE EXISTENCE OF ANY OF THE CONDITIONS
SPECIFIED BY CONGRESS. Thus, it is the ministerial duty of the President to immediately impose the
12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate
when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on
the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions
by a person or body other than the legislature itself.
19.POLITICAL LAW; EXECUTIVE DEPARTMENT; SECRETARY OF FINANCE AS THE ALTER EGO OF
THE PRESIDENT; EXPLAINED. When one speaks of the Secretary of Finance as the alter ego of the
President, it simply means that as head of the Department of Finance he is the assistant and agent of the
Chief Executive. 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, such as the Department of Finance, performed and promulgated in the regular course of
business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the
Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the
President."
20.TAXATION; REPUBLIC ACT NO. 9337; SECRETARY OF FINANCE BECOMES THE MEANS OR
TOOL BY WHICH THE LEGISLATIVE POLICY IN THE VALUE-ADDED TAX IS DETERMINED AND
IMPLEMENTED; CASE AT BAR. In the present case, in making his recommendation to the President
on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of
the President or even her subordinate. In such instance, he is not subject to the power of control and
direction of the President. He is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he possesses
all the facilities to gather data and information and has a much broader perspective to properly evaluate
them. His function is to gather and collate statistical data and other pertinent information and verify if any
of the two conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the President
cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter.

222

21.ID.; ID.; CONGRESS DID NOT DECLARE THE POWER TO TAX BUT THE MERE
IMPLEMENTATION OF THE LAW. Congress simply granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection
as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2-4/5%) or the national government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1-1/2%). If either of these two instances has occurred, the Secretary of
Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative
power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress
does not abdicate its functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is frequently the only way
in which the legislative process can go forward. . . . Congress did not delegate the power to tax but the
mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress
and the task of the President is to simply execute the legislative policy. That Congress chose to do so in
such a manner is not within the province of the Court to inquire into, its task being to interpret the law.
22.POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT DOES NOT RULE ON
ALLEGATIONS WHICH ARE MANIFESTLY CONJECTURAL. The insinuation by petitioners Pimentel,
et al. that the President has ample powers to cause, influence or create the conditions to bring about
either or both the conditions precedent does not deserve any merit as this argument is highly speculative.
The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The
Court deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
23.ID.; STATUTORY CONSTRUCTION; WHERE THE PROVISION OF THE LAW IS CLEAR AND
UNAMBIGUOUS, THE LAW MUST BE TAKEN AS IT IS. Under the common provisos of Sections 4, 5
and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President shall
increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a return to the
10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 2-4/5 of the GDP of the previous year or that the national government deficit as
a percentage of GDP of the previous year does not exceed 1-1/2%. Therefore, no statutory construction
or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread upon. Thus, in the absence of any
provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners'
argument is, at best, purely speculative. There is no basis for petitioners' fear of a fluctuating VAT rate
because the law itself does not provide that the rate should go back to 10% if the conditions provided in
Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be
taken as it is, devoid of judicial addition or subtraction.
24.TAXATION; BASIC PRINCIPLE; FISCAL ADEQUACY, EXPLAINED. The principle of fiscal
adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his Canons of
Taxation (1776), as: IV. Every tax ought to be so contrived as both to take out and to keep out of the
pockets of the people as little as possible over and above what it brings into the public treasury of the
state. It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.
25.POLITICAL LAW; JUDICIAL DEPARTMENT; WHETHER THE LAW IS INDEED SUFFICIENT TO
ANSWER THE STATE'S ECONOMIC DILEMMA IS NOT FOR THE COURT TO JUDGE. Congress
passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to
answer the state's economic dilemma is not for the Court to judge. In the Farias case, the Court refused

223

to consider the various arguments raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006
(The Fair Election Act), pronouncing that: . . . policy matters are not the concern of the Court. Government
policy is within the exclusive dominion of the political branches of the government. It is not for this Court to
look into the wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to achieve the
desired results, whether, in short, the legislative discretion within its prescribed limits should be exercised
in a particular manner are matters for the judgment of the legislature, and the serious conflict of opinions
does not suffice to bring them within the range of judicial cognizance. In the same vein, the Court in this
case will not dawdle on the purpose of Congress or the executive policy, given that it is not for the
judiciary to "pass upon questions of wisdom, justice or expediency of legislation."
26.ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS AND EQUAL PROTECTION
CLAUSES; TO INVOKE VIOLATION THEREOF, THERE IS A NEED FOR PROOF OF SUCH
PERSUASIVE CHARACTER AS WOULD LEAD TO SUCH A CONCLUSION. The doctrine is that
where the due process and equal protection clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
27.TAXATION; VALUE-ADDED TAX; INPUT TAX AND OUTPUT TAX; DEFINED. Input Tax is defined
under Section 110 (A) of the NIRC,as amended, as the value-added tax due from or paid by a VATregistered person on the importation of goods or local purchase of good and services, including lease or
use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the
value-added tax due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.
28.ID.; REPUBLIC ACT NO. 9337; THE EXCESS INPUT TAX IS RETAINED IN A BUSINESS'S BOOKS
OF ACCOUNTS AND REMAINS CREDITABLE IN THE SUCCEEDING QUARTER/S. Petitioners'
argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the
input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70%
of the output tax, then 100% of such input tax is still creditable. More importantly, the excess input tax, if
any, is retained in a business's books of accounts and remains creditable in the succeeding quarter/s.
This is explicitly allowed by Section 110 (B), which provides that "if the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters." In addition, Section 112 (B) allows
a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused input
taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused
input tax may be used in payment of his other internal revenue taxes.
29.ID.; ID.; IN COMPUTING THE VALUE-ADDED TAX PAYABLE, THREE POSSIBLE SCENARIOS MAY
ARISE. [T]he input tax is the tax paid by a person, passed on to him by the seller, when he buys
goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise: First, if at the end of a taxable quarter the output taxes
charged by the seller are equal to the input taxes that he paid and passed on by the suppliers, then no
payment is required; Second, when the output taxes exceed the input taxes, the person shall be liable for
the excess, which has to be paid to the Bureau of Internal Revenue (BIR); and Third, if the input taxes
exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the output
taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer's option.
30.ID.; ID.; A PERSON CAN CREDIT HIS INPUT TAX ONLY UP TO THE EXTENT OF 70% OF THE
OUTPUT TAX. Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a

224

person can credit his input tax only up to the extent of 70% of the output tax. In layman's term, the valueadded taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70%
of the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to a seller, and the seller
will subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the
seller. What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
31.ID.; ID.; INPUT TAX IS NOT A PROPERTY OR A PROPERTY RIGHT WITHIN THE
CONSTITUTIONAL PURVIEW OF THE DUE PROCESS CLAUSE. The input tax is not a property or a
property right within the constitutional purview of the due process clause. A VAT-registered person's
entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory
privileges and vested rights must be borne in mind for persons have no vested rights in statutory
privileges. The state may change or take away rights, which were created by the law of the state,
although it may not take away property, which was vested by virtue of such rights.
32.ID.; ID.; TAXABLE TRANSACTIONS WITH THE GOVERNMENT ARE SUBJECT TO A 5% RATE.
As applied to value-added tax, this means that taxable transactions with the government are subject to a
5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the net
VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input
VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. The Court need not
explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable
transactions with the government. This is supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax liability of the seller or contractor[.]
33.POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT WILL NOT ENGAGE IN A LEGAL
JOUST WHERE PREMISES ARE UNCERTAIN. Petitioners also argue that by imposing a limitation on
the creditable input tax, the government gets to tax a profit or value-added even if there is no profit or
value-added. Petitioners' stance is purely hypothetical, argumentative, and again, one-sided. The Court
will not engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain.
Any disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth, "full of
sound and fury, signifying nothing." What's more, petitioners' contention assumes the proposition that
there is no profit or value-added. It need not take an astute businessman to know that it is a matter of
exception that a business will sell goods or services without profit or value-added. It cannot be
overstressed that a business is created precisely for profit.
34.CONSTITUTIONAL LAW; BILL OF RIGHTS; EQUAL PROTECTION CLAUSE; THE POWER OF THE
STATE TO MAKE REASONABLE AND NATURAL CLASSIFICATION FOR THE PURPOSES OF
TAXATION HAS LONG BEEN ESTABLISHED. The equal protection clause under the
Constitution means that "no person or class of persons shall be deprived of the same protection of laws
which is enjoyed by other persons or other classes in the same place and in like circumstances." The
power of the State to make reasonable and natural classifications for the purposes of taxation has long
been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied,
or the amounts to be raised, the methods of assessment, valuation and collection, the State's power is
entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness.
35.ID.; ID.; ID.; DOES NOT REQUIRE THE UNIVERSAL APPLICATION OF THE LAWS ON ALL
PERSONS OR THINGS WITHOUT DISTINCTION. The equal protection clause does not require the
universal application of the laws on all persons or things without distinction. This might in fact sometimes
result in unequal protection. What the clause requires is equality among equals as determined according

225

to a valid classification. By classification is meant the grouping of persons or things similar to each other
in certain particulars and different from all others in these same particulars.
36.TAXATION; THE RULE OF UNIFORMITY DOES NOT DEPRIVE CONGRESS OF THE POWER TO
CLASSIFY SUBJECTS OF TAXATION. Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same class everywhere with all people at all times. In
this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC,provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and
sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain
sales and transaction. Neither does the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase
of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only
demands uniformity within the particular class.
37.ID.; REPUBLIC ACT NO. 9337 IS EQUITABLE; EQUIPPED WITH A THRESHOLD MARGIN. R.A.
No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. Also, basic marine and agricultural food products in their original state are still not subject
to the tax, thus ensuring that prices at the grassroots level will remain accessible. . . . It is admitted
that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with
high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109 (v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as
a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers
stand on equal-footing. Moreover, Congress provided mitigating measures to cushion the impact of the
imposition of the tax on those previously exempt. Excise taxes on petroleum products and natural gas
were reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt from
paying franchise tax.
38.ID.; BASIC PRINCIPLE; PROGRESSIVITY; ELUCIDATED. Progressive taxation is built on the
principle of the taxpayer's ability to pay. This principle was also lifted from Adam Smith's Canons of
Taxation, and it states: I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the
revenue which they respectively enjoy under the protection of the state. Taxation is progressive when its
rate goes up depending on the resources of the person affected.
39.ID.; REPUBLIC ACT NO. 9337; VALUE-ADDED TAX IS AN ANTITHESIS OF PROGRESSIVE
TAXATION. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The
principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in
the income earned by a person or profit margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the
income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always hardest hit.
40.ID.; ID.; THE CONSTITUTION DOES NOT REALLY PROHIBIT THE IMPOSITION OF INDIRECT
TAXES, LIKE THE VAT. Nevertheless, the Constitution does not really prohibit the imposition of indirect

226

taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The Court stated in the Tolentino case, thus: The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress
shall 'evolve a progressive system of taxation.' The constitutional provision has been interpreted to mean
simply that 'direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized.' (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was
taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition
by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of
the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of
the NIRC)
PANGANIBAN, C.J., separate opinion:
1.POLITICAL LAW; JUDICIAL DEPARTMENT; JUDICIARY HAS BOTH THE POWER AND THE DUTY
TO STRIKE DOWN CONGRESSIONAL ACTIONS THAT ARE DONE IN PLAIN CONTRAVENTION OF
THE CONSTITUTIONAL CONDITIONS, RESTRICTIONS OR LIMITATIONS. In fine, the enrolled bill
doctrine applies mainly to the internal rules and processes followed by Congress in its principal duty of
lawmaking. However, when the Constitution imposes certain conditions, restrictions or limitations on the
exercise of congressional prerogatives, the judiciary has both the power and the duty to strike down
congressional actions that are done in plain contravention of such conditions, restrictions or limitations.
Insofar as the present case is concerned, the three most important restrictions or limitations to the
enrolled bill doctrine are the "origination," "no-amendment" and "three-reading" rules which I will discuss
later. Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the expanded
constitutional mandate of the judiciary "to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government." Even the ponente of Tolentino, the learned Mr. Justice Vicente V. Mendoza, concedes in
another decision that each house "may not by its rules ignore constitutional restraints or violate
fundamental rights, and there should be a reasonable relation between the mode or method of
proceeding established by the rule and the result which is sought to be attained."
2.ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE COMMITTEE (BCB); SUPREME
COURT MAY EXERCISE CERTIORARI REVIEW TO FIND OUT WHETHER THE CONSTITUTIONAL
CONDITIONS, RESTRICTIONS AND LIMITATIONS ON LAW-MAKING HAVE BEEN VIOLATED. The
Bicameral Conference Committee (BCC) created by Congress to iron out differences between the Senate
and the House of Representatives versions of the E-VAT bills is one such "branch or instrumentality of the
government," over which this Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out whether the constitutional
conditions, restrictions and limitations on law-making have been violated.
3.ID.; ID.; ID.; FIVE OPTIONS IN PERFORMING ITS FUNCTIONS. In general, the BCC has at least
five options in performing its functions: (1) adopt the House version in part or in toto, (2) adopt the Senate
version in part or in toto, (3) consolidate the two versions, (4) reject non-conflicting provisions, and (5)
adopt completely new provisions not found in either version.
4.ID.; ID.; ID.; IN ADOPTING THE HOUSE VERSION OF THE REVENUE BILL IN PART OR IN TOTO,
THERE IS NO PROCEDURAL IMPEDIMENT SINCE IT HAD PASSED THE THREE-READING

227

REQUIREMENT. [T]he BCC had the option of adopting the House bills either in part or in toto,
endorsing them without changes. Since these bills had passed the three-reading requirement under the
Constitution, it readily becomes apparent that no procedural impediment would arise. There would also be
no question as to their origination, because the bills originated exclusively from the House of
Representatives itself.
5.ID.; ID.; REVENUE BILL; IN THE SENATE, THE REWRITING IS LIMITED BY THE "GERMANE"
PRINCIPLE. While in the Senate, the House version may, per Tolentino, undergo extensive changes,
such that the Senate may rewrite not only portions of it but even all of it. I believe that such rewriting is
limited by the "germane" principle: although "relevant" or "related" to the general subject of taxation, the
Senate version is not necessarily "germane" all the time. The "germane" principle requires a legal not
necessarily an economic or political interpretation. There must be an "inherent logical connection."
What may be germane in an economic or political sense is not necessarily germane in the legal sense.
Otherwise, any provision in the Senate version that is entirely new and extraneous, or that is remotely or
even slightly connected, to the vast and perplexing subject of taxation, would always be germane. Under
this interpretation, the origination principle would surely be rendered inutile.
6.ID.; ID.; ID.; SENATE IS NOT PROHIBITED TO FILE A SUBSTITUTE BILL IN ANTICIPATION OF ITS
RECEIPT OF THE BILL FROM THE HOUSE. To repeat, in Tolentino, the Court said that the Senate
may even write its own version, which in effect would be an amendment by substitution. The Court went
further by saying that "the Constitution does not prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill." After all, the initiative for filing a revenue bill must come from the House
on the theory that, elected as its members are from their respective districts, the House is more sensitive
to local needs and problems. By contrast, the Senate whose members are elected at large approaches
the matter from a national perspective, with a broader and more circumspect outlook.
7.ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS REPORT WILL NOT BECOME A FINAL
VALID ACT OF THE LEGISLATIVE DEPARTMENT UNTIL IT OBTAINS THE APPROVAL OF BOTH
HOUSES OF CONGRESS. As a third option, the BCC may reach a compromise by consolidating both
the Senate and the House versions. It can adopt some parts and reject other parts of both bills, and craft
new provisions or even a substitute bill. I believe this option is viable, provided that there is no violation of
the origination and germane principles, as well as the three-reading rule. After all, the report generated by
the BCC will not become a final valid act of the Legislative Department until the BCC obtains the approval
of both houses of Congress.
8.TAXATION; REPUBLIC ACT NO. 9337; "STANDBY AUTHORITY" OF THE PRESIDENT, THERE WAS
REALLY NO "DELEGATION" TO SPEAK OF SINCE THERE WAS MERELY A DECLARATION OF AN
ADMINISTRATIVE, NOT A LEGISLATIVE FUNCTION. In the computation of the percentage
requirements in the alternative conditions under the law, the amounts of the VAT collection, National
Deficit, and GDP as well as the interrelationship among them can easily be derived by the finance
secretary from the proper government bodies charged with their determination. The law is complete and
standards have been fixed. Only the fact-finding mathematical computation for its implementation on
January 1, 2006, is necessary. Once either of the factual and mathematical events provided in the law
takes place, the President has no choice but to implement the increase of the VAT rate to 12 percent. This
eventuality has been predetermined by Congress. The taxing power has not been delegated by Congress
to either or both the President and the finance secretary. What was delegated was only the power to
ascertain the facts in order to bring the law into operation. In fact, there was really no "delegation" to
speak of; there was merely a declaration of an administrative, not a legislative, function. I concur with the
ponencia in that there was no undue delegation of legislative power in the increase from 10 percent to 12
percent of the VAT rate.

228

9.ID.; ID.; THE SECRETARY OF FINANCE IS NOT AN ALTER EGO OF CONGRESS BUT OF THE
PRESIDENT. The secretary of finance is not an alter ego of Congress, but of the President. The
mandate given by RA 9337 to the secretary is not equipollent to an authority to make laws. In passing this
law, Congress did not restrict or curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be construed to be merely asking the
President, with a recommendation from the President's alter ego in finance matters, to determine the
factual bases for making the increase in VAT rate operative. Indeed, as I have mentioned earlier, the factfinding condition is a mere administrative, not legislative, function.
10.POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE LEGISLATURE DOES NOT HAVE THE
POWER TO IMPLEMENT LAWS. The ponencia states that Congress merely delegates the
implementation of the law to the secretary of finance. How then can the latter be its agent? Making a law
is different from implementing it. While the first (the making of laws) may be delegated under certain
conditions and only in specific instances provided under the Constitution, the second (the implementation
of laws) may not be done by Congress. After all, the legislature does not have the power to implement
laws. Therefore, congressional agency arises only in the first, not in the second. The first is a legislative
function; the second, an executive one.
11.ID.; ID.; THE RIGHT TO SELECT THE MEASURE AND OBJECTS OF TAXATION DEVOLVES UPON
THE CONGRESS. Petitioners' argument is that because the GDP does not account for the economic
effects of so-called underground businesses, it is an inaccurate indicator of either economic growth or
slowdown in transitional economies. Clearly, this matter is within the confines of lawmaking. This Court is
neither a substitute for the wisdom, or lack of it, in Congress, nor an arbiter of flaws within the latter's
internal rules. Policy matters lie within the domain of the political branches of government, outside the
range of judicial cognizance. "[T]he right to select the measure and objects of taxation devolves upon the
Congress, and not upon the courts, and such selections are valid unless constitutional limitations are
overstepped." Moreover, each house of Congress has the power and authority to determine the rules of
its proceedings.
12.TAXATION; REPUBLIC ACT NO. 9337; THE AMENDMENTS MADE BY THE BICAMERAL
CONFERENCE COMMITTEE REGARDING INCOME TAXES ARE NOT LEGALLY GERMANE TO THE
SUBJECT MATTER OF THE HOUSE BILLS. Amendments on Income Taxes. I respectfully submit that
the amendments made by the BCC (that were culled from the Senate version) regarding income taxes
are not legally germane to the subject matter of the House bills. Revising the income tax rates on
domestic, resident foreign and nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends; and reducing the allowable
deduction for interest expense are legally unrelated and not germane to the subject matter contained in
the House bills; they violate the origination principle.
13.ID.; ID.; ID.; IT IS INCONCEIVABLE HOW THE PROVISIONS THAT INCREASE CORPORATE
INCOME TAXES CAN BE CONSIDERED AS MITIGATING MEASURES FOR INCREASING THE
VALUE-ADDED TAX. One, an income tax is a direct tax imposed on actual or presumed income
gross or net realized by a taxpayer during a given taxable year, while a VAT is an indirect tax not in the
context of who is directly and legally liable for its payment, but in terms of its nature as "a tax on
consumption." The former cannot be passed on to the consumer, but the latter can. It is too wide a stretch
of the imagination to even relate one concept with the other. In like manner, it is inconceivable how the
provisions that increase corporate income taxes can be considered as mitigating measures for increasing
the VAT and, as I will explain later, for effectively imposing a maximum of 3 percent tax on gross sales or
revenues because of the 70 percent cap. Even the argument that the corporate income tax rates will be
reduced to 30 percent does not hold water. This reduction will take effect only in 2009, not 2006 when the
12 percent VAT rate will have been implemented.

229

14.ID.; ID.; ID.; TAXES ON INTERCORPORATE DIVIDENDS ARE FINAL BUT THE INPUT VALUEADDED TAX IS GENERALLY CREDITABLE. [T]axes on intercorporate dividends are final, but the
input VAT is generally creditable. Under a final withholding tax system, the amount of income tax that is
withheld by a withholding agent is constituted as a full and final payment of the income tax due from the
payee on said income. The liability for the tax primarily rests upon the payor as a withholding agent.
Under a creditable withholding tax system, taxes withheld on certain payments are meant to approximate
the tax that is due of the payee on said payments. The liability for the tax rests upon the payee who is
mandated by law to still file a tax return, report the tax base, and pay the difference between the tax
withheld and the tax due.
15.ID.; ID.; ID.; INPUT VALUE-ADDED TAX CREDITS ARE DIFFERENT FROM TAX CREDITS ON
DIVIDENDS RECEIVED BY NONRESIDENT FOREIGN CORPORATIONS. From this observation
alone, it can already be seen that not only are dividends alien to the tax base upon which the VAT is
imposed, but their respective methods of withholding are totally different. VAT-registered persons may not
always be nonresident foreign corporations that declare and pay dividends, while intercorporate dividends
are certainly not goods or properties for sale, barter, exchange, lease or importation. Certainly, input VAT
credits are different from tax credits on dividends received by nonresident foreign corporations.
16.ID.; ID.; ID.; ITEMIZED DEDUCTIONS FROM GROSS INCOME PARTAKE OF THE NATURE OF A
TAX EXEMPTION. [I]temized deductions from gross income partake of the nature of a tax exemption.
Interest which is among such deductions refers to the amount paid by a debtor to a creditor for the
use or forbearance of money. It is an expense item that is paid or incurred within a given taxable year on
indebtedness in connection with a taxpayer's trade, business or exercise of profession. In order to reduce
revenue losses, Congress enacted RA 8424 which reduces the amount of interest expense deductible by
a taxpayer from gross income, equal to the applicable percentage of interest income subject to final tax.
To assert that reducing the allowable deduction in interest expense is a matter that is legally related to the
proposed VAT amendments is too far-fetched. Interest expenses are not allowed as credits against output
VAT. Neither are VAT-registered persons always liable for interest.
17.ID.; ID.; THE BICAMERAL CONFERENCE COMMITTEE HAD THE OPTION OF RETAINING OR
MODIFYING THE NO PASS-ON PROVISIONS AND DETERMINING THEIR EXTENT OR OF DELETING
THEM ALTOGETHER. No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed
its authority when it deleted the no pass-on provisions found in the congressional bills. Its authority to
make amendments not only implies the power to make insertions, but also deletions, in order to resolve
conflicting provisions. The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum
products subject to excise tax (and the raw materials used in the manufacture of such products), the
sellers of petroleum products, and the generation companies. The analogous provision in Senate Bill (SB)
No. 1950 dealt with electricity, businesses other than generation companies, and services of franchise
grantees of electric utilities. In contrast, there was a marked absence of the no pass-on provision in HB
3555. Faced with such variances, the BCC had the option of retaining or modifying the no pass-on
provisions and determining their extent, or of deleting them altogether. In opting for deletion to resolve the
variances, it was merely acting within its discretion. No grave abuse may be imputed to the BCC.
18.ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED TAX (VAT); THERE IS NO HARD AND
FAST RULE THAT 100 PERCENT OF THE INPUT TAXES WILL ALWAYS BE ALLOWED AS A TAX
CREDIT. Indeed, the tax credit method under our VAT system is not only practical, but also principally
used in almost all taxing jurisdictions. This does not mean, however, that in the eyes of Congress through
the BCC, our country can neither deviate from this method nor modify its application to suit our fiscal
requirements. The VAT is usually collected through the tax credit method (and in the past, even through
the cost deduction method or a mixture of these two methods), but there is no hard and fast rule that 100
percent of the input taxes will always be allowed as a tax credit.

230

19.ID.; REPUBLIC ACT NO. 9337; SINCE THE UNUTILIZED INPUT VALUE-ADDED TAX CAN BE
CARRIED TO SUCCEEDING QUARTERS. Since the unutilized input VAT can be carried over to
succeeding quarters, there is no undue deprivation of property. Alternatively, it can be passed on to the
consumers; there is no law prohibiting that. Merely speculative and unproven, therefore, is the contention
that the law is arbitrary and oppressive. Laws that impose taxes are necessarily burdensome,
compulsory, and involuntary. The deferred input tax account which accumulates the unutilized input
VAT remains an asset in the accounting records of a business. It is not at all confiscated by the
government. By deleting Section 112 (B) of the Tax Code,Congress no longer made available tax credit
certificates for such asset account until retirement from or cessation of business, or changes in or
cessation of VAT-registered status. This is a matter of policy, not legality. The Court cannot step beyond
the confines of its constitutional power, if there is absolutely no clear showing of grave abuse of discretion
in the enactment of the law.
20.ID.; ID.; THERE IS NO VESTED RIGHT IN A DEFERRED INPUT TAX ACCOUNT. That the
unutilized input VAT would be rendered useless is merely speculative. Although it is recorded as a
deferred asset in the books of a company, it remains to be a mere privilege. It may be written off or
expensed outright; it may also be denied as a tax credit. There is no vested right in a deferred input tax
account; it is a mere statutory privilege. The State may modify or withdraw such privilege, which is merely
an asset granted by operation of law. Moreover, there is no vested right in generally accepted accounting
principles. These refer to accounting concepts, measurement techniques, and standards of presentation
in a company's financial statements, and are not rooted in laws of nature, as are the laws of physical
science, for these are merely developed and continually modified by local and international regulatory
accounting bodies. To state otherwise and recognize such asset account as a vested right is to limit the
taxing power of the State. Unlimited, plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
21.ID.; ID.; THERE IS NO VIOLATION OF THE EQUAL PROTECTION CLAUSE SINCE THE LAW
APPLIES EQUALLY TO ALL BUSINESSES. That the unutilized input VAT would also have an unequal
effect on businesses some with low, others with high, input-output ratio is not a legal ground for
invalidating the law. Profit margins are a variable of sound business judgment, not of legal doctrine. The
law applies equally to all businesses; it is up to each of them to determine the best formula for selling their
goods or services in the face of stiffer competition. There is, thus, no violation of the equal protection
clause. If the implementation of the 70 percent cap would cause an ad infinitum deferment of input taxes
or an unequal effect upon different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law not an unwarranted and outright
declaration of unconstitutionality.
22.ID.; INCOME TAX; ADDITIONAL IMPOSITION AND ASSUMPTION ARE WITHIN THE POWER OF
CONGRESS TO MAKE. The matter of business establishments shouldering 30 percent of output tax
and remitting the amount, as computed, to the government is in effect imposing a tax that is equivalent to
a maximum of 3 percent of gross sales or revenues. This imposition is arguably another tax on gross
not net income and thus a deviation from the concept of VAT as a tax on consumption; it also assumes
that sales or revenues are on cash basis or, if on credit, given credit terms shorter than a quarter of a
year. However, such additional imposition and assumption are also arguably within the power of Congress
to make. The State may in fact choose to impose an additional 3 percent tax on gross income, in lieu of
the 70 percent cap, and thus subject the income of businesses to two types of taxes one on gross, the
other on net. These impositions may constitute double taxation, which is not constitutionally proscribed.
23.ID.; REPUBLIC ACT NO. 9337; REDUCTION OF TAX CREDITS IS A QUESTION OF ECONOMIC
POLICY, NOT OF LEGAL PERLUSTRATION. RA 9337 was enacted precisely to achieve the objective
of raising revenues to defray the necessary expenses of government. The means that this law employs

231

are reasonably related to the accomplishment of such objective, and not unduly oppressive. The
reduction of tax credits is a question of economic policy, not of legal perlustration. Its determination is
vested in Congress, not in this Court. Since the purpose of the law is to raise revenues, it cannot be
denied that the means employed is reasonably related to the achievement of that purpose. Moreover, the
proper congressional procedure for its enactment was followed; neither public notice nor public hearings
were denied.
24.ID.; ID.; PRIVATE ENTERPRISES ARE NOT DISCOURAGED. [P]rivate enterprises are not
discouraged. Tax burdens are never delightful, but with the imposition of the 70 percent cap, there will be
an assurance of a steady cash flow to the government, which can be translated to the production of
improved goods, rendition of better services, and construction of better facilities for the people, including
all private enterprises. Perhaps, Congress deems it best to make our economy depend more on
businesses that are easier to monitor, so there will be a more efficient collection of taxes. Whatever is
expected of the outcome of the law, or its wisdom, should be the sole responsibility of the representatives
chosen by the electorate.
25.ID.; ID.; ID.; THE PROFIT MARGIN RATES OF VARIOUS INDUSTRIES GENERALLY DO NOT
CHANGE. The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along with the
level of competition, the quality of goods and services offered, and the cost of their production. And there
will inevitably be a conscious desire on the part of those who engage in business and those who consume
their output to adapt or adjust accordingly to any congressional modification of the VAT system.
26.ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED TAX; THE VAT SYSTEM CAN
ALWAYS BE MODIFIED TO SUIT MODERN FISCAL DEMANDS. In addition, it is contended that the
VAT should be proportional in nature. I submit that this proportionality pertains to the rate imposable, not
the credit allowable. Private enterprises are subjected to a proportional VAT rate, but VAT credits need not
be. The VAT is, after all, a human concept that is neither immutable nor invariable. In fact, it has changed
after it was adopted as a system of indirect taxation by other countries. Again unlike the laws of physical
science, the VAT system can always be modified to suit modern fiscal demands. The State, through the
Legislative Department, may even choose to do away with it and revert to our previous system of turnover
taxes, sales taxes and compensating taxes, in which credits may be disallowed altogether.
27.ID.; REPUBLIC ACT NO. 9337; NO-AMENDMENT RULE WAS NOT VIOLATED SINCE THERE WAS
NO NEW PROVISION INSERTED IN THE APPROVED BILL. The no-amendment rule in the
Constitution was not violated by the BCC, because no completely new provision was inserted in the
approved bill. The amendments may be unpopular or even work hardship upon everyone (this writer
included). If so, the remedy cannot be prescribed by this Court, but by Congress.
28.POLITICAL LAW; SEPARATION OF POWERS; THE COURT IS DEFERENTIAL TO THE ACTIONS
TAKEN BY THE OTHER BRANCHES OF GOVERNMENT. "[T]he Court as a rule is deferential to
the actions taken by the other branches of government that have primary responsibility for the economic
development of our country." Thus, in upholding the Philippine ratification of the treaty establishing the
World Trade Organization (WTO), Taada v. Angara held that "this Court never forgets that the Senate,
whose act is under review, is one of two sovereign houses of Congress and is thus entitled to great
respect in its actions. It is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumption, this Court will resolve every doubt in its favor." As pointed out
in Cawaling Jr. v. Comelec, the grounds for nullity of the law "must be beyond reasonable doubt, for to
doubt is to sustain." Indeed, "there must be clear and unequivocal showing that what the Constitutions
prohibits, the statute permits."

232

CHICO-NAZARIO, J., concurring opinion:

1.POLITICAL LAW; LEGISLATIVE DEPARTMENT; ENROLLED BILL DOCTRINE; EXPLAINED. Under
the said doctrine, the enrolled bill, as signed by the Speaker of the House of Representatives and the
Senate President, and certified by the Secretaries of both Houses of Congress, shall be conclusive proof
of its due enactment.
2.ID.; JUDICIAL DEPARTMENT; IT IS MORE PRUDENT FOR THE SUPREME COURT TO REMAIN
CONSERVATIVE AND TO CONTINUE ITS ADHERENCE TO THE ENROLLED BILL DOCTRINE. I
believe that it is more prudent for this Court to remain conservative and to continue its adherence to the
enrolled bill doctrine, for to abandon the said doctrine would be to open a Pandora's Box, giving rise to a
situation more fraught with evil and mischief. Statutes enacted by Congress may not attain finality or
conclusiveness unless declared so by this Court. This would undermine the authority of our statutes
because despite having been signed and certified by the designated officers of Congress, their validity
would still be in doubt and their implementation would be greatly hampered by allegations of irregularities
in their passage by the Legislature. Such an uncertainty in the statutes would indubitably result in
confusion and disorder. In all probability, it is the contemplation of such a scenario that led an American
Judge to proclaim, thus . . . Better, far better, that a provision should occasionally find its way into the
statute through mistake, or even fraud, than, that every Act, state and national, should at any and all times
be liable to put in issue and impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land would lead to mischiefs absolutely
intolerable. . . .
3.ID.; SEPARATION OF POWERS; SUPREME COURT MUST ATTRIBUTE GOOD FAITH AND ACCORD
UTMOST RESPECT TO THE ACTS OF A CO-EQUAL BRANCH OF GOVERNMENT. [T]his Court
must attribute good faith and accord utmost respect to the acts of a co-equal branch of government. While
it is true that its jurisdiction has been expanded by the Constitution, the exercise thereof should not violate
the basic principle of separation of powers. The expanded jurisdiction does not contemplate judicial
supremacy over the other branches of government. Thus, in resolving the procedural issues raised by the
petitioners, this Court should limit itself to a determination of compliance with, or conversely, the violation
of a specified procedure in the Constitution for the passage of laws by Congress, and not of a mere
internal rule of proceedings of its Houses.
4.ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE COMMITTEE; CREATION THEREOF
IS AUTHORIZED BY THE RULES OF BOTH HOUSES OF CONGRESS. It bears emphasis that most
of the irregularities in the enactment of Rep. Act No. 9337 concern the amendments introduced by the
Bicameral Conference Committee. The Constitution is silent on such a committee, it neither prescribes
the creation thereof nor does it prohibit it. The creation of the Bicameral Conference Committee is
authorized by the Rules of both Houses of Congress. That the Rules of both Houses of Congress provide
for the creation of a Bicameral Conference Committee is within the prerogative of each House under the
Constitution to determine its own rules of proceedings.
5.ID.; ID.; ID.; A CREATION OF NECESSITY AND PRACTICALITY CONSIDERING THAT OUR
CONGRESS IS COMPOSED OF TWO HOUSES. The Bicameral Conference Committee is a creation
of necessity and practicality considering that our Congress is composed of two Houses, and it is highly
improbable that their respective bills on the same subject matter shall always be in accord and consistent
with each other. Instead of all their members, only the appointed representatives of both Houses shall
meet to reconcile or settle the differences in their bills. The resulting bill from their meetings, embodied in
the Bicameral Conference Report, shall be subject to approval and ratification by both Houses, voting
separately.

233

6.ID.; ID.; ID.; BOTH HOUSES HAD THE POWER TO AMEND THEIR RESPECTIVE RULES TO
CLARIFY OR LIMIT EVEN FURTHER THE SCOPE OF THE AUTHORITY WHICH THEY GRANTED
THERETO. It does perplex me that members of both Houses would again ask the Court to define and
limit the powers of the Bicameral Conference Committee when such committee is of their own creation. In
a number of cases, this Court already made a determination of the extent of the powers of the Bicameral
Conference Committee after taking into account the existing Rules of both Houses of Congress. In gist,
the power of the Bicameral Conference Committee to reconcile or settle the differences in the two
Houses' respective bills is not limited to the conflicting provisions of the bills; but may include matters not
found in the original bills but germane to the purpose thereof. If both Houses viewed the pronouncement
made by this Court in such cases as extreme or beyond what they intended, they had the power to
amend their respective Rules to clarify or limit even further the scope of the authority which they grant to
the Bicameral Conference Committee. Petitioners' grievance that, unfortunately, they cannot bring about
such an amendment of the Rules on the Bicameral Conference Committee because they are members of
the minority, deserves scant consideration. That the majority of the members of both Houses refuses to
amend the Rules on the Bicameral Conference Committee is an indication that it is still satisfied therewith.
At any rate, this is how democracy works the will of the majority shall be controlling.
7.ID.; ID.; ID.; ID.; IF WE HAVE ONE CODE FOR ALL OUR NATIONAL INTERNAL REVENUE TAXES,
THEN THERE IS NO REASON WHY WE CANNOT HAVE A SINGLE STATUTE AMENDING
PROVISIONS THERETO. Although House Bills No. 3555 and 3705 were limited to the amendments of
the provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much
wider scope and included amendments of other provisions of the said Code, such as those on income,
percentage, and excise taxes. It should be borne in mind that the very purpose of these three Bills and,
subsequently, of Rep. Act No. 9337, was to raise additional revenues for the government to address the
dire economic situation of the country. The National Internal Revenue Code of 1997, as its title suggests,
is the single Code that governs all our national internal revenue taxes. While it does cover different taxes,
all of them are imposed and collected by the national government to raise revenues. If we have one Code
for all our national internal revenue taxes, then there is no reason why we cannot have a single statute
amending provisions thereof even if they involve different taxes under separate titles. I hereby submit that
the amendments introduced by the Bicameral Conference Committee to non-VAT provisions of
the National Internal Revenue Code of 1997 are not unconstitutional for they are germane to the purpose
of House Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise national revenues.
8.TAXATION; NATIONAL INTERNAL REVENUE CODE OF 1997; VALUE-ADDED TAX (VAT); INPUT
VAT NOT A PROPERTY TO WHICH THE TAXPAYER HAS VESTED RIGHTS. I adhere to the view
that the input VAT is not a property to which the taxpayer has vested rights. Input VAT consists of the VAT
a VAT-registered person had paid on his purchases or importation of goods, properties, and services from
a VAT-registered supplier; more simply, it is VAT paid. It is not, as averred by petitioner petroleum dealers,
a property that the taxpayer acquired for valuable consideration. A VAT-registered person incurs input VAT
because he complied with the National Internal Revenue Code of 1997, which imposed the VAT and
made the payment thereof mandatory; and not because he paid for it or purchased it for a price.
9.ID.; ID.; ID.; VAT-REGISTERED PERSON IS ALLOWED TO CREDIT HIS INPUT VAT AGAINST HIS
OUTPUT VAT. Generally, when one pays taxes to the government, he cannot expect any direct and
concrete benefit to himself for such payment. The benefit of payment of taxes shall redound to the society
as a whole. However, by virtue of Section 110 (A) of the National Internal Revenue Code of 1997, prior to
its amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject to certain substantiation
requirements, to credit his input VAT against his output VAT. . . . The crediting of the input VAT against the
output VAT is a statutory privilege, granted by Section 110 of the National Internal Revenue Code of 1997.
It gives the VAT-registered person the opportunity to recover the input VAT he had paid, so that, in effect,
the input VAT does not constitute an additional cost for him. While it is true that input VAT credits are

234

reported as assets in a VAT-registered person's financial statements and books of account, this
accounting treatment is still based on the statutory provision recognizing the input VAT as a credit.
Without Section 110 of the National Internal Revenue Code of 1997, then the accounting treatment of any
input VAT will also change and may no longer be booked outright as an asset. Since the privilege of an
input VAT credit is granted by law, then an amendment of such law may limit the exercise of or may totally
withdraw the privilege.
10.ID.; ID.; ID.; OUTPUT VAT; ELUCIDATED. Output VAT is the VAT imposed by the VAT-registered
person on his own sales of goods, properties, and services or the VAT he passes on to his buyers. Hence,
the VAT-registered person selling the goods, properties, and services does not pay for the output VAT;
said output VAT is paid for by his consumers and he only collects and remits the same to the government.
11.ID.; REPUBLIC ACT NO. 9337; IMPOSITION OF THE 70% CAP ON INPUT VAT CREDITS, IS A
LEGITIMATE EXERCISE BY CONGRESS OF ITS LAW-MAKING POWER. The amendment of
Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No. 9337, which imposed the
70% cap on input VAT credits, is a legitimate exercise by Congress of its law-making power. To say that
Congress may not trifle with Section 110 of the National Internal Revenue Code of 1997 would be to
violate a basic precept of constitutional law that no law is irrepealable. There can be no vested right to
the continued existence of a statute, which precludes its change or repeal. It bears to emphasize
that Rep. Act No. 9337 does not totally remove the privilege of crediting the input VAT against the output
VAT. It merely limits the amount of input VAT one may credit against his output VAT per quarter to an
amount equivalent to 70% of the output VAT. What is more, any input VAT in excess of the 70% cap may
be carried-over to the next quarter. It is certainly a departure from the VAT crediting system under Section
110 of the National Internal Revenue Code of 1997, but it is an innovation that Congress may very well
introduce, because VAT will continue to evolve from its pioneering original structure. Dynamically, it will
be subjected to reforms that will make it conform to many factors, among which are: the changing
requirements of government revenue; the social, economic and political vicissitudes of the times; and the
conflicting interests in our society. In the course of its evolution, it will be injected with some oddities and
inevitably transformed into a structure which its revisionists believe will be an improvement overtime.
12.ID.; ID.; PETROLEUM DEALER'S RIGHT TO THE INPUT VAT CREDIT IS NOT VESTED.
[A]ssuming for the sake of argument, that the input VAT credit is indeed a property, the petroleum dealers'
right thereto has not vested. A right is deemed vested and subject to constitutional protection when
". . . [T]he right to enjoyment, present or prospective, has become the property of some particular person
or persons as a present interest. The right must be absolute, complete, and unconditional, independent of
a contingency, and a mere expectancy of future benefit, or a contingent interest in property founded on
anticipated continuance of existing laws, does not constitute a vested right. So, inchoate rights which
have not been acted on are not vested." . . . It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers' input VAT credits were inexistent they were unrecognized and disallowed by law.
The petroleum dealers had no such property called input VAT credits. It is only rational, therefore, that
they cannot acquire vested rights to the use of such input VAT credits when they were never entitled to
such credits in the first place, at least, not until Rep. Act No. 9337. My view, at this point, when Rep. Act
No. 9337 has not yet even been implemented, is that petroleum dealers' right to use their input VAT as
credit against their output VAT unlimitedly has not vested, being a mere expectancy of a future benefit and
being contingent on the continuance of Section 110 of the National Internal Revenue Code of 1997, prior
to its amendment by Rep. Act No. 9337.
13.ID.; ID.; ALLOWS THE TAXPAYER TO CARRY-OVER TO THE SUCCEEDING QUARTERS ANY
EXCESS INPUT VAT. Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the
taxpayer to carry-over to the succeeding quarters any excess input VAT. The petroleum dealers presented
a situation wherein their input VAT would always exceed 70% of their output VAT, and thus, their excess

235

input VAT will be perennially carried-over and would remain unutilized. Even though they consistently
questioned the 70% cap on their input VAT credits, the petroleum dealers failed to establish what is the
average ratio of their input VAT vis- -vis their output VAT per quarter. Without such fact, I consider their
objection to the 70% cap arbitrary because there is no basis therefor.
14.ID.; ID.; 70% CAP ON INPUT VAT CREDITS WAS NOT IMPOSED BY CONGRESS ARBITRARILY.
I find that the 70% cap on input VAT credits was not imposed by Congress arbitrarily. Members of the
Bicameral Conference Committee settled on the said percentage so as to ensure that the government
can collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal
footing with a VAT-exempt taxpayer under Section 109 (V) of the National Internal Revenue Code,as
amended by Rep. Act No. 9337. The latter taxpayer is exempt from VAT on the basis that his sale or lease
of goods or properties or services do not exceed P1,500,000; instead, he is subject to pay a three percent
(3%) tax on his gross receipts in lieu of the VAT. If a taxpayer with presumably a smaller business is
required to pay three percent (3%) gross receipts tax, a type of tax which does not even allow for any
crediting, a VAT-taxpayer with a bigger business should be obligated, likewise, to pay a minimum of 30%
output VAT (which should be equivalent to 3% of the gross selling price per good or property or service
sold). The cap assures the government a collection of at least 30% output VAT, contributing to an
improved cash flow for the government. Attention is further called to the fact that the output VAT is the
VAT imposed on the sales by a VAT-taxpayer; it is paid by the purchasers of the goods, properties, and
services, and merely collected through the VAT-registered seller. The latter, therefore, serves as a
collecting agent for the government. The VAT-registered seller is merely being required to remit to the
government a minimum of 30% of his output VAT collection.
15.ID.; ID.; COURT'S DISCRETION CANNOT SUBSTITUTE THAT OF THE CONGRESS. [W]e cannot
substitute our discretion for Congress, and even though there are provisions in Rep. Act No. 9337 which
we may believe as unwise or iniquitous, but not unconstitutional, we cannot strike them off by invoking our
power of judicial review. In such a situation, the recourse of the people is not judicial, but rather political. If
they severely doubt the wisdom of the present Congress for passing a statute such as Rep. Act No. 9337,
then they have the power to hold the members of said Congress accountable by using their voting power
in the next elections.
DAVIDE, JR., C.J. separate, concurring and dissenting opinion:
1.POLITICAL LAW; LEGISLATIVE DEPARTMENT; IT WAS BEYOND THE AMBIT OF THE AUTHORITY
OF THE SENATE TO PROPOSE AMENDMENTS TO REVENUE BILLS NOT COVERED BY THE
HOUSE BILLS. It must be noted that the House Bill initiated amendments to provisions pertaining to
VAT only. Doubtless, the Senate has the constitutional power to concur with the amendments to the VAT
provisions introduced in the House Bills or even to propose its own version of VAT measure. But that
power does not extend to initiation of other tax measures, such as introducing amendments to provisions
on corporate income taxes, percentage taxes, franchise taxes, and excise taxes like what the Senate did
in these cases. It was beyond the ambit of the authority of the Senate to propose amendments to
provisions not covered by the House Bills or not related to the subject matter of the House Bills, which is
VAT. To allow the Senate to do so would be tantamount to vesting in it the power to initiate revenue bills
a power that exclusively pertains to the House of Representatives under Section 24, Article VI of the
Constitution [.]
2.ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; LEGISLATIVE CUSTOM SEVERELY LIMITS THE
FREEDOM WITH WHICH NEW SUBJECT MATTER CAN BE INSERTED INTO THE CONFERENCE
BILL. In Philippine Judges Association v. Prado, the Court described the function of conference
committee in this wise: "A conference committee may deal generally with the subject matter or it may be
limited to resolving the precise differences between the two houses. Even where the conference

236

committee is not by rule limited in its jurisdiction, legislative custom severely limits the freedom with which
new subject matter can be inserted into the conference bill." The limitation on the power of a conference
committee to insert new provisions was laid down in Tolentino v. Secretary of Finance. There, the Court,
while recognizing the power of a conference committee to include in its report an entirely new provision
that is not found either in the House bill or in the Senate bill, held that the exercise of that power is subject
to the condition that the said provision is "germane to the subject of the House and Senate bills."
3.ID.; ID.; ID.; NEW PROVISIONS ON PERCENTAGE AND EXCISE TAXES INSERTED IN THE
AMENDMENTS FOR THE VALUE-ADDED TAX HAS NO LEG TO STAND ON. In the present cases,
the provisions inserted by the BCC, namely, Sections 121 (Percentage Tax on Banks and Non-Bank
Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC,as amended, are
undoubtedly germane to SB No. 1950, which introduced amendments to the provisions on percentage
and excise taxes but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since the proposed
amendments in the Senate bill relating to percentage and excise taxes cannot themselves be sustained
because they did not take their root from, or are not related to the subject of, HB Nos. 3705 and 3555, in
violation of Section 24, Article VI of the Constitution, the new provisions inserted by the BCC on
percentage and excise taxes would have no leg to stand on. I understand very well that the amendments
of the Senate and the BCC relating to corporate income, percentage, franchise, and excise taxes were
designed to "soften the impact of VAT measure on the consumer, i.e., by distributing the burden across all
sectors instead of putting it entirely on the shoulders of the consumers" and to alleviate the country's
financial problems by bringing more revenues for the government. However, these commendable
intentions do not justify a deviation from the Constitution, which mandates that the initiative for filing
revenue bills should come from the House of Representatives, not from the Senate. After all, these aims
may still be realized by means of another bill that may later be initiated by the House of Representatives.
PUNO, J., concurring and dissenting opinion:
1.POLITICAL LAW; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; LIMITED TO THE
REVIEW OF "ACTUAL CASES AND CONTROVERSIES." The power of judicial review under Article
VIII, Section 5 (2) of the 1987 Constitution is limited to the review of "actual cases and controversies." As
rightly stressed by retired Justice Vicente V. Mendoza, this requirement gives the judiciary "the
opportunity, denied to the legislature, of seeing the actual operation of the statute as it is applied to actual
facts and thus enables it to reach sounder judgment" and "enhances public acceptance of its role in our
system of government." It also assures that the judiciary does not intrude on areas committed to the other
branches of government and is confined to its role as defined by the Constitution. Apposite thereto is the
doctrine of ripeness whose basic rationale is "to prevent the courts, through premature adjudication, from
entangling themselves in abstract disagreements." Central to the doctrine is the determination of "whether
the case involves uncertain or contingent future events that may not occur as anticipated, or indeed may
not occur at all." The ripeness requirement must be satisfied for each challenged legal provision and parts
of a statute so that those which are "not immediately involved are not thereby thrown open for a judicial
determination of constitutionality."
2.ID.; ID.; ID.; THE COURT WILL NOT RENDER A CONJECTURAL JUDGMENT BASED ON
HYPOTHETICAL FACTS. It is manifest that the constitutional challenge to Sections 4 to 6 of R.A. No.
9337 cannot hurdle the requirement of ripeness. These sections give the President the power to raise the
VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based conditions. We are not
endowed with the infallible gift of prophesy to know whether these conditions are certain to happen. The
power to adjust the tax rate given to the President is futuristic and may or may not be exercised. The
Court is therefore beseeched to render a conjectural judgment based on hypothetical facts. Such a
supplication has to be rejected.

237

3.ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE COMMITTEE; HAS LIMITED

POWERS AND CANNOT BE ALLOWED TO ACT AS IF IT WERE A "THIRD HOUSE" OF CONGRESS.
In Tolentino v. Secretary of Finance, I ventured the view that a Bicameral Conference Committee has
limited powers and cannot be allowed to act as if it were a "third house" of Congress. I further warned that
unless its roving powers are reigned in, a Bicameral Conference Committee can wreck the lawmaking
process which is a cornerstone of the democratic, republican regime established in our Constitution. The
passage of time fortifies my faith that there ought to be no legal u-turn on this preeminent principle.
4.ID.; ID.; ID.; ITS ONLY POWER CAN GO NO FURTHER THAN SETTLING DIFFERENCES IN THEIR
BILLS OR JOINT RESOLUTIONS. I respectfully submit that it is only by strictly following the contours
of powers of a Bicameral Conference Committee, as delineated by the rules of the House and the Senate,
that we can prevent said Committee from acting as a "third" chamber of Congress. Under the clear rules
of both the Senate and House, its power can go no further than settling differences in their bills or joint
resolutions. . . . Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of
the House or the Senate with limited powers. The House contingent in the Committee cannot, on its own,
settle differences which are substantial in character. If it is confronted with substantial differences, it has to
go back to the chamber that created it "for the latter's appropriate action." In other words, it must take the
proper instructions from the chambers that created it. It cannot exercise its unbridled discretion. Where
there is no difference between the bills, it cannot make any change. Where the difference is substantial, it
has to return to the chamber of its origin and ask for appropriate instructions. It ought to be indubitable
that it cannot create a new law, i.e., that which has never been discussed in either chamber of Congress.
Its parameters of power are not porous, for they are hedged by the clear limitation that its only power is to
settle differences in bills and joint resolutions of the two chambers of Congress.
5.TAXATION; REPUBLIC ACT NO. 9337'S DELETION OF THE "NO PASS ON PROVISION" ON BOTH
THE SALES OF ELECTRICITY AND PETROLEUM PRODUCTS BY THE BICAMERAL CONFERENCE
COMMITTEE IS NOT WARRANTED BY THE RULES OF EITHER THE SENATE OR THE HOUSE. In
the guise of reconciling disagreeing provisions of the House and the Senate bills on the matter, the
Bicameral Conference Committee deleted the "no pass on provision" on both the sales of electricity and
petroleum products. This action by the Committee is not warranted by the rules of either the Senate or the
House. As aforediscussed, the only power of a Bicameral Conference Committee is to reconcile
disagreeing provisions in the bills or joint resolutions of the two houses of Congress. The House and the
Senate bills both prohibited the passing on to consumers of the VAT on sales of electricity. The Bicameral
Conference Committee cannot override this unequivocal decision of the Senate and the House. Nor is it
clear that there is a conflict between the House and Senate versions on the "no pass on provisions" of the
VAT on sales of petroleum products. The House version contained a "no pass on provision" but the
Senate had none. Elementary logic will tell us that while there may be a difference in the two versions, it
does not necessarily mean that there is a disagreement or conflict between the Senate and the House.
The silence of the Senate on the issue cannot be interpreted as an outright opposition to the House
decision prohibiting the passing on of the VAT to the consumers on sales of petroleum products. Silence
can even be conformity, albeit implicit in nature. But granting for the nonce that there is conflict between
the two versions, the conflict cannot escape the characterization as a substantial difference. The seismic
consequence of the deletion of the "no pass on provision" of the VAT on sales of petroleum products on
the ability of our consumers, especially on the roofless and the shirtless of our society, to survive the
onslaught of spiraling prices ought to be beyond quibble. The rules require that the Bicameral Conference
Committee should not, on its own, act on this substantial conflict. It has to seek guidance from the
chamber that created it. It must receive proper instructions from its principal, for it is the law of nature that
no spring can rise higher than its source. The records of both the Senate and the House do not reveal
that this step was taken by the members of the Bicameral Conference Committee. They bypassed their
principal and ran riot with the exercise of powers that the rules never bestowed on them.

238

6.ID.; ID.; CONSTITUTIONALLY OBNOXIOUS ARE THE ADDED RESTRICTIONS ON LOCAL

GOVERNMENT'S USE OF INCREMENTAL REVENUE FROM THE VALUE-ADDED TAX. Even more
constitutionally obnoxious are the added restrictions on local government's use of incremental revenue
from the VAT in Section 21 of R.A. No. 9337 which were not present in the Senate or House Bills. . . .
These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No.
9337 but are entirely new and extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee's authority and must be struck down. I
cannot therefore subscribe to the thesis of the majority that "the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced
by the original provisions."
7.POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE COMMITTEE; TEST OF
GERMANENESS IS OVERLY BROAD AND IS THE FOUNTAINHEAD OF MISCHIEF. The test of
germaneness is overly broad and is the fountainhead of mischief for it allows the Bicameral Conference
Committee to change provisions in the bills of the House and the Senate when they are not even in
disagreement. Worse still, it enables the Committee to introduce amendments which are entirely new and
have not previously passed through the coils of scrutiny of the members of both houses. The
Constitution did not establish a Bicameral Conference Committee that can act as a "third house" of
Congress with super veto power over bills passed by the Senate and the House. We cannot concede that
super veto power without wrecking the delicate architecture of legislative power so carefully laid down in
our Constitution.
8.ID.; ID.; CLEAR INTENT OF OUR FUNDAMENTAL LAW IS TO INSTALL A LAW-MAKING
STRUCTURE COMPOSED ONLY OF TWO HOUSES. The clear intent of our fundamental law is to
install a lawmaking structure composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective constituents. The institution of this
lawmaking structure is unmistakable from the following provisions: (1) requiring that legislative power
shall be vested in a bicameral legislature; (2) providing for quorum requirements; (3) requiring that
appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application, and
private bills originate exclusively in the House of Representatives; (4) requiring that bills embrace one
subject expressed in the title thereof; and (5) mandating that bills undergo three readings on separate
days in each House prior to passage into law and prohibiting amendments on the last reading thereof. A
Bicameral Conference Committee with untrammeled powers will destroy this lawmaking structure. At the
very least, it will diminish the free and open debate of proposed legislations and facilitate the smuggling of
what purports to be laws.
9.ID.; ID.; IN A REPUBLICAN FORM OF GOVERNMENT, LAWS CAN ONLY BE ENACTED BY ALL THE
DULY ELECTED REPRESENTATIVES OF THE PEOPLE. It cannot be overemphasized that in a
republican form of government, laws can only be enacted by all the duly elected representatives of the
people. It cuts against conventional wisdom in democracy to lodge this power in the hands of a few or in
the claws of a committee. It is for these reasons that the argument that we should overlook the excesses
of the Bicameral Conference Committee because its report is anyway approved by both houses is a futile
attempt to square the circle for an unconstitutional act is void and cannot be redeemed by any
subsequent ratification.
10.ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; WHEN THE VIOLATIONS AFFECT
PRIVATE RIGHTS OR IMPAIR THE CONSTITUTION, THE COURT HAS ALL THE POWER TO STRIKE
THEM DOWN. Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference
Committee by holding that the Court cannot interpose its checking powers over mere violations of the

239

internal rules of Congress. In Arroyo, et al. v. de Venecia, et al., we ruled that when the violations affect
private rights or impair the Constitution, the Court has all the power, nay, the duty to strike them down.
YNARES-SANTIAGO, J., concurring and dissenting opinion:
1.POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE RULE-MAKING POWER OF CONGRESS
SHOULD TAKE ITS BEARINGS FROM THE CONSTITUTION. Indeed, Section 16 (3), Article VI of
the 1987 Constitution explicitly allows each House to determine the rules of its proceedings. However, the
rules must not contravene constitutional provisions. The rule-making power of Congress should take its
bearings from the Constitution. If in the exercise of this rule-making power, Congress failed to set
parameters in the functions of the committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without undergoing the requisite threereading and the so-called no-amendment rule, then the same amount to grave abuse of discretion which
this Court is empowered to correct under its expanded certiorari jurisdiction. Notwithstanding the doctrine
of separation of powers, therefore, it is the duty of the Court to declare as void a legislative enactment,
either from want of constitutional power to enact or because the constitutional forms or conditions have
not been observed. When the Court declares as unconstitutional a law or a specific provision thereof
because procedural requirements for its passage were not complied, the Court is by no means asserting
its ascendancy over the Legislature, but simply affirming the supremacy of the Constitution as repository
of the sovereign will. The judicial branch must ensure that constitutional norms for the exercise of powers
vested upon the two other branches are properly observed. This is the very essence of judicial authority
conferred upon the Court under Section 1, Article VII of the 1987 Constitution.
2.ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS AUTHORITY WAS LIMITED TO THE
RECONCILIATION OF DISAGREEING PROVISIONS OF THE RESOLUTION OF DIFFERENCES OR
INCONSISTENCIES. I fully subscribe to the theory advanced in the Dissenting Opinion of Chief
Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance that the authority of the bicameral
conference committee was limited to the reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. Thus, it could only either (a) restore, wholly or partly, the specific
provisions of the House bill amended by the Senate bill, (b) sustain, wholly or partly, the Senate's
amendments, or (c) by way of a compromise, to agree that neither provisions in the House bill amended
by the Senate nor the latter's amendments thereto be carried into the final form of the former. Otherwise
stated, the Bicameral Conference Committee is authorized only to adopt either the version of the House
bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed, "try to arrive at a
compromise," such as introducing provisions not included in either the House or Senate bill, as it would
allow a mere ad hoc committee to substitute the will of the entire Congress and without undergoing the
requisite three-reading, which are both constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress defies logic considering that the bills are
passed presumably after study, deliberation and debate in both houses. A lesser body like the Bicameral
Conference Committee should not be allowed to substitute its judgment for that of the entire Congress,
whose will is expressed collectively through the passed bills.
3.ID.; ID.; ID.; THE PROVISIONS OF THE CONSTITUTION SHOULD READ INTO THE RULES AS
IMPOSING LIMITS ON WHAT THE COMMITTEE CAN OR CANNOT DO. When the Bicameral
Conference Committee goes beyond its limited function by substituting its own judgment for that of either
of the two houses, it violates the internal rules of Congress and contravenes material restrictions imposed
by the Constitution, particularly on the passage of law. While concededly, the internal rules of both
Houses do not explicitly limit the Bicameral Conference Committee to a consideration only of conflicting
provisions, it is understood that the provisions of the Constitution should be read into these rules as
imposing limits on what the committee can or cannot do. As such, it cannot perform its delegated function
in violation of the three-reading requirement and the no-amendment rule.

240

4.ID.; ID.; ID.; ID.; "COMPROMISING THE DISAGREEING PROVISIONS" BY SUBSTITUTING IT WITH
ITS OWN VERSION CLEARLY VIOLATE THE THREE-READING REQUIREMENT. Thus, before a bill
becomes a law, it must pass three readings. Hence, the ponencia's submission that despite its limited
authority, the Bicameral Conference Committee could "compromise the disagreeing provisions" by
substituting it with its own version clearly violate the three-reading requirement, as the committee's
version would no longer undergo the same since it would be immediately put into vote by the respective
houses. In effect, it is not a bill that was passed by the entire Congress but by the members of the ad hoc
committee only, which of course is constitutionally infirm.
5.ID.; ID.; ID.; ID.; NO-AMENDMENT RULE SHOULD BE CONSTRUED AS A PROHIBITION FROM
INTRODUCING AMENDMENTS AND MODIFICATIONS TO NON-DISAGREEING PROVISIONS OF THE
HOUSE AND SENATE BILLS. I disagree that the no-amendment rule referred only to "the procedure to
be followed by each house of Congress with regard to bills initiated in each of said respective houses"
because it would relegate the no-amendment rule to a mere rule of procedure. To my mind, the noamendment rule should be construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of the House and Senate bills.
In sum, the committee could only either adopt the version of the House bill or the Senate bill, or adopt
neither. As Justice Reynato S. Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance,
there is absolutely no legal warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on third reading by both Houses
or an ex post veto power.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
1.POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE DELEGATION OF LEGISLATIVE POWER;
POWER OF TAXATION CANNOT BE DELEGATED BY THE CENTRAL LEGISLATIVE BODY TO THE
EXECUTIVE OR JUDICIAL DEPARTMENT OF THE GOVERNMENT. Taxation is an inherent attribute
of sovereignty. It is a power that is purely legislative and which the central legislative body cannot
delegate either to the executive or judicial department of government without infringing upon the theory of
separation of powers. The rationale of this doctrine may be traced from the democratic principle of "no
taxation without representation." The power of taxation being so pervasive, it is in the best interest of the
people that such power be lodged only in the Legislature. Composed of the people's representatives, it is
"closer to the pulse of the people and . . . are therefore in a better position to determine both the extent of
the legal burden the people are capable of bearing and the benefits they need." Also, this set-up provides
security against the abuse of power. As Chief Justice Marshall said: "In imposing a tax, the legislature
acts upon its constituents. The power may be abused; but the interest, wisdom, and justice of the
representative body, and its relations with its constituents, furnish a sufficient security." Consequently,
Section 24, Article VI of our Constitution enshrined the principle of "no taxation without representation" by
providing that "all . . . revenue bills . . . shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments." This provision generally confines the power of taxation
to the Legislature.
2.ID.; ID.; ID.; ID.; EXCEPTIONS. Of course, the rule which forbids the delegation of the power of
taxation is not absolute and inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated
such exceptions, to wit: (1) delegations to local governments (to be exercised by the local legislative
bodies thereof) or political subdivisions; (2) delegations allowed by the Constitution; and (3) delegations
relating merely to administrative implementation that may call for some degree of discretionary powers
under a set of sufficient standards expressed by law.
3.TAXATION; REPUBLIC ACT NO. 9337; THE LEGISLATURE ABDICATED ITS POWER WHEN IT
GRANTED THE PRESIDENT THE STANDBY AUTHORITY TO INCREASE THE VALUE-ADDED TAX

241

FROM 10% TO 12%. R.A. No. 9337, in granting to the President the stand-by authority to increase the
VAT rate from 10% to 12%, the Legislature abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties and responsibilities by
delegating its power to any other body or authority. Any attempt to abdicate the power is unconstitutional
and void, on the principle that potestas delegata non delegare potest. As Judge Cooley enunciated: "One
of the settled maxims in constitutional law is, that the power conferred upon the legislature to make laws
cannot be delegated by that department to any other body or authority. Where the sovereign power of the
state has located the authority, there it must remain; and by the constitutional agency alone the laws must
be made until the Constitution itself is changed. The power to whose judgment, wisdom, and patriotism
this high prerogative has been entrusted cannot relieve itself of the responsibility by choosing other
agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people have seen fit to confide this sovereign
trust."
4.POLITICAL LAW; LEGISLATIVE DEPARTMENT; TAX RATES OR VALUE-ADDED TAX RATES IS NOT
ONE OF THE ENUMERATIONS THAT MAY BE FIXED BY THE PRESIDENT. [I]t is not allowed by the
Constitution. Section 28 (2), Article VI of the Constitution enumerates the charges or duties, the rates of
which may be fixed by the President pursuant to a law passed by Congress[.] . . . Noteworthy is the
absence of tax rates or VAT rates in the enumeration. If the intention of the Framers of the Constitution is
to permit the delegation of the power to fix tax rates or VAT rates to the President, such could have been
easily achieved by the mere inclusion of the term "tax rates" or "VAT rates" in the enumeration. It is a
dictum in statutory construction that what is expressed puts an end to what is implied. Expressium facit
cessare tacitum. This is a derivative of the more familiar maxim express mention is implied exclusion or
expressio unius est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of
"tariff rates, import and export quotas, tonnage and wharfage dues and other duties and imposts," by no
stretch of imagination can this enumeration be extended to include the VAT.
5.ID.; ID.; TEST TO DETERMINE WHETHER A STATUTE CONSTITUTES AN UNDUE DELEGATION OF
LEGISLATIVE POWER OR NOT. In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was complete in all its terms and
provisions when it left the hands of the Legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.
6.TAXATION; REPUBLIC ACT NO. 9337; ALLOWS THE PRESIDENT TO DETERMINE FOR HERSELF
WHETHER THE VALUE-ADDED TAX SHALL BE INCREASED OR NOT AT ALL. The two conditions
set forth by law would have been sufficient had it not been for the fact that the President, being at the
helm of the entire officialdom, has more than enough power of control to bring about the existence of such
conditions. Obviously, R.A. No. 9337 allows the President to determine for herself whether the VAT rate
shall be increased or not at all. The fulfillment of the conditions is entirely placed in her hands. If she
wishes to increase the VAT rate, all she has to do is to strictly enforce the VAT collection so as to exceed
the 2-4/5% ceiling. The same holds true with the national government deficit. She will just limit
government expenses so as not to exceed the 1-1/2% ceiling. On the other hand, if she does not wish to
increase the VAT rate, she may discourage the Secretary of Finance from making the recommendation.
That the President's exercise of an authority is practically within her control is tantamount to giving no
conditions at all. I believe this amounts to a virtual surrender of legislative power to her. It must be
stressed that the validity of a law is not tested by what has been done but by what may be done under its
provisions.
7.POLITICAL LAW; CONSTITUTIONAL LAW; BILL OF RIGHTS; SUBSTANTIVE DUE PROCESS,
ELUCIDATED. Substantive due process requires the intrinsic validity of the law in interfering with the
rights of the person to his property. The inquiry in this regard is not whether or not the law is being

242

enforced in accordance with the prescribed manner but whether or not, to begin with, it is a proper
exercise of legislative power. To be so, the law must have a valid governmental objective, i.e., the interest
of the public as distinguished from those of a particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words, the means employed must be
reasonably related to the accomplishment of the purpose and not unduly oppressive.
8.TAXATION; BASIC PRINCIPLES; FISCAL ADEQUACY; EXPLAINED. One of the principles of sound
taxation is fiscal adequacy. The proceeds of tax revenue should coincide with, and approximate the needs
of, government expenditures. Neither an excess nor a deficiency of revenue vis- -vis the needs of
government would be in keeping with the principle.
9.ID.; ID.; NOT TO BE EXERCISED AT ONE'S WHIM. Equating the grant of authority to the President
to increase the VAT rate with the grant of additional allowance to a studious son is highly inappropriate.
Our Senators must have forgotten that for every increase of taxes, the burden always redounds to the
people. Unlike the additional allowance given to a studious son that comes from the pocket of the granting
parent alone, the increase in the VAT rate would be shouldered by the masses. Indeed, mandating them
to pay the increased rate as an award to the President is arbitrary and unduly oppressive. Taxation is not
a power to be exercised at one's whim.
10.POLITICAL LAW; LEGISLATIVE DEPARTMENT; ANY REVENUE MUST BEGIN OR START SOLELY
AND ONLY IN THE HOUSE. With the foregoing definitions in mind, it can be reasonably concluded
that when Section 24, Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin or start solely
and only in the House. Not the Senate. Not both Chambers of Congress. But there is more to it than that.
It also means that "an act for taxation must pass the House first." It is no consequence what amendments
the Senate adds.
11.ID.; ID.; SENATE COULD NOT PROPOSE TAX MATTERS NOT INCLUDED IN THE HOUSE BILLS.
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of Representatives. It has a
legislative identity and existence separate and apart from House Bills No. 3555 and 3705. Instead of
concurring or proposing amendments, Senate Bill No. 1950 merely "takes into consideration" the two
House Bills. To take into consideration means "to take into account." Consideration, in this sense, means
"deliberation, attention, observation or contemplation. Simply put, the Senate in passing Senate Bill No.
1950, a tax measure, merely took into account House Bills No. 3555 and 3705, but did not concur with or
amend either or both bills. As a matter of fact, it did not even take these two House Bills as a frame of
reference. . . . Thus, I am of the position that the Senate could not, without violating the germaneness rule
and the principle of "exclusive origination," propose tax matters not included in the House Bills.
CALLEJO, SR., J., concurring and dissenting opinion:
1.POLITICAL LAW; LEGISLATIVE DEPARTMENT; TWO DISTINCTIONS BETWEEN THE U.S.
FEDERAL CONSTITUTION'S AND OUR CONSTITUTION'S PRESCRIBED CONGRESSIONAL
PROCEDURE FOR ENACTING LAWS. Two distinctions are readily apparent between the two
procedures: 1. Unlike the US Federal Constitution,our Constitution prescribes the "three-reading" rule or
that no bill shall become a law unless it shall have been read on three separate days in each house
except when its urgency is certified by the President; and 2. Unlike the US
Federal Constitution,our Constitution prescribes the "no-amendment" rule or that no amendments shall be
allowed upon the last reading of the bill.
2.ID.; ID.; "THREE-READING" AND "NO-AMENDMENT" RULES; MECHANISMS INSTITUTED TO
REMEDY THE "EVILS" INHERENT IN A BICAMERAL SYSTEM OF LEGISLATURE. The "three-

243

reading" and "no-amendment" rules, absent in the US Federal Constitution,but expressly mandated by
Article VI, Section 26 (2) of our Constitution are mechanisms instituted to remedy the "evils" inherent in a
bicameral system of legislature, including the conference committee system. Sadly, the ponencia's refusal
to apply Article VI, Section 26 (2) of the Constitution on the Bicameral Conference Committee and the
amendments it introduced to R.A. No. 9337 has "effectively dismantled" the "three-reading rule" and "noamendment rule."
3.ID.; ID.; ID.; RATIONALE. At this point, it is well to recall the rationale for the "no-amendment rule"
and the "three-reading rule" in Article VI, Section 26 (2) of the Constitution. The proscription on
amendments upon the last reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to afford the public an opportunity to
express their opinions or objections thereon. Analogously, it is said that the "three-reading rule" operates
"as a self-binding mechanism that allows the legislature to guard against the consequences of its own
future passions, myopia, or herd behavior. By requiring that bills be read and debated on successive
days, legislature may anticipate and forestall future occasions on which it will be seized by deliberative
pathologies." As Jeremy Bentham, a noted political analyst, put it: "[t]he more susceptible a people are of
excitement and being led astray, so much the more ought they to place themselves under the protection
of forms which impose the necessity of reflection, and prevent surprises."
4.ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; THE "TAKE IT OR LEAVE IT" STANCE VIS-VIS CONFERENCE COMMITTEE REPORTS OPEN THE POSSIBILITY OF AMENDMENTS. This
"take it or leave it" stance vis- -vis conference committee reports opens the possibility of amendments,
which are substantial and not even germane to the original bills of either house, being introduced by the
conference committees and voted upon by the legislators without knowledge of their contents. This
practice cannot be countenanced as it patently runs afoul of the essence of Article VI, Section 26 (2)
of the Constitution. Worse, it is tantamount to Congress surrendering its legislative functions to the
conference committees.
5.ID.; ID.; ID.; RATIFICATION BY CONGRESS DID NOT CURE THE UNCONSTITUTIONAL ACT
THEREOF OF DELETING THE "NO PASS ON PROVISION." That both the Senate and the House of
Representatives approved the Bicameral Conference Committee Report which deleted the "no pass on
provision" did not cure the unconstitutional act of the said committee. As succinctly put by Chief Justice
Davide in his dissent in Tolentino, "[t]his doctrine of ratification may apply to minor procedural flaws or
tolerable breaches of the parameters of the bicameral conference committee's limited powers but never to
violations of the Constitution. Congress is not above the Constitution."
6.ID.; ID.; ENROLLED BILL DOCTRINE; EXPLAINED. Under the "enrolled bill doctrine," the signing of
a bill by the Speaker of the House and the Senate President and the certification of the Secretaries of
both houses of Congress that it was passed are conclusive of its due enactment.
AZCUNA, J., concurring and dissenting opinion:
1.TAXATION; REPUBLIC ACT NO. 9337; THERE IS NO ABDICATION BY CONGRESS OF ITS POWER
TO FIX THE RATE OF THE TAX SINCE THE RATE INCREASE PROVIDED UNDER THE LAW IS
DEFINITE AND CERTAIN TO OCCUR. Republic Act No. 9337, the E-VAT law, is assailed as an
unconstitutional abdication of Congress of its power to tax through its delegation to the President of the
decision to increase the rate of the tax from 10% to 12%, effective January 1, 2006, after any of two
conditions has been satisfied. The two conditions are: (i) Value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2-4/5%); or (ii)
National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1-1/2%). A scrutiny of these "conditions" shows that one of them is certain to happen on January

244

1, 2006. . . . Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax
since the rate increase provided under the law, from 10% to 12%, is definite and certain to occur, effective
January 1, 2006. All that the President will do is state which of the two conditions occurred and thereupon
implement the rate increase.
2.ID.; ID.; A PROPER IMPLEMENTATION OF THE EXPANDED VALUE-ADDED TAX SHOULD CAUSE
ONLY THE APPROPRIATE INCREMENTAL INCREASE IN PRICES. [T]he Court required respondents
to submit a copy of the rules to implement the E-VAT, particularly as to the impact of the tax on prices of
affected commodities, specially oil and electricity. For the onset of the law last July 1, 2005 was confusing,
resulting in across-the-board increases of 10% in the prices of commodities. This is not supposed to be
the effect of the law, as was made clear during the oral arguments, because the law also contains
provisions that mitigate the impact of the E-VAT through reduction of other kinds of taxes and duties, and
other similar measures, specially as to goods that go into the supply chain of the affected products. A
proper implementation of the E-VAT, therefore, should cause only the appropriate incremental increase in
prices, reflecting the net incremental effect of the tax, which is not necessarily 10%, but possibly less,
depending on the products involved.
3.POLITICAL LAW; LEGISLATIVE DEPARTMENT; NECESSARY LEEWAY SHOULD BE GIVEN TO
CONGRESS AS LONG AS THE CHANGES ARE GERMANE TO THE BILL BEING CHANGED. For
my part, I would rather give the necessary leeway to Congress, as long as the changes are germane to
the bill being changed, the bill which originated from the House of Representatives, and these are so,
since these were precisely the mitigating measures that go hand-on-hand with the E-VAT, and are,
therefore, essential and hopefully sufficient means to enable our people to bear the sacrifices they
are being asked to make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the
prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not germane to the E-VAT law,
and are not found in the Senate and House bills.
TINGA, J., dissenting opinion:
1.TAXATION; REPUBLIC ACT NO. 9337 (E-VAT LAW); WILL EXTERMINATE OUR COUNTRY'S SMALL
TO MEDIUM ENTERPRISES. The E-VAT Law, as it stands, will exterminate our country's small to
medium enterprises. This will be the net effect of affirming Section 8 of the law, which amends Sections
110 of the National Internal Revenue Code (NIRC)by imposing a seventy percent (70%) cap on the
creditable input tax a VAT-registered person may apply every quarter and a mandatory sixty (60)-month
amortization period on the input tax on goods purchased or imported in a calendar month if the acquisition
cost of such goods exceeds One Million Pesos (P1,000,000.00).
2.POLITICAL LAW; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; TAXES MAY BE
INHERENTLY PUNITIVE, BUT WHEN THE FINE LINE BETWEEN DAMAGE AND DESTRUCTION IS
CROSSED, THE COURTS MUST STEP FORTH AND CUT THE HANGMAN'S NOOSE. Taxes may be
inherently punitive, but when the fine line between damage and destruction is crossed, the courts must
step forth and cut the hangman's noose. Justice Holmes once confidently asserted that "the power to tax
is not the power to destroy while this Court sits," and we should very well live up to this expectation not
only of the revered Holmes, but of the Filipino people who rely on this Court as the guardian of their
rights. At stake is the right to exist and subsist despite taxes, which is encompassed in the due process
clause.
3.ID.; LEGISLATIVE DEPARTMENT; POWER TO ASCERTAIN THE FACTS OR CONDITIONS AS THE
BASIS OF THE TAKING INTO EFFECT OF A LAW MAY BE DELEGATED BY CONGRESS. As the
majority correctly points out, the power to ascertain the facts or conditions as the basis of the taking into

245

effect of a law may be delegated by Congress, and that the details as to the enforcement and
administration of an exercise of taxing power may be delegated to executive agencies, including the
power to determine the existence of facts on which its operation depends.
4.TAXATION; REPUBLIC ACT NO. 9337; THERE IS CLEARLY NO DELEGATION OF THE
LEGISLATIVE POWER TO TAX BY CONGRESS TO THE EXECUTIVE BRANCH SINCE THE
PRESIDENT IS NOT GIVEN ANY DISCRETION IN REFUSING TO RAISE THE VALUE-ADDED TAX TO
12%. At first blush, it does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT from 10% to 12%, no matter
the circumstance. Yet a closer analysis of the proviso reveals that this is not exactly the operative effect of
the law. The qualifier "shall" denotes a mandatory, rather than discretionary function on the part of the
President to raise the rate of VAT to 12% upon the existence of any of the two listed conditions. Since the
President is not given any discretion in refusing to raise the VAT rate to 12%, there is clearly no
delegation of the legislative power to tax by Congress to the executive branch. The use of the word "shall"
obviates any logical construction that would allow the President leeway in not raising the tax rate. More
so, it is accepted that the principle of constitutional construction that 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.
While all reasonable doubts should be resolved in favor, of the constitutionality of a statute, it should
necessarily follow that the construction upheld should be one that is not itself noxious to the Constitution.
5.POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE DELEGATION OF LEGISLATIVE POWER;
ENACTMENT OF A LAW SHOULD BE DISTINGUISHED FROM ITS IMPLEMENTATION. The
enactment of a law should be distinguished from its implementation. Even if it is Congress which
exercises the plenary power of taxation, it is not the body that administers the implementation of the tax.
Under Section 2 of the National Internal Revenue Code (NIRC),the assessment and collection of all
national internal revenue taxes, and the enforcement of all forfeitures, penalties and fines connected
therewith had been previously delegated to the Bureau of Internal Revenue, under the supervision and
control of the Department of Finance.
6.ID.; ID.; IT IS NOT THE LAW BUT THE REVENUE BILL WHICH IS REQUIRED BY THE
CONSTITUTION TO "ORIGINATE EXCLUSIVELY" IN THE HOUSE OF REPRESENTATIVES. Still,
the origination clause deserves obeisance in this jurisdiction, simply because it is provided in the
Constitution. At the same time, its proper interpretation is settled precedent, as enunciated in Tolentino: To
begin with, it is not the law but the revenue bill which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating
in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the
whole. The possibility of a third version by the conference committee will be discussed later. At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist
that a revenue statute and not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to" propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to the
Senate. The vested power of the Senate to "propose or concur with amendments" necessarily implies the
ability to adduce transformations from the original House bill into the final law. Since the House and
Senate sit separately in sessions, the only opportunity for the Senate to introduce its amendments would
be in the Bicameral Conference Committee, which emerges only after both the House and the Senate
have approved their respective bills.
7.ID.; ID.; "NO-AMENDMENT RULE"; REFERS ONLY TO THE PROCEDURE TO BE FOLLOWED BY
EACH HOUSE OF CONGRESS WITH REGARD TO BILLS INITIATED IN THE HOUSE CONCERNED.

246

 The majority points out that the "no amendment rule" refers only to the procedure to be followed by
each house of Congress with regard to bills initiated in the house concerned, before said bills are
transmitted to the other house for its concurrence or amendment. I agree with this statement. Clearly, the
procedure under Section 26 (2), Article VI only relates to the passage of a bill before the House and
Senate, and not the process undertaken afterwards in the Bicameral Conference Committee. Indeed,
Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a law, are silent as to
what occurs between the passage by both houses of their respective bills, and the presentation to the
President of "every bill passed by the Congress." Evidently, "Congress" means both Houses, such that a
bill approved by the Senate but not by the House is not presented to the President for approval. There is
obviously a need for joint concurrence by the House and Senate of a bill before it is transmitted to the
President, but the Constitution does not provide how such concurrence is acquired. This lacuna has to be
filled, otherwise no bill may be transmitted to the President.
8.ID.; ID.; GERMANENESS STANDARD; SHOULD BE APPRECIATED IN ITS NORMAL BUT TOTAL
SENSE. The germaneness standard which should guide Congress or the Bicameral Conference
Committee should be appreciated in its normal but total sense. In that regard, my views contrast with that
of Justice Panganiban, who asserts that provisions that are not "legally germane" should be stricken
down. The legal notion of germaneness is just but one component, along with other factors such as
economics and politics, which guides the Bicameral Conference Committee, or the legislature for that
matter, in the enactment of laws. After all, factors such as economics or politics are expected to cast a
pervasive influence on the legislative process in the first place, and it is essential as well to allow such
"non-legal" elements to be considered in ascertaining whether Congress has complied with the criteria of
germaneness. Congress is a political body, and its rationale for legislating may be guided by factors other
than established legal standards. I deem it unduly restrictive on the plenary powers of Congress to
legislate, to coerce the body to adhere to judge-made standards, such as a standard of "legal
germaneness." The Constitution is the only legal standard that Congress is required to abide by in its
enactment of laws.
9.TAXATION; REPUBLIC ACT NO. 9337; IT WOULD BE MYOPIC TO CONSIDER THAT THE SUBJECT
MATTER OF THE HOUSE BILL IS SOLELY THE VALUE-ADDED TAX SYSTEM RATHER THAN THE
GENERATION OF REVENUE. The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions relating to the VAT, but the entire
revenue generating mechanism in place. If, for example, amendments to non-VAT related provisions of
the NIRC were intended to offset the expanded coverage for the VAT, then such amendments are
germane to the purpose of the House and Senate Bills. Moreover, it would be myopic to consider that the
subject matter of the House Bill is solely the VAT system, rather than the generation of revenue. The
majority has sufficiently demonstrated that the legislative intent behind the bills that led to the E-VAT Law
was the generation of revenue to counter the country's dire fiscal situation. The mere fact that the law is
popularly known as the E-VAT Law, or that most of its provisions pertain to the VAT, or indirect taxes, does
not mean that any and all amendments which are introduced by the Bicameral Conference Committee
must pertain to the VAT system.
10.ID.; ID.; RESTRICTIONS ON THE USE BY LOCAL GOVERNMENT UNITS OF THEIR
INCREMENTAL REVENUE FROM THE VAT ARE ALIEN TO THE PRINCIPAL PURPOSE OF REVENUE
GENERATION. I do believe that the test of germaneness was violated by the E-VAT Law in one
regard. Section 21 of the law, which was not contained in either the House or Senate Bills, imposes
restrictions on the use by local government units of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue generation, or the purposes of restructuring the
VAT system. I could not see how the provision, which relates to budgetary allocations, is germane to the
E-VAT Law. Since it was introduced only in the Bicameral Conference Committee, the test of

247

germaneness is essential, and the provision does not pass muster. I join Justice Puno and the Chief
Justice in voting to declare Section 21 as unconstitutional.
11.ID.; ID.; THE "NO PASS ON" PROVISIONS ADOPTED BY THE HOUSE ESSENTIALLY DIFFERS
FROM THAT OF THE SENATE NECESSARILY REQUIRED THE CORRECTIVE RELIEF FROM THE
BICAMERAL CONFERENCE COMMITTEE. Moreover, the fact that the nature of the "no pass on"
provisions adopted by the House essentially differs from that of the Senate necessarily required the
corrective relief from the Bicameral Conference Committee. The Committee could have either insisted on
the House version, the Senate version, or both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion altogether of the "no pass on" provisions
existed as a tangible solution to the possible impasse, and the Committee should be accorded leeway to
implement such a compromise, especially considering that the deletion would have remained germane to
the law, and would not be constitutionally prohibited since the prohibition on amendments under Section
26 (2), Article VI does not apply to the Committee.
12.POLITICAL LAW; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; THE SUPREME
COURT CANNOT SIMPLY DECREE TO CONGRESS WHAT LAW OR PROVISIONS TO ENACT. An
outright declaration that the deletion of the two elementally different "no-pass on" provisions is
unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained endorsement of a
majority of the Court, it could not result in the ipso facto restoration of the provision, the omission of which
was ultimately approved in both the House and Senate. Moreover, since the House version of the "no
pass on" is quite different from that of the Senate, there would be a question as to whether the House
version, the Senate version, or both versions would be reinstated. And of course, if it were the Court
which would be called upon to choose, such would be way beyond the bounds of judicial power. Indeed,
to intimate that the Court may require Congress to reinstate a provision that failed to meet legislative
approval would result in a blatant violation of the principle of separation of powers, with the Court
effectively dictating to Congress the content of its legislation. The Court cannot simply decree to
Congress what laws or provisions to enact, but is limited to reviewing those enactments which are
actually ratified by the legislature.
13.ID.; ID.; ID.; IT IS THE DUTY OF THE COURTS TO NULLIFY LAWS THAT CONTRAVENE THE DUE
PROCESS CLAUSE OF THE BILL OF RIGHTS. It is the duty of the courts to nullify laws that
contravene the due process clause of the Bill of Rights. This task is at the heart not only of judicial review,
but of the democratic system, for the fundamental guarantees in the Bill of Rights become merely
hortatory if their judicial enforcement is unavailing. Even if the void law in question is a tax statute, or one
that encompasses national economic policy, the courts should not shirk from striking it down
notwithstanding any notion of deference to the executive or legislative branch on questions of policy.
Neither Congress nor the President has the right to enact or enforce unconstitutional laws.
14.ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; BY NO MEANS THE ONLY CONSTITUTIONAL
YARDSTICK BY WHICH THE VALIDITY OF A TAX LAW CAN BE MEASURED. The Bill of Rights is by
no means the only constitutional yardstick by which the validity of a tax law can be measured.
Nonetheless, it stands as the most unyielding of constitutional standards, given its position of primacy in
the fundamental law way above the articles on governmental power. If the question lodged, for example,
hinges on the proper exercise of legislative powers in the enactment of the tax law, leeway can be
appreciated in favor of affirming the legislature's inherent power to levy taxes. On the other hand, no
quarter can be ceded, no concession yielded, on the people's fundamental rights as enshrined in the Bill
of Rights, even if the sacrifice is ostensibly made "in the national interest." It is my understanding that "the
national interests," however comported, always subsumes in the first place recognition and enforcement
of the Bill of Rights, which manifests where we stand as a democratic society.

248

15.ID.; ID.; ID.; DUE PROCESS; PURPOSE. The constitutional safeguard of due process is embodied
in the fiat "No person shall be deprived of life, liberty or property without due process of law." The purpose
of the guaranty is to prevent governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of the powers of the government,
unrestrained by the established principles of private rights and distributive justice; to protect property from
confiscation by legislative enactments, from seizure, forfeiture, and destruction without a trial and
conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and impartial
justice and the benefit of the general law.
16.ID.; ID.; ID.; ID.; MAY BE UTILIZED TO STRIKE DOWN A TAXATION STATUTE. In Magnano Co. v.
Hamilton, the U.S. Supreme
Court recognized that the due process clause may be utilized to strike down a taxation statute, "if the act
be so arbitrary as to compel the conclusion that it does not involve an exertion of the taxing power, but
constitutes, in substance and effect, the direct exertion of a different and forbidden power, as, for
example, the confiscation of property." Locally, Sison v. Ancheta has long provided sanctuary for persons
assailing the constitutionality of taxing statutes. . . . Sison pronounces more concretely how a tax statute
may contravene the due process clause. Arbitrariness, confiscation, overstepping the state's jurisdiction,
and lack of a public purpose are all grounds for nullity encompassed under the due process invocation.
17.ID.; ID.; ID.; ID.; IT IS DIFFICULT TO PUT INTO QUANTIFIABLE TERMS HOW ONEROUS A
TAXATION STATUTE MUST BE BEFORE IT CONTRAVENES THE DUE PROCESS CLAUSE. It is
difficult though to put into quantifiable terms how onerous a taxation statute must be before it contravenes
the due process clause. After all, the inherent nature of taxation is to cause pain and injury to the
taxpayer, albeit for the greater good of society. Perhaps whatever collective notion there may be of what
constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from the fairy tale/legend
traditions of absolute monarchs and the oppressed peasants they tax. Indeed, it is easier to jump to the
conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
18.ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; SUPREME COURT IS NOT
IMPOTENT FROM DECLARING A PROVISION OF LAW AS VIOLATIVE OF THE DUE PROCESS
CLAUSE IF IT IS CLEAR THAT ITS IMPLEMENTATION WILL CAUSE THE ILLEGAL DEPRIVATION OF
LIFE, LIBERTY OR PROPERTY. If there is cause to characterize my arguments as speculative, it is
only because the E-VAT Law has yet to be implemented. No person as of yet can claim to have sustained
actual injury by reason of the implementation of the assailed provisions in G.R. No. 168461. Yet this
should not mean that the Court is impotent from declaring a provision of law as violative of the due
process clause if it is clear that its implementation will cause the illegal deprivation of life, liberty or
property without due process of law. This is especially so if, as in this case, the injury is of mathematical
certainty, and the extent of the loss quantifiable through easy reference to the most basic of business
practices.
19.ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS; CLEAR AND PRESENT DANGER
TEST SQUARELY APPLIES THERETO. Indeed, the Court has long responded to strike down
prospective actions, even if the injury has not yet even occurred. One of the most significant legal
principles of the last century, the "clear and present danger" doctrine in free speech cases, in fact
emanates from the prospectivity, and not the actuality of danger. The Court has not been hesitant to
nullify acts which might cause injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the "clear and present danger rule"
beyond the confines of freedom of expression to the realm of freedom of religion, as noted by Justice
Puno in his ponencia in Estrada v. Escritor. Justice Teodoro Padilla goes further in his concurring opinion
in Basco v. PAGCOR, and asserts that the clear and present danger test squarely applies to the due

249

process clause: "The courts, as the decision states, cannot inquire into the wisdom, morality or
expediency of policies adopted by the political departments of government in areas which fall within their
authority, except only when such policies pose a clear and present danger to the life, liberty or property of
the individual." I see no reason why the clear and present danger test cannot apply in this case, or any
case wherein a taxing statute poses a clear and present danger to the life, liberty or property of the
individual. The application of this standard frees the Court from inutility in the face of patently
unconstitutional tax laws that have been enacted but are yet to be fully operational.
20.ID.; STATUTORY CONSTRUCTION; ANY PROVISION OF LAW THAT DIRECTLY
CONTRADICTS THE CONSTITUTION IS UNWISE. In the same vein, the claim that my arguments
strike at the wisdom, rather than the constitutionality of the law are misplaced. Concededly, the assailed
provisions of the E-VAT law are basically unwise. But any provision of law that directly contradicts the
Constitution, especially the Bill of Rights, are similarly unwise, as they run inconsistent with the
fundamental law of the land, the enunciated state policies and the elemental guarantees assured by the
State to its people. Not every unwise law is unconstitutional, but every unconstitutional law is unwise, for
an unconstitutional law contravenes a primordial principle or guarantee on which our polity is founded.
21.ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; THE COURT IS EMPOWERED TO
STRIKE DOWN THE LAW IF THE POLICY OF THE LAW AND/OR THE MEANS BY WHICH SUCH
POLICY IS IMPLEMENTED RUN COUNTER TO THE CONSTITUTION. The Separate Opinion of
Justice Panganiban notes that "[t]he Court cannot step beyond the confines of its constitutional power, if
there is absolutely no clear showing of grave abuse of discretion in the enactment of the law." This, I feel,
is an unduly narrow view of judicial review, implying that such merely encompasses the procedural aspect
by which a law is enacted. If the policy of the law, and/or the means by which such policy is implemented
run counter to the Constitution, then the Court is empowered to strike down the law, even if the legislative
and executive branches act within their discretion in legislating and signing the law. It is also asserted that
if the implementation of the 70% cap imposes an unequal effect on different types of businesses with
varying profit margins and capital requirements, then the remedy would be an amendment of the law. Of
course, the remedy of legislative amendment applies to even the most unconstitutional of laws. But if our
society can take cold comfort in the ability of the legislature to amend its enactments as the defense
against unconstitutional laws, what remains then as the function of judicial review? This legislative
capacity to amend unconstitutional laws runs concurrently with the judicial capacity to strike down
unconstitutional laws. In fact, the long-standing tradition has been reliance on the judicial branch, and not
the legislative branch, for salvation from unconstitutional laws.
22.TAXATION; NATIONAL INTERNAL REVENUE CODE (NIRC); VALUE-ADDED TAX (VAT);
ELUCIDATED. VAT is distinguishable from the standard excise or percentage taxes in that it is
imposable not only on the final transaction involving the end user, but on previous stages as well so long
as there was a sale involved. Thus, VAT does not simply pertain to the extra percentage paid by the buyer
of a fast-food meal, but also that paid by restaurant itself to its suppliers of raw food products. This multistage system is more acclimated to the vagaries of the modern industrial climate, which has long
surpassed the stage when there was only one level of transfer between the farmer who harvests the crop
and the person who eats the crop. Indeed, from the extraction or production of the raw material to its final
consumption by a user, several transactions or sales materialize. The VAT system assures that the
government shall reap income for every transaction that is had, and not just on the final sale or transfer.
The European Union, which has long required its member states to apply the VAT system, provided the
following definition of the tax which I deem clear and comprehensive: The principle of the common system
of value added tax involves the application to goods and services of a general tax on consumption exactly
proportional to the price of the goods and services, whatever the number of transactions that take place in
the production and distribution process before the stage at which tax is charged. On each transaction,
value added tax, calculated on the price of the goods or services at the rate applicable to such goods or

250

services, shall be chargeable after deduction of the amount of value added tax borne directly by the
various cost components.
23.ID.; ID.; ID.; GENERALLY NOT INTENDED TO BE A TAX ON VALUE-ADDED BUT RATHER AS A
TAX ON CONSUMPTION. There is another key characteristic of the VAT that no matter how many
the taxable transactions that precede the final purchase or sale, it is the end-user, or the consumer, that
ultimately shoulders the tax. Despite its name, VAT is generally, not intended to be a tax on value added,
but rather as a tax on consumption. Hence, there is a mechanism in the VAT system that enables firms to
offset the tax they have paid on their own purchases of goods and services against the tax they charge on
their sales of goods and services. Section 105 of the NIRC assures that "the amount of tax may be shifted
or passed on to the buyer transferee or lessee of the goods, properties or services." The assailed
provisions of the E-VAT law strike at the heart of this accepted principle.
24.ID.; ID.; ID.; REMITTANCE OF THE TAX ON A PER TRANSACTION BASIS IS IMPOSSIBLE. And
there is one final basic element of the VAT system integral to this disquisition: the mode by which the tax
is remitted to the government. In simple theory, the VAT payable can be remitted to the government
immediately upon the occurrence of the transaction, but such a demand proves excessively unwieldy. The
number of VAT covered transactions a modern enterprise may contract in a single day, plus the
recognized principle that it is the final end user who ultimately shoulders the tax; render the remittance of
the tax on a per transaction basis impossible. Thus, the VAT is delivered by the purchaser not directly to
the government but to the seller, who then collates the VAT received and remits it to the government
every quarter. The process may seem simple if cast in this manner, but there is a wrinkle, due to the
offsetting mechanism designed to ultimately make the end consumer bear the cost of the VAT.
25.ID.; ID.; ID.; INPUT TAX; DEFINED. This mechanism is employed through the introduction of two
concepts, the input tax and the output tax. Section 110 (A) of the National Internal Revenue Code defines
the input tax as the VAT due from or paid by a VAT-registered person on the importation of goods or local
purchase of goods and services in the course of trade or business, from a VAT registered person.
26.ID.; ID.; ID.; ALLOWS FOR A MECHANISM BY WHICH THE BUSINESS IS ABLE TO RECOVER THE
INPUT VALUE-ADDED TAX THAT IT PAID. Since VAT is a final tax that is supposed to be ultimately
shouldered by the end consumer, the VAT system allows for a mechanism by which the business is able
to recover the input VAT that it paid. This comes into play when the business, having transformed the raw
materials into consumer goods, sells these goods to the public. As widely known, the consumer pays to
the business an additional amount of 10% of the purchase price as VAT. As to the business, this VAT
payments it collects from the consumer represents output VAT, which is formally described under Section
110 (A) of the NIRC as "the value-added tax due on the sale or lease of taxable goods or properties or
services by" by any VAT-registered person. The output VAT collected by the business from the consumers
accumulates, until the end of every quarter, when the enterprise is obliged to remit the collected output
VAT to the government. This is where the crediting mechanism comes into play. Since the business is
entitled to recover the prepaid input VAT, it does so in every quarter by applying the amount of prepaid
input VAT against the collected output VAT which is to be remitted. If the output VAT collected exceeds the
prepaid input VAT, then the amount of input VAT is deducted from the output VAT, and it is entitled to remit
only the remainder as output VAT to the government. . . . On the other hand, if the input VAT prepaid
exceeds the output VAT collected, then the business need not remit any amount as output VAT for the
quarter. Moreover, the difference between the input VAT and the output VAT may be credited as input VAT
by the business in the succeeding quarter.
27.ID.; REPUBLIC ACT NO. 9337; ALL HOPE FOR ENTREPRENEURIAL STABILITY IS DASHED WITH
THE IMPOSITION OF THE 70% CAP. All hope for entrepreneurial stability is dashed with the
imposition of the 70% cap. Under the E-VAT Law, the business, regardless of stability or financial

251

capability, is obliged to remit to the government every quarter at least 30% of the output VAT collected
from customers, or roughly 3% of the amount of gross sales. Thus, if a quarterly gross sales of Y
Business totaled P1,000,000, and Y is prudent enough to keep its capital expenses down to P980,000, it
would then appear on paper that Y incurred a profit of P20,000. However, with the 70% cap, Y would be
obliged to remit to the government P30,000, thus wiping out the profit margin for the quarter. Y would be
entitled to credit the excess input VAT it prepaid for the next quarter, but the continuous operation of the
70% cap obviates whatever benefits this may give, and cause the accumulation of the unutilized
creditable input VAT which should be returned to the business. . . . The 70% cap is not merely an unwise
imposition. It is a burden designed, either through sheer heedlessness or cruel calculation, to kill off the
small and medium enterprises that are the soul, if not the heart, of our economy. It is not merely an undue
taking of property, but constitutes an unjustified taking of life as well.
28.ID.; ID.; THE MAJORITY FAILS TO CONSIDER TIME VALUE FOR MONEY. The majority fails to
consider one of the most important concepts in finance, time value for money. Simply put, the value of
one peso is worth more today than in 2006. Money that you hold today is worth more because you can
invest it and earn interest. By reason of the 70% cap, the amount of input VAT credit that remains
unutilized would continue to accumulate for months and years. The longer the amount remains unutilized,
the higher the degree of its depreciation in value, in accordance with the concept of time value of money.
Even assuming that the business eventually recovers the input VAT credit, the sum recovered would have
decreased in practical value.
29.ID.; ID.; THE EFFECT OF THE 70% CAP IS TO EFFECTIVELY IMPOSE A TAX AMOUNTING TO 3%
OF GROSS REVENUE. Only stable businesses with substantial cash flows, or extraordinarily
successful enterprises will be able to remain in operation should the 70% cap be retained. The effect of
the 70% cap is to effectively impose a tax amounting to 3% of gross revenue. The amount may seem
insignificant to those without working knowledge of the ways of business, but anybody who is actually
familiar with business would be well aware the profit margins of the retailing and distribution sectors
typically amount to less than 1% of the gross revenues. A taxpayer has to earn a margin of at least 3% on
gross revenue in order to recoup the losses sustained due to the 70% cap. But as stated earlier, profits
are chancy, and the entrepreneur does not have full control of the conditions that lead to profit.
30.ID.; ID.; THE EFFECT OF THE 70% CAP REMAINS CONSTANT REGARDLESS OF AN INCREASE
IN VOLUME OF THE GOODS SOLD. Even more galling is the fact that the 70% cap, oppressive as it
already is to the business establishment, even limits the options of the business to recover the unutilized
input VAT credit. During the deliberations, the argument was raised that the problem presented by the
70% cap was a business problem, which can only be solved by business. Yet there is only one viable
option for the enterprise to resolve the problem, and that is to increase the selling price of goods. It would
be incorrect to assume that increase the volume of the goods sold could solve the problem, since for
items with the same purchasing cost, the effect of the 70% cap remains constant regardless of an
increase in volume.
31.ID.; ID.; BASIC ITEMS OF EXPENDITURE CANNOT SIMPLY BE REDUCED AS TO DO SO WILL
IMPAIR THE ABILITY OF THE BUSINESS TO OPERATE ON A DAILY BASIS. It is easy to admonish
both the consumer and the enterprise to cut back on expenditures to survive the new E-VAT Law.
However, this can be realistically expected only of the consumer. The small/medium enterprise cannot
just cut back easily on expenditures in order to survive the implementation of the E-VAT Law. For such
businesses, expenditures do not normally contemplate unnecessary expenses such as executive perks
which can be dispensed with or without injury to the enterprises. These expenditures pertain to expenses
necessary for the survival of the enterprise, such as wages, overhead and purchase of raw materials.
Those three basic items of expenditure cannot simply be reduced, as to do so will impair the ability of the
business to operate on a daily basis. And reduction of expenditures is not the exclusive antidote to these

252

impositions under the E-VAT Law, as there must also be a corresponding increase in the amount of gross
sales. To do so though, would require an increase in the selling price, dampening consumer enthusiasm,
and further impairing the ability of the enterprise to recover from the E-VAT Law. This is your basic Catch22 situation no matter which means the enterprise employs to recover from the E-VAT Law, it will still
go down in flames.
32.ID.; ID.; THE 70% CAP DOES NOT INCREASE THE GOVERNMENT'S REVENUE. And what
legitimate, germane purposes does this lethal 70% cap serve? It certainly does not increase the
government's revenue since the unutilized creditable input VAT should be entered in the government
books as a debt payable as it is supposed to be eventually repaid to the taxpayer, and so on the contrary
it increases the government's debts. I do see that the 70% cap temporarily allows the government to brag
to the world of an increased cash flow. But this situation would be akin to the provincial man who borrows
from everybody in the barrio in order to show off money and maintain the pretense of prosperity to visiting
city relatives. The illusion of wealth is hardly a legitimate state purpose, especially if projected at the
expense of the very business life of the country.
33.ID.; ID.; THE REFUND OR TAX CREDIT CERTIFICATE MAY ONLY BE ISSUED UPON THE TWO
INSTANCES. This provision, which could have provided foreseeable and useful relief to the VATregistered person, was deleted under the new E-VAT Law. At present, the refund or tax credit certificate
may only be issued upon two instances: on zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration due to retirement from or cessation of business. This is the cruelest cut of
all. Only after the business ceases to be may the State be compelled to repay the entire amount of the
unutilized input tax. It is like a macabre form of sweepstakes wherein the winner is to be paid his fortune
only when he is already dead. Aanhin pa ang damo kung patay na ang kabayo.
34.ID.; ID.; INABILITY TO IMMEDIATELY CREDIT THE UNUTILIZED INPUT VALUE-ADDED TAX
COULD CAUSE SUCH PREPAID AMOUNT TO BE RECOGNIZED IN THE ACCOUNTING BOOKS AS A
LOSS. Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT could
cause such prepaid amount to actually be recognized in the accounting books as a loss. Under
international accounting practices, the unutilized input VAT due to the 70% cap would not even be
recognized as a deferred asset. The same would not hold true if the 70% cap were eliminated. Under the
International Accounting Standards, the unutilized input VAT credit is recognized as an asset "to the
extent that it is probable that future taxable profit will be available against which the unused tax losses
and unused tax credits can be utili[z]ed". Thus, if the immediate accreditation of the input VAT credit can
be obtained, as it would without the 70% cap, the asset could be recognized. However, the same
Standards hold that "[t]o the extent that it is not probable that taxable profit will be available against which
the unused tax losses or unused tax credits can be utilised, the deferred tax asset is not recognised." As
demonstrated, the continuous operation of the 70% cap precludes the recovery of input VAT prepaid
months or years prior. Moreover, the inability to claim a refund or tax credit certificate until after the
business has already ceased virtually renders it improbable for the input VAT to be recovered. As such,
under the International Accounting Standards, it is with all likelihood that the prepaid input VAT, ostensibly
creditable, would actually be reflected as a loss. What heretofore was recognized as an asset would now,
with the imposition of the 70% cap, be now considered as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.
35.ID.; ID.; UNUTILIZED INPUT VALUE-ADDED TAX CREDIT MAY BE RECOGNIZED AS AN ASSET.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are transferred to the surviving corporation by
operation of law. Assets would fall under the purview of property under the due process clause, and if the
taxing arm of the State recognizes that such property belongs to the taxpayer and not to the State, then
due respect should be given to such expert opinion. Even under the International Accounting Standards I

253

adverted to above, the unutilized input VAT credit may be recognized as an asset "to the extent that it is
probable that future taxable profit will be available against which the unused tax losses and unused tax
credits can be utilised". If not probable, it would be recognized as a loss. Since these international
standards, duly recognized by the Securities and Exchange Commission as controlling in this jurisdiction,
attribute tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary value
attached to such gain or loss.
36.ID.; ID.; PREPAID INPUT TAX REPRESENTS UNUTILIZED PROFIT. Moreover, the prepaid input
tax represents unutilized profit, which can only be utilized if it is refunded or credited to output taxes. To
assert that the input VAT is merely a privilege is to correspondingly claim that the business profit is
similarly a mere privilege. The Constitution itself recognizes the right to profit by private enterprises. As I
stated earlier, one of the enunciated State policies under the Constitution is the recognition of the
indispensable role of the private sector, the encouragement of private enterprise, and the provision of
incentives to needed investments. Moreover, the Constitution also requires the State to recognize the
right of enterprises to reasonable returns on investments, and to expansion and growth. This, I believe,
encompasses profit.
37.ID.; ID.; AMORTIZATION PLAN WILL PROVE ESPECIALLY FATAL TO START-UPS AND OTHER
NEW BUSINESSES. However, this amortization plan will prove especially fatal to start-ups and other
new businesses, which need to purchase capital goods in order to start up their new businesses. It is a
known fact in the financial community that a majority of businesses start earning profit only after the
second or third year, and many enterprises do not even get to survive that long. The first few years of a
business are the most crucial to its survival, and any financial benefits it can obtain in those years, no
matter how miniscule, may spell the difference between life and death. For such emerging businesses, it
is already difficult under the present system to recover the prepaid input VAT from the output VAT
collected from customers because initial sales volumes are usually low. With this further limitation,
diminishing as it does any opportunity to have a sustainable cash flow, the ability of new businesses to
survive the first three years becomes even more endangered.
38.ID.; ID.; EXISTING SMALL TO MEDIUM ENTERPRISES ARE IMPERILED BY THE 60 MONTH
AMORTIZATION RESTRICTION. Even existing small to medium enterprises are imperiled by this 60
month amortization restriction, especially considering the application of the 70% cap. The additional
purchase of capital goods bears as a means of adding value to the consumer good, as a means to justify
the increased selling price. However, the purchase of capital goods in excess of P1,000,000.00 would
impose another burden on the small to medium enterprise by further restricting their ability to immediately
recover the entire prepaid input VAT (which would exceed at least P100,000.00), as they would be
compelled to wait for at least five years before they can do so. Another hurdle is imposed for such small to
medium enterprise to obtain the profit margin critical to survival. For some lucky enterprises who may be
able to survive the injury brought about by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
39.ID.; ID.; INCREASED ADMINISTRATIVE BURDEN ON THE TAXPAYER SHOULD NOT BE
DISCOUNTED. Moreover, the increased administrative burden on the taxpayer should not be
discounted, considering this Court's previous recognition of the aims of the VAT system to "rationalize the
system of taxes on goods and services, [and] simplify tax administration." With the amortization
requirement, the taxpayer would be forced to segregate assets into several classes and strictly monitor
the useful life of assets so that proper classification can be made. The administrative requirements of the
taxpayer in order to monitor the input VAT from the purchase of capital assets thus has exponentially
increased.

254

40.ID.; ID.; 5% WITHHOLDING VALUE-ADDED TAX ON SALES; DELETION OF THE CREDIT

APPARATUS EFFECTIVELY COMPELS THE PRIVATE ENTERPRISE TRANSACTING WITH THE
GOVERNMENT TO SHOULDER THE OUTPUT VALUE-ADDED TAX. The principle that the
Government and its subsidiaries may deduct and withhold a final value-added tax on its purchase of
goods and services is not new, as the NIRC had allowed such deduction and withholding at the rate of 3%
of the gross payment for the purchase of goods, and 6% of the gross receipts for services. However,
the NIRC had also provided that this tax withheld would also be creditable against the VAT liability of the
seller or contractor, a mechanism that was deleted by the E-VAT law. The deletion of this credit apparatus
effectively compels the private enterprise transacting with the government to shoulder the output VAT that
should have been paid by the government in excess of 5% of the gross selling price, and at the same
time unduly burdens the private enterprise by precluding it from applying any creditable input VAT on the
same transaction. Notably, the removal of the credit mechanism runs contrary to the essence of the VAT
system, which characteristically allows the crediting of input taxes against output taxes. Without such
crediting mechanism, which allows the shifting of the VAT to only the final end user, the tax becomes a
straightforward tax on business or income. The effect on the enterprise doing business with the
government would be that two taxes would be imposed on the income by the business derived on such
transaction: the regular personal or corporate income tax on such income, and this final withholding tax of
5%.
41.ID.; ID.; ID.; THE END RESULT OF THE DISCRIMINATION IS DOUBLE TAXATION. It unfairly
discriminates against entities which contract with the government by imposing an additional tax on the
income derived from such transactions. The end result of such discrimination is double taxation on
income that is both oppressive and confiscatory. . . . Double taxation means taxing for the same tax
period the same thing or activity twice, when it should be taxed but once, for the same purpose and with
the same kind of character of tax. Double taxation is not expressly forbidden in our constitution,but the
Court has recognized it as obnoxious "where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose." Certainly, both the 5% final tax
withheld and the general corporate income tax are both paid for the benefit of the national government,
and for the same incidence of taxation, the sale/lease of goods and services to the government.
42.ID.; ID.; ID.; EFFECTIVELY DISCOURAGES PRIVATE ENTERPRISES TO DO BUSINESS WITH THE
STATE. This imposition would be grossly unfair for private entities that transact with the government,
especially on a regular basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the government. However, it is an acknowledged fact that
the government and its subsidiaries rely on contracts with private enterprises in order to be able to carry
out innumerable functions of the State. This provision effectively discourages private enterprises to do
business with the State, as it would impose on the business a higher rate of tax if it were to transact with
the State, as compared to transactions with other private entities.
43.ID.; BASIC PRINCIPLE; INTELLIGENT TAX POLICY SHOULD EXTEND BEYOND THE SINGULARMINDED GOAL OF RAISING STATE FUNDS. I do lament though that our government's wholehearted
adoption of the VAT system is endemic of what I deem a flaw in our national tax policy in the last few
decades. The power of taxation, inherent in the State and ever so powerful, has been generally employed
by our financial planners for a solitary purpose: the raising of revenue. Revenue generation is a legitimate
purpose of taxation, but standing alone, it is a woefully unsophisticated design. Intelligent tax policy
should extend beyond the singular-minded goal of raising State funds the old-time philosophy behind
the taxing schemes of war-mongering monarchs and totalitarian states and should sincerely explore
the concept of taxation as a means of providing genuine incentives to private enterprise to spur economic
growth; of promoting egalitarian social justice that would allow everyone to their fair share of the nation's
wealth.

255

DECISION
AUSTRIA-MARTINEZ, J p:
The expenses of government, having for their object the interest of all, should be borne
by everyone, and the more man enjoys the advantages of society, the more he ought to
hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for full value-added tax benefits . . . these are the
reasons why Republic Act No. 9337(R.A. No. 9337) 1 was enacted. Reasons, the wisdom of which, the
Court even with its extensive constitutional power of review, cannot probe. The petitioners in these cases,
however, question not only the wisdom of the law, but also perceived constitutional infirmities in its
passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 3555 2 was introduced on first reading on January 7, 2005. The House Committee on
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.)
Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second
and third reading.
House Bill No. 3705 3 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No.
3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The President
also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on second
and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950 4 on March 7,
2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos.
3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838
and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan.
The President certified the bill on March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.

256

On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill
No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference,"
recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through
Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order
on July 1, 2005, to wit:
J. PANGANIBAN
. . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court
issued a TRO at about 5 o'clock in the afternoon. But before that, there was a
lot of complaints aired on television and on radio. Some people in a gas station
were complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people riding
in domestic air carrier were complaining that the prices that they'll have to pay
would have to go up by 10%. While all that was being aired, per your
presentation and per our own understanding of the law, that's not true. It's not
true that the e-vat law necessarily increased prices by 10% uniformly isn't it?
ATTY. BANIQUED
No, Your Honor. ACTIcS
J. PANGANIBAN
It is not?
ATTY. BANIQUED
It's not, because, Your Honor, there is an Executive Order that granted the Petroleum
companies some subsidy . . . interrupted
J. PANGANIBAN
That's correct . . .
ATTY. BANIQUED

257

. . . and therefore that was meant to temper the impact . . . interrupted

J. PANGANIBAN
. . . mitigating measures . . .
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
As a matter of fact a part of the mitigating measures would be the elimination of the
Excise Tax and the import duties. That is why, it is not correct to say that the
VAT as to petroleum dealers increased prices by 10%.
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
And therefore, there is no justification for increasing the retail price by 10% to cover the
E-Vat tax. If you consider the excise tax and the import duties, the Net Tax
would probably be in the neighborhood of 7%? We are not going into exact
figures I am just trying to deliver a point that different industries, different
products, different services are hit differently. So it's not correct to say that all
prices must go up by 10%.

ATTY. BANIQUED
You're right, Your Honor.
J. PANGANIBAN
Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also
removed as a mitigating measure. So, therefore, there is no justification to
increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED
I guess so, Your Honor, yes.
J. PANGANIBAN

258

There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And that's one reason among many others this
Court had to issue TRO because of the confusion in the implementation. That's
why we added as an issue in this case, even if it's tangentially taken up by the
pleadings of the parties, the confusion in the implementation of the E-vat. Our
people were subjected to the mercy of that confusion of an across the board
increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3% only, in
some cases it should be 6% depending on these mitigating measures and the
location and situation of each product, of each service, of each company, isn't
it?
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
Alright. So that's one reason why we had to issue a TRO pending the clarification of all
these and we wish the government will take time to clarify all these by means
of a more detailed implementing rules, in case the law is upheld by this Court. .
..6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of
properties. These questioned provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i)Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii)National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.

259

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%,
on the ground that it amounts to an undue delegation of legislative power, petitioners also contend that
the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the
due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it does not state
if the rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the rate is
unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3)
the increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT
collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid
down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1)Section 8, amending Section 110 (A)(2) of the NIRC,requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the
acquisition, excluding the VAT components, exceeds One Million Pesos
(P1,000,000.00);
2)Section 8, amending Section 110 (B) of the NIRC,imposing a 70% limit on the
amount of input tax to be credited against the output tax; and EIDTAa
3)Section 12, amending Section 114 (c) of the NIRC,authorizing the Government or any
of its political subdivisions, instrumentalities or agencies, including GOCCs, to
deduct a 5% final withholding tax on gross payments of goods and services,
which are subject to 10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of properties) of
the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive,
and confiscatory.
Petitioners' argument is premised on the constitutional right of non-deprivation of life, liberty or property
without due process of law under Article III, Section 1 of the Constitution. According to petitioners, the
contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also
argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law. Petitioners further contend that like any other property or property
right, the input tax credit may be transferred or disposed of, and that by limiting the same, the government
gets to tax a profit or value-added even if there is no profit or value-added.

260

Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the
law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the
entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with
the government, is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section
28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that
will suffer the consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:
1)Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative
power, in violation of Article VI, Section 28(2) of the Constitution;
2)The Bicameral Conference Committee acted without jurisdiction in deleting the no
pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705;
and
3)Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117,
119, 121, 125, 7 148, 151, 236, 237 and 288, which were present in Senate Bill
No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides
that all appropriation, revenue or tariff bills shall originate exclusively in the
House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20,
2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in
effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the
principle that tax collection and revenue should be solely allocated for public purposes and expenditures.
Petitioner Garcia further claims that allowing these establishments to pass on the tax to the consumers is
inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS' COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed
to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA 630 (1994), respondents argue that
the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive
origination of revenue measures and the power of the Senate concomitant thereto, have already been
settled. With regard to the issue of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the President but to increase the rate to 12%
once any of the two conditions provided therein arise.

261

Respondents also refute petitioners' argument that the increase to 12%, as well as the 70% limitation on
the creditable input tax, the 60-month amortization on the purchase or importation of capital goods
exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government's fiscal reform agenda.
A reform in the value-added system of taxation is the core revenue measure that will tilt the balance
towards a sustainable macroeconomic environment necessary for economic growth.

ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a.Article VI, Section 24, and
b.Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1.Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108
of the NIRC,violate the following provisions of the Constitution:
a.Article VI, Section 28(1), and
b.Article VI, Section 28(2)
2.Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC;and Section 12 of R.A. No. 9337, amending Section 114(C) of the
NIRC,violate the following provisions of the Constitution:
a.Article VI, Section 28(1), and
b.Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods
or properties and services. 8 Being an indirect tax on expenditure, the seller of goods or services may
pass on the amount of tax paid to the buyer, 9 with the seller acting merely as a tax collector. 10 The
burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. cEAHSC

262

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else. 11 Examples are individual and corporate
income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The single-stage system was subsequently
modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine
the value-added tax payable. 13 Under the "tax credit method," an entity can credit against or subtract
from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. 14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT
system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit
method." 15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the
Improved VAT Law, 17 R.A. No. 8424 or the Tax Reform Act of 1997, 18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a.Article VI, Section 24, and
b.Article VI, Section 26(2)
A.The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1)Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6
of R.A. No. 9337;
2)Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3)Inserting the provision imposing a 70% limit on the amount of input tax to be credited
against the output tax; and
4)Including the amendments introduced only by Senate Bill No. 1950 regarding other
kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.

263

It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative
body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly
impracticable to transact the business of the nation, either at all, or at least with decency,
deliberation, and order." 19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings." Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88.Conference Committee. In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be settled
by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the panel shall report such fact to
the House for the latter's appropriate action.
Sec. 89.Conference Committee Reports. . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject measure.
xxx xxx xxx
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill on third and final
reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35.In the event that the Senate does not agree with the House of Representatives
on the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a
reconciled version thereof with the explanatory statement of the conference committee
shall be attached to the report.
xxx xxx xxx
The creation of such conference committee was apparently in response to a problem, not addressed by
any constitutional provision, where the two houses of Congress find themselves in disagreement over
changes or amendments introduced by the other house in a legislative bill. Given that one of the most

264

basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note that in the present petitions, the
issue is not whether provisions of the rules of both houses creating the bicameral conference committee
are unconstitutional, but whether the bicameral conference committee has strictly complied with the
rules of both houses, thereby remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary, 20 the Court En Banc, unanimously reiterated
and emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners' plea for
the Court to go behind the enrolled copy of the bill. Assailed in said case was Congress's creation of two
sets of bicameral conference committees, the lack of records of said committees' proceedings, the
alleged violation of said committees of the rules of both houses, and the disappearance or deletion of one
of the provisions in the compromise bill submitted by the bicameral conference committee. It was argued
that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act. ADCETI
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both Houses of
Congress that it was passed are conclusive of its due enactment. A review of cases
reveals the Court's consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the irregularities alleged by the
petitioners mostly involved the internal rules of Congress,e.g., creation of the
2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress, whether
House or Senate. Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts there may be as to the
formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all
deny to the courts the power to inquire into allegations that, in enacting a
law, a House of Congress failed to comply with its own rules, in the
absence of showing that there was a violation of a constitutional
provision or the rights of private individuals. In Osmea v. Pendatun, it was
held: "At any rate, courts have declared that 'the rules adopted by deliberative
bodies are subject to revocation, modification or waiver at the pleasure of the
body adopting them.' And it has been said that "Parliamentary rules are
merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body) when the requisite
number of members have agreed to a particular measure." 21 (Emphasis
supplied)

The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
committed by the conference committee in introducing changes or deleting provisions in the House and
Senate bills. Akin to theFarias case, 22 the present petitions also raise an issue regarding the actions
taken by the conference committee on matters regarding Congress' compliance with its own internal

265

rules. As stated earlier, one of the most basic and inherent power of the legislature is the power to
formulate rules for its proceedings and the discipline of its members. Congress is the best judge of how it
should conduct its own business expeditiously and in the most orderly manner. It is also the sole concern
of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot
apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a
review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance, 23 the Court already made the pronouncement that "[i]f a change is desired in the practice
[of the Bicameral Conference Committee] it must be sought in Congress since this question is not
covered by any constitutional provision but is only an internal rule of each house." 24 To date,
Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that
Congress finds the practices of the bicameral conference committee to be very useful for purposes of
prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
observes that there was a necessity for a conference committee because a comparison of the provisions
of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there
were indeed disagreements. As pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555House Bill No. 3705Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VATProvides for 12% VATProvides for a single
on every sale of goodsin general on sales ofrate of 10% VAT on sale
or properties (amendinggoods or properties andof goods or properties
Sec. 106 of NIRC); 12%reduced rates for sale of(amending Sec. 106 of
VAT on importation ofcertain locallyNIRC), 10% VAT on
goods (amending Sec.manufactured goods andsale of services including
107 of NIRC); and 12%petroleum products andsale of electricity by
VAT on sale of servicesraw materials to be usedgeneration companies,
and use or lease ofin the manufacture thereoftransmission and
properties (amending(amending Sec. 106 ofdistribution companies,
Sec. 108 of NIRC)NIRC); 12% VAT onand use or lease of
importation of goods andproperties (amending
reduced rates for certainSec. 108 of NIRC)
imported products
including petroleum
products (amending Sec.
107 of NIRC); and 12%
VAT on sale of services
and use or lease of
properties and a reduced
rate for certain services
including power
generation (amending
Sec. 108 of NIRC)

266

With regard to the "no pass-on" provision

No similar provisionProvides that the VATProvides that the VAT
imposed on powerimposed on sales of
generation and on theelectricity by generation
sale of petroleumcompanies and services of
products shall betransmission companies
absorbed by generationand distribution
companies or sellers,companies, as well as
respectively, and shallthose of franchise
not be passed on tograntees of electric
consumersutilities shall not apply
to residential end-users.
VAT shall be absorbed by
generation, transmission,
and distribution
companies.
With regard to 70% limit on input tax credit
Provides that the inputNo similar provisionProvides that the input
tax credit for capitaltax credit for capital
goods on which a VATgoods on which a VAT
has been paid shall behas been paid shall be
equally distributed overequally distributed over
5 years or the depreciable5 years or the depreciable
life of such capital goods;life of such capital goods;
the input tax credit forthe input tax credit for
goods and services othergoods and services other
than capital goods shallthan capital goods shall
not exceed 5% of thenot exceed 90% of the
total amount of suchoutput VAT.
goods and services; and
for persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount
of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise
taxes
No similar provisionNo similar provisionProvided for amendments
to several NIRC
provisions regarding
corporate income,
percentage, franchise and
excise taxes

267

The disagreements between the provisions in the House bills and the Senate bill were with regard to (1)
what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers, as proposed in the
Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies
and the VAT imposed on sale of petroleum products should not be passed on to consumers, as proposed
in the House bill; (3) in what manner input tax credits should be limited; (4) and whether
the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be
amended. CSaHDT
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills,
the Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on
the same by settling said differences and/or disagreements. The Bicameral Conference Committee acted
on the disagreeing provisions by making the following changes:
1.With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference
between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT
rate proposed by the House, by striking a compromise whereby the present 10% VAT rate would be
retained until certain conditions arise, i.e., the value-added tax collection as a percentage of gross
domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a
percentage of GDP of the previous year exceeds 1 1/2%, when the President, upon recommendation of
the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2.With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale
of petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to
settle such disagreement by altogether deleting from its Report any no pass-on provision.
3.With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position of the House by putting a limitation on the amount of
input tax that may be credited against the output tax, although it crafted its own language as to the
amount of the limitation on input tax credits and the manner of computing the same by providing thus:
(A)Creditable Input Tax. . . .
xxx xxx xxx
Provided, The input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the
estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such shorter period: . . .
(B)Excess Output or Input Tax. If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the
input tax exceeds the output tax, the excess shall be carried over to the succeeding
quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over
from the previous quarter that may be credited in every quarter shall not exceed

268

seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, . . .
4.With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and
basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the
House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize." 25 To
reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt
the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the
House bill or the provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try
to arrive at a compromise between the disagreeing provisions.

In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any
idea or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the
Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House
shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed
by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what
rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel,
explained the reason for deleting theno pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And let's
keep it plain and simple. Let's not confuse the bill and put a no pass-on provision. Twothirds of the world have a VAT system and in this two-thirds of the globe, I have yet to
see a VAT with a no pass-though provision. So, the thinking of the Senate is basically
simple, let's keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed
the support of either House." 27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax credit,
but again, the change introduced by the Bicameral Conference Committee was totally within the intent of
both houses to put a cap on input tax that may be credited against the output tax. From the inception of
the subject revenue bill in the House of Representatives, one of the major objectives was to "plug a
glaring loophole in the tax policy and administration by creating vital restrictions on the claiming of input

269

VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent disadvantage." 28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate
Bill No. 1950, since said provisions were among those referred to it, the conference committee had to act
on the same and it basically adopted the version of the Senate. ACDTcE
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
subjects of the provisions referred to it for reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado 29 and Tolentino
vs. Secretary of Finance, 30 the Court recognized the long-standing legislative practice of giving said
conference committee ample latitude for compromising differences between the Senate and the House.
Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is germane to
the subject of the bills before the committee. After all, its report was not final but
needed the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference Committee
acted as a third legislative chamber is thus without any basis. 31 (Emphasis
supplied)
B.R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment
Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to
its Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners' argument that the practice where a bicameral conference committee is allowed to add or
delete provisions in the House bill and the Senate bill after these had passed three readings is in effect a
circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince
the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee's Report in these cases must
have undergone three readings in each of the two houses. If that be the case, there
would be no end to negotiation since each house may seek modification of the
compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the conference
committee report. 32 (Emphasis supplied)

270

The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed
by each house of Congress with regard to bills initiated in each of said respective houses, before
said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead
to absurdity as this would mean that the other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be
taken to mean that the introduction by the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is
prohibited.
C.R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination
of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate
income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
Section 27
Rates of Income Tax on Domestic
Corporation
28(A)(1)Tax on Resident Foreign Corporation
28(B)(1)Inter-corporate Dividends
34(B)(1)Inter-corporate Dividends
116Tax on Persons Exempt from VAT
117Percentage Tax on domestic carriers and
keepers of Garage
119Tax on franchises
121Tax on banks and Non-Bank Financial
Intermediaries
148Excise Tax on manufactured oils and
other fuels
151Excise Tax on mineral products
236Registration requirements
237Issuance of receipts or sales or
commercial invoices
288Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the
House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107,
108, 110 and 114 of the NIRC,while House Bill No. 3705 proposed amendments only to Sections 106,
107, 108, 109, 110 and 111 of the NIRC;thus, the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills are not intended to be amended by the House of
Representatives. Hence, they argue that since the proposed amendments did not originate from the
House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:

271

Sec. 24.All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House
of Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the
move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of
said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments
not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions on other
kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the value-added
tax, which is the only kind of tax being amended in the House bills, still within the purview of the
constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill
that originated from the House? ATHCac
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. . . . At this point,
what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute and not only the bill which initiated
the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to "propose amendments." It
would be to violate the coequality of legislative power of the two houses of Congress
and in fact make the House superior to the Senate.

xxx xxx xxx

. . . Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the
Constitution to originate in the House.
xxx xxx xxx
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected
as they are from the districts, the members of the House can be expected to be
more sensitive to the local needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment of
such laws. 33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the
Senate was acting within its constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise and
franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or

272

limitation on the extent of the amendments that may be introduced by the Senate to the House revenue
bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject revenue
bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which
was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting
task of solving the country's serious financial problems. To do this, government
expenditures must be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but our fiscal authorities are
still optimistic the government will be operating on a balanced budget by the year 2009.
In fact, several measures that will result to significant expenditure savings have been
identified by the administration. It is supported with a credible package of revenue
measures that include measures to improve tax administration and control the
leakages in revenues from income taxes and the value-added tax (VAT).
(Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our
fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the relevance given our
present conditions. 34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring
in sizeable revenues for the government to supplement our country's serious financial problems, and
improve tax administration and control of the leakages in revenues from income taxes and value-added
taxes. As these house bills were transmitted to the Senate, the latter, approaching the measures from the
point of national perspective, can introduce amendments within the purposes of those bills. It can provide
for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing the burden
across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship
speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth
quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3
billion in additional revenues annually even while by mitigating prices of power, services
and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is
from the VAT on twelve goods and services. The rest of the tab P10.5 billion will
be picked by corporations.

273

What we therefore prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal salvation be
only on the burden of the consumer?
The corporate world's equity is in form of the increase in the corporate income tax from
32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the
rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30
percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal house
in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the
length of their sacrifice brief. We would like to assure them that not because there is a
light at the end of the tunnel, this government will keep on making the tunnel
long. AaITCH
The responsibility will not rest solely on the weary shoulders of the small man. Big
business will be there to share the burden. 35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which is to
raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax would
no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. Again,
in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax
on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a
VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to
destroy the VAT chain, we will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.
xxx xxx xxx
What do all these exercises point to? These are not contortions of giving to the left
hand what was taken from the right. Rather, these sprang from our concern of softening
the impact of VAT, so that the people can cushion the blow of higher prices they will
have to pay as a result of VAT. 36

274

The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the
house bills, which is to supplement our country's fiscal deficit, among others. Thus, the Senate acted
within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of
the NIRC,violate the following provisions of the Constitution:
a.Article VI, Section 28(1), and
b.Article VI, Section 28(2)
A.No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC giving the President thestand-by authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4.Sec. 106 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 106.Value-Added Tax on Sale of Goods or Properties.
(A)Rate and Base of Tax. There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor: provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied.
(i)value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii)national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%).
SEC. 5.Section 107 of the same Code, as amended, is hereby further amended to read
as follows:

275

SEC. 107.Value-Added Tax on Importation of Goods.

(A)In General. There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%) based
on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on
the basis of the quantity or volume of the goods, the value-added tax shall be
based on the landed cost plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been
satisfied. EITcaD

(i)value-added tax collection as a percentage of Gross Domestic Product

(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii)national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%).
SEC. 6.Section 108 of the same Code, as amended, is hereby further amended to read
as follows:
SEC. 108.Value-added Tax on Sale of Services and Use or Lease of Properties

(A)Rate and Base of Tax. There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from
the sale or exchange of services: provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied.
(i)value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii)national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%). (Emphasis
supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:

276

The Congress may, by law, authorize the President to fix within specified limits, and
may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national development program of
the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as
on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to
the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the President's power of
control, which includes the authority to set aside and nullify the acts of her subordinates like the Secretary
of Finance, by mandating the fixing of the tax rate by the President upon the recommendation of the
Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition
of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat,
contrary to the principle of no taxation without representation. They submit that the Secretary of Finance
is not mandated to give a favorable recommendation and he may not even give his recommendation.
Moreover, they allege that no guiding standards are provided in the law on what basis and as to how he
will make his recommendation. They claim, nonetheless, that any recommendation of the Secretary of
Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter,
such that, ultimately, it is the President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere. 37 A logical corollary to the doctrine of separation of powers is the principle of non-delegation of
powers, as expressed in the Latin maxim: potestas delegata non delegari potest which means "what has
been delegated, cannot be delegated." 38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another. 39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating are those which are strictly,
or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has
been described as the authority to make a complete law complete as to the time when it shall
take effect and as to whom it shall be applicable and to determine the expediency of its
enactment. 40 Thus, the rule is that in order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must appear that the power involved is purely
legislative in nature that is, one appertaining exclusively to the legislative department. It is the nature of
the power, and not the liability of its use or the manner of its exercise, which determines the validity of its
delegation.

277

Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1)Delegation of tariff powers to the President under Section 28 (2) of Article VI of the
Constitution;
(2)Delegation of emergency powers to the President under Section 23 (2) of Article VI
of the Constitution;
(3)Delegation to the people at large;
(4)Delegation to local governments; and
(5)Delegation to administrative bodies. DaAISH
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate;41 and (b) fixes a standard the limits of which are sufficiently determinate
and determinable to which the delegate must conform in the performance of his functions. 42 A
sufficient standard is one which 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. 43 Both tests are intended to prevent a total transference of legislative
authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power
essentially legislative. 44
In People vs. Vera, 45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and
extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not,
it is usual to inquire whether the statute was complete in all its terms and provisions
when it left the hands of the legislature so that nothing was left to the judgment of any
other appointee or delegate of the legislature.
xxx xxx xxx
'The true distinction', says Judge Ranney, 'is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution, to be exercised under
and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made.'
xxx xxx xxx
It is contended, however, that a legislative act may be made to the effect as law after it
leaves the hands of the legislature. It is true that laws may be made effective on certain
contingencies, as by proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of the United States
ruled that the legislature may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a power which may be
delegated. There is nothing essentially legislative in ascertaining the existence of

278

facts or conditions as the basis of the taking into effect of a law. That is a mental
process common to all branches of the government. Notwithstanding the apparent
tendency, however, to relax the rule prohibiting delegation of legislative authority on
account of the complexity arising from social and economic forces at work in this
modern industrial age, the orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the
Constitution of the United States in the following language speaking of declaration of
legislative power to administrative agencies: The principle which permits the
legislature to provide that the administrative agent may determine when the
circumstances are such as require the application of a law is defended upon the
ground that at the time this authority is granted, the rule of public policy, which is
the essence of the legislative act, is determined by the legislature. In other
words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that,
under other circumstances, different or no action at all is to be taken. What is
thus left to the administrative official is not the legislative determination of what
public policy demands, but simply the ascertainment of what the facts of the
case require to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of legislative will must, of
course, come from Congress, but the ascertainment of the contingency upon
which the Act shall take effect may be left to such agencies as it may designate.
The legislature, then, may provide that a law shall take effect upon the happening
of future specified contingencies leaving to some other person or body the
power to determine when the specified contingency has arisen. (Emphasis
supplied). 46

In Edu vs. Ericta, 47 the Court reiterated:

What cannot be delegated is the authority under the Constitution to make laws and to
alter and repeal them; the test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To determine whether or not
there is an undue delegation of legislative power, the inquiry must be directed to the
scope and definiteness of the measure enacted. The legislative does not abdicate its
functions when it describes what job must be done, who is to do it, and what is
the scope of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully been made
between delegation of power to make the laws which necessarily involves a
discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under
and in pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts
or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made
to depend, but the legislature must prescribe sufficient standards, policies or limitations on their
authority. 49 While the power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends. 50

279

The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation
is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating
information and making recommendations is the kind of subsidiary activity which the legislature may
perform through its members, or which it may delegate to others to perform. Intelligent legislation on the
complicated problems of modern society is impossible in the absence of accurate information on the part
of the legislators, and any reasonable method of securing such information is proper. 51 The
Constitution as a continuously operative charter of government does not require that Congress find for
itself every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to particular
facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and
6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i)Value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii)National government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law is
contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent
upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that
the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its
use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. 53 Where
the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no
choice but to see to it that the mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of
any of the conditions specified by Congress. This is a duty which cannot be evaded by the President.
Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not
come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other
than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President's power of control over the Secretary of Finance by mandating the fixing
of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot
also subscribe to the position of petitioners Pimentel, et al. that the word shall should be interpreted to
mean may in view of the phrase "upon the recommendation of the Secretary of Finance." Neither does
the Court find persuasive the submission of petitioners Escudero, et al. that any recommendation by the

280

Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of
the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
head of the Department of Finance he is the assistant and agent of the Chief Executive. 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, such as the Department of Finance,
performed and promulgated in the regular course of business, are, unless disapproved or reprobated by
the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of Finance, as such,
occupies a political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General
Cushing, is "subject to the direction of the President." 55
In the present case, in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of control and direction of the President. He
is acting as the agent of the legislative department, to determine and declare the event upon which its
expressed will is to take effect. 56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them. His function is to
gather and collate statistical data and other pertinent information and verify if any of the two conditions
laid out by Congress is present. His personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the
former for that of the latter. DcITHE
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
1/2%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate,
must submit such information to the President. Then the 12% VAT rate must be imposed by the President
effective January 1, 2006. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible. 57 Congress does not
abdicate its functions or unduly delegate power when it describes what job must be done, who must do it,
and what is the scope of his authority; in our complex economy that is frequently the only way in which
the legislative process can go forward. 58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law. The
intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to
simply execute the legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or
create the conditions to bring about either or both the conditions precedent does not deserve any merit as
this argument is highly speculative. The Court does not rule on allegations which are manifestly
conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of realities, justice and law will be short-lived.

281

B.The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional
tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2
conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT rate
would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such
rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth
therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear.
It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the
rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that
the national government deficit as a percentage of GDP of the previous year does not exceed 1 1/2%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may
tread upon. 60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court
finds none, petitioners' argument is, at best, purely speculative. There is no basis for petitioners' fear of a
fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the
conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of
the law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative
intent, the law must be taken as it is, devoid of judicial addition or subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on
fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
Respondents explained the philosophy behind these alternative conditions:
1.VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If
VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2.Nat'l Gov't Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the
direction of a balanced budget position. Therefore, there is no need to increase the VAT

282

rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the
ratio is more than 1.5%, there is indeed a need to increase the VAT rate. 62
That the first condition amounts to an incentive to the President to increase the VAT collection does not
render it unconstitutional so long as there is a public purpose for which the law was passed, which in this
case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam
Smith in his Canons of Taxation (1776), as:
IV.Every tax ought to be so contrived as both to take out and to keep out of the pockets
of the people as little as possible over and above what it brings into the public
treasury of the state. 63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations. 64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
country's gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a
position where 90 percent of our revenue is used for debt service. So, for every peso of
revenue that we currently raise, 90 goes to debt service. That's interest plus
amortization of our debt. So clearly, this is not a sustainable situation. That's the first
fact.
The second fact is that our debt to GDP level is way out of line compared to other peer
countries that borrow money from that international financial markets. Our debt to GDP
is approximately equal to our GDP. Again, that shows you that this is not a sustainable
situation.
The third thing that I'd like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, we've been lucky because we were operating in a period of
basically global growth and low interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in the leading economies of the
world. And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad
as it is now, at least based on the forecast of most financial institutions. So, we were
assuming that raising 80 billion would put us in a position where we can then convince
them to improve our ability to borrow at lower rates. But conditions have changed on us
because the interest rates have gone up. In fact, just within this room, we tried to
access the market for a billion dollars because for this year alone, the Philippines will
have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We

283

issued last January a 25-year bond at 9.7 percent cost. We were trying to access last
week and the market was not as favorable and up to now we have not accessed and
we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to
front-end our deficit reduction. Because it is deficit that is causing the increase of the
debt and we are in what we call a debt spiral. The more debt you have, the more deficit
you have because interest and debt service eats and eats more of your revenue. We
need to get out of this debt spiral. And the only way, I think, we can get out of this debt
spiral is really have a front-end adjustment in our revenue base. 65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the state's economic dilemma is not for the
Court to judge. In the Farias case, the Court refused to consider the various arguments raised therein
that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the
exclusive dominion of the political branches of the government. It is not for this Court to
look into the wisdom or propriety of legislative determination. Indeed, whether an
enactment is wise or unwise, whether it is based on sound economic theory, whether it
is the best means to achieve the desired results, whether, in short, the legislative
discretion within its prescribed limits should be exercised in a particular manner are
matters for the judgment of the legislature, and the serious conflict of opinions does not
suffice to bring them within the range of judicial cognizance. 66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of
legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC;and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,violate the following provisions
of the Constitution:
a.Article VI, Section 28(1), and cEaCTS
b.Article III, Section 1
A.Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of
the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as embodied
in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of
the law.

284

The doctrine is that where the due process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character
as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of
input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: . . ."
Input Tax is defined under Section 110(A) of the NIRC,as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under the law.

Petitioners claim that the contested sections impose limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the
output tax.
Petitioners' argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is
less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business's books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if
the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been
applied against the output taxes. Such unused input tax may be used in payment of his other internal
revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It
ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B).
Therefore, petitioners' argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that
tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys
goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise:

285

First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes
that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which
has to be paid to the Bureau of Internal Revenue (BIR); 69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions,
any excess over the output taxes shall instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayer's option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit
his input tax only up to the extent of 70% of the output tax. In layman's term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added
taxes that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit
such input tax to the BIR. The party directly liable for the payment of the tax is the seller. 71 What only
needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts,
against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered person's entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no
vested rights in statutory privileges. The state may change or take away rights, which were created by the
law of the state, although it may not take away property, which was vested by virtue of such rights. 72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the
gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it
was then that the crediting of the input tax paid on purchase or importation of goods and services by VATregistered persons against the output tax was introduced. 73 This was adopted by the Expanded VAT
Law (R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A. No. 8424). 75 The right to credit input tax
as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or
in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC,which provides:
SEC. 110.Tax Credits.
(A)Creditable Input Tax. . . .
Provided, That the input tax on goods purchased or imported in a calendar month for
use in trade or business for which deduction for depreciation is allowed under this
Code, shall be spread evenly over the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such goods, excluding the VAT

286

component thereof, exceeds One million pesos (P1,000,000.00): Provided, however,

That if the estimated useful life of the capital goods is less than five (5) years, as used
for depreciation purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on
purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the input tax. Petitioners' argument is
without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government. 76 In the same breath, Congress also justified
its move by saying that the provision was designed to raise an annual revenue of 22.6 billion. 77 The
legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5%
non-creditable VAT, foreign investments were not deterred. 78 Again, for whatever is the purpose of the
60-month amortization, this involves executive economic policy and legislative wisdom in which the Court
cannot intervene. TAcSaC
With regard to the 5% creditable withholding tax imposed on payments made by the government for
taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC,reads:
SEC. 114.Return and Payment of Value-added Tax.
(C)Withholding of Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of
goods and services which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the payment for lease or
use of properties or property rights to nonresident owners shall be subject to ten
percent (10%) withholding tax at the time of payment. For purposes of this Section, the
payor or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
VAT withholding system. The government in this case is constituted as a withholding agent with respect to
their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld
3% on gross payments for purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross payments for services supplied by
public work contractors; or 10% on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on lease
or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.

287

The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:

SECTION 2.57.Withholding of Tax at Source

(A)Final Withholding Tax. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be
collected from the payor/withholding agent. . . .
(B)Creditable Withholding Tax. Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at least approximate the
tax due of the payee on said income. . . . Taxes withheld on income payments covered
by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these regulations) are creditable
in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a
5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the net
VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input
VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government. 80 This is supported by the fact that under the old
provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller
or contractor, to wit:
SEC. 114.Return and Payment of Value-added Tax.
(C)Withholding of Creditable Value-added Tax. The Government or any of its
political subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are subject
to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold the value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts for services
rendered by contractors on every sale or installment payment which shall be creditable
against the value-added tax liability of the seller or contractor: Provided, however,
That in the case of government public works contractors, the withholding rate shall be
eight and one-half percent (8.5%): Provided, further, That the payment for lease or use
of properties or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For this purpose, the payor or person in
control of the payment shall be considered as the withholding agent.

288

The valued-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress's
intention to treat transactions with the government differently. Since it has not been shown that the class
subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate
the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final
withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of the
cost. Equally, should the actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax
a profit or value-added even if there is no profit or value-added.
Petitioners' stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage
in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition
by the Court on this point will only be, as Shakespeare describes life in Macbeth, 82 "full of sound and
fury, signifying nothing."
What's more, petitioners' contention assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances." 83
The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State's
power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax,
or invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject
of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of
assessment, valuation and collection. Petitioners' alleged distinctions are based on variables that bear
different consequences. While the implementation of the law may yield varying end results depending on
one's profit margin and value-added, the Court cannot go beyond what the legislature has laid down and
interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the

289

grouping of persons or things similar to each other in certain particulars and different from all others in
these same particulars. 85
Petitioners brought to the Court's attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea
III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D.
Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%.
This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory.
On this score, suffice it to say that these are still proposed legislations. Until Congress amends the law,
and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays. aHTCIc
B.Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed
at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on
the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC,provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and
sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or
the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does
not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the
particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10%
(or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. 88 Also, basic marine and agricultural food products in their original state are still not
subject to the tax, 89 thus ensuring that prices at the grassroots level will remain accessible. As was
stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: 90
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and marine products, so
that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors
those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden
the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This

290

acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum products 91 and natural gas 92 were reduced.
Percentage tax on domestic carriers was removed. 93 Power producers are now exempt from paying
franchise tax. 94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax
rate, from a previous 32%. 95 Intercorporate dividends of non-resident foreign corporations are still
subject to 15% final withholding tax but the tax credit allowed on the corporation's domicile was increased
to 20%. 96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income
taxes anymore. 97 Even the sale by an artist of his works or services performed for the production of such
works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise
rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C.Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer's ability to pay. This principle was also lifted
from Adam Smith's Canons of Taxation, and it states:
I.The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities;
that is, in proportion to the revenue which they respectively enjoy under the
protection of the state. TSacCH
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. In other words,
the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income
earned by a person or profit margin marked by a business, such that the higher the income or profit
margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the
income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in
the Tolentino case, thus:

291

The Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall 'evolve a
progressive system of taxation.' The constitutional provision has been interpreted to
mean simply that 'direct taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.' (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to
prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which
perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17 (1) of the 1973 Constitutionfrom which the present Art.
VI, 28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects
of this imposition by providing for zero rating of certain transactions (R.A. No. 7716,
3, amending 102 (b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, 4 amending 103 of the NIRC) 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on
the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy.
As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and
that the judiciary should stand ready to afford relief. There are undoubtedly many
wrongs the judicature may not correct, for instance, those involving political questions. .
..
Let us likewise disabuse our minds from the notion that the judiciary is the repository of
remedies for all political or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing
full well that one is not the guardian of the others and that, for official wrong-doing,
each may be brought to account, either by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino 101 holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.
SO ORDERED.
Carpio, J., concurs.

292

Davide, Jr., C.J., pls. see separate concurring and dissenting opinion.
Puno, J., pls. see concurring and dissenting opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., concurs in the result.
Ynares-Santiago, J., concurring and dissenting opinion.
Sandoval-Gutierrez, J., pls. see my concurring and dissenting opinion.
Corona, J., I join Mrs. Justice Gutierrez in her concurring and dissenting opinion.
Carpio-Morales, J., I concur. I also concur with the dissent of J. Tinga on Section 8 of the law.
Callejo, Sr., J., pls. see my concurring and dissenting opinion.
Azcuna, J., pls. see separate concurring and dissenting opinion.
Tinga, J., see dissenting and concurring opinion.
Chico-Nazario, J., pls. see separate concurring opinion.
Garcia, J., I also concur with J. Puno insofar as the deletion of no pass on provision (illegible portion)
including section 21.
Separate Opinions
Separate Opinions
DAVIDE, JR., C.J., separate concurring and dissenting opinion:
While I still hold on to my position expressed in my dissenting opinion in the first VAT cases, 1 I partly
yield to the application to the cases at bar of the rule on "germaneness" therein enunciated. Thus, I
concur with the ponencia of my highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez
except as regards its ruling on the issue of whether Republic Act No. 9337 violates Section 24, Article VI
of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its base and
raising the rate so as to generate more revenues for the government that can assuage the economic
predicament that our country is now facing. This recently enacted law stemmed from three legislative bills:
House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB No. 3555) called for the
amendment of Sections 106, 107, 108, 109, 110, and 111 of the National Internal Revenue
Code (NIRC)as amended; while the second (HB No. 3705) proposed amendments to Sections 106, 107,
108, 110, and 114 of the NIRC,as amended. It is significant to note that all these Sections specifically deal
with VAT. And indubitably, these bills are revenue bills in that they are intended to levy taxes and raise
funds for the government. 2

293

On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106, 108, 109, 110, 111,
112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" of the NIRC,as amended. Among the
provisions sought to be amended, only Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116 pertain
to VAT. And while Sections 236, 237, and 288 are administrative provisions pertaining to registration
requirements and issuance of receipts commercial invoices, the proposed amendments thereto are
related to VAT. Hence, the proposed amendments to these Sections were validly taken cognizance of and
properly considered by the Bicameral Conference Committee (BCC). DHATcE
However, I am of the opinion that the inclusion into the law of the amendments proposed in SB No. 1950
to the following provisions (with modifications on the rates of taxes) is invalid.
ProvisionSubject matter
Section 27Rate of income tax on domestic corporations
Section 28(A)(1)Rate of income tax on resident foreign
corporation
Section 28(B)(1)Rate of income tax on non-resident foreign
corporation
Section 28(B)(5-b)Rate of income tax on intra-corporate dividends
received by non-resident foreign corporation
Section 34(B)(1)Deductions from gross income
Section 117Percentage tax on domestic carriers and keepers
of garages
Section 119Tax on franchises
Section 148Excise tax on manufactured oils and other fuels
Obviously, these provisions do not deal with VAT. It must be noted that the House Bills initiated
amendments to provisions pertaining to VAT only. Doubtless, the Senate has the constitutional power to
concur with the amendments to the VAT provisions introduced in the House Bills or even to propose its
own version of VAT measure. But that power does not extend to initiation of other tax measures, such as
introducing amendments to provisions on corporate income taxes, percentage taxes, franchise taxes, and
excise taxes like what the Senate did in these cases. It was beyond the ambit of the authority of the
Senate to propose amendments to provisions not covered by the House Bills or not related to the subject
matter of the House Bills, which is VAT. To allow the Senate to do so would be tantamount to vesting in it
the power to initiate revenue bills a power that exclusively pertains to the House of Representatives
under Section 24, Article VI of the Constitution, which provides:

Sec. 24.All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House
of Representatives but the Senate may propose or concur with amendments. ADaECI

294

Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and 151
(Excise Tax on Mineral Products) of the NIRC,as amended, have been included by the BCC in R.A. N0.
9337 even though they were not found in the Senate and House Bills.
In Philippine Judges Association v. Prado, 3 the Court described the function of a conference committee
in this wise: "A conference committee may deal generally with the subject matter or it may be limited to
resolving the precise differences between the two houses. Even where the conference committee is not
by rule limited in its jurisdiction, legislative custom severely limits the freedom with which new subject
matter can be inserted into the conference bill."
The limitation on the power of a conference committee to insert new provisions was laid down in Tolentino
v. Secretary of Finance. 4 There, the Court, while recognizing the power of a conference committee to
include in its report an entirely new provision that is not found either in the House bill or in the Senate bill,
held that the exercise of that power is subject to the condition that the said provision is "germane to the
subject of the House and Senate bills."
As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that case
the amendments introduced in the Senate bill were on the same subject matter treated in the House bill,
which was VAT, and the new provision inserted by the conference committee had relation to that subject
matter. Specifically, HB No. 11197 called for the (1) amendment of Sections 99, 100, 102, 103, 104, 105,
106, 107, 108, 110, 112, 115, 116, 236, 237, and 238 of the NIRC,as amended; and (2) repeal of Sections
113 and 114 of the NIRC,as amended. SB No. 1630, on the other hand, proposed the (1) amendment of
Sections 99, 100, 102, 103, 104, 105, 107, 108, 110, 112, 236, 237, and 238 of the NIRC,as amended;
and (2) repeal of Sections 113, 114, and 116 of the NIRC,as amended. In short, all the provisions sought
to be changed in the Senate bill were covered in the House bill. Although the new provisions inserted by
the conference committee were not found in either the House or Senate bills, they were germane to the
general subject of the bills.
In the present cases, the provisions inserted by the BCC, namely, Sections 121 (Percentage Tax on
Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC,as
amended, are undoubtedly germane to SB No. 1950, which introduced amendments to the provisions on
percentage and excise taxes but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since
the proposed amendments in the Senate bill relating to percentage and excise taxes cannot themselves
be sustained because they did not take their root from, or are not related to the subject of, HB Nos. 3705
and 3555, in violation of Section 24, Article VI of the Constitution, the new provisions inserted by the BCC
on percentage and excise taxes would have no leg to stand on. DCcTHa
I understand very well that the amendments of the Senate and the BCC relating to corporate income,
percentage, franchise, and excise taxes were designed to "soften the impact of VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders
of the consumers" and to alleviate the country's financial problems by bringing more revenues for the
government. However, these commendable intentions do not justify a deviation from the Constitution,
which mandates that the initiative for filing revenue bills should come from the House of Representatives,
not from the Senate. After all, these aims may still be realized by means of another bill that may later be
initiated by the House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions pertaining to
VAT. However, I vote to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof
which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the NIRC,as amended
because these amendments deal with subject matters which were not touched or covered by the bills

295

emanating from the House of Representatives, thereby violating Section 24 of Article VI of the
Constitution.
PUNO, J., concurring and dissenting:
The main opinion of Madam Justice Martinez exhaustively discusses the numerous constitutional and
legal issues raised by the petitioners. Be that as it may, I wish to raise the following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as violative of the principle of nondelegation of legislative power. These sections authorize the President, upon recommendation of the
Secretary of Finance, to raise the value-added tax (VAT) rate to 12% effective January 1, 2006, upon
satisfaction of the following conditions: viz:
(i)Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii)National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited to the
review of "actual cases and controversies." 1 As rightly stressed by retired Justice Vicente V.
Mendoza, this requirement gives the judiciary "the opportunity, denied to the legislature, of seeing the
actual operation of the statute as it is applied to actual facts and thus enables it to reach sounder
judgment" and "enhances public acceptance of its role in our system of government." 2 It also
assures that the judiciary does not intrude on areas committed to the other branches of government
and is confined to its role as defined by the Constitution. 3 Apposite thereto is the doctrine
of ripenesswhose basic rationale is "to prevent the courts, through premature adjudication, from
entangling themselves in abstract disagreements." 4 Central to the doctrine is the determination of
"whether the case involves uncertain or contingent future events that may not occur as
anticipated, or indeed may not occur at all." 5 The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which are "notimmediately
involved are not thereby thrown open for a judicial determination of constitutionality." 6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President the power to raise the VAT rate to 12%
on January 1, 2006 upon satisfaction of certain fact-based conditions. We are not endowed with the
infallible gift of prophesy to know whether these conditions are certain to happen. The power to adjust the
tax rate given to the President is futuristic and may or may not be exercised. The Court is therefore
beseeched to render a conjectural judgment based on hypothetical facts. Such a supplication has to be
rejected. AcSCaI
Second. With due respect, I submit that the most important constitutional issue posed by the petitions at
bar relates to the parameters of power of a Bicameral Conference Committee. Most of the issues in
the petitions at bar arose because the Bicameral Conference Committee concerned exercised powers
that went beyond reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705
and 3555. In Tolentino v. Secretary of Finance, 7 I ventured the view that a Bicameral Conference
Committee has limited powers and cannot be allowed to act as if it were a "third house" of Congress. I
further warned that unless its roving powers are reigned in, a Bicameral Conference Committee can
wreck the lawmaking process which is a cornerstone of the democratic, republican regime established in
our Constitution. The passage of time fortifies my faith that there ought to be no legal u-turn on this
preeminent principle. I wish, therefore, to reiterate my reasons for this unbending view, viz: 8

296

Section 209, Rule XII of the Rules of the Senate provides:

In the event that the Senate does not agree with the House of Representatives
on the provision of any bill or joint resolution, the differences shall be settled by
a conference committee of both Houses which shall meet within ten days after
their composition.
Each Conference Committee Report shall contain a detailed and sufficiently
explicit statement of the changes in or amendments to the subject measure,
and shall be signed by the conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near identical language.
Section 85 of the Rules of the House of Representatives pertinently provides:
In the event that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences may be settled by a
conference committee of both chambers.
. . . . Each report shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure. (Emphasis supplied)
The Jefferson's Manual has been adopted as a supplement to our parliamentary rules
and practice. Section 456 of Jefferson's Manual similarly confines the powers of a
conference committee, viz:
The managers of a conference must confine themselves to the differences
committed to them . . . and may not include subjects not within the
disagreements, even though germane to a question in issue.
This rule of antiquity has been honed and honored in practice by the Congress of the
United States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the
United States Senate, viz:

Committees of conference are appointed for the sole purpose of compromising

and adjusting the differing and conflicting opinions of the two Houses and the
committees of conference alone can grant compromises and modify
propositions of either Houses within the limits of the disagreement. Conferees
are limited to the consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by
either House, nor shall they strike from the bill matters agreed to by both
Houses. No matter on which there is nothing in either the Senate or House
passed versions of a bill may be included in the conference report and actions
to the contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House
of Representatives to support the thesis of the respondents that a bicameral
conference committee is clothed with an ex post veto power.

297

But the thesis that a Bicameral Conference Committee can wield ex post veto power
does not only contravene the rules of both the Senate and the House. It wages war
against our settled ideals of representative democracy. For the inevitable, catastrophic
effect of the thesis is to install a Bicameral Conference Committee as the Third
Chamber of our Congress, similarly vested with the power to make laws but with
the dissimilarity that its laws are not the subject of a free and full discussion of both
Houses of Congress. With such a vagrant power, a Bicameral Conference Committee
acting as a Third Chamber will be a constitutional monstrosity. ScCEIA
It needs no omniscience to perceive that our Constitution did not provide for a
Congress composed of three chambers. On the contrary, section 1, Article VI of the
Constitution provides in clear and certain language: "The legislative power shallbe
vested in the Congress of the Philippines which shall consist of a Senate and a House
of Representatives . . ." Note that in vesting legislative power exclusively to the Senate
and the House, the Constitution used the word "shall." Its command for a Congress of
two houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate ". . .
composed of twenty-four Senators . . . elected at large by the qualified voters of the
Philippines . . . " Similarly, when the Constitution vested the legislative power to the
House, it means the House ". . . composed of not more than two hundred and fifty
members . . . who shall be elected from legislative districts . . . and those who . . . shall
be elected through a party-list system of registered national, regional, and sectoral
parties or organizations." The Constitution thus, did not vest on a Bicameral
Conference Committee with an ad hoc membership the power to legislate for it
exclusively vested legislative power to the Senate and the House as co-equal bodies.
To be sure, the Constitution does not mention the Bicameral Conference Committees of
Congress. No constitutional status is accorded to them. They are not even statutory
creations. They owe their existence from the internal rules of the two Houses of
Congress. Yet, respondents peddle the disconcerting idea that they should be
recognized as a Third Chamber of Congress and with ex post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power
with ex post veto power is freighted with mischief. Law making is a power that can be
used for good or for ill, hence, our Constitution carefully laid out a plan and a procedure
for its exercise. Firstly, it vouchsafed that the power to make laws should be exercised
by no other body except the Senate and the House. It ought to be indubitable that what
is contemplated is the Senate acting as a full Senate and the House acting as a full
House. It is only when the Senate and the House act as whole bodies that they truly
represent the people. And it is only when they represent the people that they can
legitimately pass laws. Laws that are not enacted by the people's rightful
representatives subvert the people's sovereignty. Bicameral Conference Committees,
with their ad hoc character and limited membership, cannot pass laws for they do not
represent the people. The Constitution does not allow the tyranny of the majority. Yet,
the respondents will impose the worst kind of tyranny the tyranny of the minority
over the majority. Secondly, the Constitution delineated in deft strokes the steps to be
followed in making laws. The overriding purpose of these procedural rules is to assure
that only bills that successfully survive the searching scrutiny of the proper committees
of Congress and the full and unfettered deliberations of both Houses can become laws.
For this reason, a bill has to undergo three (3) mandatory separate readings in each
House. In the case at bench, the additions and deletions made by the Bicameral

298

Conference Committee did not enjoy the enlightened studies of appropriate

committees. It is meet to note that the complexities of modern day legislations have
made our committee system a significant part of the legislative process. Thomas Reed
called the committee system as "the eye, the ear, the hand, and very often the brain of
the house." President Woodrow Wilson of the United States once referred to the
government of the United States as "a government by the Chairmen of the Standing
Committees of Congress . . ." Neither did these additions and deletions of the
Bicameral Conference Committee pass through the coils of collective deliberation of
the members of the two Houses acting separately. Due to this shortcircuiting of the
constitutional procedure of making laws, confusion shrouds the enactment of R.A. No.
7716. Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle
wrapped in an enigma. It cannot be, for Article II, section 28 of the
Constitution mandates the State to adopt and implement a "policy of full public
disclosure of all its transactions involving public interest." The Constitution could not
have contemplated a Congress of invisible and unaccountable John and Mary Does. A
law whose rationale is a riddle and whose authorship is obscure cannot bind the
people. ECcaDT
All these notwithstanding, respondents resort to the legal cosmetology that these
additions and deletions should govern the people as laws because the Bicameral
Conference Committee Report was anyway submitted to and approved by the Senate
and the House of Representatives. The submission may have some merit with respect
to provisions agreed upon by the Committee in the process of reconciling conflicts
between S.B. No. 1630 and H.B. No. 11197. In these instances, the conflicting
provisions had been previously screened by the proper committees, deliberated upon
by both Houses and approved by them. It is, however, a different matter with respect to
additions and deletions which were entirely new and which were made not to reconcile
inconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of the
Bicameral Conference Committee did not have any authority to add new provisions or
delete provisions already approved by both Houses as it was not necessary to
discharge their limited task of reconciling differences in bills. At that late stage of law
making, the Conference Committee cannot add/delete provisions which can become
laws without undergoing the study and deliberation of both chambers given to bills on
1st, 2nd, and 3rd readings. Even the Senate and the House cannot enact a law which
will not undergo these mandatory three (3) readings required by the Constitution. If the
Senate and the House cannot enact such a law, neither can the lesser Bicameral
Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either approve
or disapprove the said additions and deletions is more of an optical illusion. These
additions and deletions are not submitted separately for approval. They are tucked to
the entire bill. The vote is on the bill as a package, i.e., together with the insertions and
deletions. And the vote is either "aye" or "nay," without any further debate and
deliberation. Quite often, legislators vote "yes" because they approve of the bill as a
whole although they may object to its amendments by the Conference Committee. This
lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must
be accepted without amendment or else rejected in toto. The impulse is to get
done with the matter and so the motion to accept has undue advantage, for

299

some members are sure to prefer swallowing unpalatable provisions rather

than prolong controversy. This is the more likely if the report comes in the rush
of business toward the end of a session, when to seek further conference
might result in the loss of the measure altogether. At any time in the session
there is some risk of such a result following the rejection of a conference
report, for it may not be possible to secure a second conference, or delay may
give opposition to the main proposal chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to
assembly and Senate on a take-it or leave-it-basis, and the bodies are generally placed
in the position that to leave-it is a practical impossibility." Thus, he concludes that
"conference committee action is the most undemocratic procedure in the legislative
process."
The respondents also contend that the additions and deletions made by the Bicameral
Conference Committee were in accord with legislative customs and usages. The
argument does not persuade for it misappreciates the value of customs and usages in
the hierarchy of sources of legislative rules of procedure. To be sure, every legislative
assembly has the inherent right to promulgate its own internal rules. In our jurisdiction,
Article VI, section 16(3) of the Constitution provides that "Each House may determine
the rules of its proceedings . . . ." But it is hornbook law that the sources of Rules of
Procedure are many and hierarchical in character. Mason laid them down as follows:

xxx xxx xxx

1.Rules of Procedure are derived from several sources. The principal sources
are as follows:
a.Constitutional rules.
b.Statutory rules or charter provisions.
c.Adopted rules.
d.Judicial decisions.
e.Adopted parliamentary authority.
f.Parliamentary law.
g.Customs and usages.
2.The rules from the different sources take precedence in the order listed
above except that judicial decisions, since they are interpretations of rules from
one of the other sources, take the same precedence as the source interpreted.
Thus, for example, an interpretation of a constitutional provision takes
precedence over a statute.

300

3.Whenever there is conflict between rules from these sources the rule from
the source listed earlier prevails over the rule from the source listed later. Thus,
where the Constitution requires three readings of bills, this provision controls
over any provision of statute, adopted rules, adopted manual, or of
parliamentary law, and a rule of parliamentary law controls over a local usage
but must give way to any rule from a higher source of authority. (Emphasis
ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral
Conference Committee violated the procedure fixed by the Constitution in the making
of laws. It is reasonless for respondents therefore to justify these insertions as
sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any
judicial inquiry on whether Congress observed our constitutional procedure in the
passage of R.A. No. 7716. The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past. It should be immediately emphasized that
the enrolled bill theory originated in England where there is no written constitution
and where Parliament is supreme. In this jurisdiction, we have a written constitution
and the legislature is a body of limited powers. Likewise, it must be pointed out that
starting from the decade of the 40s, even American courts have veered away from the
rigidity and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland
observed:
xxx xxx xxx
Where the failure of constitutional compliance in the enactment of statutes is
not discoverable from the face of the act itself but may be demonstrated by
recourse to the legislative journals, debates, committee reports or papers of the
governor, courts have used several conflicting theories with which to dispose of
the issue. They have held: (1) that the enrolled bill is conclusive and like the
sheriff's return cannot be attacked; (2) that the enrolled bill is prima faciecorrect
and only in case the legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid; (3) that although the
enrolled bill is prima facie correct, evidence from the journals, or other extrinsic
sources is admissible to strike the bill down; (4) that the legislative journal is
conclusive and the enrolled bills is valid only if it accords with the recital in the
journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong
dissent and dissatisfaction against the philosophical underpinnings of the
conclusiveness of an enrolled bill. Prof. Sutherland further observed:
. . . . Numerous reasons have been given for this rule. Traditionally, an enrolled
bill was "a record" and as such was not subject to attack at common law.
Likewise, the rule of conclusiveness was similar to the common law rule of the
inviolability of the sheriff's return. Indeed, they had the same origin, that is, the
sheriff was an officer of the king and likewise the parliamentary act was a regal
act and no official might dispute the king's word. Transposed to our democratic
system of government, courts held that as the legislature was an official branch
of government the court must indulge every presumption that the legislative act

301

was valid. The doctrine of separation of powers was advanced as a strong

reason why the court should treat the acts of a co-ordinate branch of
government with the same respect as it treats the action of its own officers;
indeed, it was thought that it was entitled to even greater respect, else the
court might be in the position of reviewing the work of a supposedly equal
branch of government. When these arguments failed, as they frequently did,
the doctrine of convenience was advanced, that is, that it was not only an
undue burden upon the legislature to preserve its records to meet the attack of
persons not affected by the procedure of enactment, but also that it
unnecessarily complicated litigation and confused the trial of substantive
issues.
Although many of these arguments are persuasive and are indeed the basis for
the rule in many states today, they are not invulnerable to attack. The rule most
relied on the sheriff's return or sworn official rule did not in civil litigation
deprive the injured party of an action, for always he could sue the sheriff upon
his official bond. Likewise, although collateral attack was not permitted, direct
attack permitted raising the issue of fraud, and at a later date attack in equity
was also available; and that the evidence of the sheriff was not of unusual
weight was demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable
is likewise misleading, for the correction of records is a matter of established
judicial procedure. Apparently, the justification is either the historical one that
the king's word could not be questioned or the separation of powers principle
that one branch of the government must treat as valid the acts of
another. TcCDIS
Persuasive as these arguments are, the tendency today is to avoid reaching
results by artificial presumptions and thus it would seem desirable to insist that
the enrolled bill stand or fall on the basis of the relevant evidence which may
be submitted for or against it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that ". . . the tendency
seems to be toward the abandonment of the conclusive presumption rule and the
adoption of the third rule leaving only a prima facie presumption of validity which may
be attacked by any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of a Bicameral
Conference Committee, as delineated by the rules of the House and the Senate, that we can
prevent said Committee from acting as a "third" chamber of Congress. Under the clear rules of both the
Senate and House, its power can go no further than settling differences in their bills or joint
resolutions. Sections 88 and 89, Rule XIV of the Rules of the House of Representatives provide as
follows:
Sec. 88.Conference Committee. In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be settled
by the conference committees of both chambers.

302

In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the panel shall report such fact to
the House for the latter's appropriate action.
Sec. 89.Conference Committee Reports. . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject measure.
xxx xxx xxx
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:
Sec. 35.In the event that the Senate does not agree with the House of Representatives
on the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately. HICEca
The House rule brightlines the following: (1) the power of the Conference Committee is limited . . . it
is only to settle differences with the Senate; (2) if the differences are substantial, the Committee
must report to the House for the latter's appropriate action; and (3) the Committee report has to be
voted upon in the same manner and procedure as a bill on third and final reading. Similarly,
the Senate rule underscores in crimson that (1) the power of the Committee is limited to
settle differences with the House; (2) it can make changes or amendments only in the discharge of
this limited power to settle differences with the House; and (3) the changes or amendments are
merelyrecommendatory for they still have to be approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the House or
the Senate with limited powers. The House contingent in the Committee cannot, on its own, settle
differences which are substantial in character. If it is confronted with substantial differences, it has to
go back to the chamber that created it "for the latter's appropriate action." In other words, it must take
the proper instructions from the chambers that created it. It cannot exercise its unbridled discretion.
Where there is no difference between the bills, it cannot make any change. Where the difference is
substantial, it has to return to the chamber of its origin and ask for appropriate instructions. It ought to be
indubitable that it cannot create a new law, i.e., that which has never been discussed in either chamber
of Congress. Its parameters of power are not porous, for they are hedged by the clear limitation that
its only power is to settle differences in bills and joint resolutions of the two chambers of Congress.

Fourth. Prescinding from these premises, I respectfully submit that the following acts of the Bicameral
Conference Committee constitute grave abuse of discretion amounting to lack or excess of jurisdiction
and should be struck down as unconstitutional nullities, viz:

303

a.Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No. 1950 and
House Bill No. 3705.
Sec. 1 of House Bill No. 3705 9 provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:
SEC. 106.Value-added Tax on Sale of Goods or Properties.
xxx xxx xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section
105 of this Code, the Value-added Tax herein levied on the sale of petroleum products
under Subparagraph (1) hereof shall be paid and absorbed by thesellers of petroleum
products who shall be prohibited from passing on the cost of such tax payments,
either directly or indirectly[,] to any consumer in whatever form or manner, it
being the express intent of this act that the Value-added Tax shall be borne and
absorbed exclusively by the sellers of petroleum products . . . .
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:
Sec. 108.Value-added Tax on Sale of Goods or Properties.
Provided, further, that notwithstanding the provision of the second paragraph of Section
105 of this Code, the Value-added Tax imposed under this paragraph shall be paid and
absorbed by the subject generation companies who shall be prohibited from
passing on the cost of such tax payments, either directly or indirectly[,] to any
consumer in whatever form or manner, it being the express intent of this act that the
Value-added Tax shall be borne and absorbed exclusively [by] the power-generating
companies. CADSHI
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
Value-added Tax on sale of Services and Use or Lease of Properties.
. . . Provided, that the VAT on sales of electricity by generation companies, and
services of transmission companies and distribution companies, as well as those of
franchise grantees of electrical utilities shall not apply to residential endusers:Provided, that the Value-added Tax herein levied shall be absorbed and paid by
the generation, transmission and distribution companies concerned. The said
companies shall not pass on such tax payments to NAPOCOR or ultimately to
the consumers, including but not limited to residential end users, either as costs or in
any other form whatsoever, directly or indirectly. . . . .
Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill and the
Senate bill prohibited the passing on to consumers of the VAT on sales of electricity and (b) the House

304

bill prohibited the passing on to consumers of the VAT on sales of petroleum products while the Senate
bill is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate bills on the matter, the
Bicameral Conference Committee deleted the "no pass on provision" on both the sales of
electricity and petroleum products. This action by the Committee is not warranted by the rules of either
the Senate or the House. As aforediscussed, the only power of a Bicameral Conference Committee is to
reconcile disagreeing provisions in the bills or joint resolutions of the two houses of Congress. The House
and the Senate bills both prohibited the passing on to consumers of the VAT on sales of electricity. The
Bicameral Conference Committee cannot override this unequivocal decision of the Senate and the
House. Nor is it clear that there is a conflict between the House and Senate versions on the "no pass on
provisions" of the VAT on sales of petroleum products. The House version contained a "no pass on
provision" but the Senate had none. Elementary logic will tell us that while there may be a difference
in the two versions, it does not necessarily mean that there is a disagreement or conflict between
the Senate and the House. The silence of the Senate on the issue cannot be interpreted as an outright
opposition to the House decision prohibiting the passing on of the VAT to the consumers on sales of
petroleum products. Silence can even be conformity, albeit implicit in nature. But granting for the nonce
that there is conflict between the two versions, the conflict cannot escape the characterization as
a substantial difference. The seismic consequence of the deletion of the "no pass on provision" of the
VAT on sales of petroleum products on the ability of our consumers, especially on the roofless and the
shirtless of our society, to survive the onslaught of spiraling prices ought to be beyond quibble. The rules
require that the Bicameral Conference Committee should not, on its own, act on this substantial conflict. It
has to seek guidance from the chamber that created it. It must receive proper instructions from its
principal, for it is the law of nature that no spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the members of the Bicameral
Conference Committee. They bypassed their principal and ran riot with the exercise of powers that the
rules never bestowed on them.
b.Even more constitutionally obnoxious are the added restrictions on local government's use of
incremental revenue from the VAT in Section 21 of R.A. No. 9337 which were not present in the
Senate or House Bills. Section 21 of R.A. No. 9337 provides:
Fifty percent of the local government unit's share from VAT shall be allocated and used
exclusively for the following purposes:
1.Fifteen percent (15%) for public elementary and secondary education to
finance the construction of buildings, purchases of school furniture and
in-service teacher trainings;
2.Ten percent (10%) for health insurance premiums of enrolled indigents as a
counterpart contribution of the local government to sustain the
universal coverage of the national health insurance program;
3.Fifteen percent (15%) for environmental conservation to fully implement a
comprehensive national reforestation program; and
4.Ten percent (10%) for agricultural modernization to finance the construction
of farm-to-market roads and irrigation facilities.
Such allocations shall be segregated as separate trust funds by the national treasury
and shall be over and above the annual appropriation for similar purposes.

305

These amendments did not harmonize conflicting provisions between the constituent bills of R.A. No.
9337 but are entirely new and extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee's authority and must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by holding that "all the
changes or modifications were germane to subjects of the provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the House and the Senate when they are not
even in disagreement. Worse still, it enables the Committee to introduce amendments which are entirely
new and have not previously passed through the coils of scrutiny of the members of both houses. The
Constitution did not establish a Bicameral Conference Committee that can act as a "third house" of
Congress with super veto power over bills passed by the Senate and the House. We cannot concede
that super veto power without wrecking the delicate architecture of legislative power so carefully laid
down in our Constitution. The clear intent of our fundamental law is to install a
lawmaking structure composed only of two houses whose members would thoroughly debate proposed
legislations in representation of the will of their respective constituents. The institution of this lawmaking
structure is unmistakable from the following provisions: (1) requiring that legislative power shall be
vested in a bicameral legislature; 10 (2) providing for quorum requirements; 11 (3) requiring that
appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application, and
private bills originate exclusively in the House of Representatives; 12 (4) requiring that bills embrace one
subject expressed in the title thereof; 13 and (5) mandating that bills undergo three readings on separate
days in each House prior to passage into law and prohibiting amendments on the last reading
thereof. 14 A Bicameral Conference Committee with untrammeled powers will destroy this lawmaking
structure. At the very least, it will diminish the free and open debate of proposed legislations and facilitate
the smuggling of what purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be
accepted without amendment or else rejected in toto. The impulse is to get done with
the matters and so the motion to accept has undue advantage, for some
members are sure to prefer swallowing unpalatable provisions rather than
prolong controversy. This is more likely if the report comes in the rush of business
toward the end of the session, when to seek further conference might result in the loss
of the measure altogether. At any time in the session there is some risk of such a result
following the rejection of a conference report, for it may not be possible to secure a
second conference, or delay may give opposition to the main proposal chance to
develop more strength.

xxx xxx xxx

306

Entangled in a network of rule and custom, the Representative who resents and would
resist this theft of his rights, finds himself helpless. Rarely can be vote, rarely can he
voice his mind, in the matter of any fraction of the bill. Usually he cannot even record
himself as protesting against some one feature while accepting the measure as whole.
Worst of all, he cannot by argument or suggested change, try to improve what the other
branch has done.
This means more than the subversion of individual rights. It means to a degree the
abandonment of whatever advantage the bicameral system may have. By so
much it in effect transfers the lawmaking power to small group of members who
work out in private a decision that almost always prevails. What is worse, these
men are not chosen in a way to ensure the wisest choice. It has become the practice to
name as conferees the ranking members of the committee, so that the accident of
seniority determines. Exceptions are made, but in general it is not a question of who
are most competent to serve. Chance governs, sometimes giving way to favor, rarely to
merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and
therefore defective. Usually it forfeits the benefit of scrutiny and judgment by all
the wisdom available. Uncontrolled, it is inferior to that process by which every
amendment is secured independent discussion and vote. . . ." 15
It cannot be overemphasized that in a republican form of government, laws can only be enacted by all the
duly elected representatives of the people. It cuts against conventional wisdom in democracy to
lodge this power in the hands of a few or in the claws of a committee. It is for these reasons that the
argument that we should overlook the excesses of the Bicameral Conference Committee because its
report is anyway approved by both houses is a futile attempt to square the circle for an unconstitutional
act is void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference Committee by
holding that the Court cannot interpose its checking powers over mere violations of the internal rules of
Congress. In Arroyo, et al. v. de Venecia, et al., 16 we ruled that when the violations affect private rights
or impair the Constitution, the Court has all the power, nay, the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will be foisted
for the Court to merely wink at assaults on the Constitution on the ground of some national interest,
sometimes clear and at other times inchoate. To be sure, it cannot be gainsaid that the country is in the
vortex of a financial crisis. The broadsheets scream the disconcerting news that our debt payments for
the year 2006 will exceed Php 1 billion daily for interest alone. Experts underscore some factors that will
further drive up the debt service expenses such as the devaluation of the peso, credit downgrades and a
spike in interest rates. 17 But no doomsday scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It is the Court's uncompromising
obligation to defend the Constitution at all times lest it be condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a)I vote to withhold judgment on the constitutionality of the "standby authority" in
Sections 4 to 6 of Republic Act No. 9337 as this issue is not ripe for
adjudication.;

307

b)I vote to declare unconstitutional the deletion by the Bicameral Conference

Committee of the pro poor "no pass on provision" on electricity to residential
consumers as it contravened the unequivocal intent of both Houses of
Congress; and
c)I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it
contains extraneous provisions not found in its constituent bills.
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez declares that the
enrolled bill doctrine has been historically and uniformly upheld in our country. Cited as recent reiterations
of this doctrine are the twoTolentino v. Secretary of Finance judgments 1 and Farias v. Executive
Secretary. 2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine 3 is not absolute. It may be all-encompassing in some
countries like Great Britain, 4 but as applied to our jurisdiction, it must yield to mandatory provisions of
our 1987 Constitution. The Court can take judicial notice of the form of government 5 in Great Britain. 6 It
is unlike that in our country and, therefore, the doctrine from which it originated 7 could be modified
accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed by Congress
in its principal duty of lawmaking. However, when the Constitution imposes certain conditions, restrictions
or limitations on the exercise of congressional prerogatives, the judiciary has both the power and the duty
to strike down congressional actions that are done in plain contravention of such conditions, restrictions or
limitations. 8 Insofar as the present case is concerned, the three most important restrictions or limitations
to the enrolled bill doctrine are the "origination," "no-amendment" and "three-reading" rules which I will
discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the
expanded 9 constitutional mandate of the judiciary "to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government." 10 Even the ponente of Tolentino, 11 the learned Mr. Justice Vicente V. Mendoza,
concedes in another decision that each house "may not by its rules ignore constitutional restraints or
violate fundamental rights, and there should be a reasonable relation between the mode or method of
proceeding established by the rule and the result which is sought to be attained." 12
The Bicameral Conference Committee (BCC) created by Congress to iron out differences between the
Senate and the House of Representatives versions of the E-VAT bills 13 is one such "branch or
instrumentality of the government," over which this Court may exercise certiorari review to determine
whether or not grave abuse of discretion has been committed; and, specifically, to find out whether the
constitutional conditions, restrictions and limitations on law-making have been violated.
In general, the BCC has at least five options in performing its functions: (1) adopt the House version in
part or in toto, (2) adopt the Senate version in part or in toto, (3) consolidate the two versions, (4)
reject non-conflicting provisions, and (5) adopt completely new provisions not found in either version.

308

This, therefore, is the simple question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution? SAHIDc
My short answer is: No, except those relating to income taxes referred to in Sections 1, 2 and 3
of Republic Act (RA) No. 9337. Let me explain.
Adopting the House
Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part or in toto, endorsing them without
changes. Since these bills had passed the three-reading requirement 14 under the Constitution, 15 it
readily becomes apparent that no procedural impediment would arise. There would also be no question
as to their origination, 16 because the bills originated exclusively from the House of Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the House bills in part or in toto.
Therefore, this option was not taken by the BCC.
Adopting the Senate
Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either in part or in toto, endorsing it also
without changes. In so doing, the question of origination arises. Under the 1987 Constitution, all
"revenue . . . bills . . . shall originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments." 17
If the revenue bill originates exclusively from the Senate, then obviously the origination provision 18 of the
Constitution would be violated. If, however, it originates exclusively from the House and presumably
passes the three-reading requirement there, then the question to contend with is whether the Senate
amendments complied with the "germane" principle.
While in the Senate, the House version may, per Tolentino, undergo extensive changes, such that the
Senate may rewrite not only portions of it but even all of it. 19 I believe that such rewriting is limited by the
"germane" principle: although "relevant" 20 or "related" 21 to the general subject of taxation, the Senate
version is not necessarily "germane" all the time. The "germane" principle requires a legal not
necessarily an economic 22 or political interpretation. There must be an "inherent logical
connection." 23 What may be germane in an economic or political sense is not necessarily germane in
the legal sense. Otherwise, any provision in the Senate version that is entirely new and extraneous, or
that is remotely or even slightly connected, to the vast and perplexing subject of taxation, would always
be germane. Under this interpretation, the origination principle would surely be rendered inutile.
To repeat, in Tolentino, the Court said that the Senate may even write its own version, which in effect
would be an amendment by substitution. 24 The Court went further by saying that "the Constitution does
not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld pending receipt of the House bill." 25 After
all, the initiative for filing a revenue bill must come from the House 26 on the theory that, elected as its
members are from their respective districts, the House is more sensitive to local needs and problems. By
contrast, the Senate whose members are elected at large approaches the matter from a national
perspective, 27 with a broader and more circumspect outlook. 28

309

Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I shall not
comment any further, because the BCC, in reconciling conflicting provisions, also did not take the second
option of ignoring the House bills completely and of adopting only the Senate version in part or in toto.
Instead, the BCC used or applied the third option as will be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by consolidating both the Senate and the House
versions. It can adopt some parts and reject other parts of both bills, and craft new provisions or even a
substitute bill. I believe this option is viable, provided that there is no violation of the origination and
germane principles, as well as the three-reading rule. After all, the report generated by the BCC will not
become a final valid act of the Legislative Department until the BCC obtains the approval of both houses
of Congress. 29
Standby Authority. I believe that the BCC did not exceed its authority when it crafted the so-called
"standby authority" of the President. The originating bills from the House imposed a 12 percent VAT
rate, 30 while the bill from the Senate retained the original 10 percent. 31 The BCC opted to initially use
the 10 percent Senate provision and to increase this rate to the 12 percent House provision, effective
January 1, 2006, upon the occurrence of a predetermined factual scenario as follows:
"(i)[VAT] collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
(ii)National Government Deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%)." 32
In the computation of the percentage requirements in the alternative conditions under the law, the
amounts of the VAT collection, National Deficit, 33 and GDP 34 as well as the interrelationship among
them can easily be derived by the finance secretary from the proper government bodies charged with
their determination. The law is complete and standards have been fixed. 35 Only the fact-finding
mathematical computation for its implementation on January 1, 2006, is necessary. ISCDEA
Once either of the factual and mathematical events provided in the law takes place, the President has no
choice but to implement the increase of the VAT rate to 12 percent. 36 This eventuality has been
predetermined by Congress. 37
The taxing power has not been delegated by Congress to either or both the President and the
finance secretary. What was delegated was only the power to ascertain the facts in order to bring the
law into operation. In fact, there was really no "delegation" to speak of; there was merely a declaration
of an administrative, not a legislative, function. 38
I concur with the ponencia in that there was no undue delegation of legislative power in the increase from
10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with the statements therein
that, first, the secretary of finance is "acting as the agent of the legislative department" or an "agent of
Congress" in determining and declaring the event upon which its expressed will is to take effect;
and, second, that the secretary's personality "is in reality but a projection of that of Congress."
The secretary of finance is not an alter ego of Congress, but of the President. The mandate given by RA
9337 to the secretary is not equipollent to an authority to make laws. In passing this law, Congress did not
restrict or curtail the constitutional power of the President to retain control and supervision over the entire

310

Executive Department. The law should be construed to be merely asking the President, with a
recommendation from the President's alter ego in finance matters, to determine the factual bases for
making the increase in VAT rate operative. 39 Indeed, as I have mentioned earlier, the fact-finding
condition is a mere administrative, not legislative, function.
The ponencia states that Congress merely delegates the implementation of the law to the secretary of
finance. How then can the latter be its agent? Making a law is different from implementing it. While
the first (the making of laws) may be delegated under certain conditions and only in specific instances
provided under the Constitution, the second (the implementation of laws) may not be done by Congress.
After all, the legislature does not have the power to implement laws. Therefore, congressional agency
arises only in the first, not in the second. The first is a legislative function; the second, an executive one.
Petitioners' argument is that because the GDP does not account for the economic effects of so-called
underground businesses, it is an inaccurate indicator of either economic growth or slowdown in
transitional economies. 40 Clearly, this matter is within the confines of lawmaking. This Court is neither a
substitute for the wisdom, or lack of it, in Congress, 41 nor an arbiter of flaws within the latter's internal
rules. 42 Policy matters lie within the domain of the political branches of government, 43 outside the
range of judicial cognizance. 44 "[T]he right to select the measure and objects of taxation devolves upon
the Congress, and not upon the courts, and such selections are valid unless constitutional limitations are
overstepped." 45 Moreover, each house of Congress has the power and authority to determine the rules
of its proceedings. 46 The contention that this case is not ripe for determination because there is no
violation yet of the Constitution regarding the exercise of the President's standby authority has no basis.
The question raised is whether the BCC, in passing the law, committed grave abuse of discretion, not
whether the provision in question had been violated. Hence, this case is not premature and is, in fact,
subject to judicial determination. TIcAaH
Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC (that were
culled from the Senate version) regarding income taxes 47 are not legally germane to the subject matter
of the House bills. Revising the income tax rates on domestic, resident foreign and nonresident foreign
corporations; increasing the tax credit against taxes due from nonresident foreign corporations on
intercorporate dividends; and reducing the allowable deduction for interest expense are legally unrelated
and not germane to the subject matter contained in the House bills; they violate the origination
principle. 48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income gross or net realized by a
taxpayer during a given taxable year, 49 while a VAT is an indirect tax not in the context of who is directly
and legally liable for its payment, but in terms of its nature as "a tax on
consumption." 50 The former cannot be passed on to the consumer, but the latter can. 51 It is too wide a
stretch of the imagination to even relate one concept with the other. In like manner, it is inconceivable how
the provisions that increase corporate income taxes can be considered as mitigating measures for
increasing the VAT and, as I will explain later, for effectively imposing a maximum of 3 percent tax on
gross sales or revenues because of the 70 percent cap. Even the argument that the corporate income tax
rates will be reduced to 30 percent does not hold water. This reduction will take effect only in 2009, not
2006 when the 12 percent VAT rate will have been implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable. Under
a final withholding tax system, the amount of income tax that is withheld by a withholding agent is
constituted as a full and final payment of the income tax due from the payee on said income. 52 The
liability for the tax primarily rests upon the payor as a withholding agent. 53 Under a creditable withholding
tax system, taxes withheld on certain payments are meant to approximate the tax that is due of the payee

311

on said payments. 54 The liability for the tax rests upon the payee who is mandated by law to still file a
tax return, report the tax base, and pay the difference between the tax withheld and the tax due. 55
From this observation alone, it can already be seen that not only are dividends alien to the tax base upon
which the VAT is imposed, but their respective methods of withholding are totally different. VAT-registered
persons may not always be nonresident foreign corporations that declare and pay dividends, while
intercorporate dividends are certainly not goods or properties for sale, barter, exchange, lease or
importation. Certainly, input VAT credits are different from tax credits on dividends received by
nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption. 56 Interest
which is among such deductions refers to the amount paid by a debtor to a creditor for the use or
forbearance of money. 57 It is an expense item that is paid or incurred within a given taxable year on
indebtedness in connection with a taxpayer's trade, business or exercise of profession. 58 In order to
reduce revenue losses, Congress enacted RA 8424 59 which reduces the amount of interest expense
deductible by a taxpayer from gross income, equal to the applicable percentage of interest income subject
to final tax. 60 To assert that reducing the allowable deduction in interest expense is a matter that is
legally related to the proposed VAT amendments is too far-fetched. Interest expenses are not allowed as
credits against output VAT. Neither are VAT-registered persons always liable for interest.
Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on income taxes, let
me now proceed to the other provisions that were attacked by petitioners.

No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority when it
deleted the no pass-on provisions found in the congressional bills. Its authority to make amendments not
only implies the power to make insertions, but also deletions, in order to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products subject to excise
tax (and the raw materials used in the manufacture of such products), the sellers of petroleum products,
and the generation companies. 61 The analogous provision in Senate Bill (SB) No. 1950 dealt with
electricity, businesses other than generation companies, and services of franchise grantees of electric
utilities. 62 In contrast, there was a marked absence of the no pass-on provision in HB 3555. Faced with
such variances, the BCC had the option of retaining or modifying the no pass-on provisions and
determining their extent, or of deleting them altogether. In opting for deletion to resolve the variances, it
was merely acting within its discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the 70
percent cap and the 5 percent final withholding VAT in the consolidated bill is also within the power of the
BCC. While HB 3555 included limits of 5 percent and 11 percent on input tax, 63 SB 1950 proposed an
even spread over 60 months. 64 The decision to put a cap and fix its rate, so as to harmonize or to find a
compromise in settling the apparent differences in these versions, 65 was within the sound discretion of
the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the rates of 5
percent, 8 percent, 10.5 percent, and 12 percent. 66 HB 3705 had no such equivalent amendment, and
SB 1950 pegged the rates at only 5 percent and 10 percent. 67 I believe that the decision to impose a
final (not creditable) VAT and to fix the rates at 5 percent and 10 percent, so as to harmonize the apparent
differences in all three versions, was also within the sound discretion of the BCC. DEICaA

312

Indeed, the tax credit method under our VAT system is not only practical, but also principally used in
almost all taxing jurisdictions. This does not mean, however, that in the eyes of Congress through the
BCC, our country can neither deviate from this method nor modify its application to suit our fiscal
requirements. The VAT is usually collected through the tax credit method (and in the past, even through
the cost deduction method or a mixture of these two methods),68 but there is no hard and fast rule that
100 percent of the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Laur, a French engineer, 69 who invented the VAT. In 1954, he had the idea of
imposing an indirect tax on consumption, called taxe sur la valeur ajoute, 70 which was quickly adopted
by the Direction Gnrale des Impost, the new French tax authority of which he became joint director.
Consequently, taxpayers at all levels in the production process, rather than retailers or tax authorities,
were forced to administer and account for the tax themselves.71
Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue deprivation
of property. Alternatively, it can be passed on to the consumers; 72 there is no law prohibiting that. Merely
speculative and unproven, therefore, is the contention that the law is arbitrary and oppressive. 73 Laws
that impose taxes are necessarily burdensome, compulsory, and involuntary.
The deferred input tax account which accumulates the unutilized input VAT remains an asset in the
accounting records of a business. It is not at all confiscated by the government. By deleting Section
112(B) of the Tax Code, 74Congress no longer made available tax credit certificates for such asset
account until retirement from or cessation of business, or changes in or cessation of VAT-registered
status. 75 This is a matter of policy, not legality. The Court cannot step beyond the confines of its
constitutional power, if there is absolutely no clear showing of grave abuse of discretion in the enactment
of the law.
That the unutilized input VAT would be rendered useless is merely speculative. 76 Although it is recorded
as a deferred asset in the books of a company, it remains to be a mere privilege. It may be written off or
expensed outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere statutory privilege. 77 The State may
modify or withdraw such privilege, which is merely an asset granted by operation of law. 78 Moreover,
there is no vested right in generally accepted accounting principles. 79 These refer to accounting
concepts, measurement techniques, and standards of presentation in a company's financial statements,
and are not rooted in laws of nature, as are the laws of physical science, for these are merely developed
and continually modified by local and international regulatory accounting bodies. 80 To state otherwise
and recognize such asset account as a vested right is to limit the taxing power of the State. Unlimited,
plenary, comprehensive and supreme, this power cannot be unduly restricted by mere creations of the
State.
That the unutilized input VAT would also have an unequal effect on businesses some with
low, others with high, input-output ratio is not a legal ground for invalidating the law. Profit margins
are a variable of sound business judgment, not of legal doctrine. The law applies equally to all
businesses; it is up to each of them to determine the best formula for selling their goods or services in
the face of stiffer competition. There is, thus, no violation of the equal protection clause. If the
implementation of the 70 percent cap would cause an ad infinitum deferment of input taxes or an
unequal effect upon different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law not an unwarranted and
outright declaration of unconstitutionality.

313

The matter of business establishments shouldering 30 percent of output tax and remitting the amount, as
computed, to the government is in effect imposing a tax that is equivalent to a maximum of 3 percent of
gross sales or revenues.81 This imposition is arguably another tax on gross not net income and
thus a deviation from the concept of VAT as a tax on consumption; it also assumes that sales or revenues
are on cash basis or, if on credit, given credit terms shorter than a quarter of a year. However, such
additional imposition and assumption are also arguably within the power of Congress to make. The State
may in fact choose to impose an additional 3 percent tax on gross income, in lieu of the 70 percent cap,
and thus subject the income of businesses to two types of taxes one on gross, the other on net. These
impositions may constitute double taxation, 82 which is not constitutionally proscribed. 83
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code was a 3
percent percentage tax on the gross quarterly sales or receipts of persons who were not VAT-registered,
and whose sales or receipts were exempt from VAT. 84 This is another type of tax imposed by the Tax
Code,in addition to the tax on their respective incomes. No question as to its validity was raised before;
none is being brought now. More important, there is a presumption in favor of constitutionality, 85 "rooted
in the doctrine of separation of powers which enjoins upon the three coordinate departments of the
Government a becoming courtesy for each other's acts." 86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and Section 20 of Article
II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as I have illustrated earlier, equal protection. In the
exercise of its inherent power to tax, the State validly interferes with the right to property of persons,
natural or artificial. Those similarly situated are affected in the same way and treated alike, "both as to
privileges conferred and liabilities enforced." 87
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the necessary
expenses of government. 88 The means that this law employs are reasonably related to the
accomplishment of such objective, and not unduly oppressive. The reduction of tax credits is a question of
economic policy, not of legal perlustration. Its determination is vested in Congress, not in this Court. Since
the purpose of the law is to raise revenues, it cannot be denied that the means employed is reasonably
related to the achievement of that purpose. Moreover, the proper congressional procedure for its
enactment was followed; 89 neither public notice nor public hearings were denied. HIACEa
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the imposition of
the 70 percent cap, there will be an assurance of a steady cash flow to the government, which can be
translated to the production of improved goods, rendition of better services, and construction of better
facilities for the people, including all private enterprises. Perhaps, Congress deems it best to make our
economy depend more on businesses that are easier to monitor, so there will be a more efficient
collection of taxes. Whatever is expected of the outcome of the law, or its wisdom, should be the sole
responsibility of the representatives chosen by the electorate.
The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along with the
level of competition, the quality of goods and services offered, and the cost of their production. And there
will inevitably be a conscious desire on the part of those who engage in business and those who consume
their output to adapt or adjust accordingly to any congressional modification of the VAT system.

314

In addition, it is contended that the VAT should be proportional in nature. I submit that this proportionality
pertains to the rate imposable, not the credit allowable. Private enterprises are subjected to a proportional
VAT rate, but VAT credits need not be. The VAT is, after all, a human concept that is neither immutable
nor invariable. In fact, it has changed after it was adopted as a system of indirect taxation by other
countries. Again unlike the laws of physical science, the VAT system can always be modified to suit
modern fiscal demands. The State, through the Legislative Department, may even choose to do away
with it and revert to our previous system of turnover taxes, sales taxes and compensating taxes, in which
credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased or treated as
capital leases by private enterprises. Aimed at achieving the twin objectives of profitability and solvency,
such purchase or lease is a matter of prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on competition are for businesses to
determine and for Congress to regulate not for this Court to interfere with, absent a clear showing that
constitutional provisions have been violated. Tax collection and administrative feasibility are for the
executive branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out in a long line of relevant
questioning that, absent a violation of constitutional provisions, the Court cannot interfere with the 70
percent cap, the 5 percent final withholding tax, and the 60-month amortization, there being other extrajudicial remedies available to petitioners, thus:
"Atty. Baniqued:
But if your profit margin is low as i[n] the case of the petroleum dealers, . . . then we
would have a serious problem, Your Honor.
"Justice Panganiban:
Isn't the solution to increase the price then?
"Atty. Baniqued:
If you increase the price which you can very well do, Your Honor, then that [will] be
deflationary and it [will] have a cascading effect on all other basic
commodities[, especially] because what is involved here is petroleum, Your
Honor.
"Justice Panganiban:
That may be true[,] but it's not unconstitutional?
"Atty. Baniqued:
That may be true, Your Honor, but the very limitation of the [seventy percent] input
[VAT], when applied to the case of the petroleum dealers[,] is oppressive[.] [I]t's
unjust and it's unreasonable, Your Honor.
"Justice Panganiban:

315

But it can be passed as a part of sales, sales costs rather.

"Atty. Baniqued:
But the petroleum dealers here themselves . . . interrupted
"Justice Panganiban:
In your [b]alance [s]heet, it could be reflected as Cost of Sales and therefore the price
will go up?
"Atty. Baniqued:
Even if it were to be reflected as part of the Cost of Sales, Your Honor, the [input VAT]
that you cannot claim, the benefit to you is only to the extent of the corporate
tax rate which is 32 now 35 [percent].
"Justice Panganiban:
Yes.
"Atty. Baniqued:
It's not 100 [percent] credi[ta]bility[,] unlike if it were applied against your [output VAT],
you get to claim 100 [percent] of it, Your Honor. DTAHSI
"Justice Panganiban:
That might be true, but we are talking about whether that particular provision would be
unconstitutional. You say it's oppressive, but you have a remedy, you just
pass it on to the customer. I am not sayin[g] it's good[.] [N]either am I saying
it's wise[.] [A]ll I'm talking about is, whether it's constitutional or not.
"Atty. Baniqued:
Yes, in fact we acknowledge, Your Honor, that that is a remedy available to the
petroleum dealers, but considering the impact of that limitation[,] and were just
talking of the 70 [percent cap] on [input VAT] in the level of the petroleum
dealers. Were not even talking yet of the limitation on the [input VAT] available
to the manufacturers, so, what if they pass that on as well?
"Justice Panganiban:
Yes.
"Atty. Baniqued:
Then, it would complicate . . . interrupted

316

"Justice Panganiban:
What I am saying is, there is a remedy, which is business in character. The mere fact
that the government is imposing that [seventy percent] cap does not make the
law unconstitutional, isn't it?
"Atty. Baniqued:
It does, Your Honor, if it can be shown. And as we have shown, it is oppressive and
unreasonable, it is excessive, Your Honor . . . interrupted
"Justice Panganiban:
If you have no way of recouping it. If you have no way of recouping that amount, then it
will be oppressive, but you have a business way of recouping it[.] I am saying
that, not advising that it's good. All I am saying is, is it constitutional or not[?]
We're not here to determine the wisdom of the law, that's up for Congress. As
pointed out earlier, if the law is not wise, the law makers will be changed by the
people[.] [T]hat is their solution t[o] the lack of wisdom of a law. If the law is
unconstitutional[,] then the Supreme Court will declare it unconstitutional and
void it, but[,] in this case[,] there seems to be a business remedy in the same
manner that Congress may just impose that tax straight without saying it's
[VAT]. If Congress will just say all petroleum will pay 3 [percent] of their Gross
Sales, but you don't bear that, you pass that on, isn't it?
"Atty. Baniqued:
We acknowledge your concern, Your Honor, but we should not forget that when the
petroleum dealers pass these financial burden or this tax differential to the
consumers, they themselves are consumers in their own right. As a matter of
fact, they filed this case both as petroleum dealer[s] and as taxpayers. If they
pass if on, they themselves would ultimately bear the burden[, especially] in
increase[d] cost of electricity, land transport, food, everything, Your Honor.
"Justice Panganiban:
Yes, but the issue here in this Court, is whether that act of Congress is unconstitutional.
"Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
"Justice Panganiban:
You have a right to complain that it is oppressive, it is excessive, it burdens the people
too much, but is it unconstitutional?
"Atty. Baniqued:

317

Besides, passing it on, Your Honor, may not be as simple as it may seem. As a matter
of fact, at the strike of midnight on June 30, when petroleum prices were being
changed upward, the [s]ecretary of [the] Department of Energy was going
around[.] [H]e was seen on TV going around just to check that prices don't go
up. And as a matter of fact, he had pronouncements that, the increase in
petroleum price should only be limited to the effect of 10 [percent] E-VAT.
"Justice Panganiban:
It's becaus[e] the implementing rules were not clear and were not extensive enough to
cover how much really should be the increase for various oil products, refined
oil products. It's up for the dealers to guess, and the dealers were guessing to
their advantage by saying plus 10 [percent] anyway, right?
"Atty. Baniqued:
In fact, the petroleum dealers, Your Honors, are not only faced with constitutional
issues before this Court. They are also faced with a possibility of the
Department of Energy not allowing them to pass it on[,] because this would be
an unreasonable price increase. And so, they are being hit from both sides . . .
interrupted
"Justice Panganiban:
That's why I say, that there is need to refine the implementing rules so that everyone
will know, the customers will know how much to pay for gasoline, not only
gasoline, gasoline, and so on, diesel and all kinds of products, so there'll be no
confusion and there'll be no undue taking advantage. There will be a smooth
implementation[,] if the law were to be upheld by the Court. In your case, as I
said, it may be unwise to pass that on to the customers, but definitely, the
dealers will not bear that [] to suffer the loss that you mentioned in your
consolidated balance sheets. Certainly, the dealers will not bear that [cost], isn't
it? EDSAac
"Atty. Baniqued:
It will be a very hard decision to make, Your Honor.
"Justice Panganiban:
Why, you will not pass it on?
"Atty. Baniqued:
I cannot speak for the dealers. . . . interrupted.
"Justice Panganiban:
As a consumer, I will thank you if you don't pass it on[;] but you or your clients as
businessm[e]n, I know, will pass it on.

318

"Atty. Baniqued:
As I have said, Your Honor, there are many constraints on their ability to do that[,] and
that is why the first step that we are seeking is to seek redress from this
Honorable Court[,] because we feel that the imposition is excessive and
oppressive. . . . interrupted
"Justice Panganiban:
You can find redress here, only if you can show that the law is unconstitutional.
"Atty. Baniqued:
We realized that, Your Honor.
"Justice Panganiban:
Alright. Let's talk about the 5 [percent] [d]epreciation rate, but that applies only to the
capital equipment worth over a million?
"Atty. Baniqued:
Yes, Your Honor.
"Justice Panganiban:
And that doesn't apply at all times, isn't it?
"Atty. Baniqued:
Well. . . .
"Justice Panganiban:
That doesn't at all times?
"Atty. Baniqued:
For capital goods costing less than 1 million, Your Honor, then. . . .
"Justice Panganiban:
That will not apply?
"Atty. Baniqued:
That will not apply, but you will have the 70 [percent] cap on input [VAT], Your Honor.
"Justice Panganiban:

319

Yes, but we talked already about the 70 [percent].

"Atty. Baniqued:
Yes, Your Honor.
"Justice Panganiban:
When you made your presentation on the balance sheet, it is as if every capital
expenditure you made is subject to the 5 [percent,] rather the [five year]
depreciation schedule[.] [T]hat's not so. So, the presentation you made is a
little inaccurate and misleading.
"Atty. Baniqued:
At the start of our presentation, Your Honor[,] we stated clearly that this applies only to
capital goods costing more than one [million].
"Justice Panganiban:
Yes, but you combined it later on with the 70 [percent] cap to show that the dealers are
so disadvantaged. But you didn't tell us that that will apply only when capital
equipment or goods is one million or more. And in your case, what kind of
capital goods will be worth one million or more in your existing gas stations?

"Atty. Baniqued:
Well, you would have petroleum dealers, Your Honor, who would have[,] aside from
sale of petroleum[,] they would have their service centers[,] like[. . .] to service
cars and they would have those equipments, they are, Your Honor.
"Justice Panganiban:
But that's a different profit center, that's not from the sale of. . . .
"Atty. Baniqued:
No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban:
It's a different profit center[;] it's not in the sale of petroleum products. In fact the mode
now is to put up super stores in huge gas stations. I do not begrudge the gas
station[.] [A]ll I am saying is it should be presented to us in perspective. Neither
am I siding with the government. All I am saying is, when I saw your
complicated balance sheet and mathematics, I saw that you were to put in all
the time the depreciation that should be spread over [five] years. But we have

320

agreed that that applies only to capital equipment []not to any kind of goods
[] but to capital equipment costing over 1 million pesos. EcHTCD
"Atty. Baniqued:
Yes, Your Honor, we apologize if it has caused a little confusion. . . .
"Justice Panganiban:
Again the solution could b[e] to pass that on, because that's an added cost, isn't
it?
"Atty. Baniqued:
Well, yes, you can pass it on. . . .
"Justice Panganiban:
I am not teaching you, I am just saying that you have a remedy . . . I am not saying
either that the remedy is wise or should be done, because[,] as a consumer[,] I
wouldn't want that to be done to me.
"Atty. Baniqued:
We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the hands of the
petroleum dealers or in the hands of the consumers[,] if this imposition is
unreasonable and oppressive, it will remain so, even after it is passed on, Your
Honor.
"Justice Panganiban:
Alright. Let's go to the third. The 5 [percent] withholding tax, [f]inal [w]ithholding [t]ax,
but this applies to sales to government?
"Atty. Baniqued:
Yes, Your Honor.
"Justice Panganiban:
So, you can pass on this 5 [percent] to the [g]overnment. After all, that 5 [percent]
will still go back to the government.
"Atty. Baniqued:
Then it will come back to haunt us, Your Honor. . . .
"Justice Panganiban:

321

Why?
"Atty. Baniqued:
By way of, for example sales to NAPOCOR or NTC . . . interrupted
"Justice Panganiban:
Sales of petroleum products. . . .
"Atty. Baniqued:
. . . in the case of NTC, Your Honor, it would come back to us by way of increase[d]
cost, Your Honor.
"Justice Panganiban:
Okay, let's see. You sell, let's say[,] your petroleum products to the Supreme Court, as
a gas station that sells gasoline to us here. Under this law, the 5 [percent]
withholding tax will have to be charged, right?
"Atty. Baniqued:
Yes, Your Honor.
"Justice Panganiban:
You will charge that[.] [T]herefore[,] the sales to the Supreme Court by that gas station
will effectively be higher?
"Atty. Baniqued:
Yes, Your Honor.
"Justice Panganiban:
So, the Supreme Court will pay more, you will not [be] going to [absorb] that 5
[percent], will you?
"Atty. Baniqued:
If it is passed on, Your Honor, that's of course we agree. . . Interrupted.
"Justice Panganiban:
Not if, you can pass it on. . . .
"Atty. Baniqued:

322

Yes, we can . . . . interrupted

"Justice Panganiban:
There is no prohibition to passing it on[.] [P]robably the gas station will simply pass it on
to the Supreme Court and say[,] well[,] there is this 5 [percent] final VAT on you
so[,] therefore, for every tank full you buy[,] we'll just have to [charge] you 5
[percent] more. Well, the Supreme Court will probably say, well, anyway, that 5
[percent] that we will pay the gas dealer, will be paid back to the government,
isn't it[?] So, how [will] you be affected?
"Atty. Baniqued:
I hope the passing on of the burden, Your Honor, doesn't come back to party litigants by
way of increase in docket fees, Your Honor.
"Justice Panganiban:
But that's quite another m[a]tter, though . . . (laughs) [W]hat I am saying, Mr. [C]ounsel
is, you still have to show to us that your remedy is to declare the law
unconstitutional[,] and it's not business in character. aDICET
"Atty. Baniqued:
Yes, Your Honor, it is our submission that this limitation in the input [VAT] credit as well
as the amortization. . . .
"Justice Panganiban:
All you talk about is equal protection clause, about due process, depreciation of
property without observance of due process[,] could really be a remedy than a
business way.
"Atty. Baniqued:
Business in the level of the petroleum dealers, Your Honor, or in the level of Congress,
Your Honor.
"Justice Panganiban:
Yes, you can pass them on to customers[,] in other words. It's the customers who
should [complain].
"Atty. Baniqued:
Yes, Your Honor . . . interrupted
"Justice Panganiban:
And perhaps will not elect their representatives anymore[.]

323

"Atty. Baniqued:
Yes, Your Honor. . . .
"Justice Panganiban:
For agreeing to it, because the wisdom of a law is not for the Supreme Court to pass
upon.
"Atty. Baniqued:
It just so happens, Your Honor, that what is [involved] here is a commodity that when it
goes up, it affects everybody. . . .
"Justice Panganiban:
Yes, inflationary and inflammatory. . . .
"Atty. Baniqued:
. . . just like what Justice Puno says it shakes the entire economic foundation, Your
Honor.
"Justice Panganiban:
Yes, it's inflationary[,] brings up the prices of everything . . .
"Atty. Baniqued:
And it is our submission that[,] if the petroleum dealers cannot absorb it and they pass
it on to the customers, a lot of consumers would neither be in a position to
absorb it too and that['s] why we patronize, Your Honor.
"Justice Panganiban:
There might be wisdom in what you're saying, but is that unconstitutional?
"Atty. Baniqued:
Yes, because as I said, Your Honor, there are even constraints in the petroleum dealers
to pass it on, and we[']re not even sure whether . . . . interrupted
"Justice Panganiban:
Are these constraints [] legal constraints?
"Atty. Baniqued:

324

Well, it would be a different story, Your Honor[.] [T]hat's something we probably have
to take up with the Department of Energy, lest [we may] be accused of . . . .
"Justice Panganiban:
In other words, that's your remedy [] to take it up with the Department of Energy
"Atty. Baniqued:
. . . unreasonable price increases, Your Honor.
"Justice Panganiban:
Not for us to declare those provisions unconstitutional.
"Atty. Baniqued:
We, again, wish to stress that the petroleum dealers went to this Court[,] both as
businessmen and as consumers. And as consumers, [we're] also going to bear
the burden of whatever they themselves pass on.
"Justice Panganiban:
You know[,] as a consumer, I wish you can really show that the laws are
unconstitutional, so I don't have to pay it. But as a magistrate of this Court, I will
have to pass upon judgment on the basis of [] whether the law is
unconstitutional or not. And I hope you can in your memorandum show that.
"Atty. Baniqued:
We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCC's amendments regarding
other taxes 90 are both germane in a legal sense and reasonably necessary in an economic sense. This
fact is evident, considering that the proposed changes in the VAT law will have inevitable implications and
repercussions on such taxes, as well as on the procedural requirements and the disposition of
incremental revenues, in the Tax Code.Either mitigating measures 91 have to be put in place or increased
rates imposed, in order to achieve the purpose of the law, cushion the impact of increased taxation, and
still maintain the equitability desired of any other revenue law. 92 Directly related to the proposed VAT
changes, these amendments are expected also to have a salutary effect on the national
economy. HCDaAS
The no-amendment rule 93 in the Constitution was not violated by the BCC, because no completely new
provision was inserted in the approved bill. The amendments may be unpopular or even work hardship
upon everyone (this writer included). If so, the remedy cannot be prescribed by this Court, but by
Congress.
Rejecting Non-Conflicting
Provisions

325

Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to it by both
houses of Congress, but instead to reject non-conflicting provisions in those versions. In other words,
despite the lack of conflict in them, such provisions are still eliminated entirely from the consolidated bill.
There may be a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by petitioners concerning
deletion. 94 As I have already mentioned earlier, these provisions were in conflict. Thus, the BCC
exercised its prerogative to remove them. In fact, congressional rules give the BCC the power to reconcile
disagreeing provisions, and in the process of reconciliation, to delete them. No other non-conflicting
provision was deleted.
At this point, and after the extensive discussion above, it can readily be seen no non-conflicting provisions
of the E-VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of the provisions of
the bills of either house of Congress, or make and endorse an entirely new bill as a substitute. Taking this
option may be a blatant violation of the Constitution, for not only will the surreptitious insertion or
unwarranted creation contravene the "origination" principle; it may likewise desecrate the three-reading
requirement and the no-amendment rule. 95
Fortunately, however, the BCC did not approve or insert completely new provisions. Thus, no violation
of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law, but also to its due
enactment. It is not absolute, however, and must yield to mandatory provisions of the 1987 Constitution.
Specifically, this Court has the duty of striking down provisions of a law that in their enactment violate
conditions, restrictions or limitations imposed by the Constitution. 96 The Bicameral Conference
Committee (BCC) is a mere creation of Congress. Hence, the BCC may resolve differences only in
conflicting provisions of congressional bills that are referred to it; and it may do so only on the condition
that such resolution does not violate the origination, the three-reading, and the no-amendment rules of the
Constitution. aASDTE

In crafting RA 9337, the BCC opted to reconcile the conflicting provisions of the Senate and House bills,
particularly those on the 70 percent cap on input tax; the 5 percent final withholding tax; percentage taxes
on domestic carriers, keepers of garages and international carriers; franchise taxes; amusement taxes;
excise taxes on manufactured oils and other fuels; registration requirements; issuance of receipts or sales
or commercial invoices; and disposition of incremental revenues. To my mind, these changes do not
violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby authority given by Congress to the
President. The law is complete, and the standards are fixed. While I concur with the ponencia's view that
the President was given merely the power to ascertain the facts to bring the law into operation clearly
an administrative, not a legislative, function I stress that the finance secretary remains the Chief
Executive's alter ego, not an agent of Congress.

326

The BCC exercised its prerogative to delete the no pass-on provisions, because these were in conflict. I
believe, however, that it blatantly violated the origination and the germaneness principles when it inserted
provisions not found in the House versions of the E-VAT Law: (1) increasing the tax rates on domestic,
resident foreign and nonresident foreign corporations; (2) increasing the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and (3) reducing the allowable deduction for
interest expense. Hence, I find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other hand,
respondents have justified it by comparing it to bitter medicine that patients must endure to be healed
eventually of their maladies. The advantages and disadvantages of the E-VAT Law, as well as its longterm effects on the economy, are beyond the reach of judicial review. The economic repercussions of the
statute are policy in nature and are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other than the three items on income
taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute grave abuse of discretion
to the BCC, or Congress for that matter, for passing the law.
"[T]he Court as a rule is deferential to the actions taken by the other branches of government that
have primary responsibility for the economic development of our country." 97 Thus, in upholding the
Philippine ratification of the treaty establishing the World Trade Organization (WTO), Taada v.
Angara held that "this Court never forgets that the Senate, whose act is under review, is one of two
sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional
body, independent and coordinate, and thus its actions are presumed regular and done in good faith.
Unless convincing proof and persuasive arguments are presented to overthrow such presumption, this
Court will resolve every doubt in its favor." 98 As pointed our in Cawaling Jr. v. Comelec, the grounds for
nullity of the law "must be beyond reasonable doubt, for to doubt is to sustain." 99 Indeed, "there must be
clear and unequivocal showing that what the Constitutions prohibits, the statute permits." 100
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3 of Republic Act
No. 9337 unconstitutional, insofar as these sections (a) amend the rates of income tax on domestic,
resident foreign, and nonresident foreign corporations; (b) amend the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and (c) reduce the allowable deduction for
interest expense. The other provisions are constitutional, and as to these I vote to DISMISS the Petitions.
YNARES-SANTIAGO, J., concurring and dissenting opinion:
The ponencia states that under the provisions of the Rules of the House of Representatives and the
Senate Rules, the Bicameral Conference Committee is mandated to settle differences between the
disagreeing provisions in the House bill and Senate bill. However, the ponencia construed the term
"settle" as synonymous to "reconcile" and "harmonize," and as such, the Bicameral Conference
Committee may either (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide
that neither provisions in the House bill or the provisions in the Senate bill would be carried into the final
form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to determine the
rules of its proceedings. However, the rules must not contravene constitutional provisions. The rulemaking power of Congress should take its bearings from the Constitution. If in the exercise of this rulemaking power, Congress failed to set parameters in the functions of the committee and allowed the latter
unbridled authority to perform acts which Congress itself is prohibited, like the passage of a law without

327

undergoing the requisite three-reading and the so-called no-amendment rule, then the same amount to
grave abuse of discretion which this Court is empowered to correct under its
expandedcertiorari jurisdiction. Notwithstanding the doctrine of separation of powers, therefore, it is the
duty of the Court to declare as void a legislative enactment, either from want of constitutional power to
enact or because the constitutional forms or conditions have not been observed. 1 When the Court
declares as unconstitutional a law or a specific provision thereof because procedural requirements for its
passage were not complied, the Court is by no means asserting its ascendancy over the Legislature, but
simply affirming the supremacy of the Constitution as repository of the sovereign will. 2 The judicial
branch must ensure that constitutional norms for the exercise of powers vested upon the two other
branches are properly observed. This is the very essence of judicial authority conferred upon the Court
under Section 1, Article VII of the 1987 Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide that in the event there is
disagreement between the provisions of the House and Senate bills, the differences shall be settled by a
bicameral conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G.
Davide, Jr. in Tolentino v. Secretary of Finance 3 that the authority of the bicameral conference committee
was limited to the reconciliation of disagreeing provisions or the resolution of differences or
inconsistencies. Thus, it could only either (a) restore, wholly or partly, the specific provisions of the
House bill amended by the Senate bill, (b) sustain, wholly or partly, the Senate's amendments, or
(c) by way of a compromise, to agree that neither provisions in the House bill amended by the
Senate nor the latter's amendments thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either the version of
the House bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed, "try to arrive at a
compromise", such as introducing provisions not included in either the House or Senate bill, as it would
allow a mere ad hoc committee to substitute the will of the entire Congress and without undergoing the
requisite three-reading, which are both constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress defies logic considering that the bills are
passed presumably after study, deliberation and debate in both houses. A lesser body like the Bicameral
Conference Committee should not be allowed to substitute its judgment for that of the entire Congress,
whose will is expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function by substituting its own
judgment for that of either of the two houses, it violates the internal rules of Congress and contravenes
material restrictions imposed by the Constitution, particularly on the passage of law. While concededly,
the internal rules of both Houses do not explicitly limit the Bicameral Conference Committee to a
consideration only of conflicting provisions, it is understood that the provisions of the Constitution should
be read into these rules as imposing limits on what the committee can or cannot do. As such, it cannot
perform its delegated function in violation of the three-reading requirement and the no-amendment
rule. DaIAcC
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2)No bill shall be passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment hereto shall be allowed, and

328

the vote thereon shall be taken immediately thereafter, and the yeas and nays entered
in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencia's submission that
despite its limited authority, the Bicameral Conference Committee could "compromise the disagreeing
provisions" by substituting it with its own version clearly violate the three-reading requirement, as the
committee's version would no longer undergo the same since it would be immediately put into vote by the
respective houses. In effect, it is not a bill that was passed by the entire Congress but by the members of
the ad hoc committee only, which of course is constitutionally infirm.

I disagree that the no-amendment rule referred only to "the procedure to be followed by each house of
Congress with regard to bills initiated in each of said respective houses" because it would relegate the noamendment rule to a mere rule of procedure. To my mind, the no-amendment rule should be construed as
prohibiting the Bicameral Conference Committee from introducing amendments and modifications to nondisagreeing provisions of the House and Senate bills. In sum, the committee could only either adopt the
version of the House bill or the Senate bill, or adopt neither. As Justice Reynato S. Puno said in his
Dissenting Opinion in Tolentino v. Secretary of Finance, 4 there is absolutely no legal warrant for the bold
submission that a Bicameral Conference Committee possesses the power to add/delete provisions in bills
already approved on third reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the amendments introduced by the Bicameral Conference
Committee which are not found either in the House or Senate versions of the VAT reform bills, but are
inserted merely by the Bicameral Conference Committee and thereafter included in Republic Act No.
9337, should be declared unconstitutional. The insertions and deletions made do not merely settle
conflicting provisions but materially altered the bill, thus giving rise to the instant petitions. DcTAIH
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
Adam Smith, the great 18th century political economist, enunciated the dictum that "the subjects of
every state ought to contribute to the support of government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection
of the state." 1 At no other time this dictum becomes more urgent and obligatory as in the present time,
when the Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion, specifically on
the following points:
1.It is "high time to re-examine the test of germaneness proffered in Tolentino;"
2.The Bicameral Conference Committee "cannot exercise its unbridled discretion," "it
cannot create a new law," and its deletion of the "no pass on provision"
common in both Senate Bill No. 1950 and House Bill No. 3705 is
"unconstitutional."
In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the issues specified
hereunder:

329

There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that contains
patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the principle of non-delegation
of legislative power. These Sections authorize the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate from 10% to 12% effective January 1, 2006, if the conditions specified
therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%)
after any of the following conditions has been satisfied:
(i)Value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii)National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%).
This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 6 of R.A. No.
9337, provisions amending Sections 106, 107 and 108 of the NIRC,respectively. Section 4 imposes a
10% VAT on sales of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
Petitioners in G.R. Nos. 168056, 2 168207 3 and 168463 4 assail the constitutionality of the above
provisions on the ground that such stand-by authority granted to the President constitutes: (1) undue
delegation of legislative power; (2)violation of due process; and (3) violation of the principle of "exclusive
origination." They cited as their basis Article VI, Section 28 (2); Article III, Section 1; and Article VI, Section
24 of the Constitution.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty. 5 It is a power that is purely legislative and which the
central legislative body cannot delegate either to the executive or judicial department of government
without infringing upon the theory of separation of powers. 6 The rationale of this doctrine may be traced
from the democratic principle of "no taxation without representation." The power of taxation being so
pervasive, it is in the best interest of the people that such power be lodged only in the Legislature.
Composed of the people's representatives, it is "closer to the pulse of the people and . . . are therefore in
a better position to determine both the extent of the legal burden the people are capable of bearing and
the benefits they need." 7 Also, this set-up provides security against the abuse of power. As Chief Justice
Marshall said: "In imposing a tax, the legislature acts upon its constituents. The power may be abused;
but the interest, wisdom, and justice of the representative body, and its relations with its constituents,
furnish a sufficient security."
Consequently, Section 24, Article VI of our Constitution enshrined the principle of "no taxation without
representation" by providing that "all . . . revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments." This provision generally
confines the power of taxation to the Legislature. aHSAIT
R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate from 10% to
12%, the Legislature abdicated its power by delegating it to the President. This is constitutionally

330

impermissible. The Legislature may not escape its duties and responsibilities by delegating its power to
any other body or authority. Any attempt to abdicate the power is unconstitutional and void, on the
principle that potestas delegata non delegare potest. 8 As Judge Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws cannot be delegated by that department to any other body or
authority. Where the sovereign power of the state has located the authority, there
it must remain; and by the constitutional agency alone the laws must be made
until the Constitution itself is changed. The power to whose judgment, wisdom, and
patriotism this high prerogative has been entrusted cannot relieve itself of the
responsibility by choosing other agencies upon which the power shall be devolved, nor
can it substitute the judgment, wisdom, and patriotism of any other body for those to
which alone the people have seen fit to confide this sovereign trust." 9
Of course, the rule which forbids the delegation of the power of taxation is not absolute and inflexible. It
admits of exceptions. Retired Justice Jose C. Vitug enumerated such exceptions, to wit: (1) delegations to
local governments (to be exercised by the local legislative bodies thereof) or political
subdivisions; (2) delegations allowed by the Constitution; and (3) delegations relating merely to
administrative implementation that may call for some degree of discretionary powers under a set of
sufficient standards expressed by law. 10
Patently, the act of the Legislature in delegating its power to tax does not fall under any of the exceptions.
First, it does not involve a delegation of taxing power to the local government. It is a delegation to the
President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution enumerates the
charges or duties, the rates of which may be fixed by the President pursuant to a law passed by
Congress, thus:
The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of the Framers
of the Constitution is to permit the delegation of the power to fix tax rates or VAT rates to the President,
such could have been easily achieved by the mere inclusion of the term "tax rates" or "VAT rates" in the
enumeration. It is a dictum in statutory construction that what is expressed puts an end to what is
implied. Expressium facit cessare tacitum. 11 This is a derivative of the more familiar maxim express
mention is implied exclusion or expressio unius est exclusio alterius. Considering that Section 28 (2),
Article VI expressly speaks only of "tariff rates, 12 import 13 and export quotas, 14tonnage 15 and
wharfage dues 16 and other duties and imposts, 17 " by no stretch of imagination can this enumeration
be extended to include the VAT.
And third, it does not relate merely to the administrative implementation of R.A. No. 9337.
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
inquire whether the statute was complete in all its terms and provisions when it left the hands of the
Legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature. 18

331

In the present case, the President is the delegate of the Legislature, endowed with the power to raise the
VAT rate from 10% to 12% if any of the following conditions, to reiterate, has been satisfied: (i) valueadded tax collection as a percentage of gross domestic product (GDP) of the previous year exceeds two
and four-fifths percent (2 4/5%) or (ii) National Government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).

At first glance, the two conditions may appear to be definite standards sufficient to guide the President.
However, to my mind, they are ineffectual and malleable as they give the President ample opportunity to
exercise her authority in arbitrary and discretionary fashion.
The two conditions set forth by law would have been sufficient had it not been for the fact that the
President, being at the helm of the entire officialdom, has more than enough power of control to bring
about the existence of such conditions. Obviously, R.A. No. 9337 allows the President to determine for
herself whether the VAT rate shall be increased or not at all. The fulfillment of the conditions is entirely
placed in her hands. If she wishes to increase the VAT rate, all she has to do is to strictly enforce the VAT
collection so as to exceed the 2 4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1 1/2% ceiling. On the other hand, if she
does not wish to increase the VAT rate, she may discourage the Secretary of Finance from making the
recommendation.
That the President's exercise of an authority is practically within her control is tantamount to giving no
conditions at all. I believe this amounts to a virtual surrender of legislative power to her. It must be
stressed that the validity of a law is not tested by what has been done but by what may be done under
its provisions. 19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of the
Constitution which states that, "no person shall be deprived of life, liberty or property without due process
of law." 20
Substantive due process requires the intrinsic validity of the law in interfering with the rights of the person
to his property. The inquiry in this regard is not whether or not the law is being enforced in accordance
with the prescribed manner but whether or not, to begin with, it is a proper exercise of legislative
power.
To be so, the law must have a valid governmental objective, i.e., the interest of the public as
distinguished from those of a particular class, requires the intervention of the State. This objective must
be pursued in a lawful manner, or in other words, the means employed must be reasonably related to
the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental objective, i.e. to raise
revenues for the government. However, with respect to the means employed to accomplish such
objective, I am convinced that R.A. No. 9337, particularly Sections 4, 5 and 6 thereof, are arbitrary and
unduly oppressive.

332

A reading of the Senate deliberation reveals that the first condition constitutes a reward to the President
for her effective collection of VAT. Thus, the President may increase the VAT rate from 10% to 12% if her
VAT collection during the previous year exceeds 2 4/5% of the Gross Domestic Product. I quote the
deliberation:
Senator Lacson.
Thank you, Mr. President. Now, I will go back to my original question, my first question.
Who are we threatening to punish on the imposed condition No. 1 the public
or the President?
Senator Recto.
That is not a punishment, that is supposed to be a reward system.
Senator Lacson.
Yes, an incentive. So we are offering an incentive to the Chief Executive.
Senator Recto.
That is right.
Senator Lacson.
in order for her to be able to raise the VAT to 12%.
Senator Recto.
That is right. That is the intention, yes.
xxx xxx xxx
Senator Osmena.
All right. Therefore, with the lifting of exemptions it stands to reason that Valueadded tax collections as a percentage of GDP will be much higher
than . . . Now, if it is higher than 2.5%, in other words, because they
collected more, we will allow them to even tax more. Is that the meaning
of this particular phrase?
Senator Recto.
Yes, Mr. President, that is why it is as low as 2.8%. It is like if a person has a son
and his son asks him for an allowance, I do not think that he would
immediately give his son an increase in allowance unless he tells his son,
You better improve your grades and I will give you an allowance. That is
the analogy of this.
xxx xxx xxx

333

Senator Osmena.
So the gentleman is telling the President, If you collect more than 138 billion, I
will give you additional powers to tax the people.
Senator Recto.
. . . We are saying, kung mataas and grade mo, dadagdagan ko an allowance mo.
Katulad ng sinabi natin ditto. What we are saying here is you prove to me
that you can collect it, then we will increase your rate, you can raise your
rate. It is an incentive. 21
Why authorize the President to increase the VAT rate on the premise alone that she deserves an
"incentive" or "reward"? Indeed, why should she be rewarded for performing a duty reposed upon her by
law?
The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is fiscal
adequacy. The proceeds of tax revenue should coincide with, and approximate the needs of, government
expenditures. Neither an excessnor a deficiency of revenue vis- -vis the needs of government
would be in keeping with the principle. 22
Equating the grant of authority to the President to increase the VAT rate with the grant of additional
allowance to a studious son is highly inappropriate. Our Senators must have forgotten that for every
increase of taxes, the burden always redounds to the people. Unlike the additional allowance given to a
studious son that comes from the pocket of the granting parent alone, the increase in the VAT rate would
be shouldered by the masses. Indeed, mandating them to pay the increased rate as an award to the
President is arbitrary and unduly oppressive. Taxation is not a power to be exercised at one's whim.
III
Exclusive Origination from the House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24.All appropriations, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House
of Representatives, but the Senate may propose or concur with amendments.
In Tolentino vs. Secretary of Finance, 23 this Court expounded on the foregoing provision by holding that:
". . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to 'originate exclusively in the House of Representatives. It is important to
emphasize this, because a bill originating the in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the whole . . . . At
this point, what is important to note is that, as a result of the Senate action, a distinct
bill may be produced. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House Bill would be to deny the Senate's power not
only to 'concur with amendments: but also to 'propose amendments.' It would be to

334

violate the co-equality of the legislative power of the two houses of Congress and in
fact, make the House superior to the Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing
jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935 Constitution. The
latter provision was modeled from Section 7 (1), Article I of the United States Constitution,which states:
"All bills for raising revenue shall originate in the House of Representatives, but the
Senate may propose or concur with amendments, as on other bills."
The American people, in entrusting what James Madison termed "the power of the purse" to their elected
representatives, drew inspiration from the British practice and experience with the House of Commons. As
one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch
of the British parliament; and they believed that it had at all times furnished the best
security against the oppression of the crown and the aristocracy. While the power of
taxation, of revenue, and of supplies remained in the hands of a popular branch,
it was difficult for usurpation to exist for any length of time without check, and
prerogative must yield of that necessity which controlled at once the sword and
the purse."
But while the fundamental principle underlying the vesting of the power to propose revenue bills solely in
the House of Representatives is present in both the Philippines and US Constitutions, stress must be laid
on the differences between the two quoted provisions. For one, the word "exclusively" appearing in
Section 24, Article VI of our Constitution is nowhere to be found in Section 7 (1), Article I of the
US Constitution. For another, the phrase "as on other bills," present in the same provision of the
US Constitution,is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner." 24 The term "exclusive" is defined as
"excluding or having power to exclude; limiting to or limited to; single, sole, undivided, whole." 25 In one
case, this Court define the term "exclusive" as "possessed to the exclusion of others; appertaining to the
subject alone, not including, admitting, or pertaining to another or others." 26
As for the term "originate," its meaning are "to cause the beginning of; to give rise to; to initiate; to
start on a course or journey; to take or have origin; to be deprived; arise; begin or start." 27
With the foregoing definitions in mind, it can be reasonably concluded that when Section 24, Article VI
provides that revenue bills shall originate exclusively from the House of Representatives, what the
Constitution mandates is that any revenue statute must begin or start solely and only in the House. Not
the Senate. Not both Chambers of Congress. But there is more to it than that. It also means that "an act
for taxation must pass the House first." It is no consequence what amendments the Senate adds. 28

A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively originate" from the
House of Representatives.

335

The House of Representatives approved House Bill Nos. 3555 29 and 3705 30 . These Bills intended to
amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its part, the Senate
approved Senate Bill No. 1950, 31 taking into consideration House Bill Nos. 3555 and 3705. It intended
to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236,
237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the disagreeing
provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and discussed in full free and
conference," came up with a report and recommended the approval of the consolidated version of the
bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted to President
Arroyo, who signed it into law. Thus, the enactment of R.A. No. 9337, entitled "An Act Amending Sections
27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of
the National Internal Revenue Code of 1997, As Amended and For Other Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of Representatives. It has a
legislative identity and existence separate and apart from House Bills No. 3555 and 3705. Instead of
concurring or proposing amendments, Senate Bill No. 1950 merely "takes into consideration" the two
House Bills. To take into consideration means "to take into account." Consideration, in this sense, means
"deliberation, attention, observation or contemplation. 32 Simply put, the Senate in passing Senate Bill
No. 1950, a tax measure, merely took into account House Bills No. 3555 and 3705, but did not concur
with or amend either or both bills. As a matter of fact, it did not even take these two House Bills as a
frame of reference.
In Tolentino, the majority subscribed to the view that Senate may amend the House revenue bill by
substitution or by presenting its own version of the bill. In either case, the result is "two bills on the same
subject." 33 This is the source of the "germaneness" rule which states that the Senate bill must be
germane to the bill originally passed by the House of Representatives. In Tolentino, this was not really an
issue as both the House and Senate Bills in question had one subject the VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that House Bills No.
3555 and 3705 merely intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC of
1997, pertaining to the VAT provisions. On the other hand, Senate Bill No. 1950 intended to amend
Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and
288 of the NIRC,pertaining to matters outside of VAT, such as income tax, percentage tax, franchise tax,
taxes on banks and other financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating the germaneness rule and the
principle of "exclusive origination," propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the points abovementioned.
CALLEJO, SR., J., concurring and dissenting opinion:
I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concur with the majority
opinion but vote to declare as unconstitutional the deletion of the "no-pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705 (the constituent bills of Republic Act No. 9337).

336

The present petitions provide an opportune

occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal requirements of the
Constitution, the ponencia relies mainly on the Court's rulings in Tolentino v. Secretary of Finance. 1 To
recall, Tolentino involved Republic Act No. 7716, which similarly amended the NIRC by widening the tax
base of the VAT system. The procedural attacks against R.A. No. 9337 are substantially the same as
those leveled against R.A. No. 7716, e.g., violation of the "Origination Clause" (Article VI, Section 24) and
the "Three-Reading Rule" and the "No-Amendment Rule" (Article VI, Section 26[2]) of the
Constitution. DHETIS
The present petitions provide an opportune occasion for the Court to re-examine its rulings
in Tolentino particularly with respect to the scope of the powers of the Bicameral Conference
Committee vis- -vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee may
validly introduce amendments that were not contained in the respective bills of the Senate and the House
of Representatives. As a corollary, whether it may validly delete provisions uniformly contained in the
respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference
Committee even if these were not contained in the Senate and House bills. The majority opinion therein
held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it
has been explained:
Under congressional rules of procedures, conference committees are not
expected to make any material change in the measure at issue, either by
deleting provisions to which both houses have already agreed or by inserting
new provisions. But this is a difficult provision to enforce. Note the problem
when one house amends a proposal originating in either house by striking out
everything following the enacting clause and substituting provisions which
make it an entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new bill . . .
The result is a third version, which is considered an "amendment in the nature of a
substitute," the only requirement for which being that the third version be germane to
the subject of the House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to
include in its report an entirely new provision that is not found either in the House bill or
in the Senate Bill. If the committee can propose an amendment consisting of one or two
provisions, collectively considered as an "amendment in the nature of a substitute," so
long as such an amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative department. The charge that in
this case the Conference Committee acted a third legislative chamber is thus without
any basis. 2

337

The majority opinion in Tolentino relied mainly on the practice of the United States legislature in making
the foregoing disquisition. It was held, in effect, that following the US Congress' practice where a
conference committee is permitted to draft a bill that is entirely different from the bills of either the House
of Representatives or Senate, the Bicameral Conference Committee is similarly empowered to make
amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A. No. 9337,
following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by the ponencia, to
the practice of the US Congress and its conference committee system ought to be re-examined. There
are significant textual differences between the US Federal Constitution's and our Constitution's prescribed
congressional procedure for enacting laws. Accordingly, the degree of freedom accorded by the US
Federal Constitution to the US Congress markedly differ from that accorded by our Constitution to the
Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1]All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with Amendments as on other Bills.
[2]Every Bill which shall have passed the House of Representatives and the Senate,
shall, before it become a Law, be presented to the President of the United States; If he
approve he shall it, but if not he shall return it, with his Objections to the House in which
it shall have originated, who shall enter the Objections at large on their Journal, and
proceed to reconsider it. If after such Reconsideration two thirds of that House shall
agree to pass the Bill, it shall be sent together with the Objections, to the other House,
by which it shall, likewise, be reconsidered, and if approved by two thirds of that House,
it shall become a Law. But in all such Cases the Votes of both Houses shall be
determined by yeas and Nays, and the Names of the Persons voting for and against
the Bill shall be entered on the Journal of each House respectively. If any Bill shall not
be returned by the President within ten Days (Sundays excepted) after it shall have
been presented to him, the Same shall be a Law, in like Manner as if he had signed it,
unless the Congress by their Adjournment prevent its return in which Case it shall not
be a Law.
[3]Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House
of Representatives may be necessary (except on a question of Adjournment) shall be
presented to the President of the United States; and before the Same shall take Effect,
shall be approved by him, or being disapproved by him, shall be repassed by two thirds
of the Senate and House of Representatives, according to the Rules and Limitations
prescribed in the Case of a Bill.

On the other hand, Article VI of our Constitution prescribes for the following procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall
be expressed in the title thereof.

338

(2)No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas and nays entered
in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented
to the President. If he approves the same, he shall sign it; otherwise, he shall veto it
and return the same with his objections to the House where it originated, which shall
enter the objections at large in its Journal and proceed to reconsider it. If, after such
reconsideration, two-thirds of all the Members of such House shall agree to pass the
bill, it shall be sent, together with the objections, to the other House by which it shall
likewise be reconsidered, and if approved by two-thirds of all the Members of that
House, it shall become a law. In all such cases, the votes of each House shall be
determined by yeas and nays, and the names of the Members voting for or against
shall be entered in its Journal. The President shall communicate his veto of any bill to
the House where it originated within thirty days after the date of receipt thereof;
otherwise, it shall become a law as if he had signed it.
(2)The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to
which he does not object.
Two distinctions are readily apparent between the two procedures:
1.Unlike the US Federal Constitution,our Constitution prescribes the "three-reading"
rule or that no bill shall become a law unless it shall have been read on three
separate days in each house except when its urgency is certified by the
President; and
2.Unlike the US Federal Constitution,our Constitution prescribes the "no-amendment"
rule or that no amendments shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain congressional procedures have not been
entrenched in the US Federal Constitution. According to a noted constitutional law professor, the absence
of the "three-reading" requirement as well as similar legislative-procedure rules from the US
Federal Constitution is a "cause for regret." 3
In this connection, it is interesting to note that the conference committee system in the US Congress has
been described in this wise:
Conference Committees
Another main mechanism of joint House and Senate action is the conference
committee. Inherited from the English Constitution,the conference committee system is
an evolutionary product whose principal threads were woven on the loom of
congressional practice into a unified pattern by the middle of the nineteenth century.
"By 1852," writes Ada McCown, historian of the origin and development of the
conference committee, "the customs of presenting identical reports from the

339

committees of conference in both houses, of granting high privilege to these

conference reports, of voting upon the conference report as a whole and permitting no
amendment of it, of keeping secret the discussions carried on in the meetings of the
conference committee, had become established in American parliamentary practice."
Conference committees are composed of Senators and Representatives, usually three
each, appointed by the presiding officers of both houses, for the purpose of adjusting
differences between bills they have passed. This device has been extensively used by
every Congress since 1789. Of the 1157 laws enacted by the 78th Congress, for
example, 107 went through conference and, of these, 36 were appropriation bills on
which the House had disagreed to Senate amendments. In practice, most important
legislation goes through the conference closet and is there revised, sometimes beyond
recognition, by the all-powerful conferees or managers, as they are styled. A large body
of law and practice has been built up over the years governing conference procedure
and reports.
Suffice it to say here that serious evils have marked the development of the conference
committee system. In the first place, it is highly prodigal of members' time. McConachie
calculated that the average time consumed in conference was 33 days per bill. Bills are
sent to conference without reading the amendments of the other chamber. Despite
rules to the contrary, conferees do not confine themselves to matters in dispute, but
often initiate entirely new legislation and even strike out identical provisions previously
approved by both houses. This happened during the 78th Congress, for instance, when
an important amendment to the surplus property bill, which had been approved by both
houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from the seniority rule.
The senior members of the committees concerned, who are customarily appointed as
managers on the part of the House and Senate, are not always the best informed on
the questions at issue, nor do they always reflect the majority sentiment of their
houses. Furthermore, conference reports must be accepted or rejected in toto without
amendment and they are often so complex and obscure that they are voted upon
without knowledge of their contents. What happens in practice is that Congress
surrenders its legislative function to irresponsible committees of conference. The
standing rules against including new and extraneous matter in conference reports have
been gradually whittled away in recent years by the decisions of presiding officers.
Senate riders attached to appropriation bills enable conference committees to legislate
and the House usually accepts them rather than withhold supply, thus putting it, as
Senator Hoar once declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able to kill legislation they
dislike and that "jokers" designed to defeat the will of Congress can be inserted without
detection. Senator George W. Norris once characterized the conference committee as
a third house of Congress. "The members of this 'house,' he said, "are not elected by
the people. The people have no voice as to who these members shall be . . . This
conference committee is many times, in very important matters of legislation, the most
important branch of our legislature. There is no record kept of the workings of the
conference committee. Its work is performed, in the main, in secret. No constituent has
any definite knowledge as to how members of this conference committee vote, and
there is no record to prove the attitude of any member of the conference committee . . .
As a practical proposition we have legislation, then, not by the voice of the members of

340

the Senate, not by the members of the House of Representatives, but we have
legislation by the voice of five or six men. And for practical purposes, in most cases, it
is impossible to defeat the legislation proposed by this conference committee. Every
experienced legislator knows that it is the hardest thing in the world to defeat a
conference report."
Despite these admitted evils, impartial students of the conference committee system
defend it on net balance as an essential part of the legislative process. Some
mechanism for reconciling differences under bicameral system is obviously
indispensable. The remedy for the defects of the device is not to abolish it, but to keep
it under congressional control. This can be done by enforcing the rules which prohibit
the inclusion in conference reports of matter not committed to them by either house and
forbid the deletion of items approved by both bodies; by permitting conference
managers to report necessary new matter separately and the houses to consider it
apart from the conference report; by fixing a deadline toward the close of a session
after which no bills could be sent to conference, so as to eliminate congestion at the
end of the session a suggestion made by the elder Senator La Follete in 1919; by
holding conferences in sessions open to the public, letting conference reports lie over
longer; and printing them in bill form (with conference changes in italics) so as to allow
members more time to examine them and discover "jokers." 4
The "three-reading" and "no-amendment" rules, absent in the US Federal Constitution,but expressly
mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted to remedy the "evils"
inherent in a bicameral system of legislature, including the conference committee system.
Sadly, the ponencia's refusal to apply Article VI, Section 26(2) of the Constitution on the Bicameral
Conference Committee and the amendments it introduced to R.A. No. 9337 has "effectively dismantled"
the "three-reading rule" and "no-amendment rule." As posited by Fr. Joaquin Bernas, a member of the
Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It
is not unusual that the final version approved by one House differs from what has been
approved by the other. The "conference committee," consisting of members nominated
from both Houses, is an extra-constitutional creation of Congress whose function is to
propose to Congress ways of reconciling conflicting provisions found in the Senate
version and in the House version of a bill. It performs a necessary function in a
bicameral system. However, since conference committees have merely delegated
authority from Congress, they should not perform functions that Congress itself may not
do. Moreover, their proposals need confirmation by both Houses of Congress.

In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the
limits of what conference committees may do. The petitioners contended that the
consolidation of the House and Senate bills made by the conference committee
contained provisions which neither the Senate bill nor the House bill had. In her
dissenting opinion, Justice Romero laid out in great detail the provisions that had been
inserted by the conference committee. These provisions, according to the petitioners
had been introduced "surreptitiously" during a closed door meeting of the committee.

341

The Court's answer to this was that in United States practice conference committees
could be held in executive sessions and amendments germane to the purpose of the
bill could be introduced even if these were not in either original bill. But the Court did
not bother to check whether perhaps the American practice was based on a
constitutional text different from that of the Philippine Constitution.
There are as a matter of fact significant differences in the degree of freedom American
and Philippine legislators have. The only rule that binds the Federal Congress is that it
may formulate its own rules of procedure. For this reason, the Federal Congress is
master of its own procedures. It is different with the Philippine Congress. Our Congress
indeed is also authorized to formulate its own rules of procedure but within limits not
found in American law. For instance, there is the "three readings on separate days"
rule. Another important rule is that no amendments may be introduced by either house
during third reading. These limitations were introduced by the 1935 and 1973
Constitutions and confirmed by the 1987 Constitution as a defense against the
inventiveness of the stealthy and surreptitious. These, however, were disregarded by
the Court in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. But an effort
should be made to lay out the scope of what conference committees may do according
to the requirements and the reasons of the Philippine Constitution and not according to
the practice of the American Congress. For instance, if the two Houses are not allowed
to introduce and debate amendments on third reading, can they circumvent this rule by
coursing new provisions through the instrumentality of a conference committee created
by Congress and meeting in secret? The effect of the Court's uncritical embrace of the
practice of the American Congress and its conference committees is to dismantle the
no-amendment rule. 5
The task at hand for the Court, but which the ponencia eschews, is to circumscribe the powers of the
Bicameral Conference Committee in light of the "three-reading" and "no-amendment" rules in Article VI,
Section 26(2) of the Constitution.
The Bicameral Conference Committee, in
deleting the "no pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI, Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice) opined that the duty
of the Bicameral Conference Committee was limited to the reconciliation of disagreeing provisions or the
resolution of differences or inconsistencies. This proposition still applies as can be gleaned from the
following text of Sections 88 and 89, Rule XIV of the Rules of the House of Representatives:
Sec. 88.Conference Committee. In the event that the House does not agree with the
Senate on the amendments to any bill or joint resolution, the differences may be settled
by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the panel shall report such fact to
the House for the latter's appropriate action.

342

Sec. 89.Conference Committee Reports. . . . Each report shall contain a detailed,

sufficiently explicit statement of the changes in or amendments to the subject
measure. DAaEIc
xxx xxx xxx
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference Committee
report in the same manner and procedure as it votes on a bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:
Sec. 35.In the event that the Senate does not agree with the House of Representatives
on the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten (10) days after their
composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately.
Justice Davide further explained that under its limited authority, the Bicameral Conference Committee
could only (a) restore, wholly or partly, the specific provisions of the House Bill amended by the Senate
Bill; (b) sustain, wholly or partly, the Senate's amendments, or (c) by way of compromise, to agree that
neither provisions in the House Bill amended by the Senate nor the latter's amendments thereto be
carried into the final form of the former. Justice Romero, who also dissented in Tolentino, added that the
conference committee is not authorized to initiate or propose completely new matters although under
certain legislative rules like the Jefferson's Manual, a conference committee may
introducegermane matters in a particular bill. However, such matters should be circumscribed by the
committee's sole authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an "amendment by deletion"
with respect to the "no pass on provision" contained in both House Bill (HB) No. 3705 and Senate Bill
(SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC by expressly stating
therein that sellers of petroleum products and power generation companies selling electricity are
prohibited from passing on the VAT to the consumers. SB 1950 proposed to amend Section 108 by
likewise prohibiting power generation companies from passing on the VAT to the consumers. However,
these no pass on provisions were altogether deleted by the Bicameral Conference Committee. At the
least, since there was no disagreement between HB 3705 and SB 1950 with respect to the "no pass on
provision" on the sale of electricity, the Bicameral Conference Committee acted beyond the scope of its
authority in deleting the pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading rule" in
Article VI, Section 26(2) of the Constitution. The proscription on amendments upon the last reading is
intended to subject all bills and their amendments to intensive deliberation by the legislators and the
ample ventilation of issues to afford the public an opportunity to express their opinions or objections
thereon. 6 Analogously, it is said that the "three-reading rule" operates "as a self-binding mechanism that
allows the legislature to guard against the consequences of its own future passions, myopia, or herd
behavior. By requiring that bills be read and debated on successive days, legislature may anticipate and
forestall future occasions on which it will be seized by deliberative pathologies." 7 As Jeremy Bentham, a

343

noted political analyst, put it: "[t]he more susceptible a people are of excitement and being led astray, so
much the more ought they to place themselves under the protection of forms which impose the necessity
of reflection, and prevent surprises." 8
Reports of the Bicameral Conference Committee, especially in cases where substantial amendments, or
in this case deletions, have been made to the respective bills of either house of Congress, ought to
undergo the "three-reading" requirement in order to give effect to the letter and spirit of Article VI, Section
26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in fact, bolsters the
argument for the strict compliance by Congress of the legislative procedure prescribed by the
Constitution. As can be gleaned from the said Report, of the 9 Senators-Conferees, 9 only 5
Senators 10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his qualified dissent while
Senators Sergio R. Osmea III and Juan Ponce Enrile approved it with reservations. On the other hand,
of the twenty-eight (28) Members of the House of Representatives-Conferees, 11 fourteen
(14) 12 approved the same with reservations while three 13 voted no. All the reservations expressed by
the conferees relate to the deletion of the "no pass on provision." Only eleven (11) unqualifiedly approved
it. In other words, even among themselves, the conferees were not unanimous on their Report.
Nonetheless, Congress approved it without even thoroughly discussing the reservations or qualifications
expressed by the conferees therein. HAcaCS
This "take it or leave it" stance vis- -vis conference committee reports opens the possibility of
amendments, which are substantial and not even germane to the original bills of either house, being
introduced by the conference committees and voted upon by the legislators without knowledge of their
contents. This practice cannot be countenanced as it patently runs afoul of the essence of Article VI,
Section 26(2) of the Constitution. Worse, it is tantamount to Congress surrendering its legislative
functions to the conference committees.

Ratification by Congress did not cure the

unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the Bicameral Conference Committee
Report which deleted the "no pass on provision" did not cure the unconstitutional act of the said
committee. As succinctly put by Chief Justice Davide in his dissent in Tolentino, "[t]his doctrine of
ratification may apply to minor procedural flaws or tolerable breaches of the parameters of the bicameral
conference committee's limited powers but never to violations of the Constitution. Congress is not
above the Constitution." 14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass upon the validity
of the assailed acts of the Bicameral Conference Committee. Under the "enrolled bill doctrine," the
signing of a bill by the Speaker of the House and the Senate President and the certification of the
Secretaries of both houses of Congress that it was passed are conclusive of its due enactment. In
addition to Tolentino, the ponencia cites Farias v. Executive Secretary 15where the Court declined to go
behind the enrolled bill vis- -vis the allegations of the petitioners therein that irregularities attended the
passage of Republic Act No. 9006, otherwise known as the Fair Election Act.

344

Reliance by the ponencia on Farias is quite misplaced. The Court's adherence to the enrolled bill
doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where the
irregularities alleged by the petitioners mostly involved the internal rules of Congress,
whether House or Senate. Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts there may be as to the
formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates
its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the
courts the power to inquire into the allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the absence of showing that there was
a violation of a constitutional provision or the rights of private individuals. In Osmea v.
Pendatun, it was held: "At any rate, courts have declared that 'the rules adopted by
deliberative bodies are subject to revocation, modification or waiver at the pleasure of
the body adopting them.' And it has been said that 'Parliamentary rules are merely
procedural, and with their observance, the courts have no concern. They may be
waived or disregarded by the legislative body.' Consequently, 'mere failure to conform
to parliamentary usage will not invalidate the action (taken by a deliberative body) when
the requisite number of members have agreed to a particular measure. 16
Thus, in Farias, the Court's refusal to go behind the enrolled bill was based on the fact that the alleged
irregularities that attended the passage of R.A. No. 9006 merely involved the internal rules of both houses
of Congress. The procedural irregularities allegedly committed by the conference committee therein did
not amount to a violation of a provision of the Constitution. 17
In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on provision" of SB
1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution. The violation of this constitutional
provision warrants the exercise by the Court of its constitutionally-ordained power to strike down any act
of a branch or instrumentality of government or any of its officials done with grave abuse of discretion
amounting to lack or excess of jurisdiction. 18
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno and vote to
dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act No. 9337 for being premature.
Further, I vote to declare as unconstitutional Section 21 thereof and the deletion of the "no pass on
provision" contained in the constituent bills of Republic Act No. 9337.
AZCUNA, J., concurring and dissenting opinion:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress of its
power to tax through its delegation to the President of the decision to increase the rate of the tax from
10% to 12%, effective January 1, 2006, after any of two conditions has been satisfied. 1
The two conditions are:
(i)Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii)National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%). 2

345

A scrutiny of these "conditions" shows that one of them is certain to happen on January 1, 2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross Domestic Product
(GDP) of the previous year, a ratio that is known as the tax effort.
The second condition is that the national government deficit exceeds 1 1/2% of the GDP of the previous
year.
Note that the law says that the rate shall be increased if any of the two conditions happens, i.e., if
condition (i) or condition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only practicable way that the present
deficit of the national government can be reduced to 1 1/2% or lower, thus preventing condition (ii) from
happening, is to increase the tax effort, which mainly has to come from the E-VAT. But increasing the tax
effort through the E-VAT, to the extent needed to reduce the national deficit to 1 1/2% or less, will trigger
the happening of condition (i) under the law. Thus, the happening of condition (i) or condition (ii) is in
reality certain and unavoidable, as of January 1, 2006. HcTSDa
This becomes all the more clear when we consider the figures provided during the oral arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at 1.5%, to at
least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making condition (i) happen. If, on
the other hand, this is not done, then condition (ii) happens the budget deficit remains over 1.5%.
What is the result of this? The result is that in reality, the law does not impose any condition, or the rate
increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional. For a condition is an
event that may or may not happen, or one whose occurrence is uncertain. 3 Now while condition (i) is
indeed uncertain and condition (ii) is likewise uncertain, the combination of both makes the occurrence of
one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since the rate
increase provided under the law, from 10% to 12%, is definite and certain to occur, effective January 1,
2006. All that the President will do is state which of the two conditions occurred and thereupon implement
the rate increase.
At first glance, therefore, it would appear that the decision to increase the rate is to be made by the
President, or that the increase is still uncertain, as it is subject to the happening of any of two conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult and critical times to let our
people know precisely what burdens they are being asked to bear as the necessary means to recover
from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a copy of the rules to implement the EVAT, particularly as to the impact of the tax on prices of affected commodities, specially oil and electricity.

346

For the onset of the law last July 1, 2005 was confusing, resulting in across-the-board increases of 10% in
the prices of commodities. This is not supposed to be the effect of the law, as was made clear during the
oral arguments, because the law also contains provisions that mitigate the impact of the E-VAT through
reduction of other kinds of taxes and duties, and other similar measures, specially as to goods that go into
the supply chain of the affected products. A proper implementation of the E-VAT, therefore, should cause
only the appropriate incremental increase in prices, reflecting the net incremental effect of the tax, which
is not necessarily 10%, but possibly less, depending on the products involved.
The introduction of the mitigating or cushioning measures through the Senate or through the Bicameral
Conference Committee, is also being questioned by petitioners as unconstitutional for violating the rule
against amendments after third reading and the rule that tax measures must originate exclusively in the
House of Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I would rather give the
necessary leeway to Congress, as long as the changes are germane to the bill being changed, the bill
which originated from the House of Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential and hopefully
sufficient means to enable our people to bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine that is the prevailing rule in this jurisdiction.
(Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions on
corporate income taxes, which are not germane to the E-VAT law, and are not found in the Senate and
House bills.

I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the following are not
germane to the E-VAT legislation:
Amended TAX
CODE ProvisionSubject Matter
Section 27Rate of income tax on domestic corporations
Section 28(A)(1)Rate of income tax on resident foreign
corporations
Section 28(B)(1)Rate of income tax on non-resident foreign
corporations
Section 28(B)(5-b)Rate of income tax on intercorporate
dividends received by non-resident foreign
corporations
Section 34(B)(1)Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his separate opinion that the following are not
germane to the E-VAT law:
"Sections 1, 2, and 3 of the Republic Act No. 9337 . . . , in so far as these sections
(a) amend the rates of income tax on domestic, resident foreign, and nonresident
foreign corporations; (b) amend the tax credit against taxes due from nonresident

347

foreign corporations on the intercorporate dividends; and (c) reduce the allowable
deduction from interest expense."
Respondents should, in any case, now be able to implement the E-VAT law without confusion and thereby
achieve its purpose. 4
I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in Republic Act.
No. 9337 that are not germane to the subject matter and DENY said petitions as to the rest of the law,
which are constitutional. cDCSET
TINGA, J., dissenting and concurring opinion:
The E-VAT Law, 1 as it stands, will exterminate our country's small to medium enterprises. This will
be the net effect of affirming Section 8 of the law, which amends Sections 110 of the National Internal
Revenue Code (NIRC)by imposing a seventy percent (70%) cap on the creditable input tax a VATregistered person may apply every quarter and a mandatory sixty (60) -month amortization period on the
input tax on goods purchased or imported in a calendar month if the acquisition cost of such goods
exceeds One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage and destruction is
crossed, the courts must step forth and cut the hangman's noose. Justice Holmes once confidently
asserted that "the power to tax is not the power to destroy while this Court sits", and we should very well
live up to this expectation not only of the revered Holmes, but of the Filipino people who rely on this Court
as the guardian of their rights. At stake is the right to exist and subsist despite taxes, which is
encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest respect for the prerogative of the
legislature to impose taxes, and of the national government to chart economic policy. Such respect impels
me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463, 2 and 168730, even as I
acknowledge certain merit in the challenges against the E-VAT law that are asserted in those petitions. In
the final analysis, petitioners therein are unable to convincingly demonstrate the constitutional infirmity of
the provisions they seek to assail. The only exception is Section 21 of the law, which I consider
unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it. Accordingly, I
dissent and hold as unconstitutional Section 8 of Republic Act No. 9337, insofar as it amends Section
110(A) and (B) of the National Internal Revenue Code (NIRC)as well as Section 12 of the same law, with
respect to its amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207, 168463, and
168730, while the second part is devoted to what I deem the most crucial issue before the Court, the
petition in G.R. No. 168461.
I.
Undue Delegation and the Increase
Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law constitutes an undue
delegation of legislative power. In appreciating the aspect of undue delegation as regards taxation

348

statutes, the fundamental point remains that the power of taxation is inherently legislative, 3 and may be
imposed or revoked only by the legislature. 4 In tandem with Section 1, Article VI of the Constitution which
institutionalizes the law-making power of Congress, Section 24 under the same Article crystallizes this
principle, as it provides that "[a]ll appropriation, revenue or tariff bills . . . shall originate exclusively in the
House of Representatives." 5
Consequently, neither the executive nor judicial branches of government may originate tax measures.
Even if the President desires to levy new taxes, the imposition cannot be done by mere executive fiat. In
such an instance, the President would have to rely on Congress to enact tax laws. aITDAE
Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of
government or private persons, unless its delegation is authorized by the Constitution itself. 6 In this
regard, the situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR, 7 wherein I noted in my ponencia that the Tariff Commission and the DTI Secretary may
be regarded as agents of Congress for the purpose of imposing safeguard measures. That
pronouncement was made in light of Section 28(2) Article VI, which allows Congress to delegate to the
President through law the power to impose tariffs and imposts, subject to limitations and restrictions as
may be ordained by Congress. In the case of taxes, no such constitutional authorization exists, and the
discretion to ascertain the rates, subjects, and conditions of taxation may not be delegated away by
Congress.
However, as the majority correctly points out, the power to ascertain the facts or conditions as the basis of
the taking into effect of a law may be delegated by Congress, 8 and that the details as to the enforcement
and administration of an exercise of taxing power may be delegated to executive agencies, including the
power to determine the existence of facts on which its operation depends. 9
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant examination. The
provisions read:
SEC. 4.Sec. 106 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 106.Value-Added Tax on Sale of Goods or Properties.
(A)Rate and Base of Tax. There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor; provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied.
(i)value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii)national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent 1 1/2%).
Sec. 5.Section 107 of the same Code, as amended, is hereby further amended to read
as follows:

349

SEC. 107.Value-Added Tax on Importation of Goods.

(a)In General. There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%) based
on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on
the basis of the quantity or volume of the goods, the value-added tax shall be
based on the landed cost plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been satisfied.
(i)national value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii)government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%).
SEC. 6.Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 108.Value-added Tax on Sale of Services and Use of Lease of
Properties
(A)Rate and Base of Tax. There shall be levied, assessed and collected,
a value-added tax equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services; provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied.
(i)value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii)national government deficit as a percentage of GDP of the previous year
exceed same and on-half percent (1 1/2%).
The petitioners deem as noxious the proviso common to these provisions that "the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%)," after the satisfaction of the twin conditions that value-added tax
collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and fourfifth percent (2 4/5%); or that the national government deficit as a percentage of GDP of the previous year
exceed same and on-half percent (1 1/2%).
At first blush, it does seem that the assailed provisions are constitutionally deficient. It is Congress, and
not the President, which is authorized to raise the rate of VAT from 10% to 12%, no matter the
circumstance. Yet a closer analysis of the proviso reveals that this is not exactly the operative effect of the

350

law. The qualifier "shall" denotes a mandatory, rather than discretionary function on the part of the
President to raise the rate of VAT to 12% upon the existence of any of the two listed conditions.

Since the President is not given any discretion in refusing to raise the VAT rate to 12%, there is clearly no
delegation of the legislative power to tax by Congress to the executive branch. The use of the word "shall"
obviates any logical construction that would allow the President leeway in not raising the tax rate. More
so, it is accepted that the principle of constitutional construction that 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. 10 While all reasonable doubts should be resolved in favor, of the constitutionality of a statute, 11 it
should necessarily follow that the construction upheld should be one that is not itself noxious to the
Constitution.
Congress should be taken to task for imperfect draftsmanship at least. Much trouble would have been
avoided had the provisos instead read: "that effective January 1, 2006, the rate of value-added tax shall
be raised to twelve percent (12%), after any of the following conditions has been satisfied . . . ." This, after
all is the operative effect of the provision as it stands. In relation to the operation of the tax increase, the
denominated role of the President and the Secretary of Finance may be regarded as a superfluity, as
their imprimatur as a precondition to the increase of the VAT rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance have
designated roles in the implementation of the tax increase. Considering that it is Congress, and not these
officials, which properly have imposed the increase in the VAT rate, how should these roles be construed?
The enactment of a law should be distinguished from its implementation. Even if it is Congress which
exercises the plenary power of taxation, it is not the body that administers the implementation of the tax.
Under Section 2 of the National Internal Revenue Code (NIRC),the assessment and collection of all
national internal revenue taxes, and the enforcement of all forefeitures, penalties and fines connected
therewith had been previously delegated to the Bureau of Internal Revenue, under the supervision and
control of the Department of Finance. 12
Moreover, as intimated earlier, Congress may delegate to other components of the government the power
to ascertain the facts or conditions as the basis of the taking into effect of a law. It follows that
ascertainment of the existence of the two conditions precedent for the increase as stated in the law could
very well be delegated to the President or the Secretary of Finance. 13
Nonetheless, the apprehensions arise that the process of ascertainment of the listed conditions delegated
to the Secretary of Finance and the President effectively vest discretionary authority to raise the VAT rate
on the President, through the possible subterfuges that may be employed to delay the determination, or
even to manipulate the factual premises. Assuming arguendo that these feared abuses may arise, I think
it possible to seek judicial enforcement of the increased VAT rate, even without the participation or
consent of the President or Secretary of Finance, upon indubitable showing that any of the two listed
conditions do exist. After all, the Court is ruling that the increase in the VAT rate is mandatory and beyond
the discretion of the President to impose or delay.
The majority states that in making the recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is acting as the agent of the legislative branch, to determine and
declare the event upon which its expressed will is to take effect. 14 This recognition of agency must be
qualified. I do not doubt the ability of Congress to delegate to the Secretary of Finance administrative

351

functions in the implementation of tax laws, as it does under Section 2 of the NIRC. Yet it would be
impermissible for Congress to delegate to the Secretary of Finance the plenary function of enacting a tax
law. As stated earlier, the situation stands different from that in Southern Crosswherein the
Constitution itself authorizes the delegation by Congress through a law to the President of the discretion
to impose tariff measures, subject to restrictions and limitations provided in the law. 15 Herein, Congress
cannot delegate to either the President or the Secretary of Finance the discretion to raise the tax, as such
power belongs exclusively to the legislative branch of government. aAEIHC
Perhaps the term "agency" is not most suitable in describing the delegation exercised by Congress in this
case, for agency implies that the agent takes on attributes of the principal by reason of representative
capacity. In this case, whatever "agency" that can be appreciated would be of severely limited capacity,
encompassing as it only could the administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and not Congress, which is
authorized to raise the VAT rate. On paper at least, these imperfect provisions could be multiple sources
of mischief. On the political front, whatever blame or scorn that may be attended with the increase of the
VAT rate would fall on the President, and not on Congress which actually increased the tax rate. On the
legal front, a President averse to increasing the VAT rate despite the existence of the two listed conditions
may take refuge in the infelicities of the provision, and refuse to do so on the ground that the law, as
written, implies some form of discretion on the part of the President who was, after all, "authorized" to
increase the tax rate. It is critical for the Court to disabuse this notion right now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided the Court, pertains to the
ability of the Bicameral Conference Committee to introduce amendments to the final bill which were not
contained in the House bill from which the E-VAT Law originated. Most of the points addressed by the
petitioners have been settled in our ruling in Tolentino v. Secretary of Finance, 16 yet a revisit of that
precedent is urged upon this Court. On this score, I offer my qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI of the
Constitution. They read:
Section 24:All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments.
Section 26(2):No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas and nays entered
in the Journal.
Section 24 is also known as the origination clause, which derives origin from British practice. From the
assertion that the power to tax the public at large must reside in the representatives of the people, the
principle evolved that money bills must originate in the House of Commons and may not be amended by
the House of Lords. 17 The principle was adopted across the shores in the United States, and was
famously described by James Madison in The Federalist Papersas follows:

352

This power over the purse, may in fact be regarded as the most compleat and effectual
weapon with which any constitution can arm the immediate representatives of the
people, for obtaining a redress of every grievance, and for carrying into effect every just
and salutary measure. 18
There is an eminent difference from the British system from which the principle emerged, and from our
own polity. To this day, only members of the British House of Commons are directly elected by the people,
with the members of the House of Lords deriving their seats from hereditary peerage. Even in the United
States, members of the Senate were not directly elected by the people, but chosen by state legislatures,
until the adoption of the Seventeenth Amendment in 1913. Hence, the rule assured the British and
American people that tax legislation arises with the consent of the sovereign people, through their directly
elected representatives. In our country though, both members of the House and Senate are directly
elected by the people, hence the vitality of the original conception of the rule has somewhat lost luster.
Still, the origination clause deserves obeisance in this jurisdiction, simply because it is provided in the
Constitution. At the same time, its proper interpretation is settled precedent, as enunciated in Tolentino:
To begin with, it is not the law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The possibility of
a third version by the conference committee will be discussed later. At this point, what
is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute and not only the bill which initiated the
legislative process culminating in the enactment of the law must substantially be the
same as the House bill would be to deny the Senate's power not only to "concur with
amendments" but also to " propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact make the House superior
to the Senate. 19

The vested power of the Senate to "concur with amendments" necessarily implies the ability to implement
transformations from the original House bill into the final law. Since the House and Senate sit separately
in sessions, the only opportunity for the Senate to introduce its amendments would be in the Bicameral
Conference Committee, which emerges only after both the House and the Senate have approved their
respective bills. IDSaTE
In the present petitions, Tolentino comes under fire on two fronts. The first controversy arises from the
adoption in Tolentino of American legislative practices relating to bicameral committees despite the
difference in constitutional frameworks, particularly the limitation under Section 26(2), Article VI which
does not exist in the American Constitution.
The majority points out that "the 'no amendment rule' refers only to the procedure to be followed by each
house of Congress with regard to bills initiated in each of said respective houses, before said bill is
transmitted to the other house for its concurrence or amendment." I agree with this statement. Clearly, the
procedure under Section 26(2), Article VI only relates to the passage of a bill before the House and
Senate, and not the process undertaken afterwards in the Bicameral Conference Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the procedure how a bill becomes a law, are silent
as to what occurs between the passage by both Houses of their respective bills, and the presentation to

353

the President of "every bill passed by the Congress". 20 Evidently, "Congress" means both Houses, such
that a bill approved by the Senate but not by the House is not presented to the President for approval.
There is obviously a need for joint concurrence by the House and Senate of a bill before it is transmitted
to the President, but the Constitution does not provide how such concurrence is acquired. This lacuna has
to be filled, otherwise no bill may be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally organized body, it has existed as the
necessary conclave for both chambers of Congress to reconcile their respective versions of a prospective
law. The members of the Bicameral Conference Committee may possess in them the capacity to
represent their particular chamber, yet the collective is neither the House nor the Senate. Hence, the
procedure contained in Section 26(2), Article VI cannot apply to the Bicameral Conference Committee.
Tellingly, the version approved by the Bicameral Conference Committee still undergoes deliberation and
approval by both Houses. Only one vote is taken to approve the reconciled bill, just as only one vote is
taken in order to approve the original bill. Certainly, it could not be contended that this final version
surreptitiously evades approval of either the House or Senate.
The second front concerns the scope and limitations of the Bicameral Conference Committee to amend,
delete, or otherwise modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as approved by the
Bicameral Conference Committee need only be germane to the subject of the House and Senate bills in
order to be valid. 21 The majority, in applying the test of germaneness, upholds the contested provisions
of the E-VAT Law. Even the members of the Court who prepared to strike down provisions of the law
applying germaneness nonetheless accept the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not germane to the
subject matter of the House or Senate Bills is not valid. It is the only valid ground by which an amendment
introduced by the Bicameral Conference Committee may be judicially stricken.
The germaneness standard which should guide Congress or the Bicameral Conference Committee
should be appreciated in its normal but total sense. In that regard, my views contrast with that of Justice
Panganiban, who asserts that provisions that are not "legally germane" should be stricken down. The
legal notion of germaneness is just but one component, along with other factors such as
economics and politics, which guides the Bicameral Conference Committee, or the legislature for
that matter, in the enactment of laws. After all, factors such as economics or politics are expected to
cast a pervasive influence on the legislative process in the first place, and it is essential as well to allow
such "non-legal" elements to be considered in ascertaining whether Congress has complied with the
criteria of germaneness.
Congress is a political body, and its rationale for legislating may be guided by factors other than
established legal standards. I deem it unduly restrictive on the plenary powers of Congress to
legislate, to coerce the body to adhere to judge-made standards, such as a standard of "legal
germaneness". The Constitution is the only legal standard that Congress is required to abide by
in its enactment of laws.
Following these views, I cannot agree with the position maintained by the Chief Justice, Justices
Panganiban and Azcuna that the provisions of the law that do not pertain to VAT should be stricken as
unconstitutional. These would include, for example, the provisions raising corporate income taxes. The
Bicameral Conference Committee, in evaluating the proposed amendments, necessarily takes into
account not just the provisions relating to the VAT, but the entire revenue generating mechanism in place.

354

If, for example, amendments to non-VAT related provisions of the NIRC were intended to offset the
expanded coverage for the VAT, then such amendments are germane to the purpose of the House and
Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House Bill is solely the VAT
system, rather than the generation of revenue. The majority sufficiently demonstrate that the legislative
intent behind the bills that led to the E-VAT Law was the generation of revenue to counter the country's
dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions pertain to
the VAT, or indirect taxes, does not mean that any and all amendments which are introduced by the
Bicameral Conference Committee must pertain to the VAT system. As the Court noted in Tatad v.
Secretary of Energy: 22
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the
provision 17 of the Constitution requiring every law to have only one subject which
should be expressed in its title. We do not concur with this contention. As a policy, this
Court has adopted a liberal construction of the one title one subject rule. We
have consistently ruled that the title need not mirror, fully index or catalogue all
contents and minute details of a law. A law having a single general subject
indicated in the title may contain any number of provisions, no matter how
diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by
providing for the method and means of carrying out the general subject. We hold
that section 5(b) providing for tariff differential is germane to the subject of R.A. No.
8180 which is the deregulation of the downstream oil industry. The section is supposed
to sway prospective investors to put up refineries in our country and make them rely
less on imported petroleum. 23
I submit that if the amendments are attuned to the goal of revenue generation, the stated purpose of the
original House Bills, then the test of germaneness is satisfied. It might seem that the goal of revenue
generation, which is stated in virtually all tax or tariff bills, is too encompassing in scope so as to justify the
inclusion by the Bicameral Conference Committee of just about any revenue generation measure. This
may be so, but it does not mean that the test of germaneness would be rendered inutile when it comes to
revenue laws.
I do believe that the test of germaneness was violated by the E-VAT Law in one regard. Section 21 of the
law, which was not contained in either the House or Senate Bills, imposes restrictions on the use by local
government units of their incremental revenue from the VAT. These restrictions are alien to the principal
purposes of revenue generation, or the purposes of restructuring the VAT system. I could not see how the
provision, which relates to budgetary allocations, is germane to the E-VAT Law. Since it was introduced
only in the Bicameral Conference Committee, the test of germaneness is essential, and the provision
does not pass muster. I join Justice Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional. TEcADS
I also offer this brief comment regarding the deletion of the so-called "no pass on" provisions, which
several of my colleagues deem unconstitutional. Both the House and Senate Bills contained these
provisions that would prohibit the seller/producer from passing on the cost of the VAT payments to the
consumers. However, an examination of the said bills reveal that the "no pass on" provisions in the House
Bill affects a different subject of taxation from that of the Senate Bill. In the House Bill No. 3705, the
taxpayers who are prohibited from passing on the VAT payments are the sellers of petroleum products

355

and electricity/power generation companies. In Senate Bill No. 1950, no prohibition was adopted as to
sellers of petroleum products, but enjoined therein are electricity/power generation companies but also
transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid. The deletion of
the two disparate "no pass on" provisions which were approved by the House in one instance, and only
by the Senate in the other, remains in the sphere of compromise that ultimately guides the approval of the
final version. Again, I point out that even while the two provisions may have been originally approved by
the House and Senate respectively, their subsequent deletion by the Bicameral Conference Committee is
still subject to approval by both chambers of Congress when the final version is submitted for deliberation
and voting.

Moreover, the fact that the nature of the "no pass on" provisions adopted by the House essentially differs
from that of the Senate necessarily required the corrective relief from the Bicameral Conference
Committee. The Committee could have either insisted on the House version, the Senate version, or both
versions, and it is not difficult to divine that any of these steps would have obtained easy approval. Hence,
the deletion altogether of the "no pass on" provisions existed as a tangible solution to the possible
impasse, and the Committee should be accorded leeway to implement such a compromise, especially
considering that the deletion would have remained germane to the law, and would not be constitutionally
prohibited since the prohibition on amendments under Section 26(2), Article VI does not apply to the
Committee.
An outright declaration that the deletion of the two elementally different "no-pass on" provisions is
unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained endorsement of a
majority of the Court, it could not result in the ipso facto restoration of the provision, the omission of which
was ultimately approved in both the House and Senate. Moreover, since the House version of the "no
pass on" is quite different from that of the Senate, there would be a question as to whether the House
version, the Senate version, or both versions would be reinstated. And of course, if it were the Court
which would be called upon to choose, such would be way beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed to meet
legislative approval would result in a blatant violation of the principle of separation of powers, with the
Court effectively dictating to Congress the content of its legislation. The Court cannot simply decree to
Congress what laws or provisions to enact, but is limited to reviewing those enactments which are
actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more than
constitutional interpretation. Perhaps my preceding discussion may lead to an impression that I wholeheartedly welcome the passage of the E-VAT Law. Yet whatever relief I may have over the enactment of a
law designed to relieve our country's financial woes are sadly obviated with the realization that a key
amendment introduced in the law is not only unconstitutional, but of fatal consequences. The clarion call
of judicial review is most critical when it stands as the sole barrier against the deprivation of life, liberty
and property without due process of law. It becomes even more impelling now as we are faced with
provisions of the E-VAT Law which, though in bland disguise, would operate as the most destructive of tax
measures enacted in generations.
Tax Statutes and the Due Process Clause

356

It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of Rights. This
task is at the heart not only of judicial review, but of the democratic system, for the fundamental
guarantees in the Bill of Rights become merely hortatory if their judicial enforcement is unavailing. Even if
the void law in question is a tax statute, or one that encompasses national economic policy, the courts
should not shirk from striking it down notwithstanding any notion of deference to the executive or
legislative branch on questions of policy. Neither Congress nor the President has the right to enact or
enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax law can be
measured. Nonetheless, it stands as the most unyielding of constitutional standards, given its position of
primacy in the fundamental law way above the articles on governmental power. 24 If the question lodged,
for example, hinges on the proper exercise of legislative powers in the enactment of the tax law, leeway
can be appreciated in favor of affirming the legislature's inherent power to levy taxes. On the other hand,
no quarter can be ceded, no concession yielded, on the people's fundamental rights as enshrined in the
Bill of Rights, even if the sacrifice is ostensibly made "in the national interest." It is my understanding that
"the national interests," however comported, always subsumes in the first place recognition and
enforcement of the Bill of Rights, which manifests where we stand as a democratic society.
The constitutional safeguard of due process is embodied in the fiat "No person shall be deprived of life,
liberty or property without due process of law". 25 The purpose of the guaranty is to prevent governmental
encroachment against the life, liberty and property of individuals; to secure the individual from the
arbitrary exercise of the powers of the government, unrestrained by the established principles of private
rights and distributive justice; to protect property from confiscation by legislative enactments, from
seizure, forfeiture, and destruction without a trial and conviction by the ordinary mode of judicial
procedure; and to secure to all persons equal and impartial justice and the benefit of the general law. 26
In Magnano Co. v. Hamilton, 27 the U.S. Supreme Court recognized that the due process clause may be
utilized to strike down a taxation statute, "if the act be so arbitrary as to compel the conclusion that it does
not involve an exertion of the taxing power, but constitutes, in substance and effect, the direct exertion of
a different and forbidden power, as, for example, the confiscation of property." 28 Locally, Sison v.
Ancheta 29 has long provided sanctuary for persons assailing the constitutionality of taxing statutes. The
oft-quoted pronouncement of Justice Fernando follows:
2.The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of government." It is, of course, to be
admitted that for all its plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely affecting as it
does property rights, both the due process and equal protection clauses may
properly be invoked, as petitioner does, to invalidate in appropriate cases a
revenue measure. If it were otherwise, there would be truth to the 1803 dictum of
Chief Justice Marshall that "the power to tax involves the power to destroy." In a
separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times [allowing] a free use of absolutes." This is merely to
emphasize that it is not and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmes's pen: 'The
power to tax is not the power to destroy while this Court sits.'" So it is in the Philippines.
3.This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive act that runs counter to it. In any case

357

therefore where it can be demonstrated that the challenged statutory provision

as petitioner here alleges fails to abide by its command, then this Court
must so declared and adjudge it null. The inquiry thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.
4.The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void on its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
5.It is undoubted that 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 the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the state, or is
not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 30
Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the state's jurisdiction, and lack of a public purpose are all
grounds for nullity encompassed under the due process invocation.
Yet even these more particular standards as enunciated in Sison are quite exacting, and difficult to reach.
Even the constitutional challenge posed in Sison failed to pass muster. The ponencia cites Sison in
asserting that due process and equal protection are broad standards which need proof of such persuasive
character to lead to such a conclusion. DEICTS
It is difficult though to put into quantifiable terms how onerous a taxation statute must be before it
contravenes the due process clause. 31 After all, the inherent nature of taxation is to cause pain and
injury to the taxpayer, albeit for the greater good of society. Perhaps whatever collective notion there may
be of what constitutes an arbitrary, confiscatory, and unreasonable tax might draw more from the fairy
tale/legend traditions of absolute monarchs and the oppressed peasants they tax. Indeed, it is easier to
jump to the conclusion that a tax is oppressive and unfair if it is imposed by a tyrant or an authoritarian
state.

But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic state such
as ours? Of course it could, but these would exist in more palatable guises. In a democratic society
wherein statutes are enacted by a representative legislature only after debate and deliberation, tax
statutes will most likely, on their face, seem fair and even-handed. After all, if Congress passes a tax law
that on facial examination is obviously harsh and unfair, it faces the wrath of the voting public, to say
nothing of the media.

358

In testing the validity of a tax statute as against the due process clause, I think that the Court should go
beyond a facial examination of the statute, and seek to understand how exactly it would operate. The
express terms of a statute, especially tax laws, are usually inadequate in spelling out the practical effects
of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased with the growing
complexities of business, economic and accounting practices. These are sciences which laymen are not
normally equipped by their general education to fully grasp, hence the possible insecurity on their part
when confronted with these questions on these fields.
However, we should not cede ground to those transgressions of the people's fundamental rights simply
because the mechanism employed to violate constitutional guarantees is steeped in disciplines not
normally associated with the legal profession. Venality cannot be allowed to triumph simply due to its
sophistication. This petition imputes in the E-VAT Law unconstitutional oppression of the fatal variety, but
in order to comprehend exactly how and why that is so, one has to delve into the complex milieu of the
VAT system. The party alleging the law's unconstitutionality of course has the burden to demonstrate the
violations in understandable terms, but if such proof is presented, the Court's duty is to engage
accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet to be implemented, or
the fear that doing so constitutes an undue attack on the wisdom, rather than the legality of a statute.
However, my position in this petition has been challenged on those grounds, and I see it fit to refute these
preemptive allegations before delving into the operative aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only because the E-VAT Law
has yet to be implemented. No person as of yet can claim to have sustained actual injury by reason of
the implementation of the assailed provisions in G.R. No. 168461. Yet this should not mean that the Court
is impotent from declaring a provision of law as violative of the due process clause if it is clear that its
implementation will cause the illegal deprivation of life, liberty or property without due process of law. This
is especially so if, as in this case, the injury is of mathematical certainty, and the extent of the loss
quantifiable through easy reference to the most basic of business practices.
These arguments are conjectural for the same reason that the bare statement "firing a gunshot
into the head will cause a fatal wound" would be conjectural. Some people are lucky enough to
survive gunshot wounds to the head, while many others are not. Yet just because the fear of mortality
would be merely speculative, it does not mean that there should be less compulsion to avoid a situation of
getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury has not yet
even occurred. One of the most significant legal principles of the last century, the "clear and
present danger" doctrine in free speech cases, in fact emanates from the prospectivity, and not
the actuality of danger. The Court has not been hesitant to nullify acts which might cause injury, owing
to the presence of a clear and present danger of a substantive evil which the State has the right to
prevent. It has even extended the "clear and present danger rule" beyond the confines of freedom of
expression to the realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v.
Escritor. 32

359

Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and asserts that the
clear and present danger test squarely applies to the due process clause: "The courts, as the decision
states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political
departments of government in areas which fall within their authority, except only when such
policies pose a clear and present danger to the life, liberty or property of the individual."
I see no reason why the clear and present danger test cannot apply in this case, or any case
wherein a taxing statute poses a clear and present danger to the life, liberty or property of the
individual. The application of this standard frees the Court from inutility in the face of patently
unconstitutional tax laws that have been enacted but are yet to be fully operational.
If for example, Congress deems it wise to impose the most draconian of tax measures such as trebling
the income taxes of all persons over 40, raising the gross sales tax rate to 50%, or penalizing delinquent
taxpayers with 50 lashes of the whip there certainly would be a massive public outcry, and an
expectation that the Court would immediately nullify the offensive measures even before they are actually
imposed. Applying the clear and present danger test, the Court is empowered to strike down the noxious
measures even before they are implemented. Yet with this "bar on speculativeness" as argued by the
majority, the Court could easily refuse to pay heed to the prayers for injunctive relief, and instead demand
that the taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than the constitutionality of the
law are misplaced. Concededly, the assailed provisions of the E-VAT law are basically unwise. But any
provision of law that directly contradicts the Constitution, especially the Bill of Rights, are similarly unwise,
as they run inconsistent with the fundamental law of the land, the enunciated state policies and the
elemental guarantees assured by the State to its people.Not every unwise law is unconstitutional, but
every unconstitutional law is unwise, for an unconstitutional law contravenes a primordial
principle or guarantee on which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the Constitution, especially the due
process clause, then the Court should accordingly act and nullify. Such is the essence of judicial review,
which stands as the sole barrier between the implementation of an unconstitutional law.
The Separate Opinionof Justice Panganiban notes that "[t]he Court cannot step beyond the confines of its
constitutional power, if there is absolutely no clear showing of grave abuse of discretion in the enactment
of the law" 33 . This, I feel, is an unduly narrow view of judicial review, implying that such merely
encompasses the procedural aspect by which a law is enacted. If the policy of the law, and/or the means
by which such policy is implemented run counter to the Constitution, then the Court is empowered to
strike down the law, even if the legislative and executive branches act within their discretion in legislating
and signing the law.
It is also asserted that if the implementation of the 70% cap imposes an unequal effect on different types
of businesses with varying profit margins and capital requirements, then the remedy would be an
amendment of the law. 34 Of course, the remedy of legislative amendment applies to even the most
unconstitutional of laws. But if our society can take cold comfort in the ability of the legislature to amend
its enactments as the defense against unconstitutional laws, what remains then as the function of judicial
review? This legislative capacity to amend unconstitutional laws runs concurrently with the judicial
capacity to strike down unconstitutional laws. In fact, the long-standing tradition has been reliance on the
judicial branch, and not the legislative branch, for salvation from unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from the premise that
the assailed provisions of the E-VAT Law may be merely unwise, but not unconstitutional. Hence, its

360

preference to rely on Congress to amend the offending provisions rather than judicial nullification. But I
maintain that the assailed provisions of the E-VAT Law violate the due process clause of the
Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause, it is
essential to understand the nature of the value-added tax itself. Filipino consumers may comprehend VAT
at its elemental form, having been accustomed for several years now in paying an extra 10% of the listed
selling price for a wide class of consumer goods. From the perspective of the end consumer, such as the
patron who purchases a meal from a fastfood restaurant, VAT is simply a tax on transactions involving the
sale of goods. The tax is shouldered by the buyer, and is based on a percentage of the purchase price.
Since an excise or percentage tax shares the same characteristics, there could be some confusion as
between such taxes and the VAT.
However, VAT is distinguishable from the standard excise or percentage taxes in that it is imposable not
only on the final transaction involving the end user, but on previous stages as well so long as there was a
sale involved. Thus, VAT does not simply pertain to the extra percentage paid by the buyer of a fast-food
meal, but also that paid by restaurant itself to its suppliers of raw food products. This multi-stage system
is more acclimated to the vagaries of the modern industrial climate, which has long surpassed the stage
when there was only one level of transfer between the farmer who harvests the crop and the person who
eats the crop. Indeed, from the extraction or production of the raw material to its final consumption by a
user, several transactions or sales materialize. The VAT system assures that the government shall reap
income for every transaction that is had, and not just on the final sale or transfer.

The European Union, which has long required its member states to apply the VAT system, provided the
following definition of the tax which I deem clear and comprehensive:
The principle of the common system of value added tax involves the application to
goods and services of a general tax on consumption exactly proportional to the price
of the goods and services, whatever the number of transactions that take place
in the production and distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services
at the rate applicable to such goods or services, shall be chargeable after deduction
of the amount of value added tax borne directly by the various cost
components. 35
The above definition alludes to a key characteristic of the VAT system, that the imposable tax remains
proportional to the price of goods and services no matter the number of transactions that takes place.
There is another key characteristic of the VAT that no matter how many the taxable transactions that
precede the final purchase or sale, it is the end-user, or the consumer, that ultimately shoulders the tax.
Despite its name, VAT is generally not intended to be a tax on value added, but rather as a tax on
consumption. Hence, there is a mechanism in the VAT system that enables firms to offset the tax they
have paid on their own purchases of goods and services against the tax they charge on their sales of
goods and services. 36 Section 105 of the NIRC assures that "the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services." The assailed provisions
of the E-VAT law strike at the heart of this accepted principle.

361

And there is one final basic element of the VAT system integral to this disquisition: the mode by which the
tax is remitted to the government. In simple theory, the VAT payable can be remitted to the government
immediately upon the occurrence of the transaction, but such a demand proves excessively unwieldy. The
number of VAT covered transactions a modern enterprise may contract in a single day, plus the
recognized principle that it is the final end user who ultimately shoulders the tax; render the remittance of
the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government but to the seller, who then
collates the VAT received and remits it to the government every quarter. The process may seem simple if
cast in this manner, but there is a wrinkle, due to the offsetting mechanism designed to ultimately make
the end consumer bear the cost of the VAT.
The Concepts of Input and
Output VAT
This mechanism is employed through the introduction of two concepts, the input tax and the output tax.
Section 110(A) of the National Internal Revenue Code defines the input tax as the VAT due from or paid
by a VAT-registered person on the importation of goods or local purchase of goods and services in the
course of trade or business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person, engaged in an enterprise, necessarily
purchases goods such as raw materials and machinery in order to produce consumer goods. The
purchase of such raw materials and machineries is subject to VAT, hence the enterprise pays an
additional 10% of the purchase price to the supplier as VAT. This extra amount paid by the enterprise
constitutes its input VAT. The enterprise likewise pays input VAT when it purchases services covered by
the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer, the VAT
system allows for a mechanism by which the business is able to recover the input VAT that it paid. This
comes into play when the business, having transformed the raw materials into consumer goods, sells
these goods to the public. As widely known, the consumer pays to the business an additional amount of
10% of the purchase price as VAT. As to the business, this VAT payments it collects from the consumer
represents output VAT, which is formally described under Section 110(A) of the NIRC as "the value-added
tax due on the sale or lease of taxable goods or properties or services by" by any VAT-registered person.
The output VAT collected by the business from the consumers accumulates, until the end of every quarter,
when the enterprise is obliged to remit the collected output VAT to the government. This is where the
crediting mechanism comes into play. Since the business is entitled to recover the prepaid input VAT, it
does so in every quarter by applying the amount of prepaid input VAT against the collected output VAT
which is to be remitted. If the output VAT collected exceeds the prepaid input VAT, then the amount of
input VAT is deducted from the output VAT, and it is entitled to remit only the remainder as output VAT to
the government. To illustrate, if Business X collects P1,000,000.00 as output VAT and incurs P500,000.00
as input VAT, the P500,000.00 is deducted from the P1,000,000.00 output VAT, and X is required to remit
only P500,000.00 of the output VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the business need not
remit any amount as output VAT for the quarter. Moreover, the difference between the input VAT and the
output VAT may be credited as input VAT by the business in the succeeding quarter. Thus, if in the First
Quarter of a year, Business X prepays P1,000,000.00 as input VAT, and collects only P500,000.00 as
output VAT, it need not remit any amount of output VAT to the government. Moreover, in the Second
Quarter, Business X can credit the remaining P500,000.00 as part of its input VAT for that quarter. Hence,

362

if in the Second Quarter, X actually prepays P400,000.00 as input VAT, and collects P500,000.00 as
output VAT, it may add the P500,000.00 input VAT from the previous quarter to the P400,000.00 prepaid
in the current quarter, bringing the total input VAT it could claim to P900,000.00. Since the input VAT of
P900,000.00 now exceeds the output VAT collected of P500,000, then X need not remit any output VAT
as well to the government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and remitted is not the
most relevant statistic evaluated by the business. The figure of primary concern of the enterprise would
be the profit margin, which is simply the excess of revenue less expenditures. Revenue is derived from
the gross sales of the business. Expenditures encompass all expenses incurred by the business including
overhead expenses, wages and purchases of capital goods. Crucially, expenditures would include the
input VAT prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the prepayment of
input taxes, the necessity of recovering these losses through the output VAT collected becomes more
impelling. These output taxes are obviously proportional to the volume of gross sales the higher the
gross sales, the higher the output VAT collected. The output taxes collected on sales answer for not
only those input taxes paid on the purchase of the raw materials, but also for the input taxes paid
on the multifarious overhead expenses covered by VAT. The burden carried by the sales volume on
the stability, if not survival of the business thus just became more crucial. The maintenance of the proper
equilibrium is not an easy matter. Increasing the selling price of the goods sold does not necessarily
increase the gross sales, as it could have the counter-effect of repelling the consumer and diminishing the
number of goods sold. At the same time, keeping the selling price low may increase the volume of goods
sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is quite
common for retail and distribution enterprises to incur profits of less than 1% of their gross revenues. Low
profitability is not an automatic badge of poor business skills, but a reality dictated by the laws of the
marketplace. The probability of profit is lower than that of capital expenditures, and ultimately, many
business establishments end up with a higher input tax than output tax in a given quarter. This would be
especially true for small to medium enterprises who do not reap sufficient profits from its business in the
first place, and for those firms that opt to also invest in capital expenses in addition to the overhead.
Whatever miniscule profit margins that can be obtained usually spell the difference between life and death
of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the input VAT in
the purchase of their capital expenses. Yet the erstwhile VAT system was not tainted by the label of
oppressiveness and neither did it bear the confiscatory mode. This was because of the immediate
relief afforded from the input taxes paid by the crediting system. In theory, VAT is not supposed to
affect the profit margin. If such margin is affected, it is only because of the prepayment of the
input taxes, and this should be remedied by the immediate recovery through the crediting system
of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system the 70% cap on the
creditable input tax that may be carried over into the next quarter is provided in Section 8 of the law,
which amends Section 110(A) of the NIRC,among others. Section 110(A) as amended would now read:

363

Sec. 110.Tax Credits.

(B)Excess Output or Input Tax. If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VATregistered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. Provided,
That the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: Provided,
however, That any input tax attributable to zero rated sales by a VATregistered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
(emphasis supplied)

All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under the E-VAT Law,
the business, regardless of stability or financial capability, is obliged to remit to the government every
quarter at least 30% of the output VAT collected from customers, or roughly 3% of the amount of gross
sales. Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and Y is prudent enough to keep
its capital expenses down to P980,000, it would then appear on paper that Y incurred a profit of P20,000.
However, with the 70% cap, Y would be obliged to remit to the government P30,000, thus wiping out the
profit margin for the quarter. Y would be entitled to credit the excess input VAT it prepaid for the next
quarter, but the continuous operation of the 70% cap obviates whatever benefits this may give, and cause
the accumulation of the unutilized creditable input VAT which should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input VAT accumulates over a
one year period. To illustrate, Business Y prepays the following amounts of input VAT over a one-year
period: P100,000.00 First Quarter; P100,000.00 2nd Quarter; P34,000.00 3rd Quarter; and
P50,000.00 4th Quarter. On the other hand, Y collects the following amounts of output VAT from
consumers: P60,000.00 First Quarter; P60,000.00 2nd Quarter; P100,000.00 3rd Quarter; and
P50,000.00 4th Quarter. Applying the 70% cap, which would limit the amount of the declarable input
VAT to 70% in a quarter, the following results obtain, as presented in tabular form:
Particulars1st Quarter2nd Quarter3rd Quarter4th Quarter
Output VAT60,00060,000100,00050,000
Input VAT100,00034,00050,000
(Actual) +[input][input][input]
Carry Over+58,000+116,000+80,000
[excess[excess[excess
creditable]creditable]creditable]
100,000158,000150,000130,000
Declarable(60,000x70%)(60,000x70%)(100,000x70%)(50,000x70%)
Input VAT
(70% of
output VAT)42,00042,00070,00035,000

364

Lower of(60,000 (60,000 (100,000 (50,000

actual and42,000)42,000)70,000)35,000)
70% cap
allowable
VAT Payable18,00018,00030,00015,000
Creditable(100,000 (158,000 (150,000 (130,000
Input VAT42,000)42,000)70,000)35,000)
58,000116,00080,00095,000
This stands in contrast to same business VAT accountability under the present system, using the same
variables of output VAT and input VAT. The need to distinguish a declarable input VAT is obviated with the
elimination of the 70% cap.
Particulars1st Quarter2nd Quarter3rd Quarter4th Quarter
Output VAT60,00060,000100,00050,000
Input VAT100,00034,00050,000
(Actual) +[input][input][input]
Carry Over+40,000+80,000+14,000
[excess[excess[excess
creditable]creditable]creditable]
100,000140,000114,00050,000
VAT Payable0000
Creditable
Input VAT40,00080,00014,00014,000
The difference is dramatic, as is the impact on the business's profit margin and available cash on hand.
Under normal conditions, small to medium enterprises are already encumbered with the likelihood of
obtaining only a minimal profit margin. Without the 70% cap, those businesses would nonetheless be able
to expect an immediate return on its input taxes earlier advanced, taxes which under the VAT system it is
not supposed to shoulder in the first place. However, with the 70% cap in place, the unutilized input taxes
would continue to accumulate, and the enterprise precluded from immediate recovery thereof. The
inability to utilize these input taxes, which could spell the difference between profit and loss,
solvency and insolvency, will eventually impair, if not kill off the enterprise.
The majority fails to consider one of the most important concepts in finance, time value for
money. 37 Simply put, the value of one peso is worth more today than in 2006. Money that you hold today
is worth more because you can invest it and earn interest. 38 By reason of the 70% cap, the amount of
input VAT credit that remains unutilized would continue accumulate for months and years. The longer the
amount remains unutilized, the higher the degree of its depreciation in value, in accordance with the
concept of time value of money. Even assuming that the business eventually recovers the input VAT
credit, the sum recovered would have decreased in practical value.

365

It would be sad, but fair, if a business ceases because of its inability to compete with other
businesses. It would be utter malevolence to condemn an enterprise to death solely through the
employment of a deceptive accounting wizardry. For the raison d'etre of this 70% cap is to make it
appear on paper that the government is more solvent than it actually is. Conceding for the nonce,
there is a temporary advantage gained by the government by this 70% cap, as the steady remittance by
businesses of the 30% output VAT would assure a cash flow. Such collection may only momentarily
resolve an endemic problem in our local tax system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason. If sheer will proves insufficient in assuring that the State all taxes due it,
there should be allowable discretion for the government to formulate creative means to enhance
collection. But to do so by depriving low profit enterprises of whatever meager income earned and
consequently assuring the death of these industries goes beyond any valid state purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will be able
to remain in operation should the 70% cap be retained. The effect of the 70% cap is to effectively impose
a tax amounting to 3% of gross revenue. The amount may seem insignificant to those without working
knowledge of the ways of business, but anybody who is actually familiar with business would be well
aware the profit margins of the retailing and distribution sectors typically amount to less than 1% of the
gross revenues. A taxpayer has to earn a margin of at least 3% on gross revenue in order to recoup the
losses sustained due to the 70% cap. But as stated earlier, profits are chancy, and the entrepreneur does
not have full control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business establishment,
even limits the options of the business to recover the unutilized input VAT credit. During the deliberations,
the argument was raised that the problem presented by the 70% cap was a business problem, which can
only be solved by business. Yet there is only one viable option for the enterprise to resolve the problem,
and that is to increase the selling price of goods. 39 It would be incorrect to assume that increase the
volume of the goods sold could solve the problem, since for items with the same purchasing cost, the
effect of the 70% cap remains constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer to the end consumer. Since
VAT is a transaction tax, every level of distribution becomes subject not only to the VAT, but also to the
70% cap. The problem increases due to a cascading effect as the number of distribution levels increases
since it will result in the collection of an effective 3% percentage tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the due process clause, we
should not focus solely on the end consumers. Undoubtedly, consumers will face hardships due to the
increased prices, but their threshold of physical survival, as individual people, is significantly less than that
of enterprises. Somehow, I do not think the new E-VAT would generally deprive consumers of the bare
necessities such as food, water, shelter and clothing. There may be significant deprivation of comfort as a
result, but not of life.
The same does not hold true for businesses. The standard of "deprivation of life" of juridical persons
employs different variables than that of natural persons. What food and water may be for persons, profit is
for an enterprise the bare necessity for survival. For businesses, the implementation of the same law,
with the 70% cap and 60-month amortization period, would mean the deprivation of profit, which is the
determinative necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to survive the
new E-VAT Law. However, this can be realistically expected only of the consumer. The small/medium

366

enterprise cannot just cut back easily on expenditures in order to survive the implementation of the E-VAT
Law. For such businesses, expenditures do not normally contemplate unnecessary expenses such as
executive perks which can be dispensed with without injury to the enterprises. These expenditures pertain
to expenses necessary for the survival of the enterprise, such as wages, overhead and purchase of raw
materials. Those three basic items of expenditure cannot simply be reduced, as to do so with impair the
ability of the business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the E-VAT Law, as
there must also be a corresponding increase in the amount of gross sales. To do so though, would require
an increase in the selling price, dampening consumer enthusiasm, and further impairing the ability of the
enterprise to recover from the E-VAT Law. This is your basic Catch-22 40 situation no matter which
means the enterprise employs to recover from the E-VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate valid
substantial distinctions between large scale enterprises and small and medium enterprises. The latter
group, owing to the limited capability for capital investment, subsists on modest profit margins, whereas
the former expects, by reason of its substantial capital investments, a high margin. In essentially
prohibiting the recovery of small profit margins, the E-VAT law effectively sends the message that
only high margin businesses are welcome to do business in the Philippines. It stifles any
entrepreneurial ambitions of Filipinos unfortunate enough to have been born poor yet seek a
better life by sacrificing all to start a small business.

Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and equal protection
lies, offers the following chart of the income statement of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER "A"
VATVAT
Price(without(with
70% cap)70% cap)
Sales/Output32,748,5343,274,853.403,274,853.40
Cost of Sales31,834,7173,183,471.70
Gross Margin913,817
Operating
Expenses
Non-vatable
items536,249
Vatable Items317,58431,758.40
Total Cost853,833
Net Profit59,984

367

Total Input Tax3,215,230.102,292,397.38

VAT Payable59,623.30982,456.02
Unutilized Input VAT922,832.72
* computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on the impact
of the 70% cap. The dealer whose income is illustrated above has to outlay a cash amount of
P922,832.72 more than what would have been shelled out if the 70% cap were not in place. Considering
that the net profit of the dealer is only P59,984.00, the consequences could very well be fatal, especially if
these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers' to prove their allegations, and accordingly, these
figures have been duly presented to the Court for appreciation and evaluation. Instead, the majority has
shunted aside these presentations as being merely theoretical, despite the fact that they present a clear
and present danger to the very life of our nation's enterprises. The majority's position would have been
more credible had it faced the issue squarely, and endeavored to demonstrate in like numerical fashion
why the 70% cap is not oppressive, confiscatory, or otherwise violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a meaningful demonstration of how these
assailed provisions truly operate. Instead, it counters with platitudes and bromides that do not
intellectually satisfy. Considering that the very vitality, if not life of our domestic economy is at stake, I
think it derelict to our duty to block out these urgent concerns presented to the Court with blind faith tinged
with irrational Panglossian 41 optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers becomes
even more grave considering that the respondents have abjectly failed in to convincingly dispute the
claims. During oral arguments, respondents attempted to counter the arguments that the 70% cap was
oppressive and confiscatory by presenting the following illustration, which I fear is severely misleading:
Slide 1
ItemCostVAT
Sales1,000,000.00100,000.00
Purchases800,000.0080,000.00
Due BIR without capDue BIR with 70% cap
Output VAT100,000.00Output VAT100,000.00
Actual Input VAT80,000.00Allowable Input VAT70,000.00
Net VAT Payable20,000.00Net VAT Payable30,000.00
Excess Input VAT10,000.00

368

Carry-over to next quarter

Slide 2
ItemCostVAT
Sales1,000,000.00100,000.00
Purchases600,000.0060,000.00
Due BIR without capDue BIR with 70% cap
Output VAT100,000.00Output VAT100,000.00
Actual Input VAT60,000.00Allowable Input VAT60,000.00
(60% of output VAT
Net VAT Payable40,000.00Net VAT Payable40,000.00
Excess Input VAT0
Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account for the excess creditable
input VAT that remains unutilized due to the 70% cap. This excess or creditable input VAT is supposed to
be carried over for the computation of the input VAT of the next quarter. Instead, this excess or creditable
input VAT magically disappears from the table of the respondents. In their memorandum, the Pilipinas
Shell Dealers counter with their own presentation using the same variables as respondents', but taking
into account the excess creditable input VAT and extending the situation over a one-year period. I cite
with approval the following chart 42 of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No.CostVAT
Sales1,000,000.00100,000.00
Purchases800,000.0080,000.00
Due BIR with 70% cap
Output VAT100,000.00
Allowable Input VAT70,000.00

369

Net VAT Payable30,000.00

Excess Input Vat

Carry-over to next quarter10,000.00

Quarter 2
CostVAT
Sales1,000,000.00100,000.00
Purchases800,000.0080,000.00
Due BIR with 7-% cap
Output VAT100,000.00
Less: Input VAT
Excess Input VAT fr. 1st Quarter10,000.00
Input VAT-Current Qtr.80,000.00

Total Available Input VAT90,000.00

Allowable Input VAT

(100,000 x 70%)70,000.0070,000.00

Net VAT Payable30,000.00

========
Total Available Input VAT90,000.00
Allowable Input VAT70,000.00

370

Excess Input VAT to be carried over to next

Quarter20,000.00
========
Quarter 3
CostVAT
Sales1,000,000.00100,000.00
Purchases800,000.0080,000.00
Due BIR with 70% cap
Output VAT100,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr.20,000.00
Input VAT-Current Qtr.80,000.00

Total Available Input VAT100,000.00

Allowable Input VAT

(100,000 x 70%)70,000.0070,000.00

Net VAT Payable30,000.00

========
Total Available Input VAT100,000.00
Allowable Input VAT70,000.00

Excess Input VAT to be carried over to next quarter30,000.00

========
Quarter 4

371

CostVAT
Sales1,000,000.00100,000.00
Purchases800,000.0080,000.00
Due BIR with 70% cap
Output VAT100,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr.30,000.00
Input VAT-Current Qtr.80,000.00

Total Available Input VAT110,000.00

Allowable Input VAT

(100,000 x 70%)70,000.0070,000.00

Net VAT Payable30,000.00

========
Total Available Input VAT110,000.00
Allowable Input VAT70,000.00

Excess Input VAT to be carried over to next quarter40,000.00

========
The 70% cap is not merely an unwise imposition. It is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium enterprises that are the soul, if
not the heart, of our economy. It is not merely an undue taking of property, but constitutes an
unjustified taking of life as well. HcSaTI
And what legitimate, germane purposes does this lethal 70% cap serve? It certainly does not
increase the government's revenue since the unutilized creditable input VAT should be entered in
the government books as a debt payable as it is supposed to be eventually repaid to the taxpayer,

372

and so on the contrary it increases the government's debts. I do see that the 70% cap temporarily
allows the government to brag to the world of an increased cash flow. But this situation would be
akin to the provincial man who borrows from everybody in the barrio in order to show off money
and maintain the pretense of prosperity to visiting city relatives. The illusion of wealth is hardly a
legitimate state purpose, especially if projected at the expense of the very business life of the
country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax remains
creditable in succeeding quarters. However, as seen in the above illustration, the actual application of the
excess input tax will always be limited by the amount of output taxes collected in a quarter, as a result of
the 70% cap. Thus, it is entirely possible that a VAT-registered person, through the accumulation of
unutilized input taxes, would have in a quarter an express creditable input tax of P50,000,000, but would
be allowed to actually credit only P70,000 if the output tax collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be eventually shifted
to the end-consumer. The 70% cap effectively prevents this from happening, as it limits the ability of the
business to recover the prepaid input taxes. This is unconscionable, since in the first place, these
intervening players the manufacturers, producers, traders, retailers are not even supposed to
sustain the losses incurred by reason of the prepayment of the input taxes. Worse, they would be obliged
every quarter to pay to the government from out of their own pockets the equivalent of 30% of the output
taxes, no matter their own particular financial condition. Worst, this twin yoke on the taxpayer of having to
sustain a debit equivalent to 30% of output taxes, and having to await forever in order to recover the
prepaid taxes would impair the cash flow and prove fatal for a shocking number of businesses which, as
they now stand, have to make do with a minimum profit that stands to be wiped out with the introduction
of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of a tax credit
certificate, which then could be used in payment of internal revenue taxes, or a refund to the extent that
such input taxes have not been applied against output taxes. 43 What the majority fails to mention is
that under Section 10 of the E-VAT Law, which amends Section 112 of the NIRC, such credit or
refund may not be done while the enterprise remains operational:
SEC. 10.Section 112 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 112.Refunds or Tax Credits of Input Tax.
xxx xxx xxx
"(B)Cancellation of VAT Registration. A person whose registration has
been cancelled due to retirement from or cessation of business or due to
changes or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance
of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
xxx xxx xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this amendment. Under
the previous rule, a VAT-registered person was entitled to apply for the tax credit certificate or refund paid
on capital goods even while it remained in operation:

373

SEC. 112.Refunds or Tax Credits of Input Tax.

xxx xxx xxx
"(B)Capital Goods. A VAT-registered person may apply for the issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against output
taxes. The application may be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and useful relief to the VAT-registered person, was
deleted under the new E-VAT Law. At present, the refund or tax credit certificate may only be issued upon
two instances: on zero-rated or effectively zero-rated sales, and upon cancellation of VAT registration due
to retirement from or cessation of business. 44 This is the cruelest cut of all. Only after the business
ceases to be may the State be compelled to repay the entire amount of the unutilized input tax. It
is like a macabre form of sweepstakes wherein the winner is to be paid his fortune only when he is
already dead. Aanhin pa ang damo kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT could cause
such prepaid amount to actually be recognized in the accounting books as a loss. Under international
accounting practices, the unutilized input VAT due to the 70% cap would not even be recognized as a
deferred asset. The same would not hold true if the 70% cap were eliminated. Under the International
Accounting Standards 45 , the unutilized input VAT credit is recognized as an asset "to the extent that it is
probable that future taxable profit will be available against which the unused tax losses and unused tax
credits can be utili[z]ed" 46 Thus, if the immediate accreditation of the input VAT credit can be obtained,
as it would without the 70% cap, the asset could be recognized.
However, the same Standards hold that "[t]o the extent that it is not probable that taxable profit will be
available against which the unused tax losses or unused tax credits can be utili[z]ed, the deferred tax
asset is not recogni[z]ed". 47 As demonstrated, the continuous operation of the 70% cap precludes the
recovery of input VAT prepaid months or years prior. Moreover, the inability to claim a refund or tax credit
certificate until after the business has already ceased virtually renders it improbable for the input VAT to
be recovered. As such, under the International Accounting Standards, it is with all likelihood that the
prepaid input VAT, ostensibly creditable, would actually be reflected as a loss. 48 What heretofore was
recognized as an asset would now, with the imposition of the 70% cap, be now considered as a loss,
enhancing the view that the 70% cap is ultimately confiscatory in nature.
This leads to my next point. The majority asserts that the input tax is not a property or property right within
the purview of the due process clause. 49 I respectfully but strongly disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are transferred to the surviving corporation by
operation of law. 50 Assets would fall under the purview of property under the due process clause, and if
the taxing arm of the State recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized input VAT credit is
may be recognized as an asset "to the extent that it is probable that future taxable profit will be available
against which the unused tax losses and unused tax credits can be utili[z]ed" 51 If not probable, it would

374

be recognized as a loss. 52 Since these international standards, duly recognized by the Securities and
Exchange Commission as controlling in this jurisdiction, attribute tangible gain or loss to the VAT credit, it
necessarily follows that there is proprietary value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is refunded or
credited to output taxes. To assert that the input VAT is merely a privilege is to correspondingly claim that
the business profit is similarly a mere privilege. The Constitution itself recognizes the right to profit by
private enterprises. As I stated earlier, one of the enunciated State policies under the Constitution is the
recognition of the indispensable role of the private sector, the encouragement of private enterprise, and
the provision of incentives to needed investments. 53 Moreover, the Constitution also requires the
State to recognize the right of enterprises to reasonable returns on investments, and to expansion
and growth. 54 This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the same reasons as
above. The relevant portion reads:
SEC. 8.Section 110 of the same Code, as amended, is hereby further amended to read
as follows:
"SEC. 110.Tax Credits.
(A)Creditable Input Tax.
xxx xxx xxx
Provided, That the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds One million pesos (P1,000,000): Provided, however, That if
the estimated useful life of the capital good is less than five (5) years, as used
for depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, that in the case of purchase of services, lease
or use of properties, the input tax shall be creditable to the purchaser, lessee or
licensee upon payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an enterprise to recover its prepaid input
VAT. On its face, it might appear injurious primarily to high margin enterprises, whose purchase of capital
goods in a given quarter would routinely exceed P1,000,000.00. The amortization over a five-year period
of the input VAT on these capital goods would definitely eat up into their profit margin. But it is still
possible for such big businesses to survive despite this new restriction, and their financial pain alone may
not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other new businesses,
which need to purchase capital goods in order to start up their new businesses. It is a known fact in
the financial community that a majority of businesses start earning profit only after the second or third
year, and many enterprises do not even get to survive that long. The first few years of a business are the
most crucial to its survival, and any financial benefits it can obtain in those years, no matter how

375

miniscule, may spell the difference between life and death. For such emerging businesses, it is already
difficult under the present system to recover the prepaid input VAT from the output VAT collected from
customers because initial sales volumes are usually low. With this further limitation, diminishing as it does
any opportunity to have a sustainable cash flow, the ability of new businesses to survive the first three
years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization restriction,
especially considering the application of the 70% cap. The additional purchase of capital goods bears as
a means of adding value to the consumer good, as a means to justify the increased selling price.
However, the purchase of capital goods in excess of P1,000,000.00 would impose another burden on the
small to medium enterprise by further restricting their ability to immediately recover the entire prepaid
input VAT (which would exceed at least P100,000.00), as they would be compelled to wait for at least five
years before they can do so. Another hurdle is imposed for such small to medium enterprise to obtain the
profit margin critical to survival. For some lucky enterprises who may be able to survive the injury
brought about by the 70% cap, this 60 month amortization period might instead provide the mortal
head wound.
Moreover, the increased administrative burden on the taxpayer should not be discounted, considering this
Court's previous recognition of the aims of the VAT system to "rationalize the system of taxes on goods
and services, [and] simplify tax administration". 55 With the amortization requirement, the taxpayer would
be forced to segregate assets into several classes and strictly monitor the useful life of assets so that
proper classification can be made. The administrative requirements of the taxpayer in order to monitor the
input VAT from the purchase of capital assets thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section 114(C) of
the NIRC,is also unconstitutional. The provision is supremely unwise, oppressive and confiscatory
in nature, and ruinous to private enterprise and even State development. The provision reads:
SEC. 12.Section 114 of the same Code, as amended, is hereby further amended to
read as follows:
"SEC. 114.Return and Payment of Value-Added Tax.
xxx xxx xxx
"(C)Withholding of Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of
each purchase of goods and services which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the gross payment
thereof:Provided, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For purposes of this Section, the payor or person in
control of the payment shall be considered as the withholding payment. . . .

376

The principle that the Government and its subsidiaries may deduct and withhold a final value-added tax
on its purchase of goods and services is not new, as the NIRC had allowed such deduction and
withholding at the rate of 3% of the gross payment for the purchase of goods, and 6% of the gross
receipts for services. However, the NIRC had also provided that this tax withheld would also be
creditable against the VAT liability of the seller or contractor, a mechanism that was deleted by the
E-VAT law. The deletion of this credit apparatus effectively compels the private enterprise
transacting with the government to shoulder the output VAT that should have been paid by the
government in excess of 5% of the gross selling price, and at the same time unduly burdens the
private enterprise by precluding it from applying any creditable input VAT on the same
transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT system, which
characteristically allows the crediting of input taxes against output taxes. Without such crediting
mechanism, which allows the shifting of the VAT to only the final end user, the tax becomes a
straightforward tax on business or income. The effect on the enterprise doing business with the
government would be that two taxes would be imposed on the income by the business derived on
such transaction: the regular personal or corporate income tax on such income, and this final
withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT system, and that it has to
power to impose new taxes on business income, this amendment to Section 114(C) of the NIRC still
remains unconstitutional. It unfairly discriminates against entities which contract with the
government by imposing an additional tax on the income derived from such transactions. The end
result of such discrimination is double taxation on income that is both oppressive and
confiscatory.
It is a legitimate purpose of a tax law to devise a manner by which the government could save
money on its own transactions, but it is another matter if a private enterprise is punished for
doing business with the government. The erstwhile NIRC worked towards such advantage, by allowing
the government to reduce its cash outlay on purchases of goods and services by withholding the payment
of a percentage thereof. While the new E-VAT law retains this benefit to the government, at the same time
it burdens the private enterprise with an additional tax by refusing to allow the crediting of this tax withheld
to the business's input VAT.
This imposition would be grossly unfair for private entities that transact with the government, especially on
a regular basis. It might be argued that the provision, even if concededly unwise, nonetheless fails to
meet the standard of unconstitutionality, as it affects only those persons or establishments that choose to
do business with the government. However, it is an acknowledged fact that the government and its
subsidiaries rely on contracts with private enterprises in order to be able to carry out innumerable
functions of the State. This provision effectively discourages private enterprises to do business
with the State, as it would impose on the business a higher rate of tax if it were to transact with
the State, as compared to transactions with other private entities.
Established industries with track records of quality performance could very well be dissuaded from doing
further business with government entities as the higher tax rate would make no economic sense. Only
those enterprises which really need the money, such as those with substandard track records that have
affected their viability in the marketplace, would bother seeking out government contracts. The
corresponding sacrifice in quality would eventually prove detrimental to the State. Our society can ill
afford shoddy infrastructures such as roads, bridges and buildings that would unnecessarily pose danger
to the public at large simply because the government wanted to skimp on expenses.

377

The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously
discourages private enterprise, and provides disincentives to needed investments such as those
expected by the State from private businesses. Whatever advantages may be gained by the
temporary increase in the government coffers would be overturned by the disadvantages of having a
reduced pool of private enterprises willing to do business with the government. Moreover, since
government contracts with private enterprises will still remain a necessary fact of life, the amendment to
Section 114(C) of the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice, when it should be
taxed but once, for the same purpose and with the same kind of character of tax. 56 Double taxation is
not expressly forbidden in our constitution,but the Court has recognized it as obnoxious "where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the
same purpose." 57 Certainly, both the 5% final tax withheld and the general corporate income tax are
both paid for the benefit of the national government, and for the same incidence of taxation, the sale/lease
of goods and services to the government.
The Court, in Re: Request of Atty. Bernardo Zialcita 58 had cause to make the following observation I
submit apropos to the case at bar, on double taxation in a case involving the attempt of the BIR to tax the
commuted accumulated leave credits of a government lawyer upon his retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15
days vacation leave and 15 days sick leave for every year of service. Hence, even if
the government employee absents himself and exhausts his leave credits, he is still
deemed to have worked and to have rendered services. His leave benefits are
already imputed in, and form part of, his salary which in turn is subject to
withholding tax on income. He is taxed on the entirety of his salaries without any
deductions for any leaves not utilized. It follows then that the money values
corresponding to these leave benefits both the used and unused have already
been taxed during the year that they were earned. To tax them again when the
retiring employee receives their money value as a form of government concern
and appreciation plainly constitutes an attempt to tax the employee a second
time. This is tantamount to double taxation. 59
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair means to raise revenue. It has
been adopted worldwide by countries hoping to employ an efficient means of taxation. The concerns I
have raised do not detract from my general approval of the VAT system.
I do lament though that our government's wholehearted adoption of the VAT system is endemic of what I
deem a flaw in our national tax policy in the last few decades. The power of taxation, inherent in the State
and ever so powerful, has been generally employed by our financial planners for a solitary purpose: the
raising of revenue. Revenue generation is a legitimate purpose of taxation, but standing alone, it is a
woefully unsophisticated design. Intelligent tax policy should extend beyond the singular-minded goal of
raising State funds the old-time philosophy behind the taxing schemes of war-mongering monarchs
and totalitarian states and should sincerely explore the concept of taxation as a means of providing
genuine incentives to private enterprise to spur economic growth; of promoting egalitarian social justice
that would allow everyone to their fair share of the nation's wealth.
Instead, we are condemned by a national policy driven by the monomania for State revenue. It may be
beyond my oath as a Justice to compel the government to adopt an economic policy in consonance with

378

my personal views, but I offer these observations since they lie at the very heart of the noxiousness of the
assailed provisions of the E-VAT law. The 70% cap, the 60-month amortization period and the 5%
withholding tax on government transactions were selfishly designed to increase government revenue at
the expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the dire consequences to the
economy should the E-VAT law be struck down. I am aware that the granting of the petition in G.R. No.
168461 will negatively affect the cash flow of the government. If that were the only relevant concern at
stake, I would have no problems denying the petition. Unfortunately, under the device employed in the
E-VAT law, the price to be paid for a more sustainable liquidity of the government's finances will
be the death of local business, and correspondingly, the demise of our society. It is a measure just
as draconian as the standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed truly
falling, how else could that fact be communicated. The E-VAT Law is of multiple fatal consequences. How
are we to survive as a nation without the bulwark of private industries? Perhaps the larger scale,
established businesses may ultimately remain standing, but they will be unable to sustain the void left by
the demise of small to medium enterprises. Or worse, domestic industry would be left in the absolute
control of monopolies, combines or cartels, whether dominated by foreigners or local oligarchs. The
destruction of subsisting industries would be bad enough, the destruction of opportunity and the
entrepreneurial spirit would be even more grievous and tragic, as it would mark as well the end of hope.
Taxes may be the lifeblood of the state, but never at the expense of the life of its subjects.
Accordingly, I VOTE to:
1)DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;

2)PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the
E-VAT Law as unconstitutional;
3)GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8
of Republic Act No. 9337, insofar as it amends Section 110(A) and (B) of
the National Internal Revenue Code (NIRC)as well as Section 12 of the same
law, with respect to its amendment of Section 114(C) of the NIRC. DHaECI
CHICO-NAZARIO, J., concurring opinion:
Five petitions were filed before this Court questioning the constitutionality of Republic Act No. 9337. Rep.
Act No. 9337, which amended certain provisions of the National Internal Revenue Code of 1997, 1 by
essentially increasing the tax rates and expanding the coverage of the Value-Added Tax (VAT).
Undoubtedly, during these financially difficult times, more taxes would be additionally burdensome to the
citizenry. However, like a bitter pill, all Filipino citizens must bear the burden of these new taxes so as to
raise the much-needed revenue for the ailing Philippine economy. Taxation is the indispensable and
inevitable price for a civilized society, and without taxes, the government would be paralyzed. 2Without
the tax reforms introduced by Rep. Act No. 9337, the then Secretary of the Department of Finance, Cesar
V. Purisima, assessed that "all economic scenarios point to the National Government's inability to sustain
its precarious fiscal position, resulting in severe erosion of investor confidence and economic
stagnation." 3

379

Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in its substance, I
hereby concur in full in the foregoing majority opinion, penned by my esteemed colleague, Justice Ma.
Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with irregularities
and violations of the Constitution. In particular, they alleged that: (1) The Bicameral Conference
Committee exceeded its authority to merely settle or reconcile the differences among House Bills No.
3555 and 3705 and Senate Bill No. 1950, by including in Rep. Act No. 9337 provisions not found in any of
the said bills, or deleting from Rep. Act No. 9337 or amending provisions therein even though they were
not in conflict with the provisions of the other bills; (2) The amendments introduced by the Bicameral
Conference Committee violated Article VI, Section 26(2), of the Constitution which forbids the amendment
of a bill after it had passed third reading; and (3) Rep. Act No. 9337 contravened Article VI, Section 24,
of the Constitution which prescribes that revenue bills should originate exclusively from the House of
Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of 1987, petitioners are
calling upon this Court to look into the enactment of Rep. Act No. 9337 by Congress and, consequently, to
review the applicability of the enrolled bill doctrine in this jurisdiction. Under the said doctrine, the enrolled
bill, as signed by the Speaker of the House of Representatives and the Senate President, and certified by
the Secretaries of both Houses of Congress, shall be conclusive proof of its due enactment. 4
Petitioners' arguments failed to convince me of the wisdom of abandoning the enrolled bill doctrine. I
believe that it is more prudent for this Court to remain conservative and to continue its adherence to the
enrolled bill doctrine, for to abandon the said doctrine would be to open a Pandora's Box, giving rise to a
situation more fraught with evil and mischief. Statutes enacted by Congress may not attain finality or
conclusiveness unless declared so by this Court. This would undermine the authority of our statutes
because despite having been signed and certified by the designated officers of Congress, their validity
would still be in doubt and their implementation would be greatly hampered by allegations of irregularities
in their passage by the Legislature. Such an uncertainty in the statutes would indubitably result in
confusion and disorder. In all probability, it is the contemplation of such a scenario that led an American
judge to proclaim, thus
. . . Better, far better, that a provision should occasionally find its way into the statute
through mistake, or even fraud, than, that every Act, state and national, should at any
and all times be liable to put in issue and impeached by the journals, loose papers of
the Legislature, and parol evidence. Such a state of uncertainty in the statute laws of
the land would lead to mischiefs absolutely intolerable. . . . 5
Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-equal branch
of government. While it is true that its jurisdiction has been expanded by the Constitution, the exercise
thereof should not violate the basic principle of separation of powers. The expanded jurisdiction does not
contemplate judicial supremacy over the other branches of government. Thus, in resolving the procedural
issues raised by the petitioners, this Court should limit itself to a determination of compliance with, or
conversely, the violation of a specified procedure in the Constitution for the passage of laws by Congress,
and not of a mere internal rule of proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337 concern the
amendments introduced by the Bicameral Conference Committee. The Constitution is silent on such a
committee, it neither prescribes the creation thereof nor does it prohibit it. The creation of the Bicameral
Conference Committee is authorized by the Rules of both Houses of Congress. That the Rules of both

380

Houses of Congress provide for the creation of a Bicameral Conference Committee is within the
prerogative of each House under the Constitution to determine its own rules of proceedings. TADIHE
The Bicameral Conference Committee is a creation of necessity and practicality considering that our
Congress is composed of two Houses, and it is highly improbable that their respective bills on the same
subject matter shall always be in accord and consistent with each other. Instead of all their members, only
the appointed representatives of both Houses shall meet to reconcile or settle the differences in their bills.
The resulting bill from their meetings, embodied in the Bicameral Conference Report, shall be subject to
approval and ratification by both Houses, voting separately.
It does perplex me that members of both Houses would again ask the Court to define and limit the powers
of the Bicameral Conference Committee when such committee is of their own creation. In a number of
cases, 6 this Court already made a determination of the extent of the powers of the Bicameral Conference
Committee after taking into account the existing Rules of both Houses of Congress. In gist, the power of
the Bicameral Conference Committee to reconcile or settle the differences in the two Houses' respective
bills is not limited to the conflicting provisions of the bills; but may include matters not found in the original
bills but germane to the purpose thereof. If both Houses viewed the pronouncement made by this Court in
such cases as extreme or beyond what they intended, they had the power to amend their respective
Rules to clarify or limit even further the scope of the authority which they grant to the Bicameral
Conference Committee. Petitioners' grievance that, unfortunately, they cannot bring about such an
amendment of the Rules on the Bicameral Conference Committee because they are members of the
minority, deserves scant consideration. That the majority of the members of both Houses refuses to
amend the Rules on the Bicameral Conference Committee is an indication that it is still satisfied therewith.
At any rate, this is how democracy works the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia, 7 which reads
It would be unwarranted invasion of the prerogative of a coequal department for this
Court either to set aside a legislative action as void because the Court thinks the house
has disregarded its own rules of procedure, or to allow those defeated in the political
arena to seek a rematch in the judicial forum when petitioners can find remedy in that
department. The Court has not been invested with a roving commission to inquire into
complaints, real or imagined, of legislative skullduggery. It would be acting in excess of
its power and would itself be guilty of grave abuse of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add, and delete provisions
of the Bill under consideration, even in the absence of conflict thereon between the Senate and House
versions, but only so far as said provisions are germane to the purpose of the Bill. 8 Now, there is a
question as to whether the Bicameral Conference Committee, which produced Rep. Act No. 9337,
exceeded its authority when it included therein amendments of provisions of the National Internal
Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on VAT of
the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider scope and included
amendments of other provisions of the said Code, such as those on income, percentage, and excise
taxes. It should be borne in mind that the very purpose of these three Bills and, subsequently, of Rep. Act
No. 9337, was to raise additional revenues for the government to address the dire economic situation of
the country. The National Internal Revenue Code of 1997, as its title suggests, is the single Code that
governs all our national internal revenue taxes. While it does cover different taxes, all of them are
imposed and collected by the national government to raise revenues. If we have one Code for all our
national internal revenue taxes, then there is no reason why we cannot have a single statute amending

381

provisions thereof even if they involve different taxes under separate titles. I hereby submit that the
amendments introduced by the Bicameral Conference Committee to non-VAT provisions of the National
Internal Revenue Code of 1997 are not unconstitutional for they are germane to the purpose of House
Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise national revenues.

Furthermore, the procedural issues raised by the petitioners were already addressed and resolved by this
Court in Tolentino v. Executive Secretary. 9 Since petitioners failed to proffer novel factual or legal
argument in support of their positions that were not previously considered by this Court in the same case,
then I am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised by the
petitioners. I would just wish to discuss additional matters pertaining to the petition of the petroleum
dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only 70% of their
output VAT deprives them of their property without due process of law. They argue further that such 70%
cap violates the equal protection and uniformity of taxation clauses under Article III, Section 1, and Article
VI, Section 28(1), respectively, of the Constitution, because it will unduly prejudice taxpayers who have
high input VAT and who, because of the cap, cannot fully utilize their input VAT as credit.
I cannot sustain the petroleum dealers' position for the following reasons
First, I adhere to the view that the input VAT is not a property to which the taxpayer has vested rights.
Input VAT consists of the VAT a VAT-registered person had paid on his purchases or importation of goods,
properties, and services from a VAT-registered supplier; more simply, it is VAT paid. It is not, as averred
by petitioner petroleum dealers, a property that the taxpayer acquired for valuable consideration. 10 A
VAT-registered person incurs input VAT because he complied with the National Internal Revenue Code of
1997, which imposed the VAT and made the payment thereof mandatory; and not because he paid for it
or purchased it for a price. DHITSc
Generally, when one pays taxes to the government, he cannot expect any direct and concrete benefit to
himself for such payment. The benefit of payment of taxes shall redound to the society as a whole.
However, by virtue of Section 110(A) of the National Internal Revenue Code of 1997, prior to its
amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject to certain substantiation
requirements, to credit his input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods, properties, and
services or the VAT he passes on to his buyers. Hence, the VAT-registered person selling the goods,
properties, and services does not pay for the output VAT; said output VAT is paid for by his consumers
and he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by Section 110 of
the National Internal Revenue Code of 1997. It gives the VAT-registered person the opportunity to recover
the input VAT he had paid, so that, in effect, the input VAT does not constitute an additional cost for him.
While it is true that input VAT credits are reported as assets in a VAT-registered person's financial
statements and books of account, this accounting treatment is still based on the statutory provision
recognizing the input VAT as a credit. Without Section 110 of the National Internal Revenue Code of 1997,
then the accounting treatment of any input VAT will also change and may no longer be booked outright as

382

an asset. Since the privilege of an input VAT credit is granted by law, then an amendment of such law
may limit the exercise of or may totally withdraw the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No. 9337,
which imposed the 70% cap on input VAT credits, is a legitimate exercise by Congress of its law-making
power. To say that Congress may not trifle with Section 110 of the National Internal Revenue Code of
1997 would be to violate a basic precept of constitutional law that no law is irrepealable. 11 There can
be no vested right to the continued existence of a statute, which precludes its change or repeal. 12
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of crediting the input
VAT against the output VAT. It merely limits the amount of input VAT one may credit against his output
VAT per quarter to an amount equivalent to 70% of the output VAT. What is more, any input VAT in excess
of the 70% cap may be carried-over to the next quarter. 13 It is certainly a departure from the VAT
crediting system under Section 110 of the National Internal Revenue Code of 1997, but it is an innovation
that Congress may very well introduce, because
VAT will continue to evolve from its pioneering original structure. Dynamically, it will be
subjected to reforms that will make it conform to many factors, among which are: the
changing requirements of government revenue; the social, economic and political
vicissitudes of the times; and the conflicting interests in our society. In the course of its
evolution, it will be injected with some oddities and inevitably transformed into a
structure which its revisionists believe will be an improvement overtime. 14
Second, assuming for the sake of argument, that the input VAT credit is indeed a property, the petroleum
dealers' right thereto has not vested. A right is deemed vested and subject to constitutional protection
when
". . . [T]he right to enjoyment, present or prospective, has become the property of some
particular person or persons as a present interest. The right must be absolute,
complete, and unconditional, independent of a contingency, and a mere expectancy of
future benefit, or a contingent interest in property founded on anticipated continuance
of existing laws, does not constitute a vested right. So, inchoate rights which have not
been acted on are not vested." (16 C. J. S. 214-215) 15
Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No. 9337, the
sale or importation of petroleum products were exempt from VAT, and instead, were subject to excise
tax. 16 Petroleum dealers did not impose any output VAT on their sales to consumers. Since they had no
output VAT against which they could credit their input VAT, they shouldered the costs of the input VAT that
they paid on their purchases of goods, properties, and services. Their sales not being subject to VAT, the
petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become subject to VAT
and only in its implementation may they use their input VAT as credit against their output VAT. While
eager to use their input VAT credit accorded to it by Rep. Act No. 9337, the petroleum dealers reject the
limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers' input VAT credits were
inexistent they were unrecognized and disallowed by law. The petroleum dealers had no such property
called input VAT credits. It is only rational, therefore, that they cannot acquire vested rights to the use of
such input VAT credits when they were never entitled to such credits in the first place, at least, not
until Rep. Act No. 9337.

383

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum
dealers' right to use their input VAT as credit against their output VAT unlimitedly has not vested, being a
mere expectancy of a future benefit and being contingent on the continuance of Section 110 of
the National Internal Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures and computations to support their contention that
the cap shall lead to the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the taxpayer to carry-over to
the succeeding quarters any excess input VAT. The petroleum dealers presented a situation wherein their
input VAT would always exceed 70% of their output VAT, and thus, their excess input VAT will be
perennially carried-over and would remain unutilized. Even though they consistently questioned the 70%
cap on their input VAT credits, the petroleum dealers failed to establish what is the average ratio of their
input VAT vis- -vis their output VAT per quarter. Without such fact, I consider their objection to the 70%
cap arbitrary because there is no basis therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by Congress arbitrarily.
Members of the Bicameral Conference Committee settled on the said percentage so as to ensure that the
government can collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer, at
least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the National Internal Revenue
Code,as amended by Rep. Act No. 9337. 17 The latter taxpayer is exempt from VAT on the basis that his
sale or lease of goods or properties or services do not exceed P1,500,000; instead, he is subject to pay a
three percent (3%) tax on his gross receipts in lieu of the VAT. 18 If a taxpayer with presumably a smaller
business is required to pay three percent (3%) gross receipts tax, a type of tax which does not even allow
for any crediting, a VAT-taxpayer with a bigger business should be obligated, likewise, to pay a minimum
of 30% output VAT (which should be equivalent to 3% of the gross selling price per good or property or
service sold). The cap assures the government a collection of at least 30% output VAT, contributing to an
improved cash flow for the government. cIACaT
Attention is further called to the fact that the output VAT is the VAT imposed on the sales by a VATtaxpayer; it is paid by the purchasers of the goods, properties, and services, and merely collected through
the VAT-registered seller. The latter, therefore, serves as a collecting agent for the government. The VATregistered seller is merely being required to remit to the government a minimum of 30% of his output VAT
collection.

Fourth, I give no weight to the figures and computations presented before this Court by the petroleum
dealers, particularly the supposed quarterly profit and loss statement of a "typical dealer." How these data
represent the financial status of a typical dealer, I would not know when there was no effort to explain the
manner by which they were surveyed, collated, and averaged out. Without establishing their source
therefor, the figures and computations presented by the petroleum dealers are merely self-serving and
unsubstantiated, deserving scant consideration by this Court. Even assuming that these figures truly
represent the financial standing of petroleum dealers, the introduction and application thereto of the VAT
factor, which forebode the collapse of said petroleum dealers' businesses, would be nothing more than an
anticipated damage an injury that may or may not happen. To resolve their petition on this basis would
be premature and contrary to the established tenet of ripeness of a cause of action before this Court
could validly exercise its power of judicial review.

384

Fifth, in response to the contention of the petroleum dealers during oral arguments before this Court that
they cannot pass on to the consumers the VAT burden and increase the prices of their goods, it is worthy
to quote below this Court's ruling in Churchill v. Concepcion, 19 to wit
It will thus be seen that the contention that the rates charged for advertising cannot be
raised is purely hypothetical, based entirely upon the opinion of the plaintiffs,
unsupported by actual test, and that the plaintiffs themselves admit that a number of
other persons have voluntarily and without protest paid the tax herein complained of.
Under these circumstances, can it be held as a matter of fact that the tax is
confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of the
taxing power of the Legislature dependent upon and restricted by the opinion of two
interested witnesses? There can be but one answer to these questions, especially in
view of the fact that others are paying the tax and presumably making reasonable profit
from their business.
As a final observation, I perceive that what truly underlies the opposition to Rep. Act No. 9337 is not the
question of its constitutionality, but rather the wisdom of its enactment. Would it truly raise national
revenue and benefit the entire country, or would it only increase the burden of the Filipino people? Would
it contribute to a revival of our economy or only contribute to the difficulties and eventual closure of
businesses? These are issues that we cannot resolve as the Supreme Court. As this Court explained
in Agustin v. Edu, 20 to wit
It does appear clearly that petitioner's objection to this Letter of Instruction is not
premised on lack of power, the justification for a finding of unconstitutionality, but on the
pessimistic, not to say negative, view he entertains as to its wisdom. That approach, it
put it at its mildest, is distinguished, if that is the appropriate word, by its unorthodoxy. It
bears repeating "that this Court, in the language of Justice Laurel, 'does not pass upon
questions of wisdom, justice or expediency of legislation.' As expressed by Justice
Tuason: 'It is not the province of the courts to supervise legislation and keep it within
the bounds of propriety and common sense. That is primarily and exclusively a
legislative concern.' There can be no possible objection then to the observation of
Justice Montemayor: 'As long as laws do not violate any Constitutional provision, the
Courts merely interpret and apply them regardless of whether or not they are wise or
salutary.' For they, according to Justice Labrador, 'are not supposed to override
legitimate policy and . . . never inquire into the wisdom of the law.' It is thus settled, to
paraphrase Chief Justice Concepcion in Gonzales v. Commission on Elections, that
only congressional power or competence, not the wisdom of the action taken, may be
the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of each
department and confined its jurisdiction to such sphere. There would then be intrusion
not allowable under the Constitution if on a matter left to the discretion of a coordinate
branch, the judiciary would substitute its own . . ." 21
To reiterate, we cannot substitute our discretion for Congress, and even though there are provisions
in Rep. Act No. 9337 which we may believe as unwise or iniquitous, but not unconstitutional, we cannot
strike them off by invoking our power of judicial review. In such a situation, the recourse of the people is
not judicial, but rather political. If they severely doubt the wisdom of the present Congress for passing a
statute such as Rep. Act No. 9337, then they have the power to hold the members of said Congress
accountable by using their voting power in the next elections. ADScCE

385

In view of the foregoing, I vote for the denial of the present petitions and the upholding of the
constitutionality of Rep. Act No. 9337 in its entirety.
||| (Abakada Guro Party List v. Ermita, G.R. No. 168056, 168207, 168461, 168463, 168730, [September
1, 2005])

386

EN BANC
[G.R. No. 166910. October 19, 2010.]
ERNESTO
B. FRANCISCO,
JR.
and
JOSE
MA.
O.
HIZON, petitioners, vs. TOLL REGULATORY BOARD, PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, MANILA NORTH TOLLWAYS CORPORATION,
BENPRES HOLDINGS CORPORATION, FIRST PHILIPPINE INFRASTRUCTURE
DEVELOPMENT CORPORATION, TOLLWAY MANAGEMENT CORPORATION,
PNCC SKYWAY CORPORATION, CITRA METRO MANILA TOLLWAYS
CORPORATION and HOPEWELL CROWN INFRASTRUCTURE, INC., respondents.
[G.R. No. 169917. October 19, 2010.]
HON. IMEE R. MARCOS, RONALDO B. ZAMORA, CONSUMERS UNION OF THE
PHILIPPINES, INC., QUIRINO A. MARQUINEZ, HON. LUIS A. ASISTIO, HON.
ERICO BASILIO A. FABIAN, HON. RENATO "KA RENE" B. MAGTUBO, HON.
RODOLFO G. PLAZA, HON. ANTONIO M. SERAPIO, HON. EMMANUEL JOEL J.
VILLANUEVA, HON. ANIBAN NG MGA MANGGAGAWA SA AGRIKULTURA (AMA),
INC., ANIBAN NG MGA MAGSASAKA, MANGINGISDA AT MANGGAGAWA SA
AGRIKULTURA-KATIPUNAN, INC., KAISAHAN NG MGA MAGSASAKA SA
AGRIKULTURA,
INC.,
KILUSAN
NG
MANGAGAWANG
MAKABAYAN,petitioners, vs. The REPUBLIC OF THE PHILIPPINES, acting by and
through the TOLL REGULATORY BOARD, MANILA NORTH TOLLWAYS
CORPORATION, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, and
FIRST PHILIPPINE INFRASTRUCTURE DEVELOPMENT CORP., respondents.
[G.R. No. 173630. October 19, 2010.]
GISING KABATAAN MOVEMENT, INC., BARANGAY COUNCIL OF SAN ANTONIO,
MUNICIPALITY OF SAN PEDRO, LAGUNA [as Represented by COUNCILOR
CARLON G. AMBAYEC], and YOUNG PROFESSIONALS AND ENTREPRENEURS
OF SAN PEDRO, LAGUNA, petitioners, vs. THE REPUBLIC OF THE PHILIPPINES,
acting through the TOLL REGULATORY BOARD (TRB), PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION (PNCC),respondents.
[G.R. No. 183599. October 19, 2010.]
THE REPUBLIC OF THE PHILIPPINES, represented by the TOLL REGULATORY
BOARD, petitioner, vs. YOUNG PROFESSIONALS AND ENTREPRENEURS OF
SAN PEDRO, LAGUNA, respondent.
DECISION
VELASCO, JR., J p:
Before us are four petitions; the first three are special civil actions under Rule 65, assailing
and seeking to nullify certain statutory provisions, presidential actions and implementing
orders, toll operation-related contracts and issuances on the construction, maintenance and operation

387

of the major tollway systems in Luzon. The petitions likewise seek to restrain and permanently
prohibit the implementation of the allegedly illegal toll fee rate hikes for the use of the North Luzon
Expressway ("NLEX"), South Luzon Expressway ("SLEX") and the South Metro Manila Skyway
("SMMS"). The fourth, a petition for review under Rule 45, seeks to annul and set aside the decision
dated June 23, 2008 of the Regional Trial Court ("RTC") of Pasig, in SCA No. 3138-PSG, enjoining
the original toll operating franchisee from collecting toll fees in the SLEX.
By Resolution of March 20, 2007, the Court ordered the consolidation of the first three
petitions, docketed as G.R. Nos. 166910, 169917 and 173630, respectively. The fourth petition, G.R.
No. 183599, would later be ordered consolidated with the earlier three petitions.
THE FACTS
The antecedent facts are as follows
On March 31, 1977, then President Ferdinand E. Marcos issued Presidential Decree No.
("P.D.") 1112, authorizing the establishment of toll facilities on public improvements. 1 This issuance,
in its preamble, explicitly acknowledged "the huge financial requirements" and the necessity of
tapping "the resources of the private sector" to implement the government's infrastructure programs.
In order to attract private sector involvement, P.D. 1112 allowed "the collection of toll fees for the use
of certain public improvements that would allow a reasonable rate of return on investments." The
same decree created the Toll Regulatory Board ("TRB") and invested it under Section 3 (a) (d) and
(e) with the power to enter, for the Republic, into contracts for the construction, maintenance and
operation of tollways, grant authority to operate a toll facility, issue therefor the
necessary Toll Operation Certificate ("TOC") and fix initial toll rates, and, from time to time, adjust the
same after due notice and hearing.
On the same date, P.D. 1113 was issued, granting to the Philippine National Construction
Corporation ("PNCC"), then known as the Construction and Development Corporation of the
Philippines ("CDCP"), for a period of thirty years from May 1977 or up to May 2007 a franchise
to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways,
with the right to collect toll fees at such rates as the TRB may fix and/or authorize. Particularly,
Section 1 of P.D. 1113 delineates the coverage of the expressways from Balintawak, Caloocan City to
Carmen, Rosales, Pangasinan and from Nichols, Pasay City to Lucena, Quezon. And because the
franchise is not self-executing, as it was in fact made subject, under Section 3 of P.D. 1113, to "such
conditions as may be imposed by the Board in an appropriate contract to be executed for such
purpose," TRB and PNCC signed in October 1977, a Toll Operation Agreement ("TOA") on the North
Luzon and South Luzon Tollways, providing for the detailed terms and conditions for the construction,
maintenance and operation of the expressway. 2 CaDEAT
On December 22, 1983, P.D. 1894 was issued therein further granting PNCC a franchise over
the Metro Manila Expressway ("MMEX"), and the expanded and delineated NLEX and SLEX.
Particularly, PNCC was granted the "right, privilege and authority to construct, maintain and operate
any and all such extensions, linkages or stretches, together with the toll facilities appurtenant thereto,
from any part of the North Luzon Expressway, South Luzon Expressway and/or Metro Manila
Expressway and/or to divert the original route and change the original end-points of the North Luzon
Expressway and/or South Luzon Expressway as may be approved by the [TRB]." 3 Under Section 2
of P.D. 1894,"the franchise granted the [MMEX] and all extensions, linkages, stretches and diversions
after the approval of the decree that may be constructed after the approval of this decree [on
December 22, 1983] shall likewise have a term of thirty (30) years, commencing from the date of
completion of the project."

388

As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may sell or assign its
franchise thereunder granted or cede the usufruct 4 thereof upon the President's approval. 5 This
same provision on franchise transfer and cession of usufruct is likewise found in P.D. 1112. 6
Then came the 1987 Constitution with its franchise provision. 7
In 1993, the Government Corporate Counsel ("GCC"), acting on PNCC's request, issued
Opinion No. 224, s. 1993, 8 later affirmed by the Secretary of Justice, 9 holding that PNCC may,
subject to certain clearance and approval requirements, enter into a joint venture ("JV") agreement
("JVA") with private entities without going into public bidding in the selection of its JV partners.
PNCC's query was evidently prompted by the need to seek out alternative sources of financing for
expanding and improving existing expressways, and to link them to economic zones in the north and
to the CALABARZON area in the south.
MOU
FOR
THE
AND EXPANSION OF EXPRESSWAYS

CONSTRUCTION,

REHABILITATION

On February 8, 1994, the Department of Public Works and Highways ("DPWH"), TRB, PNCC,
Benpres Holdings Corporation ("Benpres") and First Philippine Holdings Corporation ("FPHC"),
among other private and government entities/agencies, executed a Memorandum of Understanding
("MOU") envisaged to open the door for the entry of private capital in the rehabilitation, expansion (to
Subic and Clark) and extension, as flagship projects, of the expressways north of Manila, over which
PNCC has a franchise. To carry out their undertakings under the MOU, Benpres and FPHC formed,
as their infrastructure holding arm, the First Philippine Infrastructure and Development Corporation
("FPIDC").
Consequent to the MOU execution, PNCC entered into financial and/or technical JVAs with
private entities/investors for the toll operation of its franchised areas following what may be
considered as a standard pattern, viz.: (a) after a JVA is concluded and the usual government
approval of the assignment by PNCC of the usufruct in the franchise under P.D. 1113, as amended,
secured, a new JV company is specifically formed to undertake a defined toll road project; (b) the
Republic of the Philippines, through the TRB, as grantor, PNCC, as operator, and the new
corporation, as investor/concessionaire, with its lender, as the case may be, then execute a
Supplemental Toll Operation Agreement ("STOA") to implement the TOA previously issued; and (c)
once the requisite STOA approval is given, project prosecution starts and upon the completion of
the toll road project or of a divisible phase thereof, the TRB fixes or approves the initial toll rate after
which, it passes a board resolution prescribing the periodic toll rate adjustment.
The STOA defines the scope of the road project coverage, the terminal date of the
concession, and includes provisions on initial toll rate and a built-in formula for adjustment
of toll rates, investment recovery clauses and contract termination in the event of the
concessionaire's, PNCC's or TRB's default, as the case may be.
The following events or transactions, involving the personalities as indicated, transpired with
respect to the following projects:
THE
SOUTH
METRO
MANILA
(BUENDIA BICUTAN ELEVATED STRETCH) PROJECT

SKYWAY

(SMMS)

PNCC entered into a JV partnership arrangement with P.T. Citra, an Indonesian company,
and created, for the SMMS project, the Citra Metro Manila Tollways Corporation ("CMMTC").

389

On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for the SMMS project
("CITRA STOA"). And on April 7, 1996, then President Fidel V. Ramos approved the CITRA STOA.
Phase I of the SMMS project the Bicutan to Buendia elevated expressway stretch was
completed in December 1998, and the consequent initial toll rates for its use implemented a month
after. On November 26, 2004, the TRB passed Resolution No. 2004-53, approving the
periodic toll rate adjustment for the SMMS. aDHCcE
THE NLEX EXPANSION PROJECT (REHABILITATED
EXPRESSWAY, CIRCUMFERENTIAL ROAD C-5)

AND

WIDENED

NLEX,

SUBIC

In reply to the query of the then TRB Chairman, the Department of Justice ("DOJ") issued
DOJ Opinion No. 79, s. of 1994, echoing an earlier opinion of the GCC, that the TRB can implement
the NLEX expansion project through a JV scheme with private investors possessing the requisite
technical and financial capabilities.
On May 16, 1995, then President Ramos approved the assignment of PNCC's usufructuary
rights as franchise holder to a JV company to be formed by PNCC and FPIDC. PNCC and FPIDC
would later ink a JVA for the rehabilitation and modernization of the NLEX referred in certain
pleadings as the North Luzon Tollway project. 10 The Manila North Tollways Corporation ("MNTC")
was formed for the purpose.
On April 30, 1998, the Republic, through the TRB, PNCC and MNTC, executed a STOA for
the North Luzon Tollway project ("MNTC STOA") in which MNTC was authorized, inter alia, to
subcontract the operation and maintenance of the project, provided that the majority of the
outstanding shares of the contractor shall be owned by MNTC. The MNTC STOA covers three
phases comprising of ten segments, including the rehabilitated and widened NLEX, the Subic
Expressway and the circumferential Road C-5. 11 The STOA is to be effective for thirty years,
reckoned from the issuance of the toll operation permit for the last completed phase or until
December 31, 2030, whichever is earlier. The Office of the President ("OP") approved the STOA on
June 15, 1998.
On August 2, 2000, pursuant to the MNTC STOA, the Tollways Management Corporation
("TMC") formerly known as the Manila North Tollways Operation and Maintenance Corporation
was created to undertake the operation and maintenance of the NLEX tollway facilities, interchanges
and related works.
On January 27, 2005, the TRB issued Resolution No. 2005-04 approving the initial
authorized toll rates for the closed and flat toll systems applicable to the new NLEX.
THE SOUTH LUZON EXPRESSWAY PROJECT (NICHOLS TO LUCENA CITY)
For the SLEX expansion project, PNCC and Hopewell Holdings Limited ("HHL"), as JV
partners, executed a Memorandum of Agreement ("MOA"), 12 which eventually led to the formation of
a JV company Hopewell Crown Infrastructure, Inc. ("HCII"), now MTD Manila Expressways, Inc.,
("MTDME"). And pursuant to the PNCC-MTDME JVA, the South Luzon Tollway Corporation ("SLTC")
and the Manila Toll Expressway Systems, Inc. ("MATES") were incorporated to undertake the
financing, construction, operation and maintenance of the resulting Project Toll Roads forming part of
the SLEX. The toll road projects are divisible toll sections or segments, each segment defined as to
its starting and end points and each with the corresponding distance coverage. The proposed JVA, as
later amended, between PNCC and MTDME was approved by the OP on June 30, 2000.

390

Eventually, or on February 1, 2006, a STOA 13 for the financing, design, construction, lane
expansion and maintenance of the Project Toll Roads (PTR) of the rehabilitated and improved SLEX
was executed by and among the Republic, PNCC, SLTC, as investor, and MATES, as operator. To be
precise, the PTRs, under the STOA, comprise and contemplated the full rehabilitation and/or roadway
widening of the following existing toll roads or facilities: PTR 1 that portion of the tollway
commencing at the end of South MM Skyway to the Filinvest exit at Alabang (1-242 km); PTR 2
the tollway from Alabang to Calamba, Laguna (27.28 km); PTR 3 the tollway from Calamba to Sto.
Tomas, Batangas (7.6 km) and PTR 4 the tollway from Sto. Tomas to Lucena City (54.27 km). 14
Under Clause 6.03 of the STOA, the Operator, after substantially completing a TPR, shall file
an application for a Toll Operation Permit over the relevant completed TPR or segment, which shall
include a request for a review and approval by the TRB of the calculation of the new current
authorized toll rate. acADIT
G.R. NO. 166910
Petitioners Francisco and Hizon, as taxpayers and expressway users, seek to nullify the
various STOAs adverted to above and the corresponding TRB resolutions, i.e., Res. Nos. 2004-53
and 2005-04, fixing initial rates and/or approving periodic toll rate adjustments therefor. To the
petitioners, the STOAs and the toll rate-fixing resolutions violate the Constitution in that they veritably
impose on the public the burden of financing tollways by way of exorbitant fees and thus depriving the
public of property without due process. These STOAs are also alleged to be infirm as they effectively
awarded purported "build-operate-transfer" ("BOT") projects without public bidding in violation of the
BOT Law (R.A. 6957, as amended by R.A. 7718).
Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of P.D. 1112 in relation
to Section 8 (b) of P.D. 1894 insofar as they vested the TRB, on one hand, toll operation awarding
power while, on the other hand, granting it also the power to issue, modify and promulgate toll rate
charges. The TRB, so petitioners bemoan, cannot be an awarding party of a TOA and, at the same
time, be the regulator of the tollway industry and an adjudicator of rate exactions disputes.
Additionally, petitioners also seek to nullify certain provisions of P.D. 1113 and P.D. 1894,
which uniformly grant the President the power to approve the transfer or assignment of usufruct or the
rights and privileges thereunder by the tollway operator to third parties, particularly the transfer
effected by PNCC to MNTC. As argued, the authority to approve partakes of an exercise of legislative
power under Article VI, Section 1 of the Constitution. 15
In the meantime, or on April 8, 2010, the TRB issued a Certificate of Substantial
Completion 16 with respect to PTR 1 (Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba
segments) of SLEX, signifying the completion of the full rehabilitation/expansion of both segments
and the linkages/interchanges in between pursuant to the requirements of the corresponding STOA.
TRB on even date issued a Toll Operation Permit in favor of MATES over said PTRs 1 and
2. 17 Accordingly, upon due application, the TRB approved the publication of the toll rate matrix for
PTRs 1 and 2, the rate to take effect on June 30, 2010. 18 The implementation of the published rate
would, however, be postponed to August 2010.
On July 5, 2010, petitioner Francisco filed a Supplemental Petition with prayer for the
issuance of a temporary restraining order ("TRO") and/or status quo order focused on the impending
collection of what was perceived to be toll rate increases in the SLEX. The assailed adjustments were
made public in a TRB notice of toll rate increases for the SLEX from Alabang to Calamba on June 6,
2010, and were supposed to have been implemented on June 30, 2010. On August 13, 2010, the

391

Court granted the desired TRO, enjoining the respondents in the consolidated cases from
implementing the toll rate increases in the SLEX.
In their Consolidated Comment/Opposition to the Supplemental Petition, respondents
SLTC et al., aver that the disputed rates are actually initial and opening rates, not an increase or
adjustment of the prevailing rate, for the new expanded and rehabilitated SLEX. In fine, the
new toll rates are, per SLTC, for a new and upgraded facility, i.e., the aforementioned
Project Toll Roads 1 and 2 put up pursuant to the 2006 Republic-PNCC-SLTC-MATES STOA
adverted to.
G.R. NO. 169917
While they raise, for the most part, the same issues articulated in G.R. No. 166910, such as
the public bidding requirement, the power of the President to approve the assignment of PNCC's
usufructuary rights to cover (as petitioners Imee R. Marcos, et al., would stress) even the assignment
of the expressway from Balintawak to Tabang, the virtual amendment and extension of a statutory
franchise by way of administrative action (e.g., the execution of a STOA or issuance of a TOC),
petitioners in G.R. No. 169917 some of them then and still are members of the House of
Representatives have, as their main focus, the North Luzon Tollway project and the agreements
and devices entered in relation therewith.
Petitioners also assail the MNTC STOA on the ground that it granted the lenders (Asian
Development Bank/World Bank) of MNTC, as project concessionaire, the unrestricted rights to
appoint a substitute entity to replace MNTC in case of an MNTC Default before prepayment of the
loans, while also granting said lenders, in appropriate cases, the option to extend the "concession or
franchise" for a period not exceeding fifty years coinciding with the full payment of the loans. DCcSHE
G.R. NO. 173630
Apart from those taken up in the other petitions for certiorari and prohibition, petitioners,
in G.R. No. 173630, whose members and constituents allegedly traverse SLEX daily, aver that TRB
ought to have applied the provisions of R.A. 6957 [BOT Law] and R.A. 9184 [Government
Procurement Reform Act], which require public bidding for the prosecution of the SLEX project.
G.R. NO. 183599
CIVIL CASE SCA NO. 3138-PSG BEFORE THE RTC
On September 14, 2007, the Young Professionals and Entrepreneurs of San Pedro, Laguna
("YPES"), one of the petitioners in G.R. No. 173630, filed before the RTC, Branch 155, in Pasig City,
a special civil action for certiorari, etc., against the TRB, docketed as SCA No. 3138-PSG, containing
practically identical issues raised in G.R. No. 173630. Like its petition in G.R. No. 173630, YPES,
before the RTC, assailed and sought to nullify the April 27, 2007 TOC, which TRB issued to PNCC
inasmuch as the TOC worked to extend PNCC's tollway operation franchise for the SLEX. As YPES
argued, only the Congress can extend the term of PNCC's franchise which expired on May 1, 2007.
RULING OF THE RTC IN SCA NO. 3138-PSG
By Decision 19 dated June 23, 2008, the RTC, for the main stated reason that the authority to
grant or renew franchises belongs only to Congress, granted YPES' petition, disposing as follows:

392

ACCORDINGLY, the instant Petition for Certiorari, Prohibition and Mandamus is hereby
GRANTED and the questioned Toll Operation Certificate (TOC) covering the [SLEX]
issued by respondent TRB in April, 2007, is hereby ordered ANNULLED and SET
ASIDE.
FURTHER, respondent PNCC is hereby immediately PROHIBITED from
collecting toll fess along the SLEX facilities as it no longer has the power and authority
to do so.
FINALLY, as mandated under Section 9 of PD No. 1113, respondent PNCC is hereby
COMMANDED to turn over without further delay the physical assets and facilities of the
SLEX including improvements thereon, together with the equipment and
appurtenances directly related to their operations, without any cost, to the Government
through the Toll Regulatory Board . . . . 20
Thus, the instant petition for review on certiorari under Rule 45, filed by the TRB on pure
questions of law, docketed as G.R. No. 183599.
In their separate comments, public and private respondents uniformly seek the dismissal of
the three special civil actions on the threshold issue of the absence of a justiciable case and lack
of locus standi on the part of the petitioners therein. Other grounds raised range from the impropriety
of certiorari to nullify toll operation agreements; the inapplicability of the public bidding rules in the
selection by PNCC of its JV partners and the authority of the President to approve TOAs and the
transfer of usufructuary rights. PNCC argues, in esse, that its continuous toll operations did not
constitute an extension of its franchise, its authority to operate after the expiry date thereof in May
2007 being based on the valid authority of TRB to issue TOC.
THE ISSUES
The principal consolidated but interrelated issues tendered before the Court, most of which
with constitutional undertones, may be reduced into six (6) and formulated in the following
wise: first, whether or not an actual case or controversy exists and, relevantly, whether petitioners in
the first three petitions have locus standi; second, whether the TRB is vested with the power and
authority to grant what amounts to a franchise over tollway facilities; third,corollary to the second,
whether the TRB can enter into TOAs and, at the same time, promulgate toll rates and rule on
petitions for toll rate adjustments; fourth, whether the President is duly authorized to approve
contracts, inclusive of assignment of contracts, entered into by the TRB relative to tollway
operations; fifth, whether the subject STOAs covering the NLEX, SLEX and SMMS and their
respective extensions, linkages, etc. are valid; sixth, whether a public bidding is required or
mandatory for these tollway projects.
Expressly prayed, if not subsumed, in the first three petitions, is to prohibit TRB and its
concessionaires from collecting toll fees along the Skyway and Luzon Tollways.
PRELIMINARY ISSUES EXISTENCE OF AN ACTUAL CONTROVERSY, ITS RIPENESS AND
THE LOCUS STANDI TO SUE
The power of judicial review can only be exercised in connection with a bona fide controversy
involving a statute, its implementation or a government action. 21 Withal, courts will decline to pass
upon constitutional issues through advisory opinions, bereft as they are of authority to resolve

393

hypothetical or moot questions. 22 The limitation on the power of judicial review to actual cases and
controversies defines the role assigned to the judiciary in a tripartite allocation of power, to assure
that the courts will not intrude into areas committed to the other branches of government. 23 DaHcAS
In The Province of North Cotabato v. The Government of the Republic of the Philippines
Peace Panel on Ancestral Domain (GRP), the Court has expounded anew on the concept of actual
case or controversy and the requirement of ripeness for judicial review, thus:
An actual case or controversy involves a conflict of legal rights, an assertion of opposite
legal claims, susceptible of judicial resolution as distinguished from a hypothetical or
abstract difference or dispute. There must be a contrariety of legal rights . . . . The
Court can decide the constitutionality of an act . . . only when a proper case between
opposing parties is submitted for judicial determination.
Related to the requirement of an actual case or controversy is the requirement of
ripeness. A question is ripe for adjudication when the act being challenged has had a
direct adverse effect on the individual challenging it. . . . [I]t is a prerequisite that
something had then been accomplished or performed by either branch before a court
may come into the picture, and the petitioner must allege the existence of an immediate
or threatened injury to itself as a result of the challenged action. He must show that he
has sustained or is immediately in danger of sustaining some direct injury as a result of
the act complained of. 24
But even with the presence of an actual case or controversy, the Court may refuse judicial
review unless the constitutional question or the assailed illegal government act is brought before it by
a party who possesses what in Latin is technically called locus standi or the standing to challenge
it. 25 To have standing, one must establish that he has a "personal and substantial interest in the
case such that he has sustained, or will sustain, direct injury as a result of its
enforcement." 26 Particularly, he must show that (1) he has suffered some actual or threatened injury
as a result of the allegedly illegal conduct of the government; (2) the injury is fairly traceable to the
challenged action; and (3) the injury is likely to be redressed by a favorable action. 27
Petitions for certiorari and prohibition are, as here, appropriate remedies to raise
constitutional issues and to review and/or prohibit or nullify, when proper, acts of legislative and
executive officials. 28 The present petitions allege that then President Ramos had exercised vis- -vis
an assignment of franchise, a function legislative in character. As alleged, too, the TRB, in the guise
of entering into contracts or agreements with PNCC and other juridical entities, virtually enlarged,
modified to the core and/or extended the statutory franchise of PNCC, thereby usurping a legislative
prerogative. The usurpation came in the form of executing the assailed STOAs and the issuance of
TOCs. Grave abuse of discretion is also laid on the doorstep of the TRB for its act of entering into
these same contracts or agreements without the required public bidding mandated by law,
specifically the BOT Law (R.A. 6957, as amended) and the Government Procurement Reform
Act (R.A. 9184).
In fine, the certiorari petitions impute on then President Ramos and the TRB, the commission
of acts that translate inter alia into usurpation of the congressional authority to grant franchises and
violation of extant statutes. The petitions make a prima facie case for certiorari and prohibition; an
actual case or controversy ripe for judicial review exists. Verily, when an act of a branch of
government is seriously alleged to have infringed the Constitution, it becomes not only the right but in
fact the duty of the judiciary to settle the dispute. In doing so, the judiciary merely defends the sanctity
of its duties and powers under the Constitution. 29

394

In any case, the rule on standing is a matter of procedural technicality, which may be relaxed
when the subject in issue or the legal question to be resolved is of transcendental importance to the
public. 30 Hence, even absent any direct injury to the suitor, the Court can relax the application of
legal standing or altogether set it aside for non-traditional plaintiffs, like ordinary citizens, when the
public interest so requires. 31 There is no doubt that individual petitioners, Marcos, et al., in G.R. No.
169917, as then members of the House of Representatives, possess the requisite legal standing
since they assail acts of the executive they perceive to injure the institution of Congress. On the other
hand, petitioners Francisco, Hizon, and the other petitioning associations, as taxpayers and/or mere
users of the tollways or representatives of such users, would ordinarily not be clothed with the
requisite standing. While this is so, the Court is wont to presently relax the rule on locus standi owing
primarily to the transcendental importance and the paramount public interest involved in the
implementation of the laws on the Luzon tollways, a roadway complex used daily by hundreds of
thousands of motorists. What we said a century ago in Severino v. Governor General is just as
apropos today: CAETcH
When the relief is sought merely for the protection of private rights, . . . [the relator's]
right must clearly appear. On the other hand, when the question is one of public
right and the object of the mandamus is to procure the enforcement of a public
duty, the people are regarded as the real party in interest, and the relator at
whose instigation the proceedings are instituted need not show that he has any
legal or special interest in the result, it being sufficient to show that he is a citizen
and as such interested in the execution of the laws. 32 (Words in bracket and emphasis
added.)
Accordingly, We take cognizance of the present case on account of its transcendental
importance to the public.
SECOND ISSUE: TRB EMPOWERED TO GRANT AUTHORITY TO
OPERATE TOLL FACILITY/SYSTEM
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D.
1894 have invested the TRB with sufficient power to grant a qualified person or entity with authority to
construct, maintain, and operate a toll facility and to issue the corresponding toll operating permit or
TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to
grant authority to operate toll facilities:
Section 3. Powers and Duties of the Board. The Board shall have in addition to its
general powers of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in
behalf of the Republic of the Philippines with persons, natural or juridical, for the
construction, operation and maintenance of toll facilities such as but not limited to
national highways, roads, bridges, and public thoroughfares. Said contract shall be
open to citizens of the Philippines and/or to corporations or associations qualified under
the Constitution and authorized by law to engage in tolloperations;
xxx xxx xxx

395

(e) To grant authority to operate a toll facility and to issue therefore the necessary
"Toll Operation Certificate" subject to such conditions as shall be imposed by the Board
including inter alia the following:
(1) That the Operator shall desist from collecting toll upon the expiration of
the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including all operation and
maintenance equipment directly related thereto shall be turned over to
the government immediately upon the expiration of the Toll Operation
Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or
assign the rights or privileges acquired under the Toll Operation
Certificate to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or
corporation organized for the same purpose, without the prior approval
of the President of the Philippines. In the event of any valid transfer of
the Toll Operation Certificate, the Transferee shall be subject to all the
conditions, terms, restrictions and limitations of this Decree as fully and
completely and to the same extent as if the Toll Operation Certificate
has been granted to the same person, firm, company, corporation or
other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or
disturbance of peace and order, the President of the Philippines may
cause the total or partial closing of the toll facility or order to take over
thereof by the Government without prejudice to the payment of just
compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or
bonds shall be issued by any government agency or governmentowned or controlled corporation on any financing program of
the toll operator in connection with his undertaking under
the Toll Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked
whenever the public interest so requires.
(a) The Board shall promulgate rules and regulations governing the
procedures for the grant of Toll Certificates. The rights and
privileges of a grantee under a Toll Operation Certificate shall
be defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this
Decree. aEcSIH
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision
over the GRANTEE with respect to the Expressways, the toll facilities necessarily
appurtenant thereto and, subject to the provisions of Section 8 and 9 hereof,
the toll that the GRANTEE will charge the users thereof.

396

By explicit provision of law, the TRB was given the power to grant administrative franchise
for toll facility projects.
The concerned petitioners would argue, however, that PNCC's [then CDCP's] franchise,
as toll operator, was granted via P.D. 1113, on the same day P.D. 1112, creating the TRB, was issued.
It is thus pointed out that P.D. 1112could not have plausibly granted the TRB with the power and
jurisdiction to issue a similar franchise. Pushing the point, they maintain that only Congress has,
under the 1987 Constitution, the exclusive prerogative to grant franchise to operate public utilities.
We are unable to agree with petitioners' stance and their undue reliance on Article XII,
Section 11 of the Constitution, which states that:
SEC. 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good
so requires . . . .
The limiting thrust of the foregoing constitutional provision on the grant of franchise or other
forms of authorization to operate public utilities may, in context, be stated as follows: (a) the grant
shall be made only in favor of qualified Filipino citizens or corporations; (b) Congress can impair the
obligation of franchises, as contracts; and (c) no such authorization shall be exclusive or exceed fifty
years.
A franchise is basically a legislative grant of a special privilege to a person. 33 Particularly,
the term, franchise, "includes not only authorizations issuing directly from Congress in the form of
statute, but also those granted by administrative agencies to which the power to grant franchise has
been delegated by Congress." 34 The power to authorize and control a public utility is admittedly a
prerogative that stems from the Legislature. Any suggestion, however, that only Congress has the
authority to grant a public utility franchise is less than accurate. As stressed in Albano v. Reyes a
case decided under the aegis of the 1987 Constitution there is nothing in the Constitutionremotely
indicating the necessity of a congressional franchise before "each and every public utility may
operate," thus:
That the Constitution provides . . . that the issuance of a franchise, certificate or other
form of authorization for the operation of a public utility shall be subject to amendment,
alteration or repeal by Congress does not necessarily imply . . . that only Congress
has the power to grant such authorization. Our statute books are replete with
laws granting specified agencies in the Executive Branch the power to issue
such authorization for certain classes of public utilities. 35 (Emphasis ours.)
In such a case, therefore, a special franchise directly emanating from Congress is not
necessary if the law already specifically authorizes an administrative body to grant a franchise or to
award a contract. 36 This is the same view espoused by the Secretary of Justice in his opinion dated
January 9, 2006, when he stated:
That the administrative agencies may be vested with the authority to grant
administrative franchises or concessions over the operation of public utilities under their

397

respective jurisdiction and regulation, without need of the grant of a separate legislative
franchise, has been upheld by the Supreme Court . . . . 37
Under the 1987 Constitution, Congress has an explicit authority to grant a public utility
franchise. However, it may validly delegate its legislative authority, under the power of subordinate
legislation, 38 to issue franchises of certain public utilities to some administrative agencies.
In Kilusang Mayo Uno Labor Center v. Garcia, Jr., We explained the reason for the validity of
subordinate legislation, thus:
Such delegation of legislative power to an administrative agency is permitted in
order to adapt to the increasing complexity of modern life. As subjects for
governmental regulation multiply, so does the difficulty of administering the
laws. Hence,
specialization
even
in
legislation
has
become
necessary. 39 (Emphasis ours.) CaHAcT
As aptly pointed out by the TRB and other private respondents, the Land Transportation
Franchising and Regulatory Board ("LTFRB"), the Civil Aeronautics Board ("CAB"), the National
Telecommunications Commission ("NTC"), and the Philippine Ports Authority ("PPA"), to name a few,
have been such delegates. The TRB may very well be added to the growing list, having been
statutorily endowed, as earlier indicated, the power to grant to qualified persons, authority to construct
road projects and operate thereon toll facilities. Such grant, as evidenced by the corresponding TOC
or set out in a TOA, "may be amended, modified, or revoked [by the TRB] whenever the public
interest so requires." 40
In Philippine Airlines, Inc. v. Civil Aeronautics Board, 41 the Court reiterated its holding
in Albano that the CAB, like the PPA, has sufficient statutory powers under R.A. 776 to issue
a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air
transport operator who, although not possessing a legislative franchise, meets all the other
requirements prescribed by law. We held therein that "there is nothing in the law nor in
theConstitution which indicates that a legislative franchise is an indispensable requirement for an
entity to operate as a domestic air transport operator." 42 We further explicated:
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency towards the delegation of greater powers by the legislature, and
towards the approval of the practice by the courts. It is generally recognized that a
franchise may be derived indirectly from the state through a duly designated
agency, and to this extent, even the power to grant franchises has frequently
been delegated, even to agencies other than those of a legislative nature. In
pursuance of this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative franchise as
though the grant had been made by an act of the Legislature. 43 (Emphasis ours.)

The validity of the delegation by Congress of its franchising prerogative is beyond cavil. So it
was that in Tatad v. Secretary of the Department of Energy, 44 We again ruled that the delegation of
legislative power to administrative agencies is valid. In the instant case, the certiorari petitioners
assume and harp on the lack of authority of PNCC to continue with its NLEX, SLEX, MMEX
operations, in joint venture with private investors, after the lapse of its P.D. 1113franchise. None of

398

these petitioners seemed to have taken due stock of and appreciated the valid delegation of the
appropriate power to TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, a franchise may be
derived indirectly from the state through a duly designated agency, and to this extent, the power to
grant franchises has frequently been delegated, even to agencies other than those of a legislative
nature. 45 Consequently, it has been held that privileges conferred by grant by administrative
agencies as agents for the state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature. 46
While it may be, as held in Strategic Alliance Development Corporation v. Radstock
Securities Limited, 47 that PNCC's P.D. 1113 franchise had already expired effective May 1, 2007,
this fact of expiration did not, however, carry with it the cancellation of PNCC's authority and that of its
JV partners granted under P.D. 1112 in relation to Section 1 of P.D. 1894 to construct, operate and
maintain "any and all such extensions, linkages or stretches, together with the toll facilities
appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway and/or
Metro Manila Expressway and/or to divert the original route and change the original end-points of the
[NLEX] and/or [SLEX] as may be approved by the [TRB]. And to highlight the point, the succeeding
Section 2 of P.D. 1894 specifically provides that the franchise for the extension and toll road projects
constructed after the approval of P.D. 1894 shall be thirty years, counted from project completion.
Indeed, prior to the expiration of PNCC's original franchise in May 2007, the TRB, in the exercise of
its special powers under P.D. 1112, signed supplemental TOAs with PNCC and its JV partners. These
STOAs covered the expansion and rehabilitation of NLEX and SLEX, as the case may be, and/or the
construction, operation and maintenance of toll road projects contemplated in P.D. 1894. And there
can be no denying that the corresponding toll operation permits have been issued. TcSICH
In fine, the STOAs 48 TRB entered with PNCC and its JV partners had the effect of granting
authorities to construct, operate and maintain toll facilities, but with the injection of additional private
sector investments consistent with the intent of P.D. Nos. 1112, 1113 and 1894. 49 The execution of
these STOAs came in 1995, 1998 and 2006, or before the expiration of PNCC's original franchise on
May 1, 2007. In accordance with applicable laws, these transactions have actually been authorized
and approved by the President of the Philippines. 50 And as a measure to ensure the legality of the
said transactions and in line with due diligence requirements, a review thereof was secured from the
GCC and the DOJ, prior to their execution.
Inasmuch as its charter empowered the TRB to authorize the PNCC and like entities to
maintain and operate toll facilities, it may be stated as a corollary that the TRB, subject to certain
qualifications, infra, can alter the conditions of such authorization. Well settled is the rule that a
legislative franchise cannot be modified or amended by an administrative body with general
delegated powers to grant authorities or franchises. However, in the instant case, the law granting a
direct franchise to PNCC 51 evidently and specifically conferred upon the TRB the power to impose
conditions in an appropriate contract. 52 And to reiterate, Section 3 of P.D. 1113 provides that "[t]his
[PNCC] franchise is granted subject to such conditions as may be imposed by the [TRB] in an
appropriate contract to be executed for this purpose, and with the understanding and upon
the condition that it shall be subject to amendment, alteration or repeal when public interest
so requires." 53 A similarly worded proviso is found in Section 6 of P.D. 1894. It is in this light that the
TRB entered into the subject STOAs in order to allow the infusion of additional investments in the
subject infrastructure projects. Prior to the expiration of PNCC's franchise on May 1, 2007, the STOAs
merely imposed additional conditionalities, or as aptly pointed out by SLTC et al., obviously having in
mind par. 16.06 of its STOA with TRB, 54 served as supplement, to the existing TOA of PNCC with
TRB. We have carefully gone over the different STOAs and discovered that the tollway projects
covered thereby were all undertaken under the P.D. 1113 franchise of PNCC. And it cannot be overemphasized that the respective STOAs of MNTC and SLTC each contain provisions addressing the

399

eventual expiration of PNCC's P.D. 1113 franchise and authorizing, thru the issuance by the TRB of a
TOC, the implementation of a given toll project even after May 1, 2007. Thus:
MNTC STOA
2.6 CONCESSION PERIOD. In order to sustain the financial viability and integrity of
the Project, GRANTOR [TRB] hereby grants MNTC the CONCESSION for the
PROJECT ROADS for a period commencing upon the date that this [STOA] comes into
effect under Clause 4.1 until 31 December 2030 or thirty years after the issuance of the
corresponding TOLL OPERATION PERMIT for the last completed phase. . .
Accordingly, unless the PNCC FRANCHISE is further extended beyond its expiry on 01
May 2007, GRANTOR undertakes to issue the necessary [TOC] for the rehabilitated
and refurbished [NLEX] six months prior to the expiry of the PNCC FRANCHISE on 01
May 2007. . . .
SLTC STOA
2.03 Authority of Investor and Operator to Undertake the Project
(1) The GRANTOR [TRB] has determined that the Project Toll Roads are within the
existing SLEX and are thus covered by the PNCC Franchise that is due to
expire on May 1, 2007. PNCC has committed to exert its best efforts to obtain
an extension . . . It is understood and agreed that in the event the PNCC
Franchise is not renewed beyond the said expiry date, this [STOA] and the
Concession granted . . . will stand in place of the PNCC Franchise and serve
as a new concession, or authority, pursuant to Section 3 (a) of the TRB
Charter, for the Investor to undertake the Project and for the Operator to
Operate and Maintain the Project Toll Roads immediately upon the expiration
of the PNCC Franchise, without need of the execution . . . of any other
document to effect the same.
(2) . . . in the event it is subsequently decreed by competent authority that the issuance
by the Grantor of a [TOC] is necessary . . . the Grantor shall . . . cause the TRB
. . . to issue such [TOC] in favor of the Operator, embodying the terms and
conditions of this Agreement. AIDSTE
The foregoing notwithstanding, there are to be sure certain aspects in PNCC's legislative
franchise beyond the altering reach of TRB. We refer to the coverage area of the tollways and the
expiry date of PNCC's original franchise, which is May 1, 2007, as expressly stated under Sections 1
and 2 of P.D. 1894, respectively. The fact that these two items were specifically and expressly defined
by law, i.e., P.D. 1113, indicates an intention that any alteration, modification or repeal thereof should
only be done through the same medium. We said as much in Radstock, thus: "[T]he term of the . . .
franchise, 'which is 30 years from 1 May 1977, shall remain the same,' as expressly provided in
the first sentence of . . . Section 2 of P.D. 1894." 55 It is likewise worth noting what We further held
in that case:
The TRB does not have the power to give back to PNCC the toll assets and
facilities which were automatically turned over to the Government, by operation
of law, upon the expiration of the franchise of the PNCC on 1 May 2007. Whatever
power the TRB may have to grant authority to operate a toll facility or to issue a
"[TOC]," such power does not obviously include the authority to transfer back to PNCC

400

ownership of National Government assets, like the tollassets and facilities, which have
become National Government property upon the expiry of PNCC's
franchise . . . . 56 (Emphasis in the original.)
Verily, upon the expiration of PNCC's legislative franchise on May 1, 2007, the new
authorities to construct, maintain and operate the subject tollways and toll facilities granted by the
TRB pursuant to the validly executed STOAs and TOCs, shall begin to operate and be treated as
administrative franchises or authorities. Pursuant to Section 3 (e) P.D. 1112, TRB possesses the
power and duty, inter alia to:
. . . grant authority to operate a toll facility and to issue therefore the necessary
"Toll Operation Certificate" subject to such conditions as shall be imposed by the [TRB]
including inter alia . . . .
This is likewise consistent with the position of the Secretary of Justice in Opinion No. 122 on
November 24, 1995, 57 thus:
TRB has no authority to extend the legislative franchise of PNCC over the existing
NSLE (North and South Luzon Expressways). However, TRB is not precluded under
Section 3 (e) of P.D. No. 1112 (TRB Charter) to grant PNCC and its joint venture
partner the authority to operate the existing toll facility of the NSLE and to issue
therefore the necessary "Toll Operation Certificate . . . .
It should be noted that the existing franchise of PNCC over the NSLE, which will expire
on May 1, 2007, gives it the "right, privilege and authority to construct, maintain and
operate" the NSLE. The Toll Operation Certificate which TRB may issue to the
PNCC and its joint venture partner after the expiration of its franchise on May 1,
2007 is an entirely new authorization, this time for the operation and
maintenance of the NSLE . . . . In other words, the right of PNCC and its joint
venture partner, after May 7, 2007 [sic] to operate and maintain the existing NSLE
will no longer be founded on its legislative franchise which is not thereby
extended, but on the new authorization to be granted by the TRB pursuant to
Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis ours.)
The same opinion was thereafter made by the Secretary of Justice on January 9, 2006, in
Opinion No. 1, 58 stating that:
The existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives
it the "right, privilege and authority to construct, maintain and operate the NSLE."
The Toll Operation Certificate which the TRB may issue to the PNCC and its joint
venture partner after the expiration of its franchise on May 1, 2007 is an entirely new
authorization, this time for the operation and maintenance of the NSLE. . . . [T]he right
of PNCC and its joint venture partner, after May 1, 2007, to operate and maintain the
existing NSLE will no longer be founded on its legislative franchise which is not thereby
extended, but on the new authorization to be granted by the TRB pursuant to Section 3
(e) of PD No. 1112.
It appears therefore, that the effect of the STOA is not to extend the Franchise of
PNCC, but rather, to grant a new Concession over the SLEX Project and the OMCo.,
entities which are separate and distinct from PNCC. While initially, the authority of
SLTC and OMCo. to enter into the STOA with the TRB and thereby become grantees of

401

the Concession, will stem from and be based on the JVA and the assignment by PNCC
to the OMCo. of the Usufruct in the Franchise, we submit that upon the execution by
SLTC and the TRB of the STOA, the right to the Concession will emanate from the
STOA itself and from the authority of the TRB under Section 3 (a) of the TRB Charter.
Such being the case, the expiration of the Franchise on 1 May 2007, since such
Concession is an entirely new and distinct concession from the Franchise and is, as
stated, granted to entities other than PNCC. cDAITS
Finally, with regards (sic) the authority of the TRB this Office in Secretary of Justice
Opinion No. 92, s. 2000, stated that:
"Suffice it to say that official acts of the President enjoy full faith and confidence
of the Government of the Republic of the Philippines which he represents.
Furthermore, considering that the queries raised herein relates to the exercise
by the TRB of its regulatory powers over toll road project, the same falls
squarely within the exclusive jurisdiction of TRB pursuant to P.D. No. 1112.
Consequently, it is, therefore, solely within TRB's prerogative and
determination as to what rule shall govern and is made applicable to a
specific toll road project proposal."
The STOA is an explicit grant of the Concession by the Republic of the
Philippines, through the TRB pursuant to P.D. (No.) 1112 and as approved by
the President . . . . The foregoing grant is in full accord with the provisions of
P.D. (No.) 1112 which authorizes TRB to enter into contracts on behalf of the
Republic of the Philippines for the construction, operation and maintenance
of toll facilities. Such being the case, we opine that no other legal requirement
is necessary to make the STOA effective of to confirm MNTC's (In this case,
SLTC and the OMCO) rights and privileges granted therein." (Emphasis in the
original.)
Considering, however, that all toll assets and facilities pertaining to PNCC pursuant to its P.D.
1113 franchise are deemed to have already been turned over to the National Government on May 1,
2007, 59 whatever participation that PNCC may have in the new authorities to construct, maintain
and operate the subject tollways, shall be limited to doing the same in trust for the National
Government. In Radstock, the Court held that "[w]ith the expiration of PNCC's franchise, [its] assets
and facilities . . . were automatically turned over, by operation of law, to the government at no
cost." 60 The Court went on further to state that the Government's ownership of PNCC's toll assets
inevitably resulted in its owning too of the toll fees and the net income derived, after May 1, 2007,
from the toll assets and facilities. 61 But as We have earlier discussed, the tollways and toll facilities
should remain functioning in accordance with the validly executed STOAs and TOCs. However,
PNCC's assets and facilities, or, in short, its very share/participation in the JVAs and the STOAs,
inclusive of its percentage share in the toll fees collected by the JV companies currently operating the
tollways shall likewise automatically accrue to the Government.
In fine, petitioners' claim about PNCC's franchise being amenable to an amendment only by
an act of Congress, or, what practically amounts to the same thing, that the TRB is without authority
at all to modify the terms and conditions of PNCC's franchise, i.e., by amending its TOA/TOC, has to
be rejected. Their lament then that the TRB, through the instrumentality of mere contracts and an
administrative operating certificate, or STOAs and TOC, to be precise, effectively, but invalidly
amended PNCC legislative franchise, are untenable. For, the bottom line is, the TRB has, through the
interplay of the pertinent provisions of P.D. Nos. 1112, 1113 and 1894, the power to grant the authority

402

to construct and operate toll road projects and toll facilities by way of a TOA and the corresponding
TOC. What is otherwise a legislative power to grant or renew a franchise is not usurped by the
issuance by the TRB of a TOC. But to emphasize, the case of the TRB is quite peculiarly unique as
the special law conferring the legislative franchise likewise vested the TRB with the power to impose
conditions on the franchise, albeit in a limited sense, by excluding from the investiture the power to
amend or modify the stated lifetime of the franchise, its coverage and the ownership arrangement of
the toll assets following the expiration of the legislative franchise. 62
At this juncture, the Court wishes to express the observation that P.D. Nos. 1112, 1113 and
1894, as couched and considered as a package, very well endowed the TRB with extraordinary
powers. For, subject to well-defined limitations and approval requirements, the TRB can, by way of
STOAs, allow and authorize, as it has allowed and authorized, a legislative franchisee, PNCC, to
share its concession with another entity or JV partners, the authorization effectively covering periods
beyond May 2007. However, this unpalatable reality, a leftover of the martial law regime, presents
issues on the merits and the wisdom of the economic programs, which properly belong to the
legislature or the executive to address. The TRB is not precluded from granting PNCC and its joint
venture partners authority, through a TOC for a period following the term of the proposed SMMS, with
the said TOC serving as an entirely new authorization upon the expiration of PNCC's franchise on
May 1, 2007. In short, after May 1, 2007, the operation and maintenance of the NLEX and the other
subject tollways will no longer be founded on P.D. 1113 or portions of P.D. 1894 (PNCC's original
franchise) but on an entirely new authorization, i.e., a TOC, granted by the TRB pursuant to its
statutory authority under Sections 3 (a) and (e) of P.D. 1112. SHCaEA
Likewise needing no extended belaboring, in the light of the foregoing dispositions, is the
untenable holding of the RTC in SCA No. 3138-PSG that the TRB is without power to issue a TOC to
PNCC, amend or renew its authority over the SLEX tollways without separate legislative enactment.
And lest it be overlooked, the TRB may validly issue an entirely new authorization to a JV company
after the lapse of PNCC's franchise under P.D. 1113. Its thirty-year concession under P.D. 1894,
however, does not have the quality of definiteness as to its start, as by the terms of the issuance, it
commences and is to be counted "from the date of approval of the project," the term project obviously
referring to "Metro Manila Expressways and all extensions, linkages, stretches and diversions
refurbishing and rehabilitation of the existing NLEX and SLEX constructed after the approval of the
decree in December 1983." The suggestion, therefore, of the petitioners in G.R. No. 169917, citing a
1989 Court of Appeals ("CA") decision in CA-G.R. 13235 (Republic v. Guerrero, et al.), that the
Balintawak to Tabang portion of the expressway no longer forms part of PNCC's franchise and,
therefore, PNCC is without any right to assign the same to MNTC via a JVA, is specious. Firstly, in its
Decision 63 in G.R. No. 89557, a certiorari proceeding commenced by PNCC to nullify the CA
decision adverted to, the Court approved a compromise agreement, which referred to (1) the PNCC's
authority to collect toll and maintenance fees; and (2) the supervision, approval and control by the
DPWH 64 of the construction of additional facilities, on the questioned portion of the NLEX. 65 And
still in another Decision, 66 the Court ruled that the Balintawak to Tabang stretch was recognized as
"part of the franchise of, or otherwise restored as toll facilities to be operated by . . . PNCC." 67 Once
stamped with judicial imprimatur, and unless amended, modified or revoked by the parties, a
compromise agreement becomes more than a mere binding contract; as thus sanctioned, the
agreement constitutes the court's determination of the controversy, enjoining the parties to faithfully
comply thereto. 68 Verily, like any other judgment, it has the effect and authority of res judicata. 69
At any rate, the PNCC was likewise granted temporary or interim authority by the TRB to
operate the SLEX, 70 to ensure the continued development, operations and progress of the projects.
We have ruled in Oroport Cargohandling Services, Inc. v. Phividec Industrial Authority that an
administrative agency vested by law with the power to grant franchises or authority to operate can

403

validly grant the same in the interim when it is necessary, temporary and beneficial to the
public. 71 The grant by the TRB to PNCC as interim operator of the SLEX was certainly intended to
guarantee the continued operation of the said tollway facility, and to ensure the want of any delay and
inconvenience to the motoring public.
All given, the cited CA holding is not a binding precedent. The time limitation on PNCC's
franchise under either P.D. 1113 or P.D. 1894 does not detract from or diminish the TRB's delegated
authority under P.D. 1112 to enter into separate toll concessions apart and distinct from PNCC's
original legislative franchise.
THIRD ISSUE: TRB's POWER TO ENTER INTO CONTRACTS; ISSUE, MODIFY AND
PROMULGATE TOLL RATES; AND TO RULE ON PETITIONS RELATIVE TO TOLL RATES LEVEL
AND INCREASES VALID
The petitioners in the special civil actions cases would have the Court declare as invalid ( a)
Section 3 (a) and (d) of P.D. 1112 (which accord the TRB, on one hand, the power to enter into
contracts for the construction, and operation of toll facilities, while, on the other hand, granting it the
power to issue and promulgate toll rates) and (b) Section 8 (b) of P.D. 1894 (granting TRB
adjudicatory jurisdiction over matters involving toll rate movements). As submitted, granting the TRB
the power to award toll contracts is inconsistent with its quasi-judicial function of adjudicating petitions
for initial toll and periodic toll rate adjustments. There cannot, so petitioners would postulate, be
impartiality in such a situation.
The assailed provisions of P.D. 1112 and P.D. 1894 read:
P.D. 1112
Section 3. Powers and Duties of the Board. The Board shall have in addition to its
general powers of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in
behalf of the Republic of the Philippines with persons, natural or juridical, for the
construction, operation and maintenance of toll facilities such as but not limited to
national highways, roads, bridges, and public thoroughfares. Said contract shall be
open to citizens of the Philippines and/or to corporations or associations qualified under
the Constitution and authorized by law to engage in tolloperations; cCESTA
(d) Issue, modify and promulgate from time to time the rates of toll that will be charged
the direct users of toll facilities and upon notice and hearing, to approve or
disapprove petitions for the increase thereof. Decisions of the Board on petitions for the
increase of toll rate shall be appealable to the Office of the President within ten (10)
days from the promulgation thereof. Such appeal shall not suspend the imposition of
the new rates, provided however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a trust fund such amounts as
may be necessary to reimburse toll payers affected in case a reversal of the decision.
(Emphasis ours.)
P.D. 1894
SECTION 8.. . .

404

(b) For the Metro Manila Expressway and such extensions, linkages, stretches and
diversions of the Expressways which may henceforth be constructed, maintained and
operated by the GRANTEE, the GRANTEE shall collect toll at such rates as shall
initially be approved by the Toll Regulatory Board. The Toll Regulatory Board shall have
the authority to approve such initial toll rates without the necessity of any notice and
hearing, except as provided in the immediately succeeding paragraph of this Section.
For such purpose, the GRANTEE shall submit for the approval of the Toll Regulatory
Board the toll proposed to be charged the users. After approval of the toll rate(s) by
the Toll Regulatory Board and publication thereof by the GRANTEE once in a
newspaper of general circulation, the toll shall immediately be enforceable and
collectible upon opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file, within a period of ninety
(90) days after the date of publication of the initial toll rate, a petition with
the Toll Regulatory Board for a review of the initial toll rate; provided, however, that the
filing of such petition and the pendency of the resolution thereof shall not suspend the
enforceability and collection of the toll in question. The Toll Regulatory Board, at a
public hearing called for the purpose after due notice, shall then conduct a review of the
initial toll shall be appealable (sic) to the Office of the President within ten (10) days
from the promulgation thereof. The GRANTEE may be required to post a bond in such
amount and from such surety or sureties and under such terms and conditions as
the Toll Regulatory Board shall fix in case of any petition for review of, or appeal from,
decisions of the Toll Regulatory Board.
In case it is finally determined, after a review by the Toll Regulatory Board or appeal
therefrom, that the GRANTEE is not entitled, in whole or in part, to the initial toll, the
GRANTEE shall deposit in the escrow account the amount collected under the
approved initial toll fee and such amount shall be refunded to Expressways users who
had paid said toll in accordance with the procedure as may be prescribed or
promulgated by the Toll Regulatory Board. (Emphasis ours.)
The petitioners are indulging in gratuitous, if not unfair, conclusion as to the capacity of the
TRB to act as a fair and objective tribunal on matters of toll fee fixing.
Administrative bodies have expertise in specific matters within the purview of their respective
jurisdictions. Accordingly, the law concedes to them the power to promulgate implementing rules and
regulations ("IRR") to carry out declared statutory policies provided that the IRR conforms to the
terms and standards prescribed by that statute. 72
The Court does not perceive an irreconcilable clash in the enumerated TRB's statutory
powers, such that the exercise of one negates another. The ascription of impartiality on the part of the
TRB cannot, under the premises, be accorded cogency. Petitioners have not shown that the TRB
lacks the expertise, competence and capacity to implement its mandate of balancing the interests of
the toll-paying motoring public and the imperative of allowing the concessionaires to recoup their
investment with reasonable profits. As it were, Section 9 of P.D. 1894 provides a parametric formula
for adjustment of toll rates that takes into account the Peso-US Dollar exchange rate, interest rate
and construction materials price index, among other verifiable and quantifiable variables.
While not determinative of the issue immediately at hand, the grant to and the exercise by an
administrative agency of regulating and allowing the operation of public utilities and, at the same time,
fixing the fees that they may charge their customers is now commonplace. It must be presumed that

405

the Congress, in creating said agencies and clothing them with both adjudicative powers and
contract-making prerogatives, must have carefully studied such dual authority and found the same
not breaching any constitutional principle or concept. 73 So must it be for P.D. Nos. 1112 and
1894. ADHcTE
The Court can take judicial cognizance of the exercise by the LTFRB and NTC both spinoff agencies of the now defunct Public Service Commission of similar concurrent powers. The
LTFRB, under Executive Order No. ("E.O.") 202, 74 series of 1987, is empowered, 75 among others,
to regulate the operation of public utilities or "for hire" vehicles and to grant franchises or certificates
of public convenience ("CPC"); and to fix rates or fares, to approve petitions for fare rate increases
and to resolve oppositions to such petitions.
The NTC, on the other hand, has been granted similar powers of granting franchises,
allocating areas of operations, rate-fixing and to rule on petitions for rate increases under E.O.
546, 76 s. of 1979.
The Energy Regulatory Commission ("ERC") likewise enjoys on the one hand, the power (a)
to grant, modify or revoke an authority to operate facilities used in the generation of electricity, and on
the other, (b) to determine, fix and approve rates and tariffs of transmission, and distribution retail
wheeling charges and tariffs of franchise electric utilities and all electric power rates including that
which is charged to end-users. 77 In Chamber of Real Estate and Builders' Association, Inc. v. ERC,
We even categorically stated that the ERC is a "quasi-judicial and quasi-legislative regulatory
body created under Section 38 of the EPIRA, [and] . . . an administrative agency vested with broad
regulatory and monitoring functions over the Philippine electric industry to ensure its successful
restructuring and modernization . . . ." 78
To summarize, the fact that an administrative agency is exercising its administrative or
executive functions (such as the granting of franchises or awarding of contracts) and at the same time
exercising its quasi-legislative (e.g., rule-making) and/or quasi-judicial functions (e.g., rate-fixing),
does not support a finding of a violation of due process or the Constitution. In C.T. Torres Enterprises,
Inc. v. Hibionada, 79 We explained the rationale, thus:
It is by now commonplace learning that many administrative agencies exercise
and perform adjudicatory powers and functions, though to a limited extent only.
Limited delegation of judicial or quasi-judicial authority to administrative
agencies (e.g., the Securities and Exchange Commission and the National Labor
Relations Commission) is well recognized in our jurisdiction, basically because the
need for special competence and experience has been recognized as essential in
the resolution of questions of complex or specialized character and because of a
companion recognition that the dockets of our regular courts have remained
crowded and clogged.
xxx xxx xxx
As a result of the growing complexity of the modern society, it has become necessary
to create more and more administrative bodies to help in the regulation of its ramified
activities. Specialized in the particular fields assigned to them, they can deal with
the problems thereof with more expertise and dispatch than can be expected
from the legislature or the courts of justice. This is the reason for the increasing
vesture of quasi-legislative and quasi-judicial powers in what is now not
unquestionably called the fourth department of the government.

406

xxx xxx xxx

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 very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever increasing variety
of powers and functions given to administrative agencies recognizes the need
for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot
possibly be handled by regular courts. (Emphasis ours.)
FOURTH ISSUE: PRESIDENT AMPLY VESTED WITH STATUTORY POWER TO APPROVE TRB
CONTRACTS
Just like their parallel stance on the grant to TRB of the power to enter
into toll agreements, e.g., TOAs or STOAs, the petitioners in the first three petitions would assert that
the grant to the President of the power to peremptorily authorize the assignment by PNCC, as
franchise holder, of its franchise or the usufruct in its franchise is unconstitutional. It is
unconstitutional, so petitioners would claim, for being an encroachment of legislative power. TIEHSA
As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the President of any
contract TRB may have entered into or effected for the construction and operation of toll facilities.
Complementing Section 3 (a) is 3 (e) (3) of P.D. 1112 enjoining the transfer of the usufruct of PNCC's
franchise without the President's prior approval. For perspective, Section 3 (e) (3) of P.D.
1112 provides:
That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the
rights or privileges acquired under the [TOC] to any person . . . or legal entity nor
merge with any other company or corporation organized for the same purpose without
the prior approval of the President of the Philippines. In the event of any valid transfer
of the TOC, the Transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree . . . . 80
The President's approving authority is of statutory origin. To us, there is nothing illegal, let
alone unconstitutional, with the delegation to the President of the authority to approve the assignment
by PNCC of its rights and interest in its franchise, the assignment and delegation being circumscribed
by restrictions in the delegating law itself. As the Court stressed in Kilosbayan v. Guingona, Jr., 81 the
rights and privileges conferred under a franchise may be assigned if authorized by a statute, subject
to such restrictions as may be provided by law, such as the prior approval of the grantor or a
government agency. 82
There can, therefore, be no serious challenge to this presidential- approving prerogative.
Should grave abuse of discretion in some way infect the exercise of the prerogative, then the
approval action may be nullified for that reason, but not on the ground that the underlying authority is
constitutionally doubtful. If the TRB may validly be empowered to grant private entities the authority to
operate toll facilities, would a delegation of a lesser authority to approve the grant to the head of the
administrative machinery of the government be objectionable?
The fact that P.D. 1112 partakes of a martial law issuance does not per se provide an
objectionable feature to the decree, albeit it may be argued with some plausibility that then President
Marcos intended to have the final say as to who shall act as the toll operators of the Luzon

407

expressways. Be that as it may, "all proclamations, orders, decrees, instructions, and acts
promulgated, issued, or done by the former President (Ferdinand E. Marcos) are part of the law of the
land, and shall remain valid, legal, binding, and effective, unless modified, revoked or superseded by
subsequent proclamations, orders, decrees, instructions, or other acts of the President." 83 To
emphasize, Padua v. Ranadacited Association of Small Landowners in the Philippines, Inc. v.
Secretary of Agrarian Reform, quoting that:
The Court wryly observes that during the past dictatorship, every presidential issuance,
by whatever name it was called, had the force and effect of law because it came from
President Marcos. Such are the ways of despots. Hence, it is futile to argue . . .
that LOI 474 could not have repealed P.D. No. 27 because the former was only a letter
of instruction. The important thing is that it was issued by President Marcos, whose
word was law during that time. 84
FIFTH ISSUE: ASSAILED STOAs VALIDLY ENTERED
This brings us to the issue of the validity of certain provisions of the STOAs and related
agreements entered into by the TRB, as duly approved by the President.
Relying on Clause 17.4.1 85 of the MNTC STOA that the lenders have the unrestricted right
to appoint a substitute entity in case of default of MNTC or of the occurrence of an event of default in
respect of the loans, petitioners argue that since MNTC is the assignee or transferee of PNCC's
franchise, then it steps into the shoes of PNCC. They contend that the act of replacing MNTC as
grantee is tantamount to an amendment or alteration of the PNCC's original franchise and hence
unconstitutional, considering that the constitutional power to appoint a new franchise holder is
reserved to Congress. 86
This contention is bereft of merit. aSATHE
Petitioners' presupposition that only Congress has the power to directly grant franchises is
misplaced. Time and again, We have held that administrative agencies may be empowered by the
Legislature by means of a law to grant franchises or similar authorizations. 87 And this, We have
sufficiently addressed in the present case. 88 To reiterate, We discussed in Albano that our statute
books are replete with laws granting administrative agencies the power to issue
authorizations. 89 This delegation of legislative power to administrative agencies is allowed "in order
to adapt to the increasing complexity of modern life." 90 Consequently, We have held that the
"privileges conferred by grant by local authorities as agents for the state constitute as much a
legislative franchise as though the grant had been made by an act of the Legislature." 91
In this case, the TRB's charter itself, or Section 3 (e) of P.D. 1112, specifically empowers it to
"grant authority to operate a toll facility and to issue therefore the necessary 'Toll Operation
Certificate' subject to such conditions as shall be imposed by the [TRB] . . . ." 92 Section 3 (a) of the
same law permits the TRB to enter into contracts for the construction, operation and maintenance
of toll facilities. Clearly, there is no question that the TRB is vested by the Legislature, through P.D.
1112, with the power not only to grant an authority to operate a toll facility, but also to enter into
contracts for the construction, operation and maintenance thereof.
Petitioners also contend that substituting MNTC as the grantee in case of its default with
respect to its loans is tantamount to an amendment of PNCC's original franchise and is hence,
unconstitutional. We also find this assertion to be without merit. Besides holding that the Legislature
may properly empower administrative agencies to grant franchises pursuant to a law, We have also

408

earlier explained in this case that P.D. 1113 and the amendatory P.D. 1894both vested the TRB with
the power to impose conditions on PNCC's franchise in an appropriate contract and may therefore
amend or alter the same when public interest so requires; 93 save for the conditions stated in
Sections 1 and 2 of P.D. 1894, which relates to the coverage area of the tollways and the expiration of
PNCC's original franchise. 94 P.D. 1112 provided further that the TRB has the power to amend or
modify a Toll Operation Certificate that it issued when public interest so requires. 95 Accordingly, to
Our mind, there is nothing infirm much less questionable about the provision in the STOA, allowing
the substitution of MNTC in case it defaults in its loans.
Furthermore, in the subject provision (Clause 17.4.1), 96 the "unrestricted right" of the lender
to appoint a substituted entity is never intended to afford such lender a plenary power to do so. The
subject clause states:
17.4.1 The PARTIES acknowledge that following a Notice of Substitution under
clauses 17.2 or 17.3 the LENDERS have, subject to the provisions of Clause
17.4.3, the unrestricted right to appoint a SUBSTITUTED ENTITY in place of
MNTC following the declaration of the occurrence of a MNTC DEFAULT prior to
full repayment of the LOANS or of an event of default in respect of the LOANS.
GRANTOR shall extend all reasonable assistance to the AGENT to put in place a
SUBSTITUTED ENTITY. MNTC shall make available all necessary information to
potential SUBSTITUTED ENTITY to enable such entity to evaluate the Project.
(Emphasis ours.)
It is clear from the above-quoted provision that Clause 17.4.1 should always be construed
and read in conjunction with Clauses 17.2, 17.3, 17.4.2, 17.4.3 and 20.12. Clauses 17.2 and 17.3
discuss the procedures that must be followed and undertaken in case of MNTC's default prior to the
full repayment of the loans, and before the substitution under Clause 17.4.1 could take place. These
clauses provide the following process:
Prior to Full Repayment of the LOANS:
17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and (e) prior to full
repayment of the LOANS, GRANTOR shall serve a written Notice of Default to
MNTC with copy to the AGENT giving a reasonable period of time to cure the
MNTC DEFAULT, such period being three (3) months from receipt of the notice or
such longer period as may be approved by GRANTOR, taking due consideration of
the nature of the default and of the repair works required. If MNTC fails to remedy
such default during such three (3) month or [sic] curing period, GRANTOR may issue
a Notice of Substitution on MNTC, copy furnished to the AGENT, which shall take
effect upon the assumption and take over by the SUBSTITUTED ENTITY pursuant to
the provisions of Clause 17.4 hereof; Provided, However, that prior to such
assumption and take over by the SUBSTITUTED ENTITY, MNTC shall continue to
OPERATE AND MAINTAIN THE PROJECT ROADS and shall place in an escrow
account the TOLL revenues, save such amounts as may be needed to primarily cover
the OPERATING COSTS and as may be owing and due to the lenders under the
LOANS and, secondarily, to cover the PNCC Gross Toll Revenue Share, Provided,
Further, that upon the assumption and take over by the SUBSTITUTED ENTITY, such
assumption and take over shall have the effect of revoking the rights, privileges and
obligations of MNTC under this AGREEMENT in favor of the SUBSTITUTED ENTITY
and MNTC shall cease to be a PARTY to this AGREEMENT. cCDAHE

409

17.3 If prior to full repayment of the LOANS MNTC fails to remedy MNTC DEFAULT
under Clause 17.1 (b) or an MNTC DEFAULT occurs under Clause 17.1 (c), (d) or (f)
prior to full repayment of the LOANS, GRANTOR shall serve a Notice of Substitution
on MNTC, copy furnished to the AGENT, as provided under Clause
17.4. 97 (Emphasis ours)
It is apparent from the above-quoted provision that it is the TRB representing the Republic
of the Philippines as Grantor which has control over the situation before Clause 17.4.1 could come
into place. To stress, following the condition under Clause 17.4.1, it is only when Clauses 17.2 and
17.3 have been complied with that the entire Clause 17.4 could begin to materialize.
Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when a substituted entity
could be considered acceptable, and enumerate the conditions that should be undertaken and
complied with. 98 Particularly, the subject provisions state:
17.4.2 The SUBSTITUTED ENTITY shall be required to provide evidence to
GRANTOR that at the time of substitution:
(i) it is legally and validly nominated by the AGENT as MNTC's substitute to
continue the implementation of the PROJECT.
(ii) it is legally and validly constituted and has the capability to enter into such
agreement as may be required to give effect to the substitution.
17.4.3 The AGENT shall have one (1) year to effect a substitution under Clause
17.4; Provided, However, that during this time the AGENT shall not take any
action which may jeopardize the continuity of the service and shall take the
necessary action to ensure its continuation. To effect such substitution, the
AGENT shall notify its intention to GRANTOR and shall, at the same time, give
all necessary information to GRANTOR. GRANTOR shall, within one (1)
month following such notification, inform the AGENT of its acceptance of
the substitution, if the conditions set forth in Clause 17.4.2 have been
satisfied. The SUBSTITUTED ENTITY shall be permitted a reasonable period
to cure any MNTC DEFAULT under Clause 17.1 (a), (b) or (e).
From the foregoing, it is clear that the lenders do not actually have an absolute or
"unrestricted" right to appoint the SUBSTITUTED ENTITY in view of TRB's right to accept or reject
the substitution within one (1) month from notice and such right to appoint comes into force only if and
when the TRB decides to effectuate the substitution of MNTC as allowed in Clause 17.2 of the MNTC
STOA.
At the same time, Clause 17.4.4 particularizes the conditions upon which the substitution
shall become effective, to wit:
17.4.4 The Substitution shall be effective upon:
(a) the appointment of a SUBSTITUTED ENTITY in accordance with the
provisions of this Clause 17.4; and,

410

(b) assumption by the SUBSTITUTED ENTITY of all of the rights and

obligations of MNTC under this AGREEMENT, including the payment
of PNCC's Gross Toll Revenue Share under the JOINT VENTURE
AGREEMENT dated 29 August 1995 and all other agreements in
connection with this agreement signed and executed by and between
PNCC and MNTC.
The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of compliance by the
substituted entity with all the conditions provided under Clause 17.4. Furthermore, following the
above-quoted conditions veritably protects the interests of the Government. As previously
discussed supra, PNCC's assets with respect to its legislative franchise under P.D. 1113, as
amended, has already been automatically turned over to the Government. And whatever share PNCC
has in relation to the currently implemented administrative authority granted by the TRB is merely
being held in trust by it in favor of the Government. Accordingly, the fact that Section "b" of Clause
17.4.4 ensures that the obligation to pay PNCC's Gross Toll Revenue Share is assumed by the
substituted entity, necessarily means that the Government's Gross Toll Revenue Share is
safeguarded and kept intact.
The MNTC STOA also states that only in case no substituted entity is established in
accordance with Clause 17.4 that Clause 17.5 shall be applied. Clause 17.5 grants the lenders the
power to extend the concession in case the Grantor (Republic of the Philippines) takes over the
same, for a period not exceeding fifty years, until full payment of the loans. 99 Petitioners contend
that the option to extend the concession for that stated period is, however, unconstitutional. ACcTDS
This assertion is impressed with merit. At the outset, Clause 17.5 does not actually grant the
lenders of the defaulting concessionaire, the power to unilaterally extend the concession for a period
not exceeding fifty years. For reference, the pertinent provision states:
17.5 Only if no SUBSTITUTE ENTITY is established . . . shall the GRANTOR [TRB] be
entitled to take-over the CONCESSION with no commitment on the LOANS in which
case the OPERATION AND MAINTENANCE CONTRACT shall be assigned to any
entity that the AGENT 100 may designate provided such entity has a sufficient legal
and technical capacity to perform and assume the obligations of the OPERATION AND
MAINTENANCE CONTRACT under this AGREEMENT. The LENDERS shall receive
all TOLL, excepting PNCC's revenue share provided for under the JOINT
INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long as required until full
repayment of the LOANS including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed fifty (50) years; Provided that the LENDERS
support all amounts payable under the OPERATION AND MAINTENANCE
CONTRACT. For avoidance of doubt, the GRANTOR will have no obligation in relation
to liabilities incurred by MNTC prior to such take-over. 101 (Emphasis supplied)
The afore-quoted provision should be read in conjunction with Clause 20.12, which expressly
provides that the MNTC STOA is "made under and shall be governed by and construed in
accordance with" the laws of the Philippines, and particularly, by the provisions of P.D. Nos. 1112,
1113 and 1894. Under the applicable laws, the TRB may very well amend, modify, alter or revoke the
authority/franchise "whenever the public interest so requires." 102 In a word, the power to determine
whether or not to continue or extend the authority granted to a concessionaire to operate and
maintain a tollway is vested to the TRB by the applicable laws. The necessity of whether or not to
extend the concession or the authority to construct, operate and maintain a tollway rests, by operation

411

of law, with the TRB. As such, the lenders cannot unilaterally extend the concession period, or, with
like effect, impose upon or demand that the TRB agree to extend such concession.
Be that as it may, it must be noted, however, that while the TRB is vested by law with the
power to extend the administrative franchise or authority that it granted, nevertheless, it cannot do so
for an accumulated period exceeding fifty years. Otherwise, it would violate the proscription under
Article XII, Section 11 of the 1987 Constitution, which states that: 103
Sec. 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years .
Neither shall any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration or repeal by the Congress when the common
good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or associations must be citizens of
the Philippines. (Emphasis Ours)
In this case, the MNTC STOA already has an original stipulated period of thirty
years. 104 Clause 17.5 allows the extension of this period if necessary to fully repay the loans made
by MNTC to the lenders, thus:
. . . The LENDERS shall receive all TOLL, excepting PNCC's revenue share provided
for under the JOINT INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long
as required until full repayment of the LOANS including if necessary an extension of
the CONCESSION PERIOD which in no case shall exceed a maximum period of
fifty (50) years; . . . (Emphasis ours.) ESTCDA
If the maximum extension as provided for in Clause 17.5, i.e., fifty years, shall be utilized, the
accumulated concession period that would be granted in this case would effectively be eighty years.
To Us, this is a clear violation of the fifty-year franchise threshold set by the Constitution. It is in this
regard that we strike down the above-quoted clause, "including if necessary an extension of the
CONCESSION PERIOD which in no case shall exceed a maximum period of fifty (50) years" in
Clause 17.5 as void for being violative of the Constitution. 105 It must be made abundantly clear,
however, that the nullity shall be limited to such extension beyond the 50-year constitutional limit.
All told, petitioners' allegations that the TRB acted with grave abuse of discretion and with
gross disadvantage to the Government with respect to Clauses 17.4.1 and 17.5 of the MNTC STOA
are unfounded and speculative.
Petitioners also allege that the MNTC STOA is grossly disadvantageous to the Government
since under Clause 11.7 thereof, the Government, through the TRB, guarantees the viability of the
financing program of a toll operator. Under Clause 11.7 of the MNTC STOA, the TRB agreed to pay
monthly, the difference in the toll fees actually collected by MNTC and that which it could have
realized under the STOA. The pertinent provisions states:
11.7To insure the viability and integrity of the Project, the Parties recognize the
necessity for adjustments of the AUTHORIZED TOLL RATE . . . In the event that said

412

adjustment are not effected as provided under this Agreement for reasons not
attributable to MNTC, the GRANTOR [TRB] warrants and so undertakes to
compensate, on a monthly basis, the resulting loss of revenue due to the
difference between the AUTHORIZED TOLL RATE actually collected and the
AUTHORIZED TOLL RATE which MNTC would have been able to collect had
the . . . adjustments been implemented. (Emphasis ours)
As set out in the preamble of P.D. 1112, the need to encourage the infusion of private capital
in tollway projects is the underlying rationale behind the enactment of said decree. Owing to the
scarce capital available to bankroll a huge capital-intensive project, such as the North Luzon Tollway
project, it is well-nigh inevitable that the financing of these types of projects is sourced from private
investors. Quite naturally, the investors expect the regularity of the cash flow. It is perhaps in this
broad context that the obligation of the Grantor under Clause 11.7 of the MNTC STOA was included
in the STOA. To Us, Clause 11.7 is not only grossly disadvantageous to the Government but a
manifest violation of the Constitution.
Section 3 (e) (5) of P.D. 1112 explicitly states:
[t]hat no guarantee, Certificate of Indebtedness, collateral securities, or bonds shall be
issued by any government agency or government-owned or controlled corporation on
any financing program of the toll operator in connection with his undertaking under
the Toll Operation Certificate.
What the law seeks to prevent in this situation is the eventuality that the Government, through
any of its agencies, could be obligated to pay or secure, whether directly or indirectly, the financing by
the private investor of the project. In this case, under Clause 11.7 of the MNTC STOA, the Republic of
the Philippines (through the TRB) guaranteed the security of the project against revenue losses that
could result, in case the TRB, based on its determination of a just and reasonable toll fee, decides not
to effect a toll fee adjustment under the STOA's periodic/interim adjustment formula. The OSG, in
its Comment, admitted that "the amounts the government undertook to pay in case of Clause 11.7
violation . . . is . . . an undertaking to pay compensatory damage for something akin to a breach of
contract." 106 As P.D. 1112 itself expressly prohibits the guarantee of a security in the financing of
the toll operator pursuant to its tollway project, Clause 11.7 cannot be a valid stipulation in the
STOA. AIDSTE
This is more so for being in violation of the Constitution. Article VI, Section 29 (1) of
the Constitution mandates that "[n]o money shall be paid out of the Treasury except in pursuance of
an appropriation made by law." 107 We have held in Radstock that "government funds or property
shall be spent or used solely for public purposes, as expressly mandated by Section 4 (2) of PD
1445 or the Government Auditing Code." 108 Particularly, We held in Radstock case that:
[t]he power to appropriate money from the General Funds of the Government
belongs exclusively to the Legislature. Any act in violation of this iron-clad rule is
unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445 require
that before a government agency can enter into a contract involving the
expenditure of government funds, there must be an appropriation law for such
expenditure, thus:
Section 84. Disbursement of government funds.

413

1. Revenue funds shall not be paid out of any public treasury or depository except in
pursuance of an appropriation law or other specific statutory authority.
xxx xxx xxx
Section 85. Appropriation before entering into contract.
No contract involving the expenditure of public funds shall be entered into unless there
is an appropriation therefor, the unexpended balance of which, free of other obligations,
is sufficient to cover the proposed expenditure.
xxx xxx xxx
Section 86 of PD 1445, on the other hand, requires that the proper accounting official
must certify that funds have been appropriated for the purpose. Section 87 of PD
1445 provides that any contract entered into contrary to the requirements of Sections
85 and 86 shall be void. . . . 109 (Emphasis ours.)
In the instant case, the TRB, by warranting to compensate MNTC with the loss of revenue
resulting from the non-implementation of the periodic and interim toll fee adjustments, violates the
very constitutionally guaranteed power of the Legislature, to exclusively appropriate money for public
purpose from the General Funds of the Government. The TRB veritably accorded unto itself the
exclusive authority granted to Congress to appropriate money that comes from the General Funds, by
making a warranty to compensate a revenue loss under Clause 11.7 of the MNTC STOA. There is not
even a badge of indication that the aforementioned requisites under the Constitution and P.D. 1445 in
respect of appropriation of money from the General Funds of the Government have been properly
complied with. Worse, P.D. 1112 expressly prohibits the guarantee of security of the financing of
a toll operator in connection with his undertaking under the Toll Operation Certificate. Accordingly,
Clause 11.7 of the MNTC STOA, under which the TRB warrants and undertakes to compensate
MNTC's loss of revenue resulting from the non-implementation of the periodic and interim toll fee
adjustments, is illegal, unconstitutional and hence void.
Parenthetically, We also find a similar provision in the SLTC STOA under Clause 8.08 thereof,
which states that: 110
(2) In the event the Authorized Toll Rate and adjustments thereto are not implemented
or made effective in accordance with the provisions of this Agreement, for
reasons not attributable to the fault of the Investor and/or the Operator,
including the reversal by the TRB or by any competent court or authority of any
such adjustment in the Authorized Toll Rate previously approved by the TRB,
except where such reversal is by reason of a determination of the
misapplication of the Authorized Toll Rates, the Grantor shall compensate the
Operator, on a monthly basis and within thirty (30) days of submission by the
Operator of a notice thereof, without interest, for the resulting loss of revenue
computed as the difference between: ITAaHc
(a) the actual traffic volume for the month in question multiplied by the Current
Authorized Toll Rate as escalated and/or adjusted, that should be in
effect; and
(b) the Gross Toll Revenue for the month in question.

414

(3) The obligation of the Grantor to compensate the Operator shall continue until the
applicable Current Authorized Toll Rate is implemented.
Akin to what is contemplated in Clause 11.7 of the MNTC STOA, Clauses 8.08 (2) and (3) of
the SLTC STOA, under which the TRB warrants or is obligated to compensate the Operator for its
loss of revenue resulting from the non-implementation of the calculation/formula of
authorized toll price and toll rate adjustments found in Clause 8 thereof, are illegal, unconstitutional
and, hence, void. This ruling is consistent with the TRB's power to determine, without any influence or
compulsion direct or indirect as to whether a change in the toll fee rates is warranted. We will
discuss the same below.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands of the TRB as it is
bound by the stipulated periodic and interim toll rate adjustments provided therein. Petitioners
contend that the SMMS (CITRA STOA), the SLTC and the MNTC STOA's provisions
on initial toll rates and periodic/interim toll rate adjustments, by using a built-in automatic toll rate
adjustment formula, 111 allegedly guaranteed fixed returns for the investors and negated the public
hearing requirement.
This contention is erroneous. The requisite public hearings under Section 3 (d) of P.D.
1112 and Section 8 (b) of P.D. 1894 are not negated by the fixing of the initial toll rates and the
periodic adjustments under the STOA.
Prefatorily, a clear distinction must be made between the statutory prescription on the fixing
of initial toll rates, on the one hand, and of periodic/interim or subsequent toll rates, on the other. First,
the hearing required under the said provisos refers to notice and hearing for the approval or denial of
petitions for toll rate adjustments or the subsequent toll rates, not to the fixing of initial toll rates. By
express legal provision, the TRB is authorized to approve the initial toll rates without the necessity of
a hearing. It is only when a challenge on the initial toll rates fixed ensues that public hearings are
required. Section 8 of P.D. 1894 says so:
. . . the GRANTEE shall collect toll at such rates as shall initially be approved by the
[TRB]. The [TRB] shall have the authority to approve such initial toll rates without
the necessity of any notice and hearing, except as provided in the immediately
succeeding paragraph of this Section. For such purpose, the GRANTEE shall
submit for the approval of the [TRB] the toll proposed to be charged the users. After
approval of the toll rate(s) by the [TRB] and publication thereof by the GRANTEE once
in a newspaper of general circulation, the toll shall immediately be enforceable and
collectible upon opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file, within . . . (90) days
after the date of publication of the initial toll rate, a petition with the [TRB] for a
review of the initial toll rate; provided, however, that the filing of such petition and the
pendency of the resolution thereof shall not suspend the enforceability and collection of
the toll in question. The [TRB], at a public hearing called for the purpose . . . shall then
conduct a review of the initial toll (sic) shall be appealable to the [OP] within ten (10)
days from the promulgation thereof. (Emphasis ours.)
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has the power and duty
to:

415

[i]ssue, modify and promulgate from time to time the rates of toll that will be charged
the direct users of toll facilities and upon notice and hearing, to approve or
disapprove petitions for the increase thereof. Decisions of the [TRB] on petitions for
the increase of toll rate shall be appealable to the [OP] within ten (10) days from the
promulgation thereof. Such appeal shall not suspend the imposition of the new rates,
provided however, that pending the resolution of the appeal, the petitioner for increased
rates in such case shall deposit in a trust fund such amounts as may be necessary to
reimburse toll payers affected in case a (sic) reversal of the decision. 112 (Emphasis
Ours.) AECacT
Similarly in Padua v. Ranada, the fixing of provisional toll rates by the TRB without a public
hearing was held to be valid, such procedure being expressly provided by law. 113 To be very clear, it
is only the fixing of the initial and the provisional toll rates where a public hearing is not a vitiating
requirement. Accordingly, subsequent toll rate adjustments are mandated by law to undergo both
the requirements of public hearing and publication.
In Manila International Airport Authority ("MIAA") v. Blancaflor, the Court expounded on the
necessity of a public hearing in rate fixing/increases scenario. There, the Court ruled that the MIAA,
being an agency attached to the Department of Transportation and Communications ("DOTC"), is
governed by Administrative Code of 1987, 114 Book VII, Section 9 of which specifically mandates the
conduct of a public hearing. 115 Accordingly, the MIAA's resolutions, which increased the rates and
charges for the use of its facilities without the required hearing, were struck down as
void. 116 Similarly, as We do concede, the TRB, being likewise an agency attached to the
DOTC, 117 is governed by the same Code and consequently requires public hearing in appropriate
cases. It is, therefore, imperative that in implementing and imposing new, i.e., subsequent toll rates
arrived at using the toll rate adjustment formula, the subject tollway operators and the TRB must
necessarily comply not only with the requirement of publication but also with the equally important
public hearing. Accordingly, any fixing of the toll rate, which did not or does not comply with the twin
requirements of public hearing and publication, must therefore be struck down as void. In such case,
the previously valid toll rate shall consequently apply, pending compliance with the twin requirements
for the new toll rate.
In the instant consolidated cases, the fixing of the initial toll rates may have indeed come to
pass without any public hearing. 118 Unfortunately for petitioners, and notwithstanding its
presumptive validity, they did not assail the initial toll rates within the timeframe provided in P.D.
1112 and P.D. 1894. 119 Besides, as earlier explicated, the STOA provisions on periodic rate
adjustments are not a bar to a public hearing as the formula set forth therein remains constant,
serving only as a guide in the determination of the level of toll rates that may be allowed.
It is apropos to state at this juncture that, in determining the reasonableness of the
subsequent toll rate increases, it behooves the TRB to seek out the Commission on Audit ("COA") for
assistance in examining and auditing the financial books of the public utilities concerned. Section 22,
Chapter 4, Subtitle B, Title 1, Book V of the Administrative Code of 1987 expressly authorizes the
COA to examine the aforementioned documents in connection with the fixing of rates of every nature,
including as in this case, the fixing of toll fees. 120 We have on certain occasions applied this
provision. Manila Electric Company, Inc. v. Lualhati easily comes to mind where this Court tasked the
Energy Regulatory Commission to seek the assistance of the COA in determining the reasonableness
of the rate increases that MERALCO intended to implement. 121 We have consistently held that "the
law is deemed written into every contract." 122 Being a provision of law, this authority of the COA
under the Administrative Code should therefore be deemed written in the subject contracts i.e., the
STOAs.

416

In this regard, during the examination and audit, the public utilities concerned are mandated
to "produce all the reports, records, books of accounts and such other papers as may be required,"
and the COA is empowered to "examine under oath any official or employee of the said public
utilit[ies]." 123 Any public utility unreasonably denying COA access to the aforementioned documents,
unnecessarily obstructs the examination and audit and may be adjudged liable "of concealing any
material information concerning its financial status, shall be subject to the penalties provided by
law." 124 Finally, the TRB is further obliged to take the appropriate action on the COA Report with
respect to its finding of reasonableness of the proposed rate increases. 125
Furthermore, while the periodic, interim and other toll rate adjustment formulas are indicated
in the STOAs, 126 it does not necessarily mean that the TRB should accept a rate adjustment
predicated on the economic data, references or assumptions adopted by the toll operator. At the end
of the day, the final figures should be those of the TRB based on its appreciation of the relevant rateinfluencing data. In fine, the TRB should exercise its rate-fixing powers vested to it by law within the
context of the agreed formula, but always having in mind that the rates should be just and
reasonable. Conversely, it is very well within the power of the TRB under the law to approve the
change in the current toll fees. 127 Section 3 (d) of P.D. 1112 grants the TRB the power to "[i]ssue,
modify and promulgate from time to time the rates of toll that will be charged the direct users
of toll facilities." But the reasonableness of a possible increase in the fees must first be clearly and
convincingly established by the petitioning entities, i.e., the toll operators. Otherwise, the same should
not be granted by the approving authority concerned. In Philippine Communications Satellite
Corporation v. Alcuaz, 128 the Court had the opportunity to explain what is meant by a just and
reasonable fixing of rates, thus: HcSaTI
Hence, the inherent power and authority of the State, or its authorized agent, to
regulate the rates charged by public utilities should be subject always to the
requirement that the rates so fixed shall be reasonable and just. A commission has
no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic
requirement of reasonableness comprehends such rates which must not be so low as
to be confiscatory, or too high as to be oppressive.
What is a just and reasonable rate is not a question of formula but of sound
business judgment based upon the evidence it is a question of fact calling for
the exercise of discretion, good sense, and a fair, enlightened and independent
judgment. In determining whether a rate is confiscatory, it is essential also to consider
the given situation, requirements and opportunities of the utility. A method often
employed in determining reasonableness is the fair return upon the value of the
property to the public utility . . . . (Emphasis ours.)
If in case the TRB finds the change in the rates to be reasonable and therefore merited, the
increase shall then be implemented after the formalities of public hearing and publication are
complied with. In this case, it is clear that the change in the toll fees is immediately effective and
implementable. This is notwithstanding that, in case of an increase in the toll fees, an appeal thereon
is filed. The law is clear. Thus:
. . . Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable
to the Office of the President within ten (10) days from the promulgation thereof. Such
appeal shall not suspend the imposition of the new rates, provided however, that
pending the resolution of the appeal, the petitioner for increased rates in such case
shall deposit in a trust fund such amounts as may be necessary to
reimburse toll payers affected in case a reversal of the decision. 129(Emphasis ours.)

417

Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to issue, modify and
promulgate toll fees rests with the TRB, it must also be underscored that the periodic and the interim
adjustments found in Clauses 11.4 to 11.6 of the MNTC STOA do not necessarily guarantee an
increase in the toll fees. To stress, the formula is based on many variable factors that could mean
either an increase or a decrease in the toll fees, depending, inter alia, on how well certain economies
are doing; and on the projections and figures published by the Bangko Sentral ng Pilipinas
("BSP"). 130 It is therefore arduous to contemplate a grossness in a disadvantage that could only
possibly arise in case of a non-implementation of a change particularly, an increase in
the toll rates.
Petitioners have not incidentally shown that it is the traveling public, the users of the
expressways, who shouldered or will shoulder the completion of the projects by way of exorbitant fees
payment, with the investors ending up with a "killing" therefrom. This conclusion, for all its factual
dimension, is too simplistic for acceptance. And it does not consider the reality that the Court is not a
trier of facts. Neither does it take stock of the nature and function of tollroads and toll fees paid by
motorists, as aptly elucidated in North Negros Sugar Co., Inc. v. Hidalgo, 131 thus:
"Toll" is the price of the privilege to travel over that particular highway, and it is
a quid pro quo. It rests on the principle that he who, receives the toll does or has done
something as an equivalent to him who pays it. Every traveler has the right to use the
turnpike as any other highway, but he must pay the toll. 132
A toll road is a public highway, differing from the ordinary public highways
chiefly in this: that the cost of its construction in the first instance is borne by
individuals, or by a corporation, having authority from the state to build it, and,
further, in the right of the public to use the road after completion, subject only to
the payment of toll. 133
Toll roads are in a limited sense public roads, and are highways for travel, but we do
not regard them as public roads in a just sense, since there is in them a private
proprietary right . . . . 134 (Emphasis ours.)
Parenthetically, our review of Section 7 of the SMMS STOA readily yields the information that
the level of the initial toll rates hinges on a mix of factors. Tax holidays that may be granted and the
tax treatment of dividends may be mentioned. On the other hand, the subsequent periodic
adjustments are provided to address factors that usually weigh on the financial condition of any
business endeavor, such as currency devaluation, inflation and the usual increases in maintenance
and operational costs incorporated into the formula provided therefor. Even with the existence of an
automatic toll rate adjustment formula, compliance by the TRB and the other respondents with the
twin requirements of public hearing and publication is still mandatory. To reiterate, laws always
occupy a plane higher than mere contract provisions. In case the minimum statutory requirements are
stiffer than that of a contract, or when the contract does not expressly stipulate the minimum
requirements of the law, then We rule that compliance with such minimum legal requirements should
be done. To summarize, any toll fee increase should comply with the legal twin requirements of
publication and public hearing, the absence of which will nullify the imposition and collection of the
new toll fees. AacCHD
In all, the initial toll rates and periodic adjustments appear to Us as simply predicated on the
basic rationale for investing in a toll project, which to repeat is: a reasonable rate of return for the
investment. Section 2 (o) of the BOT Law, as amended, provides for a definition for a reasonable rate
of return on investments and operating and maintenance cost. 135 Running through the gamut of our

418

statutes providing for and encouraging partnership of the public and private sector is the paramount
common good for infrastructure projects and the equally important factor of giving a reasonable rate
of return to private sector's investments. The viability of any infrastructure project depends on the
returns which should be reasonable of the investment coming from the private sector.
While the interests of the public are ideally to be accorded primacy in considering government
contracts, the reality on the ground is that the tollway projects may not at all be possible or would be
difficult to realize without the involvement of the investing private sector, which expects its usual share
of profit. Thus, the Court is at a loss to understand how the level of the initial toll rates, which
depended on several factors indicated above, and the subsequent adjustments resulted in the
charging of exorbitant toll fees that, to petitioners, enabled the investors to shift the burden of
financing the completion of the projects on the motoring public.
Neither does the alleged drastic if we may characterize it as such steep increase in the
level of toll rates for NLEX constitute a "killing" for PNCC and its partner MNTC. Petitioners make
much of the amount of the toll fees vis- -vis the then prevailing minimum wage. These plays of
figures detract from the essential concern on the propriety of the level of the toll rates vis- -vis the
investments sunk in the NLEX project with a view, on the part of private investors, to a reasonable
return on their investment. Where no substantial figures were provided on the investments, the
projected operating and maintenance costs vis- -vis the projected revenue from the toll fees, no
substantial conclusions may reasonably be deduced therefrom. Besides, to be taken into account in
relation to the costs of the construction and rehabilitation of the NLEX is the length of the tollway and
for which motorists have to pay the corresponding toll. Certainly, the allegations and conclusions of
petitioners as to the unreasonable increase of the toll rates are without adequate factual mooring.
The use of a tollway is a privilege that comes at a cost. The toll is a price paid for the use of a
privilege. There are to be sure alternative roads and routes, which motorists may fall back on if they
are unwilling to pay the toll. The toll, as might be expected, is pegged at a level that makes the
developmental projects and their maintenance viable; otherwise, no investment can be expected for
the furtherance of the projects.
Petitioners Francisco and Hizon alleged that, per the minutes of the TRB meetings, the Board
deliberately refrained, particularly with respect to the Skyway project, from conducting public hearings
for the grant of the initial tollrates and on the rate adjustment formula to be used in order to accelerate
the implementation of the projects. The allegation is far from correct. A perusal of the pertinent
minutes of the TRB meetings, particularly that held on August 17, 1995, 136 in fact would disclose a
picture different from that depicted by said petitioners. Nothing in the minutes of said meeting tends to
indicate that the TRB resolved to dispense with public hearings. We, therefore, find
petitioners Francisco and Hizon's attempt to mislead the Court by falsely citing supposed
portions 137 of the August 17, 1995 TRB meeting very unfortunate. They quoted a correction on the
minutes of the Special Board Meeting No. 95-05 held on July 26, 1995, which was taken up in the
August 17, 1995 meeting for the approval of the minutes of the previous meeting. In said special
meeting of July 26, 1995, 138 the Board deliberated on the recommendation of ADG Santos for the
conduct of a public hearing or soliciting the endorsement of the Metro Manila Development Authority
("MMDA"). 139 But the TRB did not resolve to omit a public hearing with respect to the toll rates. In
fact, the deliberations used the words "in the event the Board decides" and "if the Board conducts,"
clearly conveying the notion that the TRB had not decided or resolved the issue of public hearings. Be
that as it may, We rule that the TRB is mandated to comply with the twin requirements of public
hearing and publication. caSDCA

419

Petitioners Francisco and Hizon's lament about the TRB merely relying on, if not yielding to,
the recommendation and findings of the Technical Working Group ("TWG") of the DPWH on matters
relative to STOA stipulations and toll-rate fixing cannot be accorded cogency. In the area involving big
finance and complex project planning, banking on the data supplied by technicians and experts is at
once practical as it is inevitable. The Court cannot see its way clear to understand why petitioners
would begrudge the TRB for tapping the technical know-how of others. And it cannot be
overemphasized that a recommendation is no more than an exhortation or an urging as to what is
advisable or expedient, not binding on the person to which it is being made. 140 To recommend
involves the idea that another has the final decision. 141 The ultimate decision still rests with the TRB
whether or not to accept the findings of the TWG. The minutes of the TRB meetings show that its
members went through the tedious process of deliberating on the formula to be used in computing
the toll rates. The fact that the TRB might have adopted the TWG's recommendation would not, on
that ground alone, vitiate the bona fides of the former's decision nor stain the proceedings leading to
such decision. In any case, as earlier held, the toll rate adjustment formula does not and cannot
contravene the legal twin requirements of public hearing and publication.
In another bid to nullify the STOAs in question, petitioners would foist on the Court the
arguments that, firstly, President Ramos twisted the arms of the TRB towards entering into the
agreements in question and, secondly, that the CITRA STOA contained restrictive confidentiality
provisions barring the public from knowing their contents and the details of the negotiations related
thereto.
We are not persuaded by the first ground, not necessarily because the pressure brought to
bear on TRB rendered the STOAs infirm, but because the allegations on pressure-tactics allegedly
employed by President Ramos are too speculative for acceptance.
On the second ground, We fail to see how the insertion of the alleged confidentiality clause in
the CITRA STOA translates into grave abuse of discretion or a violation of the Constitution,
particularly Article III, Section 7 142 thereof. First off, the Court can take judicial notice that most
commercial contracts, including finance-related project agreements carry the standard confidentiality
clause to protect proprietary data and/or intellectual property rights. This protection angle appears to
be the intent of Clause 14.04 (1) 143 of the CITRA STOA. And as may be noted, the succeeding
Clause 14.04 (2) 144 removes from the ambit of the confidentiality restriction the following: disclosure
of any information: (a) not otherwise done by the parties; (b) which is required by law to be
disclosed to any person who is authorized by law to receive the same; (c) to a tribunal hearing
pertinent proceedings relative to the contract or agreement; and (d) to confidential entities and
persons relative to the disclosing party like its banks, consultants, financiers and advisors. The
second (item b) exception provides a reasonable dimension to the assailed confidentiality clause.
Needless to stress, the obligation of the government to make information available cannot be
exaggerated. 145 The constitutional right to information does not mean that every day and every hour
is open house in government offices having custody of the desired documents. 146 Petitioners have
not sufficiently shown, thus cannot really be heard to complain, that they had been unreasonably
denied access to information with regard to the MNTC or SMMS STOA. Besides, the remedy for
unreasonable denial of information that is a matter of public concern is by way of mandamus. 147
Finally, as to petitioners' catch-all claim that the STOAs are disadvantageous to the
government, as therein represented by the TRB, suffice it to state for the nonce that behind these
agreements are the Board's expertise and policy determination on technical, financial and operational
matters involving expressways and tollways. It is not for courts to look into the wisdom and
practicalities behind the exercise by the TRB of its contract-making prerogatives under P.D. Nos.

420

1112, 1113 and 1894, absent proof of grave abuse of discretion which would justify judicial review. In
this regard, the Court recalls what it wrote in G & S Transport Corporation v. Court of Appeals, 148 to
wit: HSIADc
. . . courts, as a rule, refuse to interfere with proceedings undertaken by administrative
bodies or officials in the exercise of administrative functions. This is 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 decision.
SIXTH ISSUE: PUBLIC BIDDING NOT REQUIRED
Private petitioners would finally maintain that public bidding is required for the SMMS and the
North Luzon/South Luzon Tollways, partaking as these projects allegedly do of the nature of a BOT
infrastructure undertaking under the BOT Law. Prescinding from this premise, they would conclude
that the STOAs in question and related preliminary and post-STOA agreements are null and void for
want of the necessary public bidding required for government infrastructure projects.
The contention is patently flawed.
The BOT Law does not squarely apply to the peculiar case of PNCC, which exercised its
prerogatives and obligations under its franchise to pursue the construction, rehabilitation and
expansion of the tollways with chosen partners. The tollway projects may very well qualify as a buildoperate-transfer undertaking. However, given that the projects in the instant case have been
undertaken by PNCC in the exercise of its franchise under P.D. Nos. 1113 and 1894, in joint
partnership with its chosen partners at the time when it was held valid to do so by the OGCC and the
DOJ, the public bidding provisions under the BOT Law do not strictly apply. For, as aptly noted by the
OSG, the subject STOAs are not ordinary contracts for the construction of government infrastructure
projects, which requires under the Government Procurement Reform Act or the now-repealed P.D.
1594, 149 public bidding as the preferred mode of contract award. Neither are they contracts where
financing or financial guarantees for the project are obtained from the government. Rather, the
STOAs actually constitute a statutorily-authorized transfer or assignment of usufruct of PNCC's
existing franchise to construct, maintain and operate expressways. 150
The conclusion would perhaps be different if the tollway projects were to be prosecuted by an
outfit completely different from, and not related to, PNCC. In such a scenario, the entity awarded the
winning bid in a BOT-scheme infrastructure project will have to construct, operate and maintain the
tollways through an automatic grant of a franchise or TOC, in which case, public bidding is required
under the law.
Where, in the instant case, a franchisee undertakes the tollway projects of construction,
rehabilitation and expansion of the tollways under its franchise, there is no need for a public bidding.
In pursuing the projects with the vast resource requirements, the franchisee can partner with other
investors, which it may choose in the exercise of its management prerogatives. In this case, no public
bidding is required upon the franchisee in choosing its partners as such process was done in the
exercise of management prerogatives and in pursuit of its right of delectus personae. 151 Thus, the
subject tollway projects were undertaken by companies, which are the product of the joint ventures
between PNCC and its chosen partners.
Petitioners Francisco and Hizon's assertions about the TRB awarding the tollway projects to
favored companies, unsubstantiated as they are, need no belaboring. Suffice it to state that the

421

discretion to choose who shall stand as critical JV partners remained all along with PNCC, at least
theoretically. Needless to say, the records do not show that the TRB committed an oversight as an
administrative body over any aspect of tollway operations with regard to PNCC's selection of
partners.
The foregoing disquisitions considered, there is no more point in passing upon the propriety
of prohibiting or enjoining, on the ground of unconstitutionality or grave abuse of discretion, the
implementation of the initial toll rates and/or the adjusted toll rates for the SMSS, expanded NLEX
and SLEX, as authorized by the separate TRB resolutions, subject of and originally challenged in
these proceedings. cSTCDA
These TRB resolutions and the STOAs upon which they are predicated have long been in
effect. The parties have acted on these issuances and contracts whose existence, as an operative
fact, cannot be ignored, let alone erased, even if the charge of unconstitutionality is given currency.
While not exactly of governing applicability in this case, what the Court wrote in De
Agbayani v. Philippine National Bank, 152 on the operative fact doctrine is apropos:
. . . When the courts declare a law to be inconsistent with the Constitution, the former
shall be void and the latter shall govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws of
the Constitution." . . .
Such a view has support in logic and possesses the merit of simplicity. It may not
however be sufficiently realistic. It does not admit of doubt that prior to the
declaration of nullity such challenged legislative or executive act must have been
in force and had to be complied with. This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties
may have acted under it and may have changed their positions. What could be more
fitting than that in a subsequent litigation regard be had to what has been done while
such legislative or executive act was in operation and presumed to be valid in all
respects. It is now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to reflect awareness
that precisely because the judiciary is the governmental organ which has the
final say on whether or not a legislative or executive measure is valid, a period of
time may have elapsed before it can exercise the power of judicial review that
may lead to a declaration of nullity. It would be to deprive the law of its quality of
fairness and justice then, if there be no recognition of what had transpired prior
to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a
statute, prior to such a determination [of constitutionality], is an operative fact
and may have consequences which cannot justly be ignored. The past cannot
always be erased by a new judicial declaration . . ." (Emphasis in the original.)
The petitioners in the first three (3) petitions and the respondent in the fourth have not so said
explicitly, but their brief is against the issuance of P.D. Nos. 1112, 1113 and 1894, which conferred a
package of express and implied powers and discretion to the TRB and the President resulting in the
execution of what is perceived to be offending STOAs and the runaway collection of illegal toll fees.
And they have come to the Court to strike down all these issuances, agreements and exactions.
While the Court is not insensitive to their concerns, the rule is that all reasonable doubts should be

422

resolved in favor of the constitutionality of a statute, 153 and the validity of the acts taken in pursuant
thereof. It follows, therefore, that the Court will not set aside a law as violative of
the Constitution except in a clear case of breach 154 and only as a last resort. 155 And as the theory
of separation of powers prescribes, the Court does not pass upon questions of wisdom, expediency
and justice of legislation. To Us, petitioners and respondent YPES in the fourth petition have not
discharged the heavy burden of demonstrating in a clear and convincing manner the
unconstitutionality of the decrees challenged or the invalidity of assailed acts of the President and the
TRB. Because they failed to do so, the Court must uphold the presumptive constitutionality and
validity of the provisions of the three decrees in question, and the subject contracts and TOCs.
Regarding petitioner Francisco's Supplemental Petition, the toll rates, the collection of which
in the amount based on the formula and assumptions set forth in the law, and the adverted STOA
dated February 1, 2006 and subject of the TRO issued on August 13, 2010, has been duly
published 156 and approved by the TRB, as required by Section 5 of P.D. 1112. 157 And the partyconcessionaires have adequately demonstrated, and the TRB has virtually acknowledged 158 that
the said rates subject of the TRO partake of the nature of opening or initial toll rates, which have not
yet been implemented since the time the SLTC STOA took effect. 159 To note, the toll rates subject of
the TRO were approved and are to be implemented in connection with the new facility, such as
Project Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded and rehabilitated
SLEX. 160 As earlier discussed, public hearing is not required in the fixing and implementation of
initial toll rates. But an interested party aggrieved by the initial rates imposed is not without any
resource as he may, within the time frame provided by Section 8 (b) of P.D. 1894, repair to the TRB
for review and thereafter to the OP. 161 As expressly provided in the same section, however, the
pendency of the petition for review, if there be any, shall not suspend the enforceability and collection
of the toll in question. In net effect, the challenge before the Court of the SLEX toll rate imposition is
premature. However, the Court treats this Supplemental Petition assailing the toll rates covered by
the TRB Notice of Toll Rates published on June 6, 2010 as a petition for review filed under P.D. 1894,
and hereby remands the same to the TRB for a review of the questioned rates to determine the
propriety thereof. DaScHC
WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are hereby DENIED for lack of
merit. Accordingly, We declare as VALID AND CONSTITUTIONAL the following:
1. the Supplemental Toll Operation Agreement dated April 30, 1998 covering the North
Luzon Tollway Project and the TRB Board Resolution No. 2005-4 issued
pursuant thereto;
2. the Supplemental Toll Operation Agreement dated November 27, 1995 covering the
South Metro Manila Skyway and the TRB Board Resolution No. 2004-53 and
previous TRB resolutions issued pursuant thereto;
3. the Supplemental Toll Operation Agreement covering the South Luzon Tollway
Project or South Luzon Expressway and the TRB Board resolutions issued
pursuant to the said agreement, particularly the TRB Board resolutions allowing
the toll rate increases that are supposed to have been implemented on June
30, 2010;
4. Section 3, paragraph (a) of Presidential Decree No. 1112, otherwise known as the
"Toll Operation Decree," in relation to Section 3, paragraph (d) thereof and
Section 8, paragraph (b) of Presidential Decree No. 1894; and

423

5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D. No. 1894.
We however declare Clause 11.7 of the Supplemental Toll Operation Agreement between the
Republic of the Philippines, represented by respondent TRB, as grantor, the Philippine National
Construction Corporation, as franchisee, and the Manila North Tollways Corporation ("MNTC") dated
April 30, 1998; and the clause "including if necessary an extension of the CONCESSION PERIOD
which in no case shall exceed a maximum period of fifty (50) years" in Clause 17.5 of the same
STOA, as VOID and UNCONSTITUTIONAL for being contrary to Section 2, Article XII of the 1987
Constitution. We likewise declare Clauses 8.08 (2) & (3) of the Supplemental Toll Operation
Agreement between the Republic of the Philippines, represented by respondent TRB, as grantor, the
Philippine National Construction Corporation as franchisee, the South Luzon Tollway Corporation as
investor, and the Manila Toll Expressway Systems, Inc. as operator, dated February 1, 2006,
as VOID and UNCONSTITUTIONAL.
The petition in G.R. No. 169917 is likewise hereby DENIED for lack of merit. We declare
as VALID and CONSTITUTIONAL the following:
1. Notice of Approval dated May 16, 1995 by former President Fidel V. Ramos on the
assignment of PNCC's usufructuary rights;
2. the Joint Venture Agreement dated August 29, 1995;
3. the Joint Investment Proposal, etc. dated June 16, 1996;
4. the Supplemental Toll Operation Agreement ("STOA") dated April 30, 1998 and the
Notice of Approval of said STOA dated June 15, 1998 by former President
Fidel V. Ramos; and
5. the provisional toll rate increases published February 9, 2005, granted by the TRB.
The petition in G.R. No. 183599 is GRANTED. Accordingly, the Decision dated June 23, 2008
of the Regional Trial Court, Branch 155 in Pasig City, docketed as SCA No. 3138-PSG, annulling the
TOC covering the SLEX, enjoining the original toll operating franchisee from collecting toll fees in the
SLEX, and ordering the turnover of related assets to the Government, is
hereby REVERSED and SET ASIDE, and the petition filed therein by the Young Professionals and
Entrepreneurs of San Pedro, Laguna with the RTC of Pasig is DISMISSED for lack of merit.
In view of the foregoing dispositions in the petitions at bar, the TRO issued by the Court on
August 13, 2010 is hereby ordered LIFTED, with respect to the petitions in G.R. Nos. 166910,
169917, 173630 and 183599.
The challenge contained in the Supplemental Petition in G.R. No. 166910 against
the toll rates subject of the TRB Notice of Toll Rates published on June 6, 2010, for the SLEX
projects, Toll Road Projects 1 and 2 of the new SLTC STOA, and the expanded and rehabilitated
SLEX, is REMANDED to the TRB for a review of the assailed toll rates to determine whether SLTC
and MATES are entitled to the toll fees.
No Cost. ESHAIC
SO ORDERED.

424

||| (Francisco, Jr. v. Toll Regulatory Board, G.R. No. 166910, 169917, 173630, 183599, [October 19,
2010], 648 PHIL 54-149)

425

FIRST DIVISION
[G.R. No. 152214. September 19, 2006.]
EQUI-ASIA PLACEMENT, INC., petitioner, vs. DEPARTMENT OF FOREIGN
AFFAIRS (DFA) represented by the HON. DOMINGO L. SIAZON, JR., SECRETARY,
DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE), represented by HON.
BIENVENIDO LAGUESMA, respondents.
DECISION
CHICO-NAZARIO, J p:
This is a Petition for Review on Certiorari of the Decision dated 4 October 2001 1 and Resolution dated
18 February 2002 of the Court of Appeals in CA-G.R. SP No. 61904. The Decision denied petitioner's
petition for certiorari while the Resolution denied its Motion for Reconsideration.
The Court of Appeals summarized the facts of this case in this wise:
On September 16, 2000, Manny dela Rosa Razon, a native of Lemery, Batangas and
an overseas Filipino worker, died of acute cardiac arrest while asleep at the dormitory
of the Samsong Textile Processing Factory in South Korea. Informed thereof, the
Philippine Overseas Labor Office (POLO) at South Korea immediately relayed the
incident to the Philippine Embassy in South Korea. Forthwith, the [Labor] Attach of the
Philippine Embassy dispatched a letter to Eleuterio N. Gardiner, administrator of the
Overseas Workers Welfare Administration (OWWA). The letter reads:
"VERY URGENT, POLO has recently received a report that OFW Manny dela
Rosa RAZON, an undocumented worker, died last Saturday, 16 September,
from an apparent pancreatic attack or 'bangungot.'
According to the verbal reports of Moises and Ronald Recarde, Manny's coworkers, he was found already lifeless inside their quarters at around 11:00 in
the morning of the above date. They rushed him to Uri Hospital where the
Doctor declared him dead on arrival.
Per information gathered, the deceased is single, 29 years old, from Bukal,
Lemery, Batangas. His next-of-kins are Mrs. Rowena Razon (Auntie) and Mr.
Razon (Uncle) with telephone number (043)411-2308.
POLO is awaiting signed statements from the aforementioned workers who
promised to send it by fax this afternoon.
We are also coordinating with the deceased's employer for documentation
requirements and financial assistance for the repatriation of the
remains. CETIDH

426

We will highly appreciate if Home Office could advise the next-of-kins of the
urgent need to issue a Special Power of Attorney (SPA) to facilitate the
repatriation requirements of the subject.
In anticipation of the next-of-kins' likely move to seek financial assistance from
OWWA for the repatriation of their loved [one], please be advised in advance
that we will need about US$4,000.00 to repatriate the cadaver (to include
hospital and morgue costs) to Manila. . . ."
In turn, the OWWA, through Atty. Cesar L. Chavez, indorsed the matter, for appropriate
action, to Director R. Casco of the Welfare Employment Office of the Philippine
Overseas Employment Administration (WEO-POEA).
Upon verification by the WEO-POEA on its data base, it was discovered that Manny
Razon was recruited and deployed by petitioner Equi-Asia Placement, Inc., and was
sent to South Korea on April 3, 2000 to work-train at Yeongjin Machinery, Inc.
Thereupon, POEA addressed the herein first assailed telegram-directive dated
September 22, 2000 to the President/General Manager of the petitioner. We quote the
telegram:
"PLEASE PROVIDE PTA [Prepaid Ticket Advice] FOR THE REPATRIATION
OF REMAINS AND BELONGINGS OF OFW MANNY DELA ROSA RAZON AS
PER REQUEST OF PHILIPPINE EMBASSY, KOREA, YOU CAN
COORDINATE WITH YOUR FOREIGN EMPLOYER AND TO WAD/OWWA
(MLA) AS REGARDS TO THIS MATTER. YOU ARE GIVEN TWO (2) DAYS
FROM RECEIPT HEREOF WITHIN WHICH TO PROVIDE SAID TICKET AND
ASSISTANCE, KINDLY SUBMIT YOUR REPORT TO ASSISTANCE AND
WELFARE DIVISION (AWD), 2/F POEA, FAILURE TO DO SO WILL
CONSTRAIN US TO IMPOSE APPROPRIATE SANCTION UNDER OUR
RULES"
Responding thereto, petitioner, thru its President Daniel Morga, Jr., faxed on
September 26, 2000 the following message to the Assistance and Welfare Division of
the POEA:
"In connection with your telegram, dated 09/22/2000, requiring us to report the
circumstances surrounding the death of OFW MANNY DELA ROSA RAZON in
Korea and requesting us to issue a PTA, etc., for the repatriation of the remains
of said OFW, this is to report to your good office the following:
1. The deceased was deployed by our agency on April 3, 2000 to Yeongjin
Machine Company in South Korea;
2. He violated his employment/training/dispatching contracts on June 25, 2000
by unlawfully escaping/running away (TNT) from his company assignment
without prior KFSMB authorization and working/staying in unknown
company/place;
3. He allegedly died of 'bangungot' thereafter;

427

In view thereof, we cannot heed your requests as embodied in your telegram.

However, his relatives can avail of the benefits provided for by OWWA in cases
involving undocumented/illegal Filipino workers abroad.
Trusting for your kind understanding"
On the same date September 26, 2000 Director Ricardo R. Casco of the WEOPOEA sent to the petitioner the herein second assailed letter-directive, which
pertinently reads:
"We have received a copy of your fax message dated 26 September 2000 as
regards to your response to our request for PTA for aforesaid deceased OFW.
Nevertheless, may we remind you that pursuant to Sections 52, 53, 54 and 55
of the Implementing Rules Governing RA 8042, otherwise known as
the Migrant Workers and Overseas Filipino Act of 1995, the repatriation of
OFW, his/her remains and transport of his personal effects is the primary
responsibility of the principal or agency and to immediately advance the cost of
plane fare without prior determination of the cause of worker's repatriation. The
Rules further provide for the procedure to be followed in cases when the
foreign employer/agency fails to provide for the cost of the repatriation,
compliance of which is punishable by suspension of the license of the agency
or such sanction as the Administration shall deem proper. Hence, you are
required to provide the PTA for the deceased OFW in compliance with the
requirement in accordance with R.A. 8042. You are given forty-eight (48) hours
upon receipt hereof within which to provide said ticket. Failure in this regard will
constrain us to impose the appropriate sanction under our rules."
On September 27, 2000, petitioner wrote back Director Ricardo R. Casco, thus:
"In connection with your fax letter dated September 26, 2000, re: the
repatriation of the remains of the deceased, ex-trainee (OFW) MANNY DELA
ROSA RAZON, please be informed that the provisions of Section 53 as well as,
and in relation to, Section 55 of the Omnibus Rules and Regulations
Implementing the Migrant Workers and Overseas Filipinos Act of 1995 on the
matters covering the following:
1. The responsibility of the agency to advance the cost of plane fare without
prior determination of the cause of the deceased worker's termination.
2. The recovery of the same costs from the estate of the dead worker before
the NLRC.
3. The action to be imposed by POEA for non-compliance therewith within 48
hours are violative of due process and/or the principle on due delegation of
power.
This is so because Sec. 15 of R.A. 8042 clearly contemplates prior notice and
hearing before responsibility thereunder could be established against the
agency that sets up the defense of sole fault in avoidance of said
responsibility . Besides, the sections in question unduly grant the powers to
require advance payment of the plane fare, to impose the corresponding

428

penalty of suspension in case of non-compliance therewith, within 48 hours

and to recover said advance payment from the dead worker's estate upon the
return of his remains to the country before the NLRC, when the law itself does
not expressly provide for the grant of such powers.
xxx xxx xxx
Please provide us immediately with the death certificate/post mortem
report/police report pertinent to above as proof of death and cause thereof."
Nonetheless, and apprehensive of the adverse repercussions which may ensue on
account of its non-compliance with the directive, petitioner, on September 29, 2000,
advanced under protest the costs for the repatriation of the remains of the late Manny
dela Rosa Razon.
Thereafter, petitioner went to this Court via the instant petition for certiorari, posing, for
Our consideration, the sole issue of
"WHETHER OR NOT SECTIONS 52, 53, 54 AND 55 OF THE OMNIBUS
RULES AND REGULATIONS IMPLEMENTING THE MIGRANT WORKERS
AND OVERSEAS FILIPINOS ACT OF 1995 (R.A. 8042), ISSUED BY DFA
AND POEA, WHICH POEA SUMMARILY ORDERED THE HEREIN
PETITIONER TO COMPLY VIZ-A-VIZ THE PAYMENT IN ADVANCE OF THE
EXPENSES FOR THE REPATRIATION OF THE REMAINS OF A DECEASED
WORKER-TRAINEE WHO, AT THE TIME OF HIS DEATH, HAS NO EXISTING
EMPLOYMENT (DISPATCHING) CONTRACT WITH EITHER SAID
PETITIONER OR HIS FOREIGN PRINCIPAL AND NO VALID VISA OR IS NOT
WORKING WITH THE FOREIGN PRINCIPAL TO WHICH PETITIONER
DEPLOYED HIM, IS ILLEGAL AND/OR VIOLATIVE OF DUE PROCESS
SUCH THAT POEA ACTED WITHOUT [OR IN] EXCESS OF ITS
JURISDICTION AND/OR IN GRAVE ABUSE OF DISCRETION IN ISSUING
SAID ORDER TO PAY SAID EXPENSES." 2
On 4 October 2001, the Court of Appeals rendered the Decision which is now the subject of the present
petition. The dispositive portion of the Court of Appeals' Decision states:
WHEREFORE, for lack of merit, the instant petition is DENIED and is
accordingly DISMISSED. 3
In dismissing the petition for certiorari, the Court of Appeals stated that petitioner was mainly accusing the
Philippine Overseas Employment Administration (POEA) of grave abuse of discretion when it ordered
petitioner to pay, in advance, the costs for the repatriation of the remains of the deceased Manny dela
Rosa Razon. aETADI
The Court of Appeals ruled that the POEA did not commit any grave abuse of discretion as its directives
to petitioner were issued pursuant to existing laws and regulations. 4 It likewise held that a petition
for certiorari, which was the remedy availed of by petitioner, is not the proper remedy as the same is only
available when "there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of
law." 5 Section 62 of the Omnibus Rules and Regulations Implementing the Migrant Workers and
Overseas Filipinos Act of 1995 or Republic Act 8042 ("Omnibus Rules") states that "the Labor Arbiters of
NLRC shall have the original and exclusive jurisdiction to hear and decide all claims arising out of

429

employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damages, subject to the
rules and procedures of the NLRC." There is, therefore, an adequate remedy available to petitioner.

Lastly, the Court of Appeals declared that it could not strike down as unconstitutional Sections 52, 53, 54,
and 55 of the Omnibus Rules as the unconstitutionality of a statute or rules may not be passed upon
unless the issue is directly raised in an appropriate proceeding. 6
In the present recourse, petitioner submits the following issues for our consideration:
1. The Court of Appeals erred in the appreciation of the issue as it mistakenly
considered, in dismissing the petition before it, that petitioner is contesting the
compliance and conformity of the POEA directives with Sections 52, 53, 54, and 55 of
the Omnibus Rules and Regulations implementing in particular Section 15 of RA 8042;
2. The Court of Appeals, in dismissing the petition, again erred in ruling that
constitutional questions cannot be passed upon and adjudged in a special civil action
for certiorari under Rule 65 of the 1997 Rules of Civil Procedure;
3. The Court of Appeals erred in not holding that, under the facts of the case that gave
rise to the petition before it, the same sections of the said rules and regulations are
illegal, invalid and/or violative of the right of petitioner to due process of law and,
therefore, the POEA directives issued pursuant thereto constitute acts committed
without, or in excess of, jurisdiction and/or in grave abuse of discretion. 7
In Our Resolution of 20 November 2002, we gave due course to the present petition and directed the
parties to submit their respective memoranda. 8 On 28 August 2006, we resolved to dispense with the
memorandum of the estate/heirs of deceased Manny dela Rosa Razon.
At the center of this petition are the following provisions of the omnibus rules:
Section 52. Primary Responsibility for Repatriation. The repatriation of the
worker, or his/her remains, and the transport of his/her personal effects shall be the
primary responsibility of the principal or agency which recruited or deployed him/her
abroad. All costs attendant thereto shall be borne by the principal or the agency
concerned.
Section 53. Repatriation of Workers. The primary responsibility to repatriate entails
the obligation on the part of principal or agency to advance the cost of plane fare and to
immediately repatriate the worker should the need for it arise, without a prior
determination of the cause of the termination of the worker's employment. However,
after the worker has returned to the country, the principal or agency may recover the
cost of repatriation from the worker if the termination of employment was due solely to
his/her fault.
Every contract for overseas employment shall provide for the primary responsibility of
agency to advance the cost of plane fare, and the obligation of the worker to refund the
cost thereof in case his/her fault is determined by the Labor Arbiter. CacHES

430

Section 54. Repatriation Procedure. When a need for repatriation arises and the
foreign employer fails to provide for it cost, the responsible personnel at site shall
simultaneously notify OWWA and the POEA of such need. The POEA shall notify the
agency concerned of the need for repatriation. The agency shall provide the plane
ticket or the prepaid ticket advice (PTA) to the Filipinos Resource Center or to the
appropriate Philippine Embassy; and notify POEA of such compliance. The POEA shall
inform OWWA of the action of the agency.
Section 55. Action on Non-Compliance. If the employment agency fails to provide
the ticket or PTA within 48 hours from receipt of the notice, the POEA shall suspend the
license of the agency or impose such sanctions as it may deem necessary. Upon notice
from the POEA, OWWA shall advance the costs of repatriation with recourse to the
agency or principal. The administrative sanction shall not be lifted until the agency
reimburses the OWWA of the cost of repatriation with legal interest.
Said provisions, on the other hand, are supposed to implement Section 15 of Republic Act No.
8042 9 which provides:
SEC. 15. Repatriation of Workers; Emergency Repatriation Fund. The repatriation of
the worker and the transport of his personal belongings shall be the primary
responsibility of the agency which, recruited or deployed the worker overseas. All costs
attendant to repatriation shall be borne by or charged to the agency concerned and/or
its principal. Likewise, the repatriation of remains and transport of the personal
belongings of a deceased worker and all costs attendant thereto shall be borne by the
principal and/or the local agency. However, in cases where the termination of
employment is due solely to the fault of the worker, the principal/employer or agency
shall not in any manner be responsible for the repatriation of the former and/or his
belongings.
Petitioner contends that the Court of Appeals misappreciated the issue it presented in its petition
for certiorari when, instead of resolving whether Sections 52, 53, 54, and 55 of the Omnibus Rules are
illegal and violative of due process, it merely confined itself to the question of whether or not the POEA
committed grave abuse of discretion in issuing its directives of 22 September 2000 and 27 September
2000.
Petitioner also contends that, contrary to the finding of the Court of Appeals, a special civil action
for certiorari is the appropriate remedy to raise constitutional issues.
Also, petitioner insists that the subject portions of the omnibus rules are invalid on the ground that Section
15 of Republic Act No. 8042 does not impose on a recruitment agency the primary responsibility for the
repatriation of a deceased Overseas Filipino Worker (OFW), while Section 52 of the Omnibus Rules
unduly imposes such burden on a placement agency.
Moreover, petitioner argues that the word "likewise" at the start of the third sentence of Section 15
of Republic Act No. 8042 is used merely as a connective word indicating the similarity between a
recruitment agency's financial obligation in the repatriation of living and a deceased OFW. It does not,
however, necessarily make a placement agency primarily responsible for the repatriation of a deceased
OFW unlike in the case of an OFW who is alive.
As for Section 53 of the Omnibus Rules, petitioner submits that the same is invalid as Section 15
of Republic Act No. 8042 clearly states that a placement agency shall not in any manner be responsible

431

for the repatriation of the deceased OFW and his or her belongings should the termination of the OFW's
employment be due to his or her fault. However, as Section 53 of the Omnibus Rules stipulates that a
placement agency or principal shall bear the primary responsibility of repatriating an OFW and of
advancing the payment for his or her plane fare, the omnibus rules, as far as this section is concerned, is
an invalid exercise of legislative power by an administrative agency. cCaDSA
In addition, petitioner claims Section 53 of the Omnibus Rules violates the due process clause of the
constitution as it deprives the deploying agency of the right to prior notice and hearing through which it
can prove that it should not bear the burden of repatriating an OFW.
Finally, petitioner points out that it should be the Overseas Workers Welfare Administration which should
advance the costs of repatriation of the deceased Razon with the resources coming out of the emergency
repatriation fund of said agency.
The Solicitor General for its part counters that Sections 52, 53, 54, and 55 of the Omnibus Rules are valid
quasi-legislative acts of respondents Department of Foreign Affairs and Department of Labor and
Employment. 10 Because of this, the requirements of prior notice and hearing are not essential. Besides,
there are cases where even in the exercise of quasi-judicial power, administrative agencies are allowed,
sans prior notice and hearing, to effectuate measures affecting private property, such as:
1) [F]or the summary abatement of nuisance per se which affects the immediate safety
of persons and property, or 2) in summary proceedings of distraint and levy upon the
property of delinquent taxpayers in the collection of internal revenue taxes, fees or
charges or any increment thereto, or 3) in the preventive suspension of a public officer
pending investigation. . . . . 11
The Solicitor General also adds that since petitioner is engaged in the recruitment of Filipino workers for
work abroad, the nature of its business calls for the exercise of the state's police power in order to
safeguard the rights and welfare of the Filipino laborers. One such measure is the primary responsibility
imposed upon placement agencies with regard to the repatriation of an OFW or of his remains.
The Solicitor General also argues that the wording of Section 15 of Republic Act No. 8042 leaves no
doubt that a recruitment agency shall bear the primary responsibility for the repatriation of an OFW
whether the latter is dead or alive.
Lastly, the Solicitor General insists that actions assailing the validity of implementing rules and regulations
are within the original jurisdiction of the regional trial courts.
We shall first address the procedural question involved in the present petition.
There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction, however, is
not limited to the Court of Appeals or to this Court alone for even the regional trial courts can take
cognizance of actions assailing a specific rule or set of rules promulgated by administrative bodies.
Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. 12
Section 1, Rule 65 of the 1997 Rules of Civil Procedure states:

432

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.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certification of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46. IDESTH
From this, it is clear that in order for a petition for certiorari to prosper, the following requisites must be
present: (1) the writ is directed against a tribunal, a board or an officer exercising judicial or quasi-judicial
functions; (2) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain,
speedy and adequate remedy in the ordinary course of law.
It bears emphasizing that administrative bodies are vested with two basic powers, the quasi-legislative
and the quasi-judicial. 13 In Abella, Jr. v. Civil Service Commission, 14 we discussed the nature of these
powers to be
In exercising its quasi-judicial function, an administrative body adjudicates the rights of
persons before it, in accordance with the standards laid down by the law. The
determination of facts and the applicable law, as basis for official action and the
exercise of judicial discretion, are essential for the performance of this function. On
these considerations, it is elementary that due process requirements, as enumerated
in Ang Tibay, must be observed. These requirements include prior notice and hearing.
On the other hand, quasi-legislative power is exercised by administrative agencies
through the promulgation of rules and regulations within the confines of the granting
statute and the doctrine of non-delegation of certain powers flowing from the separation
of the great branches of the government. Prior notice to and hearing of every affected
party, as elements of due process, are not required since there is no determination of
past events or facts that have to be established or ascertained. As a general rule, prior
notice and hearing are not essential to the validity of rules or regulations promulgated
to govern future conduct.
In this case, petitioner assails certain provisions of the Omnibus Rules. However, these rules were clearly
promulgated by respondents Department of Foreign Affairs and Department of Labor and Employment in
the exercise of their quasi-legislative powers or the authority to promulgate rules and regulations.
Because of this, petitioner was, thus, mistaken in availing himself of the remedy of an original action
for certiorari as obviously, only judicial or quasi-judicial acts are proper subjects thereof. If only for these,
the petition deserves outright dismissal. Be that as it may, we shall proceed to resolve the substantive
issues raised in this petition for review in order to finally remove the doubt over the validity of Sections 52,
53, 54, and 55 of the Omnibus Rules.

433

It is now well-settled that delegation of legislative power to various specialized administrative agencies is
allowed in the face of increasing complexity of modern life. Given the volume and variety of interactions
involving the members of today's society, it is doubtful if the legislature can promulgate laws dealing with
the minutiae aspects of everyday life. Hence, the need to delegate to administrative bodies, as the
principal agencies tasked to execute laws with respect to their specialized fields, the authority to
promulgate rules and regulations to implement a given statute and effectuate its policies. 15 All that is
required for the valid exercise of this power of subordinate legislation is that the regulation must be
germane to the objects and purposes of the law; and that the regulation be not in contradiction to, but in
conformity with, the standards prescribed by the law. 16 Under the first test or the so-called completeness
test, the law must be complete in all its terms and conditions when it leaves the legislature such that when
it reaches the delegate, the only thing he will have to do is to enforce it. 17 The second test or the
sufficient standard test, mandates that there should be adequate guidelines or limitations in the law to
determine the boundaries of the delegate's authority and prevent the delegation from running riot. 18
We resolve that the questioned provisions of the Omnibus Rules meet these requirements. cDSAEI
Basically, petitioner is impugning the subject provisions of the Omnibus Rules for allegedly expanding the
scope of Section 15 of Republic Act No. 8042 by: first, imposing upon it the primary obligation to
repatriate the remains of the deceased Razon including the duty to advance the cost of the plane fare for
the transport of Razon's remains; and second, by ordering it to do so without prior determination of the
existence of employer-employee relationship between itself and Razon.
Petitioner's argument that Section 15 does not provide that it shall be primarily responsible for the
repatriation of a deceased OFW is specious and plain nitpicking. While Republic Act No. 8042 does not
expressly state that petitioner shall be primarily obligated to transport back here to the Philippines the
remains of the deceased Razon, nevertheless, such duty is imposed upon him as the statute clearly
dictates that "the repatriation of remains and transport of the personal belongings of a deceased worker
and all costs attendant thereto shall be borne by the principal and/or the local agency." The mandatory
nature of said obligation is characterized by the legislature's use of the word "shall." That the concerned
government agencies opted to demand the performance of said responsibility solely upon petitioner does
not make said directives invalid as the law plainly obliges a local placement agency such as herein
petitioner to bear the burden of repatriating the remains of a deceased OFW with or without recourse to
the principal abroad. In this regard, we see no reason to invalidate Section 52 of the omnibus rules
as Republic Act No. 8042 itself permits the situation wherein a local recruitment agency can be held
exclusively responsible for the repatriation of a deceased OFW.
Nor do we see any reason to stamp Section 53 of the Omnibus Rules as invalid for allegedly contravening
Section 15 of the law which states that a placement agency shall not be responsible for a worker's
repatriation should the termination of the employer-employee relationship be due to the fault of the OFW.
To our mind, the statute merely states the general principle that in case the severance of the employment
was because of the OFW's own undoing, it is only fair that he or she should shoulder the costs of his or
her homecoming. Section 15 of Republic Act No. 8042, however, certainly does not preclude a placement
agency from establishing the circumstances surrounding an OFW's dismissal from service in an
appropriate proceeding. As such determination would most likely take some time, it is only proper that an
OFW be brought back here in our country at the soonest possible time lest he remains stranded in a
foreign land during the whole time that recruitment agency contests its liability for repatriation. As aptly
pointed out by the Solicitor General
Such a situation is unacceptable.

434

24. This is the same reason why repatriation is made by law an obligation of the
agency and/or its principal without the need of first determining the cause of the
termination of the worker's employment. Repatriation is in effect an unconditional
responsibility of the agency and/or its principal that cannot be delayed by an
investigation of why the worker was terminated from employment. To be left stranded in
a foreign land without the financial means to return home and being at the mercy of
unscrupulous individuals is a violation of the OFW's dignity and his human rights.
These are the same rights R.A. No. 8042 seeks to protect. 19
As for the sufficiency of standard test, this Court had, in the past, accepted as sufficient standards the
following: "public interest," "justice and equity," "public convenience and welfare," and "simplicity,
economy and welfare." 20
In this case, we hold that the legislature's pronouncements that Republic Act No. 8042 was enacted with
the thought of upholding the dignity of the Filipinos may they be here or abroad and that the State shall at
all times afford full protection to labor, both here and abroad, meet the requirement and provide enough
guidance for the formulation of the omnibus rules.
WHEREFORE, the Petition for Review is DENIED. The Court of Appeals' Decision dated 4 October 2001
and Resolution dated 18 February 2002 are hereby AFFIRMED. With costs. ESCTaA
SO ORDERED.
||| (Equi-Asia Placement, Inc. v. Department of Foreign Affairs, G.R. No. 152214, [September 19, 2006],
533 PHIL 590-608)

435