Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 103982 December 11, 1992

ANTONIO A. MECANO, petitioner,

vs.
COMMISSION ON AUDIT, respondent.

CAMPOS, JR., J.:

Antonio A. Mecano, through a petition for certiorari, seeks to nullify the decision of the Commission
on Audit (COA, for brevity) embodied in its 7th Indorsement, dated January 16, 1992, denying his
claim for reimbursement under Section 699 of the Revised Administrative Code (RAC), as amended,
in the total amount of P40,831.00.

Petitioner is a Director II of the National Bureau of Investigation (NBI). He was hospitalized for
cholecystitis from March 26, 1990 to April 7, 1990, on account of which he incurred medical and
hospitalization expenses, the total amount of which he is claiming from the COA.

On May 11, 1990, in a memorandum to the NBI Director, Alfredo S. Lim (Director Lim, for brevity), he
requested reimbursement for his expenses on the ground that he is entitled to the benefits under
Section 699 1 of the RAC, the pertinent provisions of which read:

Sec. 699. Allowances in case of injury, death, or sickness incurred in performance of

duty. When a person in the service of the national government of a province, city,
municipality or municipal district is so injured in the performance of duty as thereby to
receive some actual physical hurt or wound, the proper Head of Department may
direct that absence during any period of disability thereby occasioned shall be on full
pay, though not more than six months, and in such case he may in his discretion also
authorize the payment of the medical attendance, necessary transportation,
subsistence and hospital fees of the injured person. Absence in the case
contemplated shall be charged first against vacation leave, if any there be.

xxx xxx xxx

In case of sickness caused by or connected directly with the performance of some

act in the line of duty, the Department head may in his discretion authorize the
payment of the necessary hospital fees.

Director Lim then forwarded petitioner's claim, in a 1st Indorsement dated June 22, 1990, to the
Secretary of Justice, along with the comment, bearing the same date, of Gerarda Galang, Chief,
LED of the NBI, "recommending favorable action thereof". Finding petitioner's illness to be service-

Page 1 of 547
connected, the Committee on Physical Examination of the Department of Justice favorably
recommended the payment of petitioner's claim.

However, then Undersecretary of Justice Silvestre H. Bello III, in a 4th Indorsement dated November
21, 1990, returned petitioner's claim to Director Lim, having considered the statements of the
Chairman of the COA in its 5th Indorsement dated 19 September 1990, to the effect that the RAC
being relied upon was repealed by the Administrative Code of 1987.

Petitioner then re-submitted his claim to Director Lim, with a copy of Opinion No. 73, S. 1991 2 dated
April 26, 1991 of then Secretary of Justice Franklin M. Drilon (Secretary Drilon, for brevity) stating that
"the issuance of the Administrative Code did not operate to repeal or abregate in its entirety the Revised
Administrative Code, including the particular Section 699 of the latter".

On May 10, 1991, Director Lim, under a 5th Indorsement transmitted anew Mecano's claim to then
Undersecretary Bello for favorable consideration. Under a 6th Indorsement, dated July 2, 1991,
Secretary Drilon forwarded petitioner's claim to the COA Chairman, recommending payment of the
same. COA Chairman Eufemio C. Domingo, in his 7th Indorsement of January 16, 1992, however,
denied petitioner's claim on the ground that Section 699 of the RAC had been repealed by the
Administrative Code of 1987, solely for the reason that the same section was not restated nor re-
enacted in the Administrative Code of 1987. He commented, however, that the claim may be filed
with the Employees' Compensation Commission, considering that the illness of Director Mecano
occurred after the effectivity of the Administrative Code of 1987.

Eventually, petitioner's claim was returned by Undersecretary of Justice Eduardo Montenegro to

Director Lim under a 9th Indorsement dated February 7, 1992, with the advice that petitioner
"elevate the matter to the Supreme Court if he so desires".

On the sole issue of whether or not the Administrative Code of 1987 repealed or abrogated Section
699 of the RAC, this petition was brought for the consideration of this Court.

Petitioner anchors his claim on Section 699 of the RAC, as amended, and on the aforementioned
Opinion No. 73, S. 1991 of Secretary Drilon. He further maintains that in the event that a claim is
filed with the Employees' Compensation Commission, as suggested by respondent, he would still not
be barred from filing a claim under the subject section. Thus, the resolution of whether or not there
was a repeal of the Revised Administrative Code of 1917 would decide the fate of petitioner's claim
for reimbursement.

The COA, on the other hand, strongly maintains that the enactment of the Administrative Code of
1987 (Exec. Order No. 292) operated to revoke or supplant in its entirety the Revised Administrative
Code of 1917. The COA claims that from the "whereas" clauses of the new Administrative Code, it
can be gleaned that it was the intent of the legislature to repeal the old Code. Moreover, the COA
questions the applicability of the aforesaid opinion of the Secretary of Justice in deciding the matter.
Lastly, the COA contends that employment-related sickness, injury or death is adequately covered
by the Employees' Compensation Program under P.D. 626, such that to allow simultaneous recovery
of benefits under both laws on account of the same contingency would be unfair and unjust to the
Government.

The question of whether a particular law has been repealed or not by a subsequent law is a matter
of legislative intent. The lawmakers may expressly repeal a law by incorporating therein a repealing

Page 2 of 547
provision which expressly and specifically cites the particular law or laws, and portions thereof, that
are intended to be repealed. 3 A declaration in a statute, usually in its repealing clause, that a particular
and specific law, identified by its number or title, is repealed is an express repeal; all others are implied
repeals. 4

In the case of the two Administrative Codes in question, the ascertainment of whether or not it was
the intent of the legislature to supplant the old Code with the new Code partly depends on the
scrutiny of the repealing clause of the new Code. This provision is found in Section 27, Book VII
(Final Provisions) of the Administrative Code of 1987 which reads:

Sec. 27. Repealing Clause. All laws, decrees, orders, rules and regulations, or
portions thereof, inconsistent with this Code are hereby repealed or modified
accordingly.

The question that should be asked is: What is the nature of this repealing clause? It is certainly not
an express repealing clause because it fails to identify or designate the act or acts that are intended
to be repealed. 5 Rather, it is an example of a general repealing provision, as stated in Opinion No. 73, S.
1991. It is a clause which predicates the intended repeal under the condition that substantial conflict must
be found in existing and prior acts. The failure to add a specific repealing clause indicates that the intent
was not to repeal any existing law, unless an irreconcilable inconcistency and repugnancy exist in the
terms of the new and old laws. 6 This latter situation falls under the category of an implied repeal.

Repeal by implication proceeds on the premise that where a statute of later date clearly reveals an
intention on the part of the legislature to abrogate a prior act on the subject, that intention must be
given effect. 7 Hence, before there can be a repeal, there must be a clear showing on the part of the
lawmaker that the intent in enacting the new law was to abrogate the old one. The intention to repeal
must be clear and manifest; 8 otherwise, at least, as a general rule, the later act is to be construed as a
continuation of, and not a substitute for, the first act and will continue so far as the two acts are the same
from the time of the first enactment. 9

There are two categories of repeal by implication. The first is where provisions in the two acts on the
same subject matter are in an irreconcilable conflict, the later act to the extent of the conflict
constitutes an implied repeal of the earlier one. The second is if the later act covers the whole
subject of the earlier one and is clearly intended as a substitute, it will operate to repeal the earlier
law. 10

Implied repeal by irreconcilable inconsistency takes place when the two statutes cover the same
subject matter; they are so clearly inconsistent and incompatible with each other that they cannot be
reconciled or harmonized; and both cannot be given effect, that is, that one law cannot be enforced
without nullifying the other. 11

Comparing the two Codes, it is apparent that the new Code does not cover nor attempt to cover the
entire subject matter of the old Code. There are several matters treated in the old Code which are
not found in the new Code, such as the provisions on notaries public, the leave law, the public
bonding law, military reservations, claims for sickness benefits under Section 699, and still others.

Moreover, the COA failed to demonstrate that the provisions of the two Codes on the matter of the
subject claim are in an irreconcilable conflict. In fact, there can be no such conflict because the
provision on sickness benefits of the nature being claimed by petitioner has not been restated in the
Administrative Code of 1987. However, the COA would have Us consider that the fact that Section

Page 3 of 547
699 was not restated in the Administrative Code of 1987 meant that the same section had been
repealed. It further maintained that to allow the particular provisions not restated in the new Code to
continue in force argues against the Code itself. The COA anchored this argument on the whereas
clause of the 1987 Code, which states:

WHEREAS, the effectiveness of the Government will be enhanced by a new

Administrative Code which incorporate in a unified document the major structural,
functional and procedural principles and rules of governance; and

xxx xxx xxx

It argues, in effect, that what is contemplated is only one Code the Administrative Code of 1987.
This contention is untenable.

The fact that a later enactment may relate to the same subject matter as that of an earlier statute is
not of itself sufficient to cause an implied repeal of the prior act, since the new statute may merely be
cumulative or a continuation of the old one. 12 What is necessary is a manifest indication of legislative
purpose to repeal. 13

We come now to the second category of repeal the enactment of a statute revising or codifying
the former laws on the whole subject matter. This is only possible if the revised statute or code was
intended to cover the whole subject to be a complete and perfect system in itself. It is the rule that a
subsequent statute is deemed to repeal a prior law if the former revises the whole subject matter of
the former statute. 14 When both intent and scope clearly evidence the idea of a repeal, then all parts and
provisions of the prior act that are omitted from the revised act are deemed repealed. 15 Furthermore,
before there can be an implied repeal under this category, it must be the clear intent of the legislature that
the later act be the substitute to the prior act. 16

According to Opinion No. 73, S. 1991 of the Secretary of Justice, what appears clear is the intent to
cover only those aspects of government that pertain to administration, organization and procedure,
understandably because of the many changes that transpired in the government structure since the
enactment of the RAC decades of years ago. The COA challenges the weight that this opinion
carries in the determination of this controversy inasmuch as the body which had been entrusted with
the implementation of this particular provision has already rendered its decision. The COA relied on
the rule in administrative law enunciated in the case of Sison vs. Pangramuyen 17 that in the absence
of palpable error or grave abuse of discretion, the Court would be loathe to substitute its own judgment for
that of the administrative agency entrusted with the enforcement and implementation of the law. This will
not hold water. This principle is subject to limitations. Administrative decisions may be reviewed by the
courts upon a showing that the decision is vitiated by fraud, imposition or mistake. 18 It has been held that
Opinions of the Secretary and Undersecretary of Justice are material in the construction of statutes in pari
materia. 19

Lastly, it is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored. 20 The presumption is against inconsistency and repugnancy for the legislature is presumed to
know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. 21

This Court, in a case, explains the principle in detail as follows: "Repeals by implication are not
favored, and will not be decreed unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation with full knowledge of all existing ones on the subject, it is
but reasonable to conclude that in passing a statute it was not intended to interfere with or abrogate

Page 4 of 547
any former law relating to some matter, unless the repugnancy between the two is not only
irreconcilable, but also clear and convincing, and flowing necessarily from the language used, unless
the later act fully embraces the subject matter of the earlier, or unless the reason for the earlier act is
beyond peradventure renewed. Hence, every effort must be used to make all acts stand and if, by
any reasonable construction, they can be reconciled, the later act will not operate as a repeal of the
earlier. 22

Regarding respondent's contention that recovery under this subject section shall bar the recovery of
benefits under the Employees' Compensation Program, the same cannot be upheld. The second
sentence of Article 173, Chapter II, Title II (dealing on Employees' Compensation and State
Insurance Fund), Book IV of the Labor Code, as amended by P.D. 1921, expressly provides that "the
payment of compensation under this Title shall not bar the recovery of benefits as provided for in
Section 699 of the Revised Administrative Code . . . whose benefits are administered by the system
(meaning SSS or GSIS) or by other agencies of the government."

WHEREFORE, premises considered, the Court resolves to GRANT the petition; respondent is
hereby ordered to give due course to petitioner's claim for benefits. No costs.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Bellosillo and Melo, JJ., concur.

Gutierrez, Jr., J., concur in the result.

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 THIRD DIVISION

G.R. No. L-66614 January 25, 1988

PRIMITIVO LEVERIZA, FE LEVERIZA, PARUNGAO & ANTONIO C. VASCO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT, MOBIL OIL PHILIPPINES & CIVIL AERONAUTICS
ADMINISTRATION,respondents.

BIDIN, J.:

This is a Petition for Review on certiorari seeking the reversal of the decision of the Intermediate
Appellate Court, Third Division * dated February 29, 1984 in AC-G.R. No. CV No. 61705 entitled Mobil Oil Philippines, Inc.,
plaintiff-appellee vs. Primitivo Leveriza Parungao, Antonio C. Vasco and Civil Aeronautics Administration, defendants-appellants; Primitive
Leveriza, Fe Leveriza Parungao and Antonio C. Leveriza, cross-defendant, affirming in toto the decision of the trial court dated April 6, 1976.

As found by the trial court and adopted by the Intermediate Appellate Court, the facts of this case are
as follows:

Around three contracts of lease resolve the basic issues in the instant case. These
three contracts are as follows:

First Contract. For purposes of easy reference and brevity, this contract shall be
referred to hereinafter as Contract A. This is a "CONTRACT OF LEASE", executed
between the REPUBLIC OF THE PHILIPPINES, represented by Defendant CIVIL
AERONAUTICS ADMINISTRATION, as lessor, and ROSARIO C. LEVERIZA, as
lessee, on April 2, 1965, over a certain parcel of land at the MIA area, consisting of
approximately 4,502 square meters, at a monthly rental of P450.20, for a period of 25
years, (Exhibit "A", Exhibit "I-Leverizas", Exhibit "I-CAA").

Second Contracts. For purposes of easy references and brevity, this contract shall
be referred to hereinafter as Contract B. This is a "LEASE AGREEMENT", executed
between ROSARIO C. LEVERIZA, as lessor, and Plaintiff MOBIL OIL PHILIPPINES,
INC., as lessee on May 21, 1965, over 3,000 square meters of that SAME Parcel of
land subject of Contract A above mentioned, at a monthly rental of P1,500.00, for a
period of 25 years (Exhibit 'B', Exhibit 4-Leverizas' ).

Third Contract. For purposes of easy reference and brevity, this contract shall be
referred to hereinafter as Contract C. This is a "LEASE AGREEMENT", executed
between Defendant CIVIL AERONAUTICS ADMINISTRATION, as lessor, and
plaintiff MOBIL OIL PHILIPPINES, INC., as lessee, on June 1, 1968 over that SAME
parcel of land (Lot A, on plan being a portion of Parcel, Psu 2031), containing an

Page 6 of 547
area of 3,000 square meters more or less, at a monthly rental of P.25 per square
meter for the second 200 square meters, and P.20 per square meter for the rest, for
a period of 29 (sic) years. (Exhibit "C").

There is no dispute among the parties that the subject matter of the three contracts
of lease above mentioned, Contract A, Contract B, and Contract C, is the same
parcel of land, with the noted difference that while in Contract A, the area leased is
4,502 square meters, in Contract B and Contract C, the area has been reduced to
3,000 square meters. To summarize:

Contract A a lease contract of April 2, 1965 between the Republic

of the Philippines, represented by Defendant Civil Aeronautics
Administration and Rosario C. Leveriza over a parcel of land
containing an area of 4,502 square meters, for 25 years.

Contract B a lease contract (in effect a sublease) of May 21, 1965

between defendant Rosario C. Leveriza and plaintiff Mobil Oil
Philippines, Inc. over the same parcel of land, but reduced to 3,000
square meters for 25 years; and

Contract C a lease contract of June 1, 1968 between defendant

Civil Aeronautics Administration and plaintiff Mobil Oil Philippines,
Inc., over the same parcel of land, but reduced to 3,000 square
meters, for 25 years.

It is important to note, for a clear understanding of the issues involved, that it appears
that defendant Civil Aeronautics Administration as LESSOR, leased the same parcel
of land, for durations of time that overlapped to two lessees, to wit: (1) Defendant
Rosario C. Leveriza, and that plaintiff Mobil Oil Philippines, Inc., as LESSEE, leased
the same parcel of land from two lessors, to wit: (1) defendant Rosario C. Leveriza
and (2) defendant Civil Aeronautics Administration, Inc., for durations of time that
also overlapped.

For purposes of brevity defendant Civil Aeronautics Administration shall be referred

to hereinafter as defendant CAA.

Rosario C. Leveriza, the lessee in Contract A and the lessor in Contract B, is now
deceased. This is the reason why her successor-in-interest, her heirs, are sued,
namely: Defendants Primitive Leveriza, her second husband, (now also deceased),
Fe Leveriza Parungao, her daughter by her second husband, and Antonio C. Vasco,
her son by her first husband. For purposes of brevity, these defendants shall be
referred to hereinafter as Defendants Leveriza.

Plaintiff Mobil Oil Philippines, Inc., shall be referred to hereinafter simply as the
Plaintiff. (pp. 95-99, Record on Appeal).

Plaintiff in this case seeks the rescission or cancellation of Contract A and Contract B
on the ground that Contract A from which Contract B is derived and depends has
already been cancelled by the defendant Civil Aeronautics Administration and

Page 7 of 547
 maintains that Contract C with the defendant CAA is the only valid and subsisting
contract insofar as the parcel of land, subject to the present litigation is concerned.
On the other hand, defendants Leverizas' claim that Contract A which is their contract
with CAA has never been legally cancelled and still valid and subsisting; that it is
Contract C between plaintiff and defendant CAA which should be declared void.

Defendant CAA asserts that Exhibit "A" is still valid and subsisting because its
cancellation by Guillermo Jurado was ineffective and asks the court to annul Contract
A because of the violation committed by defendant Leveriza in leasing the parcel of
land to plaintiff by virtue of Contract B without the consent of defendant CAA.
Defendant CAA further asserts that Contract C not having been approved by the
Director of Public Works and Communications is not valid. ...

xxx xxx xxx

After trial, the lower court render judgment on April 6, 1976 the dispositive part of which reads:

WHEREFORE, after having thus considered the evidence of all the parties,
testimonial and documentary, and their memoranda and reply-memoranda, this Court
hereby renders judgment:

1. Declaring Contract A as having been validly cancelled on June 28,

1966, and has therefore ceased to have any effect as of that date;

2. Declaring that Contract B has likewise ceased to have any effect

as of June 28, 1966 because of the cancellation of Contract A;

3. Declaring that Contract C was validly entered into on June 1, 1968,

and that it is still valid and subsisting;

4. Ordering defendant CAA to refund to defendants Leverizas the

amount of P32,189.30 with 6% per annum until fully paid;

5. Ordering defendants Leverizas to refund to plaintiff the amount of

P48,000.00 with 6% interest per annum until fully paid;

6. Dismissing defendants Leverizas' four counterclaims against

plaintiff;

7. Dismissing defendants Leverizas' cross-claim against defendant

CAA;

8. Dismissing defendant CAA's counterclaim against plaintiff;

9. Dismissing defendant CAA's counterclaim against defendant

Leverizas.

No pronouncements as to costs.

Page 8 of 547
On June 2, 1976, defendant Leveriza filed a motion for new trial on the ground of newly discovered
evidence, lack of jurisdiction of the court over the case and lack of evidentiary support of the
decision which was denied in the order of November 12,1976 (Rollo, p. 17).

On July 27, 1976, the CAA filed a Motion for Reconsideration, averring that because the lot lease
was properly registered in the name of the Republic of the Philippines, it was only the President of
the Philippines or an officer duly designated by him who could execute the lease contract pursuant
to Sec. 567 of the Revised Administrative Code; that the Airport General Manager has no authority to
cancel Contract A, the contract entered into between the CAA and Leveriza, and that Contract C
between the CAA and Mobil was void for not having been approved by the Secretary of Public Works
and Communications. Said motion was however denied on November 12, 1976 (Rollo, p. 18).

On appeal, the Intermediate Appellate Court, being in full accord with the trial court, rendered a
decision on February 29, 1984, the dispositive part of which reads:

WHEREFORE, finding no reversible error in the decision of the lower court dated
April 6, 1976, the same is hereby affirmed in toto.

Hence, this petition.

The petitioners raised the following assignment of errors:

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE

ADMINISTRATOR OF THE CIVIL AERONAUTICS ADMINISTRATION (CAA) HAD
THE STATUTORY AUTHORITY TO LEASE, EVEN WITHOUT APPROVAL OF THE
THEN SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, REAL
PROPERTY BELONGING TO THE REPUBLIC OF THE PHILIPPINES.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE

ADMINISTRATOR OF THE CIVIL AERONAUTICS ADMINISTRATION HAD
STATUTORY AUTHORITY, WITHOUT THE APPROVAL OF THE THEN
SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, TO CANCEL A
LEASE CONTRACT OVER REAL PROPERTY OWNED BY THE REPUBLIC OF
THE PHILIPPINES, WHICH CONTRACT WAS APPROVED, AS REQUIRED BY
LAW, BY THE SECRETARY.

III

THE INTERMEDIATE APPELLATE COURT ERRED WHEN IT RULED THAT THE

CONTRACT OF SUBLEASE (CONTRACT B) ENTERED INTO BETWEEN
PETITIONERS' PREDECESSOR-IN-INTEREST AND RESPONDENT MOBIL OIL
PHILIPPINES, INC. WAS WITHOUT THE CONSENT OF THE ADMINISTRATOR OF
THE CIVIL AERONAUTICS ADMINISTRATION.

The petition is devoid of merit.

Page 9 of 547
There is no dispute that Contract "A" at the time of its execution was a valid contract. The issue
therefore is whether or not said contract is still subsisting after its cancellation by CAA on the ground
of a sublease executed by petitioners with Mobil Oil Philippines without the consent of CAA and the
execution of another contract of lease between CAA and Mobil Oil Philippines (Contract "C").

Petitioners contend that Contract "A" is still subsisting because Contract "B" is a valid sublease and
does not constitute a ground for the cancellation of Contract "A", while Contract "C", a subsequent
lease agreement between CAA and Mobil Oil Philippines is null and void, for lack of approval by the
Department Secretary. Petitioners anchor their position on Sections 567 and 568 of the Revised
Administrative Code which require among others, that subject contracts should be executed by the
President of the Philippines or by an officer duly designated by him, unless authority to execute the
same is by law vested in some other officer (Petition, Rollo, pp. 15-16).

At the other extreme, respondent Mobil Oil Philippines asserts that Contract "A" was validly
cancelled on June 28, 1966 and so was Contract "B" which was derived therefrom. Accordingly, it
maintains that Contract "C" is the only valid contract insofar as the parcel of land in question is
concerned and that approval of the Department Head is not necessary under Section 32 (par. 24) of
the Republic Act 776 which expressly vested authority to enter into such contracts in the
Administrator of CAA (Comment; Rollo, p. 83).

On its part, respondent Civil Aeronautics Administration took the middle ground with its view that
Contract "A" is still subsisting as its cancellation is ineffective without the approval of the Department
Head but said contract is not enforceable because of petitioners' violation of its terms and conditions
by entering into Contract "B" of sublease without the consent of CAA. The CAA further asserts that
Contract "C" not having been approved by the Secretary of Public Works and Communications, is
not valid (Rollo, p. 43). However, in its comment filed with the Supreme Court, the CAA made a
complete turnabout adopting the interpretation and ruling made by the trial court which was affirmed
by the Intermediate Appellate Court (Court of Appeals), that the CAA Administrator has the power to
execute the deed or contract of lease involving real properties under its administration belonging to
the Republic of the Philippines without the approval of the Department Head as clearly provided in
Section 32, paragraph (24) of Republic Act 776.

The issue narrows down to whether or not there is a valid ground for the cancellation of Contract "A."

Contract "A" was entered into by CAA as the lessor and the Leverizas as the lessee specifically "for
the purpose of operating and managing a gasoline station by the latter, to serve vehicles going in
and out of the airport."

As regards prior consent of the lessor to the transfer of rights to the leased premises, the provision
of paragraph 7 of said Contract reads in full:

7. The Party of the Second part may transfer her rights to the leased premises but in
such eventuality, the consent of the Party of the First Part shall first be secured. In
any event, such transfer of rights shall have to respect the terms and conditions of
this agreement.

Paragraph 8 provides the sanction for the violation of the above-mentioned terms and conditions of
the contract. Said paragraph reads:

Page 10 of 547
 8. Failure on the part of the Party of the Second Part to comply with the terms and
conditions herein agreed upon shall be sufficient for revocation of this contract by the
Party of the First Part without need of judicial demand.

It is not disputed that the Leverizas (lessees) entered into a contract of sublease (Contract "B") with
Mobil Oil Philippines without the consent of CAA (lessor). The cancellation of the contract was made
in a letter dated June 28, 1966 of Guillermo P. Jurado, Airport General Manager of CAA addressed
to Rosario Leveriza, as follows:

(Letterhead)

June 28, 1966

Mrs. Rosario Leveriza

Manila International Airport

Madam:

It has been found out by the undersigned that you have sublet the property of the CAA leased to you
and by virtue of this, your lease contract is hereby cancelled because of the violation of the
stipulations of the contract. I would like to inform you that even without having sublet the said
property the said contract would have been cancelled as per attached communication.

Very truly yours,

For the Director:

(Sgd.) Illegible
(Typed)

GUILLERMO P. JURADO
Airport General Manager

Respondent Leverizas and the CAA assailed the validity of such cancellation, claiming that the
Airport General Manager had no legal authority to make the cancellation. They maintain that it is
only the Secretary of Public Works and Communications, acting for the President, or by delegation of
power, the Director of Civil Aeronautics Administration who could validly cancel the contract. They do
admit, however, and it is evident from the records that the Airport General Manager signed "For the
Director." Under the circumstances, there is no question that such act enjoys the presumption of
regularity, not to mention the unassailable fact that such act was subsequently affirmed or ratified by
the Director of the CAA himself (Record on Appeal, pp. 108-110).

Petitioners argue that cancelling or setting aside a contract approved by the Secretary is, in effect,
repealing an act of the Secretary which is beyond the authority of the Administrator.

Such argument is untenable. The terms and conditions under which such revocation or cancellation
may be made, have already been specifically provided for in Contract "A" which has already been
approved by the Department Head, It is evident that in the implementation of aforesaid contract, the
approval of said Department Head is no longer necessary if not redundant.

Page 11 of 547
It is further contended that even granting that such cancellation was effective, a subsequent billing
by the Accounting Department of the CAA has in effect waived or nullified the rescission of Contract
"A."

It will be recalled that the questioned cancellation of Contract "A" was among others, mainly based
on the violation of its terms and conditions, specifically, the sublease of the property by the lessee
without the consent of the lessor.

The billing of the petitioners by the Accounting Department of the CAA if indeed it transpired, after
the cancellation of Contract "A" is obviously an error. However, this Court has already ruled that the
mistakes of government personnel should not affect public interest. In San Mauricio Mining
Company v. Ancheta (105 SCRA 391, 422), it has been held that as a matter of law rooted in the
protection of public interest, and also as a general policy to protect the government and the people,
errors of government personnel in the performance of their duties should never deprive the people of
the right to rectify such error and recover what might be lost or be bartered away in any actuation,
deal or transaction concerned. In the case at bar, the lower court in its decision which has been
affirmed by the Court of Appeals, ordered the CAA to refund to the petitioners the amount of rentals
which was not due from them with 6% interest per annum until fully paid.

Petitioners further assail the interpretation of Contract "A", claiming that Contract "B" was a mere
sublease to respondent Mobil Oil Philippines, Inc. and requires no prior consent of CAA to perfect
the same. Citing Article 1650 of the Civil Code, they assert that the prohibition to sublease must be
expressed and cannot be merely implied or inferred (Rollo, p. 151).

As correctly found by the Court of Appeals, petitioners in asserting the non- necessity for a prior
consent interprets the first sentence of paragraph 7 of Contract "A" to refer to an assignment of
lease under Article 1649 of the Civil Code and not to a mere sublease. A careful scrutiny of said
paragraph of Contract "A" clearly shows that it speaks of transfer of rights of Rosario Leveriza to the
leased premises and not to assignment of the lease (Rollo, pp. 48-49).

Petitioners likewise argued that it was contemplated by the parties to Contract "A" that Mobil Oil
Philippines would be the owner of the gasoline station it would construct on the leased premises
during the period of the lease, hence, it is understood that it must be given a right to use and occupy
the lot in question in the form of a sub-lease (Rollo, p. 152).

In Contract "A", it was categorically stated that it is the lessee (petitioner) who will manage and
operate the gasoline station. The fact that Mobil Oil was mentioned in that contract was clearly not
intended to give approval to a sublease between petitioners and said company but rather to insure
that in the arrangements to be made between them, it must be understood that after the expiration of
the lease contract, whatever improvements have been constructed in the leased premises shall be
relinquished to CAA. Thus, this Court held that "the primary and elementary rule of construction of
documents is that when the words or language thereof is clear and plain or readily understandable
by any ordinary reader thereof, there is absolutely no room for interpretation or construction
anymore." (San Mauricio Mining Company v. Ancheta, supra).

Finally, petitioners contend that the administrator of CAA cannot execute without approval of the
Department Secretary, a valid contract of lease over real property owned by the Republic of the
Philippines, citing Sections 567 and 568 of the Revised Administrative Code, which provide as
follows:

Page 12 of 547
 SEC. 567. Authority of the President of the Philippines to execute contracts relative
to real property. When the Republic of the Philippines is party to a deed conveying
the title to real property or is party to any lease or other contract relating to real
property belonging to said government, said deed or contract shall be executed on
behalf of said government by the President of the Philippines or by an officer duly
designated by him, unless authority to execute the same is by law expressly vested
in some other officer. (Emphasis supplied)

SEC. 568. Authority of national officials to make contract. Written contracts not
within the purview of the preceding section shall, in the absence of special provision,
be executed, with the approval of the proper Department Head, by the Chief of the
Bureau or Office having control of the appropriation against which the contract would
create a charge; or if there is no such chief, by the proper Department Head himself
or the President of the Philippines as the case may require.

On the other hand, respondent CAA avers that the CAA Administrator has the authority to lease real
property belonging to the Republic of the Philippines under its administration even without the
approval of the Secretary of Public Works and Communications, which authority is expressly vested
in it by law, more particularly Section 32 (24) of Republic Act 776, which reads:

Sec. 32. Powers and Duties of the Administrator. Subject to the general control
and supervision of the Department Head, the Administrator shall have, among
others, the following powers and duties:

xxx xxx xxx

(24) To administer, operate, manage, control, maintain and develop the Manila
International Airport and all government aerodromes except those controlled or
operated by the Armed Forces of the Philippines including such power and duties as:
... (b) to enter into, make and execute contracts of any kind with any person, firm, or
public or private corporation or entity; (c) to acquire, hold, purchase, or lease any
personal or real property; right of ways, and easements which may be proper or
necessary: Provided, that no real property thus acquired and any other real property
of the Civil Aeronautics Administration shall be sold without the approval of the
President of the Philippines. ...

There is no dispute that the Revised Administrative Code is a general law while
Republic Act 776 is a special law nor in the fact that the real property subject of the
lease in Contract "C" is real property belonging to the Republic of the Philippines.

Under 567 of the Revised Administrative Code, such contract of lease must be executed: (1) by the
President of the Philippines, or (2) by an officer duly designated by him or (3) by an officer expressly
vested by law. It is readily apparent that in the case at bar, the Civil Aeronautics Administration has
the authority to enter into Contracts of Lease for the government under the third category. Thus, as
correctly ruled by the Court of Appeals, the Civil Aeronautics Administration has the power to
execute the deed or contract involving leases of real properties belonging to the Republic of the
Philippines, not because it is an entity duly designated by the President but because the said
authority to execute the same is, by law expressly vested in it.

Page 13 of 547
Under the above-cited Section 32 (par. 24) of Republic Act 776, the Administrator (Director) of the
Civil Aeronautics Administration by reason of its creation and existence, administers properties
belonging to the Republic of the Philippines and it is on these properties that the Administrator must
exercise his vast power and discharge his duty to enter into, make and execute contract of any kind
with any person, firm, or public or private corporation or entity and to acquire, hold, purchase, or
lease any personal or real property, right of ways and easements which may be proper or necessary.
The exception, however, is the sale of properties acquired by CAA or any other real properties of the
same which must have the approval of the President of the Philippines. The Court of appeals took
cognizance of the striking absence of such proviso in the other transactions contemplated in
paragraph (24) and is convinced as we are, that the Director of the Civil Aeronautics Administration
does not need the prior approval of the President or the Secretary of Public Works and
Communications in the execution of Contract "C."

In this regard, this Court, ruled that another basic principle of statutory construction mandates that
general legislation must give way to special legislation on the same subject, and generally be so
interpreted as to embrace only cases in which the special provisions are not applicable (Sto.
Domingo v. De los Angeles, 96 SCRA 139),. that specific statute prevails over a general statute (De
Jesus v. People, 120 SCRA 760) and that where two statutes are of equal theoretical application to a
particular case, the one designed therefor specially should prevail (Wil Wilhensen, Inc. v. Baluyot, 83
SCRA 38)

WHEREFORE, the petition is DISMISSED for lack of merit and the decision of the Court of Appeals
appealed from is AFFIRMED in toto.

SO ORDERED.

Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

Fernan, J took no part.

Page 14 of 547
 SECOND DIVISION

[G.R. No. 145972. March 23, 2004]

IGNACIA BALICAS, petitioner, vs. FACT-FINDING & INTELLIGENCE

BUREAU (FFIB), OFFICE OF THE OMBUDSMAN, respondent.

DECISION
QUISUMBING, J.:

This petition for review on certiorari assails the Court of Appeals

decision dated August 25, 2000 and resolution of November 13, 2000 in CA-
[1] [2]

G.R. SP No. 56386, which affirmed the Ombudsmans decision dismissing [3]

petitioner from government service for gross neglect of duty in connection with
the tragedy at the Cherry Hills Subdivision in Antipolo City on August 3, 1999.

The antecedent facts as summarized in the Ombudsmans decision are as

follows:

Based on the evidence adduced by the complainant, the following is the chronological
series of events which led to the development of the CHS (Cherry Hills Subdivision):

Page 15 of 547
August 28, 1990 Philjas Corporation, whose primary purposes, among others are: to
own, develop, subdivide, market and provide low-cost housing for the poor, was
registered with the Securities and Exchange Commission (SEC).

February 19, 1991 then City Mayor Daniel S. Garcia, endorsed to the Housing and
Land Use Regulatory Board (HLURB) the proposed CHS.

Thereafter, or on 07 March 1991, based on the favorable recommendations of Mayor

Garcia, respondent TAN, issued the Preliminary Approval and Locational Clearance
(PALC) for the development of CHS.

On July 5, 1991, then HLURB Commissioner respondent TUNGPALAN issued

Development Permit No. 91-0216 for land development only for the entire land area
of 12.1034 hectares covered by TCT No. 35083 (now TCT 208837) and with 1,003
saleable lots/units with project classification B.P. 220 Model A-Socialized Housing (p.
96, Records), with several conditions for its development.

Three (3) days thereafter or on July 8, 1991, respondent JASARENO, allowed/granted

the leveling/earth-moving operations of the development project of the area subject to
certain conditions.

On November 18, 1991, then HLURB Commissioner AMADO B. DELORIA issued

Certificate of Registration No. 91-11-0576 in favor of CHS, with License to Sell
No. 91-11-0592 for the 1,007 lots/units in the subdivision.

Eventually, on December 10, 1991, respondent POLLISCO issued Small Scale

Mining Permit (SSMP) No. IV-316 to Philjas to extract and remove 10,000 cu. meters
of filling materials from the area where the CHS is located.

Thereafter, or on January 12, 1994, Philjas applied for a Small Scale Mining Permit
(SSMP) under P.D. 1899 with the Rizal Provincial Government to extract and remove
50,000 metric tons of filling materials per annum on CHS 2.8 hectares.

Thus, on January 17, 1994, respondent MAGNO, informed ELIEZER I.

RODRIGUEZ of Philjas that CHS is within the EIS System and as such must secure
ECC from the DENR. Philjas was accordingly informed of the matter such that it
applied for the issuance of ECC from the DENR-Region IV, on February 3, 1994.

Page 16 of 547
On March 12, 1994, an Inspection Report allegedly prepared by respondent
BALICAS, attested by respondent RUTAQUIO and approved by respondent
TOLENTINO re: field evaluation to the issuance of ECC, was submitted.

Consequently, on April 28, 1994, upon recommendations of respondent

TOLENTINO, Philjas application for ECC was approved by respondent PRINCIPE,
then Regional Executive Director, DENR under ECC-137-R1-212-94.

A Mining Field Report for SSMP dated May 10, 1994 was submitted pursuant to the
inspection report prepared by respondents CAYETANO, FELICIANO, HILADO and
BURGOS, based on their inspection conducted on April 25 to 29, 1994. The report
recommended, among others, that the proposed extraction of materials would pose no
adverse effect to the environment.

Records further disclosed that on August 10, 1994, respondent BALICAS monitored
the implementation of the CHS Project Development to check compliance with the
terms and conditions in the ECC. Again, on August 23, 1995, she conducted another
monitoring on the project for the same purpose. In both instances, she noted that the
project was still in the construction stage hence, compliance with the stipulated
conditions could not be fully assessed, and therefore, a follow-up monitoring is
proper. It appeared from the records that this August 23, 1995 monitoring inspection
was the last one conducted by the DENR.

On September 24, 1994, GOV. CASIMIRO I. YNARES, JR., approved the SSMP
applied for by Philjas under SSMP No. RZL-012, allowing Philjas to extract and
remove 50,000 metric tons of filling materials from the area for a period of two (2)
years from date of its issue until September 6, 1996.
[4]

Immediately after the tragic incident on August 3, 1999, a fact-finding

investigation was conducted by the Office of the Ombudsman through its Fact-
Finding and Intelligence Bureau (FFIB), which duly filed an administrative
complaint with the Office of the Ombudsman against several officials of the
Housing and Land Use Regulatory Board (HLURB), Department of
Environment and Natural Resources (DENR), and the local government of
Antipolo.

The charge against petitioner involved a supposed failure on her part to

monitor and inspect the development of Cherry Hills Subdivision, which was
assumed to be her duty as DENR senior environmental management
specialist assigned in the province of Rizal.
Page 17 of 547
 For her part, petitioner belied allegations that monitoring was not
conducted, claiming that she monitored the development of Cherry Hills
Subdivision as evidenced by three (3) monitoring reports dated March 12,
1994, August 10, 1994 and August 23, 1995. She averred that she also
conducted subsequent compliance monitoring of the terms and conditions of
Philjas Environmental Compliance Certificate (ECC) on May 19, 1997 and
noted no violation thereon. She further claimed good faith and exercise of due
diligence, insisting that the tragedy was a fortuitous event. She reasoned that
the collapse did not occur in Cherry Hills, but in the adjacent mountain eastern
side of the subdivision.

On November 15, 1999, the Office of the Ombudsman rendered a decision

imposing upon petitioner the supreme penalty of dismissal from office for
gross neglect of duty finding:

RESPONDENT BALICAS

Records show that she monitored and inspected the CHS [Cherry Hills Subdivision]
only thrice (3), to wit:

1. Inspection Report dated 12 March 1994

2. Monitoring Report dated 10 August 1994

3. Monitoring Report dated 23 August 1995

Verily, with this scant frequency, how can respondent Balicas sweepingly claim that
there was no violation of ECC compliance and that she had done what is necessary in
accordance with the regular performance of her duties. She herself recognized the fact
that the collapsed area is not the subdivision in question but the adjacent mountain
eastern side of the CHS. It is incumbent upon her to establish the same in her
monitoring and inspection reports and make objective recommendations re: its
possible adverse effect to the environment and to the residents of the CHS and nearby
areas. Her defense that the position of the CHS shows the impossibility of checking
the would-be adverse effect clearly established her incompetence. No expert mind is
needed to know that mountains cause landslide and erosion. Cherry Hills Subdivision
is a living witness to this.
[5]

Petitioner seasonably filed a petition for review of the Ombudsmans

decision with the Court of Appeals. In its decision dated August 25, 2000, the

Page 18 of 547
Court of Appeals dismissed the petition for lack of merit and affirmed the
appealed decision. It found that the landslide was a preventable occurrence
and that petitioner was guilty of gross negligence in failing to closely monitor
Philjas compliance with the conditions of the ECC given the known inherent
instability of the ground where the subdivision was developed. The appellate
court likewise denied petitioners motion for reconsideration in its resolution
dated November 13, 2000.

Petitioner now comes to this Court for review on certiorari, under Rule 45
of the Rules of Civil Procedure, of the appellate courts decision. She alleges
that the Court of Appeals committed serious errors of law in affirming the
Ombudsmans conclusion that:

1 There was gross negligence on the part of petitioner Balicas in the performance of
her official duties as Senior Environmental Management Specialist (SEMS) of the
Provincial Environment and Natural Resources Office (PENRO) Province of Rizal,
DENR Region IV; and the alleged gross neglect of duty of petitioner warranted the
imposition of the extreme penalty of dismissal from the service.

2. The landslide which caused the death of several residents of the subdivision and the
destruction of property is not a fortuitous event and therefore preventible.[6]

The main issues are whether or not the Court of Appeals committed
serious errors of law in: (1) holding petitioner guilty of gross neglect of duty
and (2) imposing upon her the extreme penalty of dismissal from office.

In order to ascertain if there had been gross neglect of duty, we have to

look at the lawfully prescribed duties of petitioner. Unfortunately, DENR
regulations are silent on the specific duties of a senior environmental
management specialist. Internal regulations merely speak of the functions of
the Provincial Environment and Natural Resources Office (PENRO) to which
petitioner directly reports.

Nonetheless, petitioner relies on a letter dated December 13, 1999 from

[7]

the chief of personnel, DENR Region IV, which defines the duties of a senior
environmental management specialist as follows:

1. Conducts investigation of pollution sources or complaints;

2. Review[s] plans and specifications of proposes (sic) or existing treatment plants and
pollution abatement structures and devices to determine their efficiency and

Page 19 of 547
 suitability for the kind of pollutants to be removed and to recommend issuance or
denial of permits;

3. Conducts follow-up inspection of construction of pollution abatement/work and

structures to oversee compliance with approved plans and specifications;

4. Recommends remedial measures for the prevention, abatement and control of

pollution;

5. Prepares technical reports on pollution investigation and related activities; and

6. Performs related work as assigned.

It is readily apparent that no monitoring duty whatsoever is mentioned in

the said letter. The PENRO, on the other hand, is mandated to:

1. conduct surveillance and inspection of pollution sources and control facilities and
undertake/initiate measures relative to pollution-related complaints of the general
public for appropriate referral to the regional office;

2. comment on the project description, determine if the project fall within the
Environmental Impact Statement (EIS) System[8] and submit the same to the
regional office; and

3. implement programs and projects related to environmental management within the

PENRO.[9]

In addition, the PENRO is likewise tasked to monitor the project

proponents compliance with the conditions stipulated in the ECC, with support
from the DENR regional office and the Environmental Management Bureau.
The primary purpose of compliance monitoring is to ensure the judicious
[10]

implementation of sound and standard environmental quality during the

development stage of a particular project. Specifically, it aims to:

1. monitor project compliance with the conditions set in the ECC;

2. monitor compliance with the Environmental Management Plan (EMP) and applicable
laws, rules and regulations; and

3. provide a basis for timely decision-making and effective planning and management
of environmental measures through the monitoring of actual project impacts vis--vis
predicted impacts in the EIS.[11]

Based on the foregoing, the monitoring duties of the PENRO mainly deal
with broad environmental concerns, particularly pollution abatement. This

Page 20 of 547
general monitoring duty is applicable to all types of physical developments
that may adversely impact on the environment, whether housing projects,
industrial sites, recreational facilities, or scientific undertakings.

However, a more specific monitoring duty is imposed on the HLURB as

the sole regulatory body for housing and land development. It is mandated to
encourage greater private sector participation in low-cost housing through (1)
liberalization of development standards, (2) simplification of regulations and
(3) decentralization of approvals for permits and licenses. [12]

P.D. No. 1586 prescribes the following duties on the HLURB (then
[13]

Ministry of Human Settlements) in connection with environmentally critical

projects requiring an ECC:

SECTION 4. Presidential Proclamation of Environmentally Critical Areas and

Projects. The President of the Philippines may, on his own initiative or upon
recommendation of the National Environment Protection Council, by proclamation
declare certain projects, undertakings or areas in the country as environmentally
critical. No person, partnership or corporation shall undertake or operate any such
declared environmentally critical project or area without first securing an
Environmental Compliance Certificate issued by the President or his duly authorized
representative.For the proper management of said critical project or area, the President
may by his proclamation reorganize such government offices, agencies, institutions,
corporations or instrumentalities including the re-alignment of government personnel,
and their specific functions and responsibilities.

For the same purpose as above, the Ministry of Human Settlements [now HLURB]
shall: (a) prepare the proper land or water use pattern for said critical project(s)
or area(s); (b) establish ambient environmental quality standards; (c) develop a
program of environmental enhancement or protective measures against
calamitous factors such as earthquake, floods, water erosion and others; and (d)
perform such other functions as may be directed by the President from time to time.
(Emphasis ours.)

The legal duty to monitor housing projects, like the Cherry Hills
Subdivision, against calamities such as landslides due to continuous rain, is
clearly placed on the HLURB, not on the petitioner as PENRO senior
environmental management specialist. In fact, the law imposes no clear and
direct duty on petitioner to perform such narrowly defined monitoring function.

Page 21 of 547
 In the related case of Principe v. Fact-Finding and Intelligence Bureau,
this Court found Antonio Principe, regional executive director for DENR
[14]

Region IV who approved Philjas application for ECC, not liable for gross
neglect of duty. The Court reversed the decision of the Court of Appeals and
thereby annulled the decision of the Ombudsman in OMB-ADM-09-661, dated
December 1, 1999, dismissing Principe from the government service. We
ordered his reinstatement with back pay and without loss of seniority. [15]

The rationale for our decision in Principe bears reiteration: the

responsibility of monitoring housing and land development projects is not
lodged with the DENR, but with the HLURB as the sole regulatory body for
housing and land development. Thus, we must stress that we find no legal
basis to hold petitioner, who is an officer of DENR, liable for gross neglect of
the duty pertaining to another agency, the HLURB. It was grave error for the
appellate court to sustain the Ombudsmans ruling that she should be
dismissed from the service. The reinstatement of petitioner is clearly called
for.

WHEREFORE, the petition is hereby GRANTED. The Court of Appeals

decision affirming the Ombudsmans dismissal of petitioner IGNACIA BALICAS
from office is REVERSED and SET ASIDE, and petitioners REINSTATEMENT
to her position with back pay and without loss of seniority rights is hereby
ordered.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Page 22 of 547
 FIRST DIVISION

[G.R. No. 86695. September 3, 1992.]

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

Salas, Villareal & Velasco, for Petitioners.

Virgilio A. Sindico for Respondents.

SYLLABUS

1. ADMINISTRATIVE LAW; GOVERNMENT INSTRUMENTALITY, DEFINED. The 1987 Administrative Code

defines a government instrumentality as follows: Instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes regulatory agencies, chartered
institutions, and government-owned or controlled corporations. (Sec. 2 (5) Introductory Provisions).

2. ID.; CHARTERED INSTITUTION; DEFINED; APPLICATION IN CASE AT BAR. The 1987 Administrative
Code describes a chartered institution thus: Chartered institution refers to any agency organized or
operating under a special charter, and vested by law with functions relating to specific constitutional policies
or objectives. This term includes the state universities and colleges, and the monetary authority of the state.
(Sec. 2 (12) Introductory Provisions). It is clear from the above definitions that ISCOF is a chartered
institution and is therefore covered by P.D. 1818. There are also indications in its charter that ISCOF is a
government instrumentality. First, it was created in pursuance of the integrated fisheries development policy
of the State, a priority program of the government to effect the socio-economic life of the nation. Second,
the Treasurer of the Republic of the Philippines shall also be the ex-officio Treasurer of the state college with
its accounts and expenses to be audited by the Commission on Audit or its duly authorized representative.
Third, heads of bureaus and offices of the National Government are authorized to loan or transfer to it, upon
request of the president of the state college, such apparatus, equipment, or supplies and even the services
of such employees as can be spared without serious detriment to public service. Lastly, an additional amount
of P1.5M had been appropriated out of the funds of the National Treasury and it was also decreed in its
charter that the funds and maintenance of the state college would henceforth be included in the General
Appropriations Law. (Presidential Decree No. 1523)

3. ID.; PROHIBITION OF ANY COURT FROM ISSUING INJUNCTION IN CASES INVOLVING INFRASTRUCTURE
PROJECTS OF GOVERNMENT (P.D. 1818); POWER OF THE COURTS TO RESTRAIN APPLICATION. In the
case of Datiles and Co. v. Sucaldito, (186 SCRA 704) this Court interpreted a similar prohibition contained in
P.D. 605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained
to the issuance of injunctions or restraining orders by courts against administrative acts in controversies
involving facts or the exercise of discretion in technical cases. The Court observed that to allow the courts to
judge these matters would disturb the smooth functioning of the administrative machinery. Justice Teodoro
Padilla made it clear, however, that on issues definitely outside of this dimension and involving questions of
law, courts could not be prevented by P.D. No. 605 from exercising their power to restrain or prohibit

Page 23 of 547
administrative acts. We see no reason why the above ruling should not apply to P.D. 1818. There are at least
two irregularities committed by PBAC that justified injunction of the bidding and the award of the project.

4. ID.; POLICIES AND GUIDELINES PRESCRIBED FOR GOVERNMENT INFRASTRUCTURE (PD 1594); RULES
IMPLEMENTING THEREOF, NOT SUFFICIENTLY COMPLIED WITH IN CASE AT BAR. Under the Rules
Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure contracts, PBAC
shall provide prospective bidders with the Notice to Pre-qualification and other relevant information
regarding the proposed work. Prospective contractors shall be required to file their ARC-Contractors
Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-qualification
Statement for the Project (prior to the amendment of the rules, this was referred to as Pre-C1) not later
than the deadline set in the published Invitation to Bid, after which date no PRE-C2 shall be submitted and
received. Invitations to Bid shall be advertised for at least three times within a reasonable period but in no
case less than two weeks in at least two newspapers of general circulations. (IB 13 1.2-19, Implementing
Rules and Regulations of P.D. 1594 as amended) PBAC advertised the pre-qualification deadline as
December 2, 1988, without stating the hour thereof, and announced that the opening of bids would be at 3
oclock in the afternoon of December 12, 1988. This scheduled was changed and a notice of such change
was merely posted at the ISCOF bulletin board. The notice advanced the cut-off time for the submission of
pre-qualification documents to 10 oclock in the morning of December 2, 1988, and the opening of bids to 1
oclock in the afternoon of December 12, 1988. The new schedule caused the pre-disqualification of the
petitioners as recorded in the minutes of the PBAC meeting held on December 6, 1988. While it may be true
that there were fourteen contractors who were pre-qualified despite the change in schedule, this fact did not
cure the defect of the irregular notice. Notably, the petitioners were disqualified because they failed to meet
the new deadline and not because of their expired licenses. (B.E. & Best Builts licenses were valid until June
30, 1989. [Ex. P & O respectively: both were marked on December 28, 1988]) We have held that where the
law requires a previous advertisement before government contracts can be awarded, non-compliance with
the requirement will, as a general rule, render the same void and of no effect. (Caltex Phil. v. Delgado Bros.,
96 Phil. 368) The fact that an invitation for bids has been communicated to a number of possible bidders is
not necessarily sufficient to establish compliance with the requirements of the law if it is shown that other
possible bidders have not been similarly notified.

5. ID.; ID.; ID.; PURPOSE THEREOF; CASE AT BAR. The purpose of the rules implementing P.D. 1594 is to
secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these contracts to
the detriment of the public. This purpose was defeated by the irregularities committed by PBAC. It has been
held that the three principles in public bidding are the offer to the public, an opportunity for competition and
a basis for exact comparison of bids. A regulation of the matter which excludes any of these factors destroys
the distinctive character of the system and thwarts the purpose of its adoption. (Hannan v. Board of
Education, 25 Okla. 372) In the case at bar, it was the lack of proper notice regarding the pre-qualification
requirement and the bidding that caused the elimination of petitioners B.E. and Best Built. It was not
because of their expired licenses, as private respondents now claim. Moreover, the plans and specifications
which are the contractors guide to an intelligent bid, were not issued on time, thus defeating the guaranty
that contractors be placed on equal footing when they submit their bids. The purpose of competitive bidding
is negated if some contractors are informed ahead of their rivals of the plans and specifications that are to
be the subject of their bids.

6. ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE THEREOF. It has been held in a long line of cases that a
contract granted without the competitive bidding required by law is void, and the party to whom it is
awarded cannot benefit from it. It has not been shown that the irregularities committed by PBAC were
induced by or participated in by any of the contractors. Hence, liability shall attach only to the private
respondents for the prejudice sustained by the petitioners as a result of the anomalies described above.

7. CIVIL LAW; NOMINAL DAMAGES; AWARD THEREOF, WHEN AVAILABLE. As there is no evidence of the
actual loss suffered by the petitioners, compensatory damage may not be awarded to them. Moral damages
do not appear to be due either. Even so, the Court cannot close its eyes to the evident bad faith that
characterized the conduct of the private respondents, including the irregularities in the announcement of the
bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of
the restraining order and before they moved to lift such order. For such questionable acts, they are liable in
nominal damages at least in accordance with Article 2221 of the Civil Code, which states: Art. 2221.
Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant may be vindicated or, recognized, and not for the purpose of indemnifying the plaintiff for any
loss suffered by him. These damages are to be assessed against the private respondents in the amount of
P10,000.00 each, to be paid separately for each of petitioners B.E. Construction and Best Built Construction.

Page 24 of 547
 DECISION

CRUZ, J.:

This controversy involves the extent and applicability of P.D. 1818, which prohibits any court from issuing
injunctions in cases involving infrastructure projects of the government. chanrobles.com .ph : virtual law library

The facts are not disputed.

The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification, Bids and Awards
Committee (henceforth PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the
Western Visayas Daily an Invitation to Bid for the construction of the Micro Laboratory Building at ISCOF. The
notice announced that the last day for the submission of pre-qualification requirements (PRE C-1) ** was
December 2, 1988, and that the bids would be received and opened on December 12, 1988, 3 oclock in the
afternoon. 1

Petitioners Maria Elena Malaga and Josieleen Najarro, respectively doing business under the name of the
B.E. Construction and Best Built Construction, submitted their pre-qualification documents at two oclock in
the afternoon of December 2, 1988. Petitioner Jose Occea submitted his own PRE-C1 on December 5,
1988. All three of them were not allowed to participate in the bidding because their documents were
considered late, having been submitted after the cut-off time of ten oclock in the morning of December 2,
1988.

On December 12, 1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo against the
chairman and members of PBAC in their official and personal capacities. The plaintiffs claimed that although
they had submitted their PRE-C1 on time, the PBAC refused without just cause to accept them. As a result,
they were not included in the list of pre-qualified bidders, could not secure the needed plans and other
documents, and were unable to participate in the scheduled bidding.

In their prayer, they sought the resetting of the December 12, 1988 bidding and the acceptance of their
PRE-C1 documents. They also asked that if the bidding had already been conducted, the defendants be
directed not to award the project pending resolution of their complaint.

On the same date, Judge Lodrigio L. Lebaquin issued a restraining order prohibiting PBAC from conducting
the bidding and awarding the project. 2

On December 16, 1988, the defendants filed a motion to lift the restraining order on the ground that the
Court was prohibited from issued restraining orders, preliminary injunctions and preliminary mandatory
injunctions by P.D. 1818.chanroblesvirtualawlibrary

The decree reads pertinently as follows: chanrob1es virtual 1aw library

Section 1. No Court in the Philippines shall have jurisdiction to issue any restraining order, preliminary
injunction, or preliminary infrastructure project, or a mining, fishery, forest or other natural resource
development project of the government, or any public utility operated by the government, including among
others public utilities for the transport of the goods and commodities, stevedoring and arrastre contracts, to
prohibit any person or persons, entity or government official from proceeding with, or continuing the
execution or implementation of any such project, or the operation of such public utility, or pursuing any
lawful activity necessary for such execution, implementation or operation.

The movants also contended that the question of the propriety of a preliminary injunction had become moot
and academic because the restraining order was received late, at 2 oclock in the afternoon of December 12,
1988, after the bidding had been conducted and closed at eleven thirty in the morning of that date.

In their opposition of the motion, the plaintiffs argued against the applicability of P.D. 1818, pointing out
that while ISCOF was a state college, it had its own charter and separate existence and was not part of the
national government or of any local political subdivision. Even if P.D. 1818 were applicable, the prohibition

Page 25 of 547
presumed a valid and legal government project, not one tainted with anomalies like the project at bar.

They also cited Filipinas Marble Corp. v. IAC, 3 where the Court allowed the issuance of a writ of preliminary
injunction despite a similar prohibition found in P.D. 385. The Court therein stated that:chanrob1es virtual 1aw library

The government, however, is bound by basic principles of fairness and decency under the due process
clauses of the Bill of Rights. P.D. 385 was never meant to protect officials of government-lending institutions
who take over the management of a borrower corporation, lead that corporation to bankruptcy through
mismanagement or misappropriation of its funds, and who, after ruining it, use the mandatory provisions of
the decree to avoid the consequences of their misleads (p. 188, Emphasis supplied).

On January 2, 1989, the trial court lifted the restraining order and denied the petition for preliminary
injunction. It declared that the building sought to be construed at the ISCOF was an infrastructure project of
the government falling within the coverage of P.D. 1818. Even if it were not, the petition for the issuance of
a writ of preliminary injunction would still fail because the sheriffs return showed that PBAC was served a
copy of the restraining order after the bidding sought to be restrained had already been held. Furthermore,
the members of the PBAC could not be restrained from awarding the project because the authority to do so
was lodged in the President of the ISCOF, who was not a party to the case. 4

In the petition now before us, it is reiterated that P.D. 1818 does not cover the ISCOF because of its
separate and distinct corporate personality. It is also stressed again that the prohibition under P.D. 1818
could not apply to the present controversy because the project was vitiated with irregularities, to wit: chanrobles.com : virtual law library

1. The invitation to bid as published fixed the deadline of submission of pre-qualification document on
December 2, 1988 without indicating any time, yet after 10:00 oclock of the given late, the PBAC already
refused to accept petitioners documents.

2. The time and date of bidding was published as December 12, 1988 at 3:00 p.m. yet it was held at 10:00
oclock in the morning.

3. Private respondents, for the purpose of inviting bidders to participate, issued a mimeographed "Invitation
to Bid" form, which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain the particulars of the
project subject of bidding for the purpose of.

(i) enabling bidders to make an intelligent and accurate bids;

(ii) for PBAC to have a uniform basis for evaluating the bids;

(iii) to prevent collusion between a bidder and the PBAC, by opening to all the particulars of a project.

Additionally, the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein
were left blank. 5 And although the project in question was a "Construction," the private respondents used
an Invitation to Bid form for "Materials." 6

The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot
and academic because even if the bids had been opened before the restraining order was issued, the project
itself had not yet been awarded. The ISCOF president was not an indispensable party because the signing of
the award was merely a ministerial function which he could perform only upon the recommendation of the
Award Committee. At any rate, the complaint had already been duly amended to include him as a party
defendant.

In their Comment, the private respondents maintain that since the members of the board of trustees of the
ISCOF are all government officials under Section 7 of P.D. 1523 and since the operations and maintenance of
the ISCOF are provided for in the General Appropriations Law, it is should be considered a government
institution whose infrastructure project is covered by P.D. 1818.

Regarding the schedule for pre-qualification, the private respondents insist that PBAC posted on the ISCOF
bulletin board an announcement that the deadline for the submission of pre-qualifications documents was at
10 oclock of December 2, 1988, and the opening of bids would be held at 1 oclock in the afternoon of
December 12, 1988. As of ten oclock in the morning of December 2, 1988, B.E. construction and Best Built
construction had filed only their letters of intent. At two oclock in the afternoon, B.E., and Best Built filed
through their common representative, Nenette Garuello, their pre-qualification documents which were

Page 26 of 547
admitted but stamped "submitted late." The petitioners were informed of their disqualification on the same
date, and the disqualification became final on December 6, 1988. Having failed to take immediate action to
compel PBAC to pre-qualify them despite their notice of disqualification, they cannot now come to this Court
to question the binding proper in which they had not participated.

In the petitioners Reply, they raise as an additional irregularity the violation of the rule that where the
estimate project cost is from P1M to P5M, the issuance of plans, specifications and proposal book forms
should made thirty days before the date of bidding. 7 They point out that these forms were issued only on
December 2, 1988, and not at the latest on November 12, 1988, the beginning of the 30-day period prior to
the scheduled bidding.

In their Rejoinder, the private respondents aver that the documents of B.E. and Best Built were received
although filed late and were reviewed by the Award Committee, which discovered that the contractors had
expired licenses. B.E.s temporary certificate of Renewal of Contractors License was valid only until
September 30, 1988, while Best Builts license was valid only up to June 30, 1988. chanroble s lawlibrary : rednad

The Court has considered the arguments of the parties in light of their testimonial and documentary
evidence and the applicable laws and jurisprudence. It finds for the petitioners.

The 1987 Administrative Code defines a government instrumentality as follows: chanrob1es virtual 1aw library

Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. This
term includes regulatory agencies, chartered institutions, and government-owned or controlled corporations.
(Sec. 2 (5) Introductory Provisions).

The same Code describes a chartered institution thus: chanrob1es virtual 1aw library

Chartered institution refers to any agency organized or operating under a special charter, and vested by
law with functions relating to specific constitutional policies or objectives. This term includes the state
universities and colleges, and the monetary authority of the state. (Sec. 2 (12) Introductory Provisions).

It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P.D.
1818.

There are also indications in its charter that ISCOF is a government instrumentality. First, it was created in
pursuance of the integrated fisheries development policy of the State, a priority program of the government
of effect the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines also
be the ex-officio Treasurer of the state college with its accounts and expenses to be audited by the
Commission on Audit or its duly authorized representative. Third, heads of bureaus and offices of the
National Government are authorized to loan or transfer to it, upon request of the president of the state
college, such apparatus, equipment, or supplies and even the services of such employees as can be spared
without serious detriment to public service. Lastly, an additional amount of P1.5M had been appropriated out
of the funds of the National Treasury and it was also decreed in its charter that the funds and maintenance
of the state college would henceforth be included in the General Appropriations Law. 8

Nevertheless, it does not automatically follow that ISCOF is covered by the prohibition in the said decree.

In the case of Datiles and Co. v. Sucaldito, 9 this Court interpreted a similar prohibition contained in P.D.
605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the
issuance of injunctions or restraining orders by courts against administrative acts in controversies involving
facts or the exercise of discretion in technical cases. The Court observed that to allow the courts to judge
these matters would disturb the smooth functioning of the administrative machinery. Justice Teodoro Padilla
made it clear, however, that on issues definitely outside of this dimension and involving questions of law,
courts could not be prevented by P.D. No. 605 from exercising their power to restrain or prohibit
administrative acts.

We see no reason why the above ruling should not apply to P.D. 1818.

There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award
of the project.
chanroble s virtualawlibrary chanrobles.com:chanrobles.com.ph

Page 27 of 547
First, PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these
deadlines without prior notice to prospective participants.

Under the Rules Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure
contracts, PBAC shall provide prospective bidders with the Notice of Pre-qualification and other relevant
information regarding the proposed work. Prospective contractors shall be required to file their ARC-
Contractors Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-
qualification Statement for the Project (prior to the amendment of the rules, this was referred to as PRE-C1)
not later than the deadline set in the published Invitation to Bid, after which date no PRE-C2 shall be
submitted and received. Invitations to Bid shall be advertised for at least three times within a reasonable
period but in no case less than two weeks in at least two newspapers of general circulations. 10

PBAC advertised the pre-qualification deadline as December 2, 1988, without stating the hour thereof, and
announced that the opening of bids would be at 3 oclock in the afternoon of December 12, 1988. This
schedule was changed and a notice of such change was merely posted at the ISCOF bulletin board. The
notice advanced the cut-off time for the submission of pre-qualification documents to 10 oclock in the
morning of December 2, 1988, and the opening of bids to 1 oclock in the afternoon of December 12, 1988.

The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC
meeting held on December 6, 1988. While it may be true that there were fourteen contractors who were
pre-qualified despite the change in schedule, this fact did not cure the defect of the irregular notice. Notably,
the petitioners were disqualified because they failed to meet the new deadline and not because of their
expired licenses. ***

We have held that where the law requires a previous advertisement before government contracts can be
awarded, non-compliance with the requirement will, as a general rule, render the same void and of no effect
11 The facts that an invitation for bids has been communicated to a number of possible bidders is not
necessarily sufficient to establish compliance with the requirements of the law if it is shown that other public
bidders have not been similarly notified. 12

Second, PBAC was required to issue to pre-qualified applicants the plans, specifications and proposal book
forms for the project to be bid thirty days before the date of bidding if the estimate project cost was
between P1M and P5M. PBAC has not denied that these forms were issued only on December 2, 1988, or
only ten days before the bidding scheduled for December 12, 1988. At the very latest, PBAC should have
issued them on November 12, 1988, or 30 days before the scheduled bidding.

It is apparent that the present controversy did not arise from the discretionary acts of the administrative
body nor does it involve merely technical matters. What is involved here is non-compliance with the
procedural rules on bidding which required strict observance. The purpose of the rules implementing P.D.
1594 is to secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these
contracts to the detriment of the public. This purpose was defeated by the irregularities committed by
PBAC. chanrobles law library : red

It has been held that the three principles in public bidding are the offer to the public, an opportunity for
competition and a basis for exact comparison of bids. A regulation of the matter which excludes any of these
factors destroys the distinctive character of the system and thwarts and purpose of its adoption. 13

In the case at bar, it was the lack of proper notice regarding the pre-qualification requirement and the
bidding that caused the elimination of petitioners B.E. and Best Built. It was not because of their expired
licenses, as private respondents now claim. Moreover, the plans and specifications which are the contractors
guide to an intelligent bid, were not issued on time, thus defeating the guaranty that contractors be placed
on equal footing when they submit their bids. The purpose of competitive bidding is negated if some
contractors are informed ahead of their rivals of the plans and specifications that are to be the subject of
their bids.

P.D. 1818 was not intended to shield from judicial scrutiny irregularities committed by administrative
agencies such as the anomalies above described. Hence, the challenged restraining order was not
improperly issued by the respondent judge and the writ of preliminary injunction should not have been
denied. We note from Annex Q of the private respondents memorandum, however, that the subject project
has already been "100% completed as to the Engineering Standard." This fait accompli has made the
petition for a writ of preliminary injunction moot and academic.

Page 28 of 547
We come now to the liabilities of the private respondents.

It has been held in a long line of cases that a contract granted without the competitive bidding required by
law is void, and the party to whom it is awarded cannot benefit from it. 14 It has not been shown that the
irregularities committed by PBAC were induced by or participated in by any of the contractors. Hence,
liability shall attach only to the private respondents for the prejudice sustained by the petitioners as a result
of the anomalies described above.

As there is no evidence of the actual loss suffered by the petitioners, compensatory damage may not be
awarded to them. Moral damages do not appear to be due either. Even so, the Court cannot close its eyes to
the evident bad faith that characterized the conduct of the private respondents, including the irregularities in
the announcement of the bidding and their efforts to persuade the ISCOF president to award the project
after two days from receipt of the restraining order and before they moved to lift such order. For such
questionable acts, they are liable in nominal damages at least in accordance with Article 2221 of the Civil
Code, which states: jgc:chanrobles.com .ph

"Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant may be vindicated or, recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.

These damages are to assessed against the private respondents in the amount of P10,000.00 each, to be
paid separately for each of petitioners B.E. Construction and Best Built Construction. The other petitioner,
Occea Builders, is not entitled to relief because it admittedly submitted its pre-qualification documents on
December 5, 1988, or three days after the deadline. chanroble s virtual lawlibrary

WHEREFORE, judgment is hereby rendered: a) upholding the restraining order dated December 12, 1988, as
not covered by the prohibition in P.D. 1818; b) ordering the chairman and the members of the PBAC board
of trustees, namely Manuel R. Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to each
pay separately to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages P10,000.00 each;
and c) removing the said chairman and members from the PBAC board of trustees, or whoever among them
is still incumbent therein, for their malfeasance in office. Costs against PBAC.

Let a copy of this decision be sent to the Office of the Ombudsman.

SO ORDERED.

Grio-Aquino, Medialdea and Bellosillo, JJ., concur.

Page 29 of 547
 FIRST DIVISION

G.R. No. 111091 August 21, 1995

ENGINEER CLARO J. PRECLARO, petitioner,

vs.
SANDIGANBAYAN and PEOPLE OF THE PHILIPPINES, respondents.

KAPUNAN, J.:

On 14 June 1990, petitioner was charged before the Sandiganbayan with a violation of Sec. 3(b) of
R.A. No. 3019 as amended, otherwise known as the Anti-Graft and Corrupt Practices Act. The
information against him read as follows:

That on or about June 8, 1990, or sometime prior thereto, in Quezon City, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, a public officer,
being then the Project Manager/ Consultant of the Chemical Mineral Division, Industrial
Technology Development Institute, Department of Science and Technology, a component of
the Industrial Development Institute (ITDI for brevity) which is an agency of the Department
of Science and Technology (DOST for brevity), wherein the Jaime Sta. Maria Construction
undertook the construction of the building in Bicutan, Taguig, Metro Manila, with a total cost
of SEVENTEEN MILLION SIX HUNDRED NINETY FIVE THOUSAND PESOS
(P17,695,000.00) jointly funded by the Philippine and Japanese Governments, and while the
said construction has not yet been finally completed, accused either directly requested
and/or demanded for himself or for another, the sum of TWO HUNDRED THOUSAND
PESOS (P200,000.00), claimed as part of the expected profit of FOUR HUNDRED SIXTY
THOUSAND PESOS (P460,000.00) in connection with the construction of that government
building wherein the accused had to intervene under the law in his capacity as Project
Manager/Consultant of said construction said offense having been committed in relation
to the performance of his official duties.

CONTRARY TO LAW. 1

On 20 July 1990, during arraignment, petitioner pleaded "not guilty" to the charges against him.

On 30 June 1993, after trial on the merits, the Second Division of the Sandiganbayan rendered
judgment finding petitioner guilty beyond reasonable doubt. The dispositive portion reads as follows:

WHEREFORE, judgment is hereby rendered finding accused Claro Preclaro y Jambalos

GUILTY beyond reasonable doubt of the violation of Section 3, paragraph (b) of Republic Act
No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act, and he
is hereby sentenced to suffer an indeterminate penalty ranging from SIX (6) YEARS and

Page 30 of 547
 ONE (1) MONTH, as the minimum, to TEN (10) YEARS and ONE (1) DAY, as the maximum,
perpetual disqualification from public office and to pay the costs of this action.

SO ORDERED. 2

The antecedent facts are largely undisputed.

On 1 October 1989, the Chemical Mineral Division of the Industrial Technology Development
Institute (ITDI), a component of the Department of Science and Technology (DOST) employed
Petitioner under a written contract of services as Project Manager to supervise the construction of
the ITDI-CMD (JICA) Building at the DOST Compound in Bicutan, Taguig, Metro Manila. 3

The contract was to remain in effect from October 1, 1989 up to the end of the construction period
unless sooner terminated. 4 Petitioner was to be paid a monthly salary drawn from counter-part funds
duly financed by foreign-assisted projects and government funds duly released by the Department of
Budget and Management. 5

In November 1989, to build the aforementioned CMD Structure, DOST contracted the services of the
Jaime Sta. Maria Construction Company with Engr. Alexander Resoso, as the company's project
engineer. 6

How petitioner committed a violation of the Anti-Graft & Corrupt Practices Act is narrated in the
Comment of the Solicitor General and amply supported by the records. The material portions are
hereunder reproduced:

xxx xxx xxx

3. In the month of May, 1990, Alexander Resoso, Project Engineer of the Sta. Maria
Construction Company, was in the process of evaluating a Change Order for some
electricals in the building construction when petitioner approached him at the project site (p.
11, 25, Ibid.).

4. Unexpectedly, petitioner made some overtures that expenses in the Change Order will be
deductive (meaning, charged to the contractor by deducting from the contract price), instead
of additive (meaning, charged to the owner). Petitioner intimated that he can forget about the
deductive provided he gets P200,000.00, a chunk of the contractor's profit which he roughly
estimated to be around P460,000.00 (pp. 12-13, 22, Ibid.).

5. Having conveyed the proposal to Jaime Sta. Maria, Sr., the owner of Sta. Maria
Construction Company, Resoso thereafter asked petitioner if he wanted a rendezvous for
him to receive the money. Petitioner chose Wendy's Restaurant, corner E. Delos Santos
Avenue and Camias Street, on June 6, 1990 at around 8:00 o'clock in the evening (p.
14, Ibid.).

6. However, Sta. Maria, Sr. asked for two (2) more days or until the 8th of June, perceiving
financial constraints (Ibid.).

7. Petitioner relented, saying "O.K. lang with me because we are not in a hurry." (p. 15, Ibid.)
Petitioner was thereafter asked to bring along the result of the punch list (meaning, the list of

Page 31 of 547
defective or correctible works to be done by the contractor) (p. 15, Ibid.; p. 10, TSN, 18 Oct.
1991).

8. On 7 June 1990, Sta. Maria, Sr. and Resoso proceeded to the National Bureau of
Investigation (NBI) to report the incident (p. 15, 35, Ibid.).

9. The NBI suggested an entrapment plan to which Sta. Maria, Sr. signified his conformity (p.
16, TSN, 12 Oct. 1990). Accordingly, Sta. Maria, Sr. was requested to produce the amount of
P50,000.00 in P500.00 denomination to represent the grease money (p. 37, TSN, 6 Sept.
1990).

10. The next day, or on 8 June 1990, Resoso delivered the money to the NBI. Thereafter, the
money was dusted with flourescent powder and placed inside an attache case (pp. 16-
17, Ibid.). Resoso got the attache case and was instructed not to open it. Similarly, he was
advised to proceed at the Wendy's Restaurant earlier than the designated time where a
group of NBI men awaited him and his companion, Sta. Maria, Jr. (pp. 17-18, Ibid.).

11. Hence, from the NBI, Resoso passed by the Jade Valley Restaurant in Timog, Quezon
City, to fetch Sta. Maria, Jr. (Ibid.).

12. At around 7:35 p.m., Resoso and Sta. Maria, Jr. arrived at the Wendy's Restaurant. They
were led by the NBI men to a table previously reserved by them which was similarly adjacent
to a table occupied by them (pp. 18-19, Ibid.).

13. Twenty minutes later, petitioner arrived. Supposedly, the following conversation took
place, to wit:

JUSTICE BALAJADIA:

q. When Dave Preclaro arrived, what did he do?

a. We asked him his order and we talked about the punch list.

q. What was his comment about the punch list?

a. He told us that it is harder to produce small items than big

ones.

q. How long did you converse with Engr. Claro Preclaro?

a. I think thirty minutes or so.

q. Was Preclaro alone when he came?

a. Yes, Your Honor.

xxx xxx xxx

Page 32 of 547
 PROS. CAOILI:

q. When you talk[ed] about his punch list, did you talk about
anything else?

a. Engineer Sta. Maria, Jr., they were conversing with Dave

Preclaro and he told [him], "O, paano na."

JUSTICE ESCAREAL:

q. Who said "Paano na?"

a. Engineer Sta. Maria, [Jr.]. And then Preclaro told [him],

"Paano, How will the money be arranged and can I bring it?"
he said.

And then Jimmy Sta. Maria, Jr. told him it was arranged on
two bundles on two envelopes.

And then Dave Preclaro told, "Puede" and he asked Jimmy

Sta. Maria, Jr. if there is express teller and could he deposit
during night time but Engineer Sta. Maria, Jr. told him, "I do
not have any knowledge or I do not have any express teller
you can deposit. I only know credit card."

PROS. CAOILI:

q. When Engr. Sta. Maria intervened and interviewed him that

way, was there anything that happened?

a. Jimmy Sta. Maria, Jr. handed two envelopes to Preclaro.

q. Did Claro Preclaro receive these two envelopes from

Engineer Sta. Maria?

a. Yes, sir. (pp. 19-21, Ibid., See also pp. 13-14, TSN, 29 Oct.
1990.)

14. From the moment petitioner received the two envelopes with his right hand, thereafter
placing them under his left armpit, he was accosted by the NBI men (p. 22, TSN, 12 Oct.
1990).

15. A camera flashed to record the event. Petitioner instinctively docked to avoid the taking
of pictures. In such manner, the two envelopes fell (p. 23, Ibid.).

16. The NBI men directed petitioner to pick up the two envelopes. Petitioner refused. Hence,
one of the NBI men picked up the envelopes and placed them inside a big brown envelope
(p. 27, Ibid.)

Page 33 of 547
 17. Petitioner was thenceforth brought to the NBI for examination (p. 28; Ibid.).

18. At the NBI Forensic Chemistry Section, petitioner's right palmar hand was tested positive
of flourescent powder. The same flourescent powder, however, cannot be detected in
petitioner's T-shirt and pants (p. 5, TSN, 29 Oct. 1990). 7

xxx xxx xxx

Thus, as brought out at the outset, an information was filed against petitioner which, after due
hearing, resulted in his conviction by the Sandiganbayan. Not satisfied with the decision, petitioner
instituted the present petition for review, ascribing to the Sandiganbayan the following errors:

1. THE SANDIGANBAYAN ERRED IN TAKING COGNIZANCE OF THE CASE, INSTEAD

OF DISMISSING IT FOR LACK OF JURISDICTION, THE [PETITIONER] NOT BEING A
PUBLIC OFFICER; and

2. THE SANDIGANBAYAN ERRED IN NOT RULING THAT NOT ALL THE ELEMENTS OF
THE OFFENSE CHARGED HAVE BEEN ESTABLISHED BEYOND REASONABLE DOUBT
AND/OR THAT THE GUILT OF THE [PETITIONER] HAS NOT BEEN ESTABLISHED
BEYOND REASONABLE DOUBT.

We find the petition unmeritorious.

On the first issue, petitioner asserts that he is not a public officer as defined by Sec. 2(b) of the Anti-
Graft & Corrupt Practices Act (R.A. No. 3019 as amended), because he was neither elected nor
appointed to a public office. Rather, petitioner maintains that he is merely a private individual hired
by the ITDI on contractual basis for a particular project and for a specified period 8 as evidenced by
the contract of services 9 he entered into with the ITDI. Petitioner, to further support his "theory," alleged
that he was not issued any appointment paper separate from the abovementioned contract. He was not
required to use the bundy clock to record his hours of work and neither did he take an oath of office. 10

We are not convinced by petitioner's arguments.

Petitioner miscontrues the definition of "public officer" in R.A. No. 3019 which, according to Sec. 2(b)
thereof "includes elective and appointive officials and employees, permanent or temporary, whether
in the classified or unclassified or exemption service receiving compensation, even nominal, from the
government. . . ."

The word "includes" used in defining a public officer in Sec. 2(b) indicates that the definition is not
restrictive. The terms "classified, unclassified or exemption service" were the old categories of
positions in the civil service which have been reclassified into Career Service and Non-Career
Service 11 by PD 807 providing for the organization of the Civil Service Commission 12 and by the
Administrative Code of 1987. 13

Non-career service in particular is characterized by

(1) entrance on bases other than those of the usual test of merit and fitness utilized for the
career service;and (2) tenure which is limited to a period specified by law, or which is

Page 34 of 547
 coterminous with that of the appointing authority or subject to his pleasure, or which is
limited to the duration of a particular project for which purpose employment was made.

The Non-Career Service shall include:

(1) Elective officials and their personal or confidential staff;

(2) Secretaries and other officials of Cabinet rank who hold their positions at the pleasure of
the President and their personal or confidential staff(s);

(3) Chairman and members of commissions and boards with fixed terms of office and their
personal or confidential staff;

(4) Contractual personnel or those whose employment in the government is in accordance

with a special contract to undertake a specific work or job, requiring special or technical skills
not available in the employing agency, to be accomplished within a specific period, which in
no case shall exceed one year, and performs or accomplishes the specific work or job, under
his own responsibility with a minimum of direction and supervision from the hiring
agency; and

(5) Emergency and seasonal personnel. (Emphasis ours.) 14

From the foregoing classification, it is quite evident that petitioner falls under the non-career service
category (formerly termed the unclassified or exemption service) of the Civil Service and thus is a
public officer as defined by Sec. 2(b) of the Anti-Graft & Corrupt Practices Act (R.A. No. 3019).

The fact that petitioner is not required to record his working hours by means of a bundy clock or did
not take an oath of office became unessential considerations in view of the above-mentioned
provision of law clearly including petitioner within the definition of a public officer.

Similarly, petitioner's averment that he could not be prosecuted under the Anti-Graft & Corrupt
Practices Act because his intervention "was not required by law but in the performance of a contract
of services entered into by him as a private individual contractor," 15 is erroneous. As discussed above,
petitioner falls within the definition of a public officer and as such, his duties delineated in Annex "B" of the
contract of services 16 are subsumed under the phrase "wherein the public officer in his official capacity
has to intervene under the law." 17 Petitioner's allegation, to borrow a cliche, is nothing but a mere splitting
of hairs.

Among petitioner's duties as project manager is to evaluate the contractor's accomplishment

reports/billings 18hence, as correctly ruled by the Sandiganbayan he has the "privilege and authority to
make a favorable recommendation and act favorably in behalf of the government," signing acceptance
papers and approving deductives and additives are some examples. 19 All of the elements of Sec. 3(b) of
the Anti-Graft & Corrupt Practices Act are, therefore, present.

Anent the second issue, we likewise find Petitioner's allegations completely bereft of merit.

Petitioner insists that the prosecution has failed to establish his guilt beyond reasonable doubt and
that the charges against him should be rejected for being improbable, unbelievable and contrary to
human nature.

Page 35 of 547
We disagree.

Proof beyond reasonable doubt does not mean that which produces absolute certainty. Only moral
certainty is required or "that degree of proof which produces conviction in an unprejudiced
mind." 20 We have extensively reviewed the records of this case and we find no reason to overturn the
findings of the Sandiganbayan.

Petitioner enumerates the alleged improbabilities and inconsistencies in the testimonies of the
prosecution witnesses. We shall examine the testimonies referred to with meticulousness.

Petitioner asserts that it was improbable for him to have demanded P200,000.00 from Engr. Resoso,
when he could have just talked directly to the contractor himself. It is quite irrelevant from whom
petitioner demanded his percentage share of P200,000.00 whether from the contractor's project
engineer, Engr. Alexander Resoso or directly from the contractor himself Engr. Jaime Sta. Maria Sr.
That petitioner made such a demand is all that is required by Sec. 3(b) of R.A. No. 3019 and this
element has been sufficiently established by the testimony of Engr. Resoso, thus:

xxx xxx xxx

Q You said when you were computing your Change Order Mr. Preclaro or
Dave Preclaro whom you identified approached you, what did you talk about?

A He mentioned to me that we are deductive in our Change Order three and

four so after our conversation I told this conversation to my boss that we are
deductible in the Change Order three and four and then my boss told me to
ask why it is deductive.

Q Did you ask the accused here, Dave Preclaro why it is considered
deductive?

A Yes, sir.

Q What was his answer if any?

A I asked him that my boss is asking me to ask you how come it became
deductive when my computation is additive and he told me that I have done
so much for your company already and then he picked up cement bag paper
bag and computed our alleged profit amounting to One Hundred Sixty
Thousand Pesos and then he told me that he used to use some percentage
in projects maximum and minimum and in our case he would use a minimum
percentage and multiply to 60 and . . .

JUSTICE ESCAREAL:

Q What is 460?

A P460,000.00 and he said take of the butal and get two Hundred Thousand
Pesos.

Page 36 of 547
JUSTICE BALAJADIA:

What is the translation now?

WITNESS:

A And he said disregard the excess and I will just get the P200,000.00.
(Emphasis ours.)

PROS. CAOILI:

Q What does he mean by that if you know?

A I do not know sir.

He just said, I will get the P200,000.00 and tell it to your boss. (Emphasis
ours.)

JUSTICE BALAJADIA:

Q What is P200,000.00?

A It is Two Hundred Thousand Pesos.

PROS. CAOILI:

Q What did you answer him when he told you that?

A He told me to forget the deductive and electrical and after that I told my
boss what he told me.

Q Who is your boss?

A Santa Maria Sr.

Q What was the reaction of your boss when you relayed the message to Mr.
Preclaro?

A The next day he told me to ask Dave where and when to pick up the
money so the next day I asked Dave "Where do you intend to get the money,
the Boss wanted to know."

Q What was the answer of Dave?

A And he told me, Wendy's Restaurant at 3:00 o'clock.

Q When?

Page 37 of 547
 A June 6 Wednesday.

Q When he told you that did you comply with June 6 appointment?

A I told my boss what he told me again that the meeting will take place at
Wendy's Restaurant corner Edsa and Camias Street at around 8:00 o'clock
p.m. June 6, Wednesday.

Q What did your boss tell you?

A The next day he told me to ask Dave.

Q What did your boss tell you?

A My boss told me to ask Dave to postpone the meeting on June 6 to be

postponed on June 8 at the same place and same time because my boss is
having financial problem.

Q Did you relay the postponement to Dave Preclaro?

A Yes sir. I told what my boss told me.

Q What was his reaction?

A Dave told me "O.K. lang with me" because we are not in a hurry. Any way
we are the ones to sign the acceptance papers and my boss instructed me
that on Friday to ask Dave to bring along the result of the punch list and if
possible also to bring along the acceptance papers to be signed by Dave,
Lydia Mejia and Dr. Lirag the director.

Q What happened next after meeting with Preclaro to relay the

postponement if any?

A Nothing happened. The next day, Thursday the boss instructed me to go

with him to the NBI to give a statement.

Q Did you go to the NBI and report to the incident to the NBI?

A Yes sir.

Q Did you give a statement before any of the agents of the of the NBI?

A Yes sir. 21

xxx xxx xxx

Likewise, petitioner's alleged refusal to see Mr. Jaime Sta. Maria Sr. when the latter tried to arrange
meetings with him regarding his demand 22 does not weaken the cause against petitioner. It does not at

Page 38 of 547
all prove that petitioner did not ask for money. Conceivably petitioner did not muster enough courage to
ask money directly from the contractor himself. Getting the amount through the project engineer would be
safer because if Mr. Sta. Maria, Sr. had refused to give money, petitioner could always deny having made
the demand.

Petitioner contends that the percentage demanded in the amount of P200,000.00 is too high
considering that the estimated profit of the contractor from the CMD project is only P460,000.00. In
petitioner's words, this would "scare the goose that lays the golden egg." 23 We reject this argument.
The aforementioned contractor's profit is petitioner's own computation as testified to by Engr. Resoso:

xxx xxx xxx

A I asked him that my boss is asking me to ask you how come it became
deductive when my computation is additive and he told me that I have done
so much for your company already and then he picked up cement bag paper
bag and computed our alleged profit amounting to One Hundred Sixty
Thousand Pesos and then he told me that he used to use some percentage
in projects maximum and minimum and in our case he would use a minimum
percentage and multiply to 460 and . . . (Emphasis ours.)

JUSTICE ESCAREAL:

Q What is 460?

A P460,000.00 and it ended to P215 thousand or P20,000.00 and he said

take of the butal and get the Two Hundred Thousand Pesos. (Emphasis
ours.)

JUSTICE BALAJADIA:

What is the translation now?

WITNESS:

A And he said disregard the excess and I will just get the P200,000.00.

PROS. CAOILI:

Q What does he mean by that if you know?

A I do not know sir.

He just said, I will get the P200,000.00 and tell it to your boss. 24

xxx xxx xxx

The records, however, do not show the true and actual amount that the Sta. Maria Construction will
earn as profit. There is, therefore, no basis for petitioner's contention as the actual profit may be
lower or higher than his estimation.

Page 39 of 547
Besides, as related by Engr. Resoso, petitioner considers the P200,000.00 percentage proper
compensation since he has allegedly done so much for the Sta. Maria construction company. 25

Petitioner also argues that:

According to STA. MARIA, SR., they were deductive by P280,000.00 (Id., pp. 34-35).

If STA. MARIA CONSTRUCTION was deductive in the amount of P280,000.00, why would
the petitioner still demand P200,000.00 which would increase the contractor's loss to
P480,000.00!

It might have been different if the changes were additive where STA. MARIA
CONSTRUCTION would have earned more, thereby providing motive for the petitioner to
ask for a percentage! 26

But this is precisely what petitioner was bargaining for P200,000.00 in exchange for forgetting
about the deductive 27 and thus prevent the Sta. Maria Construction from incurring losses.

Petitioner's contention that it was impossible for him to make any demands because the final
decision regarding accomplishments and billing lies with the DOST technical committee is
unacceptable. Petitioner is part of the abovementioned technical committee as the ITDI
representative consultant. This is part of his duties under the contract of services in connection with
which he was employed by the ITDI. Even, assuming arguendo that petitioner does not make the
final decision, as supervisor/consultant, his recommendations will necessarily carry much weight.
Engr. Resoso testified thus:

PROS. CAOILI:

Q As a Project Engineer to whom do you present your billing papers

accomplishment report or purchase order?

A The billing paper was being taken cared of by the, of our office. I personally
do my job as supervision in the construction.

Q Do you have any counterpart to supervise the project from the government
side?

A Yes, we have.

Yes, the DOST have a technical Committee Infra-Structure Committee and

also the ITDI as its own representative.

Q Who composed the Technical Committee of the DOST?

A A certain Engineer Velasco, Engineer Sande Banez and Engineer Mejia.

Q How about the ITDI?

Page 40 of 547
A The ITDI representative composed of Dave Preclaro.

Q Who is this Dave Preclaro?

A He is the consultant of ITDI. (Emphasis ours.)

xxx xxx xxx

ATTY. CAOILI:

Q As Project Engineer do you consult to any body regarding your job?

A First if there is any problem in the site I consult my boss.

PROS. CAOILI:

Q How about with the other consultants representing the ITDI and DOST?

A In the construction site we have meeting every Monday to discuss any

problem.

Q With whom do you discuss this problem?

A The Infra-structure Committee of DOST and the Infra-structure Committee

of ITDI, the architect and the contractor. We had weekly meetings.

Q What matters if any do you consult with Mr. Claro Preclaro?

ATTY. JIMENEZ:

No basis.

JUSTICE ESCAREAL:

They met on problems on Mondays.

ATTY. JIMENEZ:

But there is no mention of Preclaro specifically.

JUSTICE ESCAREAL:

With the representative of DOST and Preclaro

ATTY. JIMENEZ:

Does that also mean that Preclaro is also among the representatives he is
going to consult with?

Page 41 of 547
 Well any way. . .

JUSTICE ESCAREAL:

Witness may answer the question.

Read back the question.

COURT STENOGRAPHER:

Reading back the question as ordered by the Court.

WITNESS:

A Every Monday meeting we tackle with accomplishment report the billing

papers. 28 (Emphasis ours.)

xxx xxx xxx

Petitioner also claims that the testimonies of the prosecution witnesses regarding the entrapment
itself are conflicting, doubtful or improbable:

(aaa) according to RESOSO, only FOUR (4) P500 bills were dusted with flourescent powder
and used in the alleged entrapment.

Contradicting RESOSO, STA. MARIA, SR. said that he gave fifty thousand (P50,000.00)
pesos in P500 denomination to the NBI. 29

There is no such inconsistency. Said witnesses were testifying on two different subjects. Engr. Sta.
Maria, Sr.'s testimony touched on the amount he gave the NBI for use in the entrapment while Engr.
Resoso's declaration referred only to the number of bills dusted with flourescent powder.

Petitioner, likewise, misappreciated the following testimony of Resoso:

PROS. CAOILI:

Q What did he do with the two envelopes upon receiving the same?

A Then he asked Jaime Sta. Maria, Jr. if there is bank teller express, if he
could deposit the money but Mr. Sta. Maria said, "I do not have, I only have
credit cards." 30

Petitioner intended to deposit the money in his own account not that of Mr. Sta. Maria, Jr. He was
merely inquiring from the latter if there was an express teller nearby where he could make the
deposit. Mr. Sta. Maria Jr. himself testified as follows:

A He asked me if there was express teller. I told him I do not know then he
asked me whether it is possible to deposit at the Express Teller at that time. I

Page 42 of 547
 told him I don't know because I have no express teller card and he asked me
how am I going to arrange, how was it arranged if I will bring it, can I bring it.
Then I told him that it was placed in two envelopes consisting of 500 Peso
bills and then he said "Okay na yan." 31

The failure of the NBI to take photographs of the actual turn-over of the money to petitioner is not
fatal to the People's cause. The transaction was witnessed by several people, among whom were
Engr. Resoso, Mr. Sta. Maria Jr. and the NBI agents whose testimonies on the circumstances
before, during and after the turn-over are consistent, logical and credible.

According to NBI Agent Francisco Balanban Sr., they purposely took no photographs of the actual
turn-over so as not to alert and scare off the petitioner. During cross-examination Agent Balanban Jr.
stated:

xxx xxx xxx

Q Now, of course, this entrapment operation, you made certain preparation to

make sure that you would be able to gather evidence in support of the
entrapment?

A Yes sir.

Q As a matter of fact you even brought photographer for the purpose?

A That is right sir.

Q And that photographer was precisely brought along to record the

entrapment?

A Yes sir.

Q From the beginning to the end, that was the purpose?

A At the time of the arrest sir.

ATTY. JIMENEZ:

From the time of the handing over of the envelopes until the entrapment
would have been terminated?

A No sir we plan to take the photograph only during the arrest because if we
take photographs he would be alerted during the handing of the envelopes.
(Emphasis ours.)

Q So you did not intend to take photographs of the act of handing of the
envelopes to the suspect?

Page 43 of 547
 A We intended but during that time we cannot take photographs at the time
of the handling because the flash will alert the suspect. (Emphasis ours.)

JUSTICE ESCAREAL:

Why did you not position the photographer to a far distance place with
camera with telescopic lens?

A We did not Your Honor.

ATTY. JIMENEZ:

So was it your intention to take photographs only at the time that he is

already being arrested?

A Yes sir. 32

xxx xxx xxx

Petitioner insists that when his hands were placed under ultra-violet light, both were found negative
for flourescent powder. This is petitioner's own conclusion which is not supported by evidence. Such
self-serving statement will not prevail over the clear and competent testimony and the
report 33 submitted by the forensic expert of the NBI Ms. Demelen R. dela Cruz, who was the one who
conducted the test and found petitioner's right palmar hand positive for flourescent powder, the same
hand he used, according to witnesses Resoso and Sta. Maria Jr., to get the money from the latter.

xxx xxx xxx

Q Mrs. dela Cruz since when have you been a Forensic Chemist at NBI?

A Since 1981 sir.

Q JUSTICE ESCAREAL:

Q By the way, is the defense willing to admit that the witness is a competent
as . . . .

ATTY. JIMENEZ:

Admitted Your Honor.

PROS. CAOILI:

Madam Witness did you conduct a forensic examination in the person of one
Dave Preclaro y Jambalos?

A Yes sir.

Page 44 of 547
Q If that person whom you examined is here in court would you be able to
recognize him?

ATTY. JIMENEZ:

We admit that the accused is the one examined by the witness.

ATTY. CAOILI:

Did you prepare the result of the examination in writing?

A Yes sir.

PROS. CAOILI:

Showing to you Physic Examination No. 90-961 which for purposes of

identification has already been marked as Exh. H what relation has this have
with the report that you mentioned a while ago?

A This is the same report that I prepared sir.

Q How did you conduct such flourescent examination?

A The left and right hands of the accused were placed under the ultra violet
lamp sir.

Q What was the result?

A It gave a . . . under the ultra violent lamp the palmer hands of the suspect
gave positive result for the presence of flourescent powder.

Q What palmar hands?

A Right hand sir.

Q What other examination did you conduct?

A And also the clothing, consisting of the t-shirts and the pants were
examined. Under the ultra violet lamp the presence of the flourescent powder
of the t-shirts and pants cannot be seen or distinguished because the fibers
or the material of the cloth under the ultra violet lamp was flouresce.

Q Please tell the Court why the t-shirts and pants under the ultra violent lamp
was flouresce?

A The materials or the fibers of the clothings it could have been dyed with
flourescent dyes sir. 34

Page 45 of 547
 xxx xxx xxx

What we find improbable and contrary to human experience is petitioner's claim that he was set up
by Engr. Sta. Maria Sr. and Engr. Resoso for no other purpose but revenge on account, for
petitioner's failure to recommend the Sta. Maria Construction to perform the extra electrical works. 35

The Sandiganbayan has aptly ruled on this matter, thus:

For another, the claim of accused that there was ill-will on the part of the construction
company is hardly plausible. It is highly improbable for the company to embark on a
malicious prosecution of an innocent person for the simple reason that such person had
recommended the services of another construction firm. And it is extremely impossible for
such company to enlist the cooperation and employ the services of the government's chief
investigative agency for such an anomalous undertaking. It is more in accord with reason
and logic to presuppose that there was some sort of a mischievous demand made by the
accused in exchange for certain favorable considerations, such as, favorable
recommendation on the completeness of the project, hassle-free release of funds, erasure of
deductives, etc. Indeed, the rationale for the occurrence of the meeting and the demand for
money is infinite and boundless. 36

As correctly pointed out by the Solicitor General, Engr. Sta. Maria Sr., who was then engaged in the
construction of another DOST building, would not risk his business or livelihood just to exact revenge
which is neither profitable nor logical. As we aptly stated in Maleg v. Sandiganbayan: 37

It is hard to believe that the complainant who is a contractor would jeopardize and prejudice his
business interests and risk being blacklisted in government infrastructure projects, knowing that
with the institution of the case, he may find it no longer advisable nor profitable to continue in his
construction ventures. It is hardly probable that the complainant would weave out of the blue a
serious accusation just to retaliate and take revenge on the accused.

From the foregoing, the conclusion is inescapable that on the basis of the testimonial and
documentary evidence presented during the trial, the guilt of petitioner has been established beyond
reasonable doubt.

WHEREFORE, the appealed decision of the Sandiganbayan is hereby AFFIRMED.

EN BANC

LOUIS BAROK C. BIRAOGO, G.R. No. 192935

Petitioner,

- versus -

THE PHILIPPINE TRUTH

COMMISSION OF 2010,
Respondent.
Page 46 of 547
 x-----------------------x
REP. EDCEL C. LAGMAN, G.R. No. 193036
REP. RODOLFO B. ALBANO, JR.,
REP. SIMEON A. Present:
DATUMANONG, and REP.
ORLANDO B. FUA, SR., CORONA, C.J.,
Petitioners, CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
- versus - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
EXECUTIVE SECRETARY SERENO, JJ.
PAQUITO N. OCHOA, JR. and
DEPARTMENT OF BUDGET AND Promulgated:
MANAGEMENT SECRETARY
FLORENCIO B. ABAD, December 7, 2010
Respondents.

x -------------------------------------------------------------------------------------- x

DECISION
MENDOZA, J.:

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

Page 47 of 547
 actual controversy the rights which that instrument secures and
guarantees to them.

--- Justice Jose P. Laurel[1]

The role of the Constitution cannot be overlooked. It is through the Constitution
that the fundamental powers of government are established, limited and defined,
and by which these powers are distributed among the several departments. [2] The
Constitution is the basic and paramount law to which all other laws must conform
and to which all persons, including the highest officials of the land, must defer.
[3]
Constitutional doctrines must remain steadfast no matter what may be the tides
of time. It cannot be simply made to sway and accommodate the call of situations
and much more tailor itself to the whims and caprices of government and the
people who run it.[4]

For consideration before the Court are two consolidated cases [5] both of which
essentially assail the validity and constitutionality of Executive Order No. 1, dated
July 30, 2010, entitled Creating the Philippine Truth Commission of 2010.

The first case is G.R. No. 192935, a special civil action for prohibition
instituted by petitioner Louis Biraogo (Biraogo) in his capacity as a citizen and
taxpayer. Biraogo assails Executive Order No. 1 for being violative of the
legislative power of Congress under Section 1, Article VI of the Constitution [6] as it
usurps the constitutional authority of the legislature to create a public office and to
appropriate funds therefor.[7]

The second case, G.R. No. 193036, is a special civil action for certiorari and
prohibition filed by petitioners Edcel C. Lagman, Rodolfo B. Albano Jr., Simeon
A. Datumanong, and Orlando B. Fua, Sr. (petitioners-legislators) as incumbent
members of the House of Representatives.

The genesis of the foregoing cases can be traced to the events prior to the historic
May 2010 elections, when then Senator Benigno Simeon Aquino III declared his
staunch condemnation of graft and corruption with his slogan, Kung walang
corrupt, walang mahirap. The Filipino people, convinced of his sincerity and of

Page 48 of 547
his ability to carry out this noble objective, catapulted the good senator to the
presidency.

To transform his campaign slogan into reality, President Aquino found a

need for a special body to investigate reported cases of graft and corruption
allegedly committed during the previous administration.

Thus, at the dawn of his administration, the President on July 30, 2010,
signed Executive Order No. 1 establishing the Philippine Truth Commission of
2010 (Truth Commission). Pertinent provisions of said executive order read:
EXECUTIVE ORDER NO. 1

CREATING THE PHILIPPINE TRUTH COMMISSION OF 2010

WHEREAS, Article XI, Section 1 of the 1987 Constitution of the Philippines

solemnly enshrines the principle that a public office is a public trust and
mandates that public officers and employees, who are servants of the people,
must at all times be accountable to the latter, serve them with utmost
responsibility, integrity, loyalty and efficiency, act with patriotism and justice,
and lead modest lives;

WHEREAS, corruption is among the most despicable acts of defiance of this

principle and notorious violation of this mandate;

WHEREAS, corruption is an evil and scourge which seriously affects the political,
economic, and social life of a nation; in a very special way it inflicts untold
misfortune and misery on the poor, the marginalized and underprivileged sector
of society;

WHEREAS, corruption in the Philippines has reached very alarming levels, and
undermined the peoples trust and confidence in the Government and its
institutions;

WHEREAS, there is an urgent call for the determination of the truth regarding
certain reports of large scale graft and corruption in the government and to put a
closure to them by the filing of the appropriate cases against those involved, if
warranted, and to deter others from committing the evil, restore the peoples faith
and confidence in the Government and in their public servants;

WHEREAS, the Presidents battlecry during his campaign for the Presidency in
the last elections kung walang corrupt, walang mahirap expresses a solemn
pledge that if elected, he would end corruption and the evil it breeds;

WHEREAS, there is a need for a separate body dedicated solely to investigating

and finding out the truth concerning the reported cases of graft and corruption

Page 49 of 547
during the previous administration, and which will recommend the prosecution
of the offenders and secure justice for all;
WHEREAS, Book III, Chapter 10, Section 31 of Executive Order No. 292,
otherwise known as the Revised Administrative Code of the Philippines, gives the
President the continuing authority to reorganize the Office of the President.

NOW, THEREFORE, I, BENIGNO SIMEON AQUINO III, President of the

Republic of the Philippines, by virtue of the powers vested in me by law, do
hereby order:

SECTION 1. Creation of a Commission. There is hereby created

the PHILIPPINE TRUTH COMMISSION, hereinafter referred to as
the COMMISSION, which shall primarily seek and find the truth on, and toward
this end, investigate reports of graft and corruption of such scale and magnitude
that shock and offend the moral and ethical sensibilities of the people, committed
by public officers and employees, their co-principals, accomplices and accessories
from the private sector, if any, during the previous administration; and thereafter
recommend the appropriate action or measure to be taken thereon to ensure that
the full measure of justice shall be served without fear or favor.
The Commission shall be composed of a Chairman and four (4) members who
will act as an independent collegial body.

SECTION 2. Powers and Functions. The Commission, which shall have all the
powers of an investigative body under Section 37, Chapter 9, Book I of the
Administrative Code of 1987, is primarily tasked to conduct a thorough fact-
finding investigation of reported cases of graft and corruption referred to in
Section 1, involving third level public officers and higher, their co-principals,
accomplices and accessories from the private sector, if any, during the previous
administration and thereafter submit its finding and recommendations to the
President, Congress and the Ombudsman.
In particular, it shall:

a) Identify and determine the reported cases of such graft and corruption
which it will investigate;

b) Collect, receive, review and evaluate evidence related to or regarding the

cases of large scale corruption which it has chosen to investigate, and to this end
require any agency, official or employee of the Executive Branch, including
government-owned or controlled corporations, to produce documents, books,
records and other papers;

c) Upon proper request or representation, obtain information and documents

from the Senate and the House of Representatives records of investigations
conducted by committees thereof relating to matters or subjects being
investigated by the Commission;

d) Upon proper request and representation, obtain information from the

courts, including the Sandiganbayan and the Office of the Court Administrator,
information or documents in respect to corruption cases filed with the
Sandiganbayan or the regular courts, as the case may be;

Page 50 of 547
e) Invite or subpoena witnesses and take their testimonies and for that
purpose, administer oaths or affirmations as the case may be;

f) Recommend, in cases where there is a need to utilize any person as a state

witness to ensure that the ends of justice be fully served, that such person who
qualifies as a state witness under the Revised Rules of Court of the Philippines be
admitted for that purpose;

g) Turn over from time to time, for expeditious prosecution, to the appropriate
prosecutorial authorities, by means of a special or interim report and
recommendation, all evidence on corruption of public officers and employees and
their private sector co-principals, accomplices or accessories, if any, when in the
course of its investigation the Commission finds that there is reasonable ground
to believe that they are liable for graft and corruption under pertinent applicable
laws;

h) Call upon any government investigative or prosecutorial agency such as the

Department of Justice or any of the agencies under it, and the Presidential Anti-
Graft Commission, for such assistance and cooperation as it may require in the
discharge of its functions and duties;

i) Engage or contract the services of resource persons, professionals and other

personnel determined by it as necessary to carry out its mandate;

j) Promulgate its rules and regulations or rules of procedure it deems

necessary to effectively and efficiently carry out the objectives of this Executive
Order and to ensure the orderly conduct of its investigations, proceedings and
hearings, including the presentation of evidence;

k) Exercise such other acts incident to or are appropriate and necessary in

connection with the objectives and purposes of this Order.
SECTION 3. Staffing Requirements. x x x.

SECTION 4. Detail of Employees. x x x.

SECTION 5. Engagement of Experts. x x x

SECTION 6. Conduct of Proceedings. x x x.

SECTION 7. Right to Counsel of Witnesses/Resource Persons. x x x.
SECTION 8. Protection of Witnesses/Resource Persons. x x x.
SECTION 9. Refusal to Obey Subpoena, Take Oath or Give Testimony. Any
government official or personnel who, without lawful excuse, fails to appear upon
subpoena issued by the Commission or who, appearing before the Commission
refuses to take oath or affirmation, give testimony or produce documents for
inspection, when required, shall be subject to administrative disciplinary action.
Any private person who does the same may be dealt with in accordance with law.
SECTION 10. Duty to Extend Assistance to the Commission. x x x.
SECTION 11. Budget for the Commission. The Office of the President shall
provide the necessary funds for the Commission to ensure that it can exercise its
powers, execute its functions, and perform its duties and responsibilities as
effectively, efficiently, and expeditiously as possible.
SECTION 12. Office. x x x.

Page 51 of 547
 SECTION 13. Furniture/Equipment. x x x.

SECTION 14. Term of the Commission. The Commission shall accomplish its
mission on or before December 31, 2012.

SECTION 15. Publication of Final Report. x x x.

SECTION 16. Transfer of Records and Facilities of the Commission. x x x.

SECTION 17. Special Provision Concerning Mandate. If and when in the

judgment of the President there is a need to expand the mandate of the
Commission as defined in Section 1 hereof to include the investigation of cases
and instances of graft and corruption during the prior administrations, such
mandate may be so extended accordingly by way of a supplemental Executive
Order.

SECTION 18. Separability Clause. If any provision of this Order is declared

unconstitutional, the same shall not affect the validity and effectivity of the other
provisions hereof.

SECTION 19. Effectivity. This Executive Order shall take effect immediately.

DONE in the City of Manila, Philippines, this 30th day of July 2010.

(SGD.) BENIGNO S. AQUINO III

By the President:

(SGD.) PAQUITO N. OCHOA, JR.

Executive Secretary

Nature of the Truth Commission

As can be gleaned from the above-quoted provisions, the Philippine Truth

Commission (PTC) is a mere ad hoc body formed under the Office of the President
with the primary task to investigate reports of graft and corruption committed by
third-level public officers and employees, their co-principals, accomplices and
accessories during the previous administration, and thereafter to submit its finding
and recommendations to the President, Congress and the Ombudsman. Though it
has been described as an independent collegial body, it is essentially an entity

Page 52 of 547
within the Office of the President Proper and subject to his control. Doubtless, it
constitutes a public office, as an ad hoc body is one.[8]

To accomplish its task, the PTC shall have all the powers of an investigative
body under Section 37, Chapter 9, Book I of the Administrative Code of 1987. It is
not, however, a quasi-judicial body as it cannot adjudicate, arbitrate, resolve, settle,
or render awards in disputes between contending parties. All it can do is gather,
collect and assess evidence of graft and corruption and make recommendations. It
may have subpoena powers but it has no power to cite people in contempt, much
less order their arrest. Although it is a fact-finding body, it cannot determine from
such facts if probable cause exists as to warrant the filing of an information in our
courts of law. Needless to state, it cannot impose criminal, civil or administrative
penalties or sanctions.
The PTC is different from the truth commissions in other countries which
have been created as official, transitory and non-judicial fact-finding bodies to
establish the facts and context of serious violations of human rights or of
international humanitarian law in a countrys past. [9] They are usually established by
states emerging from periods of internal unrest, civil strife or authoritarianism to
serve as mechanisms for transitional justice.

Truth commissions have been described as bodies that share the following
characteristics: (1) they examine only past events; (2) they investigate patterns of
abuse committed over a period of time, as opposed to a particular event; (3) they
are temporary bodies that finish their work with the submission of a report
containing conclusions and recommendations; and (4) they are officially
sanctioned, authorized or empowered by the State.[10] Commissions members are
usually empowered to conduct research, support victims, and propose policy
recommendations to prevent recurrence of crimes. Through their investigations, the
commissions may aim to discover and learn more about past abuses, or formally
acknowledge them. They may aim to prepare the way for prosecutions and
recommend institutional reforms.[11]

Thus, their main goals range from retribution to reconciliation. The

Nuremburg and Tokyo war crime tribunals are examples of a retributory or
vindicatory body set up to try and punish those responsible for crimes against
humanity. A form of a reconciliatory tribunal is the Truth and Reconciliation
Page 53 of 547
Commission of South Africa, the principal function of which was to heal the
wounds of past violence and to prevent future conflict by providing a cathartic
experience for victims.

The PTC is a far cry from South Africas model. The latter placed more
emphasis on reconciliation than on judicial retribution, while the marching order of
the PTC is the identification and punishment of perpetrators. As one writer [12] puts
it:

The order ruled out reconciliation. It translated the

Draconian code spelled out by Aquino in his inaugural speech: To
those who talk about reconciliation, if they mean that they would
like us to simply forget about the wrongs that they have
committed in the past, we have this to say: There can be no
reconciliation without justice. When we allow crimes to go
unpunished, we give consent to their occurring over and over
again.

The Thrusts of the Petitions

Barely a month after the issuance of Executive Order No. 1, the petitioners
asked the Court to declare it unconstitutional and to enjoin the PTC from
performing its functions. A perusal of the arguments of the petitioners in both cases
shows that they are essentially the same. The petitioners-legislators summarized
them in the following manner:

(a) E.O. No. 1 violates the separation of powers as it arrogates

the power of the Congress to create a public office and appropriate
funds for its operation.

(b) The provision of Book III, Chapter 10, Section 31 of the

Administrative Code of 1987 cannot legitimize E.O. No. 1 because the
delegated authority of the President to structurally reorganize the
Office of the President to achieve economy, simplicity and efficiency
does not include the power to create an entirely new public office
which was hitherto inexistent like the Truth Commission.

Page 54 of 547
 (c) E.O. No. 1 illegally amended the Constitution and pertinent
statutes when it vested the Truth Commission with quasi-judicial
powers duplicating, if not superseding, those of the Office of the
Ombudsman created under the 1987 Constitution and the Department
of Justice created under the Administrative Code of 1987.

(d) E.O. No. 1 violates the equal protection clause as it

selectively targets for investigation and prosecution officials and
personnel of the previous administration as if corruption is their
peculiar species even as it excludes those of the other administrations,
past and present, who may be indictable.

(e) The creation of the Philippine Truth Commission of 2010

violates the consistent and general international practice of four
decades wherein States constitute truth commissions to exclusively
investigate human rights violations, which customary practice forms
part of the generally accepted principles of international law which the
Philippines is mandated to adhere to pursuant to the Declaration of
Principles enshrined in the Constitution.

(f) The creation of the Truth Commission is an exercise in

futility, an adventure in partisan hostility, a launching pad for
trial/conviction by publicity and a mere populist propaganda to
mistakenly impress the people that widespread poverty will altogether
vanish if corruption is eliminated without even addressing the other
major causes of poverty.

(g) The mere fact that previous commissions were not

constitutionally challenged is of no moment because neither laches
nor estoppel can bar an eventual question on the constitutionality and
validity of an executive issuance or even a statute.[13]

In their Consolidated Comment,[14] the respondents, through the Office of the

Solicitor General (OSG), essentially questioned the legal standing of petitioners
and defended the assailed executive order with the following arguments:

1] E.O. No. 1 does not arrogate the powers of Congress to create

a public office because the Presidents executive power and power of

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 control necessarily include the inherent power to conduct
investigations to ensure that laws are faithfully executed and that, in
any event, the Constitution, Revised Administrative Code of 1987
(E.O. No. 292), [15] Presidential Decree (P.D.) No. 1416[16] (as amended
by P.D. No. 1772), R.A. No. 9970,[17]and settled jurisprudence that
authorize the President to create or form such bodies.

2] E.O. No. 1 does not usurp the power of Congress to

appropriate funds because there is no appropriation but a mere
allocation of funds already appropriated by Congress.

3] The Truth Commission does not duplicate or supersede the

functions of the Office of the Ombudsman (Ombudsman) and the
Department of Justice (DOJ), because it is a fact-finding body and not
a quasi-judicial body and its functions do not duplicate, supplant or
erode the latters jurisdiction.

4] The Truth Commission does not violate the equal protection

clause because it was validly created for laudable purposes.

The OSG then points to the continued existence and validity of other
executive orders and presidential issuances creating similar bodies to justify the
creation of the PTC such as Presidential Complaint and Action
Commission (PCAC) by President Ramon B. Magsaysay, Presidential Committee
on Administrative Performance Efficiency (PCAPE) by President Carlos P. Garcia
and Presidential Agency on Reform and Government Operations (PARGO) by
President Ferdinand E. Marcos.[18]
From the petitions, pleadings, transcripts, and memoranda, the following are
the principal issues to be resolved:

1. Whether or not the petitioners have the legal standing

to file their respective petitions and question Executive Order No. 1;

2. Whether or not Executive Order No. 1 violates the

principle of separation of powers by usurping the powers of Congress
to create and to appropriate funds for public offices, agencies and
commissions;

Page 56 of 547
 3. Whether or not Executive Order No. 1 supplants the powers
of the Ombudsman and the DOJ;

4. Whether or not Executive Order No. 1 violates the equal

protection clause; and

5. Whether or not petitioners are entitled to injunctive relief.

Essential requisites for judicial review

Before proceeding to resolve the issue of the constitutionality of Executive

Order No. 1, the Court needs to ascertain whether the requisites for a valid exercise
of its power of judicial review are present.

Like almost all powers conferred by the Constitution, the power of judicial review
is subject to limitations, to wit: (1) there must be an actual case or controversy
calling for the exercise of judicial power; (2) the person challenging the act must
have the standing to question the validity of the subject act or issuance; otherwise
stated, he must have a personal and substantial interest in the case such that he has
sustained, or will sustain, direct injury as a result of its enforcement; (3) the
question of constitutionality must be raised at the earliest opportunity; and (4) the
issue of constitutionality must be the very lis mota of the case.[19]

Among all these limitations, only the legal standing of the petitioners has been put
at issue.

Legal Standing of the Petitioners

The OSG attacks the legal personality of the petitioners-legislators to file

their petition for failure to demonstrate their personal stake in the outcome of the
case.It argues that the petitioners have not shown that they have sustained or are in
danger of sustaining any personal injury attributable to the creation of the PTC.
Not claiming to be the subject of the commissions investigations, petitioners will
not sustain injury in its creation or as a result of its proceedings.[20]

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 The Court disagrees with the OSG in questioning the legal standing of the
petitioners-legislators to assail Executive Order No. 1. Evidently, their petition
primarily invokes usurpation of the power of the Congress as a body to which they
belong as members. This certainly justifies their resolve to take the cudgels for
Congress as an institution and present the complaints on the usurpation of their
power and rights as members of the legislature before the Court. As held
in Philippine Constitution Association v. Enriquez,[21]

To the extent the powers of Congress are impaired, so is the

power of each member thereof, since his office confers a right to
participate in the exercise of the powers of that institution.
An act of the Executive which injures the institution of
Congress causes a derivative but nonetheless substantial injury,
which can be questioned by a member of Congress. In such a case,
any member of Congress can have a resort to the courts.

Indeed, legislators have a legal standing to see to it that the prerogative,

powers and privileges vested by the Constitution in their office remain
inviolate. Thus, they are allowed to question the validity of any official action
which, to their mind, infringes on their prerogatives as legislators.[22]

With regard to Biraogo, the OSG argues that, as a taxpayer, he has no

standing to question the creation of the PTC and the budget for its operations. [23] It
emphasizes that the funds to be used for the creation and operation of the
commission are to be taken from those funds already appropriated by Congress.
Thus, the allocation and disbursement of funds for the commission will not entail
congressional action but will simply be an exercise of the Presidents power over
contingent funds.

As correctly pointed out by the OSG, Biraogo has not shown that he
sustained, or is in danger of sustaining, any personal and direct injury attributable
to the implementation of Executive Order No. 1. Nowhere in his petition is an
assertion of a clear right that may justify his clamor for the Court to exercise
judicial power and to wield the axe over presidential issuances in defense of the
Constitution. The case of David v. Arroyo[24] explained the deep-seated rules
on locus standi. Thus:

Page 58 of 547
 Locus standi is defined as a right of appearance in a court of
justice on a given question. In private suits, standing is governed
by the real-parties-in interest rule as contained in Section 2, Rule
3 of the 1997 Rules of Civil Procedure, as amended. It provides
that every action must be prosecuted or defended in the name of the
real party in interest. Accordingly, the real-party-in interest is the
party who stands to be benefited or injured by the judgment in the
suit or the party entitled to the avails of the suit. Succinctly put,
the plaintiffs standing is based on his own right to the relief
sought.

The difficulty of determining locus standi arises in public

suits. Here, the plaintiff who asserts a public right in assailing an
allegedly illegal official action, does so as a representative of the
general public. He may be a person who is affected no differently
from any other person. He could be suing as a stranger, or in the
category of a citizen, or taxpayer. In either case, he has to
adequately show that he is entitled to seek judicial protection. In
other words, he has to make out a sufficient interest in the
vindication of the public order and the securing of relief as a
citizen or taxpayer.

Case law in most jurisdictions now allows both citizen and

taxpayer standing in public actions. The distinction was first laid
down in Beauchamp v. Silk, where it was held that the plaintiff in
a taxpayers suit is in a different category from the plaintiff in a
citizens suit. In the former, the plaintiff is affected by the
expenditure of public funds, while in the latter, he is but the mere
instrument of the public concern. As held by the New York
Supreme Court in People ex rel Case v. Collins: In matter of mere
public right, howeverthe people are the real partiesIt is at least the
right, if not the duty, of every citizen to interfere and see that a
public offence be properly pursued and punished, and that a
public grievance be remedied. With respect to taxpayers
suits, Terr v. Jordan held that the right of a citizen and a taxpayer
to maintain an action in courts to restrain the unlawful use of
public funds to his injury cannot be denied.

However, to prevent just about any person from seeking

judicial interference in any official policy or act with which he

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 disagreed with, and thus hinders the activities of governmental
agencies engaged in public service, the United State Supreme
Court laid down the more stringent direct injury test in Ex Parte
Levitt, later reaffirmed in Tileston v. Ullman. The same Court
ruled that for a private individual to invoke the judicial power to
determine the validity of an executive or legislative action, he must
show that he has sustained a direct injury as a result of that action,
and it is not sufficient that he has a general interest common to all
members of the public.

This Court adopted the direct injury test in our

jurisdiction. In People v. Vera, it held that the person who
impugns the validity of a statute must have a personal and
substantial interest in the case such that he has sustained, or will
sustain direct injury as a result. The Vera doctrine was upheld in a
litany of cases, such as, Custodio v. President of the
Senate, Manila Race Horse Trainers Association v. De la
Fuente, Pascual v. Secretary of Public Works and Anti-Chinese
League of the Philippines v. Felix. [Emphases included. Citations
omitted]

Notwithstanding, the Court leans on the doctrine that the rule on standing is
a matter of procedure, hence, can be relaxed for nontraditional plaintiffs like
ordinary citizens, taxpayers, and legislators when the public interest so requires,
such as when the matter is of transcendental importance, of overreaching
significance to society, or of paramount public interest.[25]

Thus, in Coconut Oil Refiners Association, Inc. v. Torres,[26] the Court held
that in cases of paramount importance where serious constitutional questions are
involved, the standing requirements may be relaxed and a suit may be allowed to
prosper even where there is no direct injury to the party claiming the right of
judicial review. In the first Emergency Powers Cases,[27] ordinary citizens and
taxpayers were allowed to question the constitutionality of several executive orders
although they had only an indirect and general interest shared in common with the
public.

The OSG claims that the determinants of transcendental importance [28] laid
down in CREBA v. ERC and Meralco[29] are non-existent in this case. The Court,

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however, finds reason in Biraogos assertion that the petition covers matters of
transcendental importance to justify the exercise of jurisdiction by the Court. There
areconstitutional issues in the petition which deserve the attention of this Court in
view of their seriousness, novelty and weight as precedents. Where the issues are
of transcendental and paramount importance not only to the public but also to the
Bench and the Bar, they should be resolved for the guidance of all.[30] Undoubtedly,
the Filipino people are more than interested to know the status of the Presidents
first effort to bring about a promised change to the country. The Court takes
cognizance of the petition not due to overwhelming political undertones that clothe
the issue in the eyes of the public, but because the Court stands firm in its oath to
perform its constitutional duty to settle legal controversies with overreaching
significance to society.

Power of the President to Create the Truth Commission

In his memorandum in G.R. No. 192935, Biraogo asserts that the Truth
Commission is a public office and not merely an adjunct body of the Office of the
President.[31] Thus, in order that the President may create a public office he must be
empowered by the Constitution, a statute or an authorization vested in him by law.
According to petitioner, such power cannot be presumed [32] since there is no
provision in the Constitution or any specific law that authorizes the President to
create a truth commission.[33] He adds that Section 31 of the Administrative Code of
1987, granting the President the continuing authority to reorganize his office,
cannot serve as basis for the creation of a truth commission considering the
aforesaid provision merely uses verbs such as reorganize, transfer, consolidate,
merge, and abolish.[34] Insofar as it vests in the President the plenary power to
reorganize the Office of the President to the extent of creating a public office,
Section 31 is inconsistent with the principle of separation of powers enshrined in
the Constitution and must be deemed repealed upon the effectivity thereof.[35]

Similarly, in G.R. No. 193036, petitioners-legislators argue that the creation

of a public office lies within the province of Congress and not with the executive
branch of government. They maintain that the delegated authority of the President
to reorganize under Section 31 of the Revised Administrative Code: 1) does not
permit the President to create a public office, much less a truth commission; 2) is
limited to the reorganization of the administrative structure of the Office of the
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President; 3) is limited to the restructuring of the internal organs of the Office of
the President Proper, transfer of functions and transfer of agencies; and 4) only to
achieve simplicity, economy and efficiency.[36] Such continuing authority of the
President to reorganize his office is limited, and by issuing Executive Order No. 1,
the President overstepped the limits of this delegated authority.

The OSG counters that there is nothing exclusively legislative about the
creation by the President of a fact-finding body such as a truth commission.
Pointing to numerous offices created by past presidents, it argues that the authority
of the President to create public offices within the Office of the President Proper
has long been recognized.[37] According to the OSG, the Executive, just like the
other two branches of government, possesses the inherent authority to create fact-
finding committees to assist it in the performance of its constitutionally mandated
functions and in the exercise of its administrative functions. [38] This power, as the
OSG explains it, is but an adjunct of the plenary powers wielded by the President
under Section 1 and his power of control under Section 17, both of Article VII of
the Constitution.[39]

It contends that the President is necessarily vested with the power to conduct
fact-finding investigations, pursuant to his duty to ensure that all laws are enforced
by public officials and employees of his department and in the exercise of his
authority to assume directly the functions of the executive department, bureau and
office, or interfere with the discretion of his officials. [40] The power of the President
to investigate is not limited to the exercise of his power of control over his
subordinates in the executive branch, but extends further in the exercise of his
other powers, such as his power to discipline subordinates, [41] his power for rule
making, adjudication and licensing purposes[42] and in order to be informed on
matters which he is entitled to know.[43]

The OSG also cites the recent case of Banda v. Ermita,[44] where it was held
that the President has the power to reorganize the offices and agencies in the
executive department in line with his constitutionally granted power of control and
by virtue of a valid delegation of the legislative power to reorganize executive
offices under existing statutes.

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 Thus, the OSG concludes that the power of control necessarily includes the
power to create offices. For the OSG, the President may create the PTC in order to,
among others, put a closure to the reported large scale graft and corruption in the
government.[45]

The question, therefore, before the Court is this: Does the creation of the
PTC fall within the ambit of the power to reorganize as expressed in Section 31 of
the Revised Administrative Code? Section 31 contemplates reorganization as
limited by the following functional and structural lines: (1) restructuring the
internal organization of the Office of the President Proper by abolishing,
consolidating or merging units thereof or transferring functions from one unit to
another; (2) transferring any function under the Office of the President to any other
Department/Agency or vice versa; or (3) transferring any agency under the Office
of the President to any other Department/Agency or vice versa. Clearly, the
provision refers to reduction of personnel, consolidation of offices, or abolition
thereof by reason of economy or redundancy of functions. These point to situations
where a body or an office is already existent but a modification or alteration
thereof has to be effected. The creation of an office is nowhere mentioned, much
less envisioned in said provision. Accordingly, the answer to the question is in the
negative.

To say that the PTC is borne out of a restructuring of the Office of the
President under Section 31 is a misplaced supposition, even in the plainest
meaning attributable to the term restructure an alteration of an existing
structure. Evidently, the PTC was not part of the structure of the Office of the
President prior to the enactment of Executive Order No. 1. As held in Buklod ng
Kawaning EIIB v. Hon. Executive Secretary,[46]

But of course, the list of legal basis authorizing the President

to reorganize any department or agency in the executive branch
does not have to end here. We must not lose sight of the very
source of the power that which constitutes an express grant of
power. Under Section 31, Book III of Executive Order No. 292
(otherwise known as the Administrative Code of 1987), "the
President, subject to the policy in the Executive Office and in
order to achieve simplicity, economy and efficiency, shall have the

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 continuing authority to reorganize the administrative structure of
the Office of the President." For this purpose, he may transfer the
functions of other Departments or Agencies to the Office of the
President. In Canonizado v. Aguirre [323 SCRA 312 (2000)], we
ruled that reorganization "involves the reduction of personnel,
consolidation of offices, or abolition thereof by reason of economy
or redundancy of functions." It takes place when there is an
alteration of the existing structure of government offices or units
therein, including the lines of control, authority and responsibility
between them. The EIIB is a bureau attached to the Department of
Finance. It falls under the Office of the President. Hence, it is
subject to the Presidents continuing authority to reorganize.
[Emphasis Supplied]

In the same vein, the creation of the PTC is not justified by the Presidents
power of control. Control is essentially the power to alter or modify or nullify or
set aside what a subordinate officer had done in the performance of his duties and
to substitute the judgment of the former with that of the latter.[47] Clearly, the power
of control is entirely different from the power to create public offices. The former
is inherent in the Executive, while the latter finds basis from either a valid
delegation from Congress, or his inherent duty to faithfully execute the laws.

The question is this, is there a valid delegation of power from Congress,

empowering the President to create a public office?

According to the OSG, the power to create a truth commission pursuant to

the above provision finds statutory basis under P.D. 1416, as amended by P.D. No.
1772.[48] The said law granted the President the continuing authority to reorganize
the national government, including the power to group, consolidate bureaus and
agencies, to abolish offices, to transfer functions, to create and classify functions,
services and activities, transfer appropriations, and to standardize salaries and
materials. This decree, in relation to Section 20, Title I, Book III of E.O. 292 has
been invoked in several cases such as Larin v. Executive Secretary.[49]

The Court, however, declines to recognize P.D. No. 1416 as a justification

for the President to create a public office. Said decree is already stale,

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anachronistic and inoperable. P.D. No. 1416 was a delegation to then President
Marcos of the authority to reorganize the administrative structure of the national
government including the power to create offices and transfer appropriations
pursuant to one of the purposes of the decree, embodied in its last Whereas clause:

WHEREAS, the transition towards the parliamentary form

of government will necessitate flexibility in the organization of the
national government.

Clearly, as it was only for the purpose of providing manageability and

resiliency during the interim, P.D. No. 1416, as amended by P.D. No.
1772, becamefunctus oficio upon the convening of the First Congress, as expressly
provided in Section 6, Article XVIII of the 1987 Constitution. In fact, even the
Solicitor General agrees with this view. Thus:

ASSOCIATE JUSTICE CARPIO: Because P.D. 1416 was enacted

was the last whereas clause of P.D.
1416 says it was enacted to prepare
the transition from presidential to
parliamentary. Now, in a
parliamentary form of
government, the legislative and
executive powers are fused,
correct?

SOLICITOR GENERAL CADIZ: Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO: That is why, that P.D. 1416 was

issued. Now would you agree with
me that P.D. 1416 should not be
considered effective anymore
upon the promulgation, adoption,
ratification of the 1987
Constitution.

SOLICITOR GENERAL CADIZ: Not the whole of P.D. [No.] 1416,

Your Honor.

Page 65 of 547
 ASSOCIATE JUSTICE CARPIO: The power of the President to
reorganize the entire National
Government is deemed repealed,
at least, upon the adoption of the
1987 Constitution, correct.

SOLICITOR GENERAL CADIZ: Yes, Your Honor.[50]

While the power to create a truth commission cannot pass muster on the basis of
P.D. No. 1416 as amended by P.D. No. 1772, the creation of the PTC finds
justification under Section 17, Article VII of the Constitution, imposing upon the
President the duty to ensure that the laws are faithfully executed. Section 17 reads:

Section 17. The President shall have control of all the executive
departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.(Emphasis supplied).

As correctly pointed out by the respondents, the allocation of power in the

three principal branches of government is a grant of all powers inherent in them.
The Presidents power to conduct investigations to aid him in ensuring the faithful
execution of laws in this case, fundamental laws on public accountability and
transparency is inherent in the Presidents powers as the Chief Executive. That the
authority of the President to conduct investigations and to create bodies to execute
this power is not explicitly mentioned in the Constitution or in statutes does not
mean that he is bereft of such authority.[51] As explained in the landmark case
ofMarcos v. Manglapus:[52]

x x x. The 1987 Constitution, however, brought back the

presidential system of government and restored the separation of
legislative, executive and judicial powers by their actual
distribution among three distinct branches of government with
provision for checks and balances.

It would not be accurate, however, to state that "executive

power" is the power to enforce the laws, for the President is head
of state as well as head of government and whatever powers
inhere in such positions pertain to the office unless the

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 Constitution itself withholds it. Furthermore, the Constitution
itself provides that the execution of the laws is only one of the
powers of the President. It also grants the President other powers
that do not involve the execution of any provision of law, e.g., his
power over the country's foreign relations.

On these premises, we hold the view that although the 1987

Constitution imposes limitations on the exercise of specific powers
of the President, it maintains intact what is traditionally
considered as within the scope of "executive power." Corollarily,
the powers of the President cannot be said to be limited only to
the specific powers enumerated in the Constitution. In other
words, executive power is more than the sum of specific powers so
enumerated.

It has been advanced that whatever power inherent in the

government that is neither legislative nor judicial has to be
executive. x x x.

Indeed, the Executive is given much leeway in ensuring that our laws are faithfully
executed. As stated above, the powers of the President are not limited to those
specific powers under the Constitution.[53] One of the recognized powers of the
President granted pursuant to this constitutionally-mandated duty is the power to
create ad hoc committees. This flows from the obvious need to ascertain facts and
determine if laws have been faithfully executed. Thus, in Department of Health v.
Camposano,[54] the authority of the President to issue Administrative Order No.
298, creating an investigative committee to look into the administrative charges
filed against the employees of the Department of Health for the anomalous
purchase of medicines was upheld. In said case, it was ruled:

The Chief Executives power to create the Ad hoc Investigating

Committee cannot be doubted. Having been constitutionally
granted full control of the Executive Department, to which
respondents belong, the President has the obligation to ensure
that all executive officials and employees faithfully comply with
the law. With AO 298 as mandate, the legality of the investigation
is sustained. Such validity is not affected by the fact that the
investigating team and the PCAGC had the same composition, or

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 that the former used the offices and facilities of the latter in
conducting the inquiry. [Emphasis supplied]

It should be stressed that the purpose of allowing ad hoc investigating bodies

to exist is to allow an inquiry into matters which the President is entitled to know
so that he can be properly advised and guided in the performance of his duties
relative to the execution and enforcement of the laws of the land. And if history is
to be revisited, this was also the objective of the investigative bodies created in the
past like the PCAC, PCAPE, PARGO, the Feliciano Commission, the Melo
Commission and the Zenarosa Commission. There being no changes in the
government structure, the Court is not inclined to declare such executive power as
non-existent just because the direction of the political winds have changed.

On the charge that Executive Order No. 1 transgresses the power of

Congress to appropriate funds for the operation of a public office, suffice it to say
that there will be no appropriation but only an allotment or allocations of existing
funds already appropriated. Accordingly, there is no usurpation on the part of the
Executive of the power of Congress to appropriate funds. Further, there is no need
to specify the amount to be earmarked for the operation of the commission
because, in the words of the Solicitor General, whatever funds the Congress has
provided for the Office of the President will be the very source of the funds for the
commission.[55]Moreover, since the amount that would be allocated to the PTC
shall be subject to existing auditing rules and regulations, there is no impropriety in
the funding.

Power of the Truth Commission to Investigate

The Presidents power to conduct investigations to ensure that laws are faithfully
executed is well recognized. It flows from the faithful-execution clause of the
Constitution under Article VII, Section 17 thereof.[56] As the Chief Executive, the
president represents the government as a whole and sees to it that all laws are
enforced by the officials and employees of his department. He has the authority to
directly assume the functions of the executive department.[57]

Invoking this authority, the President constituted the PTC to primarily investigate
reports of graft and corruption and to recommend the appropriate action. As
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previously stated, no quasi-judicial powers have been vested in the said body as it
cannot adjudicate rights of persons who come before it. It has been said that Quasi-
judicial powers involve the power to hear and determine questions of fact to which
the legislative policy is to apply and to decide in accordance with the standards laid
down by law itself in enforcing and administering the same law.[58] In simpler
terms, judicial discretion is involved in the exercise of these quasi-judicial power,
such that it is exclusively vested in the judiciary and must be clearly authorized by
the legislature in the case of administrative agencies.

The distinction between the power to investigate and the power to adjudicate
was delineated by the Court in Cario v. Commission on Human Rights.[59] Thus:

"Investigate," commonly understood, means to examine,

explore, inquire or delve or probe into, research on, study. The
dictionary definition of "investigate" is "to observe or study
closely: inquire into systematically: "to search or inquire into: x x
to subject to an official probe x x: to conduct an official inquiry."
The purpose of investigation, of course, is to discover, to find out,
to learn, obtain information. Nowhere included or intimated is the
notion of settling, deciding or resolving a controversy involved in
the facts inquired into by application of the law to the facts
established by the inquiry.
The legal meaning of "investigate" is essentially the same:
"(t)o follow up step by step by patient inquiry or observation. To
trace or track; to search into; to examine and inquire into with
care and accuracy; to find out by careful inquisition; examination;
the taking of evidence; a legal inquiry;" "to inquire; to make an
investigation," "investigation" being in turn described as "(a)n
administrative function, the exercise of which ordinarily does not
require a hearing. 2 Am J2d Adm L Sec. 257; x x an inquiry,
judicial or otherwise, for the discovery and collection of facts
concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as "to settle finally (the
rights and duties of the parties to a court case) on the merits of
issues raised: x x to pass judgment on: settle judicially: x x act as
judge." And "adjudge" means "to decide or rule upon as a judge or

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 with judicial or quasi-judicial powers: x x to award or grant
judicially in a case of controversy x x."
In the legal sense, "adjudicate" means: "To settle in the
exercise of judicial authority. To determine finally. Synonymous
with adjudge in its strictest sense;" and "adjudge" means: "To pass
on judicially, to decide, settle or decree, or to sentence or
condemn. x x. Implies a judicial determination of a fact, and the
entry of a judgment." [Italics included. Citations Omitted]

Fact-finding is not adjudication and it cannot be likened to the judicial

function of a court of justice, or even a quasi-judicial agency or office. The
function of receiving evidence and ascertaining therefrom the facts of a
controversy is not a judicial function. To be considered as such, the act of receiving
evidence and arriving at factual conclusions in a controversy must be accompanied
by the authority of applying the law to the factual conclusions to the end that the
controversy may be decided or resolved authoritatively, finally and definitively,
subject to appeals or modes of review as may be provided by law.[60] Even
respondents themselves admit that the commission is bereft of any quasi-judicial
power.[61]

Contrary to petitioners apprehension, the PTC will not supplant the Ombudsman or
the DOJ or erode their respective powers. If at all, the investigative function of the
commission will complement those of the two offices. As pointed out by the
Solicitor General, the recommendation to prosecute is but a consequence of the
overall task of the commission to conduct a fact-finding investigation.[62] The
actual prosecution of suspected offenders, much less adjudication on the merits of
the charges against them,[63] is certainly not a function given to the
commission. The phrase, when in the course of its investigation, under Section
2(g), highlights this fact and gives credence to a contrary interpretation from that
of the petitioners. The function of determining probable cause for the filing of the
appropriate complaints before the courts remains to be with the DOJ and the
Ombudsman.[64]

At any rate, the Ombudsmans power to investigate under R.A. No. 6770 is not
exclusive but is shared with other similarly authorized government agencies. Thus,
in the case of Ombudsman v. Galicia,[65] it was written:

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 This power of investigation granted to the Ombudsman by the
1987 Constitution and The Ombudsman Act is not exclusive but is
shared with other similarly authorized government agencies such as
the PCGG and judges of municipal trial courts and municipal
circuit trial courts. The power to conduct preliminary
investigation on charges against public employees and officials is
likewise concurrently shared with the Department of Justice.
Despite the passage of the Local Government Code in 1991, the
Ombudsman retains concurrent jurisdiction with the Office of the
President and the local Sanggunians to investigate complaints
against local elective officials. [Emphasis supplied].

Also, Executive Order No. 1 cannot contravene the power of the Ombudsman to
investigate criminal cases under Section 15 (1) of R.A. No. 6770, which states:

(1) Investigate and prosecute on its own or on complaint by

any person, any act or omission of any public officer or employee,
office or agency, when such act or omission appears to be illegal,
unjust, improper or inefficient. It has primary jurisdiction over
cases cognizable by the Sandiganbayan and, in the exercise of its
primary jurisdiction, it may take over, at any stage, from any
investigatory agency of government, the investigation of such
cases. [Emphases supplied]

The act of investigation by the Ombudsman as enunciated above

contemplates the conduct of a preliminary investigation or the determination of the
existence of probable cause. This is categorically out of the PTCs sphere of
functions. Its power to investigate is limited to obtaining facts so that it can advise
and guide the President in the performance of his duties relative to the execution
and enforcement of the laws of the land. In this regard, the PTC commits no act of
usurpation of the Ombudsmans primordial duties.

The same holds true with respect to the DOJ. Its authority under Section 3 (2),
Chapter 1, Title III, Book IV in the Revised Administrative Code is by no means
exclusive and, thus, can be shared with a body likewise tasked to investigate the
commission of crimes.

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Finally, nowhere in Executive Order No. 1 can it be inferred that the findings of the
PTC are to be accorded conclusiveness. Much like its predecessors, the Davide
Commission, the Feliciano Commission and the Zenarosa Commission, its findings
would, at best, be recommendatory in nature. And being so, the Ombudsman and
the DOJ have a wider degree of latitude to decide whether or not to reject the
recommendation. These offices, therefore, are not deprived of their mandated
duties but will instead be aided by the reports of the PTC for possible indictments
for violations of graft laws.

Violation of the Equal Protection Clause

Although the purpose of the Truth Commission falls within the investigative
power of the President, the Court finds difficulty in upholding the constitutionality
of Executive Order No. 1 in view of its apparent transgression of the equal
protection clause enshrined in Section 1, Article III (Bill of Rights) of the 1987
Constitution. Section 1 reads:

Section 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.

The petitioners assail Executive Order No. 1 because it is violative of this

constitutional safeguard. They contend that it does not apply equally to all
members of the same class such that the intent of singling out the previous
administration as its sole object makes the PTC an adventure in partisan hostility.
[66]
Thus, in order to be accorded with validity, the commission must also cover
reports of graft and corruption in virtually all administrations previous to that of
former President Arroyo.[67]

The petitioners argue that the search for truth behind the reported cases of
graft and corruption must encompass acts committed not only during the
administration of former President Arroyo but also during prior administrations
where the same magnitude of controversies and anomalies [68] were reported to have
been committed against the Filipino people. They assail the classification
formulated by the respondents as it does not fall under the recognized exceptions

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becausefirst, there is no substantial distinction between the group of officials
targeted for investigation by Executive Order No. 1 and other groups or persons
who abused their public office for personal gain; and second, the selective
classification is not germane to the purpose of Executive Order No. 1 to end
corruption.[69] In order to attain constitutional permission, the petitioners advocate
that the commission should deal with graft and grafters prior and subsequent to the
Arroyo administration with the strong arm of the law with equal force.[70]

Position of respondents

According to respondents, while Executive Order No. 1 identifies the

previous administration as the initial subject of the investigation, following Section
17 thereof, the PTC will not confine itself to cases of large scale graft and
corruption solely during the said administration.[71] Assuming arguendo that the
commission would confine its proceedings to officials of the previous
administration, the petitioners argue that no offense is committed against the equal
protection clause for the segregation of the transactions of public officers during
the previous administration as possible subjects of investigation is a valid
classification based on substantial distinctions and is germane to the evils which
the Executive Order seeks to correct. [72] To distinguish the Arroyo administration
from past administrations, it recited the following:

First. E.O. No. 1 was issued in view of widespread reports of

large scale graft and corruption in the previous administration which
have eroded public confidence in public institutions. There is,
therefore, an urgent call for the determination of the truth regarding
certain reports of large scale graft and corruption in the government
and to put a closure to them by the filing of the appropriate cases
against those involved, if warranted, and to deter others from
committing the evil, restore the peoples faith and confidence in the
Government and in their public servants.

Second. The segregation of the preceding administration as the

object of fact-finding is warranted by the reality that unlike with
administrations long gone, the current administration will most likely
bear the immediate consequence of the policies of the previous
administration.

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 Third. The classification of the previous administration as a
separate class for investigation lies in the reality that the evidence of
possible criminal activity, the evidence that could lead to recovery of
public monies illegally dissipated, the policy lessons to be learned to
ensure that anti-corruption laws are faithfully executed, are more
easily established in the regime that immediately precede the current
administration.

Fourth. Many administrations subject the transactions of their

predecessors to investigations to provide closure to issues that are
pivotal to national life or even as a routine measure of due diligence
and good housekeeping by a nascent administration like the
Presidential Commission on Good Government (PCGG), created by
the late President Corazon C. Aquino under Executive Order No. 1 to
pursue the recovery of ill-gotten wealth of her predecessor former
President Ferdinand Marcos and his cronies, and
the Saguisag Commission created by former President Joseph Estrada
under Administrative Order No, 53, to form an ad-hoc and
independent citizens committee to investigate all the facts and
circumstances surrounding Philippine Centennial projects of his
predecessor, former President Fidel V. Ramos.[73] [Emphases supplied]

Concept of the Equal Protection Clause

One of the basic principles on which this government was founded is that of the
equality of right which is embodied in Section 1, Article III of the 1987
Constitution.The equal protection of the laws is embraced in the concept of due
process, as every unfair discrimination offends the requirements of justice and fair
play. It has been embodied in a separate clause, however, to provide for a more
specific guaranty against any form of undue favoritism or hostility from the
government. Arbitrariness in general may be challenged on the basis of the due
process clause. But if the particular act assailed partakes of an unwarranted
partiality or prejudice, the sharper weapon to cut it down is the equal
protection clause.[74]

According to a long line of decisions, equal protection simply requires that

all persons or things similarly situated should be treated alike, both as to rights
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conferred and responsibilities imposed.[75] It requires public bodies and institutions
to treat similarly situated individuals in a similar manner.[76] The purpose of the
equal protection clause is to secure every person within a states jurisdiction against
intentional and arbitrary discrimination, whether occasioned by the express terms
of a statue or by its improper execution through the states duly constituted
authorities.[77] In other words, the concept of equal justice under the law requires
the state to govern impartially, and it may not draw distinctions between
individuals solely on differences that are irrelevant to a legitimate governmental
objective.[78]

The equal protection clause is aimed at all official state actions, not just
those of the legislature.[79] Its inhibitions cover all the departments of the
government including the political and executive departments, and extend to all
actions of a state denying equal protection of the laws, through whatever agency or
whatever guise is taken. [80]

It, however, does not require the universal application of the laws to all
persons or things without distinction. What it simply requires is equality among
equals as determined according to a valid classification. Indeed, the equal
protection clause permits classification. Such classification, however, to be valid
must pass the test of reasonableness. The test has four requisites: (1) The
classification rests on substantial distinctions; (2) It is germane to the purpose of
the law; (3) It is not limited to existing conditions only; and
(4) It applies equally to all members of the same class. [81] Superficial differences do
not make for a valid classification.[82]

For a classification to meet the requirements of constitutionality, it must

include or embrace all persons who naturally belong to the class. [83] The
classification will be regarded as invalid if all the members of the class are not
similarly treated, both as to rights conferred and obligations imposed. It is not
necessary that the classification be made with absolute symmetry, in the sense that
the members of the class should possess the same characteristics in equal
degree. Substantial similarity will suffice; and as long as this is achieved, all those
covered by the classification are to be treated equally. The mere fact that an
individual belonging to a class differs from the other members, as long as that class

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is substantially distinguishable from all others, does not justify the non-application
of the law to him.[84]

The classification must not be based on existing circumstances only, or so

constituted as to preclude addition to the number included in the class. It must be
of such a nature as to embrace all those who may thereafter be in similar
circumstances and conditions. It must not leave out or underinclude those that
should otherwise fall into a certain classification. As elucidated in Victoriano v.
Elizalde Rope Workers' Union[85] and reiterated in a long line of cases,[86]
The guaranty of equal protection of the laws is not a
guaranty of equality in the application of the laws upon all citizens
of the state. It is not, therefore, a requirement, in order to avoid
the constitutional prohibition against inequality, that every man,
woman and child should be affected alike by a statute. Equality of
operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the
circumstances surrounding them. It guarantees equality, not
identity of rights. The Constitution does not require that things
which are different in fact be treated in law as though they were
the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not prohibit
legislation which is limited either in the object to which it is
directed or by the territory within which it is to operate.

The equal protection of the laws clause of the Constitution allows

classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain
particulars. A law is not invalid because of simple inequality. The
very idea of classification is that of inequality, so that it goes
without saying that the mere fact of inequality in no manner
determines the matter of constitutionality. All that is required of a
valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which
make for real differences, that it must be germane to the purpose
of the law; that it must not be limited to existing conditions only;
and that it must apply equally to each member of the class. This
Court has held that the standard is satisfied if the classification or
distinction is based on a reasonable foundation or rational basis
and is not palpably arbitrary. [Citations omitted]

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 Applying these precepts to this case, Executive Order No. 1 should be struck
down as violative of the equal protection clause. The clear mandate of the
envisioned truth commission is to investigate and find out the truth concerning the
reported cases of graft and corruption during the previous administration[87] only.
The intent to single out the previous administration is plain, patent and
manifest. Mention of it has been made in at least three portions of the questioned
executive order. Specifically, these are:

WHEREAS, there is a need for a separate body dedicated solely to

investigating and finding out the truth concerning the reported
cases of graft and corruption during the previous administration,
and which will recommend the prosecution of the offenders and
secure justice for all;

SECTION 1. Creation of a Commission. There is hereby created

the PHILIPPINE TRUTH COMMISSION, hereinafter referred to
as the COMMISSION, which shall primarily seek and find the
truth on, and toward this end, investigate reports of graft and
corruption of such scale and magnitude that shock and offend the
moral and ethical sensibilities of the people, committed by public
officers and employees, their co-principals, accomplices and
accessories from the private sector, if any, during the previous
administration; and thereafter recommend the appropriate action
or measure to be taken thereon to ensure that the full measure of
justice shall be served without fear or favor.

SECTION 2. Powers and Functions. The Commission, which shall

have all the powers of an investigative body under Section 37,
Chapter 9, Book I of the Administrative Code of 1987, is primarily
tasked to conduct a thorough fact-finding investigation of reported
cases of graft and corruption referred to in Section 1, involving
third level public officers and higher, their co-principals,
accomplices and accessories from the private sector, if any, during
the previous administrationand thereafter submit its finding and
recommendations to the President, Congress and the
Ombudsman. [Emphases supplied]

In this regard, it must be borne in mind that the Arroyo administration is but
just a member of a class, that is, a class of past administrations. It is not a class of
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its own. Not to include past administrations similarly situated constitutes
arbitrariness which the equal protection clause cannot sanction. Such
discriminating differentiation clearly reverberates to label the commission as a
vehicle for vindictiveness and selective retribution.

Though the OSG enumerates several differences between the Arroyo

administration and other past administrations, these distinctions are not substantial
enough to merit the restriction of the investigation to the previous administration
only. The reports of widespread corruption in the Arroyo administration cannot be
taken as basis for distinguishing said administration from earlier administrations
which were also blemished by similar widespread reports of impropriety. They are
not inherent in, and do not inure solely to, the Arroyo administration. As Justice
Isagani Cruz put it, Superficial differences do not make for a valid classification.[88]

The public needs to be enlightened why Executive Order No. 1 chooses to

limit the scope of the intended investigation to the previous administration
only. The OSG ventures to opine that to include other past administrations, at this
point, may unnecessarily overburden the commission and lead it to lose its
effectiveness.[89]The reason given is specious. It is without doubt irrelevant to the
legitimate and noble objective of the PTC to stamp out or end corruption and the
evil it breeds.[90]

The probability that there would be difficulty in unearthing evidence or that

the earlier reports involving the earlier administrations were already inquired into
is beside the point. Obviously, deceased presidents and cases which have already
prescribed can no longer be the subjects of inquiry by the PTC. Neither is the PTC
expected to conduct simultaneous investigations of previous administrations, given
the bodys limited time and resources. The law does not require the impossible (Lex
non cogit ad impossibilia).[91]

Given the foregoing physical and legal impossibility, the Court logically
recognizes the unfeasibility of investigating almost a centurys worth of graft
cases.However, the fact remains that Executive Order No. 1 suffers from arbitrary
classification. The PTC, to be true to its mandate of searching for the truth, must
not exclude the other past administrations. The PTC must, at least, have the
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authority to investigate all past administrations. While reasonable prioritization is
permitted, it should not be arbitrary lest it be struck down for being
unconstitutional. In the often quoted language of Yick Wo v. Hopkins,[92]

Though the law itself be fair on its face and impartial in

appearance, yet, if applied and administered by public authority with
an evil eye and an unequal hand, so as practically to make unjust and
illegal discriminations between persons in similar circumstances,
material to their rights, the denial of equal justice is still within the
prohibition of the constitution. [Emphasis supplied]

It could be argued that considering that the PTC is an ad hoc body, its scope
is limited. The Court, however, is of the considered view that although its focus is
restricted, the constitutional guarantee of equal protection under the laws should
not in any way be circumvented. 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 determined and all public authority
administered.[93] Laws that do not conform to the Constitution should be stricken
down for being unconstitutional.[94] While the thrust of the PTC is specific, that is,
for investigation of acts of graft and corruption, Executive Order No. 1, to survive,
must be read together with the provisions of the Constitution. To exclude the
earlier administrations in the guise of substantial distinctions would only confirm
the petitioners lament that the subject executive order is only an adventure in
partisan hostility. In the case of US v. Cyprian,[95] it was written: A rather limited
number of such classifications have routinely been held or assumed to be arbitrary;
those include: race, national origin, gender, political activity or membership in a
political party, union activity or membership in a labor union, or more generally
the exercise of first amendment rights.

To reiterate, in order for a classification to meet the requirements of

constitutionality, it must include or embrace all persons who naturally belong to the
class.[96] Such a classification must not be based on existing circumstances only, or
so constituted as to preclude additions to the number included within a class, but
must be of such a nature as to embrace all those who may thereafter be in similar

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circumstances and conditions. Furthermore, all who are in situations and
circumstances which are relative to the discriminatory legislation and which are
indistinguishable from those of the members of the class must be brought under the
influence of the law and treated by it in the same way as are the members of the
class.[97]

The Court is not unaware that mere underinclusiveness is not fatal to the
validity of a law under the equal protection clause. [98] Legislation is not
unconstitutional merely because it is not all-embracing and does not include all the
evils within its reach.[99] It has been written that a regulation challenged under the
equal protection clause is not devoid of a rational predicate simply because it
happens to be incomplete.[100] In several instances, the underinclusiveness was not
considered a valid reason to strike down a law or regulation where the purpose can
be attained in future legislations or regulations. These cases refer to the step by
step process.[101] With regard to equal protection claims, a legislature does not run
the risk of losing the entire remedial scheme simply because it fails, through
inadvertence or otherwise, to cover every evil that might conceivably have been
attacked.[102]

In Executive Order No. 1, however, there is no inadvertence. That the

previous administration was picked out was deliberate and intentional as can be
gleaned from the fact that it was underscored at least three times in the assailed
executive order. It must be noted that Executive Order No. 1 does not even
mention any particular act, event or report to be focused on unlike the investigative
commissions created in the past. The equal protection clause is violated by
purposeful and intentional discrimination.[103]

To disprove petitioners contention that there is deliberate discrimination, the

OSG clarifies that the commission does not only confine itself to cases of large
scale graft and corruption committed during the previous administration. [104] The
OSG points to Section 17 of Executive Order No. 1, which provides:

SECTION 17. Special Provision Concerning Mandate. If and when in

the judgment of the President there is a need to expand the mandate of
the Commission as defined in Section 1 hereof to include the

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 investigation of cases and instances of graft and corruption during the
prior administrations, such mandate may be so extended accordingly by
way of a supplemental Executive Order.

The Court is not convinced. Although Section 17 allows the President the
discretion to expand the scope of investigations of the PTC so as to include the acts
of graft and corruption committed in other past administrations, it does not
guarantee that they would be covered in the future. Such expanded mandate of the
commission will still depend on the whim and caprice of the President. If he would
decide not to include them, the section would then be meaningless. This will only
fortify the fears of the petitioners that the Executive Order No. 1 was crafted to
tailor-fit the prosecution of officials and personalities of the Arroyo administration.
[105]

The Court tried to seek guidance from the pronouncement in the case
of Virata v. Sandiganbayan,[106] that the PCGG Charter (composed of Executive
Orders Nos. 1, 2 and 14) does not violate the equal protection clause. The decision,
however, was devoid of any discussion on how such conclusory statement was
arrived at, the principal issue in said case being only the sufficiency of a cause of
action.

A final word

The issue that seems to take center stage at present is - whether or not the
Supreme Court, in the exercise of its constitutionally mandated power of Judicial
Review with respect to recent initiatives of the legislature and the executive
department, is exercising undue interference. Is the Highest Tribunal, which is
expected to be the protector of the Constitution, itself guilty of violating
fundamental tenets like the doctrine of separation of powers? Time and again, this
issue has been addressed by the Court, but it seems that the present political
situation calls for it to once again explain the legal basis of its action lest it
continually be accused of being a hindrance to the nations thrust to progress.

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 The Philippine Supreme Court, according to Article VIII, Section 1 of the
1987 Constitution, is vested with Judicial Power that includes the duty of the
courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a
grave of abuse of discretion amounting to lack or excess of jurisdiction on the part
of any branch or instrumentality of the government.

Furthermore, in Section 4(2) thereof, it is vested with the power of judicial

review which is the power to declare a treaty, international or executive agreement,
law, presidential decree, proclamation, order, instruction, ordinance, or regulation
unconstitutional. This power also includes the duty to rule on the constitutionality
of the application, or operation of presidential decrees, proclamations, orders,
instructions, ordinances, and other regulations. These provisions, however, have
been fertile grounds of conflict between the Supreme Court, on one hand, and the
two co-equal bodies of government, on the other. Many times the Court has been
accused of asserting superiority over the other departments.

To answer this accusation, the words of Justice Laurel would be a good

source of enlightenment, to wit: 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.[107]

Thus, the Court, in exercising its power of judicial review, is not imposing
its own will upon a co-equal body but rather simply making sure that any act of
government is done in consonance with the authorities and rights allocated to it by
the Constitution. And, if after said review, the Court finds no constitutional
violations of any sort, then, it has no more authority of proscribing the actions
under review. Otherwise, the Court will not be deterred to pronounce said act as
void and unconstitutional.

It cannot be denied that most government actions are inspired with noble
intentions, all geared towards the betterment of the nation and its people. But then

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again, it is important to remember this ethical principle: The end does not justify
the means. No matter how noble and worthy of admiration the purpose of an act,
but if the means to be employed in accomplishing it is simply irreconcilable with
constitutional parameters, then it cannot still be allowed. [108] The Court cannot just
turn a blind eye and simply let it pass. It will continue to uphold the Constitution
and its enshrined principles.

The Constitution must ever remain supreme. All must bow to

the mandate of this law. Expediency must not be allowed to sap its
strength nor greed for power debase its rectitude.[109]

Lest it be misunderstood, this is not the death knell for a truth commission as
nobly envisioned by the present administration. Perhaps a revision of the
executive issuance so as to include the earlier past administrations would
allow it to pass the test of reasonableness and not be an affront to the
Constitution.Of all the branches of the government, it is the judiciary which is the
most interested in knowing the truth and so it will not allow itself to be a hindrance
or obstacle to its attainment. It must, however, be emphasized that the search for
the truth must be within constitutional bounds for ours is still a government of laws
and not of men.[110]

WHEREFORE, the petitions are GRANTED. Executive Order No. 1 is

hereby declared UNCONSTITUTIONAL insofar as it is violative of the equal
protection clause of the Constitution.

As also prayed for, the respondents are hereby ordered to cease and desist
from carrying out the provisions of Executive Order No. 1.

SO ORDERED.

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 SECOND DIVISION

KAPISANAN NG MGA KAWANI NG G.R. No. 150974

ENERGY REGULATORY BOARD,
Petitioner, Present:

QUISUMBING,* J.,
Chairperson,
CARPIO,**
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

COMMISSIONER FE B. BARIN,
DEPUTY COMMISSIONERS
CARLOS R. ALINDADA, LETICIA
V. IBAY, OLIVER B. BUTALID, and
MARY ANNE B. COLAYCO, of the
ENERGY REGULATORY Promulgated:
COMMISSION,
Respondents.
June 29, 2007

x--------------------------------------------------x

DECISION
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CARPIO, J.:

The Case

This is a special civil action for certiorari and prohibition [1] of the selection and
appointment of employees of the Energy Regulatory Commission (ERC) by the
ERC Board of Commissioners.

Petitioner Kapisanan ng mga Kawani ng Energy Regulatory Board (KERB) seeks

to declare Section 38 of Republic Act No. 9136 (RA 9136), which abolished the
Energy Regulatory Board (ERB) and created the ERC, as unconstitutional and to
prohibit the ERC Commissioners from filling up the ERCs plantilla.

The Facts

RA 9136, popularly known as EPIRA (for Electric Power Industry Reform Act of
2001), was enacted on 8 June 2001 and took effect on 26 June 2001. Section 38 of
RA 9136 provides for the abolition of the ERB and the creation of the ERC. The
pertinent portions of Section 38 read:

Creation of the Energy Regulatory Commission. There is hereby created

an independent, quasi-judicial regulatory board to be named the Energy
Regulatory Commission (ERC).For this purpose, the existing Energy
Regulatory Board (ERB) created under Executive Order No. 172, as
amended, is hereby abolished.

The Commission shall be composed of a Chairman and four (4)

members to be appointed by the President of the Philippines. x x x

Within three (3) months from the creation of the ERC, the Chairman
shall submit for the approval of the President of the Philippines the new
organizational structure and plantillapositions necessary to carry out the
powers and functions of the ERC.

xxxx

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 The Chairman and members of the Commission shall assume office at
the beginning of their terms: Provided, That, if upon the effectivity of
this Act, the Commission has not been constituted and the new staffing
pattern and plantilla positions have not been approved and filled-up, the
current Board and existing personnel of ERB shall continue to hold
office.

The existing personnel of the ERB, if qualified, shall be given preference

in the filling up of plantilla positions created in the ERC, subject to
existing civil service rules and regulations.

At the time of the filing of this petition, the ERC was composed of Commissioner
Fe B. Barin and Deputy Commissioners Carlos R. Alindada, Leticia V. Ibay, Oliver
B. Butalid, and Mary Anne B. Colayco (collectively, Commissioners). The
Commissioners assumed office on 15 August 2001. Pursuant to Section 38 of RA
9136, the Commissioners issued the proposed Table of Organization, Staffing
Pattern, and Salary Structure on 25 September 2001 which the President of
the Philippinesapproved on 13 November 2001. Meanwhile, KERB submitted to
the Commissioners its Resolution No. 2001-02 on 13 September 2001. Resolution
No. 2001-02 requested the Commissioners for an opportunity to be informed on
the proposed plantilla positions with their equivalent qualification standards.

On 17 October 2001, the Commissioners issued the guidelines for the selection and
hiring of ERC employees. A portion of the guidelines reflects the Commissioners
view on the selection and hiring of the ERC employees vis-a-vis Civil Service
rules, thus:

Since R.A. 9136 has abolished the Energy Regulatory Board (ERB), it is
the view of the Commission that the provisions of Republic Act No.
6656 (An Act to Protect the Security of [Tenure of] Civil Service
Officers and Employees in the Implementation of Government
Reorganization) will not directly apply to ERCs current efforts to
establish a new organization. Civil Service laws, rules and regulations,
however, will have suppletory application to the extent possible in regard
to the selection and placement of employees in the ERC. [2] (Emphasis
supplied)

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On 5 November 2005, KERB sent a letter to the Commissioners stating the KERB
members objection to the Commissioners stand that Civil Service laws, rules and
regulations have suppletory application in the selection and placement of the ERC
employees. KERB asserted that RA 9136 did not abolish the ERB or change
theERBs character as an economic regulator of the electric power industry. KERB
insisted that RA 9136 merely changed the ERBs name to the ERC and expanded
theERBs functions and objectives. KERB sent the Commissioners yet another
letter on 13 November 2001. KERB made a number of requests: (1) the issuance of
a formal letter related to the date of filing of job applications, including the use of
Civil Service application form no. 212; (2) the creation of a placement/recruitment
committee and setting guidelines relative to its functions, without prejudice to
existing Civil Service rules and regulations; and (3) copies of the plantilla positions
and their corresponding qualification standards duly approved by either the
President of the Philippines or the Civil Service Commission (CSC).

Commissioner Barin replied to KERBs letter on 15 November 2001. She stated

that Civil Service application form no. 212 and the ERC-prescribed application
format are substantially the same. Furthermore, the creation of a
placement/recruitment committee is no longer necessary because there is already a
prescribed set of guidelines for the recruitment of personnel. The ERC hired an
independent consultant to administer the necessary tests for the technical and
managerial levels. Finally, the ERC already posted the plantilla positions, which
prescribe higher standards, as approved by the Department of Budget and
Management. Commissioner Barinstated that positions in the ERC do not need the
prior approval of the CSC, as the ERC is only required to submit the qualification
standards to the CSC.

On 5 December 2001, the ERC published a classified advertisement in the

Philippine Star. Two days later, the CSC received a list of vacancies and
qualification standards from the ERC. The ERC formed a Selection Committee to
process all applications.

KERB, fearful of the uncertainty of the employment status of its members, filed
the present petition on 20 December 2001. KERB later filed an Urgent
Ex ParteMotion to Enjoin Termination of Petitioner ERB Employees on 2 January
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2002. However, before the ERC received KERBs pleadings, the Selection
Committee already presented its list of proposed appointees to the Commissioners.

In their Comment, the Commissioners describe the status of the ERB employees
appointment in the ERC as follows:

As of February 1, 2002, of the two hundred twelve (212) ERB

employees, one hundred thirty eighty [sic] (138) were rehired and
appointed to ERC plantilla positions and sixty six (66) opted to retire or
be separated from the service. Those who were rehired and those who
opted to retire or be separated constituted about ninety six (96%) percent
of the entire ERB employees. The list of the ERB employees appointed
to new positions in the ERC is attached hereto as Annex 1. Only eight
(8) ERB employees could not be appointed to new positions due to the
reduction of the ERC plantilla and the absence of positions appropriate
to their respective qualifications and skills. The appropriate notice was
issued to each of them informing them of their separation from the
service and assuring them of their entitlement to separation pay and
other benefits in accordance with existing laws. [3]

The Issues

KERB raises the following issues before this Court:

1. Whether Section 38 of RA 9136 abolishing the ERB is

constitutional; and

2. Whether the Commissioners of the ERC were correct in

disregarding and considering merely suppletory in character the
protective mantle of RA 6656 as to the ERB employees or
petitioner in this case.[4]

The Ruling of the Court

The petition has no merit.

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We disregard the procedural defects in the petition, such as KERBs personality to
file the petition on behalf of its alleged members and Elmar Agirs authority to
institute the action, because of the demands of public interest.[5]

Constitutionality of the ERBs Abolition

and the ERCs Creation

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. [6] 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.

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.[7] Section 38 of RA 9136 explicitly abolished the
ERB. However, abolition of an office and its related positions is different from
removal of an incumbent from his office. Abolition and removal are mutually
exclusive concepts. From a legal standpoint, there is no occupant in an abolished
office. Where there is no occupant, there is no tenure to speak of. Thus, impairment
of the constitutional guarantee of security of tenure does not arise in the abolition
of an office. On the other hand, removal implies that the office and its related
positions subsist and that the occupants are merely separated from their positions.[8]

A valid order of abolition must not only come from a legitimate body, it must also
be made in good faith. An abolition is made in good faith when it is not made for
political or personal reasons, or when it does not circumvent the constitutional
security of tenure of civil service employees. [9] Abolition of an office may be
brought about by reasons of economy, or to remove redundancy of functions, or a
clear and explicit constitutional mandate for such termination of employment.
[10]
Where one office is abolished and replaced with another office vested with
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similar functions, the abolition is a legal nullity.[11] When there is a void abolition,
the incumbent is deemed to have never ceased holding office.

KERB asserts that there was no valid abolition of the ERB but there was merely a
reorganization done in bad faith. Evidences of bad faith are enumerated in Section
2 of Republic Act No. 6656 (RA 6656),[12] Section 2 of RA 6656 reads:

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
exists 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 reorganization,
giving rise to a claim for reinstatement or reappointment by an aggrieved
party:

(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 function as the original offices;

(e) Where the removal violates the order of separation provided in

Section 3 hereof.

KERB claims that the present case falls under the situation described in Section
2(b) of RA 6656. We thus need to compare the provisions enumerating the powers
and functions of the ERB and the ERC to see whether they have substantially the

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same functions. Under Executive Order No. 172, the ERB has the following
powers and functions:

SEC. 3. Jurisdiction, Powers and Functions of the Board. When

warranted and only when public necessity requires, the Board may
regulate the business of importing, exporting, re-exporting, shipping,
transporting, processing, refining, marketing and distributing energy
resources. Energy resource means any substance or phenomenon which
by itself or in combination with others, or after processing or refining or
the application to it of technology, emanates, generates or causes the
emanation or generation of energy, such as but not limited to, petroleum
or petroleum products, coal, marsh gas, methane gas, geothermal and
hydroelectric sources of energy, uranium and other similar radioactive
minerals, solar energy, tidal power, as well as non-conventional existing
and potential sources.

The Board shall, upon proper notice and hearing, exercise the following,
among other powers and functions:

(a) Fix and regulate the prices of petroleum products;

(b) Fix and regulate the rate schedule or prices of piped gas to be
charged by duly franchised gas companies which distribute gas by means
of underground pipe system;

(c) Fix and regulate the rates of pipeline concessionaires under the
provisions of Republic Act No. 387, as amended, otherwise known as the
Petroleum Act of 1949, as amended by Presidential Decree No. 1700;

(d) Regulate the capacities of new refineries or additional capacities of

existing refineries and license refineries that may be organized after the
issuance of this Executive Order, under such terms and conditions as are
consistent with the national interest;

(e) Whenever the Board has determined that there is a shortage of any
petroleum product, or when public interest so requires, it may take such
steps as it may consider necessary, including the temporary adjustment
of the levels of prices of petroleum products and the payment to the Oil
Price Stabilization Fund created under Presidential Decree No. 1956 by
persons or entities engaged in the petroleum industry of such amounts as

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may be determined by the Board, which will enable the importer to
recover its cost of importation.

SEC. 4. Reorganized or Abolished Agency. (a) The Board of Energy is

hereby reconstituted into the Energy Regulatory Board, and
the formers powers and functions under Republic Act No. 6173, as
amended by Presidential Decree No. 1208, as amended, are transferred
to the latter.

(b) The regulatory and adjudicatory powers and functions exercised by

the Bureau of Energy Utilization under Presidential Decree No. 1206, as
amended, are transferred to the Board, the provisions of Executive Order
No. 131 notwithstanding.

SEC. 5. Other Transferred Powers and Functions. The power of the

Land Transportation Commission to determine, fix and/or prescribe rates
or charges pertaining to the hauling of petroleum products are transferred
to the Board. The power to fix and regulate the rates or charges pertinent
to shipping or transporting of petroleum products shall also be exercised
by the Board.

The foregoing transfer of powers and functions shall include applicable

funds and appropriations, records, equipment, property and such
personnel as may be necessary; Provided, That with reference to
paragraph (b) of Section 4 hereof, only such amount of funds and
appropriations of the Bureau of Energy Utilization, as well as only the
personnel thereof who are completely or primarily involved in the
exercise by said Bureau of its regulatory and adjudicatory powers and
functions, shall be affected by such transfer: Provided, further, That the
funds and appropriations as well as the records, equipment, property and
all personnel of the reorganized Board of Energy shall be transferred to
the Energy Regulatory Board.

SEC. 6. Power to Promulgate Rules and Perform Other Acts. The

Board shall have the power to promulgate rules and regulations relevant
to procedures governing hearings before it and enforce compliance with
any rule, regulation, order or other requirements: Provided, That said
rules and regulations shall take effect fifteen (15) days after publication
in the Official Gazette. It shall also perform such other acts as may be
necessary or conducive to the exercise of its powers and functions, and
the attainment of the purposes of this Order.

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On the other hand, Section 43 of RA 9136 enumerates the basic functions of the
ERC.
SEC. 43. Functions of the ERC. The ERC shall promote competition,
encourage market development, ensure customer choice and
discourage/penalize abuse of market power in the restructured electricity
industry. In appropriate cases, the ERC is authorized to issue cease
and desist order after due notice and hearing. Towards this end, it shall
be responsible for the following key functions in the restructured
industry:

(a) Enforce the implementing rules and regulations of this Act;

(b) Within six (6) months from the effectivity of this Act, promulgate
and enforce, in accordance with law, a National Grid Code and a
Distribution Code which shall include, but not limited to, the following:

(i) Performance standards for TRANSCO O & M Concessionaire,

distribution utilities and suppliers: Provided, That in the
establishment of the performance standards, the nature and
function of the entities shall be considered; and

(ii) Financial capability standards for the generating companies,

the TRANSCO, distribution utilities and suppliers: Provided, That
in the formulation of the financial capability standards, the nature
and function of the entity shall be considered: Provided, further,
That such standards are set to ensure that the electric power
industry participants meet the minimum financial standards to
protect the public interest. Determine, fix, and approve, after due
notice and public hearings the universal charge, to be imposed on
all electricity end-users pursuant to Section 34 hereof;

(c) Enforce the rules and regulations governing the operations of the
electricity spot market and the activities of the spot market operator and
other participants in the spot market, for the purpose of ensuring a
greater supply and rational pricing of electricity;

(d) Determine the level of cross subsidies in the existing retail rate until
the same is removed pursuant to Section 73 hereof;

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(e) Amend or revoke, after due notice and hearing, the authority to
operate of any person or entity which fails to comply with the provisions
hereof, the IRR or any order or resolution of the ERC. In the event a
divestment is required, the ERC shall allow the affected party sufficient
time to remedy the infraction or for an orderly disposal, but shall in no
case exceed twelve (12) months from the issuance of the order;

(f) In the public interest, establish and enforce a methodology for setting
transmission and distribution wheeling rates and retail rates for the
captive market of a distribution utility, taking into account all relevant
considerations, including the efficiency or inefficiency of the regulated
entities. The rates must be such as to allow the recovery of just and
reasonable costs and a reasonable return on rate base (RORB) to enable
the entity to operate viably. The ERC may adopt alternative forms of
internationally-accepted rate setting methodology as it may deem
appropriate. The rate-setting methodology so adopted and applied must
ensure a reasonable price of electricity. The rates prescribed shall be
non-discriminatory. To achieve this objective and to ensure the complete
removal of cross subsidies, the cap on the recoverable rate of system
losses prescribed in Section 10 of Republic Act No. 7832, is hereby
amended and shall be replaced by caps which shall be determined by the
ERC based on load density, sales mix, cost of service, delivery voltage
and other technical considerations it may promulgate. The ERC shall
determine such form of rate-setting methodology, which shall promote
efficiency. In case the rate setting methodology used is RORB, it shall be
subject to the following guidelines:

(i) For purposes of determining the rate base, the TRANSCO or

any distribution utility may be allowed to revalue its eligible
assets not more than once every three (3) years by an independent
appraisal company: Provided, however, That ERC may give an
exemption in case of unusual devaluation: Provided, further, That
the ERC shall exert efforts to minimize price shocks in order to
protect the consumers;

(ii) Interest expenses are not allowable deductions from

permissible return on rate base;

(iii) In determining eligible cost of services that will be passed on

to the end-users, the ERC shall establish minimum efficiency
performance standards for the TRANSCO and distribution

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 utilities including systems losses, interruption frequency rates, and
collection efficiency;

(iv) Further, in determining rate base, the TRANSCO or any

distribution utility shall not be allowed to include management
inefficiencies like cost of project delays not excused
by force majeure, penalties and related interest during
construction applicable to these unexcused delays; and

(v) Any significant operating costs or project investments of

TRANSCO and distribution utilities which shall become part of
the rate base shall be subject to the verification of the ERC to
ensure that the contracting and procurement of the equipment,
assets and services have been subjected to transparent and
accepted industry procurement and purchasing practices to protect
the public interest.

(g) Three (3) years after the imposition of the universal charge, ensure
that the charges of the TRANSCO or any distribution utility shall bear
no cross subsidies between grids, within grids, or between classes of
customers, except as provided herein;

(h) Review and approve any changes on the terms and conditions of
service of the TRANSCO or any distribution utility;

(i) Allow the TRANSCO to charge user fees for ancillary services to all
electric power industry participants or self-generating entities connected
to the grid. Such fees shall be fixed by the ERC after due notice and
public hearing;

(j) Set a lifeline rate for the marginalized end-users;

(k) Monitor and take measures in accordance with this Act to penalize
abuse of market power, cartelization, and anti-competitive or
discriminatory behavior by any electric power industry participant;

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(l) Impose fines or penalties for any non-compliance with or breach of
this Act, the IRR of this Act and the rules and regulations which it
promulgates or administers;

(m) Take any other action delegated to it pursuant to this Act;

(n) Before the end of April of each year, submit to the Office of the
President of the Philippines and Congress, copy furnished the DOE, an
annual report containing such matters or cases which have been filed
before or referred to it during the preceding year, the actions and
proceedings undertaken and its decision or resolution in each case. The
ERC shall make copies of such reports available to any interested party
upon payment of a charge which reflects the printing costs. The ERC
shall publish all its decisions involving rates and anticompetitive cases in
at least one (1) newspaper of general circulation, and/or post
electronically and circulate to all interested electric power industry
participants copies of its resolutions to ensure fair and impartial
treatment;

(o) Monitor the activities of the generation and supply of the electric
power industry with the end in view of promoting free market
competition and ensuring that the allocation or pass through of bulk
purchase cost by distributors is transparent, non-discriminatory and that
any existing subsidies shall be divided pro rata among all retail
suppliers;

(p) Act on applications for or modifications of certificates of public

convenience and/or necessity, licenses or permits of franchised electric
utilities in accordance with law and revoke, review and modify such
certificates, licenses or permits in appropriate cases, such as in cases of
violations of the Grid Code, Distribution Code and other rules and
regulations issued by the ERC in accordance with law;

(q) Act on applications for cost recovery and return on demand side
management projects;

(r) In the exercise of its investigative and quasi-judicial powers,

act against any participant or player in the energy sector for violations of
any law, rule and regulation governing the same, including the rules on
cross ownership, anticompetitive practices, abuse of market positions

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 and similar or related acts by any participant in the energy sector, or by
any person as may be provided by law, and require any person or entity
to submit any report or data relative to any investigation or hearing
conducted pursuant to this Act;

(s) Inspect, on its own or through duly authorized representatives, the

premises, books of accounts and records of any person or entity at any
time, in the exercise of its quasi-judicial power for purposes of
determining the existence of any anticompetitive behavior and/or market
power abuse and any violation of rules and regulations issued by the
ERC;

(t) Perform such other regulatory functions as are appropriate and

necessary in order to ensure the successful restructuring and
modernization of the electric power industry, such as, but not limited to,
the rules and guidelines under which generation companies, distribution
utilities which are not publicly listed shall offer and sell to the public a
portion not less than fifteen percent (15%) of their common shares of
stocks: Provided, however, That generation companies, distribution
utilities or their respective holding companies that are already listed in
the PSE are deemed in compliance. For existing companies, such public
offering shall be implemented not later than five (5) years from
the effectivity of this Act. New companies shall implement their
respective public offerings not later than five (5) years from the issuance
of their certificate of compliance; and

(u) The ERC shall have the original and exclusive jurisdiction over all
cases contesting rates, fees, fines and penalties imposed by the ERC in
the exercise of the abovementioned powers, functions and
responsibilities and over all cases involving disputes between and among
participants or players in the energy sector.

All notices of hearings to be conducted by the ERC for the purpose of

fixing rates or fees shall be published at least twice for two successive
weeks in two (2) newspapers of nationwide circulation.

Aside from Section 43, additional functions of the ERC are scattered throughout
RA 9136:

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1. SEC. 6. Generation Sector. Generation of electric power, a
business affected with public interest, shall be competitive and
open.

Upon the effectivity of this Act, any new generation company

shall, before it operates, secure from the Energy Regulatory
Commission (ERC) a certificate of compliance pursuant to the
standards set forth in this Act, as well as health, safety and
environmental clearances from the appropriate government
agencies under existing laws.

xxxx

2. SEC. 8. Creation of the National Transmission

Company. x x x

That the subtransmission assets shall be operated and maintained

by TRANSCO until their disposal to qualified distribution utilities
which are in a position to take over the responsibility for
operating, maintaining, upgrading, and expanding said
assets. x x x

In case of disagreement in valuation, procedures, ownership

participation and other issues, the ERC shall resolve such issues.

xxxx

3. SEC. 23. Functions of Distribution Utilities. x x x

Distribution utilities shall submit to the ERC a statement of their

compliance with the technical specifications prescribed in the
Distribution Code and the performance standards prescribed in
the IRR of this Act. Distribution utilities which do not comply
with any of the prescribed technical specifications and
performance standards shall submit to the ERC a plan to comply,
within three (3) years, with said prescribed technical
specifications and performance standards. The ERC shall, within
sixty (60) days upon receipt of such plan, evaluate the same and
notify the distribution utility concerned of its action. Failure to
submit a feasible and credible plan and/or failure to implement
the same shall serve as grounds for the imposition of appropriate
sanctions, fines or penalties.

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 xxxx

4. SEC. 28. De-monopolization and Shareholding Dispersal. In

compliance with the constitutional mandate for dispersal of
ownership and de-monopolization of public utilities, the holdings
of persons, natural or juridical, including directors, officers,
stockholders and related interests, in a distribution utility and their
respective holding companies shall not exceed twenty-five (25%)
percent of the voting shares of stock unless the utility or the
company holding the shares or its controlling stockholders are
already listed in the Philippine Stock Exchange (PSE): Provided,
That controlling stockholders of small distribution utilities are
hereby required to list in the PSE within five (5) years from the
enactment of this Act if they already own the stocks. New
controlling stockholders shall undertake such listing within five
(5) years from the time they acquire ownership and control. A
small distribution company is one whose peak demand is equal to
Ten megawatts (10MW).

The ERC shall, within sixty (60) days from the effectivity of this
Act, promulgate the rules and regulations to implement and effect
this provision.

xxxx

5. SEC. 29. Supply Sector. x x x all suppliers of electricity to the

contestable market shall require a license from the ERC.

For this purpose, the ERC shall promulgate rules and regulations
prescribing the qualifications of electricity suppliers which shall
include, among other requirements, a demonstration of their
technical capability, financial capability, and
creditworthiness: Provided, That the ERC shall have authority to
require electricity suppliers to furnish a bond or other evidence of
the ability of a supplier to withstand market disturbances or other
events that may increase the cost of providing service.

xxxx

6. SEC. 30. Wholesale Electricity Spot Market. x x x

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 Subject to the compliance with the membership criteria, all
generating companies, distribution utilities, suppliers, bulk
consumers/end-users and other similar entities authorized by the
ERC shall be eligible to become members of the wholesale
electricity spot market.

The ERC may authorize other similar entities to become eligible

as members, either directly or indirectly, of the wholesale
electricity spot market.

xxxx

7. SEC. 31. Retail Competition and Open Access. x x x

Upon the initial implementation of open access, the ERC shall

allow all electricity end-users with a monthly average peak
demand of at least one megawatt (1MW) for the preceding twelve
(12) months to be the contestable market. xxx Subsequently and
every year thereafter, the ERC shall evaluate the performance of
the market. x x x

8. SEC. 32. NPC Stranded Debt and Contract Cost

Recovery. x x x

The ERC shall verify the reasonable amounts and determine the
manner and duration for the full recovery of stranded debt and
stranded contract costs as defined herein x xx x

9. SEC. 34. Universal Charge. Within one (1) year from

the effectivity of this Act, a universal charge to be determined,
fixed and approved by the ERC, shall be imposed on all electricity
end-users x x x x

10. SEC. 35. Royalties, Returns and Tax Rates for Indigenous Energy
Resources. x x x

To ensure lower rates for end-users, the ERC shall forthwith

reduce the rates of power from all indigenous sources of energy.

11. SEC. 36. Unbundling of Rates and Functions. x x x

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 each distribution utility shall file its revised rates for the approval
by the ERC. x x x x

12. SEC. 40. Enhancement of Technical Competence. The ERC

shall establish rigorous training programs for its staff for the
purpose of enhancing the technical competence of the ERC in the
following areas: evaluation of technical performance and
monitoring of compliance with service and performance
standards, performance-based rate-setting reform, environmental
standards and such other areas as will enable the ERC to
adequately perform its duties and functions.

13. SEC. 41. Promotion of Consumer Interests. The ERC shall

handle consumer complaints and ensure the adequate promotion
of consumer interests.

14. SEC. 45. Cross Ownership, Market Power Abuse and Anti-
Competitive Behavior. No participant in the electricity industry
may engage in any anti-competitive behavior including, but not
limited to, cross-subsidization, price or market manipulation, or
other unfair trade practices detrimental to the encouragement and
protection of contestable markets.

xxxx

(c) x x x The ERC shall, within one (1) year from

the effectivity of this Act, promulgate rules and regulations to
promote competition, encourage market development and
customer choice and discourage/penalize abuse of market power,
cartelization and any anticompetitive or discriminatory behavior,
in order to further the intent of this Act and protect the public
interest. Such rules and regulations shall define the following:

(a) the relevant markets for purposes of establishing abuse or

misuse of monopoly or market position;

(b) areas of isolated grids; and

(c) the periodic reportorial requirements of electric power industry

participants as may be necessary to enforce the provisions of this
Section.

Page 101 of 547

 The ERC shall, motu proprio, monitor and penalize any market
power abuse or anticompetitive or discriminatory act or behavior
by any participant in the electric power industry.

15. SEC. 51. Powers. The PSALM Corp. shall, in the performance
of its functions and for the attainment of its objective, have the
following powers: x x x

(e) To liquidate the NPC stranded contract costs utilizing proceeds

from sales and other property contributed to it, including the
proceeds from the universal charge;

xxxx

16. SEC. 60. Debts of Electric Cooperatives. x x x The ERC shall

ensure a reduction in the rates of electric cooperatives
commensurate with the resulting savings due to the removal of the
amortization payments of their loans. x x x x

17. SEC. 62. Joint Congressional Power Commission. x x x

x x x the Power Commission is hereby empowered to require the

DOE, ERC, NEA, TRANSCO, generation companies,
distribution utilities, suppliers and other electric power industry
participants to submit reports and all pertinent data and
information relating to the performance of their respective
functions in the industry. xxx

xxxx

18. SEC. 65. Environmental Protection. Participants in the

generation, distribution and transmission sub-sectors of the
industry shall comply with all environmental laws, rules,
regulations and standards promulgated by the Department of
Environment and Natural Resources including, in appropriate
cases, the establishment of an environmental guarantee fund.

19. SEC. 67. NPC Offer of Transition Supply Contracts. Within

six (6) months from the effectivity of this Act, NPC shall file with
the ERC for its approval a transition supply contract duly

Page 102 of 547

 negotiated with the distribution utilities containing the terms and
conditions of supply and a corresponding schedule of rates,
consistent with the provisions hereof, including adjustments
and/or indexation formulas which shall apply to the term of such
contracts.

xxxx

20. SEC. 69. Renegotiation of Power Purchase and Energy

Conversion Agreements between Government Entities. Within
three (3) months from the effectivity of this Act, all power
purchase and energy conversion agreements between the PNOC-
Energy Development Corporation (PNOC-EDC) and NPC,
including but not limited to thePalimpinon, Tongonan and
Mt. Apo Geothermal complexes, shall be reviewed by the ERC
and the terms thereof amended to remove any hidden costs or
extraordinary mark-ups in the cost of power or steam above their
true costs. All amended contracts shall be submitted to the Joint
Congressional Power Commission for approval. The ERC shall
ensure that all savings realized from the reduction of said mark-
ups shall be passed on to all end-users.

After comparing the functions of the ERB and the ERC, we find that the ERC
indeed assumed the functions of the ERB. However, the overlap in the functions of
the ERB and of the ERC does not mean that there is no valid abolition of the
ERB. The ERC has new and expanded functions which are intended to meet the
specific needs of a deregulated power industry. Indeed, National Land Titles and
Deeds Registration Administration v. Civil Service Commission stated that:

[I]f the newly created office has substantially new, different or additional
functions, duties or powers, so that it may be said in fact to create an
office different from the one abolished, even though it embraces all or
some of the duties of the old office it will be considered as an abolition
of one office and the creation of a new or different one. The same is true
if one office is abolished and its duties, for reasons of economy are given
to an existing officer or office.[13]

Page 103 of 547

KERB argues that RA 9136 did not abolish the ERB nor did it alter its essential
character as an economic regulator of the electric power industry. x x x RA 9136
rather changed merely ERBs name and title to that of the ERC even as it expanded
its functions and objectives to keep pace with the times. To
uphold KERBsargument regarding the invalidity of the ERBs abolition is to ignore
the developments in the history of energy regulation.

The regulation of public services started way back in 1902 with the
enactment of Act No. 520 which created the Coastwise Rate
Commission. In 1906, Act No. 1507 was passed creating the Supervising
Railway Expert. The following year, Act No. 1779 was enacted creating
the Board of Rate Regulation. Then, Act No 2307, which was patterned
after the Public Service Law of the State of New Jersey, was approved
by the Philippine Commission in 1914, creating the Board of Public
Utility Commissioners, composed of three members, which absorbed all
the functions of the Coastwise Rate Commission, the Supervising
Railway Expert, and the Board of Rate Regulation.

Thereafter, several laws were enacted on public utility regulation.

On November 7, 1936, Commonwealth Act No. 146, otherwise known
as the Public Service Law, was enacted by the National Assembly. The
Public Service Commission (PSC) had jurisdiction, supervision, and
control over all public services, including the electric power service.

After almost four decades, significant developments in the energy sector

changed the landscape of economic regulation in the country.

April 30, 1971 R.A. No. 6173 was passed creating the Oil
Industry Commission (OIC), which was tasked to regulate the oil
industry and to ensure the adequate supply of petroleum products
at reasonable prices.

September 24, 1972 then President Ferdinand E. Marcos

issued Presidential Decree No. 1 which ordered the preparation of
the Integrated Reorganization Plan by the Commission on
Reorganization. The Plan abolished the PSC and transferred the
regulatory and adjudicatory functions pertaining to the electricity
industry and water resources to then Board of Power and
Waterworks (BOPW).

Page 104 of 547

October 6, 1977 the government created the Department of
Energy (DOE) and consequently abolished the OIC, which was
replaced by the creation of the Board of Energy (BOE) through
Presidential Decree No. 1206. The BOE, in addition, assumed the
powers and functions of the BOPW over the electric power
industry.

May 8, 1987 the BOE was reconstituted into the Energy

Regulatory Board (ERB), pursuant to Executive Order No. 172
issued by then President Corazon C. Aquino as part of her
governments reorganization program. The rationale was to
consolidate and entrust into a single body all the regulatory and
adjudicatory functions pertaining to the energy sector. Thus, the
power to regulate the power rates and services of private electric
utilities was transferred to the ERB.

December 28, 1992 Republic Act No. 7638 signed, where the
power to fix the rates of the National Power Corporation (NPC)
and the rural electric cooperatives (RECs) was passed on to the
ERB. Non-pricing functions of the ERB with respect to the
petroleum industry were transferred to the DOE, i.e., regulating
the capacities of new refineries.

February 10, 1998 enactment of Republic Act 8479:

Downstream Oil Industry Deregulation Act of 1998, which
prescribed a five-month transition period, before full deregulation
of the oil industry, during which ERB would implement an
automatic pricing mechanism (APM) for petroleum products
every month.

June 12, 1998 the Philippine oil industry was fully deregulated,
thus, ERBs focus of responsibility centered on the electric
industry.

June 8, 2001 enactment of Republic Act No. 9136, otherwise

known as the Electric Power Industry Reform Act (EPIRA) of
2001. The Act abolished the ERB and created in its place the
Energy Regulatory Commission (ERC) which is a purely
independent regulatory body performing the combined quasi-
judicial, quasi-legislative and administrative functions in the
electric industry.[14]

Page 105 of 547

Throughout the years, the scope of the regulation has gradually narrowed from that
of public services in 1902 to the electricity industry and water resources in 1972 to
the electric power industry and oil industry in 1977 to the electric industry alone in
1998. The ERC retains the ERBs traditional rate and service regulation
functions.However, the ERC now also has to promote competitive operations in
the electricity market. RA 9136 expanded the ERCs concerns to encompass both
the consumers and the utility investors.
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 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 privatized and its
transmission business spun off and privatized thereafter.

In tandem with the restructuring of the industry is the establishment of a

strong and purely independent regulatory body. Thus, the law created the
ERC in place of the Energy Regulatory Board (ERB).

To achieve its aforestated goal, the law has reconfigured the organization
of the regulatory body. x x x[15]

There is no question in our minds that, because of the expansion of

the ERCs functions and concerns, there was a valid abolition of the ERB. Thus,
there is no merit toKERBs allegation that there is an impairment of the security of
tenure of the ERBs employees.

SECOND DIVISION

G.R. No. 155336 November 25, 2004

COMMISSION ON HUMAN RIGHTS EMPLOYEES' ASSOCIATION (CHREA) Represented by its

President, MARCIAL A. SANCHEZ, JR., petitioner,
vs.
COMMISSION ON HUMAN RIGHTS, respondent.

Page 106 of 547

 DECISION

CHICO-NAZARIO, J.:

Can the Commission on Human Rights lawfully implement an upgrading and reclassification of
personnel positions without the prior approval of the Department of Budget and Management?

Before this Court is a petition for review filed by petitioner Commission on Human Rights Employees'
Association (CHREA) challenging the Decision1 dated 29 November 2001 of the Court of Appeals in
CA-G.R. SP No. 59678 affirming the Resolutions2 dated 16 December 1999 and 09 June 2000 of the
Civil Service Commission (CSC), which sustained the validity of the upgrading and reclassification of
certain personnel positions in the Commission on Human Rights (CHR) despite the disapproval
thereof by the Department of Budget and Management (DBM). Also assailed is the resolution dated
11 September 2002 of the Court of Appeals denying the motion for reconsideration filed by petitioner.

The antecedent facts which spawned the present controversy are as follows:

On 14 February 1998, Congress passed Republic Act No. 8522, otherwise known as the General
Appropriations Act of 1998. It provided for Special Provisions Applicable to All Constitutional Offices
Enjoying Fiscal Autonomy. The last portion of Article XXXIII covers the appropriations of the CHR.
These special provisions state:

1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
the limits of their respective appropriations as authorized in this Act, the Constitutional
Commissions and Offices enjoying fiscal autonomy are authorized to formulate and
implement the organizational structures of their respective offices, to fix and determine the
salaries, allowances, and other benefits of their personnel, and whenever public interest so
requires, make adjustments in their personal services itemization including, but not limited to,
the transfer of item or creation of new positions in their respective offices: PROVIDED, That
officers and employees whose positions are affected by such reorganization or adjustments
shall be granted retirement gratuities and separation pay in accordance with existing laws,
which shall be payable from any unexpended balance of, or savings in the appropriations of
their respective offices: PROVIDED, FURTHER, That the implementation hereof shall be in
accordance with salary rates, allowances and other benefits authorized under compensation
standardization laws.

2. Use of Savings. The Constitutional Commissions and Offices enjoying fiscal autonomy are
hereby authorized to use savings in their respective appropriations for: (a) printing and/or
publication of decisions, resolutions, and training information materials; (b) repair,
maintenance and improvement of central and regional offices, facilities and equipment; (c)
purchase of books, journals, periodicals and equipment; (d) necessary expenses for the
employment of temporary, contractual and casual employees; (e) payment of extraordinary
and miscellaneous expenses, commutable representation and transportation allowances,
and fringe benefits for their officials and employees as may be authorized by law; and (f)
other official purposes, subject to accounting and auditing rules and regulations. (Emphases
supplied)

Page 107 of 547

on the strength of these special provisions, the CHR, through its then Chairperson Aurora P.
Navarette-Recia and Commissioners Nasser A. Marohomsalic, Mercedes V. Contreras, Vicente P.
Sibulo, and Jorge R. Coquia, promulgated Resolution No. A98-047 on 04 September 1998, adopting
an upgrading and reclassification scheme among selected positions in the Commission, to wit:

WHEREAS, the General Appropriations Act, FY 1998, R.A. No. 8522 has provided special
provisions applicable to all Constitutional Offices enjoying Fiscal Autonomy, particularly on
organizational structures and authorizes the same to formulate and implement the
organizational structures of their respective offices to fix and determine the salaries,
allowances and other benefits of their personnel and whenever public interest so requires,
make adjustments in the personnel services itemization including, but not limited to, the
transfer of item or creation of new positions in their respective offices: PROVIDED, That
officers and employees whose positions are affected by such reorganization or adjustments
shall be granted retirement gratuities and separation pay in accordance with existing laws,
which shall be payable from any unexpanded balance of, or savings in the appropriations of
their respective offices;

Whereas, the Commission on Human Rights is a member of the Constitutional Fiscal

Autonomy Group (CFAG) and on July 24, 1998, CFAG passed an approved Joint Resolution
No. 49 adopting internal rules implementing the special provisions heretoforth mentioned;

NOW THEREFORE, the Commission by virtue of its fiscal autonomy hereby approves and
authorizes the upgrading and augmentation of the commensurate amount generated from
savings under Personal Services to support the implementation of this resolution effective
Calendar Year 1998;

Let the Human Resources Development Division (HRDD) prepare the necessary Notice of
Salary Adjustment and other appropriate documents to implement this resolution; . . . .
3
(Emphasis supplied)

Annexed to said resolution is the proposed creation of ten additional plantilla positions, namely: one
Director IV position, with Salary Grade 28 for the Caraga Regional Office, four Security Officer II with
Salary Grade 15, and five Process Servers, with Salary Grade 5 under the Office of the
Commissioners. 4

On 19 October 1998, CHR issued Resolution No. A98-055 5 providing for the upgrading or raising of
salary grades of the following positions in the Commission:

Numbe Position Salary Total

r of Grade Salary
Positio Title Requireme
ns nts

From To Fro T
m o

12 Attorney Director 26 2 P229,104.0

Page 108 of 547

 VI (In the IV 8 0
Regional
Field
Offices)

4 Director III Director 27 2 38,928.00

IV 8

1 Financial Director 24 2 36,744.00

& IV 8
Managem
ent Officer
II

1 Budget Budget 18 2 51,756.00

Officer III Officer 4
IV

1 Accountan Chief 18 2 51,756.00

t III Account 4
ant

1 Cashier III Cashier 18 2 51,756.00

V 4

1 Informatio Director 24 2 36,744.006

n Officer V IV 8

It, likewise, provided for the creation and upgrading of the following positions:

A. Creation

Number Position Title Salary Total Salary

of Grade Requirements
Position
s

Page 109 of 547

 4 Security 15 684,780.00
Officer II
(Coterminous)

B. Upgrading

Number Position Title Salary Total Salary

of Grade Requirement
Position s
s

From To Fro To
m

1 Attorne Directo 25 2 P28,092.00

yV r IV 8

2 Securit Securit 11 1 57,456.00

y y 5
Officer I Officer
II

----------------

Total 3 P 85,548.007

To support the implementation of such scheme, the CHR, in the same resolution, authorized the
augmentation of a commensurate amount generated from savings under Personnel Services.

By virtue of Resolution No. A98-062 dated 17 November 1998, the CHR "collapsed" the vacant
positions in the body to provide additional source of funding for said staffing modification. Among the
positions collapsed were: one Attorney III, four Attorney IV, one Chemist III, three Special
Investigator I, one Clerk III, and one Accounting Clerk II. 8

The CHR forwarded said staffing modification and upgrading scheme to the DBM with a request for
its approval, but the then DBM secretary Benjamin Diokno denied the request on the following
justification:

Page 110 of 547

 Based on the evaluations made the request was not favorably considered as it effectively
involved the elevation of the field units from divisions to services.

The present proposal seeks further to upgrade the twelve (12) positions of Attorney VI, SG-26 to
Director IV, SG-28. This would elevate the field units to a bureau or regional office, a level even
higher than the one previously denied.

The request to upgrade the three (3) positions of Director III, SG-27 to Director IV, SG-28, in the
Central Office in effect would elevate the services to Office and change the context from support to
substantive without actual change in functions.

In the absence of a specific provision of law which may be used as a legal basis to elevate the level
of divisions to a bureau or regional office, and the services to offices, we reiterate our previous stand
denying the upgrading of the twelve (12) positions of Attorney VI, SG-26 to Director III, SG-27 or
Director IV, SG-28, in the Field Operations Office (FOO) and three (3) Director III, SG-27 to Director
IV, SG-28 in the Central Office.

As represented, President Ramos then issued a Memorandum to the DBM Secretary dated 10
December 1997, directing the latter to increase the number of Plantilla positions in the CHR both
Central and Regional Offices to implement the Philippine Decade Plan on Human Rights Education,
the Philippine Human Rights Plan and Barangay Rights Actions Center in accordance with existing
laws. (Emphasis in the original)

Pursuant to Section 78 of the General Provisions of the General Appropriations Act (GAA) FY 1998,
no organizational unit or changes in key positions shall be authorized unless provided by law or
directed by the President, thus, the creation of a Finance Management Office and a Public Affairs
Office cannot be given favorable recommendation.

Moreover, as provided under Section 2 of RA No. 6758, otherwise known as the Compensation
Standardization Law, the Department of Budget and Management is directed to establish and
administer a unified compensation and position classification system in the government. The
Supreme Court ruled in the case of Victorina Cruz vs. Court of Appeals, G.R. No. 119155, dated
January 30, 1996, that this Department has the sole power and discretion to administer the
compensation and position classification system of the National Government.

Being a member of the fiscal autonomy group does not vest the agency with the authority to
reclassify, upgrade, and create positions without approval of the DBM. While the members of the
Group are authorized to formulate and implement the organizational structures of their respective
offices and determine the compensation of their personnel, such authority is not absolute and must
be exercised within the parameters of the Unified Position Classification and Compensation System
established under RA 6758 more popularly known as the Compensation Standardization Law. We
therefore reiterate our previous stand on the matter.9 (Emphases supplied)

In light of the DBM's disapproval of the proposed personnel modification scheme, the CSC-National
Capital Region Office, through a memorandum dated 29 March 1999, recommended to the CSC-
Central Office that the subject appointments be rejected owing to the DBM's disapproval of the
plantilla reclassification.

Meanwhile, the officers of petitioner CHREA, in representation of the rank and file employees of the
CHR, requested the CSC-Central Office to affirm the recommendation of the CSC-Regional Office.
CHREA stood its ground in saying that the DBM is the only agency with appropriate authority

Page 111 of 547

mandated by law to evaluate and approve matters of reclassification and upgrading, as well as
creation of positions.

The CSC-Central Office denied CHREA's request in a Resolution dated 16 December 1999, and
reversed the recommendation of the CSC-Regional Office that the upgrading scheme be censured.
The decretal portion of which reads:

WHEREFORE, the request of Ronnie N. Rosero, Hubert V. Ruiz, Flordeliza A. Briones,

George Q. Dumlao [and], Corazon A. Santos-Tiu, is hereby denied. 10

CHREA filed a motion for reconsideration, but the CSC-Central Office denied the same on 09
June 2000.

Given the cacophony of judgments between the DBM and the CSC, petitioner CHREA
elevated the matter to the Court of Appeals. The Court of Appeals affirmed the
pronouncement of the CSC-Central Office and upheld the validity of the upgrading, retitling,
and reclassification scheme in the CHR on the justification that such action is within the
ambit of CHR's fiscal autonomy. The fallo of the Court of Appeals decision provides:

IN VIEW OF ALL THE FOREGOING, the instant petition is ordered DISMISSED and the
questioned Civil Service Commission Resolution No. 99-2800 dated December 16, 1999 as
well as No. 001354 dated June 9, 2000, are hereby AFFIRMED. No cost.11

Unperturbed, petitioner filed this petition in this Court contending that:

A.

THE COURT OF APPEALS GRAVELY ERRED WHEN IT HELD THAT UNDER THE 1987
CONSTITUTION, THE COMMISSION ON HUMAN RIGHTS ENJOYS FISCAL AUTONOMY.

B.

THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE CONSTRUCTION

OF THE COMMISSION ON HUMAN RIGHTS OF REPUBLIC ACT NO. 8522 (THE
GENERAL APPROPRIATIONS ACT FOR THE FISCAL YEAR 1998) DESPITE ITS BEING
IN SHARP CONFLICT WITH THE 1987 CONSTITUTION AND THE STATUTE ITSELF.

C.

THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN AFFIRMING THE

VALIDITY OF THE CIVIL SERVICE COMMISSION RESOLUTION NOS. 992800 AND
001354 AS WELL AS THAT OF THE OPINION OF THE DEPARTMENT OF JUSTICE IN
STATING THAT THE COMMISSION ON HUMAN RIGHTS ENJOYS FISCAL AUTONOMY
UNDER THE 1987 CONSTITUTION AND THAT THIS FISCAL AUTONOMY INCLUDES THE
ACTION TAKEN BY IT IN COLLAPSING, UPGRADING AND RECLASSIFICATION OF
POSITIONS THEREIN.12

The central question we must answer in order to resolve this case is: Can the Commission on
Human Rights validly implement an upgrading, reclassification, creation, and collapsing of plantilla
positions in the Commission without the prior approval of the Department of Budget and
Management?

Page 112 of 547

Petitioner CHREA grouses that the Court of Appeals and the CSC-Central Office both erred in
sanctioning the CHR's alleged blanket authority to upgrade, reclassify, and create positions
inasmuch as the approval of the DBM relative to such scheme is still indispensable. Petitioner
bewails that the CSC and the Court of Appeals erroneously assumed that CHR enjoys fiscal
autonomy insofar as financial matters are concerned, particularly with regard to the upgrading and
reclassification of positions therein.

Respondent CHR sharply retorts that petitioner has no locus standi considering that there exists no
official written record in the Commission recognizing petitioner as a bona fide organization of its
employees nor is there anything in the records to show that its president, Marcial A. Sanchez, Jr.,
has the authority to sue the CHR. The CHR contends that it has the authority to cause the
upgrading, reclassification, plantilla creation, and collapsing scheme sans the approval of the DBM
because it enjoys fiscal autonomy.

After a thorough consideration of the arguments of both parties and an assiduous scrutiny of the
records in the case at bar, it is the Court's opinion that the present petition is imbued with merit.

On petitioner's personality to bring this suit, we held in a multitude of cases that a proper party is one
who has sustained or is in immediate danger of sustaining an injury as a result of the act complained
of.13 Here, petitioner, which consists of rank and file employees of respondent CHR, protests that the
upgrading and collapsing of positions benefited only a select few in the upper level positions in the
Commission resulting to the demoralization of the rank and file employees. This sufficiently meets
the injury test. Indeed, the CHR's upgrading scheme, if found to be valid, potentially entails eating up
the Commission's savings or that portion of its budgetary pie otherwise allocated for Personnel
Services, from which the benefits of the employees, including those in the rank and file, are derived.

Further, the personality of petitioner to file this case was recognized by the CSC when it took
cognizance of the CHREA's request to affirm the recommendation of the CSC-National Capital
Region Office. CHREA's personality to bring the suit was a non-issue in the Court of Appeals when it
passed upon the merits of this case. Thus, neither should our hands be tied by this technical
concern. Indeed, it is settled jurisprudence that an issue that was neither raised in the complaint nor
in the court below cannot be raised for the first time on appeal, as to do so would be offensive to the
basic rules of fair play, justice, and due process.14

We now delve into the main issue of whether or not the approval by the DBM is a condition
precedent to the enactment of an upgrading, reclassification, creation and collapsing of plantilla
positions in the CHR.

Germane to our discussion is Rep. Act No. 6758, An Act Prescribing a Revised Compensation and
Position Classification System in the Government and For Other Purposes, or the Salary
Standardization Law, dated 01 July 1989, which provides in Sections 2 and 4 thereof that it is the
DBM that shall establish and administer a unified Compensation and Position Classification System.
Thus:

SEC. 2. Statement of Policy. -- It is hereby declared the policy of the State to provide equal
pay for substantially equal work and to base differences in pay upon substantive differences
in duties and responsibilities, and qualification requirements of the positions. In determining
rates of pay, due regard shall be given to, among others, prevailing rates in the private sector
for comparable work. For this purpose, the Department of Budget and Management (DBM) is
hereby directed to establish and administer a unified Compensation and Position
Classification System, hereinafter referred to as the System as provided for in Presidential

Page 113 of 547

 Decree No. 985, as amended, that shall be applied for all government entities, as mandated
by the Constitution. (Emphasis supplied.)

SEC. 4. Coverage. The Compensation and Position Classification System herein provided
shall apply to all positions, appointive or elective, on full or part-time basis, now existing or
hereafter created in the government, including government-owned or controlled corporations
and government financial institutions.

The term "government" refers to the Executive, the Legislative and the Judicial Branches and the
Constitutional Commissions and shall include all, but shall not be limited to, departments, bureaus,
offices, boards, commissions, courts, tribunals, councils, authorities, administrations, centers,
institutes, state colleges and universities, local government units, and the armed forces. The term
"government-owned or controlled corporations and financial institutions" shall include all
corporations and financial institutions owned or controlled by the National Government, whether
such corporations and financial institutions perform governmental or proprietary functions.
(Emphasis supplied.)

The disputation of the Court of Appeals that the CHR is exempt from the long arm of the Salary
Standardization Law is flawed considering that the coverage thereof, as defined above,
encompasses the entire gamut of government offices, sans qualification.

This power to "administer" is not purely ministerial in character as erroneously held by the Court of
Appeals. The word to administer means to control or regulate in behalf of others; to direct or
superintend the execution, application or conduct of; and to manage or conduct public affairs, as to
administer the government of the state.15

The regulatory power of the DBM on matters of compensation is encrypted not only in law, but in
jurisprudence as well. In the recent case of Philippine Retirement Authority (PRA) v. Jesusito L.
Buag,16 this Court, speaking through Mr. Justice Reynato Puno, ruled that compensation,
allowances, and other benefits received by PRA officials and employees without the requisite
approval or authority of the DBM are unauthorized and irregular. In the words of the Court

Despite the power granted to the Board of Directors of PRA to establish and fix a compensation and
benefits scheme for its employees, the same is subject to the review of the Department of Budget
and Management. However, in view of the express powers granted to PRA under its charter, the
extent of the review authority of the Department of Budget and Management is limited. As stated in
Intia, the task of the Department of Budget and Management is simply to review the compensation
and benefits plan of the government agency or entity concerned and determine if the same complies
with the prescribed policies and guidelines issued in this regard. The role of the Department of
Budget and Management is supervisorial in nature, its main duty being to ascertain that the
proposed compensation, benefits and other incentives to be given to PRA officials and employees
adhere to the policies and guidelines issued in accordance with applicable laws.

In Victorina Cruz v. Court of Appeals,17 we held that the DBM has the sole power and discretion to
administer the compensation and position classification system of the national government.

In Intia, Jr. v. Commission on Audit,18 the Court held that although the charter19 of the Philippine
Postal Corporation (PPC) grants it the power to fix the compensation and benefits of its employees
and exempts PPC from the coverage of the rules and regulations of the Compensation and Position
Classification Office, by virtue of Section 6 of P.D. No. 1597, the compensation system established
by the PPC is, nonetheless, subject to the review of the DBM. This Court intoned:

Page 114 of 547

It should be emphasized that the review by the DBM of any PPC resolution affecting the
compensation structure of its personnel should not be interpreted to mean that the DBM can dictate
upon the PPC Board of Directors and deprive the latter of its discretion on the matter. Rather, the
DBM's function is merely to ensure that the action taken by the Board of Directors complies with the
requirements of the law, specifically, that PPC's compensation system "conforms as closely as
possible with that provided for under R.A. No. 6758." (Emphasis supplied.)

As measured by the foregoing legal and jurisprudential yardsticks, the imprimatur of the DBM must
first be sought prior to implementation of any reclassification or upgrading of positions in
government. This is consonant to the mandate of the DBM under the Revised Administrative Code of
1987, Section 3, Chapter 1, Title XVII, to wit:

SEC. 3. Powers and Functions. The Department of Budget and Management shall assist
the President in the preparation of a national resources and expenditures budget,
preparation, execution and control of the National Budget, preparation and maintenance of
accounting systems essential to the budgetary process, achievement of more economy and
efficiency in the management of government operations, administration of compensation and
position classification systems, assessment of organizational effectiveness and review and
evaluation of legislative proposals having budgetary or organizational implications.
(Emphasis supplied.)

Irrefragably, it is within the turf of the DBM Secretary to disallow the upgrading, reclassification, and
creation of additional plantilla positions in the CHR based on its finding that such scheme lacks legal
justification.

Notably, the CHR itself recognizes the authority of the DBM to deny or approve the proposed
reclassification of positions as evidenced by its three letters to the DBM requesting approval thereof.
As such, it is now estopped from now claiming that the nod of approval it has previously sought from
the DBM is a superfluity.

The Court of Appeals incorrectly relied on the pronouncement of the CSC-Central Office that the
CHR is a constitutional commission, and as such enjoys fiscal autonomy.20

Palpably, the Court of Appeals' Decision was based on the mistaken premise that the CHR belongs
to the species of constitutional commissions. But, Article IX of the Constitution states in no uncertain
terms that only the CSC, the Commission on Elections, and the Commission on Audit shall be
tagged as Constitutional Commissions with the appurtenant right to fiscal autonomy. Thus:

Sec. 1. The Constitutional Commissions, which shall be independent, are the Civil Service
Commission, the Commission on Elections, and the Commission on Audit.

Sec. 5. The Commission shall enjoy fiscal autonomy. Their approved annual appropriations
shall be automatically and regularly released.

Along the same vein, the Administrative Code, in Chapter 5, Sections 24 and 26 of Book II on
Distribution of Powers of Government, the constitutional commissions shall include only the Civil
Service Commission, the Commission on Elections, and the Commission on Audit, which are
granted independence and fiscal autonomy. In contrast, Chapter 5, Section 29 thereof, is silent on
the grant of similar powers to the other bodies including the CHR. Thus:

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 SEC. 24. Constitutional Commissions. The Constitutional Commissions, which shall be
independent, are the Civil Service Commission, the Commission on Elections, and the
Commission on Audit.

SEC. 26. Fiscal Autonomy. The Constitutional Commissions shall enjoy fiscal autonomy.
The approved annual appropriations shall be automatically and regularly released.

SEC. 29. Other Bodies. There shall be in accordance with the Constitution, an Office of the
Ombudsman, a Commission on Human Rights, and independent central monetary authority,
and a national police commission. Likewise, as provided in the Constitution, Congress may
establish an independent economic and planning agency. (Emphasis ours.)

From the 1987 Constitution and the Administrative Code, it is abundantly clear that the CHR is not
among the class of Constitutional Commissions. As expressed in the oft-repeated maxim expressio
unius est exclusio alterius, the express mention of one person, thing, act or consequence excludes
all others. Stated otherwise, expressium facit cessare tacitum what is expressed puts an end to
what is implied.21

Nor is there any legal basis to support the contention that the CHR enjoys fiscal autonomy. In
essence, fiscal autonomy entails freedom from outside control and limitations, other than those
provided by law. It is the freedom to allocate and utilize funds granted by law, in accordance with law,
and pursuant to the wisdom and dispatch its needs may require from time to time. 22 In Blaquera v.
Alcala and Bengzon v. Drilon,23 it is understood that it is only the Judiciary, the Civil Service
Commission, the Commission on Audit, the Commission on Elections, and the Office of the
Ombudsman, which enjoy fiscal autonomy. Thus, in Bengzon, 24 we explained:

As envisioned in the Constitution, the fiscal autonomy enjoyed by the Judiciary, the Civil
Service Commission, the Commission on Audit, the Commission on Elections, and the Office
of the Ombudsman contemplates a guarantee of full flexibility to allocate and utilize their
resources with the wisdom and dispatch that their needs require. It recognizes the power
and authority to levy, assess and collect fees, fix rates of compensation not exceeding the
highest rates authorized by law for compensation and pay plans of the government and
allocate and disburse such sums as may be provided by law or prescribed by them in the
course of the discharge of their functions.

...

The Judiciary, the Constitutional Commissions, and the Ombudsman must have the
independence and flexibility needed in the discharge of their constitutional duties. The
imposition of restrictions and constraints on the manner the independent constitutional
offices allocate and utilize the funds appropriated for their operations is anathema to fiscal
autonomy and violative not only of the express mandate of the Constitution but especially as
regards the Supreme Court, of the independence and separation of powers upon which the
entire fabric of our constitutional system is based. In the interest of comity and cooperation,
the Supreme Court, [the] Constitutional Commissions, and the Ombudsman have so far
limited their objections to constant reminders. We now agree with the petitioners that this
grant of autonomy should cease to be a meaningless provision. (Emphasis supplied.)

Neither does the fact that the CHR was admitted as a member by the Constitutional Fiscal Autonomy
Group (CFAG) ipso facto clothed it with fiscal autonomy. Fiscal autonomy is a constitutional grant,
not a tag obtainable by membership.

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We note with interest that the special provision under Rep. Act No. 8522, while cited under the
heading of the CHR, did not specifically mention CHR as among those offices to which the special
provision to formulate and implement organizational structures apply, but merely states its coverage
to include Constitutional Commissions and Offices enjoying fiscal autonomy. In contrast, the Special
Provision Applicable to the Judiciary under Article XXVIII of the General Appropriations Act of 1998
specifically mentions that such special provision applies to the judiciary and had categorically
authorized the Chief Justice of the Supreme Court to formulate and implement the organizational
structure of the Judiciary, to wit:

1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
the limits of their respective appropriations authorized in this Act, the Chief Justice of the
Supreme Court is authorized to formulate and implement organizational structure of the
Judiciary, to fix and determine the salaries, allowances, and other benefits of their personnel,
and whenever public interest so requires, make adjustments in the personal services
itemization including, but not limited to, the transfer of item or creation of new positions in the
Judiciary; PROVIDED, That officers and employees whose positions are affected by such
reorganization or adjustments shall be granted retirement gratuities and separation pay in
accordance with existing law, which shall be payable from any unexpended balance of, or
savings in the appropriations of their respective offices: PROVIDED, FURTHER, That the
implementation hereof shall be in accordance with salary rates, allowances and other
benefits authorized under compensation standardization laws. (Emphasis supplied.)

All told, the CHR, although admittedly a constitutional creation is, nonetheless, not included in the
genus of offices accorded fiscal autonomy by constitutional or legislative fiat.

Even assuming en arguendo that the CHR enjoys fiscal autonomy, we share the stance of the DBM
that the grant of fiscal autonomy notwithstanding, all government offices must, all the same, kowtow
to the Salary Standardization Law. We are of the same mind with the DBM on its standpoint, thus-

Being a member of the fiscal autonomy group does not vest the agency with the authority to
reclassify, upgrade, and create positions without approval of the DBM. While the members of the
Group are authorized to formulate and implement the organizational structures of their respective
offices and determine the compensation of their personnel, such authority is not absolute and must
be exercised within the parameters of the Unified Position Classification and Compensation System
established under RA 6758 more popularly known as the Compensation Standardization
Law.25 (Emphasis supplied.)

The most lucid argument against the stand of respondent, however, is the provision of Rep. Act No.
8522 "that the implementation hereof shall be in accordance with salary rates, allowances and other
benefits authorized under compensation standardization laws." 26

Indeed, the law upon which respondent heavily anchors its case upon has expressly provided that
any form of adjustment in the organizational structure must be within the parameters of the Salary
Standardization Law.

The Salary Standardization Law has gained impetus in addressing one of the basic causes of
discontent of many civil servants.27 For this purpose, Congress has delegated to the DBM the power
to administer the Salary Standardization Law and to ensure that the spirit behind it is observed. This
power is part of the system of checks and balances or system of restraints in our government. The
DBM's exercise of such authority is not in itself an arrogation inasmuch as it is pursuant to the
paramount law of the land, the Salary Standardization Law and the Administrative Code.

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In line with its role to breathe life into the policy behind the Salary Standardization Law of "providing
equal pay for substantially equal work and to base differences in pay upon substantive differences in
duties and responsibilities, and qualification requirements of the positions," the DBM, in the case
under review, made a determination, after a thorough evaluation, that the reclassification and
upgrading scheme proposed by the CHR lacks legal rationalization.

The DBM expounded that Section 78 of the general provisions of the General Appropriations Act FY
1998, which the CHR heavily relies upon to justify its reclassification scheme, explicitly provides that
"no organizational unit or changes in key positions shall be authorized unless provided by law or
directed by the President." Here, the DBM discerned that there is no law authorizing the creation of a
Finance Management Office and a Public Affairs Office in the CHR. Anent CHR's proposal to
upgrade twelve positions of Attorney VI, SG-26 to Director IV, SG-28, and four positions of Director
III, SG-27 to Director IV, SG-28, in the Central Office, the DBM denied the same as this would
change the context from support to substantive without actual change in functions.

This view of the DBM, as the law's designated body to implement and administer a unified
compensation system, is beyond cavil. The interpretation of an administrative government agency,
which is tasked to implement a statute is accorded great respect and ordinarily controls the
construction of the courts. In Energy Regulatory Board v. Court of Appeals, 28 we echoed the basic
rule that the courts will not interfere in matters which are addressed to the sound discretion of
government agencies entrusted with the regulation of activities coming under the special technical
knowledge and training of such agencies.

To be sure, considering his expertise on matters affecting the nation's coffers, the Secretary of the
DBM, as the President's alter ego, knows from where he speaks inasmuch as he has the front seat
view of the adverse effects of an unwarranted upgrading or creation of positions in the CHR in
particular and in the entire government in general.

WHEREFORE, the petition is GRANTED, the Decision dated 29 November 2001 of the Court of
Appeals in CA-G.R. SP No. 59678 and its Resolution dated 11 September 2002 are hereby
REVERSED and SET ASIDE. The ruling dated 29 March 1999 of the Civil Service Commision-
National Capital Region is REINSTATED. The Commission on Human Rights Resolution No. A98-
047 dated 04 September 1998, Resolution No. A98-055 dated 19 October 1998 and Resolution No.
A98-062 dated 17 November 1998 without the approval of the Department of Budget and
Management are disallowed. No pronouncement as to costs.

SO ORDERED.

Puno, Acting C.J., Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

FIRST DIVISION

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

DRIANITA BAGAOISAN, FELY MADRIAGA, SHIRLY TAGABAN,

RICARDO SARANDI, SUSAN IMPERIAL, BENJAMIN DEMDEM,
RODOLFO DAGA, EDGARDO BACLIG, GREGORIO LABAYAN,

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 HILARIO JEREZ, and MARIA CORAZON
CUANANG, petitioners, vs. NATIONAL TOBACCO
ADMINISTRATION, represented by ANTONIO DE GUZMAN and
PERLITA BAULA, respondents.

DECISION
VITUG, J.:

President Joseph Estrada issued on 30 September 1998 Executive Order

No. 29, entitled Mandating the Streamlining of the National Tobacco
Administration (NTA), a government agency under the Department of
Agriculture. The order was followed by another issuance, on 27 October 1998,
by President Estrada of Executive Order No. 36, amending Executive Order
No. 29, insofar as the new staffing pattern was concerned, by increasing from
four hundred (400) to not exceeding seven hundred fifty (750) the positions
affected thereby. In compliance therewith, the NTA prepared and adopted a
new Organization Structure and Staffing Pattern (OSSP) which, on 29 October
1998, was submitted to the Office of the President.

On 11 November 1998, the rank and file employees of NTA Batac, among
whom included herein petitioners, filed a letter-appeal with the Civil Service
Commission and sought its assistance in recalling the OSSP. On 04
December 1998, the OSSP was approved by the Department of Budget and
Management (DBM) subject to certain revisions.On even date, the NTA
created a placement committee to assist the appointing authority in the
selection and placement of permanent personnel in the revised OSSP. The
results of the evaluation by the committee on the individual qualifications of
applicants to the positions in the new OSSP were then disseminated and
posted at the central and provincial offices of the NTA.

On 10 June 1996, petitioners, all occupying different positions at the NTA

office in Batac, Ilocos Norte, received individual notices of termination of their
employment with the NTA effective thirty (30) days from receipt
thereof. Finding themselves without any immediate relief from their dismissal
from the service, petitioners filed a petition for certiorari, prohibition
and mandamus, with prayer for preliminary mandatory injunction and/or
temporary restraining order, with the Regional Trial Court (RTC) of Batac,
Ilocos Norte, and prayed -

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1) that a restraining order be immediately issued enjoining the respondents from
enforcing the notice of termination addressed individually to the petitioners and/or
from committing further acts of dispossession and/or ousting the petitioners from their
respective offices;

2) that a writ of preliminary injunction be issued against the respondents,

commanding them to maintain the status quo to protect the rights of the petitioners
pending the determination of the validity of the implementation of their dismissal
from the service; and

3) that, after trial on the merits, judgment be rendered declaring the notice of
termination of the petitioners illegal and the reorganization null and void and ordering
their reinstatement with backwages, if applicable, commanding the respondents to
desist from further terminating their services, and making the injunction permanent. [1]

The RTC, on 09 September 2000, ordered the NTA to appoint petitioners

in the new OSSP to positions similar or comparable to their respective former
assignments. A motion for reconsideration filed by the NTA was denied by the
trial court in its order of 28 February 2001. Thereupon, the NTA filed an appeal
with the Court of Appeals, raising the following issues:

I. Whether or not respondents submitted evidence as proof that petitioners,

individually, were not the best qualified and most deserving among the
incumbent applicant-employees.

II. Whether or not incumbent permanent employees, including herein

petitioners, automatically enjoy a preferential right and the right of first
refusal to appointments/reappointments in the new Organization
Structure And Staffing Pattern (OSSP) of respondent NTA.

III. Whether or not respondent NTA in implementing the mandated

reorganization pursuant to E.O. No. 29, as amended by E.O. No. 36,
strictly adhere to the implementing rules on reorganization, particularly
RA 6656 and of the Civil Service Commission Rules on Government
Reorganization.

IV. Whether or not the validity of E.O. Nos. 29 and 36 can be put in issue in
the instant case/appeal. [2]

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On 20 February 2002, the appellate court rendered a decision reversing and
setting aside the assailed orders of the trial court.

Petitioners went to this Court to assail the decision of the Court of

Appeals, contending that -

I. The Court of Appeals erred in making a finding that went beyond the issues
of the case and which are contrary to those of the trial court and that it
overlooked certain relevant facts not disputed by the parties and which,
if properly considered, would justify a different conclusion;

II. The Court of Appeals erred in upholding Executive Order Nos. 29 and 36
of the Office of the President which are mere administrative issuances
which do not have the force and effect of a law to warrant abolition of
positions and/or effecting total reorganization;

III. The Court of Appeals erred in holding that petitioners removal from the
service is in accordance with law;

IV. The Court of Appeals erred in holding that respondent NTA was not guilty
of bad faith in the termination of the services of petitioners; (and)

V. The Court of Appeals erred in ignoring case law/jurisprudence in the

abolition of an office.
[3]

In its resolution of 10 July 2002, the Court required the NTA to file its comment
on the petition. On 18 November 2002, after the NTA had filed its comment of
23 September 2002, the Court issued its resolution denying the petition for
failure of petitioners to sufficiently show any reversible error on the part of the
appellate court in its challenged decision so as to warrant the exercise by this
Court of its discretionary appellate jurisdiction. A motion for reconsideration
filed by petitioners was denied in the Courts resolution of 20 January 2002.

On 21 February 2003, petitioners submitted a Motion to Admit Petition

For En Banc Resolution of the case allegedly to address a basic question, i.e.,
the legal and constitutional issue on whether the NTA may be reorganized by
an executive fiat, not by legislative action. In their Petition for an En
[4]

Banc Resolution petitioners would have it that -

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1. The Court of Appeals decision upholding the reorganization of the National
Tobacco Administration sets a dangerous precedent in that:

a) A mere Executive Order issued by the Office of the President and procured by a
government functionary would have the effect of a blanket authority to reorganize a
bureau, office or agency attached to the various executive departments;

b) The President of the Philippines would have the plenary power to reorganize the
entire government Bureaucracy through the issuance of an Executive Order, an
administrative issuance without the benefit of due deliberation, debate and discussion
of members of both chambers of the Congress of the Philippines;

c) The right to security of tenure to a career position created by law or statute would
be defeated by the mere adoption of an Organizational Structure and Staffing Pattern
issued pursuant to an Executive Order which is not a law and could thus not abolish
an office created by law;

2. The case law on abolition of an office would be disregarded, ignored and

abandoned if the Court of Appeals decision subject matter of this Petition would
remain undisturbed and untouched.In other words, previous doctrines and precedents
of this Highest Court would in effect be reversed and/or modified with the Court of
Appeals judgment, should it remain unchallenged.

3. Section 4 of Executive Order No. 245 dated July 24, 1987 (Annex D, Petition),
issued by the Revolutionary government of former President Corazon Aquino, and the
law creating NTA, which provides that the governing body of NTA is the Board of
Directors, would be rendered meaningless, ineffective and a dead letter law because
the challenged NTA reorganization which was erroneously upheld by the Court of
Appeals was adopted and implemented by then NTA Administrator Antonio de
Guzman without the corresponding authority from the Board of Directors as mandated
therein. In brief, the reorganization is an ultra vires act of the NTA Administrator.

4. The challenged Executive Order No. 29 issued by former President Joseph Estrada
but unsigned by then Executive Secretary Ronaldo Zamora would in effect be
erroneously upheld and given legal effect as to supersede, amend and/or modify
Executive Order No. 245, a law issued during the Freedom Constitution of President
Corazon Aquino. In brief, a mere executive order would amend, supersede and/or
render ineffective a law or statute.
[5]

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 In order to allow the parties a full opportunity to ventilate their views on the
matter, the Court ultimately resolved to hear the parties in oral
argument. Essentially, the core question raised by them is whether or not the
President, through the issuance of an executive order, can validly carry out
the reorganization of the NTA.

Notwithstanding the apparent procedural lapse on the part of petitioner to

implead the Office of the President as party respondent pursuant to Section 7,
Rule 3, of the 1997 Revised Rules of Civil Procedure, this Court resolved to
[6]

rule on the merits of the petition.

Buklod ng Kawaning EIIB vs. Zamora ruled that the President, based on
[7]

existing laws, had the authority to carry out a reorganization in any branch or
agency of the executive department. In said case, Buklod ng Kawaning
EIIB challenged the issuance, and sought the nullification, of Executive Order
No. 191 (Deactivation of the Economic Intelligence and Investigation Bureau)
and Executive Order No. 223 (Supplementary Executive Order No. 191 on the
Deactivation of the Economic Intelligence and Investigation Bureau and for
Other Matters) on the ground that they were issued by the President with
grave abuse of discretion and in violation of their constitutional right to security
of tenure. The Court explained:

The general rule has always been that the power to abolish a public office is lodged
with the legislature. This proceeds from the legal precept that the power to create
includes the power to destroy. A public office is either created by the Constitution, by
statute, or by authority of law. Thus, except where the office was created by the
Constitution itself, it may be abolished by the same legislature that brought it into
existence.

The exception, however, is that as far as bureaus, agencies or offices in the executive
department are concerned, the Presidents power of control may justify him to
inactivate the functions of a particular office, or certain laws may grant him the broad
authority to carry out reorganization measures. The case in point is Larin v. Executive
Secretary [280 SCRA 713]. In this case, it was argued that there is no law which
empowers the President to reorganize the BIR. In decreeing otherwise, this Court
sustained the following legal basis, thus:

`Initially, it is argued that there is no law yet which empowers the President to issue
E.O. No. 132 or to reorganize the BIR.

Page 123 of 547

`We do not agree.

`x x x x x x

`Section 48 of R.A. 7645 provides that:

``Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive
Branch. The heads of departments, bureaus and offices and agencies are hereby
directed to identify their respective activities which are no longer essential in the
delivery of public services and which may be scaled down, phased out or
abolished, subject to civil service rules and regulations. x x x.Actual scaling down,
phasing out or abolition of the activities shall be effected pursuant to Circulars or
Orders issued for the purpose by the Office of the President.

`Said provision clearly mentions the acts of `scaling down, phasing out and
abolition of offices only and does not cover the creation of offices or transfer of
functions. Nevertheless, the act of creating and decentralizing is included in the
subsequent provision of Section 62 which provides that:

``Sec. 62. Unauthorized organizational changes. Unless otherwise created by law or

directed by the President of the Philippines, no organizational unit or changes in key
positions in any department or agency shall be authorized in their respective
organization structures and be funded from appropriations by this Act.

`The foregoing provision evidently shows that the President is authorized to effect
organizational changes including the creation of offices in the department or agency
concerned.

`x x x x x x

`Another legal basis of E.O. No. 132 is Section 20, Book III of E.O. No. 292 which
states:

``Sec. 20. Residual Powers. Unless Congress provides otherwise, the President shall
exercise such other powers and functions vested in the President which are provided
for under the laws and which are not specifically enumerated above or which are not
delegated by the President in accordance with law.

`This provision speaks of such other powers vested in the President under the
law. What law then gives him the power to reorganize? It is Presidential Decree No.

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1772 which amended Presidential Decree No. 1416. These decrees expressly grant the
President of the Philippines the continuing authority to reorganize the national
government, which includes the power to group, consolidate bureaus and agencies, to
abolish offices, to transfer functions, to create and classify functions, services and
activities and to standardize salaries and materials. The validity of these two decrees
are unquestionable. The 1987 Constitution clearly provides that `all laws, decrees,
executive orders, proclamations, letter of instructions and other executive issuances
not inconsistent with this Constitution shall remain operative until amended, repealed
or revoked. So far, there is yet no law amending or repealing said decrees.

Now, let us take a look at the assailed executive order.

In the whereas clause of E.O. No. 191, former President Estrada anchored his
authority to deactivate EIIB on Section 77 of Republic Act 8745 (FY 1999 General
Appropriations Act), a provision similar to Section 62 of R.A. 7645 quoted in Larin,
thus:

`Sec. 77. Organized Changes. Unless otherwise provided by law or directed by the
President of the Philippines, no changes in key positions or organizational units in any
department or agency shall be authorized in their respective organizational structures
and funded from appropriations provided by this Act.

We adhere to the x x x ruling in Larin that this provision recognizes the authority of
the President to effect organizational changes in the department or agency under the
executive structure. Such a ruling further finds support in Section 78 of Republic Act
No. 8760. Under this law, the heads of departments, bureaus, offices and agencies and
other entities in the Executive Branch are directed (a) to conduct a comprehensive
review of this respective mandates, missions, objectives, functions, programs,
projects, activities and systems and procedures; (b) identify activities which are no
longer essential in the delivery of public services and which may be scaled down,
phased-out or abolished; and (c) adopt measures that will result in the streamlined
organization and improved overall performance of their respective agencies. Section
78 ends up with the mandate that the actual streamlining and productivity
improvement in agency organization and operation shall be effected pursuant to
Circulars or Orders issued for the purpose by the Office of the President. The law has
spoken clearly. We are left only with the duty to sustain.

But of course, the list of legal basis authorizing the President to reorganize any
department or agency in the executive branch does not have to end here. We must not

Page 125 of 547

lose sight of the very source of the power that which constitutes an express grant of
power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as
the Administrative Code of 1987), the President, subject to the policy in the Executive
Office and in order to achieve simplicity, economy and efficiency, shall have the
continuing authority to reorganize the administrative structure of the Office of the
President. For this purpose, he may transfer the functions of other Departments or
Agencies to the Office of the President. In Canonizado vs. Aguirre [323 SCRA 312],
we ruled that reorganization involves the reduction of personnel, consolidation of
offices, or abolition thereof by reason of economy or redundancy of functions. It takes
place when there is an alteration of the existing structure of government offices or
units therein, including the lines of control, authority and responsibility between
them. The EIIB is a bureau attached to the Department of Finance. It falls under the
Office of the President. Hence, it is subject to the Presidents continuing authority to
reorganize.

It having been duly established that the President has the authority to carry out
reorganization in any branch or agency of the executive department, what is then left
for us to resolve is whether or not the reorganization is valid. In this jurisdiction,
reorganizations have been regarded as valid provided they are pursued in good
faith. Reorganization is carried out in `good faith if it is for the purpose of economy or
to make bureaucracy more efficient. Pertinently, Republic Act No. 6656 provides for
the circumstances which may be considered as evidence of bad faith in the removal of
civil service employees made as a result of reorganization, to wit: (a) where there is a
significant increase in the number of positions in the new staffing pattern of the
department or agency concerned; (b) where an office is abolished and another
performing substantially the same functions is created; (c) where incumbents are
replaced by those less qualified in terms of status of appointment, performance and
merit; (d) where there is a classification of offices in the department or agency
concerned and the reclassified offices perform substantially the same functions as the
original offices, and (e) where the removal violates the order of separation. [8]

The Court of Appeals, in its now assailed decision, has found no evidence
of bad faith on the part of the NTA; thus -

In the case at bar, we find no evidence that the respondents committed bad faith in
issuing the notices of non-appointment to the petitioners.

Page 126 of 547

Firstly, the number of positions in the new staffing pattern did not increase. Rather, it
decreased from 1,125 positions to 750. It is thus natural that ones position may be lost
through the removal or abolition of an office.

Secondly, the petitioners failed to specifically show which offices were abolished and
the new ones that were created performing substantially the same functions.

Thirdly, the petitioners likewise failed to prove that less qualified employees were
appointed to the positions to which they applied.

x x x x x x x x x.

Fourthly, the preference stated in Section 4 of R.A. 6656, only means that old
employees should be considered first, but it does not necessarily follow that they
should then automatically be appointed. This is because the law does not preclude the
infusion of new blood, younger dynamism, or necessary talents into the government
service, provided that the acts of the appointing power are bonafide for the best
interest of the public service and the person chosen has the needed qualifications. [9]

These findings of the appellate court are basically factual which this Court
must respect and be held bound.

It is important to emphasize that the questioned Executive Orders

No. 29 and No. 36 have not abolished the National Tobacco
Administration but merely mandated its reorganization through the
streamlining or reduction of its personnel. Article VII, Section 17, of the [10]

Constitution, expressly grants the President control of all executive

departments, bureaus, agencies and offices which may justify an executive
action to inactivate the functions of a particular office or to carry out
reorganization measures under a broad authority of law. Section 78 of the
[11]

General Provisions of Republic Act No. 8522 (General Appropriations Act of

FY 1998) has decreed that the President may direct changes in the
organization and key positions in any department, bureau or agency pursuant
to Article VI, Section 25, of the Constitution, which grants to the Executive
[12]

Department the authority to recommend the budget necessary for its

operation. Evidently, this grant of power includes the authority to evaluate
each and every government agency, including the determination of the most
economical and efficient staffing pattern, under the Executive Department.

Page 127 of 547

 In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D.
Zamora, in his capacity as the Executive Secretary, et al., this Court has had
[13]

occasion to also delve on the Presidents power to reorganize the Office of the
President under Section 31(2) and (3) of Executive Order No. 292 and the
power to reorganize the Office of the President Proper. The Court has there
observed:

x x x. Under Section 31(1) of EO 292, the President can reorganize the Office of the
President Proper by abolishing, consolidating or merging units, or by transferring
functions from one unit to another. In contrast, under Section 31(2) and (3) of EO 292,
the Presidents power to reorganize offices outside the Office of the
President Proper but still within the Office of the President is limited to merely
transferring functions or agencies from the Office of the President to Departments or
Agencies, and vice versa.

The provisions of Section 31, Book III, Chapter 10, of Executive Order No.
292 (Administrative Code of 1987), above-referred to, reads thusly:

SEC. 31. Continuing Authority of the President to Reorganize his Office. The
President, subject to the policy in the Executive Office and in order to achieve
simplicity, economy and efficiency, shall have continuing authority to reorganize the
administrative structure of the Office of the President. For this purpose, he may take
any of the following actions:

(1) Restructure the internal organization of the Office of the President Proper,
including the immediate Offices, the Presidential Special Assistants/Advisers System
and the Common Staff Support System, by abolishing, consolidating or merging units
thereof or transferring functions from one unit to another;

(2) Transfer any function under the Office of the President to any other Department or
Agency as well as transfer functions to the Office of the President from other
Departments and Agencies; and

(3) Transfer any agency under the Office of the President to any other department or
agency as well as transfer agencies to the Office of the President from other
departments and agencies.

The first sentence of the law is an express grant to the President of

a continuing authority to reorganize the administrative structure of the
Office of the President. The succeeding numbered paragraphs are not in the

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nature of provisos that unduly limit the aim and scope of the grant to the
President of the power to reorganize but are to be viewed in consonance
therewith. Section 31(1) of Executive Order No. 292 specifically refers to the
Presidents power to restructure the internal organization of the Office of the
President Proper, by abolishing, consolidating or merging units hereof or
transferring functions from one unit to another, while Section 31(2) and (3)
concern executive offices outside the Office of the President Proper allowing
the President to transfer any function under the Office of the President to any
other Department or Agency and vice-versa, and the transfer of any agency
under the Office of the President to any other department or agency and vice-
versa. [14]

In the present instance, involving neither an abolition nor transfer of

offices, the assailed action is a mere reorganization under the general
provisions of the law consisting mainly of streamlining the NTA in the interest
of simplicity, economy and efficiency. It is an act well within the authority of
President motivated and carried out, according to the findings of the appellate
court, in good faith, a factual assessment that this Court could only but accept.
[15]

In passing, relative to petitioners Motion for an En Banc Resolution of the

Case, it may be well to remind counsel, that the Court En Banc is not an
appellate tribunal to which appeals from a Division of the Court may be
taken. A Division of the Court is the Supreme Court as fully and veritably as
the Court En Banc itself and a decision of its Division is as authoritative and
final as a decision of the Court En Banc. Referrals of cases from a Division to
the Court En Banc do not take place as just a matter of routine but only on
such specified grounds as the Court in its discretion may allow.[16]

WHEREFORE, the Motion to Admit Petition for En Banc resolution and the
Petition for an En Banc Resolution are DENIED for lack of merit. Let entry of
judgment be made in due course. No costs.

SO ORDERED.

Page 129 of 547

G.R. No. 84301. April 7, 1993.

NATIONAL LAND TITLES AND DEEDS REGISTRATION ADMINISTRATION, petitioner,

vs.
CIVIL SERVICE COMMISSION and VIOLETA L. GARCIA, respondents.

The Solicitor General for petitioner.

Raul R. Estrella for private respondent.

SYLLABUS

1. ADMINISTRATIVE LAW; EXECUTIVE ORDER NO. 649; REORGANIZED LAND REGISTRATION

COMMISSION TO NALTDRA; EXPRESSLY PROVIDED THE ABOLITION OF EXISTING
POSITIONS. Executive Order No. 649 authorized the reorganization of the Land Registration
Commission (LRC) into the National Land Titles and Deeds Registration Administration (NALTDRA).
It abolished all the positions in the now defunct LRC and required new appointments to be issued to
all employees of the NALTDRA. The question of whether or not a law abolishes an office is one of

Page 130 of 547

legislative intent about which there can be no controversy whatsoever if there is an explicit
declaration in the law itself. A closer examination of Executive Order No. 649 which authorized the
reorganization of the Land Registration Commission (LRC) into the National Land Titles and Deeds
Registration Administration (NALTDRA), reveals that said law in express terms, provided for the
abolition of existing positions. Thus, without need of any interpretation, the law mandates that from
the moment an implementing order is issued, all positions in the Land Registration Commission are
deemed non-existent. This, however, does not mean removal. Abolition of a position does not
involve or mean removal for the reason that removal implies that the post subsists and that one is
merely separated therefrom. (Arao vs. Luspo, 20 SCRA 722 [1967]) After abolition, there is in law no
occupant. Thus, there can be no tenure to speak of. It is in this sense that from the standpoint of
strict law, the question of any impairment of security of tenure does not arise. (De la Llana vs. Alba,
112 SCRA 294 [1982])

2. ID.; ID.; ID.; REORGANIZATION, VALID WHEN PURSUED IN GOOD FAITH; CASE AT BAR.
Nothing is better settled in our law than that the abolition of an office within the competence of a
legitimate body if done in good faith suffers from no infirmity. Two questions therefore arise: (1) was
the abolition carried out by a legitimate body?; and (2) was it done in good faith? There is no dispute
over the authority to carry out a valid reorganization in any branch or agency of the Government.
Under Section 9, Article XVII of the 1973 Constitution. The power to reorganize is, however; not
absolute. We have held in Dario vs. Mison that reorganizations in this jurisdiction have been
regarded as valid provided they are pursued in good faith. This court has pronounced that if the
newly created office has substantially new, different or additional functions, duties or powers, so that
it may be said in fact to create an office different from the one abolished, even though it embraces all
or some of the duties of the old office it will be considered as an abolition of one office and the
creation of a new or different one. The same is true if one office is abolished and its duties, for
reasons of economy are given to an existing officer or office. Executive Order No. 649 was enacted
to improve the services and better systematize the operation of the Land Registration Commission. A
reorganization is carried out in good faith if it is for the purpose of economy or to make bureaucracy
more efficient. To this end, the requirement of Bar membership to qualify for key positions in the
NALTDRA was imposed to meet the changing circumstances and new development of the times.
Private respondent Garcia who formerly held the position of Deputy Register of Deeds II did not
have such qualification. It is thus clear that she cannot hold any key position in the NALTDRA, The
additional qualification was not intended to remove her from office. Rather, it was a criterion imposed
concomitant with a valid reorganization measure.

3. ID.; ID.; ID.; THERE IS NO VESTED PROPERTY RIGHT TO BE RE-EMPLOYED IN A

REORGANIZED OFFICE; CASE AT BAR. There is no such thing as a vested interest or an estate
in an office, or even an absolute right to hold it. Except constitutional offices which provide for special
immunity as regards salary and tenure, no one can be said to have any vested right in an office or its
salary. None of the exceptions to this rule are obtaining in this case. To reiterate, the position which
private respondent Garcia would like to occupy anew was abolished pursuant to Executive Order
No. 649, a valid reorganization measure. There is no vested property right to be re employed in a
reorganized office. Not being a member of the Bar, the minimum requirement to qualify under the
reorganization law for permanent appointment as Deputy Register of Deeds II, she cannot be
reinstated to her former position without violating the express mandate of the law.

DECISION

CAMPOS, JR., J p:

Page 131 of 547

The sole issue for our consideration in this case is whether or not membership in the bar, which is
the qualification requirement prescribed for appointment to the position of Deputy Register of Deeds
under Section 4 of Executive Order No. 649 (Reorganizing the Land Registration Commission (LRC)
into the National Land Titles and Deeds Registration Administration or NALTDRA) should be required
of and/or applied only to new applicants and not to those who were already in the service of the LRC
as deputy register of deeds at the time of the issuance and implementation of the abovesaid
Executive Order.

The facts, as succinctly stated in the Resolution ** of the Civil Service Commission, are as follows:

"The records show that in 1977, petitioner Garcia, a Bachelor of Laws graduate and a first grade civil
service eligible was appointed Deputy Register of Deeds VII under permanent status. Said position
was later reclassified to Deputy Register of Deeds III pursuant to PD 1529, to which position,
petitioner was also appointed under permanent status up to September 1984. She was for two
years, more or less, designated as Acting Branch Register of Deeds of Meycauayan, Bulacan. By
virtue of Executive Order No. 649 (which took effect on February 9, 1981) which authorized the
restructuring of the Land Registration Commission to National Land Titles and Deeds Registration
Administration and regionalizing the Offices of the Registers therein, petitioner Garcia was issued an
appointment as Deputy Register of Deeds II on October 1, 1984, under temporary status, for not
being a member of the Philippine Bar. She appealed to the Secretary of Justice but her request was
denied. Petitioner Garcia moved for reconsideration but her motion remained unacted. On October
23, 1984, petitioner Garcia was administratively charged with Conduct Prejudicial to the Best Interest
of the Service. While said case was pending decision, her temporary appointment as such was
renewed in 1985. In a Memorandum dated October 30, 1986, the then Minister, now Secretary, of
Justice notified petitioner Garcia of the termination of her services as Deputy Register of Deeds II on
the ground that she was "receiving bribe money". Said Memorandum of Termination which took
effect on February 9, 1987, was the subject of an appeal to the Inter-Agency Review Committee
which in turn referred the appeal to the Merit Systems Protection Board (MSPB).

In its Order dated July 6, 1987, the MSPB dropped the appeal of petitioner Garcia on the ground that
since the termination of her services was due to the expiration of her temporary appointment, her
separation is in order. Her motion for reconsideration was denied on similar ground." 1

However, in its Resolution 2 dated June 30, 1988, the Civil Service Commission directed that private
respondent Garcia be restored to her position as Deputy Register of Deeds II or its equivalent in the
NALTDRA. It held that "under the vested right theory the new requirement of BAR membership to
qualify for permanent appointment as Deputy Register of Deeds II or higher as mandated under said
Executive Order, would not apply to her (private respondent Garcia) but only to the filling up of
vacant lawyer positions on or after February 9, 1981, the date said Executive Order took effect." 3 A
fortiori, since private respondent Garcia had been holding the position of Deputy Register of Deeds II
from 1977 to September 1984, she should not be affected by the operation on February 1, 1981 of
Executive Order No. 649.

Petitioner NALTDRA filed the present petition to assail the validity of the above Resolution of the
Civil Service Commission. It contends that Sections 8 and 10 of Executive Order No. 649 abolished
all existing positions in the LRC and transferred their functions to the appropriate new offices created
by said Executive Order, which newly created offices required the issuance of new appointments to
qualified office holders. Verily, Executive Order No. 649 applies to private respondent Garcia, and

Page 132 of 547

not being a member of the Bar, she cannot be reinstated to her former position as Deputy Register
of Deeds II.

We find merit in the petition.

Executive Order No. 649 authorized the reorganization of the Land Registration Commission (LRC)
into the National Land Titles and Deeds Registration Administration (NALTDRA). It abolished all the
positions in the now defunct LRC and required new appointments to be issued to all employees of
the NALTDRA.

The question of whether or not a law abolishes an office is one of legislative intent about which there
can be no controversy whatsoever if there is an explicit declaration in the law itself. 4 A closer
examination of Executive Order No. 649 which authorized the reorganization of the Land
Registration Commission (LRC) into the National Land Titles and Deeds Registration Administration
(NALTDRA), reveals that said law in express terms, provided for the abolition of existing positions, to
wit:

Sec. 8. Abolition of Existing Positions in the Land Registration Commission . . .

All structural units in the Land Registration Commission and in the registries of deeds, and all
Positions therein shall cease to exist from the date specified in the implementing order to be issued
by the President pursuant to the preceding paragraph. Their pertinent functions, applicable
appropriations, records, equipment and property shall be transferred to the appropriate staff or
offices therein created. (Emphasis Supplied.)

Thus, without need of any interpretation, the law mandates that from the moment an implementing
order is issued, all positions in the Land Registration Commission are deemed non-existent. This,
however, does not mean removal. Abolition of a position does not involve or mean removal for the
reason that removal implies that the post subsists and that one is merely separated therefrom. 5
After abolition, there is in law no occupant. Thus, there can be no tenure to speak of. It is in this
sense that from the standpoint of strict law, the question of any impairment of security of tenure does
not arise. 6

Nothing is better settled in our law than that the abolition of an office within the competence of a
legitimate body if done in good faith suffers from no infirmity. Two questions therefore arise: (1) was
the abolition carried out by a legitimate body?; and (2) was it done in good faith?

There is no dispute over the authority to carry out a valid reorganization in any branch or agency of
the Government. Under Section 9, Article XVII of the 1973 Constitution, the applicable law at that
time:

Sec. 9. All officials and employees in the existing Government of the Republic of the Philippines shall
continue in office until otherwise provided by law or decreed by the incumbent President of the
Philippines, but all officials whose appointments are by this Constitution vested in the Prime Minister
shall vacate their respective offices upon the appointment and qualifications of their successors.

The power to reorganize is, however; not absolute. We have held in Dario vs. Mison 7 that
reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good
faith. This court has pronounced 8 that if the newly created office has substantially new, different or

Page 133 of 547

additional functions, duties or powers, so that it may be said in fact to create an office different from
the one abolished, even though it embraces all or some of the duties of the old office it will be
considered as an abolition of one office and the creation of a new or different one. The same is true
if one office is abolished and its duties, for reasons of economy are given to an existing officer or
office.

Executive Order No. 649 was enacted to improve the services and better systematize the operation
of the Land Registration Commission. 9 A reorganization is carried out in good faith if it is for the
purpose of economy or to make bureaucracy more efficient. 10 To this end, the requirement of Bar
membership to qualify for key positions in the NALTDRA was imposed to meet the changing
circumstances and new development of the times. 11 Private respondent Garcia who formerly held
the position of Deputy Register of Deeds II did not have such qualification. It is thus clear that she
cannot hold any key position in the NALTDRA, The additional qualification was not intended to
remove her from office. Rather, it was a criterion imposed concomitant with a valid reorganization
measure.

A final word, on the "vested right theory" advanced by respondent Civil Service Commission. There
is no such thing as a vested interest or an estate in an office, or even an absolute right to hold it.
Except constitutional offices which provide for special immunity as regards salary and tenure, no one
can be said to have any vested right in an office or its salary. 12 None of the exceptions to this rule
are obtaining in this case.

To reiterate, the position which private respondent Garcia would like to occupy anew was abolished
pursuant to Executive Order No. 649, a valid reorganization measure. There is no vested property
right to be re employed in a reorganized office. Not being a member of the Bar, the minimum
requirement to qualify under the reorganization law for permanent appointment as Deputy Register
of Deeds II, she cannot be reinstated to her former position without violating the express mandate of
the law.

WHEREFORE, premises considered, We hereby GRANT the petition and SET ASIDE the
questioned Resolution of the Civil Service Commission reinstating private respondent to her former
position as Deputy Register of Deeds II or its equivalent in the National Land Titles and Deeds
Registration Administration.

SO ORDERED.

EN BANC

G.R. No. 101251 November 5, 1992

ELISEO A. SINON, petitioner,

vs.
CIVIL SERVICE COMMISSION, DEPARTMENT OF AGRICULTURE-REORGANIZATION APPEALS BOARD AND
JUANA BANAN, respondents.

Page 134 of 547

CAMPOS, JR., J.:

This petition for certiorari seeks to annul the following Resolutions of the public respondents Civil Service
Commission (the "CSC") * and Department of Agriculture Reorganization Appeals Board (the "DARAB"), ** to wit:

1. Resolution No. 97 dated August 23, 1989, issued by respondent DARAB which revoked
petitioner's permanent appointment as Municipal Agriculture Officer (MAO) and appointed, in his
stead, private respondent Juana Banan (Rollo 17);

2. Resolution dated February 8, 1991 issued by the respondent CSC affirming the aforementioned
Resolution of respondent DARAB (Rollo 22);

3. Resolution dated July 11, 1991 issued by the respondent CSC which denied petitioner's motion
for the reconsideration of the respondent Commission's Resolution dated February 8, 1991. 1

The antecedent facts are as follows:

Prior to the reorganization of the then Minister of Agriculture and Food (the "MAF"), the private respondent Juana
Banan was the incumbent Municipal Agricultural Officer (MAO) of the aforesaid Minister in Region II, Cagayan, while
the petitioner Eliseo Sinon occupied the position of Fisheries Extension Specialist (FES) II in the Bureau of Fisheries
and Aquatic Resources (BFAR) in the same region.

However, the reorganization of the MAF into the Department of Agriculture (the "DA"), with the issuance of Executive
Order No. 116 dated 30 January 1987, called for the evaluation of the following employees for twenty nine position of
MAO in Region II, Cagayan. The list as prepared by the Placement Committee included the herein petitioner Sinon
but excluded the respondent Banan:

1. Binoya, Vicente 76.20%

2. Cabana, Isidro 75.01%

3. Sebastian, Alice 74.18%

4. Zingapan, Benjamin 70.73%

5. Guzman, Wilhemina de la P. 70.50%

6. Gervacio, Agnes 69.86%

7. Somera, Hilario S. 68.13%

8. Tolentino, Julian R. 67.64%

9. Guillermo, Pedro 67.22%

10. Tambio, Rodolfo 67.00%

11. Aquino, Martina 66.94%

12. Bassig, Pio P. 66.84%

Page 135 of 547

 13. Rumpon, Danilo P. 65.61%

14. Zareno, Bernardo 65.57%

15. Madrid, Angel S. 65.57%

16. Callangan, Napoleon 65.45%

17. Fiesta, Felicisimo 65.29%

18. Alvarez, Benefranco 64.99%

19. Baggayan, Samuel O. 64.42%

20. Umbay, Pedro T. 64.01%

21. De la Cruz, Florencio M. 62.07%

22. Leonador, Ernesto T. 61.88%

23. Miguel, Jose 61.86%

24. Berlan, Herminia C. 61.76%

25. Soliman, Clemente 61.52%

26. Llopis, Lino 61.47%

27. Baliuag, Felicidad 61.39%

28. Aresta, Leticia 60.67%

29. Sinon, Eliseo A. 60.66% 2

(Emphasis supplied)

Thus, respondents Banan filed an appeal with the DARAB for re-evaluation of the qualification of all those included in
the aforementioned list made by the Placement Committee.

On August 23, 1989, the DARAB released Resolution No. 97 in which the ranking for 29 MAO prepared by the
Placement Committee was re-evaluated as follows:

1. Binoya, Vicente 76.20%

2. Cabana, Isidro 75.01%

3. Sebastian, Alice 72.18%

4. Zingapan, Benjamin 70.73%

5. Guzman, Wilhemina de la P. 70.50%

Page 136 of 547

6. Gervacio, Agnes 70.04%

7. Somera, Hilario S. 68.13%

8. Tolentino, Julian Jr. 67.22%

9. Guillermo, Pedro 67.22%

10. Tambio, Rodolfo 67.00%

11. Aquino, Martina D. 66.94%

12. Bassig, Pio P. 66.84%

13. Rumpon, Danilo P. 65.61%

14. Madrid, Angel 65.57%

15. Callangan, Napoleon 65.45%

16. Fiesta, Felicisimo 65.29%

17. Alvarez, Benefranco 64.99%

18. Baggayan, Samuel O. 64.42%

19. Umbay, Pedro T. 64.01%

20. De la Cruz, Florencio M. 62.07%

21. Leonador, Ernesto T. 61.88%

22. Miguel, Jose L. 61.86%

23. Berlan, Herminia C. 61.76%

24. Soliman, Clemente 61.52%

25. Zareno, Bernardo 61.50%

26. Llopis, Lino 61.47%

27. Baliuag, Felicidad 61.39%

28. Aresta, Leticia 60.67%

29. Banan, Juana 59.32% 2

(Emphasis supplied)

Page 137 of 547

In this re-evaluation, petitioner Sinon was displaced by the respondent Banan and this same resolution was duly
approved by the Secretary of the Department of Agriculture, Carlos G. Dominguez, who also affixed his signature on
the same date.

However, on August 30, 1988, Sinon received an appointment as MAO for Region II in Cagayan as approved by
Regional Director Gumersindo D. Lasam on the basis of the first evaluation made by the Placement Committee.

Thus, Sinon filed an appeal docketed as Civil Service Case No. 573 on November 22, 1989 to the CSC. This appeal
was granted mainly for two reasons: first, the respondent DARAB failed to file its Comment within the period required;
and second, the evaluation of the qualification of the employees is a question of fact which the appointing authority or
the Placement Committee assisting him is in a better position to determine. Hence, the Resolution dated 28 February
1989 of the DARAB was set aside. 4

On March 19, 1990, Banan filed a Motion for Reconsideration in which she pitted her qualifications against Sinon for
the last slot in the 29 available MAO positions. At the same time, she pointed out that to allow the findings of the
Placement Committee to supersede the DARAB resolution which the Secretary of Agriculture had approved would be
tantamount to giving precedence to the Placement Committee over the head of the agency.

Finally, on February 8, 1991, CSC, after reviewing the Comment filed by the DARAB which had not been considered
earlier in the Civil Service Case No. 573, the CSC granted respondent Banan's Motion for Reconsideration and gave
due course to her appointment by the DARAB.

On March 21, 1991, Sinon filed a Motion for Reconsideration of the February 8, 1991 Resolution which however was
denied by the CSC in its assailed Resolution dated July 11, 1991.

According to the respondent CSC:

Mr. Sinon strongly argued that the findings of the Placement Committee on the qualifications of the
parties should be accorded deference and greater weight over that of the RAB. Under the
Placement Committee's evaluation, Mr. Sinon garnered 60.66 while Ms. Juana Banan earned
57.32 after assessing the contending parties qualification in education, relevant experience,
eligibility and other factors. Following the request of several parties for reevaluation, the RAB in
their decision gave Mr. Sinon 57.66 while Ms. Banan obtained 59.32. Seemingly the findings of the
two bodies are in conflict. Mr. Sinon argues that the findings of the Placement Committee should
prevail since it is specially mandated by RA 6656.

We disagree. The Placement Committee's function is recommendatory in nature. The agency's Reorganization
Appeals Board was specially created by the Circular of the Office of the President dated October 2, 1987 and
conferred with authority to review appeals and complaints of officials and employees affected by the reorganization.
the decision of the agency RAB has the imprimatur of the Secretary of that agency and is therefore controlling in
matters of and is therefore controlling in matters of appointment. Under this principle, the decision of the DARAB in
this case enjoys precedence over the Placement Committee. 5

Hence, this petition was filed with a prayer for a writ of preliminary injunction and/or restraining order to enjoin the
execution of the assailed resolutions.

Without giving due course to the petition for a writ of preliminary injunction, the court required the parties to file their
respective Comments. 6

On 12 November 1991, the Court gave due course to the petition and required the parties to submit their respective
Memoranda. 7

The main issue for Our consideration is this: whether or not the CSC committed grave abuse discretion in reviewing
and re-evaluating the ring or qualification of the petitioner Sinon.

Page 138 of 547

The arguments of the petitioner can be summed up as follows:

1). In issuing the Resolution of 8 February 1991, the CSC in effect revoked the appointment that
the petitioner received as early as 30 August 1989 and which was deemed permanent by virtue of
the approval of the Regional Director of the Department of Agriculture:

2). In giving petitioner a rating of only 57.66%, 8 from his previous rating of 60.66% and at the same time
according a rating of 59.32% to private respondent from a rating of only 57.32%, the CSC departed from its power
which is limited only to that of "review", and hence encroached upon the power of appointment exclusively lodged in
the appointment authority;

3) In giving due course to the appointment of respondent Banan in its Resolution of 8 February
1991, CSC was directing the appointment of a substitute of their own choice when the power to
appoint was exclusively lodged in the appointing authority.

We rule as follows.

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual
refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in
an arbitrary and despotic manner by reason of passion or hostility. 9

Contrary to the allegations of the petitioner, We do not find any evidence of grave abuse of discretion on the part of
the CSC when it issued Resolution dated 8 February 1991 which in effect approved the appointment of respondent
Banan over petitioner Sinon.

With the reorganization of the MAF into the DA with Executive order No. 116, it became imperative to "protect the
security of tenure of Civil Service Officers and employees in the implementation of government reorganization". Thus,
Congress passed Republic Act No. 6656. 10

It was under the same law of R.A. 6656 that the Placement Committee was created:

Section 6. In order that the best qualified and mot deserving persons shall be appointed in any
reorganization, there shall be created a Placement Committee in each department or agency to
assist the appointing authority in the judicious selection and placement of personnel. The
Committee shall consist of two (2) members appointed by the head of the department or agency, a
representative of the appointing authority, and two (2) members duly elected by the employees
holding positions in the first and second levels of the career service: Provided, that if there is a
registered employee association with a majority of the employees as members, that employee
association shall also have a representative in the Committee: Provided, Further, that immediately
upon the approval of the staffing pattern of the department or agency concerned, such staffing
pattern shall be made known to all officers and employees of the agency who shall be invited to
apply for any of the positions authorized therein. Such application shall be considered by the
committee in the placement and selection of personnel. (Emphasis supplied).

To "assist" mean to lend an aid to, 11 or to contribute effort in the complete accomplishment of an ultimate
purpose intended to be effected by those engaged. 12

In contrast, to "recommend" 13 is to present one's advice or choice as having one's approval or to represent
or urge as advisable or expedient. It involves the Idea that another has the final decision.

Clearly, the Placement Committee was charged with the duty of exercising the same discretionary functions as the
appointing authority in the judicious selection and placement of personnel when the law empowered it to "assist" the
appointment authority.

Page 139 of 547

The same law also allows any officer or employee aggrieved by the appointments to file an appeal with the appointing
authority who shall made a decision within thirty (30) days from the filing thereof. If the same employee is still not
satisfied with the decision of the appointing authority, he may further appeal within ten (10) days from the receipt
thereof the CSC. 14

In the case at bar, the Circular dated October 2, 1987 of the Office of the President created the agency
Reorganization Appeals Board to address the problem of the employees affected by the reorganizations.

The foregoing legal measures spell out the remedies of aggrieved parties which make it impossible to give the status
of finality to any appointment until all protests or oppositions are duly heard.

Thus, while it is true that the appointment paper received by petitioner Sinon on 30 August 1989 for the position of
MAO had not conferred any permanent status and was still subject to the following conditions attached to any
appointment in the civil service:

Provided that there is no pending administrative case against the appointee, no pending protest
against the appointment, nor any decision by competent authority that will adversely affect the
approval of the appointment .15

Hence, for as long as the re-evaluation of the qualification filed by Banan was pending, the petitioner cannot claim
that he had been issued with a "complete" appointment. Neither is there any point in asserting that his appointment
had "cured" whatever changes was subsequently recommended by the DARAB. 16

The fact that the DARAB is capable of re-evaluating the findings of the Placement Committed only to find that Sinon
is not qualified should no be taken as a grave abuse of discretion.

We cannot subscribe to petitioner Sinon's insistence that the public respondent CSC had disregarded the findings of
the Placement Committee. The truth is, these findings of the Placement Committee. The truth is, these findings were
re-evaluated and the report after such re-evaluation was submitted to and approved by the Secretary of Agriculture.
The CSC affirmed the findings of the DARAB.

Because of all the foregoing circumstances, the jurisprudence cited by the petitioner Sinon appears to be incorrect. 17

Neither do we find in the Resolution of 8 February 1991, any statement by the CSC directing the appointment of the
respondent Banan. Hence, there was no directive from the CSC that may be misinterpreted as a usurpation of any
appointing power. 18

Besides, in affirming the appointment of Banan as recommended by the DARAB and approved by the Secretary of
Agriculture, the CSC is only being consistent with the law. Section 4 or R.A. 6656 mandates that officers and
employees holding permanent appointments shall be given preference for appointment to the new positions in the
approved staffing pattern comparable to their former positions. Also, the term incumbent officer and the privileges
generally accorded to them would more aptly refer to Banan and not to petitioner Sinon whose appointment was
never confirmed completely. 19 There is no dispute that the position of MAO in the old staffing pattern is most
comparable to the MAO in the new staffing pattern.

Finally, the Solicitor General in behalf of the CSC correctly noted that the petitioner Sinon had conveniently omitted
the then Secretary of Agriculture who had affixed his approval on the findings of the DARAB. Petitioner Sinon knew
fully well that as head of the agency, the Secretary of Agriculture was the appointing authority.

It must be recalled that the whole purpose of reorganization is that is it is a "process of restructuring the
bureaucracy's organizational and functional set-up, to make it more viable in terms of the economy, efficiency,
effectiveness and make it more responsive to the needs of its public clientele as authorized by law." 20 For as long
as the CSC confines itself within the limits set out by law and does not encroach upon the prerogatives
endowed to other authorities, this Court must sustain the Commission.

Page 140 of 547

WHEREFORE, the petition is DENIED with costs against the petitioner.

SO ORDERED.

Gutierrez, Jr., Cruz, Feliciano, Padilla, Regalado, Davide, Romero, Nocon and Bellosillo, JJ., concur.

Narvasa, C.J. and Medialdea, JJ., is on leave.

Bidin, concur in the result.

Page 141 of 547

 EN BANC

G.R. No. 93355 April 7, 1992

LUIS B. DOMINGO, petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES and CIVIL SERVICE COMMISSION, respondents.

REGALADO, J.:

This special civil action impugns the resolution 1 of respondent Civil Service Commission (CSC)
promulgated on April 10, 1990 in CSC Case No. 473 setting aside its earlier resolution of November 27,
1989 and affirming the separation of petitioner Luis B. Domingo as Senior Training and Career
Development Officer of the Development Bank of the Philippines (DBP).

Petitioner was employed by DBP as Senior Training and Career Development Officer on permanent
status from February, 1979 to December 1986.

On December 3, 1986, Executive Order No 81 (The Revised Charter of DBP) was passed
authorizing the reorganization of DBP in this wise:

Sec. 32. Authority to Reorganize. In view of the new scope of operations of the
Bank, a reorganization of the Bank and a reduction in force are hereby authorized to
achieve simplicity and economy in operations, including adopting a new staffing
pattern to suit the reduced operations envisioned. The formulation of the program of
reorganization shall be completed within six months after the approval of this Charter,
and the full implementation of the reorganization program within thirty months
thereafter.

Further, Sections 33 and 34 thereof provide:

Sec. 33. Implementing Details; Organization and Staffing of the Bank.

xxx xxx xxx

In the implementation of the reorganization of the Bank, as authorized under the

preceding section, qualified personnel of the Bank may be appointed to appropriate
positions in the new staffing pattern thereof and those not so appointed are deemed
separated from the service. No preferential or priority rights shall be given to or
enjoyed by any officer or personnel of the Bank for appointment to any position in the
new staffing pattern nor shall any officer or personnel be considered as having prior
or vested rights with respect to retention in the Bank or in any position as may have

Page 142 of 547

 been created in its new staffing pattern, even if he should be the incumbent of a
similar position therein.

xxx xxx xxx

Sec. 34. Separation Benefits. All those who shall retire from the service or are
separated therefrom on account of the reorganization of the Bank under the
provisions of this Charter shall be entitled to all gratuities and benefits provided for
under existing laws and/or supplementary retirement plans adopted by and effective
in the Bank: . . .

Pursuant thereto, DBP issued Board Resolution No. 304-87 allowing the issuance of temporary
appointments to all DBP personnel in order to fully implement the reorganization. The resolution
states in part:

It is understood that pursuant to Section 32 of the new DBP Charter full

implementation of the reorganization program shall be completed within a period of
thirty-six (36) months from the approval of this Charter. In this connection, the
plantilla approved and appointments issued are purely interim and the Bank is
reserving its right to put in place the permanent structure of the Bank as well as the
permanent appointments thereto until the end of the 36-month period. 2

In effect, said resolution authorized the issuance of temporary appointments to all DBP personnel to
allow maximum flexibility in the implementation of the reorganization. Such temporary appointments
issued had a maximum period of twelve (12) months during which period the performance of the
incumbents were assessed on the basis of the results of their evaluation.

With the passage of Executive Order No. 81 and Board Resolution No. 304 87, DBP undertook the
evaluation and comparative assessment of all its personnel under the CSC approved New
Performance Appraisal System, a peer and control rating process which served as an assessment
tool of DBP's screening process.

Petitioner Domingo was issued a temporary appointment on January 2, 1987 for a period of one (1)
year, which was renewed for another period up to November 30, 1988. Thereafter, in a
memorandum 3 dated November 23, 1988 issued by the Final Review Committee, petitioner got a
performance rating of "below average," by reason of which his appointment was "made to lapse."

Consequently, petitioner, together with a certain Evangeline Javier, filed with the CSC a joint verified
complaint 4against DBP for illegal dismissal. The complainants therein alleged that their dismissal
constituted a violation of the Civil Service Law against the issuance of temporary appointments to
permanent employees, as well as of their right to security of tenure and due process.

On November 27, 1989, CSC issued a resolution 5 in CSC Case No. 473 directing "the reappointment
of Mr. Domingo and Ms. Javier as Senior Training and Career Development Officer and Research Analyst
or any such equivalent rank under the staffing pattern of DBP." The order for reappointment was premised
on the findings of the CSC that "(t)he action of the DBP to issue temporary appointments to all DBP
personnel in order to allow for the maximum flexibility in evaluating the performance of incumbents is not
in accord with civil service law rules," in that "(t)o issue a temporary appointment to one who has been on
permanent status before will deprive the employee of benefits accorded permanent employees and will

Page 143 of 547

adversely affect his security of tenure," aside from the fact that such an act is contrary to Section 25 (a) of
Presidential Decree No. 807.

DBP filed a motion for reconsideration 6 on December 27, 1989 alleging, inter alia, that the issuance of
temporary appointments to all the DBP employees was purely an interim arrangement; that in spite of the
temporary appointment, they continued to enjoy the salary, allowances and other benefits corresponding
to permanent employees; that there can be no impairment of herein petitioner's security of tenure since
the new DBP charter expressly provides that "qualified personnel of the bank may be appointed to
appropriate positions in the new staffing pattern and those not so appointed are deemed separated from
the service;" that petitioner was evaluated and comparatively assessed under a rating system approved
by the respondent commission; and that petitioner cannot claim that he was denied due process of law
considering that, although several appeals were received by the Final Review Committee from other
employees similarly situated, herein petitioner never appealed his rating or the extension of his temporary
appointment although he was advised to do so by his direct supervisor.

On April 10, 1990, CSC rendered the questioned resolution setting aside its previous decision and
affirming the separation of herein petitioner. In so ruling, CSC explained that:

While it is true that this Commission ruled that the issuance of temporary
appointment to all DBP personnel in order to allow "for maximum flexibility" in
evaluating the performance of incumbents is not in accord with civil service laws and
rules, however it cannot lose sight of the fact that appellants are among those who
indeed got a below average rating (unsatisfactory) when their performance were
reevaluated and comparatively reassessed by the Final Review Committee of the
Bank approved by the Vice Chairman.

xxx xxx xxx

In effect, the determinative factor for retention and the separation from the service is
the individual performance rating.

While the Commission supports the principle of merit and fitness and strongly
protects the security of tenure of civil service officials and employees which are the
essence of careerism in the civil service, it does not however, sanction the
reappointment of said officials and employees who have fallen short of the
performance necessary in order to maintain at all times efficiency and effectiveness
in the Office.

It bears stressing that the DBP submitted the records and documents in support of its
allegations that Mr. Domingo and Ms. Javier have indeed got(ten) a below average
rating (unsatisfactory) during the filing of the instant motion for reconsideration. Had
DBP promptly submitted the records/documents supporting its allegations, this
Commission at the outset should have sustained the separation of the appellants
from the service on ground of poor performance (below average rating,
unsatisfactory) after the reassessment and re-evaluation by the Bank through the
Final Review Committee. The CSC could not have guessed that such was the basis
of the DBP's termination of Domingo and Javier until the papers were submitted to
it. . . .

Page 144 of 547

 It must be pointed out that appellants' separation from the service was the lapse of
their temporary appointment. The non-extension or non-issuance of permanent
appointments were principally based on their below average rating (unsatisfactory)
performance after they were reevaluated and comparatively reassessed by the Final
Review Committee of the Bank. After all, the 1986 DBP Revised Charter (E.O. No.
81) gives the Bank a wide latitude of discretion in the reappointment of its personnel,
subject to existing civil service laws, rules and regulations.

There is no doubt that the DBP conducted a reevaluation and comparative

reassessment of its employees for placement/retention (for permanent) and for
separation from the service and found out that appellants are wanting of
performance, having been rated as "Below Average." 7

Hence this petition, whereby petitioner raises the following issues:

1. Petitioner's tenure of office was violated by respondents;

2. Petitioner was not afforded a day in court and was denied procedural due process
in the unilateral evaluation by his peers of his efficiency ratings for the years 1987
and 1988;

3. Average and below average efficiency ratings are not valid grounds for termination
of the service of petitioner;

4. Section 5 of the rules implementing Republic Act No. 6656 is repugnant to the
constitutional mandate that "no officer or employee of the Civil Service be removed
or suspended except for causeprovided by law;" and

5. Section 16, Article XVIII, Transitory Provisions of the New Constitution was also
violated by respondents. 8

I. Petitioner puts in issue the validity of the reorganization implemented by DBP in that the same
violates his right to security of tenure. He contends that government reorganization cannot be a valid
ground to terminate the services of government employees, pursuant to the ruling in the case
of Dario vs. Mison, et al. 9

This statement of petitioner is incomplete and inaccurate, if not outright erroneous. Either petitioner
misunderstood or he totally overlooked what was stated in the aforecited decision which held that
"reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good
faith." As we said in Dario:

Reorganizations in this jurisdiction have been regarded as valid provided they are
pursued in good faith. As a general rule, a reorganization is carried out in "good faith"
if it is for the purpose of economy or to make bureaucracy more efficient. In that
event, no dismissal (in case of dismissal) or separation actually occurs because the
position itself ceases to exist. And in that case, security of tenure would not be a
Chinese wall.

Page 145 of 547

Clearly, from our pronouncements in Dario, reorganization is a recognized valid ground for
separation of civil service employees, subject only to the condition that it be done in good faith. No
less than the Constitution itself in Section 16 of the Transitory Provisions, together with Sections 33
and 34 of Executive Order No. 81 and Section 9 of Republic Act No. 6656, support this conclusion
with the declaration that all those not so appointed in the implementation of said reorganization shall
be deemed separated from the service with the concomitant recognition of their entitlement to
appropriate separation benefits and/or retirement plans of the reorganized government agency.

The facts of this case, particularly the evaluation process adopted by DBP, bear out the existence of
good faith in the course of reorganization.

As a tool in the assessment process, a bank-wide peer and control rating process was implemented.
Under this process, the peers and supervisors rated the DBP employees. 10

To make the reorganization as open, representative and fair as possible, two principal groups were
formed: (1) the Group Placement Screening Committee (GPSC) and (2) the Central Placement
Screening Committee (CPSC), to review all recommendations (for retention or separation) prior to
submissions to the Chairman an the Board of Directors. The members of the two screening
committees were the Department and Group Heads and representatives from the Career Officials
Association and the DBP Employees Union. The CPSC was further represented by the DBP Civil
Service Officer, who sat as consultant to help resolve questions on Civil Service rules and
regulations.

As an assessment tool to the Bank's screening process, a peer and control rating process was
implemented bank-wide, the results of which were used as a gauge to determine the suitability of an
employee to stay in the Bank. Through this rating, the Bank determines the value of the individual
employee to the Bank with the help of his peers (peer rating) and his supervisors (control
rating). 11

Also, as part of the evaluation process, a Final Review Committee, composed of the group,
department or unit head, the heads of the Human Resource Center and of the Personnel Services,
and representatives from the Career Officials Association and the Employees Union, was created to
screen further and to recommend the change in status of the employee's appointment from
temporary to permanent beginning 1988. For the rank and file level, the committee was chaired by
the Vice-Chairman while the officer level was presided over by the Chairman of the Bank. 12

The performance rating system used and adopted by DBP was duly approved by the Civil Service
Commission. Herein petitioner was evaluated and comparatively assessed under this approved
rating system. This is shown by the memorandum to the Vice-Chairman from the DBP Final Review
Committee wherein petitioner, among other DBP employees, was evaluated and rated on his
performance, and was shown to have gotten a rating of "below average." 13

In the comment 14 filed by DBP with the CSC, respondent bank explained the procedure it adopted in the
evaluation of herein petitioner, together with one Evangeline Javier, to wit:

xxx xxx xxx

4. During the second phase of the screening process, the Bank used several
instruments for determining proficiency or skills on the job. More than skills, however,

Page 146 of 547

 the evaluation also covered trait factors to determine a positive work attitude. The
Bank placed a premium on work attitude because it believes that technical and
professional skills can easily be acquired by an ordinary normal individual as long as
he has the right attitude towards learning.

5. These attitudes are part of the new corporate culture outlined in the corporate
philosophy instituted for the Bank and disseminated thru the various corporate
culture seminars, monthly tertulias, speeches of the Chairman and numerous various
internal communications and bulletins. One of the most important values emphasized
was TEAMWORK due to the very lean personnel force that the Bank was left with
and the competition it has to contend with in the industry.

6. Mr. Domingo and Miss Javier were subjected to this rating process as all other
employees of the Bank were.

xxx xxx xxx

8. Mr. Domingo and Miss Javier were recommended for a renewal of temporary
status after assessment of their performance because of several indications of lack
of skill and their inability to work with others in the department where they were
stationed. In a compassionate stance, it was considered in the Central Personnel
Committee to transfer them to another department or unit of the Bank where they
may be more effective and productive, but they expressed preference to stay in the
training unit of the Bank, the Human Resource Center.

9. Along with others whose performance for 1987 was found wanting, Mr. Domingo
and Miss Javier were recommended for reappointment as temporary for another
period from January to November 1988 to give the Bank sufficient time to consider
their cases. However, in an evaluation of performance for all extendees in November
1988, Mr. Domingo and Miss Javier were again found wanting having both acquired
a rating of "Below Average."

In addition, it is not disputed that DBP now has less than 2,000 employees from a former high level
of around 4,000 employees in 1986. And, under Section 27 of Presidential Decree No. 807, the
Government is authorized to lay off employees in case of a reduction due to reorganization, thus:

Sec. 27. Reduction in Force. Whenever it becomes necessary because of lack of

work or funds or due to a change in the scope or nature of an agency's program, or
as a result of reorganization, to reduce the staff of any department or agency, those
in the same group or class of positions in one or more agencies within the particular
department or agency wherein the reduction is to be effected shall be reasonably
compared in terms of relative fitness, efficiency and length of service, and those
found to be least qualified for the remaining positions shall be laid off.

Lastly, petitioner failed to invoke the presence of any of the circumstances enumerated under
Section 2 of Republic Act No. 6656 which would show or tend to show the existence of bad faith in
the implementation of the reorganization.

Page 147 of 547

Quintessentially, the reorganization having been conducted in accordance with the mandate
of Dario, it can safely be concluded that indeed the reorganization was attended by good faith, ergo,
valid. The dismissal of herein petitioner is a removal for cause which, therefore, does not violate his
security of tenure.

As a final note on this issue, we quote with approval the statement of Mme. Justice Ameurfina A.
Melencio-Herrera in her dissenting opinion in the above-cited case:

To be sure, the reorganization could affect the tenure of members of the career
service as defined in Section 5, Article IV of Presidential Decree No. 807, and may
even result in the separation from office of some meritorious employees. But even
then, the greater good of the greatest number and the right of the citizenry to a good
government, and as they themselves have mandated through the vehicle of
Proclamation No. 3, provide the justification for the said injury to the individual. In
terms of values, the interest of an employee to security of tenure must yield to the
interest of the entire populace and to an efficient and honest government.

II. Petitioner also maintains that "average" and "below average" efficiency ratings are not valid
grounds for his termination from the service.

It has become a basic and primordial concern of the State to insure and promote the constitutional
mandate that appointments in the civil service shall be made only according to merit and fitness
pursuant to its adopted policy of requiring public officers and employees to serve with the highest
degree of responsibility, integrity, loyalty and efficiency. 15 As a matter of fact, the development and
retention of a competent and efficient work force in the public service is considered as a primary concern
of the Government. 16 Hence, employees are selected on the basis of merit and fitness to perform the
duties and assume the responsibilities of the position to which they are appointed. 17 Concomitantly, the
government has committed itself to engender a continuing program of career and personnel development
for all government employees, 18 by establishing a performance evaluation system to be administered in
such manner as to continually foster the improvement of individual employee efficiency and organizational
effectiveness. 19

All these abundantly show that the State puts a premium on an individual's efficiency, merit and
fitness before one is accepted into the career service. A civil service employee's efficiency rating,
therefore, is a decisive factor for his continued service with the Government. The inescapable
conclusion is that a "below average" efficiency rating is sufficient justification for the termination of a
government employee such as herein petitioner. This is the reason why, painful as it may be,
petitioner's separation must be affirmed if public good is to be subserved. In the words of respondent
commission in its questioned resolution, it cannot "sanction the reappointment of said officials and
employees who have fallen short of the performance necessary in order to maintain at all times
efficiency and effectiveness in the Office." 20

III. Petitioner finally contends that where the purpose of the evaluation proceeding is to ascertain
whether he should be retained or separated from the service, it is a proceeding to determine the
existence of a ground for his termination and, therefore, he should be afforded a day in court,
pursuant to the requirements of procedural due process, to defend himself against any adverse
findings in the process of evaluation of his performance.

Petitioner's contention cannot be sustained.

Page 148 of 547

Section 2 of Republic Act No. 6656 provides that "no officer or employee in the career service shall
be removed except for a valid cause and after due notice and hearing." Thus, there is no question
that while dismissal due to abona fide reorganization is recognized as a valid cause, this does not
justify a detraction from the mandatory requirement of notice and hearing. However, it is equally true
and it is a basic rule of due process that "what the law prohibits is not the absence of previous notice
but the absolute absence thereof and the lack of opportunity to be heard." 21 There is no violation of
procedural due process even where no hearing was conducted for as long as the party was given a
chance to present his evidence and defend himself.

The records show that petitioner had the opportunity to present his side and/or to contest the results
of the evaluation proceedings. In DBP's motion for the reconsideration of the original decision of
respondent commission, respondent bank averred:

It may be stated that although several appeals were received by the Final Review
Committee from other employees similarly situated (i.e., also given temporary
appointments for 1988), Mr. Domingo and Miss Javier never appealed their ratings or
the extension of their temporary appointments in 1988. Even at this writing, the Bank
has not received any formal appeal from them although they were advised to do so
by their direct supervisor. 22

The fact that petitioner made no appeal to the Final Review Committee was duly considered by
respondent commission in resolving said motion for reconsideration and in affirming the separation
of petitioner from the service, noting that "appellants Mr. Domingo, and Miss Javier did not file or
submit their opposition to the motion for reconsideration." Consequently, petitioner cannot, by his
own inaction, legally claim that he was denied due process of law.

Considering petitioner's years of service, despite the unfortunate result of the reorganization insofar
as he is concerned, he should be allowed separation and other retirement benefits accruing to him
by reason of his termination, as provided for in Section 16, Article XVIII of the 1987 Constitution, as
well as in Section 9 of Republic Act No. 6656 and Section 34 of Executive Order No. 81.

WHEREFORE, no grave abuse of discretion having been committed by respondent Civil Service
Commission, its challenged resolution of April 10, 1990 is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Cruz, Paras, Padilla, Bidin, Grio-Aquino, Medialdea, Davide, Jr., Romero and
Nocon, JJ., concur.

Narvasa, C.J., Feliciano and Bellosillo, JJ., are on leave.

Page 149 of 547

G.R. No. 115863 March 31, 1995

AIDA D. EUGENIO, petitioner,

vs.
CIVIL SERVICE COMMISSION, HON. TEOFISTO T. GUINGONA, JR. & HON. SALVADOR
ENRIQUEZ, JR.,respondents.

PUNO, J.:

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

First the facts. Petitioner is the Deputy Director of the Philippine Nuclear Research Institute. She
applied for a Career Executive Service (CES) Eligibility and a CESO rank on August 2, 1993, she
was given a CES eligibility. On September 15, 1993, she was recommended to the President for a
CESO rank by the Career Executive Service Board. 1

Page 150 of 547

All was not to turn well for petitioner. On October 1, 1993, respondent Civil Service
Commission 2 passed Resolution No. 93-4359, viz:

RESOLUTION NO. 93-4359

WHEREAS, Section 1(1) of Article IX-B provides that Civil Service shall be
administered by the Civil Service Commission, . . .;

WHEREAS, Section 3, Article IX-B of the 1987 Philippine Constitution provides that
"The Civil Service Commission, as the central personnel agency of the government,
is mandated to establish a career service and adopt measures to promote morale,
efficiency, integrity, responsiveness, progresiveness and courtesy in the civil
service, . . .";

WHEREAS, Section 12 (1), Title I, Subtitle A, Book V of the Administrative Code of

1987 grants the Commission the power, among others, to administer and enforce the
constitutional and statutory provisions on the merit system for all levels and ranks in
the Civil Service;

WHEREAS, Section 7, Title I, Subtitle A, Book V of the Administrative Code of 1987

Provides, among others, that The Career Service shall be characterized by (1)
entrance based on merit and fitness to be determined as far as practicable by
competitive examination, or based highly technical qualifications; (2) opportunity for
advancement to higher career positions; and (3) security of tenure;

WHEREAS, Section 8 (c), Title I, Subtitle A, Book V of the administrative Code of

1987 provides that "The third level shall cover Positions in the Career Executive
Service";

WHEREAS, the Commission recognizes the imperative need to consolidate,

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

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

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

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

NOW THEREFORE, foregoing premises considered, the Civil Service Commission

hereby resolves to streamline reorganize and effect changes in its organizational
structure. Pursuant thereto, the Career Executive Service Board, shall now be known
as the Office for Career Executive Service of the Civil Service Commission.
Accordingly, the existing personnel, budget, properties and equipment of the Career
Executive Service Board shall now form part of the Office for Career Executive
Service.

Page 151 of 547

The above resolution became an impediment. to the appointment of petitioner as Civil Service
Officer, Rank IV. In a letter to petitioner, dated June 7, 1994, the Honorable Antonio T. Carpio, Chief
Presidential legal Counsel, stated:

xxx xxx xxx

On 1 October 1993 the Civil Service Commission issued CSC Resolution No. 93-
4359 which abolished the Career Executive Service Board.

Several legal issues have arisen as a result of the issuance of CSC Resolution No.
93-4359, including whether the Civil Service Commission has authority to abolish the
Career Executive Service Board. Because these issues remain unresolved, the
Office of the President has refrained from considering appointments of career service
eligibles to career executive ranks.

xxx xxx xxx

You may, however, bring a case before the appropriate court to settle the legal issues
arising from issuance by the Civil Service Commission of CSC Resolution No. 93-
4359, for guidance of all concerned.

Thank You.

Finding herself bereft of further administrative relief as the Career Executive Service Board which
recommended her CESO Rank IV has been abolished, petitioner filed the petition at bench to annul,
among others, resolution No. 93-4359. The petition is anchored on the following arguments:

A.

IN VIOLATION OF THE CONSTITUTION, RESPONDENT COMMISSION

USURPED THE LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT
ABOLISHED THE CESB, AN OFFICE CREATED BY LAW, THROUGH THE
ISSUANCE OF CSC: RESOLUTION NO. 93-4359;

B.

ALSO IN VIOLATION OF THE CONSTITUTION, RESPONDENT CSC USURPED

THE LEGISLATIVE FUNCTIONS OF CONGRESS WHEN IT ILLEGALLY
AUTHORIZED THE TRANSFER OF PUBLIC MONEY, THROUGH THE ISSUANCE
OF CSC RESOLUTION NO. 93-4359.

Required to file its Comment, the Solicitor General agreed with the contentions of petitioner.
Respondent Commission, however, chose to defend its ground. It posited the following position:

ARGUMENTS FOR PUBLIC RESPONDENT-CSC

I. THE INSTANT PETITION STATES NO CAUSE OF ACTION AGAINST THE

PUBLIC RESPONDENT-CSC.

Page 152 of 547

 II. THE RECOMMENDATION SUBMITTED TO THE PRESIDENT FOR
APPOINTMENT TO A CESO RANK OF PETITIONER EUGENIO WAS A VALID ACT
OF THE CAREER EXECUTIVE SERVICE BOARD OF THE CIVIL SERVICE
COMMISSION AND IT DOES NOT HAVE ANY DEFECT.

III. THE OFFICE OF THE PRESIDENT IS ESTOPPED FROM QUESTIONING THE

VALIDITY OF THE RECOMMENDATION OF THE CESB IN FAVOR OF
PETITIONER EUGENIO SINCE THE PRESIDENT HAS PREVIOUSLY APPOINTED
TO CESO RANK FOUR (4) OFFICIALS SIMILARLY SITUATED AS SAID
PETITIONER. FURTHERMORE, LACK OF MEMBERS TO CONSTITUTE A
QUORUM. ASSUMING THERE WAS NO QUORUM, IS NOT THE FAULT OF
PUBLIC RESPONDENT CIVIL SERVICE COMMISSION BUT OF THE PRESIDENT
WHO HAS THE POWER TO APPOINT THE OTHER MEMBERS OF THE CESB.

IV. THE INTEGRATION OF THE CESB INTO THE COMMISSION IS AUTHORIZED

BY LAW (Sec. 12 (1), Title I, Subtitle A, Book V of the Administrative Code of the
1987). THIS PARTICULAR ISSUE HAD ALREADY BEEN SETTLED WHEN THE
HONORABLE COURT DISMISSED THE PETITION FILED BY THE HONORABLE
MEMBERS OF THE HOUSE OF REPRESENTATIVES, NAMELY: SIMEON A.
DATUMANONG, FELICIANO R. BELMONTE, JR., RENATO V. DIAZ, AND MANUEL
M. GARCIA IN G.R. NO. 114380. THE AFOREMENTIONED PETITIONERS ALSO
QUESTIONED THE INTEGRATION OF THE CESB WITH THE COMMISSION.

We find merit in the petition. 3

The controlling fact is that the Career Executive Service Board (CESB) was created in the
Presidential Decree (P.D.) No. 1 on September 1, 1974 4 which adopted the Integrated Plan. Article IV,
Chapter I, Part of the III of the said Plan provides:

Article IV Career Executive Service

1. A Career Executive Service is created to form a continuing pool of well-selected

and development oriented career administrators who shall provide competent and
faithful service.

2. A Career Executive Service hereinafter referred to in this Chapter as the Board, is

created to serve as the governing body of the Career Executive Service. The Board
shall consist of the Chairman of the Civil Service Commission as presiding officer,
the Executive Secretary and the Commissioner of the Budget as ex-officio members
and two other members from the private sector and/or the academic community who
are familiar with the principles and methods of personnel administration.

xxx xxx xxx

5. The Board shall promulgate rules, standards and procedures on the selection,
classification, compensation and career development of members of the Career
Executive Service. The Board shall set up the organization and operation of the
service. (Emphasis supplied)

Page 153 of 547

It cannot be disputed, therefore, that as the CESB was created by law, it can only be abolished by
the legislature. This follows an unbroken stream of rulings that the creation and abolition of public
offices is primarily a legislative function. As aptly summed up in AM JUR 2d on Public Officers and
Employees, 5 viz:

Except for such offices as are created by the Constitution, the creation of public
offices is primarily a legislative function. In so far as the legislative power in this
respect is not restricted by constitutional provisions, it supreme, and the legislature
may decide for itself what offices are suitable, necessary, or convenient. When in the
exigencies of government it is necessary to create and define duties, the legislative
department has the discretion to determine whether additional offices shall be
created, or whether these duties shall be attached to and become ex-officio duties of
existing offices. An office created by the legislature is wholly within the power of that
body, and it may prescribe the mode of filling the office and the powers and duties of
the incumbent, and if it sees fit, abolish the office.

In the petition at bench, the legislature has not enacted any law authorizing the abolition of the
CESB. On the contrary, in all the General Appropriations Acts from 1975 to 1993, the legislature has
set aside funds for the operation of CESB. Respondent Commission, however, invokes Section 17,
Chapter 3, Subtitle A. Title I, Book V of the Administrative Code of 1987 as the source of its power to
abolish the CESB. Section 17 provides:

Sec. 17. Organizational Structure. Each office of the Commission shall be headed
by a Director with at least one Assistant Director, and may have such divisions as are
necessary independent constitutional body, the Commission may effect changes in
the organization as the need arises.

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

Sec. 16. Offices in the Commission. The Commission shall have the following
offices:

(1) The Office of the Executive Director headed by an Executive Director, with a
Deputy Executive Director shall implement policies, standards, rules and regulations
promulgated by the Commission; coordinate the programs of the offices of the
Commission and render periodic reports on their operations, and perform such other
functions as may be assigned by the Commission.

(2) The Merit System Protection Board composed of a Chairman and two (2)
members shall have the following functions:

xxx xxx xxx

(3) The Office of Legal Affairs shall provide the Chairman with legal advice and
assistance; render counselling services; undertake legal studies and researches;
prepare opinions and ruling in the interpretation and application of the Civil Service
law, rules and regulations; prosecute violations of such law, rules and regulations;
and represent the Commission before any court or tribunal.

Page 154 of 547

(4) The Office of Planning and Management shall formulate development plans,
programs and projects; undertake research and studies on the different aspects of
public personnel management; administer management improvement programs; and
provide fiscal and budgetary services.

(5) The Central Administrative Office shall provide the Commission with personnel,
financial, logistics and other basic support services.

(6) The Office of Central Personnel Records shall formulate and implement policies,
standards, rules and regulations pertaining to personnel records maintenance,
security, control and disposal; provide storage and extension services; and provide
and maintain library services.

(7) The Office of Position Classification and Compensation shall formulate and
implement policies, standards, rules and regulations relative to the administration of
position classification and compensation.

(8) The Office of Recruitment, Examination and Placement shall provide leadership
and assistance in developing and implementing the overall Commission programs
relating to recruitment, execution and placement, and formulate policies, standards,
rules and regulations for the proper implementation of the Commission's examination
and placement programs.

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

(10) The Office of Human Resource Development shall provide leadership and
assistance in the development and retention of qualified and efficient work force in
the Civil Service; formulate standards for training and staff development; administer
service-wide scholarship programs; develop training literature and materials;
coordinate and integrate all training activities and evaluate training programs.

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

(12) The Office of Personnel Relations shall provide leadership and assistance in the
development and implementation of policies, standards, rules and regulations in the
accreditation of employee associations or organizations and in the adjustment and
settlement of employee grievances and management of employee disputes.

(13) The Office of Corporate Affairs shall formulate and implement policies,
standards, rules and regulations governing corporate officials and employees in the
areas of recruitment, examination, placement, career development, merit and awards
systems, position classification and compensation, performing appraisal, employee

Page 155 of 547

 welfare and benefit, discipline and other aspects of personnel management on the
basis of comparable industry practices.

(14) The Office of Retirement Administration shall be responsible for the enforcement
of the constitutional and statutory provisions, relative to retirement and the regulation
for the effective implementation of the retirement of government officials and
employees.

(15) The Regional and Field Offices. The Commission shall have not less than
thirteen (13) Regional offices each to be headed by a Director, and such field offices
as may be needed, each to be headed by an official with at least the rank of an
Assistant Director.

As read together, the inescapable conclusion is that respondent Commission's power to

reorganize is limited to offices under its control as enumerated in Section 16, supra. From its
inception, the CESB was intended to be an autonomous entity, albeit administratively
attached to respondent Commission. As conceptualized by the Reorganization Committee
"the CESB shall be autonomous. It is expected to view the problem of building up executive
manpower in the government with a broad and positive outlook." 6 The essential autonomous
character of the CESB is not negated by its attachment to respondent Commission. By said
attachment, CESB was not made to fall within the control of respondent Commission. Under the
Administrative Code of 1987, the purpose of attaching one functionally inter-related government
agency to another is to attain "policy and program coordination." This is clearly etched out in
Section 38(3), Chapter 7, Book IV of the aforecited Code, to wit:

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

Respondent Commission also relies on the case of Datumanong, et al., vs. Civil Service
Commission, G. R. No. 114380 where the petition assailing the abolition of the CESB was dismissed
for lack of cause of action. Suffice to state that the reliance is misplaced considering that the cited
case was dismissed for lack of standing of the petitioner, hence, the lack of cause of action.

IN VIEW WHEREOF, the petition is granted and Resolution No. 93-4359 of the respondent
Commission is hereby annulled and set aside. No costs.

SO ORDERED.

Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Vitug, Kapunan and Mendoza, JJ., concur.

Page 156 of 547

 Manila

EN BANC

G.R. No. L-23004 June 30, 1965

MAKATI STOCK EXCHANGE, INC., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION and MANILA STOCK EXCHANGE, respondents.

Hermenegildo B. Reyes for petitioner.

Office of the Solicitor General for respondent Securities and Exchange Commission.
Norberto J. Quisumbing and Emma Quisumbing-Fernando for respondent Manila Stock Exchange.

BENGZON, C.J.:

This is a review of the resolution of the Securities and Exchange Commission which would deny the
Makati Stock Exchange, Inc., permission to operate a stock exchange unless it agreed not to list for
trading on its board, securities already listed in the Manila Stock Exchange.

Objecting to the requirement, Makati Stock Exchange, Inc. contends that the Commission has no
power to impose it and that, anyway, it is illegal, discriminatory and unjust.

Under the law, no stock exchange may do business in the Philippines unless it is previously
registered with the Commission by filing a statement containing the information described in Sec. 17
of the Securities Act (Commonwealth Act 83, as amended).

It is assumed that the Commission may permit registration if the section is complied with; if not, it
may refuse. And there is now no question that the section has been complied with, or would be
complied with, except that the Makati Stock Exchange, upon challenging this particular requirement
of the Commission (rule against double listing) may be deemed to have shown inability or refusal to
abide by its rules, and thereby to have given ground for denying registration. [Sec. 17 (a) (1) and
(d)].

Such rule provides: "... nor shall a security already listed in any securities exchange be listed anew
in any other securities exchange ... ."

The objection of Makati Stock Exchange, Inc., to this rule is understandable. There is actually only
one securities exchange The Manila Stock Exchange that has been operating alone for the
past 25 years; and all or presumably all available or worthwhile securities for trading in the
market are now listed there. In effect, the Commission permits the Makati Stock Exchange, Inc., to

Page 157 of 547

deal only with other securities. Which is tantamount to permitting a store to open provided it sells
only those goods not sold in other stores. And if there's only one existing store, 1 the result is a
monopoly.

It is not farfetched to assert as petitioner does 2 that for all practical purposes, the Commission's
order or resolution would make it impossible for the Makati Stock Exchange to operate. So, its
"permission" amounted to a "prohibition."

Apparently, the Commission acted "in the public interest." 3 Hence, it is pertinent to inquire whether
the Commission may "in the public interest" prohibit (or make impossible) the establishment of
another stock exchange (besides the Manila Stock Exchange), on the ground that the operation of
two or more exchanges adversely affects the public interest.

At first glance, the answer should be in the negative, because the law itself contemplated, and,
therefore, tacitly permitted or tolerated at least, the operation of two or more exchanges.

Wherever two or more exchanges exist, the Commission, by order, shall require and enforce
uniformity of trading regulations in and/or between said exchanges. [Emphasis Ours] (Sec.
28b-13, Securities Act.)

In fact, as admitted by respondents, there were five stock exchanges in Manila, before the Pacific
War (p. 10, brief), when the Securities Act was approved or amended. (Respondent Commission
even admits that dual listing was practiced then.) So if the existence of more than one exchange
were contrary to public interest, it is strange that the Congress having from time to time enacted
legislation amending the Securities Act, 4 has not barred multiplicity of exchanges.

Forgetting for the moment the monopolistic aspect of the Commission's resolution, let us examine
the authority of the Commission to promulgate and implement the rule in question.

It is fundamental that an administrative officer has only such powers as are expressly granted to him
by the statute, and those necessarily implied in the exercise thereof.

In its brief and its resolution now subject to review, the Commission cites no provision expressly
supporting its rule. Nevertheless, it suggests that the power is "necessary for the execution of the
functions vested in it"; but it makes no explanation, perhaps relying on the reasons advanced in
support of its position that trading of the same securities in two or more stock exchanges, fails to
give protection to the investors, besides contravening public interest. (Of this, we shall treat later) .

On the legality of its rule, the Commission's argument is that: (a) it was approved by the Department
Head before the War; and (b) it is not in conflict with the provisions of the Securities Act. In our
opinion, the approval of the Department, 5 by itself, adds no weight in a judicial litigation; and the test
is not whether the Act forbids the Commission from imposing a prohibition, but whether
it empowers the Commission to prohibit. No specific portion of the statute has been cited to uphold
this power. It is not found in sec. 28 (of the Securities Act), which is entitled "Powers (of the
Commission) with Respect to Exchanges and Securities." 6

According to many court precedents, the general power to "regulate" which the Commission has
(Sec. 33) does not imply authority to prohibit." 7

Page 158 of 547

The Manila Stock Exchange, obviously the beneficiary of the disputed rule, contends that the power
may be inferred from the express power of the Commission to suspend trading in a security, under
said sec. 28 which reads partly:

And if in its opinion, the public interest so requires, summarily to suspend trading in any
registered security on any securities exchange ... . (Sec. 28[3], Securities Act.)

However, the Commission has not acted nor claimed to have acted in pursuance of such
authority, for the simple reason that suspension under it may only be for ten days. Indeed, this
section, if applicable, precisely argues against the position of the Commission because the
"suspension," if it is, and as applied to Makati Stock Exchange, continues for an indefinite period, if
not forever; whereas this Section 28 authorizes suspension for ten days only. Besides, the
suspension of trading in the security should not be on one exchange only, but on all exchanges;
bearing in mind that suspension should be ordered "for the protection of investors" (first par., sec.
28) in all exchanges, naturally, and if "the public interest so requires" [sec. 28(3)].

This brings up the Commission's principal conclusions underlying its determination viz.: (a) that the
establishment of another exchange in the environs of Manila would be inimical to the public interest;
and (b) that double or multiple listing of securities should be prohibited for the "protection of the
investors."

(a) Public Interest Having already adverted to this aspect of the matter, and the emerging
monopoly of the Manila Stock Exchange, we may, at this juncture, emphasize that by restricting free
competition in the marketing of stocks, and depriving the public of the advantages thereof the
Commission all but permits what the law punishes as monopolies as "crimes against public
interest." 8

"A stock exchange is essentially monopolistic," the Commission states in its resolution (p. 14-a,
Appendix, Brief for Petitioner). This reveals the basic foundation of the Commission's process of
reasoning. And yet, a few pages afterwards, it recalls the benefits to be derived "from the existence
of two or more exchanges," and the desirability of "a healthy and fair competition in the securities
market," even as it expresses the belief that "a fair field of competition among stock exchanges
should be encouraged only to resolve, paradoxically enough, that Manila Stock Exchange shall, in
effect, continue to be the only stock exchange in Manila or in the Philippines.

"Double listing of a security," explains the Commission, "divides the sellers and the buyers, thus
destroying the essence of a stock exchange as a two-way auction market for the securities, where
all the buyers and sellers in one geographical area converge in one defined place, and the bidders
compete with each other to purchase the security at the lowest possible price and those seeking to
sell it compete with each other to get the highest price therefor. In this sense, a stock exchange is
essentially monopolistic."

Inconclusive premises, for sure. For it is debatable whether the buyer of stock may get the lowest
price where all the sellers assemble in only one place. The price there, in one sale, will tend to fix the
price for the succeeding, sales, and he has no chance to get a lower price except at another stock
exchange. Therefore, the arrangement desired by the Commission may, at most, be beneficial to
sellers of stock not to buyers although what applies to buyers should obtain equally as to
sellers (looking for higher prices). Besides, there is the brokerage fee which must be considered. Not
to mention the personality of the broker.

Page 159 of 547

(b) Protection of investors. At any rate, supposing the arrangement contemplated is beneficial to
investors (as the Commission says), it is to be doubted whether it is "necessary" for their "protection"
within the purview of the Securities Act. As the purpose of the Act is to give adequate and effective
protection to the investing public against fraudulent representations, or false promises and the
imposition of worthless ventures, 9 it is hard to see how the proposed concentration of the market has
a necessary bearing to the prevention of deceptive devices or unlawful practices. For it is not mere
semantics to declare that acts for the protection of investors are necessarily beneficial to them; but
not everything beneficial to them is necessary for their protection.

And yet, the Commission realizes that if there were two or more exchanges "the same security may
sell for more in one exchange and sell for less in the other. Variance in price of the same security
would be the rule ... ." Needless to add, the brokerage rates will also differ.

This, precisely, strengthens the objection to the Commission's ruling. Such difference in prices and
rates gives the buyer of shares alternative options, with the opportunity to invest at lower expense;
and the seller, to dispose at higher prices. Consequently, for the investors' benefit (protection is not
the word), quality of listing 10 should be permitted, nay, encouraged, and other exchanges allowed to
operate. The circumstance that some people "made a lot of money due to the difference in prices of
securities traded in the stock exchanges of Manila before the war" as the Commission noted,
furnishes no sufficient reason to let one exchange corner the market. If there was undue
manipulation or unfair advantage in exchange trading the Commission should have other means to
correct the specific abuses.

Granted that, as the Commission observes, "what the country needs is not another" market for
securities already listed on the Manila Stock Exchange, but "one that would focus its attention and
energies on the listing of new securities and thus effectively help in raising capital sorely needed by
our ... unlisted industries and enterprises."

Nonetheless, we discover no legal authority for it to shore up (and stifle) free enterprise and
individual liberty along channels leading to that economic desideratum. 11

The Legislature has specified the conditions under which a stock exchange may legally obtain a
permit (sec. 17, Securities Act); it is not for the Commission to impose others. If the existence of two
competing exchanges jeopardizes public interest which is doubtful let the Congress
speak. 12 Undoubtedly, the opinion and recommendation of the Commission will be given weight by
the Legislature, in judging whether or not to restrict individual enterprise and business opportunities.
But until otherwise directed by law, the operation of exchanges should not be so regulated as
practically to create a monopoly by preventing the establishment of other stock exchanges and
thereby contravening:

(a) the organizers' (Makati's) Constitutional right to equality before the law;

(b) their guaranteed civil liberty to pursue any lawful employment or trade; and

(c) the investor's right to choose where to buy or to sell, and his privilege to select the
brokers in his employment. 13

Page 160 of 547

And no extended elucidation is needed to conclude that for a licensing officer to deny license solely
on the basis of what he believes is best for the economy of the country may amount to regimentation
or, in this instance, the exercise of undelegated legislative powers and discretion.

Thus, it has been held that where the licensing statute does not expressly or impliedly authorize the
officer in charge, he may not refuse to grant a license simply on the ground that a sufficient number
of licenses to serve the needs of the public have already been issued. (53 C.J.S. p. 636.)

Concerning res judicata. Calling attention to the Commission's order of May 27, 1963, which
Makati Stock did not appeal, the Manila Stock Exchange pleads the doctrine of res judicata. 14 (The
order now reviewed is dated May 7, 1964.)

It appears that when Makati Stock Exchange, Inc. presented its articles of incorporation to the
Commission, the latter, after making some inquiries, issued on May 27, 1963, an order reading as
follows.

Let the certificate of incorporation of the MAKATI STOCK EXCHANGE be issued, and if the
organizers thereof are willing to abide by the foregoing conditions, they may file the proper
application for the registration and licensing of the said Exchange.

In that order, the Commission advanced the opinion that "it would permit the establishment and
operation of the proposed Makati Stock Exchange, provided ... it shall not list for trading on its board,
securities already listed in the Manila Stock Exchange ... ."

Admittedly, Makati Stock Exchange, Inc. has not appealed from that order of May 27, 1963. Now,
Manila Stock insists on res judicata.

Why should Makati have appealed? It got the certificate of incorporation which it wanted. The
condition or proviso mentioned would only apply if and when it subsequently filed the application for
registration as stock exchange. It had not yet applied. It was not the time to question the
condition; 15 Makati was still exploring the convenience of soliciting the permit to operate subject to
that condition. And it could have logically thought that, since the condition did not affect its articles of
incorporation, it should not appeal the order (of May 27, 1963) which after all, granted the certificate
of incorporation (corporate existence) it wanted at that time.

And when the Makati Stock Exchange finally found that it could not successfully operate with the
condition attached, it took the issue by the horns, and expressing its desire for registration and
license, it requested that the condition (against double listing) be dispensed with. The order of the
Commission denying, such request is dated May 7, 1964, and is now under, review.

Indeed, there can be no valid objection to the discussion of this issue of double listing
now, 16 because even if the Makati Stock Exchange, Inc. may be held to have accepted the
permission to operate with the condition against double listing (for having failed to appeal the order
of May 27, 1963), still it was not precluded from afterwards contesting 17 the validity of such condition
or rule:

(1) An agreement (which shall not be construed as a waiver of any constitutional right or any right to
contest the validity of any rule or regulation) to comply and to enforce so far as is within its powers,

Page 161 of 547

compliance by its members, with the provisions of this Act, and any amendment thereto, and any
rule or regulation made or to be made thereunder. (See. 17-a-1, Securities Act [Emphasis Ours].)

Surely, this petition for review has suitably been coursed. And making reasonable allowances for the
presumption of regularity and validity of administrative action, we feel constrained to reach the
conclusion that the respondent Commission possesses no power to impose the condition of the rule,
which, additionally, results in discrimination and violation of constitutional rights.

ACCORDINGLY, the license of the petition to operate a stock exchange is approved without such
condition. Costs shall be paid by the Manila Stock Exchange. So ordered.

Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and
Zaldivar, JJ., concur.
Barrera, J., is on leave.

Page 162 of 547

G.R. No. 85439 January 13, 1992

KILUSANG BAYAN SA PAGLILINGKOD NG MGA MAGTITINDA NG BAGONG PAMILIHANG

BAYAN NG MUNTINLUPA, INC. (KBMBPM), TERESITA A. FAJARDO, NADYESDA B.
PONSONES, MA. FE V. BOMBASE, LOIDA D. LUCES, MARIO S. FRANCISCO, AMADO V.
MANUEL and ROLANDO G. GARCIA, incumbent members of the Board, AMADO G. PEREZ
and MA. FE V. BOMBASE, incumbent General Manager and Secretary-Treasurer,
respectively, petitioners,
vs.
HON. CARLOS G. DOMINGUEZ, Secretary of Agriculture, Regional Director of Region IV of
the Department of Agriculture ROGELIO P. MADRIAGA, RECTO CORONADO and Municipal
Mayor IGNACIO R. BUNYE, both in his capacity as Municipal Mayor of Muntinlupa, Metro
Manila and as Presiding Officer of Sangguniang Bayan ng Muntinglupa, and JOHN
DOES, respondents.

G.R. No. 91927 January 13, 1992

IGNACIO R. BUNYE, JAIME R. FRESNEDI, CARLOS G. TENSUAN, VICTOR E. AGUINALDO,

ALEJANDRO I. MARTINEZ, EPIFANIO A. ESPELETA, REY E. BULAY, LUCIO B. CONSTANTINO,
ROMAN E. NIEFES, NEMESIO O. MOZO, ROGER SMITH, RUFINO B. JOAQUIN, NOLASCO I.
DIAZ, RUFINO IBE and NESTOR SANTOS, petitioners,
vs.
THE SANDIGANBAYAN, THE OMBUDSMAN and ROGER C. BERBANO, Special Prosecutor
III, respondents.

Jose O. Villanueva and Roberto B. Romanillos for petitioners in G.R. No. 85439.

Alampay & Manhit Law Offices for petitioners in G.R. No. 91927.

DAVIDE, JR., J.:

These cases have been consolidated because they are closely linked with each other as to factual
antecedents and issues.

Page 163 of 547

The first case, G.R. No. 85439 (hereinafter referred to as the Kilusang Bayan case), questions the
validity of the order of 28 October 1988 of then Secretary of Agriculture Hon. Carlos G. Dominguez
which ordered: (1) the take-over by the Department of Agriculture of the management of the
petitioner Kilusang Bayan sa Paglilingkod Ng Mga Magtitinda ng Bagong Pamilihang Bayan ng
Muntilupa, Inc. (KBMBPM) pursuant to the Department's regulatory and supervisory powers under
Section 8 of P.D. No. 175, as amended, and Section 4 of Executive Order No. 13, (2) the creation of
a Management Committee which shall assume the management of KBMBPM upon receipt of the
order, (3) the disbandment of the Board of Directors, and (4) the turn over of all assets, properties
and records of the KBMBPM the Management Committee.

The second case. G.R. No. 91927 (hereinafter referred to as the Bunye case), seeks the nullification
of the Resolution of 4 January 1990 of the Sandiganbayan admitting the Amended Information
against petitioners in Criminal Case No. 13966 and denying their motion to order or direct
preliminary investigation, and its Resolution of 1 February 1990 denying the motion to reconsider the
former.

The procedural and factual antecedents are not disputed.

On 2 September 1985, the Municipal Government of Muntinlupa (hereinafter, Municipality), Metro

Manila, thru its then Mayor Santiago Carlos, Jr., entered into a contract with the KILUSANG BAYAN
SA PAGLILINGKOD NG MGA MAGTITINDA SA BAGONG PAMILIHANG BAYAN NG MUNTINLUPA,
INC. (KBMBPM) represented by its General Manager, Amado Perez, for the latter's management
and operation of the new Muntinlupa public market. The contract provides for a twenty-five (25) year
term commencing on 2 September 1985, renewable for a like period, unless sooner terminated
and/or rescinded by mutual agreement of the parties, at a monthly consideration of Thirty-Five
Thousand Pesos (P35,000) to be paid by the KBMBPM within the first five (5) days of each month
which shall, however, be increased by ten percent (10%) each year during the first five (5) years
only. 1

The KBMBPM is a service cooperative organized by and composed of vendors occupying the New
Muntinlupa Public Market in Alabang, Muntinlupa, Metro Manila pursuant to Presidential Decree No.
175 and Letter of Implementation No. 23; its articles of incorporation and by-laws were registered
with the then Office of the Bureau of Cooperatives Development (thereafter the Bureau of
Agricultural Cooperatives Development or BACOD and now the Cooperative Development
Authority). 2

Following his assumption into office as the new mayor succeeding Santiago Carlos, Jr., petitioner
Ignacio Bunye, claiming to be particularly scandalized by the "virtual 50-year term of the agreement,
contrary to the provision of Section 143, paragraph 3 of Batas Pambansa Blg. 337," and the
"patently inequitable rental," directed a review of the aforesaid contract. 3 He sought opinions from
both the Commission on Audit and the Metro Manila Commission (MMC) on the validity of the instrument.
In separate letters, these agencies urged that appropriate legal steps be taken towards its rescission. The
letter of Hon. Elfren Cruz of the MMC even granted the Municipality authority "to take the necessary legal
steps for the cancellation/recission of the above cited contract and make representations with KBMBPM
for the immediate transfer/takeover of the possession, management and operation of the New Muntinlupa
Market to the Municipal Government of Muntinlupa." 4

Consequently, upon representations made by Bunye with the Municipal Council, the latter approved
on 1 August 1988 Resolution No. 45 abrogating the contract. To implement this resolution, Bunye,
together with his co-petitioners and elements of the Capital Command of the Philippine

Page 164 of 547

Constabulary, proceeded, on 19 August 1986, to the public market and announced to the general
public and the stallholders thereat that the Municipality was taking over the management and
operation of the facility, and that the stallholders should henceforth pay their market fees to the
Municipality, thru the Market Commission, and no longer to the KBMBPM. 5

On 22 August 1988, the KBMBPM filed with Branch 13 of the Regional Trial Court of Makati a
complaint for breach of contract, specific performance and damages with prayer for a writ of
preliminary injunction against the Municipality and its officers, which was docketed as Civil Case No.
88-1702. 6 The complaint was premised on the alleged illegal take-over of the public market effected "in
excess of his (Bunye's) alleged authority" and thus "constitutes breach of contract and duty as a public
official."

The writ applied for having been denied, 7 the KBMBPM officers resisted the attempts of Bunye and
company to complete the take-over; they continued holding office in the KBS building, under their
respective official capacities. The matter having been elevated to this Court by way of certiorari, 8 We
9
remanded the same to the Court of Appeals which docketed it as C.A.-G.R. No. L-16930.

On 26 August 1988, Amado Perez filed with the Office of the Ombudsman a letter-complaint
charging Bunye and his co-petitioners with oppression, harassment, abuse of authority and violation
of the Anti-Graft and Corrupt Practices Act 10 for taking over the management and operation of the
public market from KBMBPM. 11

In a subpoena dated 7 October 1988, prosecutor Mothalib C. Onos of the Office of the Special
Prosecutor directed Bunye and his co-petitioners to submit within ten (10) days from receipt thereof
counter-affidavits, affidavits of their witnesses and other supporting documents. 12 The subpoena and
letter-complaint were received on 12 October 1988.

On 20 October 1988, two (2) days before the expiration of the period granted to file said documents,
Bunye, et al. filed by mail an urgent motion for extension of "at least fifteen (15) days from October
22, 1988" within which to comply 13 with the subpoena.

Thereafter, the following transpired which subsequently gave rise to these petitions:

G.R. No. 85439

In the early morning of 29 October 1988, a Saturday, respondent Madriaga and Coronado, allegedly
accompanied by Mayor Bunye and the latters' heavily armed men, both in uniform and in civilian
clothes, together with other civilians, namely: Romulo Bunye II, Alfredo Bunye, Tomas Osias,
Reynaldo Camilon, Benjamin Taguibao, Benjamin Bulos and other unidentified persons, allegedly
through force, violence and intimidation, forcibly broke open the doors of the offices of petitioners
located at the second floor of the KBS Building, new Muntinlupa Public Market, purportedly to serve
upon petitioners the Order of respondent Secretary of Agriculture dated 28 October 1988, and to
implement the same, by taking over and assuming the management of KBMBPM, disbanding the
then incumbent Board of Directors for that purpose and excluding and prohibiting the General
Manager and the other officers from exercising their lawful functions as such. 14 The Order of the
Secretary reads as follows: 15

ORDER

Page 165 of 547

WHEREAS, the KILUSANG BAYAN SA PAGLILINGKOD NG MGA MAGTITINDA NG
BAGONG PAMILIHANG BAYAN NG MUNTINLUPA, INC., (KBMBPM), Alabang,
Muntinlupa, Metro Manila is a Cooperative registered under the provisions of
Presidential Decree No. 175, as amended;

WHEREAS, the Department of Agriculture is empowered to regulate and supervise

cooperatives registered under the provisions of Presidential Decree No. 175, as
amended;

WHEREAS, the general membership of the KBMBPM has petitioned the Department
of Agriculture for assistance in the removal of the members of the Board of Directors
who were not elected by the general membership of said cooperative;

WHEREAS, the on-going financial and management audit of the Department of

Agriculture auditors show (sic) that the management of the KBMBPM is not operating
that cooperative in accordance with PD. 175, LOI No. 23, the Circulars issued by
DA/BACOD and the provisions of the by-laws of KBMBPM;

WHEREAS, the interest of the public so demanding it is evident and urgently

necessary that the KBMBPM MUST BE PLACED UNDER MANAGEMENT TAKE-
OVER of the Department of Agriculture in order to preserve the financial interest of
the members of the cooperative and to enhance the cooperative development
program of the government;

WHEREAS, it is ordered that the Department of Agriculture in the exercise of its

regulatory and supervisory powers under Section 8 of PD 175, as amended, and
Section 4 of Executive Order No. 113, take over the management of KBMBPM under
the following directives:

1. THAT a Management Committee is hereby created composed of

the following:

a) Reg. Dir. or OIC RD DA Region IV

b) Atty. Rogelio P. Madriaga BACOD

c) Mr. Recto Coronado KBMBPM

d) Mrs. Nadjasda Ponsones KBMBPM

e) One (1) from the Municipal Government of Muntinlupa to be

designated by the Sangguniang Pambayan ng Muntinlupa;

2. THAT the Management Committee shall, upon receipt of this

Order, assume the management of KBMBPM;

3. THAT the present Board of Directors is hereby disbanded and the

officers and Manager of the KBMBPM are hereby directed to turnover

Page 166 of 547

 all assets, properties and records of the KBMBPM to the
Management Committee herein created;

4. THAT the Management Committee is hereby empowered to

promulgate rules of procedure to govern its workings as a body;

5. THAT the Management Committee shall submit to the undersigned

thru the Director of BACOD monthly reports on the operations of
KBMBPM;

6. THAT the Management Committee shall call a General Assembly

of all registered members of the KBMBPM within Ninety (90) days
from date of this Order to decide such matters affecting the
KBMBPM, including the election of a new set of Board of Director
(sic).

This Order takes effect immediately and shall continue to be in force until the
members of the Board of Directors shall have been duly elected and qualified.

Done this 28th day of October, 1988 at Quezon City.

As claimed by petitioners, the Order served on them was not written on the stationary of the
Department, does not bear its seal and is a mere xerox copy.

The so-called petition upon which the Order is based appears to be an unverified petition dated 10
October 1988 signed, according to Mayor Bunye, 16 by 371 members of the KBMBPM.

On 2 November 1988, petitioners filed the petition in this case alleging, inter alia, that:

(a) Respondent Secretary acted without or in excess of jurisdiction in issuing the

Order for he arrogated unto himself a judicial function by determining the alleged guilt
of petitioners on the strength of a mere unverified petition; the disbandment of the
Board of Directors was done without authority of law since under Letter of
Implementation No. 23, removal of officers, directors or committee members could
be done only by the majority of the members entitled to vote at an annual or special
general assembly and only after an opportunity to be heard at said assembly.

(b) Respondent Secretary acted in a capricious, whimsical, arbitrary and despotic

manner, so patent and gross that it amounted to a grave abuse of discretion.

(c) The Order is a clear violation of the By-Laws of KBMBPM and is likewise illegal
and unlawful for it allows or tolerates the violation of the penal provisions under
paragraph (c), Section 9 of P.D. No. 175.

(d) The Order is a clear violation of the constitutional right of the individual petitioners
to be heard. 17

They pray that upon the filing of the petition, respondents, their agents, representatives or persons
acting on their behalf be ordered to refrain, cease and desist from enforcing and implementing the

Page 167 of 547

questioned Order or from excluding the individual petitioners from the exercise of their rights as such
officers and, in the event that said acts sought to be restrained were already partially or wholly done,
to immediately restore the management and operation of the public market to petitioners, order
respondents to vacate the premises and, thereafter, preserve the status quo; and that, finally, the
challenged Order be declared null and void.

In the Resolution of 9 October 1988, 18 We required the respondents to Comment on the petition. Before
any Comment could be filed, petitioners filed on 2 January 1989 an Urgent Ex-Parte Motion praying that
respondent Atty. Rogelio Madriaga, who had assumed the position of Chairman of the Management
Committee, be ordered to stop and/or cancel the scheduled elections of the officers of the KBMBPM on 6
January 1989 and, henceforth, desist from scheduling any election of officers or Members of the Board of
Directors thereof until further orders on the Court. 19 The elections were, nevertheless, held and a new
board of directors was elected. So, on 19 January 1989, petitioners filed a supplemental motion 20 praying
that respondent Madriaga and the "newly elected Board of Directors be ordered to cease and desist from
assuming, performing or exercising powers as such, and/or from removing or replacing the counsels of
petitioners as counsels for KBMBPM and for Atty. Fernando Aquino, Jr., to cease and desist from unduly
interfering with the affairs and business of the cooperative."

Respondent Bunye, by himself, filed his Comment on 23 January 1989. 21 He denies the factual
allegations in the petition and claims that petitioners failed to exhaust administrative remedies. A reply
thereto was filed by petitioners on 7 February 1989. 22

Respondent Recto Coronado filed two (2) Comments. The first was filed on 6 February 1989 23 by his
counsel, Atty. Fernando Aquino, Jr., and the second, which is for both him and Atty. Madriaga, was filed by
the latter on 10 February 1989.24

On 20 February 1989, petitioners filed a Reply to the first Comment of Coronado 25 and an Ex-
Parte Motion for the immediate issuance of a cease and desist order 26 praying that the so-called new
directors and officers of KBMBPM, namely: Tomas M. Osias, Ildefonso B. Reyes, Paulino Moldez,
Fortunato M. Medina, Aurora P. del Rosario, Moises Abrenica, and Lamberto Casalla, be ordered to
immediately cease and desist from filing notices of withdrawals or motions to dismiss cases filed by the
Cooperative now pending before the courts, administrative offices and the Ombudsman and Tanodbayan,
and that if such motions or notices were already filed, to immediately withdraw and desist from further
pursuing the same until further orders of this Court. The latter was precipitated by the Resolution No. 19
of the "new" board of directors withdrawing all cases filed by its predecessors against Bunye, et al., and
more particularly the following cases: (a) G.R. No. 85439 (the instant petition), (b) Civil Case No. 88-1702,
(c) OSP Case No. 88-2110 before the Ombudsman, (d) IBP Case No. 88-0119 before the Tanodbayan,
and Civil Case No. 88-118 for Mandamus. 27

On 1 March 1989, We required the Solicitor General to file his Comment to the petition and the
urgent motion for the immediate issuance of a cease and desist order. 28

A motion to dismiss the instant petition was filed on 30 March 1989. 29 On 19 April 1989, We resolved
to dismiss the case and consider it closed and terminated. 30 Thereupon, after some petitioners filed a
motion for clarification and reconsideration, We set aside the dismissal order and required the new
directors to comment on the Opposition to Motion to Dismiss filed by the former. 31

The new board, on 14 June 1989, prayed that its Manifestation of 6 June 1989 and Opposition dated
9 June 1989, earlier submitted it response to petitioners' motion for reconsideration of the order
dismissing the instant petition, be treated as its Comment. 32 Both parties then continued their legal
fencing, serving several pleadings on each other.

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In Our Resolution of 9 August 1989, 33 We gave the petition due course and required the parties to
submit their respective Memoranda.

On 14 August 1989, petitioners filed an urgent ex-parte motion for the immediate issuance of a
cease and desist order 34 in view of the new board's plan to enter into a new management contract; the
motion was noted by this Court on 23 August 1989. A second ex-parte motion, noted on 18 October 1989,
was filed on 19 September 1989 asking this court to consider the "Invitation to pre-qualify and bid" for a
new contract published by respondent Bunye. 35

In a belated Comment 36 for the respondent Secretary of Agriculture filed on 22 September 1989, the
Office of the Solicitor General asserts that individual petitioners, who were not allegedly elected by the
members or duly designated by the BACOD Director, have no right or authority to file this case; the
assailed Order of the Secretary was issued pursuant to P.D. No. 175, more particularly Section 8 thereof
which authorizes him "(d) to suspend the operation or cancel the registration of any cooperative after
hearing and when in its judgment and based on findings, such cooperative is operating in violation of this
Decree, rules and regulations, existing laws as well as the by-laws of the cooperative itself;" the Order is
reasonably necessary to correct serious flaws in the cooperative and provide interim measures until
election of regular members to the board and officers thereof; the elections conducted on 6 January 1989
are valid; and that the motion to dismiss filed by the new board of directors binds the cooperative. It prays
for the dismissal of the petition.

Respondent Secretary of Agriculture manifested on 22 September 1989 that he is adopting the

Comment submitted by the Office of the Solicitor General as his memorandum; 37 petitioners and
respondents Coronado and Madriaga filed their separate Memoranda on 6 November 1989; 38 while the
new board of directors submitted its Memorandum on 11 December 1989. 39

The new KBMBPM board submitted additional pleadings on 16 February 1990 which it deemed
relevant to the issues involved herein. Reacting, petitioners filed a motion to strike out improper and
inadmissible pleadings and annexes and sought to have the pleaders cited for contempt. Although
We required respondents to comment, the latter did not comply.

Nevertheless, a manifestation was filed by the same board on 25 February 1991 40 informing this
Court of the holding, on 9 January 1991, of its annual general assembly and election of its board of
directors for 1991. It then reiterates the prayer that the instant petition be considered withdrawn and
dismissed. Petitioners filed a counter manifestation alleging that the instant petition was already given due
course on 9 August 1989. 41 In its traverse to the counter manifestation, the new board insists that it "did
not derive authority from the October 28, 1988 Order, the acts of the Management Committee, nor (sic)
from the elections held in (sic) January 6, 1989," but rather from the members of the cooperative who
elected them into office during the elections.

Petitioners filed a rejoinder asserting that the election of new directors is not a supervening event
independent of the main issue in the present petition and that to subscribe to the argument that the
issues in the instant petition became moot with their assumption into office is to reward a wrong
done.

G. R. NO. 91927

Petitioners claim that without ruling on their 20 October 1988 motion for an extension of at last 15
days from 22 October 1988 within which to file their counter-affidavits, which was received by the
Office of the Special Prosecutor on 3 November 1988, Special Prosecutor Onos promulgated on 11

Page 169 of 547

November 1988 a Resolution finding the evidence on hand sufficient to establish a prima facie case
against respondents (herein petitioners) and recommending the filing of the corresponding
information against them before the Sandiganbayan. 42 Petitioners also claim that they submitted their
counter-affidavits on 9 November 1988. 43

In their motion dated 2 December 1988, petitioners move for a reconsideration of the above
Resolution, 44 which was denied by Onos 45 in his 18 January 1989 Order. The information against the
petitioners was attached to this order.

Upon submission of the records for his approval, the Ombudsman issued a first indorsement on 4
April 1989 referring to "Judge Gualberto J. de la Llana, Acting Director , IEO/RSSO, this Office, the
within records of OSP Case No. 88-02110 . . . for further preliminary investigation . . ." 46

Thereafter, on 28 April 1989, Bunye and company received a subpoena from de la Llana requiring
them to appear before the latter on 25 April 1989, 47 submit a report and file comment. After being
granted an extension, Bunye and company submitted their comment on 18 May 1989. 48

On 22 August 1989, de la Llana recommended the filing of an information for violation of section 3
(e) of the Anti-Graft and Corrupt Practices Act. 49 The case was referred to special prosecuting officer
Jose Parentela, Jr. who, in his Memorandum 50 to the Ombudsman through the Acting Special Prosecutor,
likewise urged that an information be filed against herein petitioners. On 3 October 1989, the
Ombudsman signed his conformity to the Memorandum and approved the 18 January information
prepared by Onos, which was then filed with the Sandiganbayan.

Consequently, Bunye, et al. were served arrest warrants issued by the Sandiganbayan. Detained at
the NBI on 9 October 1989, they claim to have discovered only then the existence of documents
recommending and approving the filing of the complaint and a memorandum by special prosecutor
Bernardita G. Erum proposing the dismissal of the same. 51

Arraignment was set for 18 October 1989. 52

However, on 14 October 1989, petitioners filed with the Sandiganbayan an "Omnibus Motion to
Remand to the Office of the Ombudsman; to Defer Arraignment and to Suspend Proceedings." 53

Subsequently, through new counsel, petitioners filed on 17 October 1989 a Consolidated

Manifestation and Supplemental Motion 54 praying, inter alia, for the quashal of the information on the
ground that they were deprived of their right to a preliminary investigation and that the information did not
charge an offense.

The Sandiganbayan issued an order on 18 October 1989 deferring arraignment and directing the
parties to submit their respective memoranda, 55 which petitioners complied with on 2 November
1989. 56 On 16 November 1989, special Prosecutor Berbano filed a motion to admit amended
information. 57

On 17 November 1989, the Sandiganbayan handed down a Resolution 58 denying for lack of merit the
Omnibus Motion to Remand the Case To The Office of the Ombudsman, to Defer Arraignment and to
Suspend Proceedings. Petitioners then filed a motion to order a preliminary investigation 59 on the basis of
the introduction by the amended information of new, material and substantive allegations, which the
special prosecutor opposed, 60 thereby precipitating a rejoinder filed by petitioners. 61

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On 4 January 1990, the Sandiganbayan handed down a Resolution 62 admitting the Amended
Information and denying the motion to direct preliminary investigation. Their motion to reconsider this
Resolution having been denied in the Resolution of 1 February 1990, 63 petitioners filed the instant petition
on 12 February 1990.

Petitioners claim that respondent Sandiganbayan acted without or in excess of jurisdiction or with
manifest grave abuse of discretion amounting to lack of jurisdiction in denying petitioners their right
to preliminary investigation and in admitting the Amended Information.

They then pray that: (a) the 4 January and 1 February 1990 Resolutions of the Sandiganbayan,
admitting the amended information and denying the motion for reconsideration, respectively, be
annulled; (b) a writ be issued enjoining the Sandiganbayan from proceeding further in Criminal Case
No. 13966; and (c) respondents be enjoined from pursuing further actions in the graft case.

We required the respondents to Comment on the petition.

On 21 February 1990, petitioners' counsel filed a motion to drop Epifanio Espeleta and Rey E. Dulay
as petitioners,64 and in the Comment they filed on 30 March 1990, in compliance with Our Resolution of 1
March 1990, they state that they do not interpose any objection to the motion.

On 20 March 1990, the Office of the Solicitor General moved that it be excused from filing comment
for the respondents as it cannot subscribe to the position taken by the latter with respect to the
questions of law involved.65 We granted this motion in the resolution of 8 May 1990.

Respondent Berbano filed his comment on 10 September 1991 and petitioners replied on 20
December 1990; Berbano subsequently filed a Rejoinder thereto on 11 January 1991. 66 The
Sandiganbayan then filed a manifestation proposing that it be excused from filing comment as its position
on the matters in issue is adequately stated in the resolutions sought to be annulled. 67 On 7 March 1991,
We resolved to note the manifestation and order the instant petition consolidated with G.R. No. 85439.

The present dispute revolves around the validity of the antecedent proceedings which led to the filing
of the original information on 18 January 1989 and the amended information afterwards.

THE ISSUES AND THEIR RESOLUTION

1. G. R. No. 85439.

As adverted to in the introductory portion of this Decision, the principal issue in G.R. No. 85439 is
the validity of the 28 October 1988 Order of respondent Secretary of Agriculture. The exordium of
said Order unerringly indicates that its basis is the alleged petition of the general membership of the
KBMBPM requesting the Department for assistance "in the removal of the members of the Board of
Directors who were not elected by the general membership" of the cooperative and that the "ongoing
financial and management audit of the Department of Agriculture auditors show (sic) that the
management of the KBMBPM is not operating that cooperative in accordance with P.D. 175, LOI 23,
the Circulars issued by DA/BACOD and the provisions and by-laws of KBMBPM." It is also
professed therein that the Order was issued by the Department "in the exercise of its regulatory and
supervisory powers under Section 8 of P.D. 175, as amended, and Section 4 of Executive Order No.
113."

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Respondents challenge the personality of the petitioners to bring this action, set up the defense of
non-exhaustion of administrative remedies, and assert that the Order was lawfully and validly issued
under the above decree and Executive Order.

We find merit in the petition and the defenses interposed do not persuade Us.

Petitioners have the personality to file the instant petition and ask, in effect, for their reinstatement as
Section 3, Rule 65 of the Rules of Court, defining an action for mandamus, permits a person who
has been excluded from the use and enjoyment of a right or office to which he is entitled, to file
suit. 68 Petitioners, as ousted directors of the KBMBPM, are questioning precisely the act of respondent
Secretary in disbanding the board of directors; they then pray that this Court restore them to their prior
stations.

As to failure to exhaust administrative remedies, the rule is well-settled that this requirement does
not apply where the respondent is a department secretary whose acts, as an alter ego of the
President, bear the implied approval of the latter, unless actually disapproved by him. 69 This doctrine
of qualified political agency ensures speedy access to the courts when most needed. There was no need
then to appeal the decision to the office of the President; recourse to the courts could be had immediately.
Moreover, the doctrine of exhaustion of administrative remedies also yields to other exceptions, such as
when the question involved is purely legal, as in the instant case, 70 or where the questioned act is
patently illegal, arbitrary or oppressive. 71 Such is the claim of petitioners which, as hereinafter shown, is
correct.

And now on the validity of the assailed Order.

Regulation 34 of Letter of Implementation No. 23 (implementing P.D. No. 175) provides the
procedure for the removal of directors or officers of cooperatives, thus:

An elected officer, director or committee member may be removed by a vote of

majority of the members entitled to vote at an annual or special general assembly.
The person involved shall have an opportunity to be heard.

A substantially identical provision, found in Section 17, Article III of the KBMBPM's by-laws, reads:

Sec. 17. Removal of Directors and Committee Members. Any elected director or
committee member may be removed from office for cause by a majority vote of the
members in good standing present at the annual or special general assembly called
for the purpose after having been given the opportunity to be heard at the assembly.

Under the same article are found the requirements for the holding of both the annual general
assembly and a special general assembly.

Indubitably then, there is an established procedure for the removal of directors and officers of
cooperatives. It is likewise manifest that the right to due process is respected by the express
provision on the opportunity to be heard. But even without said provision, petitioners cannot be
deprived of that right.

The procedure was not followed in this case. Respondent Secretary of Agriculture arrogated unto
himself the power of the members of the KBMBPM who are authorized to vote to remove the

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petitioning directors and officers. He cannot take refuge under Section 8 of P.D. No. 175 which
grants him authority to supervise and regulate all cooperatives. This section does not give him that
right.

An administrative officer has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof. 72 These powers should not be extended by implication
beyond what may to necessary for their just and reasonable execution. 73

Supervision and control include only the authority to: (a) act directly whenever a specific function is
entrusted by law or regulation to a subordinate; (b) direct the performance of duty; restrain the
commission of acts; (c) review, approve, reverse or modify acts and decisions of subordinate officials
or
units; (d) determine priorities in the execution of plans and programs; and (e) prescribe standards,
guidelines, plans and programs. Specifically, administrative supervision is limited to the authority of
the department or its equivalent to: (1) generally oversee the operations of such agencies and insure
that they are managed effectively, efficiently and economically but without interference with day-to-
day activities; (2) require the submission of reports and cause the conduct of management audit,
performance evaluation and inspection to determine compliance with policies, standards and
guidelines of the department; (3) take such action as may be necessary for the proper performance
of official functions, including rectification of violations, abuses and other forms of mal-administration;
(4) review and pass upon budget proposals of such agencies but may not increase or add to them. 74

The power to summarily disband the board of directors may not be inferred from any of the foregoing
as both P.D. No. 175 and the by-laws of the KBMBPM explicitly mandate the manner by which
directors and officers are to be removed. The Secretary should have known better than to disregard
these procedures and rely on a mere petition by the general membership of the KBMBPM and an
on-going audit by Department of Agriculture auditors in exercising a power which he does not have,
expressly or impliedly. We cannot concede to the proposition of the Office of the Solicitor General
that the Secretary's power under paragraph (d), Section 8 of P.D. No. 175 above quoted to suspend
the operation or cancel the registration of any cooperative includes the "milder authority of
suspending officers and calling for the election of new officers." Firstly, neither suspension nor
cancellation includes the take-over and ouster of incumbent directors and officers, otherwise the law
itself would have expressly so stated. Secondly, even granting that the law intended such as
postulated, there is the requirement of a hearing. None was conducted.

Likewise, even if We grant, for the sake of argument, that said power includes the power to disband
the board of directors and remove the officers of the KBMBPM, and that a hearing was not expressly
required in the law, still the Order can be validly issued only after giving due process to the affected
parties, herein petitioners.

Due process is guaranteed by the Constitution 75 and extends to administrative proceedings. In the
landmark case ofAng Tibay vs. Court of Industrial Relations, 76 this Court, through Justice Laurel, laid
down the cardinal primary requirements of due process in administrative proceedings, foremost of which
is the right to a hearing, which includes the right to present one's case and submit evidence in support
thereof. The need for notice and the opportunity to be heard is the heart of procedural due process, be it
in either judicial or administrative proceedings. 77 Nevertheless, a plea of a denial of procedural due
process does not lie where a defect consisting in an absence of notice of hearing was thereafter cured by
the aggrieved party himself as when he had the opportunity to be heard on a subsequent motion for
reconsideration. This is consistent with the principle that what the law prohibits is not the absence of
previous notice but the absolute absence thereof and lack of an opportunity to be heard. 78

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In the instant case, there was no notice of a hearing on the alleged petition of the general
membership of the KBMBPM; there was, as well, not even a semblance of a hearing. The Order was
based solely on an alleged petition by the general membership of the KBMBPM. There was then a
clear denial of due process. It is most unfortunate that it was done after democracy was restored
through the peaceful people revolt at EDSA and the overwhelming ratification of a new Constitution
thereafter, which preserves for the generations to come the gains of that historic struggle which
earned for this Republic universal admiration.

If there were genuine grievances against petitioners, the affected members should have timely raise
these issues in the annual general assembly or in a special general assembly. Or, if such a remedy
would be futile for some reason or another, judicial recourse was available.

Be that as it may, petitioners cannot, however, be restored to their positions. Their terms expired in
1989, thereby rendering their prayer for reinstatement moot and academic. Pursuant to Section 13 of
the by-laws, during the election at the first annual general assembly after registration, one-half plus
one (4) of the directors obtaining the highest number of votes shall serve for two years, and the
remaining directors (3) for one year; thereafter, all shall be elected for a term of two years. Hence, in
1988, when the board was disbanded, there was a number of directors whose terms would have
expired the next year (1989) and a number whose terms would have expired two years after (1990).
Reversion to the status quo preceding 29 October 1988 would not be feasible in view of this turn of
events. Besides, elections were held in 1990 and 1991. 79 The affairs of the cooperative are presently
being managed by a new board of directors duly elected in accordance with the cooperative's by-laws.

2. G. R. No. 91927.

The right of an accused to a preliminary investigation is not among

the rights guaranteed him in the Bill of Rights. As stated in Marcos, et al. vs. Cruz, 80 "the preliminary
investigation in criminal cases is not a creation of the Constitution; its origin is statutory and it exists and the right thereto can be invoked
when so established and granted by law. It is so specifically granted by procedural law. 81 If not waived, absence thereof may amount to a
denial of due process. 82 However, lack of preliminary investigation is not a ground to quash or dismiss a complaint or information. Much
less does it affect the court's jurisdiction. In People vs. Casiano, 83 this Court ruled:

Independently of the foregoing, the absence of such investigation [preliminary] did

not impair the validity of the information or otherwise render it defective. Much less
did it affect the jurisdiction of the court of first instance over the present case. Hence,
had the defendant-appellee been entitled to another preliminary investigation, and
had his plea of not guilty upon arraignment not implied a waiver of said right, the
court of first instance should have, either conducted such preliminary investigation, or
ordered the Provincial Fiscal to make it, in pursuance of section 1687 of the Revised
Administrative Code (as amended by Republic Act No. 732), or remanded the record
for said investigation to the justice of the peace court, instead of dismissing the case
as it did in the order appealed from.

This doctrine was thereafter reiterated or affirmed in several case. 84

In the instant case, even if it is to be conceded for argument's sake that there was in fact no
preliminary investigation, the Sandiganbayan, per Doromal vs. Sandiganbayan, 85 "should merely suspend
or hold in abeyance proceedings upon the questioned Amended Information and remand the case to the Office of the Ombudsman for him to
conduct a preliminary investigation."

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It is Our view, however, that petitioners were not denied the right to preliminary investigation. They,
nevertheless, insist that the preliminary investigation conducted by the Office of the Special
Prosecutor existed more in form than in substance. This is anchored on the failure by prosecutor
Onos to consider the counter-affidavits filed by petitioners. The same sin of omission is ascribed to
Acting Director de la Llana who purportedly failed to consider the comments submitted by the
petitioners pursuant to a subpoena dated 13 April 1989. The failure of special prosecutor Berbano to
conduct a preliminary investigation before amending the information is also challenged.

It is finally urged that the Sandiganbayan completely disregarded the "glaring anomaly that on its
face the Information filed by the Office of the Special Prosecutor" was prepared and subscribed on
18 January 1989, while the records indicate that the preliminary investigation was concluded on 3
October 1989.

In his Comment, respondent Berbano dispassionately traces the genesis of the criminal information
filed before the Sandiganbayan. His assessment that a preliminary investigation sufficient in
substance and manner was conducted prior to the filing of the information reflects the view of the
Sandiganbayan, maintained in both the 17 November 1989 and 4 January 1990 resolutions, that
there was compliance with the requirements of due process.

Petitioners were provided a reasonable period within which to submit their counter-affidavits; they
did not avail of the original period; they moved for an extension of at least fifteen (15) days from 22
October 1988. Despite the urgency of its nature, the motion was sent by mail. The extension prayed
for was good up to 6 November 1988. But, as admitted by them, they filed the Counter-Affidavits
only on 9 November 1988. Yet, they blamed prosecutor Onos for promulgating the 11 November
1989 Resolution and for, allegedly, not acting on the motion. Petitioners then should not lay the
blame on Onos; they should blame themselves for presuming that the motion would be granted.

This notwithstanding, petitioners were able to file a Motion for Reconsideration on 13 December
1988 requesting that the reviewing prosecutor consider the belatedly filed documents; 86 thus, there is the
recommendation of prosecutor Bernardita Erum calling for the dismissal of the charges on 2 March 1989, which, however, was not sustained
upon subsequent review. The Sandiganbayan, in its 17 November 1989 Resolution, succinctly summed up the matter when it asserted that
"even granting, for the sake of argument, that prosecutor Onos . . . failed to consider accused-movants' counter-affidavits, such defect was
cured when a "Motion for Reconsideration" was filed, and
which . . . de la Llana took into account upon review."

It may not then be successfully asserted that the counter-affidavits were not considered by the
Ombudsman in approving the information. Perusal of the factual antecedents reveals that a second
investigation was conducted upon the "1st Indorsement" of the Ombudsman of 4 April 1989. As a
result, subpoenas were issued and comments were asked to be submitted, which petitioners did, but
only after a further extension of fifteen (15) days from the expiration of the original deadline. From
this submission the matter underwent further review.

Moreover, in the 18 January 1989 Order of prosecutor Onos, there was an ample discussion of the
defenses raised by the petitioners in their counter-affidavits, thus negating the charge that the issues
raised by them were not considered at all. 87

It is indisputable that the respondents were not remiss in their duty to afford the petitioners the
opportunity to contest the charges thrown their way. Due process does not require that the accused
actually file his counter-affidavits before the preliminary investigation is deemed completed. All that is
required is that he be given the opportunity to submit such if he is so minded. 88

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In any event, petitioners did in fact, although belatedly, submit their counter-affidavits and as a result
thereof, the prosecutors concerned considered them in subsequent reviews of the information,
particularly in the re-investigation ordered by the Ombudsman.

And now, as to the protestation of lack of preliminary investigation prior to the filing of the Amended
Information. The prosecution may amend the information without leave of court before
arraignment, 89 and such does not prejudice the accused.90 Reliance on the pronouncements in Doromal
vs. Sandiganbayan 91 is misplaced as what obtained therein was the preparation of an entirely new
information as contrasted with mere amendments introduced in the amended information, which also
charges petitioners with violating Section 3 (e) of the Anti-Graft Law.

In Gaspar vs. Sandiganbayan, 92 We held that there is no rule or law requiring the Tanodbayan to
conduct another preliminary investigation of a case under review by it. On the contrary, under P.D. No.
911, in relation to Rule 12, Administrative Order No. VII, the Tanodbayan may, upon review, reverse the
findings of the investigator and thereafter "where he finds a prima facie case, to cause the filing of an
information in court against the respondent, based on the same sworn statements or evidence submitted,
without the necessity of conducting another preliminary investigation."

Respondent Sandiganbayan did not then commit any grave abuse of discretion in respect to its
Resolutions of 4 January 1990 and 1 February 1990.

The petition then must fail.

CONCLUSION

WHEREFORE, judgment is hereby rendered:

1. GRANTING the petition in G.R. No. 85439; declaring null and void the challenged Order of 28
October 1988 of the respondent Secretary of Agriculture; but denying, for having become moot and
academic, the prayer of petitioners that they be restored to their positions in the KBMBPM.

2. DISMISSING, for lack of merit, the petition in G.R. No. 91927.

No pronouncement as to costs.

IT IS SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Feliciano, Padilla, Bidin, Grio-Aquino, Medialdea,
Regalado and Romero, JJ., concur.

Gutierrez, Jr. and Nocon, JJ., took no part.

[G.R. No. 144463. January 14, 2004]

SENATOR ROBERT S. JAWORSKI, petitioner, vs. PHILIPPINE

AMUSEMENT AND GAMING CORPORATION and SPORTS AND
GAMES ENTERTAINMENT CORPORATION, respondents.

Page 176 of 547

 DECISION
YNARES-SANTIAGO, J.:

The instant petition for certiorari and prohibition under Rule 65 of the
Rules of Court seeks to nullify the Grant of Authority and Agreement for the
Operation of Sports Betting and Internet Gaming, executed by respondent
Philippine Amusement and Gaming Corporation (hereinafter referred to as
PAGCOR) in favor of respondent Sports and Games and Entertainment
Corporation (also referred to as SAGE).

The facts may be summarized as follows:

PAGCOR is a government owned and controlled corporation existing

under Presidential Decree No. 1869 issued on July 11, 1983 by then
President Ferdinand Marcos.Pertinent provisions of said enabling law read:

SECTION 1. Declaration of Policy. It is hereby declared to be the policy of the State

to centralize and integrate all games of chance not heretofore authorized by existing
franchises or permitted by law in order to attain the following objectives:

xxxxxxxxx

b) To establish and operate clubs and casinos, for amusement and recreation,
including sports, gaming pools (basketball, football, lotteries, etc.) and such other
forms of amusement and recreation including games of chance, which may be allowed
by law within the territorial jurisdiction of the Philippines and which will: x x x (3)
minimize, if not totally eradicate, the evils, malpractices and corruptions that are
normally prevalent in the conduct and operation of gambling clubs and casinos
without direct government involvement.

xxxxxxxxx

TITLE IV GRANT OF FRANCHISE

Sec.10. Nature and term of franchise. Subject to the terms and conditions established
in this Decree, the Corporation is hereby granted for a period of twenty-five (25)
years, renewable for another twenty-five (25) years, the rights, privileges and
authority to operate and maintain gambling casinos, clubs, and other recreation or
amusement places, sports, gaming pools, i.e. basketball, football, lotteries, etc.

Page 177 of 547

whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines.

On March 31, 1998, PAGCORs board of directors approved an instrument

denominated as Grant of Authority and Agreement for the Operation of Sports
Betting and Internet Gaming, which granted SAGE the authority to operate
and maintain Sports Betting station in PAGCORs casino locations, and
Internet Gaming facilities to service local and international bettors, provided
that to the satisfaction of PAGCOR, appropriate safeguards and procedures
are established to ensure the integrity and fairness of the games.

On September 1, 1998, PAGCOR, represented by its Chairperson, Alicia

Ll. Reyes, and SAGE, represented by its Chairman of the Board, Henry Sy,
Jr., and its President, Antonio D. Lacdao, executed the above-named
document.

Pursuant to the authority granted by PAGCOR, SAGE commenced its

operations by conducting gambling on the Internet on a trial-run basis, making
pre-paid cards and redemption of winnings available at various Bingo
Bonanza outlets.

Petitioner, in his capacity as member of the Senate and Chairman of the

Senate Committee on Games, Amusement and Sports, files the instant
petition, praying that the grant of authority by PAGCOR in favor of SAGE be
nullified. He maintains that PAGCOR committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it authorized SAGE to
operate gambling on the internet. He contends that PAGCOR is not
authorized under its legislative franchise, P.D. 1869, to operate gambling on
the internet for the simple reason that the said decree could not have possibly
contemplated internet gambling since at the time of its enactment on July 11,
1983 the internet was yet inexistent and gambling activities were confined
exclusively to real-space. Further, he argues that the internet, being an
international network of computers, necessarily transcends the territorial
jurisdiction of the Philippines, and the grant to SAGE of authority to operate
internet gambling contravenes the limitation in PAGCORs franchise, under
Section 14 of P.D. No. 1869 which provides:

Page 178 of 547

Place. The Corporation [i.e., PAGCOR] shall conduct gambling activities or games of
chance on land or water within the territorial jurisdiction of the Republic of the
Philippines. x x x

Moreover, according to petitioner, internet gambling does not fall under

any of the categories of the authorized gambling activities enumerated under
Section 10 of P.D. No. 1869 which grants PAGCOR the right, privilege and
authority to operate and maintain gambling casinos, clubs, and other
recreation or amusement places, sports gaming pools, within the territorial
jurisdiction of the Republic of the Philippines. He contends that internet
[1]

gambling could not have been included within the commonly accepted
definition of gambling casinos, clubs or other recreation or amusement places
as these terms refer to a physical structure in real-space where people who
intend to bet or gamble go and play games of chance authorized by law.

The issues raised by petitioner are as follows:

I. WHETHER OR NOT RESPONDENT PAGCOR IS AUTHORIZED UNDER P.D. NO.

1869 TO OPERATE GAMBLING ACTIVITIES ON THE INTERNET;

II. WHETHER RESPONDENT PAGCOR ACTED WITHOUT OR IN EXCESS OF ITS

JURISDICTION, OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION, WHEN IT AUTHORIZED RESPONDENT SAGE TO
OPERATE INTERNET GAMBLING ON THE BASIS OF ITS RIGHT TO OPERATE
AND MAINTAIN GAMBLING CASINOS, CLUBS AND OTHER AMUSEMENT
PLACES UNDER SECTION 10 OF P.D. 1869;

III. WHETHER RESPONDENT PAGCOR ACTED WITHOUT OR IN EXCESS OF ITS

JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT GRANTED AUTHORITY TO
SAGE TO OPERATE GAMBLING ACTIVITIES IN THE INTERNET.

The above-mentioned issues may be summarized into a single pivotal

question: Does PAGCORs legislative franchise include the right to vest
another entity, SAGE in this case, with the authority to operate Internet
gambling? Otherwise put, does Presidential Decree No. 1869 authorize
PAGCOR to contract any part of its franchise to SAGE by authorizing the latter
to operate Internet gambling?

Before proceeding with our main discussion, let us first try to hurdle a
number of important procedural matters raised by the respondents.

Page 179 of 547

 In their separate Comments, respondents PAGCOR and SAGE insist that
petitioner has no legal standing to file the instant petition as a concerned
citizen or as a member of the Philippine Senate on the ground that he is not a
real party-in-interest entitled to the avails of the suit. In this light, they argue
that petitioner does not have the requisite personal and substantial interest to
impugn the validity of PAGCORs grant of authority to SAGE.

Objections to the legal standing of a member of the Senate or House of

Representative to maintain a suit and assail the constitutionality or validity of
laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities are not without precedent. Ordinarily, before a member of
Congress may properly challenge the validity of an official act of any
department of the government there must be an unmistakable showing that
the challenged official act affects or impairs his rights and prerogatives as
legislator. However in a number of cases, we clarified that where a case
[2] [3]

involves an issue of utmost importance, or one of overreaching significance to

society, the Court, in its discretion, can brush aside procedural technicalities
and take cognizance of the petition. Considering that the instant petition
involves legal questions that may have serious implications on public
interests, we rule that petitioner has the requisite legal standing to file this
petition.

Respondents likewise urge the dismissal of the petition for certiorari and
prohibition because under Section 1, Rule 65 of the 1997 Rules of Civil
Procedure, these remedies should be directed to any tribunal, board, officer or
person whether exercising judicial, quasi-judicial, or ministerial functions. They
maintain that in exercising its legally-mandated franchise to grant authority to
certain entities to operate a gambling or gaming activity, PAGCOR is not
performing a judicial or quasi-judicial act. Neither should the act of granting
licenses or authority to operate be construed as a purely ministerial
act. According to them, in the event that this Court takes cognizance of the
instant petition, the same should be dismissed for failure of petitioner to
observe the hierarchy of courts.

Practically the same procedural infirmities were raised in Del Mar v.

Philippine Amusement and Gaming Corporation where an almost identical
factual setting obtained. Petitioners therein filed a petition for injunction
directly before the Court which sought to enjoin respondent from operating the
jai-alai games by itself or in joint venture with another corporate entity

Page 180 of 547

allegedly in violation of law and the Constitution. Respondents contended that
the Court had no jurisdiction to take original cognizance of a petition for
injunction because it was not one of the actions specifically mentioned in
Section 1 of Rule 56 of the 1997 Rules of Civil Procedure. Respondents
likewise took exception to the alleged failure of petitioners to observe the
doctrine on hierarchy of courts. In brushing aside the apparent procedural
lapse, we held that x x x this Court has the discretionary power to take
cognizance of the petition at bar if compelling reasons, or the nature and
importance of the issues raised, warrant the immediate exercise of its
jurisdiction.
[4]

In the case at bar, we are not inclined to rule differently. The petition at bar
seeks to nullify, via a petition for certiorari and prohibition filed directly before
this Court, the Grant of Authority and Agreement for the Operation of Sports
Betting and Internet Gaming by virtue of which SAGE was vested by
PAGCOR with the authority to operate on-line Internet gambling. It is well
settled that averments in the complaint, and not the nomenclature given by
the parties, determine the nature of the action. Although the petition alleges
[5]

grave abuse of discretion on the part of respondent PAGCOR, what it primarily

seeks to accomplish is to prevent the enforcement of the Grant of Authority
and Agreement for the Operation of Sports Betting and Internet Gaming.
Thus, the action may properly be characterized as one for Prohibition under
Section 2 of Rule 65, which incidentally, is another remedy resorted to by
petitioner.

Granting arguendo that the present action cannot be properly treated as a

petition for prohibition, the transcendental importance of the issues involved in
this case warrants that we set aside the technical defects and take primary
jurisdiction over the petition at bar. One cannot deny that the issues raised
herein have potentially pervasive influence on the social and moral well being
of this nation, specially the youth; hence, their proper and just determination is
an imperative need. This is in accordance with the well-entrenched principle
that rules of procedure are not inflexible tools designed to hinder or delay, but
to facilitate and promote the administration of justice. Their strict and rigid
application, which would result in technicalities that tend to frustrate, rather
than promote substantial justice, must always be eschewed. [6]

Having disposed of these procedural issues, we now come to the

substance of the action.

Page 181 of 547

 A legislative franchise is a special privilege granted by the state to
corporations. It is a privilege of public concern which cannot be exercised at
will and pleasure, but should be reserved for public control and administration,
either by the government directly, or by public agents, under such conditions
and regulations as the government may impose on them in the interest of the
public. It is Congress that prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of granting the franchise, to whom it
may be granted, the mode of conducting the business, the charter and the
quality of the service to be rendered and the duty of the grantee to the public
in exercising the franchise are almost always defined in clear and unequivocal
language. [7]

After a circumspect consideration of the foregoing discussion and the

contending positions of the parties, we hold that PAGCOR has acted beyond
the limits of its authority when it passed on or shared its franchise to SAGE.

In the Del Mar case where a similar issue was raised when PAGCOR
entered into a joint venture agreement with two other entities in the operation
and management of jai alai games, the Court, in an En Banc Resolution
[8]

dated 24 August 2001, partially granted the motions for clarification filed by
respondents therein insofar as it prayed that PAGCOR has a valid franchise,
but only by itself (i.e. not in association with any other person or entity), to
operate, maintain and/or manage the game of jai-alai.

In the case at bar, PAGCOR executed an agreement with SAGE whereby

the former grants the latter the authority to operate and maintain sports betting
stations and Internet gaming operations. In essence, the grant of authority
gives SAGE the privilege to actively participate, partake and share PAGCORs
franchise to operate a gambling activity. The grant of franchise is a special
privilege that constitutes a right and a duty to be performed by the grantee.
The grantee must not perform its activities arbitrarily and whimsically but must
abide by the limits set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is presumed to exist
for the common good. Hence, the special privileges and franchises it receives
are subject to the laws of the State and the limitations of its charter. There is
therefore a reserved right of the State to inquire how these privileges had
been employed, and whether they have been abused. [9]

Page 182 of 547

 While PAGCOR is allowed under its charter to enter into operators and/or
management contracts, it is not allowed under the same charter to relinquish
or share its franchise, much less grant a veritable franchise to another entity
such as SAGE. PAGCOR can not delegate its power in view of the legal
principle of delegata potestas delegare non potest, inasmuch as there is
nothing in the charter to show that it has been expressly authorized to do so.
In Lim v. Pacquing, the Court clarified that since ADC has no franchise from
[10]

Congress to operate the jai-alai, it may not so operate even if it has a license
or permit from the City Mayor to operate the jai-alai in the City of Manila. By
the same token, SAGE has to obtain a separate legislative franchise and not
ride on PAGCORs franchise if it were to legally operate on-line Internet
gambling.

WHEREFORE, in view of all the foregoing, the instant petition is

GRANTED. The Grant of Authority and Agreement to Operate Sports Betting
and Internet Gaming executed by PAGCOR in favor of SAGE is declared
NULL and VOID.

SO ORDERED.

Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Sandoval-

Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr.,
Azcuna, and Tinga, JJ.,concur.

G.R. No. L-68729 May 29, 1987

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,

vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED,respondents.

GUTIERREZ, JR, J.:

This petition seeks the reversal of the decision of the National Telecommunications Commission
(NTC) which ordered petitioner Radio Communications of the Philippines, Incorporated (RCPI) to

Page 183 of 547

desist from operating its radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon.

Petitioner has been operating a radio communications system since 1957 under its legislative
franchise granted by Republic Act No. 2036 which was enacted on June 23, 1957.

In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971, another
radio telegraph service was put up in San Jose, Mindoro followed by another in Catarman, Samar in
1976. The installation of radio telephone services started in 1971 in San Jose, Mindoro; then in
Sorsogon, Sorsogon and Catarman, Samar in 1983.

In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio
Network Incorporated was authorized by the public respondent to operate radio communications
systems in Catarman, Samar and in San Jose, Mindoro.

On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the
petitioner was operating in Catarman, Samar and in San Jose, Mindoro without a certificate of public
covenience and necessity. The petitioner, on the other hand, counter-alleged that its telephone
services in the places subject of the complaint are covered by the legislative franchise recognized by
both the public respondent and its predecessor, the Public Service Commission. In its supplemental
reply, the petitioner further stated that it has been in operation in the questioned places long before
private respondent Kayumanggi filed its application to operate in the same places.

After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to
immediately cease or desist from the operation of its radio telephone services in Catarman Northern
Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating that under Executive Order
No. 546, a certificate of public convenience and necessity is mandatory for the operation of
communication utilities and services including radio communications.

On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an order
dated September 12, 1984.

On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner
RCPI, a grantee of a legislative franchise to operate a radio company, is required to secure a
certificate of public convenience and necessity before it can validly operate its radio stations
including radio telephone services in Catarman, Northern Samar; San Jose, Occidental Mindoro;
and Sorsogon, Sorsogon.

The petitioner's main argument states that the abolition of the Public Service Commission under
Presidential Decree No. 1 and the creation of the National Telecommunications Commission under
Executive Order No. 546 to replace the defunct Public Service Commission did not affect sections 14
and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).

The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:

Section 13. (a) the Commission shall have jurisdiction, supervision, and control over
all public services and their franchises, equipment and other properties, and in the
exercise of its authority, it shall have the necessary powers and the aid of public
force: ...

Page 184 of 547

 Section 14. The following are exempted from the provisions of the preceding section:

xxx xxx xxx

(d) Radio companies except with respect to the fixing of rates;

xxx xxx xxx

Section 15. With the exception of those enumerated in the preceding section, no
public service shall operate in the Philippines without possessing a valid and
subsisting certificate from the Public Service Commission, known as "certificate of
public convenience," or "certificate of convenience and public necessity," as the case
may be, to the effect that the operation of said service and the authorization to do
business will promote the public interests in a proper and suitable manner. ...

We find no merit in the petitioner's contention.

Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive branch
of the National Government, the Public Service Commission was abolished and its functions were
transferred to three specialized regulatory boards, as follows: the Board of Transportation, the Board
of Communications and the Board of Power and Waterworks. The functions so transferred were still
subject to the limitations provided in sections 14 and 15 of the Public Service Law, as amended.
With the enactment of Executive Order No. 546 on July 23, 1979 implementing P.D. No.1, the Board
of Communications and the Telecommunications Control Bureau were abolished and their functions
were transferred to the National Telecommunications Commission (Sec. 19(d), Executive Order No.
546). Section 15 of said Executive Order spells out the functions of the National Telecommunications
Commission as follows:

Sec. 15. Functions of the Commission.-The Commission shall exercise the following
functions:

a. Issue Certificate of Public Convenience for the operation of communications

utilities and services, radio communications petitions systems, wire or wireless
telephone or telegraph system, radio and television broadcasting system and other
similar public utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of

public service communications; and determine and prescribe charges or rates
pertinent to the operation of such public utility facilities and services except in cases
where charges or rates are established by international bodies or associations of
which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and
radio and television broadcasting systems;

d. Sub-allocate series of frequencies of bands allocated by the International

Telecommunications Union to the specific services;

Page 185 of 547

 e. Establish and prescribe rules, regulations, standards, specifications in all cases
related to the issued Certificate of Public Convenience and administer and enforce
the same;

f. Coordinate and cooperate with government agencies and other entities concerned
with any aspect involving communications with a view to continuously improve the
communications service in the country;

g. Promulgate such rules and regulations, as public safety and interest may require,
to encourage a larger and more effective use of communications, radio and television
broadcasting facilities, and to maintain effective competition among private entities in
these activities whenever the Commission finds it reasonably feasible;

h. Supervise and inspect the operation of radio stations and telecommunications

facilities;

i. Undertake the examination and licensing of radio operators;

j. Undertake, whenever necessary, the registration of radio transmitters and

transceivers; and

k. Perform such other functions as may be prescribed by law.

It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the
jurisdiction of the Public Service Commission and the Board of Communications no longer exists
because of the changes effected by the Reorganization Law and implementing executive orders.
The petitioner's claim that its franchise cannot be affected by Executive Order No. 546 on the ground
that it has long been in operation since 1957 cannot be sustained.

A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the
hands of a subject." This definition was given by Finch, adopted by Blackstone, and accepted by
every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a
franchise, being merely a privilege emanating from the sovereign power of the state and owing its
existence to a grant, is subject to regulation by the state itself by virtue of its police power through its
administrative agencies. We ruled in Pangasinan transportation Co., Inc. v. Public Service
Commission (70 Phil. 221) that:

... statutes enacted for the regulation of public utilities, being a proper exercise by the
State of its police power, are applicable not only to those public utilities coming into
existence after its passage, but likewise to those already established and in
operation ...

Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the
Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be bound by
its provisions. The petitioner cannot install and operate radio telephone services on the basis of its
legislative franchise alone.

Page 186 of 547

The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can operate
a radio communications system anywhere within the Philippines is erroneous. Section 1 of said
statute reads:

Section 1. Subject to the provisions of the Constitution, and to the provisions, not
inconsistent herewith, of Act Numbered Three thousand eight hundred and forty-six,
entitled.' An Act providing for the regulation of radio stations and radio
communications in the Philippine Islands, and for other purposes;' Commonwealth
Act Numbered One hundred forty-six, known as the Public Service Act, and their
amendments, and other applicable laws, there is hereby granted to the Radio
Communications of the Philippines, its successors or assigns, the right and privilege
of constructing, installing, establishing and operating in the Philippines, at such
places as the said corporation may select and the Secretary of Public Works and
Communications may approve, radio stations for the reception and transmission of
wireless messages on radiotelegraphy and/or radiotelephone, including both coastal
and marine telecommunications, each station to consist of two radio apparatus
comprising of a receiving and sending radio apparatus. (Emphasis supplied).

Section 4(a) of the same Act further provides that:

Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be
exercised by the grantee until the Secretary of Public works and Communications
shall have allotted to the grantee the frequencies and wave lengths to be used, and
issued to the grantee a license for such case. (Emphasis supplied)

Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in areas where
it desires to operate. It has been repeated time and again that where the statutory norm speaks
unequivocally, there is nothing for the courts to do except to apply it. The law, leaving no doubt as to
the scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA 381).

The records of the case do not show any grant of authority from the then Secretary of Public Works
and Communications before the petitioner installed the questioned radio telephone services in San
Jose, Mindoro in 1971. The same is true as regards the radio telephone services opened in
Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public convenience and
necessity appears to have been secured by the petitioner from the public respondent when such
certificate,was required by the applicable public utility regulations (See executive Order No. 546,
sec. 15, supra.; Philippine Long Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo
Electric Light and Power Corp. v. National Power Corporation, et al., G.R. No. L-24912, promulgated
April 9, 1987.)

It was well within the powers of the public respondent to authorize the installation by the private
respondent network of radio communications systems in Catarman, Samar and San Jose, Mindoro.
Under the circumstances of this case, the mere fact that the petitioner possesses a franchise to put
up and operate a radio communications system in certain areas is not an insuperable obstacle to the
public respondent's issuing the proper certificate to an applicant desiring to extend the same
services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature
nor can a franchise be granted except that it must be subject to amendment, alteration, or even
repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of the 1986

Page 187 of 547

Constitution). There is an express provision in the petitioner's franchise which provides compliance
with the above mandate R.A. 2036, sec. 15).

In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and
conclusions of law insofar as the private respondent was authorized to operate in Catarman, Samar
and San Jose, Mindoro. As a rule, the Commission's findings of fact, if supported by substantial
evidence, are conclusive upon this Court. We may modify or ignore them only when it clearly
appears that there is no evidence to support reasonably such a conclusion. (Halili v. Daplas, 14
SCRA 14). The petitioner has not shown why the private respondent should be denied the authority
to operate its services in Samar and Mindoro. It has not overcome the presumption that when the
public respondent disturbed the petitioner's monopoly in certain areas, it was doing so pursuant to
public interest and the common good.

WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
AFFIRMED. The petition is dismissed for lack of merit.

SO ORDERED.

Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.

THIRD DIVISION

Page 188 of 547

G.R. No. L-45839 June 1, 1988

RUFINO MATIENZO, GODOFREDO ESPIRITU, DIOSCORRO FRANCO, AND LA SUERTE

TRANSPORTATION CORPORATION, petitioners,
vs.
HON. LEOPOLDO M. ABELLERA, ACTING CHAIRMAN OF THE BOARD OF
TRANSPORTATION, HON. GODOFREDO Q. ASUNCION, MEMBER OF THE BOARD OF
TRANSPORTATION, ARTURO DELA CRUZ, MS TRANSPORTATION CO., INC., NEW FAMILIA
TRANSPORTATION CO., ROBERTO MOJARES, ET AL.,respondents.

GUTIERREZ, JR., J.:

This is a petition for certiorari and prohibition, with application for preliminary injunction, seeking the
annulment and inhibition of the grant or award of provisional permits or special authority by the
respondent Board of Transportation (BOT) to respondent taxicab operators, for the operation and
legalization of "excess taxicab units" under certain provisions of Presidential Decree No. 101
"despite the lapse of the power to do so thereunder," and "in violation of other provisions of the
Decree, Letter of Instructions No. 379 and other relevant rules of the BOT."

The petitioners and private respondents are all authorized taxicab operators in Metro Manila. The
respondents, however, admittedly operate "colorum" or "kabit" taxicab units. On or about the second
week of February, 1977, private respondents filed their petitions with the respondent Board for the
legalization of their unauthorized "excess" taxicab units citing Presidential Decree No. 101,
promulgated on January 17, 1973, "to eradicate the harmful and unlawful trade of clandestine
operators, by replacing or allowing them to become legitimate and responsible operators." Within a
matter of days, the respondent Board promulgated its orders setting the applications for hearing and
granting applicants provisional authority to operate their "excess taxicab units" for which legalization
was sought. Thus, the present petition.

Opposing the applications and seeking to restrain the grant of provisional permits or authority, as
well as the annulment of permits already granted under PD 101, the petitioners allege that the BOT
acted without jurisdiction in taking cognizance of the petitions for legalization and awarding special
permits to the private respondents.

Presidential Decree No. 101 vested in the Board of Transportation the power, among others "To
grant special permits of limited term for the operation of public utility motor vehicles as may, in the
judgment of the Board, be necessary to replace or convert clandestine operators into legitimate and
responsible operators." (Section 1, PD 101)

Citing, however, Section 4 of the Decree which provides:

SEC. 4. Transitory Provision. Six months after the promulgation of this Decree, the
Board of Transportation, the Bureau of Transportation, The Philippine Constabulary,
the city and municipal forces, and the provincial and city fiscals shall wage a
concerted and relentless drive towards the total elimination and punishment of all
clandestine and unlawful operators of public utility motor vehicles."

Page 189 of 547

the petitioners argue that neither the Board of Transportation chairman nor any member thereof had
the power, at the time the petitions were filed (i.e. in 1977), to legitimize clandestine operations
under PD 101 as such power had been limited to a period of six (6) months from and after the
promulgation of the Decree on January 17, 1973. They state that, thereafter, the power lapses and
becomes functus officio.

To reinforce their stand, the petitioners refer to certain provisions of the Rules and Regulations
implementing PD 101 issued by respondent Board, Letter of Instructions No. 379, and BOT
Memorandum Circular No. 76-25 (a). In summary, these rules provide inter alia that (1) only
applications for special permits for "colorum" or "kabit" operators filed before July 17, 1973 shall be
accepted and processed (Secs. 3 and 16 (c), BOT-LTC-HPG Joint Regulations Implementing PD
101, pp. 33 and 47, Rollo); (2) Every provisional authority given to any taxi operator shall be
cancelled immediately and no provisional authority shall thereafter be issued (par. 6, Letter of
Instructions No. 379, issued March 10, 1976, p. 58, Rollo); (3) Effective immediately, no provisional
authorities on applications for certificates of public convenience shall be granted or existing
provisional authorities on new applications extended to, among others, taxi denominations in Metro
Manila (BOT Memorandum Circular No. 75-25 (a), August 30, 1976, p. 64, Rollo); (4) All taxis
authorized to operate within Metro Manila shall obtain new special permits from the BOT, which
permits shall be the only ones recognized within the area (par. 8, LOI No. 379, supra); and (5) No
bonafide applicant may apply for special permit to operate, among others, new taxicab services,
and, no application for such new service shall be accepted for filing or processed by any LTC agency
or granted under these regulations by any LTC Regional Office until after it shall have announced its
program of development for these types of public motor vehicles (Sec. 16d, BOT-LTC-HPG Joint
Regulations, p. 47, Rollo).

The petitioners raise the following issues:

I. WHETHER OR NOT THE BOARD OF TRANSPORTATION HAS THE POWER TO

GRANT PROVISIONAL PERMITS TO OPERATE DESPITE THE BAN THEREON
UNDER LETTER OF INSTRUCTIONS NO. 379;

II. WHETHER OR NOT THE BOARD OF TRANSPORTATION HAS THE POWER TO

LEGALIZE, AT THIS TIME, CLANDESTINE AND UNLAWFUL TAXICAB
OPERATIONS UNDER SECTION 1, P.D. 101; AND

III. WHETHER OR NOT THE PROCEDURE BEING FOLLOWED BY THE BOARD

IN THE CASES IN QUESTION SATISFIES THE PROCEDURAL DUE PROCESS
REQUIREMENTS. (p. 119, Rollo)

We need not pass upon the first issue raised anent the grant of provisional authority to respondents.
Considering that the effectivity of the provisional permits issued to the respondents was expressly
limited to June 30, 1977, as evidenced by the BOT orders granting the same (Annexes G, H, I and J
among others) and Memorandum Circular No. 77-4 dated January 20, 1977 (p. 151, Rollo),
implementing paragraph 6 of LOI 379 (ordering immediate cancellation of all provisional authorities
issued to taxicab operators, supra), which provides:

5. After June 30, 1977, all provisional authorities are deemed cancelled, even if
hearings on the main application have not been terminated.

Page 190 of 547

the issue is MOOT and ACADEMIC. Only the issue on legalization remains under consideration.

Justifying its action on private respondent's applications, the respondent Board emphasizes public
need as the overriding concern. It is argued that under PD 101, it is the fixed policy of the State "to
eradicate the harmful and unlawful trade of clandestine operators by replacing or allowing them to
become legitimate and responsible ones" (Whereas clause, PD 101). In view thereof, it is maintained
that respondent Board may continue to grant to "colorum" operators the benefits of legalization
under PD 101, despite the lapse of its power, after six (6) months, to do so, without taking punitive
measures against the said operators.

Indeed, a reading of Section 1, PD 101, shows a grant of powers to the respondent Board to issue
provisional permits as a step towards the legalization of colorum taxicab operations without the
alleged time limitation. There is nothing in Section 4, cited by the petitioners, to suggest the
expiration of such powers six (6) months after promulgation of the Decree. Rather, it merely provides
for the withdrawal of the State's waiver of its right to punish said colorum operators for their illegal
acts. In other words, the cited section declares when the period of moratorium suspending the
relentless drive to eliminate illegal operators shall end. Clearly, there is no impediment to the Board's
exercise of jurisdiction under its broad powers under the Public Service Act to issue certificates of
public convenience to achieve the avowed purpose of PD 101 (Sec. 16a, Public Service Act, Nov. 7,
1936).

It is a settled principle of law that in determining whether a board or commission has a certain power,
the authority given should be liberally construed in the light of the purposes for which it was created,
and that which is incidentally necessary to a full implementation of the legislative intent should be
upheld as being germane to the law. Necessarily, too, where the end is required, the appropriate
means are deemed given (Martin, Administrative Law, 1979, p. 46). Thus, as averred by the
respondents:

... [A]ll things considered, the question is what is the best for the interest of the
public. Whether PD 101 has lost its effectiveness or not, will in no way prevent this
Board from resolving the question in the same candor and spirit that P.D. 101 and
LOI 379 were issued to cope with the multifarious ills that plague our transport
system. ... (Emphasis supplied) (pp. 91-92, Rollo)

This, the private respondents appreciate, as they make reference to PD 101, merely to cite the
compassion with which colorum operators were dealt with under the law. They state that it is "in the
same vein and spirit that this Honorable Board has extended the Decree of legalization to the
operatives of the various PUJ and PUB services along legislative methods," that respondents pray
for authorization of their colorum units in actual operation in Metro Manila (Petitions for Legalization,
Annexes E & F, par. 7, pp. 65-79, Rollo).

Anent the petitioners' reliance on the BOT Rules and Regulations Implementing PD 101 as well as
its Memorandum Circular No. 76-25(a), the BOT itself has declared:

In line with its duty to rationalize the transport industry, the Board shall. from time to
time, re- study the public need for public utilities in any area in the Philippines for the
purpose of re- evaluating the policies. (p. 64, Rollo)

Page 191 of 547

Thus, the respondents correctly argue that "as the need of the public changes and oscillates with the
trends of modern life, so must the Memo Orders issued by respondent jibe with the dynamic and
flexible standards of public needs. ... Respondent Board is not supposed to 'tie its hands' on its
issued Memo Orders should public interest demand otherwise" (Answer of private respondents, p.
121, Rollo).

The fate of the private respondent's petitions is initially for the Board to determine. From the records
of the case, acceptance of the respondent's applications appears to be a question correctly within
the discretion of the respondent Board to decide. As a rule, where the jurisdiction of the BOT to take
cognizance of an application for legalization is settled, the Court enjoins the exercise thereof only
when there is fraud, abuse of discretion or error of law. Furthermore, the court does not interfere, as
a rule, with administrative action prior to its completion or finality . It is only after judicial review is no
longer premature that we ascertain in proper cases whether the administrative findings are not in
violation of law, whether they are free from fraud or imposition and whether they find substantial
support from the evidence.

Finally, with respect to the last issue raised by the petitioners alleging the denial of due process by
respondent Board in granting the provisional permits to the private respondents and in taking
cognizance of their applications for legalization without notice and hearing, suffice it to say that PD
101 does not require such notice or hearing for the grant of temporary authority . The provisional
nature of the authority and the fact that the primary application shall be given a full hearing are the
safeguards against its abuse. As to the applications for legalization themselves, the Public Service
Act does enjoin the Board to give notice and hearing before exercising any of its powers under Sec.
16 thereof. However, the allegations that due process has been denied are negated by the hearings
set by the Board on the applications as expressed in its orders resolving the petitions for special
permits (Annexes G, H, I, pp. 80-102, Rollo).

The Board stated:

The grounds involved in the petition are of first impression. It cannot resolve the
issue ex-parte. It needs to hear the views of other parties who may have an interest,
or whose interest may be affected by any decision that this Board may take.

The Board therefore, decides to set the petition for hearing.

xxx xxx xxx

As to the required notice, it is impossible for the respondent Board to give personal notice to all
parties who may be interested in the matter, which parties are unknown to it. Its aforementioned
order substantially complies with the requirement. The petitioners having been able to timely oppose
the petitions in question, any lack of notice is deemed cured.

WHEREFORE. the petition is hereby DISMISSED for lack of merit. The questioned orders of the
then Board of Transportation are AFFIRMED.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

Page 192 of 547

COOPERATIVE DEVELOPMENT AUTHORITY, petitioner, vs. DOLEFIL
AGRARIAN REFORM BENEFICIARIES COOPERATIVE, INC.,
ESMERALDO A. DUBLIN, ALICIA SAVAREZ, EDNA URETA, ET
AL., respondents.

DECISION
DE LEON, JR. J.

At the core of the instant petition for review on certiorari of the Decision[1] of the
Court of Appeals, 13 Division, in CA-G.R. SP. No. 47933 promulgated on September
th

9, 1998 and its Resolution[2] dated February 9, 1999 is the issue of whether or
not petitioner Cooperative Development Authority (CDA for brevity) is vested with
quasi-judicial authority to adjudicate intra-cooperative disputes.

The record shows that sometime in the later part of 1997, the CDA received from
certain members of the Dolefil Agrarian Reform Beneficiaries Cooperative, Inc.
(DARBCI for brevity), an agrarian reform cooperative that owns 8,860 hectares of
land in Polomolok, South Cotabato, several complaints alleging mismanagement
and/or misappropriation of funds of DARBCI by the then incumbent officers and
members of the board of directors of the cooperative, some of whom are herein
private respondents.

Acting on the complaints docketed as CDA-CO Case No. 97-011, CDA Executive
Director Candelario L. Verzosa, Jr. issued an order [3] dated December 8, 1997 directing
the private respondents to file their answer within ten (10) days from receipt thereof.

Before the private respondents could file their answer, however, CDA
Administrator Alberto P. Zingapan issued on December 15, 1997 an order, [4] upon the
motion of the complainants in CDA-CO Case No. 97-011, freezing the funds of
DARBCI and creating a management committee to manage the affairs of the said
cooperative.

Page 193 of 547

 On December 18, 1991, the private respondents filed a Petition
for Certiorari[5] with a prayer for preliminary injunction, damages and attorneys fees
against the CDA and its officers namely: Candelario L. Verzosa, Jr. and Alberto P.
Zingapan, including the DOLE Philippines Inc. before the Regional Trial Court (RTC
for brevity) of Polomolok, South Cotabato, Branch 39.The petition which was
docketed as SP Civil Case No. 25, primarily questioned the jurisdiction of the CDA to
resolve the complaints against the private respondents, specifically with respect to the
authority of the CDA to issue the freeze order and to create a management committee
that would run the affairs of DARBCI.

On February 24, 1998, CDA Chairman Jose C. Medina, Jr. issued an order [6] in
CDA-CO Case No. 97-011 placing the private respondents under preventive
suspension, hence, paving the way for the newly-created management committee [7] to
assume office on March 10, 1998.

On March 27, 1998, the RTC of Polomolok, South Cotabato, Branch 39, issued a
temporary restraining order[8] (TRO), initially for seventy-two (72) hours and
subsequently extended to twenty (20) days, in an Order dated March 31, 1998. The
temporary restraining order, in effect, directed the parties to restore status
quo ante, thereby enabling the private respondents to reassume the management of
DARBCI.

The CDA questioned the propriety of the temporary restraining order issued by
the RTC of Polomolok, South Cotabato on March 27, 1998 through a petition for
certiorari before the Court of Appeals, 12 Division, which was docketed as CA-G.R.
th

SP No. 47318.

On April 21, 1998, the Court of Appeals, 12 Division, issued a temporary

th

restraining order[9] in CA-G.R. SP No. 47318 enjoining the RTC of Polomolok, South
Cotabato, Branch 39, from enforcing the restraining order which the latter court issued
on March 27, 1998, and ordered that the proceedings in SP Civil Case No. 25 be held
in abeyance.

Consequently, the CDA continued with the proceedings in CDA-CO Case No. 97-
011. On May 26, 1998 CDA Administrator Arcadio S. Lozada issued a
resolution[10] which directed the holding of a special general assembly of the members
of DARBCI and the creation of an ad hoc election committee to supervise the election
of officers and members of the board of directors of DARBCI scheduled on June 14,
1998.

Page 194 of 547

 The said resolution of the CDA, issued on May 26, 1998 prompted the private
respondents to file on June 8, 1998 a Petition for Prohibition [11] with a prayer for
preliminary mandatory injunction and temporary restraining order with the Court of
Appeals, 13 Division, which was docketed as CA-G.R. SP No. 47933. On June 10,
th

1998, the appellate court issued a resolution [12]restraining the CDA and its
administrator, Arcadio S. Lozada, the three (3) members of the ad hoc election
committee or any and all persons acting in their behalf from proceeding with the
election of officers and members of the board of directors of DARBCI scheduled on
June 14, 1998.

Incidentally, on the same date that the Court of Appeals issued a temporary
restraining order in CA-G.R. SP No. 47933 on June 10, 1998, a corporation by the
name of Investa Land Corporation (Investa for brevity) which allegedly executed a
Lease Agreement with Joint Venture with DARBCI filed a petition [13] with the RTC of
Polomolok, South Cotabato, Branch 39, docketed as SP Civil Case No. 28, essentially
seeking the annulment of orders and resolutions issued by the CDA in CDA-CO Case
No. 97-011 with a prayer for temporary restraining order and preliminary
injunction. On the following day, June 11, 1998, the trial court issued a temporary
restraining order[14] enjoining the respondents therein from proceeding with the
scheduled special general assembly and the elections of officers and members of the
board of directors of DARBCI on June 14, 1998. Thereafter, it also issued a writ of
preliminary injunction.

With the issuance of the two (2) restraining orders by the Court of Appeals,
13 Division, and the RTC of Polomolok, South Cotabato, Branch 39, on June 10 and
th

11, 1998, respectively, the scheduled special general assembly and the election of
officers and members of the board of directors of DARBCI on June 14, 1998 did not
take place.

Nevertheless, on July 12, 1998, the majority of the 7,511 members of DARBCI,
on their own initiative, convened a general assembly and held an election of the
members of the board of directors and officers of the cooperative, thereby effectively
replacing the private respondents. Hence, the private respondents filed a Twin
Motions for Contempt of Court and to Nullify Proceedings [15] with the Court of
Appeals in CA-G.R. SP No. 47933.

On September 9, 1998 the Court of Appeals, 13 Division, promulgated its subject

th

appealed Decision[16] granting the petition in CA-G.R. SP No. 47933, the dispositive
portion of which reads:

Page 195 of 547

Wherefore, the foregoing considered, the Petition is hereby GRANTED. The Orders
of the respondent Cooperative Development Authority in CDA-CO case No. 97-011
dated 08 December 1997, 15 December 1997, 26 January 1998, 24 February 1998, 03
March 1998, and the Resolution dated 26 May 1998, are hereby declared NULL AND
VOID and of no legal force and effect.

Further, the respondents are hereby ORDERED to perpetually CEASE AND DESIST
from taking any further proceedings in CDA-CO Case No. 97-011.

Lastly, the respondent CDA is hereby ORDERED to REINSTATE the Board of

Directors of DARBCI who were ousted by virtue of the questioned Orders, and to
RESTORE the status quo prior to the filing of CDA-CO Case No. 97-011.

SO ORDERED.

The CDA filed a motion for reconsideration [17] of the Decision in CA-G.R. SP No.
47933 but it was denied by the Court of Appeals in its assailed Resolution [18] dated
February 9, 1999, thus:

WHEREFORE, the Motion for Reconsideration is hereby DENIED for being patently
without merit.

MOREOVER, acting on petitioners Twin Motion, and in view of the Decision in this
case dated 09, September 1998, the tenor of which gives it legal effect nunc pro
tunc. We therefore hold the 12 July 1998 election of officers, the resolutions passed
during the said assembly, and the subsequent oath-taking of the officers elected
therein, and all actions taken during the said meeting, being in blatant defiance of a
valid restraining order issued by this Court, to be NULL AND VOID AB INITIO AND
OF NO LEGAL FORCE AND EFFECT.

FURTHERMORE, the private respondents are hereby given thirty (30) days from
receipt of this Resolution within which to explain in writing why they should not be
held in contempt of this Court for having openly defied the restraining order dated 10
July 1998. The Hon. Jose C. Medina of the CDA is given a like period to explain in
writing why he should not be cited in contempt for having administered the oath of
the Board of Officers pending the effectivity of the restraining order. The respondent
Arcadio S. Lozada, Administrator of the CDA, is likewise given the same period to
explain why he should not be held in contempt for issuing a resolution on 21 July
1998 validating the proceedings of the assembly, and another resolution on 28 August
1998 confirming the election of the officers thereof.

Page 196 of 547

SO ORDERED.

Hence, the instant petition[19] for review which raises the following assignments of
error:

THE HONORABLE COURT OF APPEALS, IN NULLIFYING THE ORDERS AND

RESOLUTIONS OF THE COOPERATIVE DEVELOPMENT AUTHORITY IN
CDA CO CASE NO. 97-011, DECIDED A QUESTION OF SUBSTANCE THAT IS
NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT.

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE

RULE ON FORUM-SHOPPING.

III

THE HONORABLE COURT OF APPEALS ERRED IN RENDERING A

DECISION ON THE BASIS OF PURE CONJECTURES AND SURMISES AND
HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS WHICH CALL FOR AN EXERCISE OF THIS HONORABLE
COURTS SUPERVISION.

Petitioner CDA claims that it is vested with quasi-judicial authority to adjudicate

cooperative disputes in view of its powers, functions and responsibilities under
Section 3 of Republic Act No. 6939.[20] The quasi-judicial nature of its powers and
functions was confirmed by the Department of Justice, through the then Acting
Secretary of Justice Demetrio G. Demetria, in DOJ Opinion No. 10, Series of 1995,
which was issued in response to a query of the then Chairman Edna E. Aberina of the
CDA, to wit:

Applying the foregoing, the express powers of the CDA to cancel certificates of
registration of cooperatives for non-compliance with administrative requirements or in
cases of voluntary dissolution under Section 3(g), and to mandate and conciliate
disputes within a cooperative or between cooperatives under Section 8 of R.A. No.
6939, may be deemed quasi-judicial in nature.

Page 197 of 547

The reason is that in the performance of its functions such as cancellation of
certificate of registration, it is necessary to establish non-compliance or violation of
administrative requirement. To do so, there arises an indispensable need to hold
hearings, investigate or ascertain facts that possibly constitute non-compliance or
violation and, based on the facts investigated or ascertained, it becomes incumbent
upon the CDA to use its official discretion whether or not to cancel a cooperatives
certificate of registration, thus, clearly revealing the quasi-judicial nature of the said
function. When the CDA acts as a conciliatory body pursuant to Section 8 of R.A. No.
6939, it in effect performs the functions of an arbitrator. Arbitrators are by the nature
of their functions act in quasi-judicial capacity xxx.

The quasi-judicial nature of the foregoing functions is bolstered by the provisions of

Sections 3(o) of R.A. No. 6939 which grants CDA on (sic) the exercise of other
functions as may be necessary to implement the provisions of cooperative laws, the
power to summarily punish for direct contempt any person guilty of misconduct in the
presence thereof who seriously interrupts any hearing or inquiry with a fine or
imprisonment prescribed therein, a power usually granted to make effective the
exercise of quasi-judicial functions.[21]

Likewise, the Office of the President, through the then Deputy Executive
Secretary, Hon. Leonardo A. Quisumbing, espoused the same view in the case
of Alberto Ang, et al. v. The Board of Directors, Metro Valenzuela Transport Services
Cooperative, Inc., O.P. Case No. 51111, when it declared and ruled that:

Concededly, Section 3(o) of R.A. No. 6939 and Article 35(4) of R.A. 6938, may not
be relied upon by the CDA as authority to resolve internal conflicts of cooperatives,
they being general provisions. Nevertheless, this does not preclude the CDA from
resolving the instant case. The assumption of jurisdiction by the CDA on matters
which partake of cooperative disputes is a logical, necessary and direct consequence
of its authority to register cooperatives. Before a cooperative can acquire juridical
personality, registration thereof is a condition sine qua non, and until and unless the
CDA issues a certificate of registration under its official seal, any cooperative for that
matter cannot be considered as having been legally constituted. To our mind, the grant
of this power impliedly carries with it the visitorial power to entertain cooperative
conflicts, a lesser power compared to its authority to cancel registration certificates
when, in its opinion, the cooperative fails to comply with some administrative
requirements (Sec. 2(g), R.A. No. 6939). Evidently, respondents-appellants claim that
the CDA is limited to conciliation and mediation proceedings is bereft of legal
basis. Simply stated, the CDA, in the exercise of such other function and in keeping

Page 198 of 547

with the mandate of the law, could render the decisions and/or resolutions as long as
they pertain to the internal affairs of the public service cooperative, such as the rights
and privileges of its members, the rules and procedures for meetings of the general
assembly, Board of Directors and committees, election and qualifications of officers,
directors and committee members, and allocation and distribution of surpluses. [22]

The petitioner avers that when an administrative agency is conferred with quasi-
judicial powers and functions, such as the CDA, all controversies relating to the
subject matter pertaining to its specialization are deemed to be covered within the
jurisdiction of said administrative agency. The courts will not interfere in matters
which are addressed to the sound discretion of government agencies entrusted with the
regulation of activities undertaken upon their special technical knowledge and
training.

The petitioner added that the decision in the case of CANORECO v. Hon. Ruben
D. Torres,[23] affirmed the adjudicatory powers and functions of CDA contrary to the
view held by the Court of Appeals, when the Supreme Court upheld therein the ruling
of the CDA annulling the election of therein respondents Norberto Ochoa, et al. as
officers of the Camarines Norte Electric Cooperative.

Petitioner CDA also claims that herein private respondents are guilty of forum-
shopping by filing cases in three (3) different fora seeking the same relief. Petitioner
pointed out that private respondents originally filed a petition with a prayer for
preliminary injunction dated December 17, 1997 before the RTC of Polomolok, South
Cotabato which was docketed as SP Civil Case No. 25. Subsequently, the same
private respondents filed another petition with a prayer for preliminary injunction with
the Court of Appeals, 13 Division, docketed as CA-G.R. SP No. 47933.Thereafter,
th

Investa, also represented by the same counsel of private respondents, Atty. Reni
Dublin, filed another case with the RTC of Polomolok, South Cotabato, docketed as
SP Civil Case No. 28, likewise praying, among others, for the issuance of preliminary
injunction and an application for a temporary restraining order. In effect, petitioner
was confronted with three (3) TROs issued in three (3) separate actions enjoining it
from enforcing its orders and resolutions in CDA-CO Case No. 97-011.

In their Comment,[24] private respondents contend that the instant petition for
review on certiorari filed by CDA Administrator Alberto Zingapan should be
dismissed and struck down as a mere scrap of paper for lack of authority to file the
same from the Office of the Solicitor General and for having been filed without
approval from the Board of Administrators of CDA.

Page 199 of 547

 The private respondents also contend that, contrary to the claim of the petitioner,
the powers, functions and responsibilities of the CDA show that it was merely granted
regulatory or supervisory powers over cooperatives in addition to its authority to
mediate and conciliate between parties involving the settlement of cooperative
disputes.

Private respondents denied that they are guilty of forum-shopping. They clarified
that the case filed with the RTC of Polomolok, South Cotabato, Branch 39, docketed
as SP Civil Case No. 25, was a petition for certiorari. On the other hand, the case that
they filed with the Court of Appeals, 13th Division, docketed therein as CA-G.R. SP
No. 47933, was a petition for prohibition to stop the holding of a special general
assembly and the election of a new set of DARBCI officers on June 14, 1998 as
ordered by the petitioner CDA on May 26, 1998, which events have not yet occurred
at the time the petition for certiorari was filed by the private respondents with the
RTC of Polomolok, South Cotabato, Branch 39.

Private respondents also denied that the filing by Investa of the petition for the
declaration of nullity of the orders and resolutions of petitioner CDA, with a prayer
for temporary restraining order with the RTC of Polomolok, South Cotabato, docketed
therein as SP Civil Case No. 28, constituted forum-shopping on their part. They
pointed out that Investa has a separate juridical personality from DARBCI and that,
contrary to the claim of petitioner CDA, the former is not represented by the lawyer of
the private respondents.

By way of reply,[25] petitioner claims that Atty. Rogelio P. Madriaga was properly
deputized, among other lawyers, as Special Attorney by the Office of the Solicitor
General to represent the CDA in the instant petition pursuant to the letter [26] of
Assistant Solicitor General Carlos N. Ortega addressed to CDA Chairman Jose C.
Medina, Jr. dated April 8, 1999. Likewise, the filing of the instant petition was an
official act of CDA Administrator Alberto P. Zingapan who was duly appointed by the
CDA Board of Administrators as chairman of the Oversight Committee on Legal
Matters per Resolution No. 201, S-1998.[27]

Meanwhile, on March 26, 1999, certain persons alleging to be incumbent officers

and members of the board of directors of DARBCI filed a motion to intervene in the
instant petition which was granted by this Court per its Resolution dated July 7, 1999.
[28]
In the same resolution, this Court required both petitioner CDA and the private
respondents in this case to file their respective comments to the petition-in-

Page 200 of 547

intervention within ten (10) days from notice, but both parties failed to comply to do
so up to the present.

We note that the instant petition for review on certiorari suffers from a basic
infirmity for lack of the requisite imprimatur from the Office of the Solicitor General,
hence, it is dismissible on that ground. The general rule is that only the Solicitor
General can bring or defend actions on behalf of the Republic of the Philippines and
that actions filed in the name of the Republic, or its agencies and instrumentalities for
that matter, if not initiated by the Solicitor General, will be summarily dismissed. [29]

The authority of the Office of the Solicitor General to represent the Republic of
the Philippines, its agencies and instrumentalities, is embodied under Section 35(1),
Chapter 12, Title III, Book IV of the Administrative Code of 1987 which provides
that:

SEC. 35. Powers and Functions.The Office of the Solicitor General shall represent the
Government of the Philippines, its agencies and intrumentalities and its officials and
agents in any litigation, proceeding, investigation or matter requiring the services of
lawyers. When authorized by the President or head of the office concerned, it shall
also represent government owned or controlled corporations. The Office of the
Solicitor General shall constitute the law office of the Government and, as such, shall
discharge duties requiring the services of lawyers. It shall have the following specific
powers and functions:

(1) Represent the Government in the Supreme Court and the Court of Appeals in all
criminal proceedings; represent the Government and its officers in the Supreme Court,
Court of Appeals, and all other courts or tribunals in all civil actions and special
proceedings in which the Government or any officer thereof in his official capacity is
a party.

The import of the above-quoted provision of the Administrative Code of 1987 is

to impose upon the Office of the Solicitor General the duty to appear as counsel for
the Government, its agencies and instrumentalites and its officials and agents before
the Supreme Court, the Court of Appeals, and all other courts and tribunals in any
litigation, proceeding, investigation or matter requiring the services of a lawyer. Its
mandatory character was emphasized by this Court in the case of Gonzales v. Chavez,
[30]
thus:

It is patent that the intent of the lawmaker was to give the designated official, the
Solicitor General, in this case, the unequivocal mandate to appear for the government
Page 201 of 547
in legal proceedings.Spread out in the laws creating the office is the discernible intent
which may be gathered from the term shall, which is invariably employed, from Act
No. 136 (1901) to the more recent Executive Order No. 292 (1987).

xxx xxx xxx

The decision of this Court as early as 1910 with respect to the duties of the Attorney-
General well applies to the Solicitor General under the facts of the present case. The
Court then declared:

In this jurisdiction, it is the duty of the Attorney General to perform the duties
imposed upon him by law and he shall prosecute all causes, civil and criminal, to
which the Government of the Philippine Islands, or any officer thereof, in his official
capacity, is a party xxx.

xxx xxx xxx

The Court is firmly convinced that considering the spirit and the letter of the law,
there can be no other logical interpretation of Sec. 35 of the Administrative Code than
that it is, indeed, mandatory upon the OSG to represent the Government of the
Philippines, its agencies and instrumentalities and its officials and agents in any
litigation, proceeding, investigation or matter requiring the services of a lawyer.

As an exception to the general rule, the Solicitor General, in providing legal

representation for the government, is empowered under Section 35(8), Chapter 12,
Title III, Book IV of the Administrative Code of 1987 to deputize legal officers of
government departments, bureaus, agencies and offices to assist the Solicitor General
and appear or represent the Government in cases involving their respective offices,
brought before the courts and exercise supervision and control over such legal officers
with respect to such cases.

Petitioner claims that its counsel of record, Atty. Rogelio P. Madriaga, was
deputized by the Solicitor General to represent the CDA in the instant petition. To
prove its claim, the petitioner attached to its Reply to the Comment dated January 31,
2000, a photocopy of the alleged deputation letter [31] from the Office of the Solicitor
General signed by Hon. Carlos N. Ortega, Assistant Solicitor General, addressed to
CDA Chairman Jose C. Medina, Jr.

A close scrutiny of the alleged deputation letter from the Office of the Solicitor
General shows, however, that said counsel for the petitioner was only authorized to

Page 202 of 547

appear as counsel in all civil cases in the lower courts (RTCs and MTCs) wherein the
CDA is a party-litigant. Likewise, the same letter appears to be dated April 8, 1999
while the Petition for Review on Certiorari filed by the petitioner was dated February
26, 1999. Clearly then, when the petition was filed with this Court on March 3, 1999,
Atty. Rogelio P. Madriaga was not yet deputized by the Office of the Solicitor General
to represent the CDA.

Even on the assumption that the alleged letter from the Office of the Solicitor
General was intended to validate or ratify the authority of counsel to represent the
petitioner in this case, the same contains certain conditions, one of which is that
petitioner shall submit to the Solicitor General, for review, approval and signature, all
important pleadings and motions, including motions to withdraw complaints or
appeals, as well as compromise agreements. Significantly, one of the major pleadings
filed subsequently by the petitioner in this case namely, the Reply to the Respondents
Comment on the Petition dated January 31, 2000, does not have any indication that
the same was previously submitted to the Office of the Solicitor General for review or
approval, much less bear the requisite signature of the Solicitor General as required in
the alleged deputation letter.

Nonetheless, in view of the novelty of the main issue raised in this petition
concerning the nature and scope of jurisdiction of the CDA in the settlement of
cooperative disputes as well as the long standing legal battle involving the
management of DARBCI between two (2) opposing factions that inevitably threatens
the very existence of one of the countrys major cooperatives, this Court has decided to
act on and determine the merits of the instant petition.

Section 3 of R.A. No. 6939 enumerates the powers, functions and responsibilities
of the CDA, thus:

SEC. 3. Powers, Functions and Responsibilities.The Authority shall have the

following powers, functions and responsibilities:

(a) Formulate, adopt and implement integrated and comprehensive plans and programs on
cooperative development consistent with the national policy on cooperatives and the overall
socio-economic development plan of the Government;

(b) Develop and conduct management and training programs upon request of cooperatives that
will provide members of cooperatives with the entrepreneurial capabilities, managerial
expertise, and technical skills required for the efficient operation of their cooperatives and
inculcate in them the true spirit of cooperativism and provide, when necessary, technical and

Page 203 of 547

 professional assistance to ensure the viability and growth of cooperatives with special
concern for agrarian reform, fishery and economically depressed sectors;

(c) Support the voluntary organization and consensual development of activities that promote
cooperative movements and provide assistance to wards upgrading managerial and technical
expertise upon request of the cooperatives concerned;

(d) Coordinate the effects of the local government units and the private sector in the promotion,
organization, and development of cooperatives;

(e) Register all cooperatives and their federations and unions, including their division, merger,
consolidation, dissolution or liquidation. It shall also register the transfer of all or
substantially all of their assets and liabilities and such other matters as may be required by
the Authority;

(f) Require all cooperatives, their federations and unions to submit their annual financial
statements, duly audited by certified public accountants, and general information sheets;

(g) Order the cancellation after due notice and hearing of the cooperatives certificate of
registration for non-compliance with administrative requirements and in cases of voluntary
dissolution;

(h) Assist cooperatives in arranging for financial and other forms of assistance under such terms
and conditions as are calculated to strengthen their viability and autonomy;

(i) Establish extension offices as may be necessary and financially viable to implement this
Act. Initially, there shall be extension offices in the Cities of Dagupan, Manila, Naga, Iloilo,
Cebu, Cagayan de Oro and Davao;

(j) Impose and collect reasonable fees and charges in connection with the registration of
cooperatives;

(k) Administer all grants and donations coursed through the Government for cooperative
development, without prejudice to the right of cooperatives to directly receive and
administer such grants and donations upon agreement with the grantors and donors thereof;

(l) Formulate and adopt continuing policy initiatives consultation with the cooperative sector
through public hearing;

(m) Adopt rules and regulations for the conduct of its internal operations;

(n) Submit an annual report to the President and Congress on the state of the cooperative
movement;

(o) Exercise such other functions as may be necessary to implement the provisions of the
cooperative laws and, in the performance thereof, the Authority may summarily punish for
direct contempt any person guilty of misconduct in the presence of the Authority which

Page 204 of 547

 seriously interrupts any hearing or inquiry with a fine of not more than five hundred pesos
(P500.00) or imprisonment of not more than ten (10) days, or both. Acts constituting indirect
contempt as defined under Rule 71 of the Rules of Court shall be punished in accordance
with the said Rule.

It is a fundamental rule in statutory construction that when the law speaks in clear
and categorical language, there is no room for interpretation, vacillation or
equivocation there is only room for application. [32] It can be gleaned from the above-
quoted provision of R.A. No. 6939 that the authority of the CDA is to discharge
purely administrative functions which consist of policy-making, registration, fiscal
and technical assistance to cooperatives and implementation of cooperative
laws. Nowhere in the said law can it be found any express grant to the CDA of
authority to adjudicate cooperative disputes. At most, Section 8 of the same law
provides that upon request of either or both parties, the Authority shall mediate and
conciliate disputes with a cooperative or between cooperatives however, with a
restriction that if no mediation or conciliation succeeds within three (3) months from
request thereof, a certificate of non-resolution shall be issued by the commission prior
to the filing of appropriate action before the proper courts. Being an administrative
agency, the CDA has only such powers as are expressly granted to it by law and those
which are necessarily implied in the exercise thereof. [33]

Petitioner CDA, however, insists that its authority to conduct hearings or inquiries
and the express grant to it of contempt powers under Section 3, paragraphs (g) and (o)
of R. A. No. 6939, respectively, necessarily vests upon the CDA quasi-judicial
authority to adjudicate cooperative disputes. A review of the records of the
deliberations by both chambers of Congress prior to the enactment of R.A. No. 6939
provides a definitive answer that the CDA is not vested with quasi-judicial authority
to adjudicate cooperative disputes. During the house deliberations on the then House
Bill No. 10787, the following exchange transpired:

MR. AQUINO (A.). The response of the sponsor is not quite clear to this humble
Representation. Let me just point out other provisions under this particular section,
which to the mind of this humble Representation appear to provide this proposed
Authority with certain quasi-judicial functions. Would I be correct in this
interpretation of paragraphs (f) and (g) under this section which state that among the
powers of the Authority are:

To administer the dissolution, disposal of assets and settlement of liabilities of any

cooperative that has been found to be inoperable, inactive or defunct.

Page 205 of 547

To make appropriate action on cooperatives found to be in violation of any provision

It appears to the mind of this humble Representation that the proposed Authority may
be called upon to adjudicate in these particular instances. Is it therefore vested with
quasi-judicial authority?

MR. ROMUALDO. No, Mr. Speaker. We have to resort to the courts, for instance, for
the dissolution of cooperatives. The Authority only administers once a cooperative is
dissolved. It is also the CDA which initiates actions against any group of persons that
may use the name of a cooperative to its advantage, that is, if the word cooperative is
merely used by it in order to advance its intentions, Mr. Speaker.

MR. AQUINO (A.). So, is the sponsor telling us that the adjudication will have to be
left to the courts of law?

MR. ROMUALDO. To the courts, Mr. Speaker.[34]

xxx xxx xxx

MR. ADASA. One final question, Mr. Speaker. On page 4, line 33, it seems that one
of the functions given to the Cooperative Development Authority is to recommend the
filing of legal charges against any officer or member of a cooperative accused of
violating the provisions of this Act, existing laws and cooperative by-laws and other
rules and regulations set forth by the government.Would this not conflict with the
function of the prosecuting fiscal?

MR. ROMUALDO. No, it will be the provincial fiscal that will file the case. The
Authority only recommends the filing of legal charges, that is, of course, after
preliminary investigation conducted by the provincial fiscal or the prosecuting arm of
the government.

MR. ADASA. Does the Gentleman mean to say that the Cooperative Development
Authority can take the place of the private complainant or the persons who are the
offended party if the latter would not pursue the case?

MR. ROMULDO. Yes, Mr. Speaker. The Authority can initiate even the filing of the charges as
embraced and defined on line 33 of page 4 of this proposed bill.[35]

xxx xxx xxx

Page 206 of 547

MR. CHIONGBIAN. xxx. Under the same section, line 28, subparagraph (g) says that
the Authority can take appropriate action on cooperatives found to be violating any
provision of this Act, existing laws and cooperative by-laws, and other rules and
regulations set forth by the government by way of withdrawal of Authority assistance,
suspension of operation or cancellation of accreditation.

My question is: If a cooperative, whose officers are liable for wrongdoing, is found
violating any of the provisions of this Act, are we going to sacrifice the existence of
that cooperative just because some of the officers have taken advantage of their
positions and misused some of the funds? It would be very unfair for the Authority to
withdraw its assistance at the expense of the majority. It is not clear as to what the
liabilities of the members of these cooperatives are.

xxx xxx xxx

MR. ROMUALDO. Mr. Speaker, before this action may be taken by the Authority,
there will be due process. However, this provision is applicable in cases where the
cooperative as a whole violated the provisions of this Act as well as existing laws. In
this case, punitive actions may be taken against the cooperative as a body.

With respect to the officials, if they themselves should be punished, then Section (h)
of this chapter provides that legal charges shall be filed by the Cooperative
Development Authority.[36]

In like manner, the deliberations on Senate Bill No. 485, which was the
counterpart of House Bill No. 10787, yield the same legislative intent not to grant
quasi-judicial authority to the CDA as shown by the following discussions during the
period of amendments:

SEN. ALVAREZ. On page 3, between lines 5 and 6, if I may, insert the following as
one of the powers: CONDUCT INQUIRIES, STUDIES, HEARINGS AND
INVESTIGATIONS AND ISSUE ORDERS, DECISIONS AND CIRCULARS AS
MAY BE NECESSARY TO IMPLEMENT ALL LAWS, RULES AND
REGULATIONS RELATING TO COOPERATIVES. THE AGENCY MAY
SUMMARILY PUNISH FOR CONTEMPT BY A FINE OF NOT MORE THAN
TWO HUNDRED PESOS (P200.00) OR IMPRISONMENT NOT EXCEEDING
TEN (10) DAYS, OR BOTH, ANY PERSONS GUILTY OF SUCH MISCONDUCT
IN THE PRESENCE OF THE AGENCY WHICH SERIOUSLY INTERRUPTS ANY
HEARING OR INVESTIGATION, INCLUDING WILFULL FAILURE OR
REFUSAL, WITHOUT JUST CAUSE, COMPLY WITH A SUMMONS,
Page 207 of 547
SUBPOENA, SUBPOENA DUCES TECUM, DECISION OR ORDER, RULE OR
REGULATION, OR, BEING PRESENT AT A HEARING OR INVESTIGATION,
REFUSES TO BE SWORN IN AS A WITNESS OR TO ANSWER QUESTIONS OR
TO FURNISH INFORMATION REQUIRED BY THE AGENCY. THE SHERIFF
AND/OR POLICE AGENCIES OF THE PLACE WHERE THE HEARING OR
INVESTIGATION IS CONDUCTED SHALL, UPON REQUEST OF THE
AGENCY, ASSIST IT TO ENFORCE THE PENALTY.

THE PRESIDENT. That is quite a long amendment. Does the Gentleman have a
written copy of his amendment, so that the Members will have an opportunity to go
over it and examine its implications?

Anyway, why do we not hold in abeyance the proposed amendment? Do we have

that?

xxx xxx xxx

SEN. ALVAREZ. Mr. President, this is almost an inherent power of a registering

body. With the tremendous responsibility that we have assigned to the Authority or the
agencyfor it to be able to function and discharge its mandateit will need this authority.

SEN. AQUINO. Yes, Mr. President, conceptually, we do not like the agency to have
quasi-judicial powers. And, we are afraid that if we empower the agency to conduct
inquiries, studies, hearings and investigations, it might interfere in the autonomous
character of cooperatives. So, I am sorry Mr. President, we dont accept the
amendment.[37]

The decision to withhold quasi-judicial powers from the CDA is in accordance

with the policy of the government granting autonomy to cooperatives. It was noted
that in the past 75 years cooperativism failed to flourish in the Philippines. Of the
23,000 cooperatives organized under P.D. No. 175, only 10 to 15 percent remained
operational while the rest became dormant. The dismal failure of cooperativism in the
Philippines was attributed mainly to the stifling attitude of the government toward
cooperatives. While the government wished to help, it invariably wanted to control.
[38]
Also, in its anxious efforts to push cooperativism, it smothered cooperatives with so
much help that they failed to develop self-reliance. As one cooperative expert put it,
The strong embrace of government ends with a kiss of death for cooperatives. [39]

But then, acknowledging the role of cooperatives as instruments of national

development, the framers of the 1987 Constitution directed Congress under Article

Page 208 of 547

XII, Section 15 thereof to create a centralized agency that shall promote the viability
and growth of cooperatives. Pursuant to this constitutional mandate, the Congress
approved on March 10, 1990 Republic Act No. 6939 which is the organic law creating
the Cooperative Development Authority. Apparently cognizant of the errors in the
past, Congress declared in an unequivocal language that the state shall maintain the
policy of non-interference in the management and operation of cooperatives. [40]

After ascertaining the clear legislative intent underlying R.A. No. 6939, effect
should be given to it by the judiciary.[41] Consequently, we hold and rule that the CDA
is devoid of any quasi-judicial authority to adjudicate intra-cooperative disputes and
more particularly disputes as regards the election of the members of the Board of
Directors and officers of cooperatives. The authority to conduct hearings or inquiries
and the power to hold any person in contempt may be exercised by the CDA only in
the performance of its administrative functions under R.A. No. 6939.

The petitioners reliance on the case of CANORECO is misplaced for the reason
that the central issue raised therein was whether or not the Office of the President has
the authority to supplant or reverse the resolution of an administrative agency,
specifically the CDA, that had long became final and on which issue we ruled in the
negative. In fact, this Court declared in the said case that the CDA has no jurisdiction
to adjudicate intra-cooperative disputes thus: [42]

xxx xxx xxx

Obviously there was a clear case of intra-cooperative dispute. Article 121 of the
Cooperative Code is explicit on how the dispute should be resolved; thus:

ART. 121. Settlement of Disputes. Disputes among members, officers, directors, and
committee members, and intra-cooperative disputes shall, as far as practicable, be
settled amicably in accordance with the conciliation or mediation mechanisms
embodied in the by-laws of the cooperative, and in applicable laws.

Should such a conciliation/mediation proceeding fail, the matter shall be settled in a

court of competent jurisdiction.

Complementing this Article is Section 8 of R.A. No. 6939, which provides:

SEC. 8. Mediation and Conciliation. Upon request of either or both or both parties,
the [CDA] shall mediate and conciliate disputes with the cooperative or between
cooperatives: Provided, That if no mediation or conciliation succeeds within three (3)

Page 209 of 547

months from request thereof, a certificate of non-resolution shall be issued by the
request thereof, a certificate of non-resolution shall be issued by the commission prior
to the filing of appropriate action before the proper courts.

Likewise, we do not find any merit in the allegation of forum-shopping against the
private respondents. Forum-shopping exists where the elements of litis pendentia are
present or where a final judgment in one case will amount to res judicata in the other.
[43]
The requisites for the existence of litis pendentia, in turn, are (1) identity of parties
or at least such representing the same interest in both actions; (2) identity of rights
asserted as prayed for, the relief being founded on the same facts; and (3) the identity
in both cases is such that the judgment that may be rendered in the pending case,
regardless of which party is successful, would amount to res judicata to the other
case.[44]

While there may be identity of parties between SP Civil Case No. 25 filed with the
RTC of Polomolok, South Cotabato, Branch 39, and CA-G.R. SP No. 47933 before
the Court of Appeals, 13 Division, the two (2) other requisites are not present. The
th

Court of Appeals correctly observed that the case filed with the RTC of Polomolok,
South Cotabato was a petition for certiorari assailing the orders of therein respondent
CDA for having been allegedly issued without or in excess of jurisdiction. On the
other hand, the case filed with the Court of Appeals was a petition for prohibition
seeking to restrain therein respondent from further proceeding with the hearing of the
case. Besides, the filing of the petition for prohibition with the Court of Appeals was
necessary after the CDA issued the Order dated May 26, 1998 which directed the
holding of a special general assembly for purposes of conducting elections of officers
and members of the board of DARBCI after the Court of Appeals, 12 Division, in th

CA-G.R. SP No. 47318 issued a temporary restraining order enjoining the

proceedings in Special Civil Case No. 25 and for the parties therein to maintain the
status quo. Under the circumstances, the private respondents could not seek
immediate relief before the trial court and hence, they had to seek recourse before the
Court of Appeals via a petition for prohibition with a prayer for preliminary injunction
to forestall the impending damage and injury to them in view of the order issued by
the petitioner on May 26, 1998.

The filing of Special Civil Case No. 28 with the RTC of Polomolok, South
Cotabato does not also constitute forum-shopping on the part of the private
respondents. Therein petitioner Investa, which claims to have a subsisting lease
agreement and a joint venture with DARBCI, is an entity whose juridical personality
is separate and distinct from that of private respondent cooperative or herein

Page 210 of 547

individual private respondents and that they have totally different interests in the
subject matter of the case. Moreover, it was incorrect for the petitioner to charge the
private respondents with forum-shopping partly based on its erroneous claim that
DARBCI and Investa were both represented by the same counsel. A charge of forum-
shopping may not be anchored simply on the fact that the counsel for different
petitioners in two (2) cases is one and the same. [45] Besides, a review of the records of
this case shows that the counsel of record of Investa in Special Civil Case No. 28 is a
certain Atty. Ignacio D. Debuque, Jr. and not the same counsel representing the private
respondents.[46]

Anent the petition-in-intervention, the intervenors aver that the Resolution of the
Court of Appeals dated February 9, 1999 in CA-G.R. SP No. 47933 denying the
motion for reconsideration of herein petitioner CDA also invalidated the election of
officers and members of the board of directors of DARBCI held during the special
general assembly on July 12, 1998, thus adversely affecting their substantial rights
including their right to due process. They claim that the object of the order issued by
the appellate court on June 10, 1998 was to restrain the holding of the general
assembly of DARBCI as directed in the order of CDA Administrator Arcadio Lozada
dated May 26, 1998. In compliance with the said order of the Court of Appeals, no
general assembly was held on June 14, 1998. However, due to the grave concern over
the alleged tyrannical administration and unmitigated abuses of herein private
respondents, the majority of the members of DARBCI, on their own initiative and in
the exercise of their inherent right to assembly under the law and the 1987
Constitution, convened a general assembly on July 12, 1998. On the said occasion, the
majority of the members of DARBCI unanimously elected herein petitioners-in-
intervention as new officers and members of the board of directors of DARBCI, [47] and
thereby resulting in the removal of the private respondents from their positions in
DARBCI.

Petitioners-in-intervention pointed out that the validity of the general assembly

held on July 12, 1998 was never raised as an issue in CA-G.R. SP No. 47933. The
petitioners-in-intervention were not even ordered by the Court of Appeals to file their
comment on the Twin Motions For Contempt of Court and to Nullify Proceedings
filed by the private respondents on July 29, 1998.

As earlier noted, the Court of Appeals issued a temporary restraining order [48] in
CA-G.R. SP No. 47933 on June 10, 1998, the pertinent portion of which reads:

Page 211 of 547

Meanwhile, respondents or any and all persons acting in their behalf and stead are
temporarily restrained from proceeding with the election of officers and members of
the board of directors of the Dolefil Agrarian Reform Beneficiaries Cooperative, Inc.
scheduled on June 14, 1998 and or any other date thereafter.

It was also noted that as a consequence of the temporary restraining order issued
by the appellate court, the general assembly and the election of officers and members
of the board of directors of DARBCI, pursuant to the resolution issued by CDA
Administrator Arcadio S. Lozada, did not take place as scheduled on June 14,
1998. However, on July 12, 1998 the majority of the members of DARBCI, at their
own initiative, held a general assembly and elected a new set of officers and members
of the board of directors of the cooperative which resulted in the ouster of the private
respondents from their posts in the said cooperative.

The incident on July 12, 1998 prompted herein private respondents to file their
Twin Motions for Contempt of Court and to Nullify Proceedings on July 26,
1998. The twin motions prayed, among others, that after due notice and hearing,
certain personalities, including the petitioners-in-intervention, be cited in indirect
contempt for their participation in the subject incident and for the nullification of the
election on July 12, 1998 for being illegal, contrary to the by-laws of the
cooperative and in defiance of the injunctive processes of the appellate court.

On September 9, 1998, the Court of Appeals, 13 Division, rendered a Decision in

th

CA-G.R. SP No. 47933 which declared the CDA devoid of quasi-judicial jurisdiction
to settle the dispute in CDA-CO Case No. 97-011 without however, taking any action
on the Twin Motions for Contempt of Court and to Nullify Proceedings filed by the
private respondents. As it turned out, it was only in its Resolution dated February 9,
1999 denying petitioners motion for reconsideration of the Decision in CA-G.R. SP
No. 47933 that the Court of Appeals, 13 Division, acted on the Twin Motions for
th

Contempt of Court and to Nullify Proceedings by declaring as null and void the
election of the petitioners-in-intervention on July 12, 1998 as officers and members of
the board of directors of DARBCI.

We find, however, that the action taken by the Court of Appeals, 13 Division, on
th

the Twin Motions for Contempt of Court and to Nullify Proceedings insofar as it
nullified the election of the officers and members of the Board of Directors of
DARBCI, violated the constitutional right of the petitioners-in-intervention to due
process. The requirement of due process is satisfied if the following conditions are
present, namely: (1) there must be a court or tribunal clothed with judicial power to

Page 212 of 547

hear and determine the matter before it; (2) jurisdiction must be lawfully acquired
over the person of the defendant or over the property which is the subject of the
proceedings; (3) the defendant must be given an opportunity to be heard; and (4)
judgment must be rendered upon lawful hearing. [49] The appellate court should have
first required the petitioners-in-intervention to file their comment or opposition to the
said Twin Motions For Contempt Of Court And to Nullify Proceedings which also
refers to the elections held during the general assembly on July 12, 1998. It was
precipitate for the appellate court to render judgment against the petitioners-in-
intervention in its Resolution dated February 9, 1999 without due notice and
opportunity to be heard. Besides, the validity of the general assembly held on July 12,
1998 was not raised as an issue in CA-G.R. SP No. 47933.

WHEREFORE, judgment is hereby rendered as follows:

1. The petition for review on certiorari is hereby DENIED for lack of merit. The
orders, resolutions, memoranda and any other acts rendered by petitioner Cooperative
Development Authority in CDA-CO Case No. 97-011 are hereby declared null and
void ab initio for lack of quasi-judicial authority of petitioner to adjudicate intra-
cooperative disputes; and the petitioner is hereby ordered to cease and desist from
taking any further proceedings therein; and

2. In the interest of justice, the dispositive portion of the Resolution of the Court of
Appeals, dated February 9, 1999, in CA-G.R. SP No. 47933, insofar as it nullified the
elections of the members of the Board of Directors and Officers of DARBCI held
during the general assembly of the DARBCI members on July 12, 1998, is hereby
SET ASIDE.

No pronouncement as to costs.

Page 213 of 547

G.R. Nos. 120865-71 December 7, 1995

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE HERCULANO TECH, PRESIDING JUDGE, BRANCH 70,
REGIONAL TRIAL COURT OF BINANGONAN RIZAL; FLEET DEVELOPMENT, INC. and
CARLITO ARROYO; THE MUNICIPALITY OF BINANGONAN and/or MAYOR ISIDRO B.
PACIS, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE AURELIO C. TRAMPE, PRESIDING JUDGE, BRANCH 163,
REGIONAL TRIAL COURT OF PASIG; MANILA MARINE LIFE BUSINESS RESOURCES, INC.
represented by, MR. TOBIAS REYNALD M. TIANGCO; MUNICIPALITY OF TAGUIG, METRO
MANILA and/or MAYOR RICARDO D. PAPA, JR., respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ALEJANDRO A. MARQUEZ, PRESIDING JUDGE,
BRANCH 79, REGIONAL TRIAL COURT OF MORONG, RIZAL; GREENFIELD VENTURES
INDUSTRIAL DEVELOPMENT CORPORATION and R. J. ORION DEVELOPMENT
CORPORATION; MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO M. DE LA
VEGA, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE MANUEL S. PADOLINA, PRESIDING JUDGE, BRANCH
162, REGIONAL TRIAL COURT OF PASIG, METRO MANILA; IRMA FISHING & TRADING
CORP.; ARTM FISHING CORP.; BDR CORPORATION, MIRT CORPORATION and TRIM
CORPORATION; MUNICIPALITY OF BINANGONAN and/or MAYOR ISIDRO B.
PACIS, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE, PRESIDING JUDGE, BRANCH 78,
REGIONAL TRIAL COURT OF MORONG, RIZAL; BLUE LAGOON FISHING CORP. and ALCRIS
CHICKEN GROWERS, INC.; MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO M. DE
LA VEGA, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE, PRESIDING JUDGE, BRANCH 78,
REGIONAL TRIAL COURT OF MORONG, RIZAL; AGP FISH VENTURES, INC., represented by
its PRESIDENT ALFONSO PUYAT; MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO
M. DE LA VEGA, respondents.

Page 214 of 547

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE EUGENIO S. LABITORIA, PRESIDING JUDGE, BRANCH
161, REGIONAL TRIAL COURT OF PASIG, METRO MANILA; SEA MAR TRADING CO. INC.;
EASTERN LAGOON FISHING CORP.; MINAMAR FISHING CORP.; MUNICIPALITY OF
BINANGONAN and/or MAYOR ISIDRO B. PACIS,respondents.

HERMOSISIMA, JR., J.:

It is difficult for a man, scavenging on the garbage dump created by affluence and profligate
consumption and extravagance of the rich or fishing in the murky waters of the Pasig River and the
Laguna Lake or making a clearing in the forest so that he can produce food for his family, to
understand why protecting birds, fish, and trees is more important than protecting him and keeping
his family alive.

How do we strike a balance between environmental protection, on the one hand, and the individual
personal interests of people, on the other?

Towards environmental protection and ecology, navigational safety, and sustainable development,
Republic Act No. 4850 created the "Laguna Lake Development Authority." This Government Agency
is supposed to carry out and effectuate the aforesaid declared policy, so as to accelerate the
development and balanced growth of the Laguna Lake area and the surrounding provinces, cities
and towns, in the act clearly named, within the context of the national and regional plans and policies
for social and economic development.

Presidential Decree No. 813 of former President Ferdinand E. Marcos amended certain sections of
Republic Act No. 4850 because of the concern for the rapid expansion of Metropolitan Manila, the
suburbs and the lakeshore towns of Laguna de Bay, combined with current and prospective uses of
the lake for municipal-industrial water supply, irrigation, fisheries, and the like. Concern on the part of
the Government and the general public over: the environment impact of development on the
water quality and ecology of the lake and its related river systems; the inflow of polluted water from
the Pasig River, industrial, domestic and agricultural wastes from developed areas around the lake;
the increasing urbanization which induced the deterioration of the lake, since water quality studies
have shown that the lake will deteriorate further if steps are not taken to check the same; and the
floods in Metropolitan Manila area and the lakeshore towns which will influence the hydraulic system
of Laguna de Bay, since any scheme of controlling the floods will necessarily involve the lake and its
river systems, likewise gave impetus to the creation of the Authority.

Section 1 of Republic Act No. 4850 was amended to read as follows:

Sec. 1. Declaration of Policy. It is hereby declared to be the national policy to

promote, and accelerate the development and balanced growth of the Laguna Lake
area and the surrounding provinces, cities and towns hereinafter referred to as the
region, within the context of the national and regional plans and policies for social
and economic development and to carry out the development of the Laguna Lake
region with due regard and adequate provisions for environmental management and

Page 215 of 547

 control, preservation of the quality of human life and ecological systems, and the
prevention of undue ecological disturbances, deterioration and pollution. 1

Special powers of the Authority, pertinent to the issues in this case, include:

Sec. 3. Section 4 of the same Act is hereby further amended by adding thereto seven
new paragraphs to be known as paragraphs (j), (k), (l), (m), (n), (o), and (p) which
shall read as follows:

xxx xxx xxx

(j) The provisions of existing laws to the contrary notwithstanding, to

engage in fish production and other aqua-culture projects in Laguna
de Bay and other bodies of water within its jurisdiction and in
pursuance thereof to conduct studies and make experiments,
whenever necessary, with the collaboration and assistance of the
Bureau of Fisheries and Aquatic Resources, with the end in view of
improving present techniques and practices.Provided, that until
modified, altered or amended by the procedure provided in the
following sub-paragraph, the present laws, rules and permits or
authorizations remain in force;

(k) For the purpose of effectively regulating and monitoring activities

in Laguna de Bay, the Authority shall have exclusive jurisdiction to
issue new permit for the use of the lake waters for any projects or
activities in or affecting the said lake including navigation,
construction, and operation of fishpens, fish enclosures, fish corrals
and the like, and to impose necessary safeguards for lake quality
control and management and to collect necessary fees for said
activities and projects: Provided, That the fees collected for fisheries
may be shared between the Authority and other government
agencies and political sub-divisions in such proportion as may be
determined by the President of the Philippines upon recommendation
of the Authority's Board: Provided, further, That the Authority's Board
may determine new areas of fishery development or activities which it
may place under the supervision of the Bureau of Fisheries and
Aquatic Resources taking into account the overall development plans
and programs for Laguna de Bay and related bodies of
water: Provided, finally, That the Authority shall subject to the
approval of the President of the Philippines promulgate such rules
and regulations which shall govern fisheries development activities in
Laguna de Bay which shall take into consideration among others the
following: socio-economic amelioration of bonafide resident
fishermen whether individually or collectively in the form of
cooperatives, lakeshore town development, a master plan for fishpen
construction and operation, communal fishing ground for lake shore
town residents, and preference to lake shore town residents in hiring
laborer for fishery projects;

Page 216 of 547

 (l) To require the cities and municipalities embraced within the region
to pass appropriate zoning ordinances and other regulatory
measures necessary to carry out the objectives of the Authority and
enforce the same with the assistance of the Authority;

(m) The provisions of existing laws to the contrary notwithstanding, to

exercise water rights over public waters within the Laguna de Bay
region whenever necessary to carry out the Authority's projects;

(n) To act in coordination with existing governmental agencies in

establishing water quality standards for industrial, agricultural and
municipal waste discharges into the lake and to cooperate with said
existing agencies of the government of the Philippines in enforcing
such standards, or to separately pursue enforcement and penalty
actions as provided for in Section 4 (d) and Section 39-A of this
Act: Provided, That in case of conflict on the appropriate water quality
standard to be enforced such conflict shall be resolved thru the NEDA
Board. 2

To more effectively perform the role of the Authority under Republic Act No. 4850, as though
Presidential Decree No. 813 were not thought to be completely effective, the Chief Executive, feeling
that the land and waters of the Laguna Lake Region are limited natural resources requiring judicious
management to their optimal utilization to insure renewability and to preserve the ecological balance,
the competing options for the use of such resources and conflicting jurisdictions over such uses
having created undue constraints on the institutional capabilities of the Authority in the light of the
limited powers vested in it by its charter, Executive Order No. 927 further defined and enlarged the
functions and powers of the Authority and named and enumerated the towns, cities and provinces
encompassed by the term "Laguna de Bay Region".

Also, pertinent to the issues in this case are the following provisions of Executive Order No. 927
which include in particular the sharing of fees:

Sec 2. Water Rights Over Laguna de Bay and Other Bodies of Water within the Lake
Region: To effectively regulate and monitor activities in the Laguna de Bay region,
the Authority shall have exclusive jurisdiction to issue permit for the use of all surface
water for any projects or activities in or affecting the said region including navigation,
construction, and operation of fishpens, fish enclosures, fish corrals and the like.

For the purpose of this Executive Order, the term "Laguna de Bay Region" shall refer
to the Provinces of Rizal and Laguna; the Cities of San Pablo, Pasay, Caloocan,
Quezon, Manila and Tagaytay; the towns of Tanauan, Sto. Tomas and Malvar in
Batangas Province; the towns of Silang and Carmona in Cavite Province; the town of
Lucban in Quezon Province; and the towns of Marikina, Pasig, Taguig, Muntinlupa,
and Pateros in Metro Manila.

Sec 3. Collection of Fees. The Authority is hereby empowered to collect fees for the
use of the lake water and its tributaries for all beneficial purposes including but not
limited to fisheries, recreation, municipal, industrial, agricultural, navigation, irrigation,
and waste disposal purpose; Provided, that the rates of the fees to be collected, and

Page 217 of 547

 the sharing with other government agencies and political subdivisions, if necessary,
shall be subject to the approval of the President of the Philippines upon
recommendation of the Authority's Board, except fishpen fee, which will be shared in
the following manner; 20 percent of the fee shall go to the lakeshore local
governments, 5 percent shall go to the Project Development Fund which shall be
administered by a Council and the remaining 75 percent shall constitute the share of
LLDA. However, after the implementation within the three-year period of the Laguna
Lake Fishery Zoning and Management Plan, the sharing will be modified as
follows: 35 percent of the fishpen fee goes to the lakeshore local governments, 5
percent goes to the Project Development Fund and the remaining 60 percent shall be
retained by LLDA; Provided, however, that the share of LLDA shall form part of its
corporate funds and shall not be remitted to the National Treasury as an exception to
the provisions of Presidential Decree No. 1234. (Emphasis supplied)

It is important to note that Section 29 of Presidential Decree No. 813 defined the term "Laguna Lake"
in this manner:

Sec 41. Definition of Terms.

(11) Laguna Lake or Lake. Whenever Laguna Lake or lake is used in this Act, the
same shall refer to Laguna de Bay which is that area covered by the lake water when
it is at the average annual maximum lake level of elevation 12.50 meters, as referred
to a datum 10.00 meters below mean lower low water (M.L.L.W). Lands located at
and below such elevation are public lands which form part of the bed of said lake.

Then came Republic Act No. 7160, the Local Government Code of 1991. The municipalities in the
Laguna Lake Region interpreted the provisions of this law to mean that the newly passed law gave
municipal governments the exclusive jurisdiction to issue fishing privileges within their municipal
waters because R.A. 7160 provides:

Sec. 149. Fishery Rentals, Fees and Charges.

(a) Municipalities shall have the exclusive authority to grant fishery privileges in the
municipal waters and impose rental fees or charges therefor in accordance with the
provisions of this Section.

(b) The Sangguniang Bayan may:

(1) Grant fishing privileges to erect fish corrals, oyster, mussel or

other aquatic beds or bangus fry areas, within a definite zone of the
municipal waters, as determined by it; . . . .

(2) Grant privilege to gather, take or catch bangus fry, prawn fry
or kawag-kawag or fry of other species and fish from the municipal
waters by nets, traps or other fishing gears to marginal fishermen free
from any rental fee, charges or any other imposition whatsoever.

xxx xxx xxx

Page 218 of 547

 Sec. 447. Power, Duties, Functions and Compensation. . . . .

xxx xxx xxx

(XI) Subject to the provisions of Book II of this Code, grant exclusive

privileges of constructing fish corrals or fishpens, or the taking or
catching of bangus fry, prawn fry orkawag-kawag or fry of any
species or fish within the municipal waters.

xxx xxx xxx

Municipal governments thereupon assumed the authority to issue fishing privileges and fishpen
permits. Big fishpen operators took advantage of the occasion to establish fishpens and fishcages to
the consternation of the Authority. Unregulated fishpens and fishcages, as of July, 1995, occupied
almost one-third of the entire lake water surface area, increasing the occupation drastically from
7,000 hectares in 1990 to almost 21,000 hectares in 1995. The Mayor's permit to construct fishpens
and fishcages were all undertaken in violation of the policies adopted by the Authority on fishpen
zoning and the Laguna Lake carrying capacity.

To be sure, the implementation by the lakeshore municipalities of separate independent policies in

the operation of fishpens and fishcages within their claimed territorial municipal waters in the lake
and their indiscriminate grant of fishpen permits have already saturated the lake area with fishpens,
thereby aggravating the current environmental problems and ecological stress of Laguna Lake.

In view of the foregoing circumstances, the Authority served notice to the general public that:

In compliance with the instructions of His Excellency PRESIDENT FIDEL V. RAMOS

given on June 23, 1993 at Pila, Laguna pursuant to Republic Act 4850 as amended
by Presidential Decree 813 and Executive Order 927 series of 1983 and in line with
the policies and programs of the Presidential Task Force on Illegal Fishpens and
Illegal Fishing, the general public is hereby notified that:

1. All fishpens, fishcages and other aqua-culture structures in the Laguna de Bay
Region, which were not registered or to which no application for registration and/or
permit has been filed with Laguna Lake Development Authority as of March 31, 1993
are hereby declared outrightly as illegal.

2. All fishpens, fishcages and other aqua-culture structures so declared as illegal

shall be subject to demolition which shall be undertaken by the Presidential Task
Force for Illegal Fishpen and Illegal Fishing.

3. Owners of fishpens, fishcages and other aqua-culture structures declared as

illegal shall, without prejudice to demolition of their structures be criminally charged in
accordance with Section 39-A of Republic Act 4850 as amended by P.D. 813 for
violation of the same laws. Violations of these laws carries a penalty of imprisonment
of not exceeding 3 years or a fine not exceeding Five Thousand Pesos or both at the
discretion of the court.

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 All operators of fishpens, fishcages and other aqua-culture structures declared as
illegal in accordance with the foregoing Notice shall have one (1) month on or before
27 October 1993 to show cause before the LLDA why their said fishpens, fishcages
and other aqua-culture structures should not be demolished/dismantled.

One month, thereafter, the Authority sent notices to the concerned owners of the illegally constructed
fishpens, fishcages and other aqua-culture structures advising them to dismantle their respective
structures within 10 days from receipt thereof, otherwise, demolition shall be effected.

Reacting thereto, the affected fishpen owners filed injunction cases against the Authority before
various regional trial courts, to wit: (a) Civil Case No. 759-B, for Prohibition, Injunction and Damages,
Regional Trial Court, Branch 70, Binangonan, Rizal, filed by Fleet Development, Inc. and Carlito
Arroyo; (b) Civil Case No. 64049, for Injunction, Regional Trial Court, Branch 162, Pasig, filed by
IRMA Fishing and Trading Corp., ARTM Fishing Corp., BDR Corp., MIRT Corp. and TRIM Corp.; (c)
Civil Case No. 566, for Declaratory Relief and Injunction, Regional Trial Court, Branch 163, Pasig,
filed by Manila Marine Life Business Resources, Inc. and Tobias Reynaldo M. Tianco; (d) Civil Case
No. 556-M, for Prohibition, Injunction and Damages, Regional Trial Court, Branch 78, Morong, Rizal,
filed by AGP Fishing Ventures, Inc.; (e) Civil Case No. 522-M, for Prohibition, Injunction and
Damages, Regional Trial Court, Branch 78, Morong, Rizal, filed by Blue Lagoon and Alcris Chicken
Growers, Inc.; (f) Civil Case No. 554-, forCertiorari and Prohibition, Regional Trial Court, Branch 79,
Morong, Rizal, filed by Greenfields Ventures Industrial Corp. and R.J. Orion Development Corp.; and
(g) Civil Case No. 64124, for Injunction, Regional Trial Court, Branch 15, Pasig, filed by SEA-MAR
Trading Co., Inc. and Eastern Lagoon Fishing Corp. and Minamar Fishing Corporation.

The Authority filed motions to dismiss the cases against it on jurisdictional grounds. The motions to
dismiss were invariably denied. Meanwhile, temporary restraining order/writs of preliminary
mandatory injunction were issued in Civil Cases Nos. 64124, 759 and 566 enjoining the Authority
from demolishing the fishpens and similar structures in question.

Hence, the herein petition for certiorari, prohibition and injunction, G.R. Nos. 120865-71, were filed
by the Authority with this court. Impleaded as parties-respondents are concerned regional trial courts
and respective private parties, and the municipalities and/or respective Mayors of Binangonan,
Taguig and Jala-jala, who issued permits for the construction and operation of fishpens in Laguna de
Bay. The Authority sought the following reliefs, viz.:

(A) Nullification of the temporary restraining order/writs of preliminary injunction

issued in Civil Cases Nos. 64125, 759 and 566;

(B) Permanent prohibition against the regional trial courts from exercising jurisdiction
over cases involving the Authority which is a co-equal body;

(C) Judicial pronouncement that R.A. 7610 (Local Government Code of 1991) did not
repeal, alter or modify the provisions of R.A. 4850, as amended, empowering the
Authority to issue permits for fishpens, fishcages and other aqua-culture structures in
Laguna de Bay and that, the Authority the government agency vested with exclusive
authority to issue said permits.

By this Court's resolution of May 2, 1994, the Authority's consolidated petitions were referred to the
Court of Appeals.

Page 220 of 547

In a Decision, dated June 29, 1995, the Court of Appeals dismissed the Authority's consolidated
petitions, the Court of Appeals holding that: (A) LLDA is not among those quasi-judicial agencies of
government whose decision or order are appealable only to the Court of Appeals; (B) the LLDA
charter does vest LLDA with quasi-judicial functions insofar as fishpens are concerned; (C) the
provisions of the LLDA charter insofar as fishing privileges in Laguna de Bay are concerned had
been repealed by the Local Government Code of 1991; (D) in view of the aforesaid repeal, the
power to grant permits devolved to and is now vested with their respective local government units
concerned.

Not satisfied with the Court of Appeals decision, the Authority has returned to this Court charging the
following errors:

1. THE HONORABLE COURT OF APPEALS PROBABLY COMMITTED AN ERROR

WHEN IT RULED THAT THE LAGUNA LAKE DEVELOPMENT AUTHORITY IS NOT
A QUASI-JUDICIAL AGENCY.

2. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR

WHEN IT RULED THAT R.A. 4850 AS AMENDED BY P.D. 813 AND E.O. 927
SERIES OF 1983 HAS BEEN REPEALED BY REPUBLIC ACT 7160. THE SAID
RULING IS CONTRARY TO ESTABLISHED PRINCIPLES AND JURISPRUDENCE
OF STATUTORY CONSTRUCTION.

3. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR

WHEN IT RULED THAT THE POWER TO ISSUE FISHPEN PERMITS IN LAGUNA
DE BAY HAS BEEN DEVOLVED TO CONCERNED (LAKESHORE) LOCAL
GOVERNMENT UNITS.

We take a simplistic view of the controversy. Actually, the main and only issue posed is: Which
agency of the Government the Laguna Lake Development Authority or the towns and
municipalities comprising the region should exercise jurisdiction over the Laguna Lake and its
environs insofar as the issuance of permits for fishery privileges is concerned?

Section 4 (k) of the charter of the Laguna Lake Development Authority, Republic Act No. 4850, the
provisions of Presidential Decree No. 813, and Section 2 of Executive Order No. 927, cited above,
specifically provide that the Laguna Lake Development Authority shall have exclusive jurisdiction to
issue permits for the use of all surface water for any projects or activities in or affecting the said
region, including navigation, construction, and operation of fishpens, fish enclosures, fish corrals and
the like. On the other hand, Republic Act No. 7160, the Local Government Code of 1991, has
granted to the municipalities the exclusive authority to grant fishery privileges in municipal waters.
The Sangguniang Bayan may grant fishery privileges to erect fish corrals, oyster, mussels or other
aquatic beds or bangus fry area within a definite zone of the municipal waters.

We hold that the provisions of Republic Act No. 7160 do not necessarily repeal the aforementioned
laws creating the Laguna Lake Development Authority and granting the latter water rights authority
over Laguna de Bay and the lake region.

The Local Government Code of 1991 does not contain any express provision which categorically
expressly repeal the charter of the Authority. It has to be conceded that there was no intent on the

Page 221 of 547

part of the legislature to repeal Republic Act No. 4850 and its amendments. The repeal of laws
should be made clear and expressed.

It has to be conceded that the charter of the Laguna Lake Development Authority constitutes a
special law. Republic Act No. 7160, the Local Government Code of 1991, is a general law. It is basic
in statutory construction that the enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. It is a well-settled rule in this jurisdiction that "a special
statute, provided for a particular case or class of cases, is not repealed by a subsequent statute,
general in its terms, provisions and application, unless the intent to repeal or alter is manifest,
although the terms of the general law are broad enough to include the cases embraced in the
special law." 3

Where there is a conflict between a general law and a special statute, the special statute should
prevail since it evinces the legislative intent more clearly than the general statute. The special law is
to be taken as an exception to the general law in the absence of special circumstances forcing a
contrary conclusion. This is because implied repeals are not favored and as much as possible, effect
must be given to all enactments of the legislature. A special law cannot be repealed, amended or
altered by a subsequent general law by mere implication. 4

Thus, it has to be concluded that the charter of the Authority should prevail over the Local
Government Code of 1991.

Considering the reasons behind the establishment of the Authority, which are environmental
protection, navigational safety, and sustainable development, there is every indication that the
legislative intent is for the Authority to proceed with its mission.

We are on all fours with the manifestation of petitioner Laguna Lake Development Authority that
"Laguna de Bay, like any other single body of water has its own unique natural ecosystem. The 900
km lake surface water, the eight (8) major river tributaries and several other smaller rivers that drain
into the lake, the 2,920 km basin or watershed transcending the boundaries of Laguna and Rizal
provinces, greater portion of Metro Manila, parts of Cavite, Batangas, and Quezon provinces,
constitute one integrated delicate natural ecosystem that needs to be protected with uniform set of
policies; if we are to be serious in our aims of attaining sustainable development. This is an
exhaustible natural resource a very limited one which requires judicious management and
optimal utilization to ensure renewability and preserve its ecological integrity and balance."

"Managing the lake resources would mean the implementation of a national policy geared towards
the protection, conservation, balanced growth and sustainable development of the region with due
regard to the inter-generational use of its resources by the inhabitants in this part of the earth. The
authors of Republic Act 4850 have foreseen this need when they passed this LLDA law the
special law designed to govern the management of our Laguna de Bay lake resources."

"Laguna de Bay therefore cannot be subjected to fragmented concepts of management policies

where lakeshore local government units exercise exclusive dominion over specific portions of the
lake water. The garbage thrown or sewage discharged into the lake, abstraction of water therefrom
or construction of fishpens by enclosing its certain area, affect not only that specific portion but the
entire 900 km of lake water. The implementation of a cohesive and integrated lake water resource
management policy, therefore, is necessary to conserve, protect and sustainably develop Laguna de
Bay." 5

Page 222 of 547

The power of the local government units to issue fishing privileges was clearly granted for revenue
purposes. This is evident from the fact that Section 149 of the New Local Government Code
empowering local governments to issue fishing permits is embodied in Chapter 2, Book II, of
Republic Act No. 7160 under the heading, "Specific Provisions On The Taxing And Other Revenue
Raising Power Of Local Government Units."

On the other hand, the power of the Authority to grant permits for fishpens, fishcages and other
aqua-culture structures is for the purpose of effectively regulating and monitoring activities in the
Laguna de Bay region (Section 2, Executive Order No. 927) and for lake quality control and
management. 6 It does partake of the nature of police power which is the most pervasive, the least
limitable and the most demanding of all State powers including the power of taxation. Accordingly, the
charter of the Authority which embodies a valid exercise of police power should prevail over the Local
Government Code of 1991 on matters affecting Laguna de Bay.

There should be no quarrel over permit fees for fishpens, fishcages and other aqua-culture
structures in the Laguna de Bay area. Section 3 of Executive Order No. 927 provides for the proper
sharing of fees collected.

In respect to the question as to whether the Authority is a quasi-judicial agency or not, it is our
holding that, considering the provisions of Section 4 of Republic Act No. 4850 and Section 4 of
Executive Order No. 927, series of 1983, and the ruling of this Court in Laguna Lake Development
Authority vs. Court of Appeals, 231 SCRA 304, 306, which we quote:

xxx xxx xxx

As a general rule, the adjudication of pollution cases generally pertains to the

Pollution Adjudication Board (PAB), except in cases where the special law provides
for another forum. It must be recognized in this regard that the LLDA, as a
specialized administrative agency, is specifically mandated under Republic Act No.
4850 and its amendatory laws to carry out and make effective the declared national
policy of promoting and accelerating the development and balanced growth of the
Laguna Lake area and the surrounding provinces of Rizal and Laguna and the cities
of San Pablo, Manila, Pasay, Quezon and Caloocan with due regard and adequate
provisions for environmental management and control, preservation of the quality of
human life and ecological systems, and the prevention of undue ecological
disturbances, deterioration and pollution. Under such a broad grant of power and
authority, the LLDA, by virtue of its special charter, obviously has the responsibility to
protect the inhabitants of the Laguna Lake region from the deleterious effects of
pollutants emanating from the discharge of wastes from the surrounding areas. In
carrying out the aforementioned declared policy, the LLDA is mandated, among
others, to pass upon and approve or disapprove all plans, programs, and projects
proposed by local government offices/agencies within the region, public corporations,
and private persons or enterprises where such plans, programs and/or projects are
related to those of the LLDA for the development of the region.

xxx xxx xxx

. . . . While it is a fundamental rule that an administrative agency has only such

powers as are expressly granted to it by law, it is likewise a settled rule that an

Page 223 of 547

 administrative agency has also such powers as are necessarily implied in the
exercise of its express powers. In the exercise, therefore, of its express powers
under its charter, as a regulatory and quasi-judicial body with respect to pollution
cases in the Laguna Lake region, the authority of the LLDA to issue a "cease and
desist order" is, perforce, implied. Otherwise, it may well be reduced to a "toothless"
paper agency.

there is no question that the Authority has express powers as a regulatory and quasi-judicial
body in respect to pollution cases with authority to issue a "cease and desist order" and on
matters affecting the construction of illegal fishpens, fishcages and other aqua-culture
structures in Laguna de Bay. The Authority's pretense, however, that it is co-equal to the
Regional Trial Courts such that all actions against it may only be instituted before the Court
of Appeals cannot be sustained. On actions necessitating the resolution of legal questions
affecting the powers of the Authority as provided for in its charter, the Regional Trial Courts
have jurisdiction.

In view of the foregoing, this Court holds that Section 149 of Republic Act No. 7160, otherwise
known as the Local Government Code of 1991, has not repealed the provisions of the charter of the
Laguna Lake Development Authority, Republic Act No. 4850, as amended. Thus, the Authority has
the exclusive jurisdiction to issue permits for the enjoyment of fishery privileges in Laguna de Bay to
the exclusion of municipalities situated therein and the authority to exercise such powers as are by
its charter vested on it.

Removal from the Authority of the aforesaid licensing authority will render nugatory its avowed
purpose of protecting and developing the Laguna Lake Region. Otherwise stated, the abrogation of
this power would render useless its reason for being and will in effect denigrate, if not abolish, the
Laguna Lake Development Authority. This, the Local Government Code of 1991 had never intended
to do.

WHEREFORE, the petitions for prohibition, certiorari and injunction are hereby granted, insofar as
they relate to the authority of the Laguna Lake Development Authority to grant fishing privileges
within the Laguna Lake Region.

The restraining orders and/or writs of injunction issued by Judge Arturo Marave, RTC, Branch 78,
Morong, Rizal; Judge Herculano Tech, RTC, Branch 70, Binangonan, Rizal; and Judge Aurelio
Trampe, RTC, Branch 163, Pasig, Metro Manila, are hereby declared null and void and ordered set
aside for having been issued with grave abuse of discretion.

The Municipal Mayors of the Laguna Lake Region are hereby prohibited from issuing permits to
construct and operate fishpens, fishcages and other aqua-culture structures within the Laguna Lake
Region, their previous issuances being declared null and void. Thus, the fishing permits issued by
Mayors Isidro B. Pacis, Municipality of Binangonan; Ricardo D. Papa, Municipality of Taguig; and
Walfredo M. de la Vega, Municipality of Jala-jala, specifically, are likewise declared null and void and
ordered cancelled.

The fishpens, fishcages and other aqua-culture structures put up by operators by virtue of permits
issued by Municipal Mayors within the Laguna Lake Region, specifically, permits issued to Fleet
Development, Inc. and Carlito Arroyo; Manila Marine Life Business Resources, Inc., represented by,
Mr. Tobias Reynald M. Tiangco; Greenfield Ventures Industrial Development Corporation and R.J.

Page 224 of 547

Orion Development Corporation; IRMA Fishing And Trading Corporation, ARTM Fishing Corporation,
BDR Corporation, Mirt Corporation and Trim Corporation; Blue Lagoon Fishing Corporation and
ALCRIS Chicken Growers, Inc.; AGP Fish Ventures, Inc., represented by its President Alfonso Puyat;
SEA MAR Trading Co., Inc., Eastern Lagoon Fishing Corporation, and MINAMAR Fishing
Corporation, are hereby declared illegal structures subject to demolition by the Laguna Lake
Development Authority.

SO ORDERED.

Davide, Jr., Bellosillo and Kapunan, JJ., concur.

EN BANC

G.R. No. 4349 September 24, 1908

THE UNITED STATES, plaintiff-appellee,

vs.
ANICETO BARRIAS, defendant-appellant.

Ortigas & Fisher for appellant.

Attorney-General Araneta for appellee.

Page 225 of 547

TRACEY, J.:

In the Court of First Instance of the city of Manila the defendant was charged within a violation of
paragraphs 70 and 83 of Circular No. 397 of the Insular Collector of Customs, duly published in the
Official Gazette and approved by the Secretary of Finance and Justice. 1 After a demurrer to the
complaint of the lighter Maude, he was moving her and directing her movement, when heavily laden,
in the Pasig River, by bamboo poles in the hands of the crew, and without steam, sail, or any other
external power. Paragraph 70 of Circular No. 397 reads as follows:

No heavily loaded casco, lighter, or other similar craft shall be permitted to move in the Pasig
River without being towed by steam or moved by other adequate power.

Paragraph 83 reads, in part, as follows:

For the violation of any part of the foregoing regulations, the persons offending shall be liable
to a fine of not less than P5 and not more than P500, in the discretion of the court.

In this court, counsel for the appellant attacked the validity of paragraph 70 on two grounds: First
that it is unauthorized by section 19 of Act No. 355; and, second, that if the acts of the Philippine
Commission bear the interpretation of authorizing the Collector to promulgate such a law, they are
void, as constituting an illegal delegation of legislative power.

The Attorney-General does not seek to sustain the conviction but joins with the counsel for the
defense in asking for the discharge of the prisoner on the first ground stated by the defense, that the
rule of the Collector cited was unauthorized and illegal, expressly passing over the other question of
the delegation of legislative power.

By sections 1, 2, and 3 of Act No. 1136, passed April 29, 1904, the Collector of Customs is
authorized to license craft engaged in the lighterage or other exclusively harbor business of the ports
of the Islands, and, with certain exceptions, all vessels engaged in lightering are required to be so
licensed. Sections 5 and 8 read as follows:

SEC. 5. The Collector of Customs for the Philippine Islands is hereby authorized,
empowered, and directed to promptly make and publish suitable rules and regulations to
carry this law into effect and to regulate the business herein licensed.

SEC. 8. Any person who shall violate the provisions of this Act, or of any rule or regulation
made and issued by the Collector of Customs for the Philippine Islands, under and by
authority of this Act, shall be deemed guilty of a misdemeanor, and upon conviction shall be
punished by imprisonment for not more than six months, or by a fine of not more than one
hundred dollars, United States currency, or by both such fine and imprisonment, at the
discretion of the court; Provided, That violations of law may be punished either by the
method prescribed in section seven hereof, or by that prescribed in this section or by both.

Under this statute, which was not referred to on the argument, or in the original briefs, there is no
difficulty in sustaining the regulation of the Collector as coming within the terms of section 5.
Lighterage, mentioned in the Act, is the very business in which this vessel was engaged, and when
heavily laden with hemp she was navigating the Pasig River below the Bridge of Spain, in the city of
Manila. This spot is near the mouth of the river, the docks whereof are used for the purpose of taking

Page 226 of 547

on and discharging freight, and we entertain no doubt that it was in right sense a part of the harbor,
without having recourse to the definition of paragraph 8 of Customs Administrative Circular No. 136,
which reads as follows:

The limits of a harbor for the purpose of licensing vessels as herein prescribed (for the
lighterage and harbor business) shall be considered to include its confluent navigable rivers
and lakes, which are navigable during any season of the year.

The necessity confiding to some local authority the framing, changing, and enforcing of harbor
regulations is recognized throughout the world, as each region and each a harbor requires peculiar
use more minute than could be enacted by the central lawmaking power, and which, when kept
within the proper scope, are in their nature police regulations not involving an undue grant of
legislative power.

The complaint in this instance was framed with reference, as its authority, to sections 311 and 319
[19 and 311] at No. 355 of the Philippine Customs Administrative Acts, as amended by Act Nos.
1235 and 1480. Under Act No. 1235, the Collector is not only empowered to make suitable
regulations, but also to "fix penalties for violation thereof," not exceeding a fine of P500.

This provision of the statute does, indeed, present a serious question.

One of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws can not be delegated by that department to any body or authority.
Where the sovereign power of the State has located the authority, there it must remain; only
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 intrusted can not relieve itself of the responsibility by choosing other agencies upon
which the power shall be developed, nor can its substitutes the judgment, wisdom, and
patriotism and of any other body for those to which alone the people have seen fit to confide
this sovereign trust. (Cooley's Constitutional limitations, 6th ed., p. 137.)

This doctrine is based on the ethical principle that such a delegated power constitutes not only a
right but a duty to be performed by the delegate by the instrumentality of his own judgment acting
immediately upon the matter of legislation and not through the intervening mind of another. In the
case of the United States vs. Breen (40 Fed. Phil. Rep. 402), an Act of Congress allowing the
Secretary of War to make such rules and regulations as might be necessary to protect improvements
of the Mississipi River, and providing that a violation thereof should constitute a misdemeanor, was
sustained on the ground that the misdemeanor was declared not under the delegated power of the
Secretary of War, but in the Act of Congress, itself. So also was a grant to him of power to prescribe
rules for the use of canals. (U.S. vs. Ormsbee, 74 Fed. Rep. 207.) but a law authorizing him to
require alteration of any bridge and to impose penalties for violations of his rules was held invalid, as
vesting in him upon a power exclusively lodged in Congress (U.S. vs. Rider, 50 Fed. Rep., 406.) The
subject is considered and some cases reviewed by the Supreme Court of the United States, in
re Kollock (165 U.S. 526), which upheld the law authorizing a commissioner of internal revenue to
designate and stamps on oleomargarine packages, an improper use of which should thereafter
constitute a crime or misdemeanor, the court saying (p. 533):

The criminal offense is fully and completely defined by the Act and the designation by the
Commissioner of the particular marks and brands to be used was a mere matter of detail.

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 The regulation was in execution of, or supplementary to, but not in conflict with the law
itself. . . .

In Massachusetts it has been decided that the legislature may delegate to the governor and counsel
the power to make pilot regulations. (Martin vs. Witherspoon et al., 135 Mass. 175).

In the case of The Board of Harbor Commissioners of the Port of Eureka vs. Excelsior Redwood
Company (88 Cal. 491), it was ruled that harbor commissioners can not impose a penalty under
statues authorizing them to do so, the court saying:

Conceding that the legislature could delegate to the plaintiff the authority to make rules and
regulation with reference to the navigation of Humboldt Bay, the penalty for the violation of
such rules and regulations is a matter purely in the hands of the legislature.

Having reached the conclusion that Act No. 1136 is valid, so far as sections 5 and 8 are concerned,
and is sufficient to sustain this prosecution, it is unnecessary that we should pass on the questions
discussed in the briefs as to the extend and validity of the other acts. The reference to them in the
complaint is not material, as we have frequently held that where an offense is correctly described in
the complaint an additional reference to a wrong statute is immaterial.

We are also of the opinion that none of the subsequent statutes cited operate to repeal the aforesaid
section Act No. 1136.

So much of the judgment of the Court of First Instance as convicts the defendant of a violation of
Acts Nos. 355 and 1235 is hereby revoked and is hereby convicted of a misdemeanor and punished
by a fine of 25 dollars, with costs of both instances. So ordered.

Arellano, C.J., Torres, Mapa and Willard, JJ., concur.

Carson, J., reserve his opinion.

G.R. No. L-45685 November 16, 1937

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THE PEOPLE OF THE PHILIPPINE ISLANDS and HONGKONG & SHANGHAI
BANKING CORPORATION, petitioners,
vs.
JOSE O. VERA, Judge . of the Court of First Instance of Manila, and MARIANO CU
UNJIENG,respondents.

Office of the Solicitor General Tuason and City Fiscal Diaz for the Government.
De Witt, Perkins and Ponce Enrile for the Hongkong and Shanghai Banking
Corporation.
Vicente J. Francisco, Feria and La O, Orense and Belmonte, and Gibbs and
McDonough for respondent Cu Unjieng.
No appearance for respondent Judge.

LAUREL, J.:

This is an original action instituted in this court on August 19, 1937, for the issuance of
the writ ofcertiorari and of prohibition to the Court of First Instance of Manila so that this
court may review the actuations of the aforesaid Court of First Instance in criminal case
No. 42649 entitled "The People of the Philippine Islands vs. Mariano Cu Unjieng, et al.",
more particularly the application of the defendant Mariano Cu Unjieng therein for
probation under the provisions of Act No. 4221, and thereafter prohibit the said Court of
First Instance from taking any further action or entertaining further the aforementioned
application for probation, to the end that the defendant Mariano Cu Unjieng may be
forthwith committed to prison in accordance with the final judgment of conviction
rendered by this court in said case (G. R. No. 41200). 1

Petitioners herein, the People of the Philippine and the Hongkong and Shanghai Banking
Corporation, are respectively the plaintiff and the offended party, and the respondent herein Mariano
Cu Unjieng is one of the defendants, in the criminal case entitled "The People of the Philippine
Islands vs. Mariano Cu Unjieng, et al.", criminal case No. 42649 of the Court of First Instance of
Manila and G.R. No. 41200 of this court. Respondent herein, Hon. Jose O. Vera, is the Judge ad
interim of the seventh branch of the Court of First Instance of Manila, who heard the application of
the defendant Mariano Cu Unjieng for probation in the aforesaid criminal case.

The information in the aforesaid criminal case was filed with the Court of First Instance of Manila on
October 15, 1931, petitioner herein Hongkong and Shanghai Banking Corporation intervening in the
case as private prosecutor. After a protracted trial unparalleled in the annals of Philippine
jurisprudence both in the length of time spent by the court as well as in the volume in the testimony
and the bulk of the exhibits presented, the Court of First Instance of Manila, on January 8, 1934,
rendered a judgment of conviction sentencing the defendant Mariano Cu Unjieng to indeterminate
penalty ranging from four years and two months of prision correccional to eight years of prision
mayor, to pay the costs and with reservation of civil action to the offended party, the Hongkong and
Shanghai Banking Corporation. Upon appeal, the court, on March 26, 1935, modified the sentence
to an indeterminate penalty of from five years and six months of prision correccional to seven years,

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six months and twenty-seven days of prision mayor, but affirmed the judgment in all other respects.
Mariano Cu Unjieng filed a motion for reconsideration and four successive motions for new trial
which were denied on December 17, 1935, and final judgment was accordingly entered on
December 18, 1935. The defendant thereupon sought to have the case elevated on certiorari to the
Supreme Court of the United States but the latter denied the petition for certiorari in
November, 1936. This court, on November 24, 1936, denied the petition subsequently filed
by the defendant for leave to file a second alternative motion for reconsideration or new trial and
thereafter remanded the case to the court of origin for execution of the judgment.

The instant proceedings have to do with the application for probation filed by the herein respondent
Mariano Cu Unjieng on November 27, 1936, before the trial court, under the provisions of Act
No. 4221 of the defunct Philippine Legislature. Herein respondent Mariano Cu Unjieng states in his
petition, inter alia, that he is innocent of the crime of which he was convicted, that he has no criminal
record and that he would observe good conduct in the future. The Court of First Instance of Manila,
Judge Pedro Tuason presiding, referred the application for probation of the Insular Probation Office
which recommended denial of the same June 18, 1937. Thereafter, the Court of First Instance of
Manila, seventh branch, Judge Jose O. Vera presiding, set the petition for hearing on April 5, 1937.

On April 2, 1937, the Fiscal of the City of Manila filed an opposition to the granting of probation to the
herein respondent Mariano Cu Unjieng. The private prosecution also filed an opposition on April 5,
1937, alleging, among other things, that Act No. 4221, assuming that it has not been repealed by
section 2 of Article XV of the Constitution, is nevertheless violative of section 1, subsection (1),
Article III of the Constitution guaranteeing equal protection of the laws for the reason that its
applicability is not uniform throughout the Islands and because section 11 of the said Act endows the
provincial boards with the power to make said law effective or otherwise in their respective or
otherwise in their respective provinces. The private prosecution also filed a supplementary
opposition on April 19, 1937, elaborating on the alleged unconstitutionality on Act No. 4221, as an
undue delegation of legislative power to the provincial boards of several provinces (sec. 1, Art. VI,
Constitution). The City Fiscal concurred in the opposition of the private prosecution except with
respect to the questions raised concerning the constitutionality of Act No. 4221.

On June 28, 1937, herein respondent Judge Jose O. Vera promulgated a resolution with a finding
that "las pruebas no han establecido de unamanera concluyente la culpabilidad del peticionario y
que todos los hechos probados no son inconsistentes o incongrentes con su inocencia" and
concludes that the herein respondent Mariano Cu Unjieng "es inocente por duda racional" of the
crime of which he stands convicted by this court in G.R. No. 41200, but denying the latter's petition
for probation for the reason that:

. . . Si este Juzgado concediera la poblacion solicitada por las circunstancias y la historia

social que se han expuesto en el cuerpo de esta resolucion, que hacen al peticionario
acreedor de la misma, una parte de la opinion publica, atizada por los recelos y las
suspicacias, podria levantarse indignada contra un sistema de probacion que permite atisbar
en los procedimientos ordinarios de una causa criminal perturbando la quietud y la eficacia
de las decisiones ya recaidas al traer a la superficie conclusiones enteramente differentes,
en menoscabo del interes publico que demanda el respeto de las leyes y del veredicto
judicial.

On July 3, 1937, counsel for the herein respondent Mariano Cu Unjieng filed an exception to the
resolution denying probation and a notice of intention to file a motion for reconsideration. An

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alternative motion for reconsideration or new trial was filed by counsel on July 13, 1937. This was
supplemented by an additional motion for reconsideration submitted on July 14, 1937. The aforesaid
motions were set for hearing on July 31, 1937, but said hearing was postponed at the petition of
counsel for the respondent Mariano Cu Unjieng because a motion for leave to intervene in the case
as amici curiae signed by thirty-three (thirty-four) attorneys had just been filed with the trial court.
Attorney Eulalio Chaves whose signature appears in the aforesaid motion subsequently filed a
petition for leave to withdraw his appearance as amicus curiae on the ground that the motion for
leave to intervene as amici curiae was circulated at a banquet given by counsel for Mariano Cu
Unjieng on the evening of July 30, 1937, and that he signed the same "without mature deliberation
and purely as a matter of courtesy to the person who invited me (him)."

On August 6, 1937, the Fiscal of the City of Manila filed a motion with the trial court for the issuance
of an order of execution of the judgment of this court in said case and forthwith to commit the herein
respondent Mariano Cu Unjieng to jail in obedience to said judgment.

On August 7, 1937, the private prosecution filed its opposition to the motion for leave to intervene
asamici curiae aforementioned, asking that a date be set for a hearing of the same and that, at all
events, said motion should be denied with respect to certain attorneys signing the same who were
members of the legal staff of the several counsel for Mariano Cu Unjieng. On August 10, 1937,
herein respondent Judge Jose O. Vera issued an order requiring all parties including the movants for
intervention as amici curiae to appear before the court on August 14, 1937. On the last-mentioned
date, the Fiscal of the City of Manila moved for the hearing of his motion for execution of judgment in
preference to the motion for leave to intervene as amici curiae but, upon objection of counsel for
Mariano Cu Unjieng, he moved for the postponement of the hearing of both motions. The
respondent judge thereupon set the hearing of the motion for execution on August 21, 1937, but
proceeded to consider the motion for leave to intervene as amici curiae as in order. Evidence as to
the circumstances under which said motion for leave to intervene as amici curiae was signed and
submitted to court was to have been heard on August 19, 1937. But at this juncture, herein
petitioners came to this court on extraordinary legal process to put an end to what they alleged was
an interminable proceeding in the Court of First Instance of Manila which fostered "the campaign of
the defendant Mariano Cu Unjieng for delay in the execution of the sentence imposed by this
Honorable Court on him, exposing the courts to criticism and ridicule because of the apparent
inability of the judicial machinery to make effective a final judgment of this court imposed on the
defendant Mariano Cu Unjieng."

The scheduled hearing before the trial court was accordingly suspended upon the issuance of a
temporary restraining order by this court on August 21, 1937.

To support their petition for the issuance of the extraordinary writs of certiorari and prohibition, herein
petitioners allege that the respondent judge has acted without jurisdiction or in excess of his
jurisdiction:

I. Because said respondent judge lacks the power to place respondent Mariano Cu Unjieng under
probation for the following reason:

(1) Under section 11 of Act No. 4221, the said of the Philippine Legislature is made to apply
only to the provinces of the Philippines; it nowhere states that it is to be made applicable to
chartered cities like the City of Manila.

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 (2) While section 37 of the Administrative Code contains a proviso to the effect that in the
absence of a special provision, the term "province" may be construed to include the City of
Manila for the purpose of giving effect to laws of general application, it is also true that Act
No. 4221 is not a law of general application because it is made to apply only to those
provinces in which the respective provincial boards shall have provided for the salary of a
probation officer.

(3) Even if the City of Manila were considered to be a province, still, Act No. 4221 would not
be applicable to it because it has provided for the salary of a probation officer as required by
section 11 thereof; it being immaterial that there is an Insular Probation Officer willing to act
for the City of Manila, said Probation Officer provided for in section 10 of Act No. 4221 being
different and distinct from the Probation Officer provided for in section 11 of the same Act.

II. Because even if the respondent judge originally had jurisdiction to entertain the application for
probation of the respondent Mariano Cu Unjieng, he nevertheless acted without jurisdiction or in
excess thereof in continuing to entertain the motion for reconsideration and by failing to commit
Mariano Cu Unjieng to prison after he had promulgated his resolution of June 28, 1937, denying
Mariano Cu Unjieng's application for probation, for the reason that:

(1) His jurisdiction and power in probation proceedings is limited by Act No. 4221 to the
granting or denying of applications for probation.

(2) After he had issued the order denying Mariano Cu Unjieng's petition for probation on
June 28, 1937, it became final and executory at the moment of its rendition.

(3) No right on appeal exists in such cases.

(4) The respondent judge lacks the power to grant a rehearing of said order or to modify or
change the same.

III. Because the respondent judge made a finding that Mariano Cu Unjieng is innocent of the crime
for which he was convicted by final judgment of this court, which finding is not only presumptuous
but without foundation in fact and in law, and is furthermore in contempt of this court and a violation
of the respondent's oath of office as ad interim judge of first instance.

IV. Because the respondent judge has violated and continues to violate his duty, which became
imperative when he issued his order of June 28, 1937, denying the application for probation, to
commit his co-respondent to jail.

Petitioners also avers that they have no other plain, speedy and adequate remedy in the ordinary
course of law.

In a supplementary petition filed on September 9, 1937, the petitioner Hongkong and Shanghai
Banking Corporation further contends that Act No. 4221 of the Philippine Legislature providing for a
system of probation for persons eighteen years of age or over who are convicted of crime, is
unconstitutional because it is violative of section 1, subsection (1), Article III, of the Constitution of
the Philippines guaranteeing equal protection of the laws because it confers upon the provincial
board of its province the absolute discretion to make said law operative or otherwise in their
respective provinces, because it constitutes an unlawful and improper delegation to the provincial

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boards of the several provinces of the legislative power lodged by the Jones Law (section 8) in the
Philippine Legislature and by the Constitution (section 1, Art. VI) in the National Assembly; and for
the further reason that it gives the provincial boards, in contravention of the Constitution (section 2,
Art. VIII) and the Jones Law (section 28), the authority to enlarge the powers of the Court of First
Instance of different provinces without uniformity. In another supplementary petition dated
September 14, 1937, the Fiscal of the City of Manila, in behalf of one of the petitioners, the People of
the Philippine Islands, concurs for the first time with the issues raised by other petitioner regarding
the constitutionality of Act No. 4221, and on the oral argument held on October 6, 1937, further
elaborated on the theory that probation is a form of reprieve and therefore Act. No. 4221 is an
encroachment on the exclusive power of the Chief Executive to grant pardons and reprieves. On
October 7, 1937, the City Fiscal filed two memorandums in which he contended that Act No. 4221
not only encroaches upon the pardoning power to the executive, but also constitute an unwarranted
delegation of legislative power and a denial of the equal protection of the laws. On October 9, 1937,
two memorandums, signed jointly by the City Fiscal and the Solicitor-General, acting in behalf of the
People of the Philippine Islands, and by counsel for the petitioner, the Hongkong and Shanghai
Banking Corporation, one sustaining the power of the state to impugn the validity of its own laws and
the other contending that Act No. 4221 constitutes an unwarranted delegation of legislative power,
were presented. Another joint memorandum was filed by the same persons on the same day,
October 9, 1937, alleging that Act No. 4221 is unconstitutional because it denies the equal protection
of the laws and constitutes an unlawful delegation of legislative power and, further, that the whole
Act is void: that the Commonwealth is not estopped from questioning the validity of its laws; that the
private prosecution may intervene in probation proceedings and may attack the probation law as
unconstitutional; and that this court may pass upon the constitutional question in prohibition
proceedings.

Respondents in their answer dated August 31, 1937, as well as in their oral argument and
memorandums, challenge each and every one of the foregoing proposition raised by the petitioners.

As special defenses, respondents allege:

(1) That the present petition does not state facts sufficient in law to warrant the issuance of
the writ of certiorari or of prohibition.

(2) That the aforesaid petition is premature because the remedy sought by the petitioners is
the very same remedy prayed for by them before the trial court and was still pending
resolution before the trial court when the present petition was filed with this court.

(3) That the petitioners having themselves raised the question as to the execution of
judgment before the trial court, said trial court has acquired exclusive jurisdiction to resolve
the same under the theory that its resolution denying probation is unappealable.

(4) That upon the hypothesis that this court has concurrent jurisdiction with the Court of First
Instance to decide the question as to whether or not the execution will lie, this court
nevertheless cannot exercise said jurisdiction while the Court of First Instance has assumed
jurisdiction over the same upon motion of herein petitioners themselves.

(5) That upon the procedure followed by the herein petitioners in seeking to deprive the trial
court of its jurisdiction over the case and elevate the proceedings to this court, should not be

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 tolerated because it impairs the authority and dignity of the trial court which court while sitting
in the probation cases is "a court of limited jurisdiction but of great dignity."

(6) That under the supposition that this court has jurisdiction to resolve the question
submitted to and pending resolution by the trial court, the present action would not lie
because the resolution of the trial court denying probation is appealable; for although the
Probation Law does not specifically provide that an applicant for probation may appeal from
a resolution of the Court of First Instance denying probation, still it is a general rule in this
jurisdiction that a final order, resolution or decision of an inferior court is appealable to the
superior court.

(7) That the resolution of the trial court denying probation of herein respondent Mariano Cu
Unjieng being appealable, the same had not become final and executory for the reason that
the said respondent had filed an alternative motion for reconsideration and new trial within
the requisite period of fifteen days, which motion the trial court was able to resolve in view of
the restraining order improvidently and erroneously issued by this court. lawphi1.net

(8) That the Fiscal of the City of Manila had by implication admitted that the resolution of the
trial court denying probation is not final and unappealable when he presented his answer to
the motion for reconsideration and agreed to the postponement of the hearing of the said
motion.

(9) That under the supposition that the order of the trial court denying probation is not
appealable, it is incumbent upon the accused to file an action for the issuance of the writ
of certiorari with mandamus, it appearing that the trial court, although it believed that the
accused was entitled to probation, nevertheless denied probation for fear of criticism
because the accused is a rich man; and that, before a petition forcertiorari grounded on an
irregular exercise of jurisdiction by the trial court could lie, it is incumbent upon the petitioner
to file a motion for reconsideration specifying the error committed so that the trial court could
have an opportunity to correct or cure the same.

(10) That on hypothesis that the resolution of this court is not appealable, the trial court
retains its jurisdiction within a reasonable time to correct or modify it in accordance with law
and justice; that this power to alter or modify an order or resolution is inherent in the courts
and may be exercise either motu proprio or upon petition of the proper party, the petition in
the latter case taking the form of a motion for reconsideration.

(11) That on the hypothesis that the resolution of the trial court is appealable as respondent
allege, said court cannot order execution of the same while it is on appeal, for then the
appeal would not be availing because the doors of probation will be closed from the moment
the accused commences to serve his sentence (Act No. 4221, sec. 1; U.S. vs. Cook, 19 Fed.
[2d], 827).

In their memorandums filed on October 23, 1937, counsel for the respondents maintain that Act No.
4221 is constitutional because, contrary to the allegations of the petitioners, it does not constitute an
undue delegation of legislative power, does not infringe the equal protection clause of the
Constitution, and does not encroach upon the pardoning power of the Executive. In an additional
memorandum filed on the same date, counsel for the respondents reiterate the view that section 11
of Act No. 4221 is free from constitutional objections and contend, in addition, that the private

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prosecution may not intervene in probation proceedings, much less question the validity of Act No.
4221; that both the City Fiscal and the Solicitor-General are estopped from questioning the validity of
the Act; that the validity of Act cannot be attacked for the first time before this court; that probation in
unavailable; and that, in any event, section 11 of the Act No. 4221 is separable from the rest of the
Act. The last memorandum for the respondent Mariano Cu Unjieng was denied for having been filed
out of time but was admitted by resolution of this court and filed anew on November 5, 1937.
This memorandum elaborates on some of the points raised by the respondents and refutes those
brought up by the petitioners.

In the scrutiny of the pleadings and examination of the various aspects of the present case, we
noted that the court below, in passing upon the merits of the application of the respondent Mariano
Cu Unjieng and in denying said application assumed the task not only of considering the merits of
the application, but of passing upon the culpability of the applicant, notwithstanding the final
pronouncement of guilt by this court. (G.R. No. 41200.) Probation implies guilt be final judgment.
While a probation case may look into the circumstances attending the commission of the offense,
this does not authorize it to reverse the findings and conclusive of this court, either directly or
indirectly, especially wherefrom its own admission reliance was merely had on the printed briefs,
averments, and pleadings of the parties. As already observed by this court in Shioji vs.
Harvey ([1922], 43 Phil., 333, 337), and reiterated in subsequent cases, "if each and every Court of
First Instance could enjoy the privilege of overruling decisions of the Supreme Court, there would be
no end to litigation, and judicial chaos would result." A becoming modesty of inferior courts demands
conscious realization of the position that they occupy in the interrelation and operation of the
intergrated judicial system of the nation.

After threshing carefully the multifarious issues raised by both counsel for the petitioners and the
respondents, this court prefers to cut the Gordian knot and take up at once the two fundamental
questions presented, namely, (1) whether or not the constitutionality of Act No. 4221 has been
properly raised in these proceedings; and (2) in the affirmative, whether or not said Act is
constitutional. Considerations of these issues will involve a discussion of certain incidental questions
raised by the parties.

To arrive at a correct conclusion on the first question, resort to certain guiding principles is
necessary. It is a well-settled rule that the constitutionality of an act of the legislature will not be
determined by the courts unless that question is properly raised and presented inappropriate cases
and is necessary to a determination of the case; i.e., the issue of constitutionality must be the
very lis mota presented. (McGirr vs. Hamilton and Abreu [1915], 30 Phil., 563, 568; 6 R. C. L., pp.
76, 77; 12 C. J., pp. 780-782, 783.)

The question of the constitutionality of an act of the legislature is frequently raised in ordinary
actions. Nevertheless, resort may be made to extraordinary legal remedies, particularly where the
remedies in the ordinary course of law even if available, are not plain, speedy and adequate. Thus,
in Cu Unjieng vs. Patstone ([1922]), 42 Phil., 818), this court held that the question of the
constitutionality of a statute may be raised by the petitioner in mandamus proceedings (see, also, 12
C. J., p. 783); and inGovernment of the Philippine Islands vs. Springer ([1927], 50 Phil., 259
[affirmed in Springer vs. Government of the Philippine Islands (1928), 277 U. S., 189; 72 Law. ed.,
845]), this court declared an act of the legislature unconstitutional in an action of quo
warranto brought in the name of the Government of the Philippines. It has also been held that the
constitutionality of a statute may be questioned in habeas corpus proceedings (12 C. J., p. 783;
Bailey on Habeas Corpus, Vol. I, pp. 97, 117), although there are authorities to the contrary; on an

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application for injunction to restrain action under the challenged statute (mandatory, see Cruz vs.
Youngberg [1931], 56 Phil., 234); and even on an application for preliminary injunction where the
determination of the constitutional question is necessary to a decision of the case. (12 C. J., p. 783.)
The same may be said as regards prohibitionand certiorari.(Yu Cong Eng vs. Trinidad [1925], 47
Phil., 385; [1926], 271 U. S., 500; 70 Law. ed., 1059; Bell vs. First Judicial District Court [1905], 28
Nev., 280; 81 Pac., 875; 113 A. S. R., 854; 6 Ann. Cas., 982; 1 L. R. A. [N. S], 843, and cases cited).
The case of Yu Cong Eng vs. Trinidad, supra, decided by this court twelve years ago was, like the
present one, an original action for certiorari and prohibition. The constitutionality of Act No. 2972,
popularly known as the Chinese Bookkeeping Law, was there challenged by the petitioners, and the
constitutional issue was not met squarely by the respondent in a demurrer. A point was raised
"relating to the propriety of the constitutional question being decided in original proceedings in
prohibition." This court decided to take up the constitutional question and, with two justices
dissenting, held that Act No. 2972 was constitutional. The case was elevated on writ of certiorari to
the Supreme Court of the United States which reversed the judgment of this court and held that the
Act was invalid. (271 U. S., 500; 70 Law. ed., 1059.) On the question of jurisdiction, however, the
Federal Supreme Court, though its Chief Justice, said:

By the Code of Civil Procedure of the Philippine Islands, section 516, the Philippine supreme
court is granted concurrent jurisdiction in prohibition with courts of first instance over inferior
tribunals or persons, and original jurisdiction over courts of first instance, when such courts
are exercising functions without or in excess of their jurisdiction. It has been held by that
court that the question of the validity of the criminal statute must usually be raised by a
defendant in the trial court and be carried regularly in review to the Supreme Court.
(Cadwallader-Gibson Lumber Co. vs. Del Rosario, 26 Phil., 192). But in this case where a
new act seriously affected numerous persons and extensive property rights, and was likely to
cause a multiplicity of actions, the Supreme Court exercised its discretion to bring the issue
to the act's validity promptly before it and decide in the interest of the orderly administration
of justice. The court relied by analogy upon the cases of Ex parte Young (209 U. S., 123;52
Law ed., 714; 13 L. R. A. [N. S.] 932; 28 Sup. Ct. Rep., 441; 14 Ann. Ca., 764; Traux vs.
Raich, 239 U. S., 33; 60 Law. ed., 131; L. R. A. 1916D, 545; 36 Sup. Ct. Rep., 7; Ann. Cas.,
1917B, 283; and Wilson vs. New, 243 U. S., 332; 61 Law. ed., 755; L. R. A. 1917E, 938; 37
Sup. Ct. Rep., 298; Ann. Cas. 1918A, 1024). Although objection to the jurisdiction was raise
by demurrer to the petition, this is now disclaimed on behalf of the respondents, and both
parties ask a decision on the merits. In view of the broad powers in prohibition granted to
that court under the Island Code, we acquiesce in the desire of the parties.

The writ of prohibition is an extraordinary judicial writ issuing out of a court of superior jurisdiction
and directed to an inferior court, for the purpose of preventing the inferior tribunal from usurping a
jurisdiction with which it is not legally vested. (High, Extraordinary Legal Remedies, p. 705.) The
general rule, although there is a conflict in the cases, is that the merit of prohibition will not lie
whether the inferior court has jurisdiction independent of the statute the constitutionality of which is
questioned, because in such cases the interior court having jurisdiction may itself determine the
constitutionality of the statute, and its decision may be subject to review, and consequently the
complainant in such cases ordinarily has adequate remedy by appeal without resort to the writ of
prohibition. But where the inferior court or tribunal derives its jurisdiction exclusively from an
unconstitutional statute, it may be prevented by the writ of prohibition from enforcing that statute. (50
C. J., 670; Ex parte Round tree [1874, 51 Ala., 42; In re Macfarland, 30 App. [D. C.], 365; Curtis vs.
Cornish [1912], 109 Me., 384; 84 A., 799; Pennington vs. Woolfolk [1880], 79 Ky., 13; State vs.
Godfrey [1903], 54 W. Va., 54; 46 S. E., 185; Arnold vs. Shields [1837], 5 Dana, 19; 30 Am. Dec.,
669.)

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Courts of First Instance sitting in probation proceedings derived their jurisdiction solely from Act No.
4221 which prescribes in detailed manner the procedure for granting probation to accused persons
after their conviction has become final and before they have served their sentence. It is true that at
common law the authority of the courts to suspend temporarily the execution of the sentence is
recognized and, according to a number of state courts, including those of Massachusetts, Michigan,
New York, and Ohio, the power is inherent in the courts (Commonwealth vs. Dowdican's Bail [1874],
115 Mass., 133; People vs. Stickel [1909], 156 Mich., 557; 121 N. W., 497; People ex rel. Forsyth vs.
Court of Session [1894], 141 N. Y., 288; Weber vs. State [1898], 58 Ohio St., 616). But, in the
leading case of Ex parte United States ([1916], 242 U. S., 27; 61 Law. ed., 129; L. R. A., 1917E,
1178; 37 Sup. Ct. Rep., 72; Ann. Cas. 1917B, 355), the Supreme Court of the United States
expressed the opinion that under the common law the power of the court was limited to temporary
suspension, and brushed aside the contention as to inherent judicial power saying, through Chief
Justice White:

Indisputably under our constitutional system the right to try offenses against the criminal laws
and upon conviction to impose the punishment provided by law is judicial, and it is equally to
be conceded that, in exerting the powers vested in them on such subject, courts inherently
possess ample right to exercise reasonable, that is, judicial, discretion to enable them to
wisely exert their authority. But these concessions afford no ground for the contention as to
power here made, since it must rest upon the proposition that the power to enforce begets
inherently a discretion to permanently refuse to do so. And the effect of the proposition urged
upon the distribution of powers made by the Constitution will become apparent when it is
observed that indisputable also is it that the authority to define and fix the punishment for
crime is legislative and includes the right in advance to bring within judicial discretion, for the
purpose of executing the statute, elements of consideration which would be otherwise
beyond the scope of judicial authority, and that the right to relieve from the punishment, fixed
by law and ascertained according to the methods by it provided belongs to the executive
department.

Justice Carson, in his illuminating concurring opinion in the case of Director of Prisons vs. Judge of
First Instance of Cavite (29 Phil., 265), decided by this court in 1915, also reached the conclusion
that the power to suspend the execution of sentences pronounced in criminal cases is not inherent in
the judicial function. "All are agreed", he said, "that in the absence of statutory authority, it does not
lie within the power of the courts to grant such suspensions." (at p. 278.) Both petitioner and
respondents are correct, therefore, when they argue that a Court of First Instance sitting in probation
proceedings is a court of limited jurisdiction. Its jurisdiction in such proceedings is conferred
exclusively by Act No. 4221 of the Philippine Legislature.

It is, of course, true that the constitutionality of a statute will not be considered on application for
prohibition where the question has not been properly brought to the attention of the court by
objection of some kind (Hill vs. Tarver [1901], 130 Ala., 592; 30 S., 499; State ex rel. Kelly vs. Kirby
[1914], 260 Mo., 120; 168 S. W., 746). In the case at bar, it is unquestionable that the constitutional
issue has been squarely presented not only before this court by the petitioners but also before the
trial court by the private prosecution. The respondent, Hon. Jose O Vera, however, acting as judge of
the court below, declined to pass upon the question on the ground that the private prosecutor, not
being a party whose rights are affected by the statute, may not raise said question. The respondent
judge cited Cooley on Constitutional Limitations (Vol. I, p. 339; 12 C. J., sec. 177, pp. 760 and 762),
and McGlue vs. Essex County ([1916], 225 Mass., 59; 113 N. E., 742, 743), as authority for the
proposition that a court will not consider any attack made on the constitutionality of a statute by one
who has no interest in defeating it because his rights are not affected by its operation. The

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respondent judge further stated that it may not motu proprio take up the constitutional question and,
agreeing with Cooley that "the power to declare a legislative enactment void is one which the judge,
conscious of the fallibility of the human judgment, will shrink from exercising in any case where he
can conscientiously and with due regard to duty and official oath decline the responsibility"
(Constitutional Limitations, 8th ed., Vol. I, p. 332), proceeded on the assumption that Act No. 4221 is
constitutional. While therefore, the courta quo admits that the constitutional question was raised
before it, it refused to consider the question solely because it was not raised by a proper party.
Respondents herein reiterates this view. The argument is advanced that the private prosecution has
no personality to appear in the hearing of the application for probation of defendant Mariano Cu
Unjieng in criminal case No. 42648 of the Court of First Instance of Manila, and hence the issue of
constitutionality was not properly raised in the lower court. Although, as a general rule, only those
who are parties to a suit may question the constitutionality of a statute involved in a judicial decision,
it has been held that since the decree pronounced by a court without jurisdiction is void, where the
jurisdiction of the court depends on the validity of the statute in question, the issue of the
constitutionality will be considered on its being brought to the attention of the court by persons
interested in the effect to be given the statute.(12 C. J., sec. 184, p. 766.) And, even if we were to
concede that the issue was not properly raised in the court below by the proper party, it does not
follow that the issue may not be here raised in an original action of certiorari and prohibitions. It is
true that, as a general rule, the question of constitutionality must be raised at the earliest opportunity,
so that if not raised by the pleadings, ordinarily it may not be raised at the trial, and if not raised in
the trial court, it will not considered on appeal. (12 C. J., p. 786. See, also, Cadwallader-Gibson
Lumber Co. vs. Del Rosario, 26 Phil., 192, 193-195.) But we must state that the general rule admits
of exceptions. Courts, in the exercise of sounds discretion, may determine the time when a question
affecting the constitutionality of a statute should be presented. (In re Woolsey [1884], 95 N. Y., 135,
144.) Thus, in criminal cases, although there is a very sharp conflict of authorities, it is said that the
question may be raised for the first time at any stage of the proceedings, either in the trial court or on
appeal. (12 C. J., p. 786.) Even in civil cases, it has been held that it is the duty of a court to pass on
the constitutional question, though raised for the first time on appeal, if it appears that a
determination of the question is necessary to a decision of the case. (McCabe's Adm'x vs. Maysville
& B. S. R. Co., [1910], 136 ky., 674; 124 S. W., 892; Lohmeyer vs. St. Louis Cordage Co. [1908], 214
Mo., 685; 113 S. W. 1108; Carmody vs. St. Louis Transit Co., [1905], 188 Mo., 572; 87 S. W., 913.)
And it has been held that a constitutional question will be considered by an appellate court at any
time, where it involves the jurisdiction of the court below (State vs. Burke [1911], 175 Ala., 561; 57
S., 870.) As to the power of this court to consider the constitutional question raised for the first time
before this court in these proceedings, we turn again and point with emphasis to the case of Yu
Cong Eng vs. Trinidad, supra. And on the hypotheses that the Hongkong & Shanghai Banking
Corporation, represented by the private prosecution, is not the proper party to raise the constitutional
question here a point we do not now have to decide we are of the opinion that the People of
the Philippines, represented by the Solicitor-General and the Fiscal of the City of Manila, is such a
proper party in the present proceedings. The unchallenged rule is that the person who impugns the
validity of a statute must have a personal and substantial interest in the case such that he has
sustained, or will sustained, direct injury as a result of its enforcement. It goes without saying that if
Act No. 4221 really violates the constitution, the People of the Philippines, in whose name the
present action is brought, has a substantial interest in having it set aside. Of grater import than the
damage caused by the illegal expenditure of public funds is the mortal wound inflicted upon the
fundamental law by the enforcement of an invalid statute. Hence, the well-settled rule that the state
can challenge the validity of its own laws. In Government of the Philippine Islands vs. Springer
([1927]), 50 Phil., 259 (affirmed in Springer vs. Government of the Philippine Islands [1928], 277
U.S., 189; 72 Law. ed., 845), this court declared an act of the legislature unconstitutional in an action
instituted in behalf of the Government of the Philippines. In Attorney General vs. Perkins ([1889], 73

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Mich., 303, 311, 312; 41 N. W. 426, 428, 429), the State of Michigan, through its Attorney General,
instituted quo warranto proceedings to test the right of the respondents to renew a mining
corporation, alleging that the statute under which the respondents base their right was
unconstitutional because it impaired the obligation of contracts. The capacity of the chief law officer
of the state to question the constitutionality of the statute was though, as a general rule, only those
who are parties to a suit may question the constitutionality of a statute involved in a judicial decision,
it has been held that since the decree pronounced by a court without jurisdiction in void, where the
jurisdiction of the court depends on the validity of the statute in question, the issue of constitutionality
will be considered on its being brought to the attention of the court by persons interested in the effect
to begin the statute. (12 C.J., sec. 184, p. 766.) And, even if we were to concede that the issue was
not properly raised in the court below by the proper party, it does not follow that the issue may not be
here raised in an original action of certiorari and prohibition. It is true that, as a general rule, the
question of constitutionality must be raised at the earliest opportunity, so that if not raised by the
pleadings, ordinarily it may not be raised a the trial, and if not raised in the trial court, it will not be
considered on appeal. (12 C.J., p. 786. See, also, Cadwallader-Gibson Lumber Co. vs. Del Rosario,
26 Phil., 192, 193-195.) But we must state that the general rule admits of exceptions. Courts, in the
exercise of sound discretion, may determine the time when a question affecting the constitutionality
of a statute should be presented. (In re Woolsey [19884], 95 N.Y., 135, 144.) Thus, in criminal cases,
although there is a very sharp conflict of authorities, it is said that the question may be raised for the
first time at any state of the proceedings, either in the trial court or on appeal. (12 C.J., p. 786.) Even
in civil cases, it has been held that it is the duty of a court to pass on the constitutional question,
though raised for first time on appeal, if it appears that a determination of the question is necessary
to a decision of the case. (McCabe's Adm'x vs. Maysville & B. S. R. Co. [1910], 136 Ky., 674; 124 S.
W., 892; Lohmeyer vs. St. Louis, Cordage Co. [1908], 214 Mo. 685; 113 S. W., 1108; Carmody vs.
St. Louis Transit Co. [1905], 188 Mo., 572; 87 S. W., 913.) And it has been held that a constitutional
question will be considered by an appellate court at any time, where it involves the jurisdiction of the
court below (State vs. Burke [1911], 175 Ala., 561; 57 S., 870.) As to the power of this court to
consider the constitutional question raised for the first time before this court in these proceedings,
we turn again and point with emphasis to the case of Yu Cong Eng. vs. Trinidad, supra. And on the
hypothesis that the Hongkong & Shanghai Banking Corporation, represented by the private
prosecution, is not the proper party to raise the constitutional question here a point we do not now
have to decide we are of the opinion that the People of the Philippines, represented by the
Solicitor-General and the Fiscal of the City of Manila, is such a proper party in the present
proceedings. The unchallenged rule is that the person who impugns the validity of a statute must
have a personal and substantial interest in the case such that he has sustained, or will sustain, direct
injury as a result of its enforcement. It goes without saying that if Act No. 4221 really violates the
Constitution, the People of the Philippines, in whose name the present action is brought, has a
substantial interest in having it set aside. Of greater import than the damage caused by the illegal
expenditure of public funds is the mortal wound inflicted upon the fundamental law by the
enforcement of an invalid statute. Hence, the well-settled rule that the state can challenge the
validity of its own laws. In Government of the Philippine Islands vs. Springer ([1927]), 50 Phil., 259
(affirmed in Springer vs. Government of the Philippine Islands [1928], 277 U.S., 189; 72 Law. ed.,
845), this court declared an act of the legislature unconstitutional in an action instituted in behalf of
the Government of the Philippines. In Attorney General vs. Perkings([1889], 73 Mich., 303, 311, 312;
41 N.W., 426, 428, 429), the State of Michigan, through its Attorney General, instituted quo warranto
proceedings to test the right of the respondents to renew a mining corporation, alleging that the
statute under which the respondents base their right was unconstitutional because it impaired the
obligation of contracts. The capacity of the chief law officer of the state to question the
constitutionality of the statute was itself questioned. Said the Supreme Court of Michigan, through
Champlin, J.:

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 . . . The idea seems to be that the people are estopped from questioning the validity of a law
enacted by their representatives; that to an accusation by the people of Michigan of
usurpation their government, a statute enacted by the people of Michigan is an adequate
answer. The last proposition is true, but, if the statute relied on in justification is
unconstitutional, it is statute only in form, and lacks the force of law, and is of no more saving
effect to justify action under it than if it had never been enacted. The constitution is the
supreme law, and to its behests the courts, the legislature, and the people must bow . . . The
legislature and the respondents are not the only parties in interest upon such constitutional
questions. As was remarked by Mr. Justice Story, in speaking of an acquiescence by a party
affected by an unconstitutional act of the legislature: "The people have a deep and vested
interest in maintaining all the constitutional limitations upon the exercise of legislative
powers." (Allen vs. Mckeen, 1 Sum., 314.)

In State vs. Doane ([1916], 98 Kan., 435; 158 Pac., 38, 40), an original action (mandamus) was
brought by the Attorney-General of Kansas to test the constitutionality of a statute of the state. In
disposing of the question whether or not the state may bring the action, the Supreme Court of
Kansas said:

. . . the state is a proper party indeed, the proper party to bring this action. The state is
always interested where the integrity of its Constitution or statutes is involved.

"It has an interest in seeing that the will of the Legislature is not disregarded,
and need not, as an individual plaintiff must, show grounds of fearing more
specific injury. (State vs. Kansas City 60 Kan., 518 [57 Pac., 118])." (State vs.
Lawrence, 80 Kan., 707; 103 Pac., 839.)

Where the constitutionality of a statute is in doubt the state's law officer, its Attorney-General,
or county attorney, may exercise his bet judgment as to what sort of action he will bring to
have the matter determined, either by quo warranto to challenge its validity (State vs.
Johnson, 61 Kan., 803; 60 Pac., 1068; 49 L.R.A., 662), by mandamus to compel obedience
to its terms (State vs. Dolley, 82 Kan., 533; 108 Pac., 846), or by injunction to restrain
proceedings under its questionable provisions (State ex rel. vs. City of Neodesha, 3 Kan.
App., 319; 45 Pac., 122).

Other courts have reached the same conclusion (See State vs. St. Louis S. W. Ry. Co. [1917], 197
S. W., 1006; State vs. S.H. Kress & Co. [1934], 155 S., 823; State vs. Walmsley [1935], 181 La.,
597; 160 S., 91; State vs. Board of County Comr's [1934], 39 Pac. [2d], 286; First Const. Co. of
Brooklyn vs. State [1917], 211 N.Y., 295; 116 N.E., 1020; Bush vs. State {1918], 187 Ind., 339; 119
N.E., 417; State vs. Watkins [1933], 176 La., 837; 147 S., 8, 10, 11). In the case last cited, the
Supreme Court of Luisiana said:

It is contended by counsel for Herbert Watkins that a district attorney, being charged with the
duty of enforcing the laws, has no right to plead that a law is unconstitutional. In support of
the argument three decisions are cited, viz.: State ex rel. Hall, District Attorney, vs. Judge of
Tenth Judicial District (33 La. Ann., 1222); State ex rel. Nicholls, Governor vs. Shakespeare,
Mayor of New Orleans (41 Ann., 156; 6 So., 592); and State ex rel., Banking Co., etc. vs.
Heard, Auditor (47 La. Ann., 1679; 18 So., 746; 47 L. R. A., 512). These decisions do not
forbid a district attorney to plead that a statute is unconstitutional if he finds if in conflict with
one which it is his duty to enforce. In State ex rel. Hall, District Attorney, vs. Judge, etc., the

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 ruling was the judge should not, merely because he believed a certain statute to be
unconstitutional forbid the district attorney to file a bill of information charging a person with a
violation of the statute. In other words, a judge should not judicially declare a statute
unconstitutional until the question of constitutionality is tendered for decision, and unless it
must be decided in order to determine the right of a party litigant. State ex rel. Nicholls,
Governor, etc., is authority for the proposition merely that an officer on whom a statute
imposes the duty of enforcing its provisions cannot avoid the duty upon the ground that he
considers the statute unconstitutional, and hence in enforcing the statute he is immune from
responsibility if the statute be unconstitutional. State ex rel. Banking Co., etc., is authority for
the proposition merely that executive officers, e.g., the state auditor and state treasurer,
should not decline to perform ministerial duties imposed upon them by a statute, on the
ground that they believe the statute is unconstitutional.

It is the duty of a district attorney to enforce the criminal laws of the state, and, above all, to
support the Constitution of the state. If, in the performance of his duty he finds two statutes in
conflict with each other, or one which repeals another, and if, in his judgment, one of the two
statutes is unconstitutional, it is his duty to enforce the other; and, in order to do so, he is
compelled to submit to the court, by way of a plea, that one of the statutes is
unconstitutional. If it were not so, the power of the Legislature would be free from
constitutional limitations in the enactment of criminal laws.

The respondents do not seem to doubt seriously the correctness of the general proposition that the
state may impugn the validity of its laws. They have not cited any authority running clearly in the
opposite direction. In fact, they appear to have proceeded on the assumption that the rule as stated
is sound but that it has no application in the present case, nor may it be invoked by the City Fiscal in
behalf of the People of the Philippines, one of the petitioners herein, the principal reasons being that
the validity before this court, that the City Fiscal is estopped from attacking the validity of the Act
and, not authorized challenge the validity of the Act in its application outside said city. (Additional
memorandum of respondents, October 23, 1937, pp. 8,. 10, 17 and 23.)

The mere fact that the Probation Act has been repeatedly relied upon the past and all that time has
not been attacked as unconstitutional by the Fiscal of Manila but, on the contrary, has been impliedly
regarded by him as constitutional, is no reason for considering the People of the Philippines
estopped from nor assailing its validity. For courts will pass upon a constitutional questions only
when presented before it in bona fide cases for determination, and the fact that the question has not
been raised before is not a valid reason for refusing to allow it to be raised later. The fiscal and all
others are justified in relying upon the statute and treating it as valid until it is held void by the courts
in proper cases.

It remains to consider whether the determination of the constitutionality of Act No. 4221 is necessary
to the resolution of the instant case. For, ". . . while the court will meet the question with firmness,
where its decision is indispensable, it is the part of wisdom, and just respect for the legislature,
renders it proper, to waive it, if the case in which it arises, can be decided on other points." (Ex
parteRandolph [1833], 20 F. Cas. No. 11, 558; 2 Brock., 447. Vide, also Hoover vs. wood [1857], 9
Ind., 286, 287.) It has been held that the determination of a constitutional question is necessary
whenever it is essential to the decision of the case (12 C. J., p. 782, citing Long Sault Dev. Co. vs.
Kennedy [1913], 158 App. Div., 398; 143 N. Y. Supp., 454 [aff. 212 N.Y., 1: 105 N. E., 849; Ann. Cas.
1915D, 56; and app dism 242 U.S., 272]; Hesse vs. Ledesma, 7 Porto Rico Fed., 520; Cowan vs.
Doddridge, 22 Gratt [63 Va.], 458; Union Line Co., vs. Wisconsin R. Commn., 146 Wis., 523; 129 N.

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W., 605), as where the right of a party is founded solely on a statute the validity of which is attacked.
(12 C.J., p. 782, citing Central Glass Co. vs. Niagrara F. Ins. Co., 131 La., 513; 59 S., 972; Cheney
vs. Beverly, 188 Mass., 81; 74 N.E., 306). There is no doubt that the respondent Cu Unjieng draws
his privilege to probation solely from Act No. 4221 now being assailed.

Apart from the foregoing considerations, that court will also take cognizance of the fact that the
Probation Act is a new addition to our statute books and its validity has never before been passed
upon by the courts; that may persons accused and convicted of crime in the City of Manila have
applied for probation; that some of them are already on probation; that more people will likely take
advantage of the Probation Act in the future; and that the respondent Mariano Cu Unjieng has been
at large for a period of about four years since his first conviction. All wait the decision of this court on
the constitutional question. Considering, therefore, the importance which the instant case has
assumed and to prevent multiplicity of suits, strong reasons of public policy demand that the
constitutionality of Act No. 4221 be now resolved. (Yu Cong Eng vs. Trinidad [1925], 47 Phil., 385;
[1926], 271 U.S., 500; 70 Law. ed., 1059. See 6 R.C.L., pp. 77, 78; People vs. Kennedy [1913], 207
N.Y., 533; 101 N.E., 442, 444; Ann. Cas. 1914C, 616; Borginis vs. Falk Co. [1911], 147 Wis., 327;
133 N.W., 209, 211; 37 L.R.A. [N.S.] 489; Dimayuga and Fajardo vs. Fernandez [1922], 43 Phil.,
304.) InYu Cong Eng vs. Trinidad, supra, an analogous situation confronted us. We said: "Inasmuch
as the property and personal rights of nearly twelve thousand merchants are affected by these
proceedings, and inasmuch as Act No. 2972 is a new law not yet interpreted by the courts, in the
interest of the public welfare and for the advancement of public policy, we have determined to
overrule the defense of want of jurisdiction in order that we may decide the main issue. We have
here an extraordinary situation which calls for a relaxation of the general rule." Our ruling on this
point was sustained by the Supreme Court of the United States. A more binding authority in support
of the view we have taken can not be found.

We have reached the conclusion that the question of the constitutionality of Act No. 4221 has been
properly raised. Now for the main inquiry: Is the Act unconstitutional?

Under a doctrine peculiarly American, it is the office and duty of the judiciary to enforce the
Constitution. This court, by clear implication from the provisions of section 2, subsection 1, and
section 10, of Article VIII of the Constitution, may declare an act of the national legislature invalid
because in conflict with the fundamental lay. It will not shirk from its sworn duty to enforce the
Constitution. And, in clear cases, it will not hesitate to give effect to the supreme law by setting aside
a statute in conflict therewith. This is of the essence of judicial duty.

This court is not unmindful of the fundamental criteria in cases of this nature that all reasonable
doubts should be resolved in favor of the constitutionality of a statute. An act of the legislature
approved by the executive, is presumed to be within constitutional limitations. The responsibility of
upholding the Constitution rests not on the courts alone but on the legislature as well. "The question
of the validity of every statute is first determined by the legislative department of the government
itself." (U.S. vs. Ten Yu [1912], 24 Phil., 1, 10; Case vs. Board of Health and Heiser [1913], 24 Phil.,
250, 276; U.S. vs. Joson [1913], 26 Phil., 1.) And a statute finally comes before the courts sustained
by the sanction of the executive. The members of the Legislature and the Chief Executive have
taken an oath to support the Constitution and it must be presumed that they have been true to this
oath and that in enacting and sanctioning a particular law they did not intend to violate the
Constitution. The courts cannot but cautiously exercise its power to overturn the solemn declarations
of two of the three grand departments of the governments. (6 R.C.L., p. 101.) Then, there is that
peculiar political philosophy which bids the judiciary to reflect the wisdom of the people as expressed

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through an elective Legislature and an elective Chief Executive. It follows, therefore, that the courts
will not set aside a law as violative of the Constitution except in a clear case. This is a proposition too
plain to require a citation of authorities.

One of the counsel for respondents, in the course of his impassioned argument, called attention to
the fact that the President of the Philippines had already expressed his opinion against the
constitutionality of the Probation Act, adverting that as to the Executive the resolution of this question
was a foregone conclusion. Counsel, however, reiterated his confidence in the integrity and
independence of this court. We take notice of the fact that the President in his message dated
September 1, 1937, recommended to the National Assembly the immediate repeal of the Probation
Act (No. 4221); that this message resulted in the approval of Bill No. 2417 of the Nationality
Assembly repealing the probation Act, subject to certain conditions therein mentioned; but that said
bill was vetoed by the President on September 13, 1937, much against his wish, "to have stricken
out from the statute books of the Commonwealth a law . . . unfair and very likely unconstitutional." It
is sufficient to observe in this connection that, in vetoing the bill referred to, the President exercised
his constitutional prerogative. He may express the reasons which he may deem proper for taking
such a step, but his reasons are not binding upon us in the determination of actual controversies
submitted for our determination. Whether or not the Executive should express or in any manner
insinuate his opinion on a matter encompassed within his broad constitutional power of veto but
which happens to be at the same time pending determination in this court is a question of propriety
for him exclusively to decide or determine. Whatever opinion is expressed by him under these
circumstances, however, cannot sway our judgment on way or another and prevent us from taking
what in our opinion is the proper course of action to take in a given case. It if is ever necessary for us
to make any vehement affirmance during this formative period of our political history, it is that we are
independent of the Executive no less than of the Legislative department of our government
independent in the performance of our functions, undeterred by any consideration, free from politics,
indifferent to popularity, and unafraid of criticism in the accomplishment of our sworn duty as we see
it and as we understand it.

The constitutionality of Act No. 4221 is challenged on three principal grounds: (1) That said Act
encroaches upon the pardoning power of the Executive; (2) that its constitutes an undue delegation
of legislative power and (3) that it denies the equal protection of the laws.

1. Section 21 of the Act of Congress of August 29, 1916, commonly known as the Jones Law, in
force at the time of the approval of Act No. 4221, otherwise known as the Probation Act, vests in the
Governor-General of the Philippines "the exclusive power to grant pardons and reprieves and remit
fines and forfeitures". This power is now vested in the President of the Philippines. (Art. VII, sec. 11,
subsec. 6.) The provisions of the Jones Law and the Constitution differ in some respects. The
adjective "exclusive" found in the Jones Law has been omitted from the Constitution. Under the
Jones Law, as at common law, pardon could be granted any time after the commission of the
offense, either before or after conviction (Vide Constitution of the United States, Art. II, sec. 2; In
re Lontok [1922], 43 Phil., 293). The Governor-General of the Philippines was thus empowered, like
the President of the United States, to pardon a person before the facts of the case were fully brought
to light. The framers of our Constitution thought this undesirable and, following most of the state
constitutions, provided that the pardoning power can only be exercised "after conviction". So, too,
under the new Constitution, the pardoning power does not extend to "cases of impeachment". This is
also the rule generally followed in the United States (Vide Constitution of the United States, Art. II,
sec. 2). The rule in England is different. There, a royal pardon can not be pleaded in bar of an
impeachment; "but," says Blackstone, "after the impeachment has been solemnly heard and
determined, it is not understood that the king's royal grace is further restrained or abridged." (Vide,

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Ex parte Wells [1856], 18 How., 307; 15 Law. ed., 421; Com. vs. Lockwood [1872], 109 Mass., 323;
12 Am. Rep., 699; Sterling vs. Drake [1876], 29 Ohio St., 457; 23 am. Rep., 762.) The reason for the
distinction is obvious. In England, Judgment on impeachment is not confined to mere "removal from
office and disqualification to hold and enjoy any office of honor, trust, or profit under the
Government" (Art. IX, sec. 4, Constitution of the Philippines) but extends to the whole punishment
attached by law to the offense committed. The House of Lords, on a conviction may, by its sentence,
inflict capital punishment, perpetual banishment, perpetual banishment, fine or imprisonment,
depending upon the gravity of the offense committed, together with removal from office and
incapacity to hold office. (Com. vs. Lockwood, supra.) Our Constitution also makes specific mention
of "commutation" and of the power of the executive to impose, in the pardons he may grant, such
conditions, restrictions and limitations as he may deem proper. Amnesty may be granted by the
President under the Constitution but only with the concurrence of the National Assembly. We need
not dwell at length on the significance of these fundamental changes. It is sufficient for our purposes
to state that the pardoning power has remained essentially the same. The question is: Has the
pardoning power of the Chief Executive under the Jones Law been impaired by the Probation Act?

As already stated, the Jones Law vests the pardoning power exclusively in the Chief Executive. The
exercise of the power may not, therefore, be vested in anyone else.
". . . The benign prerogative of mercy reposed in the executive cannot be taken away nor fettered by
any legislative restrictions, nor can like power be given by the legislature to any other officer or
authority. The coordinate departments of government have nothing to do with the pardoning power,
since no person properly belonging to one of the departments can exercise any powers appertaining
to either of the others except in cases expressly provided for by the constitution." (20 R.C.L., pp., ,
and cases cited.) " . . . where the pardoning power is conferred on the executive without express or
implied limitations, the grant is exclusive, and the legislature can neither exercise such power itself
nor delegate it elsewhere, nor interfere with or control the proper exercise thereof, . . ." (12 C.J., pp.
838, 839, and cases cited.) If Act No. 4221, then, confers any pardoning power upon the courts it is
for that reason unconstitutional and void. But does it?

In the famous Killitts decision involving an embezzlement case, the Supreme Court of the United
States ruled in 1916 that an order indefinitely suspending sentenced was void. (Ex parte United
States [1916], 242 U.S., 27; 61 Law. ed., 129; L.R.A. 1917E, 1178; 37 Sup. Ct. Rep., 72; Ann. Cas.
1917B, 355.) Chief Justice White, after an exhaustive review of the authorities, expressed the
opinion of the court that under the common law the power of the court was limited to temporary
suspension and that the right to suspend sentenced absolutely and permanently was vested in the
executive branch of the government and not in the judiciary. But, the right of Congress to establish
probation by statute was conceded. Said the court through its Chief Justice: ". . . and so far as the
future is concerned, that is, the causing of the imposition of penalties as fixed to be subject, by
probation legislation or such other means as the legislative mind may devise, to such judicial
discretion as may be adequate to enable courts to meet by the exercise of an enlarged but wise
discretion the infinite variations which may be presented to them for judgment, recourse must be had
Congress whose legislative power on the subject is in the very nature of things adequately
complete." (Quoted in Riggs vs. United States [1926], 14 F. [2d], 5, 6.) This decision led the National
Probation Association and others to agitate for the enactment by Congress of a federal probation
law. Such action was finally taken on March 4, 1925 (chap. 521, 43 Stat. L. 159, U.S.C. title 18, sec.
724). This was followed by an appropriation to defray the salaries and expenses of a certain number
of probation officers chosen by civil service. (Johnson, Probation for Juveniles and Adults, p. 14.)

In United States vs. Murray ([1925], 275 U.S., 347; 48 Sup. Ct. Rep., 146; 72 Law. ed., 309), the
Supreme Court of the United States, through Chief Justice Taft, held that when a person sentenced

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to imprisonment by a district court has begun to serve his sentence, that court has no power under
the Probation Act of March 4, 1925 to grant him probation even though the term at which sentence
was imposed had not yet expired. In this case of Murray, the constitutionality of the probation Act
was not considered but was assumed. The court traced the history of the Act and quoted from the
report of the Committee on the Judiciary of the United States House of Representatives (Report No.
1377, 68th Congress, 2 Session) the following statement:

Prior to the so-called Killitts case, rendered in December, 1916, the district courts exercised
a form of probation either, by suspending sentence or by placing the defendants under state
probation officers or volunteers. In this case, however (Ex parte United States, 242 U.S., 27;
61 L. Ed., 129; L.R.A., 1917E, 1178; 37 Sup. Ct. Rep., 72 Ann. Cas. 1917B, 355), the
Supreme Court denied the right of the district courts to suspend sentenced. In the same
opinion the court pointed out the necessity for action by Congress if the courts were to
exercise probation powers in the future . . .

Since this decision was rendered, two attempts have been made to enact probation
legislation. In 1917, a bill was favorably reported by the Judiciary Committee and passed the
House. In 1920, the judiciary Committee again favorably reported a probation bill to the
House, but it was never reached for definite action.

If this bill is enacted into law, it will bring the policy of the Federal government with reference
to its treatment of those convicted of violations of its criminal laws in harmony with that of the
states of the Union. At the present time every state has a probation law, and in all but twelve
states the law applies both to adult and juvenile offenders. (see, also, Johnson, Probation for
Juveniles and Adults [1928], Chap. I.)

The constitutionality of the federal probation law has been sustained by inferior federal courts. In
Riggs vs. United States supra, the Circuit Court of Appeals of the Fourth Circuit said:

Since the passage of the Probation Act of March 4, 1925, the questions under consideration
have been reviewed by the Circuit Court of Appeals of the Ninth Circuit (7 F. [2d], 590), and
the constitutionality of the act fully sustained, and the same held in no manner to encroach
upon the pardoning power of the President. This case will be found to contain an able and
comprehensive review of the law applicable here. It arose under the act we have to consider,
and to it and the authorities cited therein special reference is made (Nix vs. James, 7 F. [2d],
590, 594), as is also to a decision of the Circuit Court of Appeals of the Seventh Circuit
(Kriebel vs. U.S., 10 F. [2d], 762), likewise construing the Probation Act.

We have seen that in 1916 the Supreme Court of the United States; in plain and unequivocal
language, pointed to Congress as possessing the requisite power to enact probation laws, that a
federal probation law as actually enacted in 1925, and that the constitutionality of the Act has been
assumed by the Supreme Court of the United States in 1928 and consistently sustained by the
inferior federal courts in a number of earlier cases.

We are fully convinced that the Philippine Legislature, like the Congress of the United States, may
legally enact a probation law under its broad power to fix the punishment of any and all penal
offenses. This conclusion is supported by other authorities. In Ex parte Bates ([1915], 20 N. M., 542;
L.R.A. 1916A, 1285; 151 Pac., 698, the court said: "It is clearly within the province of the Legislature
to denominate and define all classes of crime, and to prescribe for each a minimum and maximum

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punishment." And in State vs. Abbott ([1910], 87 S.C., 466; 33 L.R.A. [N. S.], 112; 70 S. E., 6; Ann.
Cas. 1912B, 1189), the court said: "The legislative power to set punishment for crime is very broad,
and in the exercise of this power the general assembly may confer on trial judges, if it sees fit, the
largest discretion as to the sentence to be imposed, as to the beginning and end of the punishment
and whether it should be certain or indeterminate or conditional." (Quoted in State vs. Teal [1918],
108 S. C., 455; 95 S. E., 69.) Indeed, the Philippine Legislature has defined all crimes and fixed the
penalties for their violation. Invariably, the legislature has demonstrated the desire to vest in the
courts particularly the trial courts large discretion in imposing the penalties which the law
prescribes in particular cases. It is believed that justice can best be served by vesting this power in
the courts, they being in a position to best determine the penalties which an individual convict,
peculiarly circumstanced, should suffer. Thus, while courts are not allowed to refrain from imposing a
sentence merely because, taking into consideration the degree of malice and the injury caused by
the offense, the penalty provided by law is clearly excessive, the courts being allowed in such case
to submit to the Chief Executive, through the Department of Justice, such statement as it may deem
proper (see art. 5, Revised Penal Code), in cases where both mitigating and aggravating
circumstances are attendant in the commission of a crime and the law provides for a penalty
composed of two indivisible penalties, the courts may allow such circumstances to offset one
another in consideration of their number and importance, and to apply the penalty according to the
result of such compensation. (Art. 63, rule 4, Revised Penal Code; U.S. vs. Reguera and Asuategui
[1921], 41 Phil., 506.) Again, article 64, paragraph 7, of the Revised Penal Code empowers the
courts to determine, within the limits of each periods, in case the penalty prescribed by law contains
three periods, the extent of the evil produced by the crime. In the imposition of fines, the courts are
allowed to fix any amount within the limits established by law, considering not only the mitigating and
aggravating circumstances, but more particularly the wealth or means of the culprit. (Art. 66, Revised
Penal Code.) Article 68, paragraph 1, of the same Code provides that "a discretionary penalty shall
be imposed" upon a person under fifteen but over nine years of age, who has not acted without
discernment, but always lower by two degrees at least than that prescribed by law for the crime
which he has committed. Article 69 of the same Code provides that in case of "incomplete self-
defense", i.e., when the crime committed is not wholly excusable by reason of the lack of some of
the conditions required to justify the same or to exempt from criminal liability in the several cases
mentioned in article 11 and 12 of the Code, "the courts shall impose the penalty in the period which
may be deemed proper, in view of the number and nature of the conditions of exemption present or
lacking." And, in case the commission of what are known as "impossible" crimes, "the court, having
in mind the social danger and the degree of criminality shown by the offender," shall impose upon
him either arresto mayor or a fine ranging from 200 to 500 pesos. (Art. 59, Revised Penal Code.)

Under our Revised Penal Code, also, one-half of the period of preventive imprisonment is deducted
form the entire term of imprisonment, except in certain cases expressly mentioned (art. 29); the
death penalty is not imposed when the guilty person is more than seventy years of age, or where
upon appeal or revision of the case by the Supreme Court, all the members thereof are not
unanimous in their voting as to the propriety of the imposition of the death penalty (art. 47, see also,
sec. 133, Revised Administrative Code, as amended by Commonwealth Act No. 3); the death
sentence is not to be inflicted upon a woman within the three years next following the date of the
sentence or while she is pregnant, or upon any person over seventy years of age (art. 83); and when
a convict shall become insane or an imbecile after final sentence has been pronounced, or while he
is serving his sentenced, the execution of said sentence shall be suspended with regard to the
personal penalty during the period of such insanity or imbecility (art. 79).

But the desire of the legislature to relax what might result in the undue harshness of the penal laws
is more clearly demonstrated in various other enactments, including the probation Act. There is the

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Indeterminate Sentence Law enacted in 1933 as Act No. 4103 and subsequently amended by Act
No. 4225, establishing a system of parole (secs. 5 to 100 and granting the courts large discretion in
imposing the penalties of the law. Section 1 of the law as amended provides; "hereafter, in imposing
a prison sentence for an offenses punished by the Revised Penal Code, or its amendments, the
court shall sentence the accused to an indeterminate sentence the maximum term of which shall be
that which, in view of the attending circumstances, could be properly imposed under the rules of the
said Code, and to a minimum which shall be within the range of the penalty next lower to that
prescribed by the Code for the offense; and if the offense is punished by any other law, the court
shall sentence the accused to an indeterminate sentence, the maximum term of which shall not
exceed the maximum fixed by said law and the minimum shall not be less than the minimum term
prescribed by the same." Certain classes of convicts are, by section 2 of the law, excluded from the
operation thereof. The Legislature has also enacted the Juvenile Delinquency Law (Act No. 3203)
which was subsequently amended by Act No. 3559. Section 7 of the original Act and section 1 of the
amendatory Act have become article 80 of the Revised Penal Code, amended by Act No. 4117 of the
Philippine Legislature and recently reamended by Commonwealth Act No. 99 of the National
Assembly. In this Act is again manifested the intention of the legislature to "humanize" the penal
laws. It allows, in effect, the modification in particular cases of the penalties prescribed by law by
permitting the suspension of the execution of the judgment in the discretion of the trial court, after
due hearing and after investigation of the particular circumstances of the offenses, the criminal
record, if any, of the convict, and his social history. The Legislature has in reality decreed that in
certain cases no punishment at all shall be suffered by the convict as long as the conditions of
probation are faithfully observed. It this be so, then, it cannot be said that the Probation Act comes in
conflict with the power of the Chief Executive to grant pardons and reprieves, because, to use the
language of the Supreme Court of New Mexico, "the element of punishment or the penalty for the
commission of a wrong, while to be declared by the courts as a judicial function under and within the
limits of law as announced by legislative acts, concerns solely the procedure and conduct of criminal
causes, with which the executive can have nothing to do." (Ex parte Bates, supra.) In Williams vs.
State ([1926], 162 Ga., 327; 133 S.E., 843), the court upheld the constitutionality of the Georgia
probation statute against the contention that it attempted to delegate to the courts the pardoning
power lodged by the constitution in the governor alone is vested with the power to pardon after final
sentence has been imposed by the courts, the power of the courts to imposed any penalty which
may be from time to time prescribed by law and in such manner as may be defined cannot be
questioned."

We realize, of course, the conflict which the American cases disclose. Some cases hold it unlawful
for the legislature to vest in the courts the power to suspend the operation of a sentenced, by
probation or otherwise, as to do so would encroach upon the pardoning power of the executive. (In
re Webb [1895], 89 Wis., 354; 27 L.R.A., 356; 46 Am. St. Rep., 846; 62 N.W., 177; 9 Am. Crim.,
Rep., 702; State ex rel. Summerfield vs. Moran [1919], 43 Nev., 150; 182 Pac., 927; Ex
parte Clendenning [1908], 22 Okla., 108; 1 Okla. Crim. Rep., 227; 19 L.R.A. [N.S.], 1041; 132 Am.
St. Rep., 628; 97 Pac., 650; People vs. Barrett [1903], 202 Ill, 287; 67 N.E., 23; 63 L.R.A., 82; 95
Am. St. Rep., 230; Snodgrass vs. State [1912], 67 Tex. Crim. Rep., 615; 41 L. R. A. [N. S.], 1144;
150 S. W., 162; Ex parte Shelor [1910], 33 Nev., 361;111 Pac., 291; Neal vs. State [1898], 104 Ga.,
509; 42 L. R. A., 190; 69 Am. St. Rep., 175; 30 S. E. 858; State ex rel. Payne vs. Anderson [1921],
43 S. D., 630; 181 N. W., 839; People vs. Brown, 54 Mich., 15; 19 N. W., 571; States vs. Dalton
[1903], 109 Tenn., 544; 72 S. W., 456.)

Other cases, however, hold contra. (Nix vs. James [1925; C. C. A., 9th], 7 F. [2d], 590; Archer vs.
Snook [1926; D. C.], 10 F. [2d], 567; Riggs. vs. United States [1926; C. C. A. 4th], 14]) [2d], 5;
Murphy vs. States [1926], 171 Ark., 620; 286 S. W., 871; 48 A. L. R., 1189; Re Giannini [1912], 18

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Cal. App., 166; 122 Pac., 831; Re Nachnaber [1928], 89 Cal. App., 530; 265 Pac., 392; Ex parte De
Voe [1931], 114 Cal. App., 730; 300 Pac., 874; People vs. Patrick [1897], 118 Cal., 332; 50 Pac.,
425; Martin vs. People [1917], 69 Colo., 60; 168 Pac., 1171; Belden vs. Hugo [1914], 88 Conn., 50;
91 A., 369, 370, 371; Williams vs. State [1926], 162 Ga., 327; 133 S. E., 843; People vs. Heise
[1913], 257 Ill., 443; 100 N. E., 1000; Parker vs. State [1893], 135 Ind., 534; 35 N. E., 179; 23 L. R.
A., 859; St. Hillarie, Petitioner [1906], 101 Me., 522; 64 Atl., 882; People vs. Stickle [1909], 156
Mich., 557; 121 N. W., 497; State vs. Fjolander [1914], 125 Minn., 529; State ex rel. Bottomnly vs.
District Court [1925], 73 Mont., 541; 237 Pac., 525; State vs. Everitt [1913], 164 N. C., 399; 79 S. E.,
274; 47 L. R. A. [N. S.], 848; State ex rel. Buckley vs. Drew [1909], 75 N. H., 402; 74 Atl., 875; State
vs. Osborne [1911], 79 N. J. Eq., 430; 82 Atl. 424; Ex parte Bates [1915], 20 N. M., 542; L. R. A.,
1916 A. 1285; 151 Pac., 698; People vs. ex rel. Forsyth vs. Court of Session [1894], 141 N. Y., 288;
23 L. R. A., 856; 36 N. E., 386; 15 Am. Crim. Rep., 675; People ex rel. Sullivan vs. Flynn [1907], 55
Misc., 639; 106 N. Y. Supp., 928; People vs. Goodrich [1914], 149 N. Y. Supp., 406; Moore vs. Thorn
[1935], 245 App. Div., 180; 281 N. Y. Supp., 49; Re Hart [1914], 29 N. D., 38; L. R. A., 1915C, 1169;
149 N. W., 568; Ex parteEaton [1925], 29 Okla., Crim. Rep., 275; 233 P., 781; State vs. Teal [1918],
108 S. C., 455; 95 S. E., 69; State vs. Abbot [1910], 87 S. C., 466; 33 L.R.A., [N. S.], 112; 70 S. E.,
6; Ann. Cas., 1912B, 1189; Fults vs. States [1854],34 Tenn., 232; Woods vs. State [1814], 130 Tenn.,
100; 169 S. W., 558; Baker vs. State [1814], 130 Tenn., 100; 169 S. W., 558; Baker vs. State
[1913],70 Tex., Crim. Rep., 618; 158 S. W., 998; Cook vs. State [1914], 73 Tex. Crim. Rep., 548; 165
S. W., 573; King vs. State [1914], 72 Tex. Crim. Rep., 394; 162 S. W., 890; Clare vs. State [1932],
122 Tex. Crim. Rep., 394; 162 S. W., 890; Clare vs. State [1932], 122 Tex. Crim. Rep., 211; 54 S. W.
[2d], 127; Re Hall [1927], 100 Vt., 197; 136 A., 24; Richardson vs. Com. [1921], 131 Va., 802; 109
S.E., 460; State vs. Mallahan [1911], 65 Wash., 287; 118 Pac., 42; State ex rel. Tingstand vs.
Starwich [1922], 119 Wash., 561; 206 Pac., 29; 26 A. L. R., 393; 396.) We elect to follow this long
catena of authorities holding that the courts may be legally authorized by the legislature to suspend
sentence by the establishment of a system of probation however characterized. State ex rel.
Tingstand vs. Starwich ([1922], 119 Wash., 561; 206 Pac., 29; 26 A. L. R., 393), deserved particular
mention. In that case, a statute enacted in 1921 which provided for the suspension of the execution
of a sentence until otherwise ordered by the court, and required that the convicted person be placed
under the charge of a parole or peace officer during the term of such suspension, on such terms as
the court may determine, was held constitutional and as not giving the court a power in violation of
the constitutional provision vesting the pardoning power in the chief executive of the state. (Vide,
also, Re Giannini [1912], 18 Cal App., 166; 122 Pac., 831.)

Probation and pardon are not coterminous; nor are they the same. They are actually district and
different from each other, both in origin and in nature. In People ex rel. Forsyth vs. Court of Sessions
([1894], 141 N. Y., 288, 294; 36 N. E., 386, 388; 23 L. R. A., 856; 15 Am. Crim. Rep., 675), the Court
of Appeals of New York said:

. . . The power to suspend sentence and the power to grant reprieves and pardons, as
understood when the constitution was adopted, are totally distinct and different in their
nature. The former was always a part of the judicial power; the latter was always a part of the
executive power. The suspension of the sentence simply postpones the judgment of the
court temporarily or indefinitely, but the conviction and liability following it, and the civil
disabilities, remain and become operative when judgment is rendered. A pardon reaches
both the punishment prescribed for the offense and the guilt of the offender. It releases the
punishment, and blots out of existence the guilt, so that in the eye of the law, the offender is
as innocent as if he had never committed the offense. It removes the penalties and
disabilities, and restores him to all his civil rights. It makes him, as it were, a new man, and
gives him a new credit and capacity. (Ex parteGarland, 71 U. S., 4 Wall., 333; 18 Law. ed.,

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 366; U. S. vs. Klein, 80 U. S., 13 Wall., 128; 20 Law. ed., 519; Knote vs. U. S., 95 U. S., 149;
24 Law. ed., 442.)

The framers of the federal and the state constitutions were perfectly familiar with the
principles governing the power to grant pardons, and it was conferred by these instruments
upon the executive with full knowledge of the law upon the subject, and the words of the
constitution were used to express the authority formerly exercised by the English crown, or
by its representatives in the colonies. (Ex parte Wells, 59 U. S., 18 How., 307; 15 Law. ed.,
421.) As this power was understood, it did not comprehend any part of the judicial functions
to suspend sentence, and it was never intended that the authority to grant reprieves and
pardons should abrogate, or in any degree restrict, the exercise of that power in regard to its
own judgments, that criminal courts has so long maintained. The two powers, so distinct and
different in their nature and character, were still left separate and distinct, the one to be
exercised by the executive, and the other by the judicial department. We therefore conclude
that a statute which, in terms, authorizes courts of criminal jurisdiction to suspend sentence
in certain cases after conviction, a power inherent in such courts at common law, which
was understood when the constitution was adopted to be an ordinary judicial function, and
which, ever since its adoption, has been exercised of legislative power under the
constitution. It does not encroach, in any just sense, upon the powers of the executive, as
they have been understood and practiced from the earliest times. (Quoted with approval in
Directors of Prisons vs. Judge of First Instance of Cavite [1915], 29 Phil., 265, Carson, J.,
concurring, at pp. 294, 295.)

In probation, the probationer is in no true sense, as in pardon, a free man. He is not finally and
completely exonerated. He is not exempt from the entire punishment which the law inflicts. Under
the Probation Act, the probationer's case is not terminated by the mere fact that he is placed on
probation. Section 4 of the Act provides that the probation may be definitely terminated and the
probationer finally discharged from supervision only after the period of probation shall have been
terminated and the probation officer shall have submitted a report, and the court shall have found
that the probationer has complied with the conditions of probation. The probationer, then, during the
period of probation, remains in legal custody subject to the control of the probation officer and of
the court; and, he may be rearrested upon the non-fulfillment of the conditions of probation and,
when rearrested, may be committed to prison to serve the sentence originally imposed upon him.
(Secs. 2, 3, 5 and 6, Act No. 4221.)

The probation described in the act is not pardon. It is not complete liberty, and may be far
from it. It is really a new mode of punishment, to be applied by the judge in a proper case, in
substitution of the imprisonment and find prescribed by the criminal laws. For this reason its
application is as purely a judicial act as any other sentence carrying out the law deemed
applicable to the offense. The executive act of pardon, on the contrary, is against the criminal
law, which binds and directs the judges, or rather is outside of and above it. There is thus no
conflict with the pardoning power, and no possible unconstitutionality of the Probation Act for
this cause. (Archer vs. Snook [1926], 10 F. [2d], 567, 569.)

Probation should also be distinguished from reprieve and from commutation of the sentence.
Snodgrass vs. State ([1912], 67 Tex. Crim. Rep., 615;41 L. R. A. [N. S.], 1144; 150 S. W., 162), is
relied upon most strongly by the petitioners as authority in support of their contention that the power
to grant pardons and reprieves, having been vested exclusively upon the Chief Executive by the
Jones Law, may not be conferred by the legislature upon the courts by means of probation law

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authorizing the indefinite judicial suspension of sentence. We have examined that case and found
that although the Court of Criminal Appeals of Texas held that the probation statute of the state in
terms conferred on the district courts the power to grant pardons to persons convicted of crime, it
also distinguished between suspensions sentence on the one hand, and reprieve and commutation
of sentence on the other. Said the court, through Harper, J.:

That the power to suspend the sentence does not conflict with the power of the Governor to
grant reprieves is settled by the decisions of the various courts; it being held that the
distinction between a "reprieve" and a suspension of sentence is that a reprieve postpones
the execution of the sentence to a day certain, whereas a suspension is for an indefinite
time. (Carnal vs. People, 1 Parker, Cr. R., 262; In re Buchanan, 146 N. Y., 264; 40 N. E.,
883), and cases cited in 7 Words & Phrases, pp. 6115, 6116. This law cannot be hold in
conflict with the power confiding in the Governor to grant commutations of punishment, for a
commutations is not but to change the punishment assessed to a less punishment.

In State ex rel. Bottomnly vs. District Court ([1925], 73 Mont., 541; 237 Pac., 525), the Supreme
Court of Montana had under consideration the validity of the adult probation law of the state enacted
in 1913, now found in sections 12078-12086, Revised Codes of 1921. The court held the law valid
as not impinging upon the pardoning power of the executive. In a unanimous decision penned by
Justice Holloway, the court said:

. . . . the term "pardon", "commutation", and "respite" each had a well understood meaning at
the time our Constitution was adopted, and no one of them was intended to comprehend the
suspension of the execution of the judgment as that phrase is employed in sections 12078-
12086. A "pardon" is an act of grace, proceeding from the power intrusted with the execution
of the laws which exempts the individual on whom it is bestowed from the punishment the
law inflicts for a crime he has committed (United States vs. Wilson, 7 Pet., 150; 8 Law. ed.,
640); It is a remission of guilt (State vs. Lewis, 111 La., 693; 35 So., 816), a forgiveness of
the offense (Cook vs. Middlesex County, 26 N. J. Law, 326; Ex parte Powell, 73 Ala., 517; 49
Am. Rep., 71). "Commutation" is a remission of a part of the punishment; a substitution of a
less penalty for the one originally imposed (Lee vs. Murphy, 22 Grat. [Va.] 789; 12 Am. Rep.,
563; Rich vs. Chamberlain, 107 Mich., 381; 65 N. W., 235). A "reprieve" or "respite" is the
withholding of the sentence for an interval of time (4 Blackstone's Commentaries, 394), a
postponement of execution (Carnal vs. People, 1 Parker, Cr. R. [N. Y.], 272), a temporary
suspension of execution (Butler vs. State, 97 Ind., 373).

Few adjudicated cases are to be found in which the validity of a statute similar to our section
12078 has been determined; but the same objections have been urged against parole
statutes which vest the power to parole in persons other than those to whom the power of
pardon is granted, and these statutes have been upheld quite uniformly, as a reference to
the numerous cases cited in the notes to Woods vs. State (130 Tenn., 100; 169 S. W.,558,
reported in L. R. A., 1915F, 531), will disclose. (See, also, 20 R. C. L., 524.)

We conclude that the Probation Act does not conflict with the pardoning power of the Executive. The
pardoning power, in respect to those serving their probationary sentences, remains as full and
complete as if the Probation Law had never been enacted. The President may yet pardon the
probationer and thus place it beyond the power of the court to order his rearrest and imprisonment.
(Riggs vs. United States [1926],
14 F. [2d], 5, 7.)

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2. But while the Probation Law does not encroach upon the pardoning power of the executive and is
not for that reason void, does section 11 thereof constitute, as contended, an undue delegation of
legislative power?

Under the constitutional system, the powers of government are distributed among three coordinate
and substantially independent organs: the legislative, the executive and the judicial. Each of these
departments of the government derives its authority from the Constitution which, in turn, is the
highest expression of popular will. Each has exclusive cognizance of the matters within its
jurisdiction, and is supreme within its own sphere.

The power to make laws the legislative power is vested in a bicameral Legislature by the
Jones Law (sec. 12) and in a unicamiral National Assembly by the Constitution (Act. VI, sec. 1,
Constitution of the Philippines). The Philippine Legislature or the National Assembly may not escape
its duties and responsibilities by delegating that 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. This principle is said to have originated with the glossators, was introduced into English law
through a misreading of Bracton, there developed as a principle of agency, was established by Lord
Coke in the English public law in decisions forbidding the delegation of judicial power, and found its
way into America as an enlightened principle of free government. It has since become an accepted
corollary of the principle of separation of powers. (5 Encyc. of the Social Sciences, p. 66.) The
classic statement of the rule is that of Locke, namely: "The legislative neither must nor can transfer
the power of making laws to anybody else, or place it anywhere but where the people have." (Locke
on Civil Government, sec. 142.) Judge Cooley enunciates the doctrine in the following oft-quoted
language: "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 charged. The power
to whose judgment, wisdom, and patriotism this high prerogative has been intrusted cannot relieve
itself of the responsibilities 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." (Cooley on Constitutional Limitations, 8th ed.,
Vol. I, p. 224. Quoted with approval in U. S. vs. Barrias [1908], 11 Phil., 327.) This court posits the
doctrine "on the ethical principle that such a delegated power constitutes not only a right but a duty
to be performed by the delegate by the instrumentality of his own judgment acting immediately upon
the matter of legislation and not through the intervening mind of another. (U. S. vs. Barrias, supra, at
p. 330.)

The rule, however, which forbids the delegation of legislative power is not absolute and inflexible. It
admits of exceptions. An exceptions sanctioned by immemorial practice permits the central
legislative body to delegate legislative powers to local authorities. (Rubi vs. Provincial Board of
Mindoro [1919], 39 Phil., 660; U. S. vs. Salaveria [1918], 39 Phil., 102; Stoutenburgh vs. Hennick
[1889], 129 U. S., 141; 32 Law. ed., 637; 9 Sup. Ct. Rep., 256; State vs. Noyes [1855], 30 N. H.,
279.) "It is a cardinal principle of our system of government, that local affairs shall be managed by
local authorities, and general affairs by the central authorities; and hence while the rule is also
fundamental that the power to make laws cannot be delegated, the creation of the municipalities
exercising local self government has never been held to trench upon that rule. Such legislation is not
regarded as a transfer of general legislative power, but rather as the grant of the authority to
prescribed local regulations, according to immemorial practice, subject of course to the interposition
of the superior in cases of necessity." (Stoutenburgh vs. Hennick, supra.) On quite the same
principle, Congress is powered to delegate legislative power to such agencies in the territories of the

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United States as it may select. A territory stands in the same relation to Congress as a municipality
or city to the state government. (United States vs. Heinszen [1907], 206 U. S., 370; 27 Sup. Ct.
Rep., 742; 51 L. ed., 1098; 11 Ann. Cas., 688; Dorr vs. United States [1904], 195 U.S., 138; 24 Sup.
Ct. Rep., 808; 49 Law. ed., 128; 1 Ann. Cas., 697.) Courts have also sustained the delegation of
legislative power to the people at large. Some authorities maintain that this may not be done (12 C.
J., pp. 841, 842; 6 R. C. L., p. 164, citing People vs. Kennedy [1913], 207 N. Y., 533; 101 N. E., 442;
Ann. Cas., 1914C, 616). However, the question of whether or not a state has ceased to be
republican in form because of its adoption of the initiative and referendum has been held not to be a
judicial but a political question (Pacific States Tel. & Tel. Co. vs. Oregon [1912], 223 U. S., 118; 56
Law. ed., 377; 32 Sup. Cet. Rep., 224), and as the constitutionality of such laws has been looked
upon with favor by certain progressive courts, the sting of the decisions of the more conservative
courts has been pretty well drawn. (Opinions of the Justices [1894], 160 Mass., 586; 36 N. E., 488;
23 L. R. A., 113; Kiernan vs. Portland [1910], 57 Ore., 454; 111 Pac., 379; 1132 Pac., 402; 37 L. R. A.
[N. S.], 332; Pacific States Tel. & Tel. Co. vs. Oregon, supra.) Doubtless, also, legislative power may
be delegated by the Constitution itself. Section 14, paragraph 2, of article VI of the Constitution of
the Philippines provides that "The National Assembly may by law authorize the President, subject to
such limitations and restrictions as it may impose, to fix within specified limits, tariff rates, import or
export quotas, and tonnage and wharfage dues." And section 16 of the same article of the
Constitution provides that "In times of war or other national emergency, the National Assembly may
by law authorize the President, for a limited period and subject to such restrictions as it may
prescribed, to promulgate rules and regulations to carry out a declared national policy." It is beyond
the scope of this decision to determine whether or not, in the absence of the foregoing constitutional
provisions, the President could be authorized to exercise the powers thereby vested in him. Upon
the other hand, whatever doubt may have existed has been removed by the Constitution itself.

The case before us does not fall under any of the exceptions hereinabove mentioned.

The challenged section of Act No. 4221 in section 11 which reads as follows:

This Act shall apply only in those provinces in which the respective provincial boards have
provided for the salary of a probation officer at rates not lower than those now provided for
provincial fiscals. Said probation officer shall be appointed by the Secretary of Justice and
shall be subject to the direction of the Probation Office. (Emphasis ours.)

In testing whether a statute constitute 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 R. C. L., p. 165.) In the United States vs. Ang Tang Ho ([1922], 43 Phil., 1), this court
adhered to the foregoing rule when it held an act of the legislature void in so far as it undertook to
authorize the Governor-General, in his discretion, to issue a proclamation fixing the price of rice and
to make the sale of it in violation of the proclamation a crime. (See and cf. Compaia General de
Tabacos vs. Board of Public Utility Commissioners [1916], 34 Phil., 136.) The general rule, however,
is limited by another rule that to a certain extent matters of detail may be left to be filled in by rules
and regulations to be adopted or promulgated by executive officers and administrative boards. (6 R.
C. L., pp. 177-179.)

For the purpose of Probation Act, the provincial boards may be regarded as administrative bodies
endowed with power to determine when the Act should take effect in their respective provinces. They
are the agents or delegates of the legislature in this respect. The rules governing delegation of

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legislative power to administrative and executive officers are applicable or are at least indicative of
the rule which should be here adopted. An examination of a variety of cases on delegation of power
to administrative bodies will show that the ratio decidendi is at variance but, it can be broadly
asserted that the rationale revolves around the presence or absence of a standard or rule of action
or the sufficiency thereof in the statute, to aid the delegate in exercising the granted discretion.
In some cases, it is held that the standard is sufficient; in others that is insufficient; and in still others
that it is entirely lacking. As a rule, an act of the legislature is incomplete and hence invalid if it does
not lay down any rule or definite standard by which the administrative officer or board may be guided
in the exercise of the discretionary powers delegated to it. (See Schecter vs. United States [1925],
295 U. S., 495; 79 L. ed., 1570; 55 Sup. Ct. Rep., 837; 97 A.L.R., 947; People ex rel. Rice vs. Wilson
Oil Co. [1936], 364 Ill., 406; 4 N. E. [2d], 847; 107 A.L.R., 1500 and cases cited. See also R. C. L.,
title "Constitutional Law", sec 174.) In the case at bar, what rules are to guide the provincial boards
in the exercise of their discretionary power to determine whether or not the Probation Act shall apply
in their respective provinces? What standards are fixed by the Act? We do not find any and none has
been pointed to us by the respondents. The probation Act does not, by the force of any of its
provisions, fix and impose upon the provincial boards any standard or guide in the exercise of their
discretionary power. What is granted, if we may use the language of Justice Cardozo in the recent
case of Schecter, supra, is a "roving commission" which enables the provincial boards to exercise
arbitrary discretion. By section 11 if the Act, the legislature does not seemingly on its own authority
extend the benefits of the Probation Act to the provinces but in reality leaves the entire matter for the
various provincial boards to determine. In other words, the provincial boards of the various provinces
are to determine for themselves, whether the Probation Law shall apply to their provinces or not at
all. The applicability and application of the Probation Act are entirely placed in the hands of the
provincial boards. If the provincial board does not wish to have the Act applied in its province, all that
it has to do is to decline to appropriate the needed amount for the salary of a probation officer. The
plain language of the Act is not susceptible of any other interpretation. This, to our minds, is a virtual
surrender of legislative power to the provincial boards.

"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." (Cincinnati, W. & Z. R. Co. vs. Clinton County
Comrs. [1852]; 1 Ohio St., 77, 88. See also, Sutherland on Statutory Construction, sec 68.) To the
same effect are the decision of this court in Municipality of Cardona vs. Municipality of
Binangonan ([1917], 36 Phil., 547); Rubi vs. Provincial Board of Mindoro ([1919],39 Phil., 660)
and Cruz vs. Youngberg([1931], 56 Phil., 234). In the first of these cases, this court sustained the
validity of the law conferring upon the Governor-General authority to adjust provincial and municipal
boundaries. In the second case, this court held it lawful for the legislature to direct non-Christian
inhabitants to take up their habitation on unoccupied lands to be selected by the provincial governor
and approved by the provincial board. In the third case, it was held proper for the legislature to vest
in the Governor-General authority to suspend or not, at his discretion, the prohibition of the
importation of the foreign cattle, such prohibition to be raised "if the conditions of the country make
this advisable or if deceased among foreign cattle has ceased to be a menace to the agriculture and
livestock of the lands."

It should be observed that in the case at bar we are not concerned with the simple transference of
details of execution or the promulgation by executive or administrative officials of rules and
regulations to carry into effect the provisions of a law. If we were, recurrence to our own decisions
would be sufficient. (U. S. vs. Barrias [1908], 11 Phil., 327; U.S. vs. Molina [1914], 29 Phil., 119;
Alegre vs. Collector of Customs [1929], 53 Phil., 394; Cebu Autobus Co. vs. De Jesus [1931], 56

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Phil., 446; U. S. vs. Gomez [1915], 31 Phil., 218; Rubi vs. Provincial Board of Mindoro [1919], 39
Phil., 660.)

It is connected, 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 (6 R. C. L.,
116, 170-172; Cooley, Constitutional Limitations, 8th ed., Vol. I, p. 227). In Wayman vs. Southard
([1825], 10 Wheat. 1; 6 Law. ed., 253), the Supreme Court of the United State ruled that the
legislature may delegate a power not legislative which it may itself rightfully exercise.(Vide, also,
Dowling vs. Lancashire Ins. Co. [1896], 92 Wis., 63; 65 N. W., 738; 31 L. R. A., 112.) The power to
ascertain facts is such a power which may be delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is
a mental process common to all branches of the government. (Dowling vs. Lancashire Ins.
Co., supra; In re Village of North Milwaukee [1896], 93 Wis., 616; 97 N.W., 1033; 33 L.R.A., 938;
Nash vs. Fries [1906], 129 Wis., 120; 108 N.W., 210; Field vs. Clark [1892], 143 U.S., 649; 12 Sup.
Ct., 495; 36 Law. ed., 294.) 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 (Pfiffner, Public Administration [1936] ch. XX;
Laski, "The Mother of Parliaments", foreign Affairs, July, 1931, Vol. IX, No. 4, pp. 569-579; Beard,
"Squirt-Gun Politics", in Harper's Monthly Magazine, July, 1930, Vol. CLXI, pp. 147, 152), 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 its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different of 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." (Willoughby on the Constitution of the United States, 2nd ed., Vol. II, p.
1637.) In Miller vs. Mayer, etc., of New York [1883], 109 U.S., 3 Sup. Ct. Rep., 228; 27 Law. ed., 971,
974), it was said: "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." (See, also, 12 C.J., p. 864; State vs. Parker [1854], 26
Vt., 357; Blanding vs. Burr [1859], 13 Cal., 343, 258.) The legislature, then may provide that a
contingencies leaving to some other person or body the power to determine when the specified
contingencies has arisen. But, in the case at bar, the legislature has not made the operation of the
Prohibition Act contingent upon specified facts or conditions to be ascertained by the provincial
board. It leaves, as we have already said, the entire operation or non-operation of the law upon the
provincial board. the discretion vested is arbitrary because it is absolute and unlimited. A provincial
board need not investigate conditions or find any fact, or await the happening of any specified
contingency. It is bound by no rule, limited by no principle of expendiency announced by the
legislature. It may take into consideration certain facts or conditions; and, again, it may not. It may
have any purpose or no purpose at all. It need not give any reason whatsoever for refusing or failing
to appropriate any funds for the salary of a probation officer. This is a matter which rest entirely at its
pleasure. The fact that at some future time we cannot say when the provincial boards may
appropriate funds for the salaries of probation officers and thus put the law into operation in the
various provinces will not save the statute. The time of its taking into effect, we reiterate, would yet

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be based solely upon the will of the provincial boards and not upon the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than legislature itself.

The various provincial boards are, in practical effect, endowed with the power of suspending the
operation of the Probation Law in their respective provinces. In some jurisdiction, constitutions
provided that laws may be suspended only by the legislature or by its authority. Thus, section 28,
article I of the Constitution of Texas provides that "No power of suspending laws in this state shall be
exercised except by the legislature"; and section 26, article I of the Constitution of Indiana provides
"That the operation of the laws shall never be suspended, except by authority of the General
Assembly." Yet, even provisions of this sort do not confer absolute power of suspension upon the
legislature. While it may be undoubted that the legislature may suspend a law, or the execution or
operation of a law, a law may not be suspended as to certain individuals only, leaving the law to be
enjoyed by others. The suspension must be general, and cannot be made for individual cases or for
particular localities. In Holden vs. James ([1814], 11 Mass., 396; 6 Am. Dec., 174, 177, 178), it was
said:

By the twentieth article of the declaration of rights in the constitution of this commonwealth, it
is declared that the power of suspending the laws, or the execution of the laws, ought never
to be exercised but by the legislature, or by authority derived from it, to be exercised in such
particular cases only as the legislature shall expressly provide for. Many of the articles in that
declaration of rights were adopted from the Magna Charta of England, and from the bill of
rights passed in the reign of William and Mary. The bill of rights contains an enumeration of
the oppressive acts of James II, tending to subvert and extirpate the protestant religion, and
the laws and liberties of the kingdom; and the first of them is the assuming and exercising a
power of dispensing with and suspending the laws, and the execution of the laws without
consent of parliament. The first article in the claim or declaration of rights contained in the
statute is, that the exercise of such power, by legal authority without consent of parliament, is
illegal. In the tenth section of the same statute it is further declared and enacted, that "No
dispensation by non obstante of or to any statute, or part thereof, should be allowed; but the
same should be held void and of no effect, except a dispensation be allowed of in such
statute." There is an implied reservation of authority in the parliament to exercise the power
here mentioned; because, according to the theory of the English Constitution, "that absolute
despotic power, which must in all governments reside somewhere," is intrusted to the
parliament: 1 Bl. Com., 160.

The principles of our government are widely different in this particular. Here the sovereign
and absolute power resides in the people; and the legislature can only exercise what is
delegated to them according to the constitution. It is obvious that the exercise of the power in
question would be equally oppressive to the subject, and subversive of his right to protection,
"according to standing laws," whether exercised by one man or by a number of men. It
cannot be supposed that the people when adopting this general principle from the English
bill of rights and inserting it in our constitution, intended to bestow by implication on the
general court one of the most odious and oppressive prerogatives of the ancient kings of
England. It is manifestly contrary to the first principles of civil liberty and natural justice, and
to the spirit of our constitution and laws, that any one citizen should enjoy privileges and
advantages which are denied to all others under like circumstances; or that ant one should
be subject to losses, damages, suits, or actions from which all others under like
circumstances are exempted.

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To illustrate the principle: A section of a statute relative to dogs made the owner of any dog liable to
the owner of domestic animals wounded by it for the damages without proving a knowledge of it
vicious disposition. By a provision of the act, power was given to the board of supervisors to
determine whether or not during the current year their county should be governed by the provisions
of the act of which that section constituted a part. It was held that the legislature could not confer that
power. The court observed that it could no more confer such a power than to authorize the board of
supervisors of a county to abolish in such county the days of grace on commercial paper, or to
suspend the statute of limitations. (Slinger vs. Henneman [1875], 38 Wis., 504.) A similar statute in
Missouri was held void for the same reason in State vs. Field ([1853, 17 Mo., 529;59 Am. Dec., 275.)
In that case a general statute formulating a road system contained a provision that "if the county
court of any county should be of opinion that the provisions of the act should not be enforced, they
might, in their discretion, suspend the operation of the same for any specified length of time, and
thereupon the act should become inoperative in such county for the period specified in such order;
and thereupon order the roads to be opened and kept in good repair, under the laws theretofore in
force." Said the court: ". . . this act, by its own provisions, repeals the inconsistent provisions of a
former act, and yet it is left to the county court to say which act shall be enforce in their county. The
act does not submit the question to the county court as an original question, to be decided by that
tribunal, whether the act shall commence its operation within the county; but it became by its own
terms a law in every county not excepted by name in the act. It did not, then, require the county court
to do any act in order to give it effect. But being the law in the county, and having by its provisions
superseded and abrogated the inconsistent provisions of previous laws, the county court is . . .
empowered, to suspend this act and revive the repealed provisions of the former act. When the
question is before the county court for that tribunal to determine which law shall be in force, it is urge
before us that the power then to be exercised by the court is strictly legislative power, which under
our constitution, cannot be delegated to that tribunal or to any other body of men in the state. In the
present case, the question is not presented in the abstract; for the county court of Saline county,
after the act had been for several months in force in that county, did by order suspend its operation;
and during that suspension the offense was committed which is the subject of the present indictment
. . . ." (See Mitchell vs. State [1901], 134 Ala., 392; 32 S., 687.)

True, the legislature may enact laws for a particular locality different from those applicable to other
localities and, while recognizing the force of the principle hereinabove expressed, courts in may
jurisdiction have sustained the constitutionality of the submission of option laws to the vote of the
people. (6 R.C.L., p. 171.) But option laws thus sustained treat of subjects purely local in character
which should receive different treatment in different localities placed under different circumstances.
"They relate to subjects which, like the retailing of intoxicating drinks, or the running at large of cattle
in the highways, may be differently regarded in different localities, and they are sustained on what
seems to us the impregnable ground, that the subject, though not embraced within the ordinary
powers of municipalities to make by-laws and ordinances, is nevertheless within the class of public
regulations, in respect to which it is proper that the local judgment should control." (Cooley on
Constitutional Limitations, 5th ed., p. 148.) So that, while we do not deny the right of local self-
government and the propriety of leaving matters of purely local concern in the hands of local
authorities or for the people of small communities to pass upon, we believe that in matters of general
of general legislation like that which treats of criminals in general, and as regards the general subject
of probation, discretion may not be vested in a manner so unqualified and absolute as provided in
Act No. 4221. True, the statute does not expressly state that the provincial boards may suspend the
operation of the Probation Act in particular provinces but, considering that, in being vested with the
authority to appropriate or not the necessary funds for the salaries of probation officers, they thereby
are given absolute discretion to determine whether or not the law should take effect or operate in
their respective provinces, the provincial boards are in reality empowered by the legislature to

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suspend the operation of the Probation Act in particular provinces, the Act to be held in abeyance
until the provincial boards should decide otherwise by appropriating the necessary funds. The
validity of a law is not tested by what has been done but by what may be done under its provisions.
(Walter E. Olsen & Co. vs. Aldanese and Trinidad [1922], 43 Phil., 259; 12 C. J., p. 786.)

It in conceded that a great deal of latitude should be granted to the legislature not only in the
expression of what may be termed legislative policy but in the elaboration and execution thereof.
"Without this power, legislation would become oppressive and yet imbecile." (People vs. Reynolds, 5
Gilman, 1.) It has been said that popular government lives because of the inexhaustible reservoir of
power behind it. It is unquestionable that the mass of powers of government is vested in the
representatives of the people and that these representatives are no further restrained under our
system than by the express language of the instrument imposing the restraint, or by particular
provisions which by clear intendment, have that effect. (Angara vs. Electoral Commission [1936], 35
Off. Ga., 23; Schneckenburger vs. Moran [1936], 35 Off. Gaz., 1317.) But, it should be borne in mind
that a constitution is both a grant and a limitation of power and one of these time-honored limitations
is that, subject to certain exceptions, legislative power shall not be delegated.

We conclude that section 11 of Act No. 4221 constitutes an improper and unlawful delegation of
legislative authority to the provincial boards and is, for this reason, unconstitutional and void.

3. It is also contended that the Probation Act violates the provisions of our Bill of Rights which
prohibits the denial to any person of the equal protection of the laws (Act. III, sec. 1 subsec. 1.
Constitution of the Philippines.)

This basic individual right sheltered by the Constitution is a restraint on all the tree grand
departments of our government and on the subordinate instrumentalities and subdivision thereof,
and on many constitutional power, like the police power, taxation and eminent domain. The equal
protection of laws, sententiously observes the Supreme Court of the United States, "is a pledge of
the protection of equal laws." (Yick Wo vs. Hopkins [1886], 118 U. S., 356; 30 Law. ed., 220; 6 Sup.
Ct. Rep., 10464; Perley vs. North Carolina, 249 U. S., 510; 39 Sup. Ct. Rep., 357; 63 Law. ed., 735.)
Of course, what may be regarded as a denial of the equal protection of the laws in a question not
always easily determined. No rule that will cover every case can be formulated. (Connolly vs. Union
Sewer Pipe Co. [1902], 184, U. S., 540; 22 Sup. Ct., Rep., 431; 46 Law. ed., 679.) Class legislation
discriminating against some and favoring others in prohibited. But classification on a reasonable
basis, and nor made arbitrarily or capriciously, is permitted. (Finely vs. California [1911], 222 U. S.,
28; 56 Law. ed., 75; 32 Sup. Ct. Rep., 13; Gulf. C. & S. F. Ry Co. vs. Ellis [1897], 165 U. S., 150; 41
Law. ed., 666; 17 Sup. Ct. Rep., 255; Smith, Bell & Co. vs. Natividad [1919], 40 Phil., 136.) The
classification, however, to be reasonable must be based on substantial distinctions which make real
differences; it must be germane to the purposes of the law; it must not be limited to existing
conditions only, and must apply equally to each member of the class. (Borgnis vs. Falk. Co. [1911],
147 Wis., 327, 353; 133 N. W., 209; 3 N. C. C. A., 649; 37 L. R. A. [N. S.], 489; State vs. Cooley, 56
Minn., 540; 530-552; 58 N. W., 150; Lindsley vs. Natural Carbonic Gas Co.[1911], 220 U. S., 61, 79,
55 Law. ed., 369, 377; 31 Sup. Ct. Rep., 337; Ann. Cas., 1912C, 160; Lake Shore & M. S. R. Co. vs.
Clough [1917], 242 U.S., 375; 37 Sup. Ct. Rep., 144; 61 Law. ed., 374; Southern Ry. Co. vs. Greene
[1910], 216 U. S., 400; 30 Sup. Ct. Rep., 287; 54 Law. ed., 536; 17 Ann. Cas., 1247; Truax vs.
Corrigan [1921], 257 U. S., 312; 12 C. J., pp. 1148, 1149.)

In the case at bar, however, the resultant inequality may be said to flow from the unwarranted
delegation of legislative power, although perhaps this is not necessarily the result in every case.

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Adopting the example given by one of the counsel for the petitioners in the course of his oral
argument, one province may appropriate the necessary fund to defray the salary of a probation
officer, while another province may refuse or fail to do so. In such a case, the Probation Act would be
in operation in the former province but not in the latter. This means that a person otherwise coming
within the purview of the law would be liable to enjoy the benefits of probation in one province while
another person similarly situated in another province would be denied those same benefits. This is
obnoxious discrimination. Contrariwise, it is also possible for all the provincial boards to appropriate
the necessary funds for the salaries of the probation officers in their respective provinces, in which
case no inequality would result for the obvious reason that probation would be in operation in each
and every province by the affirmative action of appropriation by all the provincial boards. On that
hypothesis, every person coming within the purview of the Probation Act would be entitled to avail of
the benefits of the Act. Neither will there be any resulting inequality if no province, through its
provincial board, should appropriate any amount for the salary of the probation officer which is the
situation now and, also, if we accept the contention that, for the purpose of the Probation Act, the
City of Manila should be considered as a province and that the municipal board of said city has not
made any appropriation for the salary of the probation officer. These different situations suggested
show, indeed, that while inequality may result in the application of the law and in the conferment of
the benefits therein provided, inequality is not in all cases the necessary result. But whatever may be
the case, it is clear that in section 11 of the Probation Act creates a situation in which discrimination
and inequality are permitted or allowed. There are, to be sure, abundant authorities requiring actual
denial of the equal protection of the law before court should assume the task of setting aside a law
vulnerable on that score, but premises and circumstances considered, we are of the opinion that
section 11 of Act No. 4221 permits of the denial of the equal protection of the law and is on that
account bad. We see no difference between a law which permits of such denial. A law may appear to
be fair on its face and impartial in appearance, yet, if it permits of unjust and illegal discrimination, it
is within the constitutional prohibitions. (By analogy, Chy Lung vs. Freeman [1876], 292 U. S., 275;
23 Law. ed., 550; Henderson vs. Mayor [1876], 92 U. S., 259; 23 Law. ed., 543; Ex parte Virginia
[1880], 100 U. S., 339; 25 Law. ed., 676; Neal vs. Delaware [1881], 103 U. S., 370; 26 Law. ed., 567;
Soon Hing vs. Crowley [1885], 113 U. S., 703; 28 Law. ed., 1145, Yick Wo vs. Hopkins [1886],118 U.
S., 356; 30 Law. ed., 220; Williams vs. Mississippi [1897], 170 U. S., 218; 18 Sup. Ct. Rep., 583; 42
Law. ed., 1012; Bailey vs. Alabama [1911], 219 U. S., 219; 31 Sup. Ct. Rep. 145; 55 Law. ed.,
Sunday Lake Iron Co. vs. Wakefield [1918], 247 U. S., 450; 38 Sup. Ct. Rep., 495; 62 Law. ed.,
1154.) In other words, statutes may be adjudged unconstitutional because of their effect in operation
(General Oil Co. vs. Clain [1907], 209 U. S., 211; 28 Sup. Ct. Rep., 475; 52 Law. ed., 754; State vs.
Clement Nat. Bank [1911], 84 Vt., 167; 78 Atl., 944; Ann. Cas., 1912D, 22). If the law has the effect
of denying the equal protection of the law it is unconstitutional. (6 R. C. L. p. 372; Civil Rights Cases,
109 U. S., 3; 3 Sup. Ct. Rep., 18; 27 Law. ed., 835; Yick Wo vs. Hopkins, supra; State vs.
Montgomery, 94 Me., 192; 47 Atl., 165; 80 A. S. R., 386; State vs. Dering, 84 Wis., 585; 54 N. W.,
1104; 36 A. S. R., 948; 19 L. R. A., 858.) Under section 11 of the Probation Act, not only may said Act
be in force in one or several provinces and not be in force in other provinces, but one province may
appropriate for the salary of the probation officer of a given year and have probation during that
year and thereafter decline to make further appropriation, and have no probation is subsequent
years. While this situation goes rather to the abuse of discretion which delegation implies, it is here
indicated to show that the Probation Act sanctions a situation which is intolerable in a government of
laws, and to prove how easy it is, under the Act, to make the guaranty of the equality clause but "a
rope of sand". (Brewer, J. Gulf C. & S. F. Ry. Co. vs. Ellis [1897], 165 U. S., 150 154; 41 Law. ed.,
666; 17 Sup. Ct. Rep., 255.) lawph!1.net

Great reliance is placed by counsel for the respondents on the case of Ocampo vs. United States
([1914], 234 U. S., 91; 58 Law. ed., 1231). In that case, the Supreme Court of the United States

Page 258 of 547

affirmed the decision of this court (18 Phil., 1) by declining to uphold the contention that there was a
denial of the equal protection of the laws because, as held in Missouri vs. Lewis (Bowman vs. Lewis)
decided in 1880 (101 U. S., 220; 25 Law. ed., 991), the guaranty of the equality clause does not
require territorial uniformity. It should be observed, however, that this case concerns the right to
preliminary investigations in criminal cases originally granted by General Orders No. 58. No question
of legislative authority was involved and the alleged denial of the equal protection of the laws was
the result of the subsequent enactment of Act No. 612, amending the charter of the City of Manila
(Act No. 813) and providing in section 2 thereof that "in cases triable only in the court of first instance
of the City of Manila, the defendant . . . shall not be entitled as of right to a preliminary examination
in any case where the prosecuting attorney, after a due investigation of the facts . . . shall have
presented an information against him in proper form . . . ." Upon the other hand, an analysis of the
arguments and the decision indicates that the investigation by the prosecuting attorney although
not in the form had in the provinces was considered a reasonable substitute for the City of Manila,
considering the peculiar conditions of the city as found and taken into account by the legislature
itself.

Reliance is also placed on the case of Missouri vs. Lewis, supra. That case has reference to a
situation where the constitution of Missouri permits appeals to the Supreme Court of the state from
final judgments of any circuit court, except those in certain counties for which counties the
constitution establishes a separate court of appeals called St. Louis Court of Appeals. The provision
complained of, then, is found in the constitution itself and it is the constitution that makes the
apportionment of territorial jurisdiction.

We are of the opinion that section 11 of the Probation Act is unconstitutional and void because it is
also repugnant to equal-protection clause of our Constitution.

Section 11 of the Probation Act being unconstitutional and void for the reasons already stated, the
next inquiry is whether or not the entire Act should be avoided.

In seeking the legislative intent, the presumption is against any mutilation of a statute, and
the courts will resort to elimination only where an unconstitutional provision is interjected into
a statute otherwise valid, and is so independent and separable that its removal will leave the
constitutional features and purposes of the act substantially unaffected by the process.
(Riccio vs. Hoboken, 69 N. J. Law., 649, 662; 63 L. R. A., 485; 55 Atl., 1109, quoted in
Williams vs. Standard Oil Co. [1929], 278 U.S., 235, 240; 73 Law. ed., 287, 309; 49 Sup. Ct.
Rep., 115; 60 A. L. R., 596.) In Barrameda vs. Moir ([1913], 25 Phil., 44, 47), this court stated
the well-established rule concerning partial invalidity of statutes in the following language:

. . . where part of the a statute is void, as repugnant to the Organic Law, while another part is
valid, the valid portion, if separable from the valid, may stand and be enforced. But in order
to do this, the valid portion must be in so far independent of the invalid portion that it is fair to
presume that the Legislative would have enacted it by itself if they had supposed that they
could not constitutionally enact the other. (Mutual Loan Co. vs. Martell, 200 Mass., 482; 86
N. E., 916; 128 A. S. R., 446; Supervisors of Holmes Co. vs. Black Creek Drainage District,
99 Miss., 739; 55 Sou., 963.) Enough must remain to make a complete, intelligible, and valid
statute, which carries out the legislative intent. (Pearson vs. Bass. 132 Ga., 117; 63 S. E.,
798.) 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 Legislature. (State vs. A. C. L.
R., Co., 56 Fla., 617, 642; 47 Sou., 969; Harper vs. Galloway, 58 Fla., 255; 51 Sou., 226; 26

Page 259 of 547

 L. R. A., N. S., 794; Connolly vs. Union Sewer Pipe Co., 184 U. S., 540, 565; People vs.
Strassheim, 240 Ill., 279, 300; 88 N. E., 821; 22 L. R. A., N. S., 1135; State vs. Cognevich,
124 La., 414; 50 Sou., 439.) 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.
(State vs. Junkin, 85 Neb., 1; 122 N. W., 473; 23 L. R. A., N. S., 839; Vide, also,. U. S., vs.
Rodriguez [1918], 38 Phil., 759; Pollock vs. Farmers' Loan and Trust Co. [1895], 158 U. S.,
601, 635; 39 Law. ed., 1108, 1125; 15 Sup. Ct. Rep., 912; 6 R.C.L., 121.)

It is contended that even if section 11, which makes the Probation Act applicable only in those
provinces in which the respective provincial boards provided for the salaries of probation officers
were inoperative on constitutional grounds, the remainder of the Act would still be valid and may be
enforced. We should be inclined to accept the suggestions but for the fact that said section is, in our
opinion, is inseparably linked with the other portions of the Act that with the elimination of the section
what would be left is the bare idealism of the system, devoid of any practical benefit to a large
number of people who may be deserving of the intended beneficial result of that system. The clear
policy of the law, as may be gleaned from a careful examination of the whole context, is to make the
application of the system dependent entirely upon the affirmative action of the different provincial
boards through appropriation of the salaries for probation officers at rates not lower than those
provided for provincial fiscals. Without such action on the part of the various boards, no probation
officers would be appointed by the Secretary of Justice to act in the provinces. The Philippines is
divided or subdivided into provinces and it needs no argument to show that if not one of the
provinces and this is the actual situation now appropriate the necessary fund for the salary of a
probation officer, probation under Act No. 4221 would be illusory. There can be no probation without
a probation officer. Neither can there be a probation officer without the probation system.

Section 2 of the Acts provides that the probation officer shall supervise and visit the probationer.
Every probation officer is given, as to the person placed in probation under his care, the powers of
the police officer. It is the duty of the probation officer to see that the conditions which are imposed
by the court upon the probationer under his care are complied with. Among those conditions, the
following are enumerated in section 3 of the Act:

That the probationer (a) shall indulge in no injurious or vicious habits;

(b) Shall avoid places or persons of disreputable or harmful character;

(c) Shall report to the probation officer as directed by the court or probation officers;

(d) Shall permit the probation officer to visit him at reasonable times at his place of abode or
elsewhere;

(e) Shall truthfully answer any reasonable inquiries on the part of the probation officer
concerning his conduct or condition; "(f) Shall endeavor to be employed regularly; "(g) Shall
remain or reside within a specified place or locality;

(f) Shall make reparation or restitution to the aggrieved parties for actual damages or losses
caused by his offense;

(g) Shall comply with such orders as the court may from time to time make; and

Page 260 of 547

 (h) Shall refrain from violating any law, statute, ordinance, or any by-law or regulation,
promulgated in accordance with law.

The court is required to notify the probation officer in writing of the period and terms of probation.
Under section 4, it is only after the period of probation, the submission of a report of the probation
officer and appropriate finding of the court that the probationer has complied with the conditions of
probation that probation may be definitely terminated and the probationer finally discharged from
supervision. Under section 5, if the court finds that there is non-compliance with said conditions, as
reported by the probation officer, it may issue a warrant for the arrest of the probationer and said
probationer may be committed with or without bail. Upon arraignment and after an opportunity to be
heard, the court may revoke, continue or modify the probation, and if revoked, the court shall order
the execution of the sentence originally imposed. Section 6 prescribes the duties of probation
officers: "It shall be the duty of every probation officer to furnish to all persons placed on probation
under his supervision a statement of the period and conditions of their probation, and to instruct
them concerning the same; to keep informed concerning their conduct and condition; to aid and
encourage them by friendly advice and admonition, and by such other measures, not inconsistent
with the conditions imposed by court as may seem most suitable, to bring about improvement in their
conduct and condition; to report in writing to the court having jurisdiction over said probationers at
least once every two months concerning their conduct and condition; to keep records of their work;
make such report as are necessary for the information of the Secretary of Justice and as the latter
may require; and to perform such other duties as are consistent with the functions of the probation
officer and as the court or judge may direct. The probation officers provided for in this Act may act as
parole officers for any penal or reformatory institution for adults when so requested by the authorities
thereof, and, when designated by the Secretary of Justice shall act as parole officer of persons
released on parole under Act Number Forty-one Hundred and Three, without additional
compensation."

It is argued, however, that even without section 11 probation officers maybe appointed in the
provinces under section 10 of Act which provides as follows:

There is hereby created in the Department of Justice and subject to its supervision and
control, a Probation Office under the direction of a Chief Probation Officer to be appointed by
the Governor-General with the advise and consent of the Senate who shall receive a salary
of four eight hundred pesos per annum. To carry out this Act there is hereby appropriated out
of any funds in the Insular Treasury not otherwise appropriated, the sum of fifty thousand
pesos to be disbursed by the Secretary of Justice, who is hereby authorized to appoint
probation officers and the administrative personnel of the probation officer under civil service
regulations from among those who possess the qualifications, training and experience
prescribed by the Bureau of Civil Service, and shall fix the compensation of such probation
officers and administrative personnel until such positions shall have been included in the
Appropriation Act.

But the probation officers and the administrative personnel referred to in the foregoing section are
clearly not those probation officers required to be appointed for the provinces under section 11. It
may be said, reddendo singula singulis, that the probation officers referred to in section 10 above-
quoted are to act as such, not in the various provinces, but in the central office known as the
Probation Office established in the Department of Justice, under the supervision of the Chief
Probation Officer. When the law provides that "the probation officer" shall investigate and make
reports to the court (secs. 1 and 4); that "the probation officer" shall supervise and visit the

Page 261 of 547

probationer (sec. 2; sec. 6, par. d); that the probationer shall report to the "probationer officer" (sec.
3, par. c.), shall allow "the probationer officer" to visit him (sec. 3, par. d), shall truthfully answer any
reasonable inquiries on the part of "the probation officer" concerning his conduct or condition (sec. 3,
par. 4); that the court shall notify "the probation officer" in writing of the period and terms of probation
(sec. 3, last par.), it means the probation officer who is in charge of a particular probationer in a
particular province. It never could have been intention of the legislature, for instance, to require the
probationer in Batanes, to report to a probationer officer in the City of Manila, or to require a
probation officer in Manila to visit the probationer in the said province of Batanes, to place him under
his care, to supervise his conduct, to instruct him concerning the conditions of his probation or to
perform such other functions as are assigned to him by law.

That under section 10 the Secretary of Justice may appoint as many probation officers as there are
provinces or groups of provinces is, of course possible. But this would be arguing on what the law
may be or should be and not on what the law is. Between is and ought there is a far cry. The wisdom
and propriety of legislation is not for us to pass upon. We may think a law better otherwise than it is.
But much as has been said regarding progressive interpretation and judicial legislation we decline to
amend the law. We are not permitted to read into the law matters and provisions which are not there.
Not for any purpose not even to save a statute from the doom of invalidity.

Upon the other hand, the clear intention and policy of the law is not to make the Insular Government
defray the salaries of probation officers in the provinces but to make the provinces defray them
should they desire to have the Probation Act apply thereto. The sum of P50,000, appropriated "to
carry out the purposes of this Act", is to be applied, among other things, for the salaries of probation
officers in the central office at Manila. These probation officers are to receive such compensations as
the Secretary of Justice may fix "until such positions shall have been included in the Appropriation
Act". It was the intention of the legislature to empower the Secretary of Justice to fix the salaries of
the probation officers in the provinces or later on to include said salaries in an appropriation act.
Considering, further, that the sum of P50,000 appropriated in section 10 is to cover, among other
things, the salaries of the administrative personnel of the Probation Office, what would be left of the
amount can hardly be said to be sufficient to pay even nominal salaries to probation officers in the
provinces. We take judicial notice of the fact that there are 48 provinces in the Philippines and we do
not think it is seriously contended that, with the fifty thousand pesos appropriated for the central
office, there can be in each province, as intended, a probation officer with a salary not lower than
that of a provincial fiscal. If this a correct, the contention that without section 11 of Act No. 4221 said
act is complete is an impracticable thing under the remainder of the Act, unless it is conceded that in
our case there can be a system of probation in the provinces without probation officers.

Probation as a development of a modern penology is a commendable system. Probation laws have

been enacted, here and in other countries, to permit what modern criminologist call the
"individualization of the punishment", the adjustment of the penalty to the character of the criminal
and the circumstances of his particular case. It provides a period of grace in order to aid in the
rehabilitation of a penitent offender. It is believed that, in any cases, convicts may be reformed and
their development into hardened criminals aborted. It, therefore, takes advantage of an opportunity
for reformation and avoids imprisonment so long as the convicts gives promise of reform. (United
States vs. Murray [1925], 275 U. S., 347 357, 358; 72 Law. ed., 309; 312, 313; 48 Sup. Ct. Rep.,
146; Kaplan vs. Hecht, 24 F. [2d], 664, 665.) The Welfare of society is its chief end and aim. The
benefit to the individual convict is merely incidental. But while we believe that probation is
commendable as a system and its implantation into the Philippines should be welcomed, we are
forced by our inescapable duty to set the law aside because of the repugnancy to our fundamental
law.

Page 262 of 547

In arriving at this conclusion, we have endeavored to consider the different aspects presented by
able counsel for both parties, as well in their memorandums as in their oral argument. We have
examined the cases brought to our attention, and others we have been able to reach in the short
time at our command for the study and deliberation of this case. In the examination of the cases and
in then analysis of the legal principles involved we have inclined to adopt the line of action which in
our opinion, is supported better reasoned authorities and is more conducive to the general welfare.
(Smith, Bell & Co. vs. Natividad [1919], 40 Phil., 136.) Realizing the conflict of authorities, we have
declined to be bound by certain adjudicated cases brought to our attention, except where the point
or principle is settled directly or by clear implication by the more authoritative pronouncements of the
Supreme Court of the United States. This line of approach is justified because:

(a) The constitutional relations between the Federal and the State governments of the United
States and the dual character of the American Government is a situation which does not
obtain in the Philippines;

(b) The situation of s state of the American Union of the District of Columbia with reference to
the Federal Government of the United States is not the situation of the province with respect
to the Insular Government (Art. I, sec. 8 cl. 17 and 10th Amendment, Constitution of the
United States; Sims vs. Rives, 84 Fed. [2d], 871),

(c) The distinct federal and the state judicial organizations of the United States do not
embrace the integrated judicial system of the Philippines (Schneckenburger vs. Moran
[1936], 35 Off. Gaz., p. 1317);

(d) "General propositions do not decide concrete cases" (Justice Holmes in Lochner vs. New
York [1904], 198 U. S., 45, 76; 49 Law. ed., 937, 949) and, "to keep pace with . . . new
developments of times and circumstances" (Chief Justice Waite in Pensacola Tel. Co. vs.
Western Union Tel. Co. [1899], 96 U. S., 1, 9; 24 Law. ed., 708; Yale Law Journal, Vol. XXIX,
No. 2, Dec. 1919, 141, 142), fundamental principles should be interpreted having in view
existing local conditions and environment.

Act No. 4221 is hereby declared unconstitutional and void and the writ of prohibition is, accordingly,
granted. Without any pronouncement regarding costs. So ordered.

Avancea, C.J., Imperial, Diaz and Concepcion, JJ., concur.

Villa-real and Abad Santos, JJ., concur in the result.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President, HON. VICENTE JAYME, ETC., ET AL., respondents.

Page 263 of 547

Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.

Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect
tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a
second time. Unfazed by the Decision We promulgated on May 31, 1991 1 petitioner Ernesto Maceda
asks this Court to reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a hearing was held on
July 9, 1992 where all parties presented their respective arguments. Etched in this Court's mind are the
paradoxical claims by both petitioner and private respondents that their respective positions are for the
benefit of the Filipino people.

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury for the
purpose of organizing the NPC and conducting its preliminary work. 3 The main source of funds for the
NPC was the flotation of bonds in the capital markets 4 and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of all
taxes by the Commonwealth of the Philippines, or by any authority, branch, division
or political subdivision thereof and subject to the provisions of the Act of Congress,
approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which
facts shall be stated upon the face of said bonds. . . . . 5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the
initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first
construction of any hydraulic power project was to be decided by the NPC Board. 6 The provision on
tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the
bond's principal and interest in "gold coins" but adding that payment could be made in United States
dollars. 7 The provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans. 8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate

Page 264 of 547

objectives 9 and for the reconstruction and development of the economy of the country.10 It was expressly
stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to
incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the
pertinent tax exemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic
of the Philippines, its provinces, cities and municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD,
the President of the Philippines was authorized to negotiate, contract and guarantee loans with the
Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial
institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not
amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be

exempt from all taxes, except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces, cities, and
municipalities. 15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by
the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax
exemption provision related to the payment of this total indebtedness was not amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The
tax provision related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31,
2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly
repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a
stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares
having a par value of P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital
stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax
provision was incorporated in said Act.

Page 265 of 547

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was
incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120,
as amended. Declared as primary objectives of the nation were:

Declaration of Policy. Congress hereby declares that (1) the comprehensive

development, utilization and conservation of Philippine water resources for all
beneficial uses, including power generation, and (2) the total electrification of the
Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority
to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:

The bonds issued under the authority of this subsection shall be exempt from the
payment of all taxes by the Republic of the Philippines, or by any authority, branch,
division or political subdivision thereof which facts shall be stated upon the face of
said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as
follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions.25

A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares
the non-profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service
fees in any court or administrative proceedings in which it may be a party, restrictions

Page 266 of 547

 and duties to the Republic of the Philippines, its provinces, cities, and municipalities
and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and
sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country. And in
connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of associated

generation facilities in Luzon, Mindanao and major islands of the country, including
the Visayas, shall be the responsibility of the National Power Corporation (NPC) as
the authorized implementing agency of the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single
integrated system all generating facilities supplying electric power to the entire area
embraced by any grid set up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill
its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to
P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of P3,000,000,000.00
at any one time, 30 and the NPC was authorized to borrow a total of US$1,000,000,000.00 31 in foreign
loans.

The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 32(Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

Page 267 of 547

 (a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to
the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities including the taxes, duties, fees, imposts
and other charges provided for under the Tariff and Customs Code of the Philippines,
Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential
Decree No. 69, dated November 24, 1972, and costs and service fees in any court or
administrative proceedings in which it may be a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric
power. 33 (Emphasis supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of
electricity to its different customers. 34 No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated
annually to cover the unpaid subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and transmission
facilities which includes nuclear power generation, the present capitalization of
National Power Corporation (NPC) and the ceilings for domestic and foreign
borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the non-
profit character of NPC has not been fully utilized because of restrictive interpretation
of the taxing agencies of the government on said provisions; 37

xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared
objective of total electrification of the country, further amendments of certain sections
of Republic Act No. 6395, as amended by Presidential Decrees Nos. 380, 395 and
758, have become imperative; 38

Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling
was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:

Page 268 of 547

 The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay to its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of all forms of taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931
and Executive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to
imports as follows:

WHEREAS, importations by certain government agencies, including government-

owned or controlled corporation, are exempt from the payment of customs duties and
compensating tax; and

WHEREAS, in order to reduce foreign exchange spending and to protect domestic

industries, it is necessary to restrict and regulate such tax-free importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by

virtue of the powers vested in me by the Constitution, and do hereby decree and
order the following:

Sec. 1. All importations of any government agency, including government-owned or

controlled corporations which are exempt from the payment of customs duties and
internal revenue taxes, shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;

(b) That the articles to be imported are directly and actually needed and will be used
exclusively by the grantee of the exemption for its operations and projects or in the
conduct of its functions; and

(c) The shipping documents covering the importation are in the name of the grantee
to whom the goods shall be delivered directly by customs authorities.

xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the tax-free
importation of government agencies in accordance with the conditions set forth in
Section 1 hereof and the regulations to be promulgated to implement the provisions
of this Decree. Provided, however, That any government agency or government-

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 owned or controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency Committee may file
an appeal with the Office of the President within ten days from the date of notice
thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all
general and special laws and decrees are hereby amended accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National Budget
that is an instrument of national development, reflective of national objectives,
strategies and plans. The budget shall be supportive of and consistent with the socio-
economic development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are utilized and
operations are conducted effectively, economically and efficiently. The national
budget shall be formulated within a context of a regionalized government structure
and of the totality of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The budget shall likewise be
prepared within the context of the national long-term plan and of a long-term budget
program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a
subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and expenditure of the
General Fund. 44

The law also declared that

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are
inconsistent with the provisions of the Decree are hereby repealed and/or modified
accordingly. 45

On July 11, 1984, most likely due to the economic morass the Government found itself in after the
Aquino assassination, P.D. No. 1931 was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant
of tax privileges to any government-owned or controlled corporation and all other
units of government; 46

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and since there was a

. . . need for government-owned or controlled corporations and all other units of

government enjoying tax privileges to share in the requirements of development,
fiscal or otherwise, by paying the duties, taxes and other charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential
Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking into account,
among others, any or all of the following:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative orders, rules, regulations or parts thereof
which are inconsistent with this Decree are hereby repealed, amended or modified
accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration
or grant of tax exemption to other government and private entities without benefit of review by the
Fiscal Incentives Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and
October 14, 1984, respectively, withdrew the tax and duty exemption privileges,
including the preferential tax treatment, of government and private entities with
certain exceptions, in order that the requirements of national economic development,
in terms of fiscals and other resources, may be met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by
the Fiscal Incentives Review Board (FIRB), a number of affected entities,
government and private, had their tax and duty exemption privileges restored or

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 granted by Presidential action without benefit or review by the Fiscal Incentives
Review Board (FIRB);

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where

necessary by explicit subsidy and budgetary support rather than tax and duty
exemption privileges if only to improve the fiscal monitoring aspects of government
operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding,
all tax and duty incentives granted to government and private entities are hereby
withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Government of the

Republic of the Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789,

as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential

Decree No. 66 as amended;

(iii) the Philippine Veterans Investment Development Corporation

Industrial Authority pursuant to Presidential Decree No. 538, was
amended.

d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

Page 272 of 547

 f) those approved by the President upon the recommendation of the
Fiscal Incentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No.
776, as amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or duty
exemption;

e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitment of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review
Board shall take into account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent
with this Executive Order are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to
be issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the
Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.

III

Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in
their TAXATION I course, which fro convenient reference, is as follows:

Page 273 of 547

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:

a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.

Examples: Individual income tax, corporate income tax, transfer taxes (estate tax,
donor's tax), residence tax, immigration tax

b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import tax and other
dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to
the following:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations
upon its creation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained
were to be completely tax exempt.

After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it
was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness."

Page 274 of 547

Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987, as above stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions
allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties. For
easy reference, it is reproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric power.
(Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph
as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
ofALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and Legislative. 53

xxx xxx xxx

Page 275 of 547

 [S]ince both presidential decrees were made by the same person, it would have been
very easy for him to retain the same or similar language used in P.D. No. 380 P.D.
No. 938 if his intention were to preserve the indirect tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his
fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,",
included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax
exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have considered
all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D. No.
938.

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from
all forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to
pay the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million
would be appropriated annually to cover the said unpaid subscription of the Government in NPC's
authorized capital stock. And significantly one of the sources of this annual appropriation of P200
million is TAX MONEY accruing to the General Fund of the Government. It does not stand to reason
then that former President Marcos would order P200 Million to be taken partially or totally from tax
money to be used to pay the Government subscription in the NPC, on one hand, and then order the
NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the
phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption
provision for the foreign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:

The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid

Page 276 of 547

 from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions.57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the payment of
the principal, interest and other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts, other charges and
restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 58(Emphasis supplied)

P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No.
6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b)
had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes,
fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers
wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and
indirect taxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government decided to rationalize
government receipts and expenditures by formulating and implementing a National Budget. 60 The
NPC, being a government owned and controlled corporation had to be shed off its tax exemption status
privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the General Fund in the
exact amount of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It
allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free
importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed
created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of
NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private
Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the
motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to
discuss this tax exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in
opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474,
the basis of the petition at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax

Page 277 of 547

exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D.
No. 1177 abolishing NPC's tax exemption privileges was not seasonably invoked 65 by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption
privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax
privileges of any government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in
Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed
as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in
Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its unpaid subscription to the NPC authorized
capital stock and that under Section 22, of the same P.D. No. NPC had to likewise submit to the
Office of the President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.

There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly
found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that
the Secretary of Finance and the Commissioner of the Budget had to establish the necessary
procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC, did
not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty
and tax exemptions, whether direct or indirect. And so there was nothing to be
withdrawn or to be restored under P.D. No. 1931, issued on June 11, 1984. This is
evident from sections 1 and 2 of said P.D. No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries are hereby withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of

Finance, upon the recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it
had already lost all its tax exemptions privilege with the issuance of P.D. No. 1177
seven (7) years earlier or on July 30, 1977, there were no tax exemptions to be
withdrawn by section 1 which could later be restored by the Minister of Finance upon

Page 278 of 547

 the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently,
FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax
exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation of the FIRB to restore
those abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially the same
terms the provisions of the act or acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the former act or acts, although
the former act or acts may be expressly repealed by the revised and consolidated
act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section
23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total
restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax
exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy
for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax
exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-
85 67 and 1-86 68 as approved by the Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both
legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax
exemption status but merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather
infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment on
legislative prerogatives was justified under the then prevailing condition that he could legislate "only if the
Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required
immediate action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the
Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason
that in his (Marcos') judgment required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued
only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign
debt payments 72 as a result of the economic crisis triggered by loss of confidence in the government
brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt

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payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave emergency
of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be
passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77 does
not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President
Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6
authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President
Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The
same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax
exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no
indication, however, from the records of the case whether or not similar approvals were given by then
President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that
a "travesty of justice" might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what happened inZambales
Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural Resources approved a
decision earlier rendered by him when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where
Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as Chairman
of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about "due process" being
violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance
when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and
scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.

In the case of the tax exemption restoration of NPC, there is no other comparable entity not even
a single public or private corporation whose rights would be violated if NPC's tax exemption
privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of
public knowledge that the MERALCO generating plants were sold to the NPC in line with the State
policy that NPC was to be the State implementing arm for the electrification of the entire country.
Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more
MERALCO as a producer of electricity which could have objected to the restoration of NPC's
tax exemption privileges.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time.
It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in
NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB
Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman
of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.

Page 280 of 547

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on
October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93
(S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.

A misconception must be cleared up.

When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a
delegate of the legislature. Clearly, she was not sub-delegating her power.

And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be
carried out 85 and it fixed the standard to which the delegate had to conform in the performance of his
functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from
June 11, 1984 up to the present.

VII

The next question that projects itself is who pays the tax?

The answer to the question could be gleamed from the manner by which the Commissaries of the
Armed Forces of the Philippines sell their goods.

By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and
other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and
distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89

IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb
the taxes they add to the bunker fuel oil they sell to NPC.

It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders
an opinion, 90wherein he stated and We quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties,
fees, imposts, charges, and restrictions of the Republic of the Philippines and its
provinces, cities, and municipalities." This exemption is broad enough to include all
taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or is
of no amount [should be of no moment], for it is the corporation that ultimately pays

Page 281 of 547

 it. The view which refuses to accord the exemption because the tax is first paid by
the seller disregards realities and gives more importance to form than to substance.
Equity and law always exalt substance over from.

xxx xxx xxx

Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as

knowledge that many impositions taxpayers have to pay are in the nature of indirect
taxes. To limit the exemption granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will be to thwrat the
legislative intention in giving exemption from all forms of taxes and impositions
without distinguishing between those that are direct and those that are not.
(Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker
fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very
nature of indirect taxation, the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted
from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do
so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling
and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the
buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to
the BIR.

It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes
HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of
which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said
E.O. no. 195 reads as follows:

EXECUTIVE ORDER NO. 195

AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL

REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS.

xxx xxx xxx

Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as
amended, is hereby amended to read as follows:

Par. (b) For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE

Page 282 of 547

 1. . . .

2. . . .

3. . . .

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or
less the same generating power 0%

xxx xxx xxx

Sec. 3. This Executive Order shall take effect immediately.

Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis supplied)

The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going
to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are
petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of
Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed for
payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC
last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes
during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax
Credit Memo illegal as the PNC did not have indirect tax exemptions with the enactment of P.D. No. 938.
As We have already ruled otherwise, the only questions left are whether NPC Is entitled to a tax refund
for the tax component of the price of the bunker fuel oil purchased from Caltex (Phils.) Inc. and whether
the Bureau of Internal Revenue properly refunded the amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its
letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies
pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was retroactive to June
11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the
BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the period above indicated and
had billed NPC correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11,
1985 to the Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY AND
UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker fuel oil price it
purchased from Caltex (Phils) Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National
Internal Revenue Code of 1977, as amended which reads as follows:

Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding

shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessive or in any Manner wrongfully collected. until a claim for refund

Page 283 of 547

 or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been paid under protest
or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment; Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears clearly, to have
been erroneously paid.

xxx xxx xxx

Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95
the Commissioner
correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when
the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of
the Deed of Assignment 97executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal
Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to
Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)

Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR
from refunding said amount because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this point
in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim
with the BIR because it is time-barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:

In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty REGARDLESS of any
supervening cause that may arise after payment. . . . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by
NPC for the amount of P410,580,000.00 had been made on said date. it is clear that more than two
(2) years had already elapsed from said date. At the same time, We should note that there is no
legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by
NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies to the BIR.

Page 284 of 547

WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby
DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby
AFFIRMED.

SO ORDERED.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo and Melo, JJ., concur.

Padilla and Quiason, JJ. took no part.

G.R. No. 76633 October 18, 1988

EASTERN SHIPPING LINES, INC., petitioner,

vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), MINISTER OF LABOR AND
EMPLOYMENT, HEARING OFFICER ABDUL BASAR and KATHLEEN D. SACO, respondents.

Jimenea, Dala & Zaragoza Law Office for petitioner.

Page 285 of 547

The Solicitor General for public respondent.

Dizon Law Office for respondent Kathleen D. Saco.

CRUZ, J.:

The private respondent in this case was awarded the sum of P192,000.00 by the Philippine
Overseas Employment Administration (POEA) for the death of her husband. The decision is
challenged by the petitioner on the principal ground that the POEA had no jurisdiction over the case
as the husband was not an overseas worker.

Vitaliano Saco was Chief Officer of the M/V Eastern Polaris when he was killed in an accident in
Tokyo, Japan, March 15, 1985. His widow sued for damages under Executive Order No. 797 and
Memorandum Circular No. 2 of the POEA. The petitioner, as owner of the vessel, argued that the
complaint was cognizable not by the POEA but by the Social Security System and should have been
filed against the State Insurance Fund. The POEA nevertheless assumed jurisdiction and after
considering the position papers of the parties ruled in favor of the complainant. The award consisted
of P180,000.00 as death benefits and P12,000.00 for burial expenses.

The petitioner immediately came to this Court, prompting the Solicitor General to move for dismissal
on the ground of non-exhaustion of administrative remedies.

Ordinarily, the decisions of the POEA should first be appealed to the National Labor Relations
Commission, on the theory inter alia that the agency should be given an opportunity to correct the
errors, if any, of its subordinates. This case comes under one of the exceptions, however, as the
questions the petitioner is raising are essentially questions of law. 1 Moreover, the private respondent
himself has not objected to the petitioner's direct resort to this Court, observing that the usual procedure
would delay the disposition of the case to her prejudice.

The Philippine Overseas Employment Administration was created under Executive Order No. 797,
promulgated on May 1, 1982, to promote and monitor the overseas employment of Filipinos and to
protect their rights. It replaced the National Seamen Board created earlier under Article 20 of the
Labor Code in 1974. Under Section 4(a) of the said executive order, the POEA is vested with
"original and exclusive jurisdiction over all cases, including money claims, involving employee-
employer relations arising out of or by virtue of any law or contract involving Filipino contract
workers, including seamen." These cases, according to the 1985 Rules and Regulations on
Overseas Employment issued by the POEA, include "claims for death, disability and other benefits"
arising out of such employment. 2

The petitioner does not contend that Saco was not its employee or that the claim of his widow is not
compensable. What it does urge is that he was not an overseas worker but a 'domestic employee
and consequently his widow's claim should have been filed with Social Security System, subject to
appeal to the Employees Compensation Commission.

We see no reason to disturb the factual finding of the POEA that Vitaliano Saco was an overseas
employee of the petitioner at the time he met with the fatal accident in Japan in 1985.

Page 286 of 547

Under the 1985 Rules and Regulations on Overseas Employment, overseas employment is defined
as "employment of a worker outside the Philippines, including employment on board vessels plying
international waters, covered by a valid contract. 3 A contract worker is described as "any person
working or who has worked overseas under a valid employment contract and shall include seamen" 4 or
"any person working overseas or who has been employed by another which may be a local employer,
foreign employer, principal or partner under a valid employment contract and shall include
seamen." 5 These definitions clearly apply to Vitaliano Saco for it is not disputed that he died while under
a contract of employment with the petitioner and alongside the petitioner's vessel, the M/V Eastern
Polaris, while berthed in a foreign country. 6

It is worth observing that the petitioner performed at least two acts which constitute implied or tacit
recognition of the nature of Saco's employment at the time of his death in 1985. The first is its
submission of its shipping articles to the POEA for processing, formalization and approval in the
exercise of its regulatory power over overseas employment under Executive Order NO. 797. 7 The
second is its payment 8 of the contributions mandated by law and regulations to the Welfare Fund for
Overseas Workers, which was created by P.D. No. 1694 "for the purpose of providing social and welfare
services to Filipino overseas workers."

Significantly, the office administering this fund, in the receipt it prepared for the private respondent's
signature, described the subject of the burial benefits as "overseas contract worker Vitaliano
Saco." 9 While this receipt is certainly not controlling, it does indicate, in the light of the petitioner's own
previous acts, that the petitioner and the Fund to which it had made contributions considered Saco to be
an overseas employee.

The petitioner argues that the deceased employee should be likened to the employees of the
Philippine Air Lines who, although working abroad in its international flights, are not considered
overseas workers. If this be so, the petitioner should not have found it necessary to submit its
shipping articles to the POEA for processing, formalization and approval or to contribute to the
Welfare Fund which is available only to overseas workers. Moreover, the analogy is hardly
appropriate as the employees of the PAL cannot under the definitions given be considered seamen
nor are their appointments coursed through the POEA.

The award of P180,000.00 for death benefits and P12,000.00 for burial expenses was made by the
POEA pursuant to its Memorandum Circular No. 2, which became effective on February 1, 1984.
This circular prescribed a standard contract to be adopted by both foreign and domestic shipping
companies in the hiring of Filipino seamen for overseas employment. A similar contract had earlier
been required by the National Seamen Board and had been sustained in a number of cases by this
Court. 10 The petitioner claims that it had never entered into such a contract with the deceased Saco, but
that is hardly a serious argument. In the first place, it should have done so as required by the circular,
which specifically declared that "all parties to the employment of any Filipino seamen on board any
ocean-going vessel are advised to adopt and use this employment contract effective 01 February 1984
and to desist from using any other format of employment contract effective that date." In the second
place, even if it had not done so, the provisions of the said circular are nevertheless deemed written into
the contract with Saco as a postulate of the police power of the State. 11

But the petitioner questions the validity of Memorandum Circular No. 2 itself as violative of the
principle of non-delegation of legislative power. It contends that no authority had been given the
POEA to promulgate the said regulation; and even with such authorization, the regulation represents
an exercise of legislative discretion which, under the principle, is not subject to delegation.

Page 287 of 547

The authority to issue the said regulation is clearly provided in Section 4(a) of Executive Order No.
797, reading as follows:

... The governing Board of the Administration (POEA), as hereunder provided shall
promulgate the necessary rules and regulations to govern the exercise of the
adjudicatory functions of the Administration (POEA).

Similar authorization had been granted the National Seamen Board, which, as earlier observed, had
itself prescribed a standard shipping contract substantially the same as the format adopted by the
POEA.

The second challenge is more serious as it is true that legislative discretion as to the substantive
contents of the law cannot be delegated. What can be delegated is the discretion to
determine how the law may be enforced, not whatthe law shall be. The ascertainment of the latter
subject is a prerogative of the legislature. This prerogative cannot be abdicated or surrendered by
the legislature to the delegate. Thus, in Ynot v. Intermediate Apellate Court 12 which annulled
Executive Order No. 626, this Court held:

We also mark, on top of all this, the questionable manner of the disposition of the
confiscated property as prescribed in the questioned executive order. It is there
authorized that the seized property shall be distributed to charitable institutions and
other similar institutions as the Chairman of the National Meat Inspection
Commission may see fit, in the case of carabaos.' (Italics supplied.) The phrase "may
see fit" is an extremely generous and dangerous condition, if condition it is. It is laden
with perilous opportunities for partiality and abuse, and even corruption. One
searches in vain for the usual standard and the reasonable guidelines, or better still,
the limitations that the officers must observe when they make their distribution. There
is none. Their options are apparently boundless. Who shall be the fortunate
beneficiaries of their generosity and by what criteria shall they be chosen? Only the
officers named can supply the answer, they and they alone may choose the grantee
as they see fit, and in their own exclusive discretion. Definitely, there is here a 'roving
commission a wide and sweeping authority that is not canalized within banks that
keep it from overflowing,' in short a clearly profligate and therefore invalid delegation
of legislative powers.

There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test. Under the first 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 enforce it. 13 Under the sufficient standard test, there
must be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority
and prevent the delegation from running riot. 14

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.

The principle of non-delegation of powers is applicable to all the three major powers of the
Government but is especially important in the case of the legislative power because of the many
instances when its delegation is permitted. The occasions are rare when executive or judicial powers
have to be delegated by the authorities to which they legally certain. In the case of the legislative

Page 288 of 547

power, however, such occasions have become more and more frequent, if not necessary. This had
led to the observation that the delegation of legislative power has become the rule and its non-
delegation the exception.

The reason is the increasing complexity of the task of government and the growing inability of the
legislature to cope directly with the myriad problems demanding its attention. The growth of society
has ramified its activities and created peculiar and sophisticated problems that the legislature cannot
be expected reasonably to comprehend. Specialization even in legislation has become necessary.
To many of the problems attendant upon present-day undertakings, the legislature may not have the
competence to provide the required direct and efficacious, not to say, specific solutions. These
solutions may, however, be expected from its delegates, who are supposed to be experts in the
particular fields assigned to them.

The reasons given above for the delegation of legislative powers in general are particularly
applicable to administrative bodies. With the proliferation of specialized activities and their attendant
peculiar problems, the national legislature has found it more and more necessary to entrust to
administrative agencies the authority to issue rules to carry out the general provisions of the statute.
This is called the "power of subordinate legislation."

With this power, administrative bodies may implement the broad policies laid down in a statute by
"filling in' the details which the Congress may not have the opportunity or competence to provide.
This is effected by their promulgation of what are known as supplementary regulations, such as the
implementing rules issued by the Department of Labor on the new Labor Code. These regulations
have the force and effect of law.

Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed
thereby has been applied in a significant number of the cases without challenge by the employer.
The power of the POEA (and before it the National Seamen Board) in requiring the model contract is
not unlimited as there is a sufficient standard guiding the delegate in the exercise of the said
authority. That standard is discoverable in the executive order itself which, in creating the Philippine
Overseas Employment Administration, mandated it to protect the rights of overseas Filipino workers
to "fair and equitable employment practices."

Parenthetically, it is recalled that this Court has accepted as sufficient standards "Public interest"
in People v. Rosenthal 15 "justice and equity" in Antamok Gold Fields v. CIR 16 "public convenience and
welfare" in Calalang v. Williams17 and "simplicity, economy and efficiency" in Cervantes v. Auditor
General, 18 to mention only a few cases. In the United States, the "sense and experience of men" was
accepted in Mutual Film Corp. v. Industrial Commission, 19 and "national security" in Hirabayashi v. United
States. 20

It is not denied that the private respondent has been receiving a monthly death benefit pension of
P514.42 since March 1985 and that she was also paid a P1,000.00 funeral benefit by the Social
Security System. In addition, as already observed, she also received a P5,000.00 burial gratuity from
the Welfare Fund for Overseas Workers. These payments will not preclude allowance of the private
respondent's claim against the petitioner because it is specifically reserved in the standard contract
of employment for Filipino seamen under Memorandum Circular No. 2, Series of 1984, that

Section C. Compensation and Benefits.

Page 289 of 547

 1. In case of death of the seamen during the term of his Contract, the employer shall
pay his beneficiaries the amount of:

a. P220,000.00 for master and chief engineers

b. P180,000.00 for other officers, including radio operators and

master electrician

c. P 130,000.00 for ratings.

2. It is understood and agreed that the benefits mentioned above shall be separate
and distinct from, and will be in addition to whatever benefits which the seaman is
entitled to under Philippine laws. ...

3. ...

c. If the remains of the seaman is buried in the Philippines, the

owners shall pay the beneficiaries of the seaman an amount not
exceeding P18,000.00 for burial expenses.

The underscored portion is merely a reiteration of Memorandum Circular No. 22, issued by the
National Seamen Board on July 12,1976, providing an follows:

Income Benefits under this Rule Shall be Considered Additional Benefits.

All compensation benefits under Title II, Book Four of the Labor Code of the
Philippines (Employees Compensation and State Insurance Fund) shall be granted,
in addition to whatever benefits, gratuities or allowances that the seaman or his
beneficiaries may be entitled to under the employment contract approved by the
NSB. If applicable, all benefits under the Social Security Law and the Philippine
Medicare Law shall be enjoyed by the seaman or his beneficiaries in accordance
with such laws.

The above provisions are manifestations of the concern of the State for the working class,
consistently with the social justice policy and the specific provisions in the Constitution for the
protection of the working class and the promotion of its interest.

One last challenge of the petitioner must be dealt with to close t case. Its argument that it has been
denied due process because the same POEA that issued Memorandum Circular No. 2 has also
sustained and applied it is an uninformed criticism of administrative law itself. Administrative
agencies are vested with two basic powers, the quasi-legislative and the quasi-judicial. The first
enables them to promulgate implementing rules and regulations, and the second enables them to
interpret and apply such regulations. Examples abound: the Bureau of Internal Revenue adjudicates
on its own revenue regulations, the Central Bank on its own circulars, the Securities and Exchange
Commission on its own rules, as so too do the Philippine Patent Office and the Videogram
Regulatory Board and the Civil Aeronautics Administration and the Department of Natural Resources
and so on ad infinitum on their respective administrative regulations. Such an arrangement has been
accepted as a fact of life of modern governments and cannot be considered violative of due process

Page 290 of 547

as long as the cardinal rights laid down by Justice Laurel in the landmark case of Ang Tibay v. Court
of Industrial Relations 21 are observed.

Whatever doubts may still remain regarding the rights of the parties in this case are resolved in favor
of the private respondent, in line with the express mandate of the Labor Code and the principle that
those with less in life should have more in law.

When the conflicting interests of labor and capital are weighed on the scales of social justice, the
heavier influence of the latter must be counter-balanced by the sympathy and compassion the law
must accord the underprivileged worker. This is only fair if he is to be given the opportunity and the
right to assert and defend his cause not as a subordinate but as a peer of management, with which
he can negotiate on even plane. Labor is not a mere employee of capital but its active and equal
partner.

WHEREFORE, the petition is DISMISSED, with costs against the petitioner. The temporary
restraining order dated December 10, 1986 is hereby LIFTED. It is so ordered.

Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Page 291 of 547

G.R. No. 111812 May 31, 1995

DIONISIO M. RABOR, petitioner,

vs.
CIVIL SERVICE COMMISSION, respondent.

FELICIANO, J.:

Petitioner Dionisio M. Rabor is a Utility Worker in the Office of the Mayor, Davao City. He entered the
government service as a Utility worker on 10 April 1978 at the age of 55 years.

Sometime in May 1991, 1 Alma, D. Pagatpatan, an official in the Office of the Mayor of Davao City,
advised Dionisio M. Rabor to apply for retirement, considering that he had already reached the age of
sixty-eight (68) years and seven (7) months, with thirteen (13) years and one (1) month of government
service. Rabor responded to this advice by exhibiting a "Certificate of Membership" 2 issued by the
Government Service Insurance System ("GSIS") and dated 12 May 1988. At the bottom of this "Certificate
of Membership" is a typewritten statement of the following tenor: "Service extended to comply 15 years
service reqts." This statement is followed by a non-legible initial with the following date "2/28/91."

Thereupon, the Davao City Government, through Ms. Pagatpatan, wrote to the Regional Director of
the Civil Service Commission, Region XI, Davao City ("CSRO-XI"), informing the latter of the
foregoing and requesting advice "as to what action [should] be taken on this matter."

In a letter dated 26 July 1991, Director Filemon B. Cawad of CSRO-XI advised Davao City Mayor
Rodrigo R. Duterte as follows:

Please be informed that the extension of services of Mr. Rabor is contrary to M.C.
No. 65 of the Office of the President, the relevant portion of which is hereunder
quoted:

Officials and employees who have reached the compulsory

retirement age of 65 years shall not be retained the service, except
for extremely meritorious reasons in which case the retention shall
not exceed six (6) months.

IN VIEW WHEREFORE, please be advised that the services of Mr. Dominador [M.]
Rabor as Utility Worker in that office, is already non-extend[i]ble. 3

Accordingly, on 8 August l991, Mayor Duterte furnished a copy of the 26 July 1991 letter of Director
Cawad to Rabor and advised him "to stop reporting for work effective August 16, 1991." 4

Petitioner Rabor then sent to the Regional Director, CSRO-XI, a letter dated 14 August 1991, asking
for extension of his services in the City Government until he "shall have completed the fifteen (15)

Page 292 of 547

years service [requirement] in the Government so that [he] could also avail of the benefits of the
retirement laws given to employees of the Government." The extension he was asking for was about
two (2) years. Asserting that he was "still in good health and very able to perform the duties and
functions of [his] position as Utility Worker," Rabor sought "extension of [his] service as an exception
to Memorandum Circular No. 65 of the Office of the President." 5 This request was denied by Director
Cawad on 15 August 1991.

Petitioner Rabor next wrote to the Office of the President on 29 January 1992 seeking
reconsideration of the decision of Director Cawad, CSRO-XI. The Office of the President referred Mr.
Rabor's letter to the Chairman of the Civil Service Commission on 5 March 1992.

In its Resolution No. 92-594, dated 28 April 1992, the Civil Service Commission dismissed the
appeal of Mr. Rabor and affirmed the action of Director Cawad embodied in the latter's letter of 26
July 1991. This Resolution stated in part:

In his appeal, Rabor requested that he be allowed to continue rendering services as

Utility Worker in order to complete the fifteen (15) year service requirement under
P.D. 1146.

CSC Memorandum Circular No. 27, s. 1990 provides, in part:

1. Any request for extension of service of compulsory retirees to

complete the fifteen years service requirement for retirement shall be
allowed only to permanent appointees in the career service who are
regular members of the Government Service Insurance System
(GSIS) and shall be granted for a period of not exceeding one (1)
year.

Considering that as early as October 18, 1988, Rabor was already due for
retirement, his request for further extension of service cannot be given due
course. 6 (Emphasis in the original)

On 28 October 1992, Mr. Rabor sought reconsideration of Resolution No. 92-594 of the Civil Service
Commission this time invoking the Decision of this Court in Cena v. Civil Service
Commission. 7 Petitioner also asked for reinstatement with back salaries and benefits, having been
separated from the government service effective 16 August 1991. Rabor's motion for reconsideration was
denied by the Commission.

Petitioner Rabor sent another letter dated 16 April 1993 to the Office of the Mayor, Davao City, again
requesting that he be allowed to continue rendering service to the Davao City Government as Utility
Worker in order to complete the fifteen (15) years service requirement under P.D. No. 1146. This
request was once more denied by Mayor Duterte in a letter to petitioner dated 19 May 1993. In this
letter, Mayor Duterte pointed out that, under Cena grant of the extension of service was discretionary
on the part of the City Mayor, but that he could not grant the extension requested. Mayor Duterte's
letter, in relevant part, read:

The matter was referred to the City Legal Office and the Chairman of the Civil
Service Commission, in the advent of the decision of the Supreme Court in the Cena
vs. CSC, et al. (G.R. No. 97419 dated July 3, 1992), for legal opinion. Both the City

Page 293 of 547

 Legal Officer and the Chairman of the Civil Service Commission are one in these
opinion that extending you an appointment in order that you may be able to complete
the fifteen-year service requirement is discretionary [on the part of] the City Mayor.

Much as we desire to extend you an appointment but circumstances are that we can
no longer do so.As you are already nearing your 70th birthday may no longer be able
to perform the duties attached to your position. Moreover, the position you had
vacated was already filled up.

We therefore regret to inform you that we cannot act favorably on your

request. 8 (Emphases supplied)

At this point, Mr. Rabor decided to come to this Court. He filed a Letter/Petition dated 6 July 1993
appealing from Civil Service Resolution No. 92-594 and from Mayor Duterte's letter of 10 May 1993.

The Court required petitioner Rabor to comply with the formal requirements for instituting a special
civil action ofcertiorari to review the assailed Resolution of the Civil Service Commission. In turn, the
Commission was required to comment on petitioner's Letter/Petition. 9 The Court subsequently noted
petitioner's Letter of 13 September 1993 relating to compliance with the mentioned formal requirements
and directed the Clerk of Court to advise petitioner to engage the services of counsel or to ask for legal
assistance from the Public Attorney's Office (PAO). 10

The Civil Service Commission, through the Office of the Solicitor General, filed its comment on 16
November 1993. The Court then resolved to give due course to the Petition and required the parties
to file memoranda. Both the Commission and Mr. Rabor (the latter through PAO counsel) did so.

In this proceeding, petitioner Rabor contends that his claim falls squarely within the ruling of this
Court in Cena v. Civil Service Commission. 11

Upon the other hand, the Commission seeks to distinguish this case from Cena. The Commission,
through the Solicitor General, stressed that in Cena, this Court had ruled that the employer agency,
the Land Registration Authority of the Department of Justice, was vested with discretion to grant to
Cena the extension requested by him. The Land Registration Authority had chosen not to exercise
its discretion to grant or deny such extension. In contrast, in the instant case, the Davao City
Government did exercise its discretion on the matter and decided to deny the extension sought by
petitioner Rabor for legitimate reasons.

While the Cena decision is barely three (3) years old, the Court considers that it must reexamine the
doctrine ofCena and the theoretical and policy underpinnings thereof. 12

We start by recalling the factual setting of Cena.

Gaudencio Cena was appointed Registrar of the Register of Deeds of Malabon, Metropolitan Manila,
on 16 July 1987. He reached the compulsory retirement age of sixty-five (65) years on 22 January
1991. By the latter date, his government service would have reached a total of eleven (11) years,
nine (9) months and six (6) days. Before reaching his 65th birthday, Cena requested the Secretary of
Justice, through the Administrator of the Land Registration Authority ("LRA") that he be allowed to
extend his service to complete the fifteen-year service requirement to enable him to retire with the
full benefit of an Old-Age Pension under Section 11 (b) of P.D. No. 1146. If Cena's request were

Page 294 of 547

granted, he would complete fifteen (15) years of government service on 15 April 1994, at the age of
sixty-eight (68) years.

The LRA Administrator sought a ruling from the Civil Service Commission on whether or not Cena's
request could be granted considering that Cena was covered by Civil Service Memorandum No. 27,
Series of 1990. On 17 October 1990, the Commission allowed Cena a one (1) year extension of his
service from 22 January 1991 to 22 January 1992 under its Memorandum Circular No. 27.
Dissatisfied, Cena moved for reconsideration, without success. He then came to this Court, claiming
that he was entitled to an extension of three (3) years, three (3) months and twenty-four (24) days to
complete the fifteen-year service requirement for retirement with full benefits under Section 11 (b) of
P.D. No. 1146.

This Court granted Cena' s petition in its Decision of 3 July 1992. Speaking through Mr. Justice
Medialdea, the Court held that a government employee who has reached the compulsory retirement
age of sixty-five (65) years, but at the same time has not yet completed fifteen (15) years of
government service required under Section 11 (b) of P.D. No. 1146 to qualify for the Old-Age
Pension Benefit, may be granted an extension of his government service for such period of time as
may be necessary to "fill up" or comply with the fifteen (15)-year service requirement. The Court also
held that the authority to grant the extension was a discretionary one vested in the head of the
agency concerned. Thus the Court concluded:

Accordingly, the Petition is GRANTED. The Land Registration Authority (LRA) and
Department of Justice has the discretion to allow petitioner Gaudencio Cena to
extend his 11 years, 9 months and 6 days of government to complete the fifteen-year
service so that he may retire with full benefits under Section 11, paragraph (b) of P.D.
1146. 13 (Emphases supplied)

The Court reached the above conclusion primarily on the basis of the "plain and ordinary meaning"
of Section 11 (b) of P.D. No. 1146. Section 11 may be quoted in its entirety:

Sec. 11 Conditions for Old-Age Pension. (a) Old-Age Pension shall be paid to a
member who

(1) has at least fifteen (15) years of service;

(2) is at least sixty (60) years of age; and

(3) is separated from the service.

(b) unless the service is extended by appropriate authorities, retirement shall be

compulsory for an employee at sixty-five-(65) years of age with at least fifteen (15)
years of service; Provided, that if he has less than fifteen (15) years of service, he
shall he allowed to continue in the service to completed the fifteen (15) years.
(Emphases supplied)

The Court went on to rely upon the canon of liberal construction which has often been invoked in
respect of retirement statutes:

Page 295 of 547

 Being remedial in character, a statute granting a pension or establishing [a]
retirement plan should be liberally construed and administered in favor of persons
intended to be benefitted thereby. The liberal approach aims to achieve the
humanitarian purposes of the law in order that efficiency, security and well-being of
government employees may be enhanced. 14 (Citations omitted)

While Section 11 (b) appeared cast in verbally unqualified terms, there were (and still are) two (2)
administrative issuances which prescribe limitations on the extension of service that may be granted
to an employee who has reached sixty-five (65) years of age.

The first administrative issuance is Civil Service Commission Circular No. 27, Series of 1990, which
should be quoted in its entirety:

TO : ALL HEADS OF DEPARTMENTS, BUREAUS AND AGENCIES OF THE

NATIONAL/LOCAL GOVERNMENTS INCLUDING GOVERNMENT- OWNED
AND/OR CONTROLLED CORPORATIONS WITH ORIGINAL CHARTERS.

SUBJECT : Extension of Service of Compulsory Retiree to Complete the Fifteen

Years Service Requirement for Retirement Purposes.

Pursuant to CSC Resolution No. 90-454 dated May 21, 1990, the Civil Service
Commission hereby adopts and promulgates the following policies and guidelines in
the extension of services of compulsory retirees to complete the fifteen years service
requirement for retirement purposes:

1. Any request for the extension of service of compulsory retirees to

complete the fifteen (15) years service requirement for retirement
shall be allowed only to permanent appointees in the career service
who are regular members of the Government Service Insurance
System (GSIS), and shall be granted for a period not exceeding one
(1) year.

2. Any request for the extension of service of compulsory retiree to

complete the fifteen (15) years service requirement for retirement
who entered the government service at 57 years of age or over upon
prior grant of authority to appoint him or her, shall no longer be
granted.

3. Any request for the extension of service to complete the fifteen (15)
years service requirement of retirement shall be filled not later than
three (3) years prior to the date of compulsory retirement.

4. Any request for the extension of service of a compulsory retiree

who meets the minimum number of years of service for retirement
purposes may be granted for six (6) months only with no further
extension.

This Memorandum Circular shall take effect immediately. (Emphases supplied)

Page 296 of 547

The second administrative issuance Memorandum Circular No. 65 of the Office of the President,
dated 14 June 1988 provides:

xxx xxx xxx

WHEREAS, this Office has been. receiving requests for reinstatement and/or
retention in the service ofemployees who have reached the compulsory retirement
age of 65 years, despite the strict conditions provided for in Memorandum Circular
No. 163, dated March 5, 1968, as amended.

WHEREAS, the President has recently adopted a policy to adhere more strictly to the
law providing for compulsory retirement age of 65 years and, in extremely
meritorious cases, to limit the service beyond the age of 65 years to six (6) months
only.

WHEREFORE, the pertinent provision of Memorandum Circular No. 163 or on the

retention in the service of officials or employees who have reached the compulsory
retirement age of 65 years, is hereby amended to read as follows:

Officials or employees who have reached the compulsory retirement

age of 65 years shallnot be retained in the service, except for
extremely meritorious reasons in which case theretention shall not
exceed six (6) months.

All heads of departments, bureaus, offices and instrumentalities of the government

including government-owned or controlled corporations, are hereby enjoined to
require their respective offices to strictly comply with this circular.

This Circular shall take effect immediately.

By
authorit
y of the
Preside
nt

(Sgd.)

CATALI
NO
MACA
RAIG,
JR.
Executi
ve
Secret
ary

Manila, June 14, 1988. 15 (Emphasis supplied)

Page 297 of 547

Medialdea, J. resolved the challenges posed by the above two (2) administrative regulations by,
firstly, considering as invalid Civil Service Memorandum No. 27 and, secondly, by interpreting the
Office of the President's Memorandum Circular No. 65 as inapplicable to the case of Gaudencio T.
Cena.

We turn first to the Civil Service Commission's Memorandum Circular No. 27. Medialdea, J. wrote:

The Civil Service Commission Memorandum Circular No. 27 being in the nature of
an administrative regulation, must be governed by the principle that administrative
regulations adopted under legislative authority by a particular department must be in
harmony with the provisions of the law, and should be for the sole purpose of
carrying into effect its general provisions (People v. Maceren, G.R. No. L-32166,
October 18, 1977, 79 SCRA 450; Teoxon v. Members of the Board of Administrators,
L-25619, June 30, 1970, 33 SCRA 585; Manuel v. General Auditing Office, L-28952,
December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29
SCRA 350). . . . . The rule on limiting to one the year the extension of service of an
employee who has reached the compulsory retirement age of sixty-five (65) years,
but has less than fifteen (15) years of service under Civil Service Memorandum
Circular No. 27, S. 1990, cannot likewise be accorded validity because it has no
relationship or connection with any provision of P.D. 1146 supposed to be carried into
effect. The rule was an addition to or extension of the law, not merely a mode of
carrying it into effect. The Civil Service Commission has no power to supply
perceived omissions in P.D. 1146. 16 (Emphasis supplied)

It will be seen that Cena, in striking down Civil Service Commission Memorandum No. 27, took a
very narrow view on the question of what subordinate rule-making by an administrative agency is
permissible and valid. That restrictive view must be contrasted with this Court's earlier ruling
in People v. Exconde, 17 where Mr. Justice J.B.L. Reyes said:

It is well established in this jurisdiction that, while the making of laws is a non-
delegable activity that corresponds exclusively to Congress, nevertheless, the latter
may constitutionally delegate authority and promulgate rules and regulations to
implement a given legislation and effectuate its policies, for the reason that the
legislature often finds it impracticable (if not impossible) to anticipate and provide for
the multifarious and complex situations that may be met in carrying the law into
effect. All that is required is that the regulation should be germane to the objects and
purposes of the law; that the regulation be not in contradiction with it, but conform to
standards that the law prescribes. 18 (Emphasis supplied)

In Tablarin v. Gutierrez, 19 the Court, in sustaining the validity of a MECS Order which established
passing a uniform admission test called the National Medical Admission Test (NMAT) as a prerequisite for
eligibility for admission into medical schools in the Philippines, said:

The standards set for subordinate legislation in the exercise of rule making authority
by an administrative agency like the Board of Medical Education are necessarily
broad and highly abstract. As explained by then Mr. Justice Fernando in Edu v.
Ericta (35 SCRA 481 [1970])

Page 298 of 547

 The standards may be either expressed or implied. If the former, the
non-delegation objection is easily met. The Standard though does not
have to be spelled out specifically. It could be implied from the policy
and purpose of the act considered as a whole. In the Reflector Law,
clearly the legislative objective is public safety. What is sought to be
attained in Calalang v. William is "safe transit upon the roads."

We believe and so hold that the necessary standards are set forth in Section 1 of the
1959 Medical Act: "the standardization and regulation of medical education" and in
Section 5 (a) and 7 of the same Act, the body of the statute itself, and that these
considered together are sufficient compliance with the requirements of the non-
delegation principle. 20 (Citations omitted; emphasis partly in the original and partly
supplied)

In Edu v. Ericta, 21 then Mr. Justice Fernando stressed the abstract and very general nature of the
standards which our Court has in prior case law upheld as sufficient for purposes of compliance with the
requirements for validity of subordinate or administrative rule-making:

This Court has considered as sufficient standards, "public welfare," (Municipality of

Cardona v. Municipality of Binangonan, 36 Phil. 547 [1917]); "necessary in the
interest of law and order," (Rubi v. Provincial Board, 39 Phil. 660 [1919]); "public
interest," (People v. Rosenthal, 68 Phil. 328 [1939]); and"justice and equity and
substantial merits of the case," (International Hardwood v. Pangil Federation of
Labor, 17 Phil. 602 [1940]). 22 (Emphasis supplied)

Clearly, therefore, Cena when it required a considerably higher degree of detail in the statute to be
implemented, went against prevailing doctrine. It seems clear that if the governing or enabling
statute is quite detailed and specific to begin with, there would be very little need (or occasion) for
implementing administrative regulations. It is, however, precisely the inability of legislative bodies to
anticipate all (or many) possible detailed situations in respect of any relatively complex subject
matter, that makes subordinate, delegated rule-making by administrative agencies so important and
unavoidable. All that may be reasonably; demanded is a showing that the delegated legislation
consisting of administrative regulations are germane to the general purposes projected by the
governing or enabling statute. This is the test that is appropriately applied in respect of Civil Service
Memorandum Circular No. 27, Series of 1990, and to this test we now turn.

We consider that the enabling statute that should appropriately be examined is the present Civil
Service law found in Book V, Title I, Subtitle A, of Executive Order No. 292 dated 25 July 1987,
otherwise known as the Administrative Code of 1987 and not alone P.D. No. 1146, otherwise
known as the "Revised Government Service Insurance Act of 1977." For the matter of extension of
service of retirees who have reached sixty-five (65) years of age is an area that is covered by both
statutes and not alone by Section 11 (b) of P.D. 1146. This is crystal clear from examination of many
provisions of the present civil service law.

Section 12 of the present Civil Service law set out in the 1987 Administrative Code provides, in
relevant part, as follows:

Sec. 12 Powers and Functions. The [Civil Service] Commission shall have the
following powers and functions:

Page 299 of 547

 xxx xxx xxx

(2) Prescribe, amend and enforce rules and regulations for carrying into effect the
provisions of the Civil Service Law and other pertinent laws;

(3) Promulgate policies, standards and guidelines for the Civil Service and adopt
plans and programsto promote economical, efficient and effective personnel
administration in the government;

xxx xxx xxx

(10) Formulate, administer and evaluate programs relative to the development and
retention of aqualified and competent work force in the public service;

xxx xxx xxx

(14) Take appropriate action on all appointments and other personnel matters in the
Civil Serviceincluding extension of service beyond retirement age;

xxx xxx xxx

(17) Administer the retirement program for government officials and employees, and
accredit government services and evaluate qualifications for retirement;

xxx xxx xxx

(19) Perform all functions properly belonging to a central personnel agency and such
other functions as may be provided by law. (Emphasis supplied)

It was on the bases of the above quoted provisions of the 1987 Administrative Code that the Civil
Service Commission promulgated its Memorandum Circular No. 27. In doing so, the Commission
was acting as "the central personnel agency of the government empowered to promulgate policies,
standards and guidelines for efficient, responsive and effective personnel administration in the
government." 23 It was also discharging its function of "administering the retirement program for
government officials and employees" and of "evaluat[ing] qualifications for retirement."

In addition, the Civil Service Commission is charged by the 1987 Administrative Code with providing
leadership and assistance "in the development and retention of qualified and efficient work force in
the Civil Service" (Section 16 [10]) and with the "enforcement of the constitutional and statutory
provisions, relative to retirement and the regulation for the effective implementation of the retirement
of government officials and employees" (Section 16 [14]).

We find it very difficult to suppose that the limitation of permissible extensions of service after an
employee has reached sixty-five (65) years of age has no reasonable relationship or is not germane
to the foregoing provisions of the present Civil Service Law. The physiological and psychological
processes associated with ageing in human beings are in fact related to the efficiency and quality of
the service that may be expected from individual persons. The policy considerations which guided
the Civil Service Commission in limiting the maximum extension of service allowable for compulsory
retirees, were summarized by Grio-Aquino, J. in her dissenting opinion in Cena:

Page 300 of 547

 Worth pondering also are the points raised by the Civil Service Commission that
extending the service of compulsory retirees for longer than one (1) year would: (1)
give a premium to late-comers in the government service and in effect discriminate
against those who enter the service at a younger age; (2)delay the promotion of the
latter and of next-in-rank employees; and (3) prejudice the chances for employment
of qualified young civil service applicants who have already passed the various
government examination but must wait for jobs to be vacated by "extendees" who
have long passed the mandatory retirement age but are enjoying extension of their
government service to complete 15 years so they may qualify for old-age
pension. 24 (Emphasis supplied).

Cena laid heavy stress on the interest of retirees or would be retirees, something that is, in itself,
quite appropriate. At the same time, however, we are bound to note that there should be
countervailing stress on the interests of the employer agency and of other government employees as
a whole. The results flowing from the striking down of the limitation established in Civil Service
Memorandum Circular No. 27 may well be "absurd and inequitable," as suggested by Mme. Justice
Grio-Aquino in her dissenting opinion. An employee who has rendered only three (3) years of
government service at age sixty-five (65) can have his service extended for twelve (12) years and
finally retire at the age of seventy-seven (77). This reduces the significance of the general principle
of compulsory retirement at age sixty-five (65) very close to the vanishing point.

The very real difficulties posed by the Cena doctrine for rational personnel administration and
management in the Civil Service, are aggravated when Cena is considered together with the case
of Toledo v. Civil Service Commission. 25 Toledo involved the provisions of Rule III, Section 22, of the
Civil Service Rules on Personnel Action and Policies (CSRPAP) which prohibited the appointment of
persons fifty-seven (57) years old or above in government service without prior approval of the Civil
Service Commission. Civil Service Memorandum Circular No. 5, Series of 1983 provided that a person
fifty-seven (57) years of age may be appointed to the Civil Service provided that the exigencies of the
government service so required and provided that the appointee possesses special qualifications not
possessed by other officers or employees in the Civil Service and that the vacancy cannot be filled by
promotion of qualified officers or employees of the Civil Service. Petitioner Toledo was appointed
Manager of the Education and Information Division of the Commission on Elections when he was almost
fifty-nine (59) years old. No authority for such appointment had been obtained either from the President of
the Philippines or from the Civil Service Commission and the Commission found that the other conditions
laid down in Section 22 of Rule III, CSRPAP, did not exist. The Court nevertheless struck down Section
22, Rule III on the same exceedingly restrictive view of permissible administrative legislation
that Cena relied on. 26

When one combines the doctrine of Toledo with the ruling in Cena, very strange results follow. Under
these combined doctrines, a person sixty-four (64) years of age may be appointed to the
government service and one (1) year later may demand extension of his service for the next fourteen
(14) years; he would retire at age seventy-nine (79). The net effect is thus that the general statutory
policy of compulsory retirement at sixty-five (65) years is heavily eroded and effectively becomes
unenforceable. That general statutory policy may be seen to embody the notion that there should be
a certain minimum turn-over in the government service and that opportunities for government service
should be distributed as broadly as possible, specially to younger people, considering that the bulk
of our population is below thirty (30) years of age. That same general policy also reflects the life
expectancy of our people which is still significantly lower than the life expectancy of, e.g., people in
Northern and Western Europe, North America and Japan.

Page 301 of 547

Our conclusion is that the doctrine of Cena should be and is hereby modified to this extent: that Civil
Service Memorandum Circular No. 27, Series of 1990, more specifically paragraph (1) thereof, is
hereby declared valid and effective. Section 11 (b) of P.D. No. 1146 must, accordingly, be read
together with Memorandum Circular No. 27. We reiterate, however, the holding in Cena that the
head of the government agency concerned is vested with discretionary authority to allow or disallow
extension of the service of an official or employee who has reached sixty-five (65) years of age
without completing fifteen (15) years of government service; this discretion is, nevertheless, to be
exercised conformably with the provisions of Civil Service Memorandum Circular No. 27, Series of
1990.

We do not believe it necessary to deal specifically with Memorandum Circular No. 65 of the Office of
the President dated 14 June 1988. It will be noted from the text quoted supra (pp. 11-12) that the text
itself of Memorandum Circular No. 65 (and for that matter, that of Memorandum Circular No. 163,
also of the Office of the President, dated 5 March 1968) 27 does not purport to apply only to officers or
employees who have reached the age of sixty-five (65) years and who have at least fifteen (l5) years of
government service. We noted earlier that Cena interpreted Memorandum Circular No. 65 as referring
only to officers and employees who have both reached the compulsory retirement age of sixty-five (65)
and completed the fifteen (15) years of government service. Cena so interpreted this Memorandum
Circular precisely because Cena had reached the conclusion that employees who have reached sixty-five
(65) years of age, but who have less than fifteen (15) years of government service, may be allowed such
extension of service as may be needed to complete fifteen (15) years of service. In other
words, Cena read Memorandum Circular No. 65 in such a way as to comfort with Cena'sown conclusion
reached without regard to that Memorandum Circular. In view of the conclusion that we today reached in
the instant case, this last ruling of Cena is properly regarded as merely orbiter.

We also do not believe it necessary to determine whether Civil Service Memorandum Circular No. 27
is fully compatible with Office of the President's Memorandum Circular No. 65; this question must be
reserved for detailed analysis in some future justiciable case.

Applying now the results of our reexamination of Cena to the instant case, we believe and so hold
that Civil Service Resolution No. 92-594 dated 28 April 1992 dismissing the appeal of petitioner
Rabor and affirming the action of CSRO-XI Director Cawad dated 26 July 1991, must be upheld and
affirmed.

ACCORDINGLY, for all the foregoing, the Petition for Certiorari is hereby DISMISSED for lack of
merit. No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza and
Francisco, JJ., concur.

Quiason, J., is on leave.

Page 302 of 547

G.R. Nos. L-8895 and L-9191 April 30, 1957

SALVADOR A. ARANETA, ETC., ET AL., petitioners,

vs.
THE HON. MAGNO S. GATMAITAN, ETC., ET AL., respondents.

EXEQUIEL SORIANO, ET AL., petitioners-appellees,

vs.
SALVADOR ARANETA, ETC., ET AL., respondents-appellants.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and
Solicitor Troadio T. Quiazon for petitioners.
San Juan, Africa and Benedicto for respondents.

FELIX, J.:

San Miguel Bay, located between the provinces of Camarines Norte and Camarines Sur, a part of
the National waters of the Philippines with an extension of about 250 square miles and an average
depth of approximately 6 fathoms (Otter trawl explorations in Philippine waters p. 21, Exh. B), is
considered as the most important fishing area in the Pacific side of the Bicol region. Sometime in
1950, trawl1 operators from Malabon, Navotas and other places migrated to this region most of them
settling at Sabang, Calabanga, Camarines Sur, for the purpose of using this particular method of

Page 303 of 547

fishing in said bay. On account of the belief of sustenance fishermen that the operation of this kind of
gear caused the depletion of the marine resources of that area, there arose a general clamor among
the majority of the inhabitants of coastal towns to prohibit the operation of trawls in San Miguel Bay.
This move was manifested in the resolution of December 18, 1953 (Exh. F), passed by the Municipal
Mayors' League condemning the operation of trawls as the cause of the wanton destruction of the
shrimp specie and resolving to petition the President of the Philippines to regulate fishing in San
Miguel Bay by declaring it closed for trawl fishing at a certain period of the year. In another resolution
dated March 27, 1954, the same League of Municipal Mayor, prayed the President to protect them
and the fish resources of San Miguel Bay by banning the operation of trawls therein (Exh. 4). The
Provincial Governor also made proper presentations to this effect and petitions in behalf of the non-
trawl fishermen were likewise presented to the President by social and civic organizations as the
NAMFREL (National Movement for Free Elections) and the COMPADRE (Committee for Philippine
Action in Development, Reconstruction and Education), recommending the cancellation of the
licenses of trawl operators after investigation, if such inquiry would substantiate the charges that the
operation of said fishing method was detrimental to the welfare of the majority of the inhabitants
(Exh. 2).

In response to these pleas, the President issued on April 5, 1954, Executive Order No. 22 (50 Off.
Gaz., 1421) prohibiting the use of trawls in San Miguel Bay, but said executive order was amended
by Executive Order No. 66, issued on September 23, 1954 (50 Off. Gaz., 4037), apparently in
answer to a resolution of the Provincial Board of Camarines Sur recommending the allowance of
trawl fishing during the typhoon season only. On November 2, 1954, however, Executive Order No.
80 (50 Off. Gaz., 5198) was issued reviving Executive Order No. 22, to take effect after December
31, 1954.

A group of Otter trawl operators took the matter to the court by filing a complaint for injunction and/or
declaratory relief with preliminary injunction with the Court of First Instance of Manila, docketed as
Civil Case No. 24867, praying that a writ of preliminary injunction be issued to restrain the Secretary
of Agriculture and Natural Resources and the Director of Fisheries from enforcing said executive
order; to declare the same null and void, and for such other relief as may be just and equitable in the
premises.

The Secretary of Agriculture and Natural Resources and the Director of Fisheries, represented by
the Legal Adviser of said Department and a Special Attorney of the Office of the Solicitor General,
answered the complaint alleging, among other things, that of the 18 plaintiff (Exequiel Soriano,
Teodora Donato, Felipe Concepcion, Venancio Correa, Santo Gaviana, Alfredo General, Constancio
Gutierrez, Arsenio de Guzman, Pedro Lazaro, Porfirio Lazaro, Deljie de Leon, Jose Nepomuceno,
Bayani Pingol, Claudio Salgado, Porfirio, San Juan, Luis Sioco, Casimiro Villar and Enrique
Voluntad), only 11 were issued license to operate fishing boats for the year 1954 (Annex B, petition
L-8895); that the executive orders in question were issued accordance with law; that the
encouragement by the Bureau of Fisheries of the use of Otter trawls should not be construed to
mean that the general welfare of the public could be disregarded, and set up the defenses that since
plaintiffs question the validity of the executive orders issued by the President, then the Secretary of
Agriculture and Natural Resources and the Director of Fisheries were not the real parties in interest;
that said executive orders do not constitute a deprivation of property without due process of law, and
therefore prayed that the complaint be dismissed (Exh. B, petition, L-8895).

During the trial of the case, the Governor of Camarines Sur appearing for the municipalities of
Siruma, Tinambac, Calabanga, Cabusao and Sipocot, in said province, called the attention of the

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Court that the Solicitor General had not been notified of the proceeding. To this manifestation, the
Court ruled that in view of the circumstances of the case, and as the Solicitor General would only be
interested in maintaining the legality of the executive orders sought to be impugned, section 4 of
Rule 66 could be interpreted to mean that the trial could go on and the Solicitor General could be
notified before judgement is entered.

After the evidence for both parties was submitted and the Solicitor General was allowed to file his
memorandum, the Court rendered decision on February 2, 1955, the last part of which reads as
follows:

The power to close any definite area of the Philippine waters, from the fact that Congress
has seen fit to define under what conditions it may be done by the enactment of the sections
cited, in the mind of Congress must be of transcendental significance. It is primarily within
the fields of legislation not of execution: for it goes far and says who can and who can not
fish in definite territorial waters. The court can not accept that Congress had intended to
abdicate its inherent right to legislate on this matter of national importance. To accept
respondents' view would be to sanction the exercise of legislative power by executive
decrees. If it is San Miguel Bay now, it may be Davao Gulf tomorrow, and so on. That may be
done only by Congress. This being the conclusion, there is hardly need to go any further.
Until the trawler is outlawed by legislative enactment, it cannot be banned from San Miguel
Bay by executive proclamation. The remedy for respondents and population of the coastal
towns of Camarines Sur is to go to the Legislature. The result will be to issue the writ prayed
for, even though this be to strike at public clamor and to annul the orders of the President
issued in response therefor. This is a task unwelcome and unpleasant; unfortunately, courts
of justice use only one measure for both the rich and poor, and are not bound by the more
popular cause when they give judgments.

IN VIEW WHEREOF, granted; Executive Order Nos. 22, 66 and 80 are declared invalid; the
injunction prayed for is ordered to issue; no pronouncement as to costs.

Petitioners immediately filed an ex-parte motion for the issuance of a writ of injunction which was
opposed by the Solicitor General and after the parties had filed their respective memoranda, the
Court issued an order dated February 19, 1955, denying respondents' motion to set aside judgement
and ordering them to file a bond in the sum of P30,000 on or before March 1, 1955, as a condition
for the non-issuance of the injunction prayed for by petitioners pending appeal. The Solicitor General
filed a motion for reconsideration which was denied for lack of merit, and the Court, acting upon the
motion for new trial filed by respondents, issued another order on March 3, 1965, denying said
motion and granting the injunction prayed for by petitioners upon the latter's filing a bond for P30,000
unless respondents could secure a writ of preliminary injunction from the Supreme Court on or
before March 15, 1955. Respondents, therefore, brought the matter to this Court in a petition for
prohibition and certiorariwith preliminary injunction, docketed as G.R. No. L-8895, and on the same
day filed a notice to appeal from the order of the lower court dated February 2, 1955, which appeal
was docketed in this Court as G.R. No. L-9191.

In the petition for prohibition and certiorari, petitioners (respondents therein) contended among other
things, that the order of, the respondent Judge requiring petitioners Secretary of Agriculture and
Natural Resources and the Director of Fisheries to post a bond in the sum of P30,000 on or before
March 1, 1955, had been issued without jurisdiction or in excess thereof, or at the very least with
grave abuse of discretion, because by requiring the bond, the Republic of the Philippines was in

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effect made a party defendant and therefore transformed the suit into one against the Government
which is beyond the jurisdiction of the respondent Judge to entertain; that the failure to give the
Solicitor General the opportunity to defend the validity of the challenged executive orders resulted in
the receipt of objectionable matters at the hearing; that Rule 66 of the Rules of Court does not
empower a court of law to pass upon the validity of an executive order in a declaratory relief
proceeding; that the respondent Judge did not have the power to grant the injunction as Section 4 of
Rule 39 does not apply to declaratory relief proceedings but only to injunction, receivership and
patent accounting proceedings; and prayed that a writ of preliminary injunction be issued to enjoin
the respondent Judge from enforcing its order of March 3, 1955, and for such other relief as may be
deem just and equitable in the premises. This petition was given due course and the hearing on the
merits was set by this Court for April 12, 1955, but no writ of preliminary injunction was issued.

Meanwhile, the appeal (G.R. No. L-9191) was heard on October 3, 1956, wherein respondents-
appellants ascribed to the lower court the commission of the following errors:

1. In ruling that the President has no authority to issue Executive Orders Nos. 22, 66 and 80
banning the operation of trawls in San Miguel Bay;

2. In holding that the power to declare a closed area for fishing purposes has not been
delegated to the President of the Philippines under the Fisheries Act;

3. In not considering Executive Orders Nos. 22, 66 and 80 as declaring a closed season
pursuant to Section 7, Act 4003, as amended, otherwise known as the Fisheries Act;

4. In holding that to uphold the validity of Executive Orders Nos. 22 and 80 would be to
sanction the exercise of legislative power by executive decrees;

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

6. In declaring Executive Orders Nos. 22, 66 and 80 invalid and in ordering the injunction
prayed for to issue.

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

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

EXECUTIVE ORDER No. 22

PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY

In order to effectively protect the municipal fisheries of San Miguel Bay, Camarines Norte
and Camarines Sur, and to conserve fish and other aquatic resources of the area, I, RAMON
MAGSAYSAY, President of the Philippines, by virtue of the powers vested in me by law, do
hereby order that:

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1. Fishing by means of trawls (utase, otter and/or perenzella) of any kind, in the waters
comprised within San Miguel Bay, is hereby prohibited.

2. Trawl shall mean, for the purpose of this Order, a fishing net made in the form of a bag
with the mouth kept open by a device, the whole affair being towed, dragged, trailed or
trawled on the bottom of the sea to capture demersal, ground or bottom species.

3. Violation of the provisions of this Order shall subject the offender to the penalty provided
under Section 83 of Act 4993, or more than six months, or both, in the discretion of the Court.

Done in the City of Manila, this 5th day of April, nineteen hundred and fifty-four and of the
Independence of the Philippines, the eighth. (50 Off. Gaz. 1421)

EXECUTIVE ORDER No. 66

AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, ENTITLED

"PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY"

By virtue of the powers voted in me by law, I, RAMON MAGSAYSAY, President of the

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

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

EXECUTIVE ORDER No. 80.

FURTHER AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, AS AMENDED
BY EXECUTIVE ORDER No. 66, DATED SEPTEMBER 23, 1954.

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

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

Thereafter, the provisions of said Executive Order No. 22 absolutely prohibiting fishing by
means of trawls in all the waters comprised within the San Miguel Bay shall be revived and
given full force and effect as originally provided therein.

Done in the City of Manila, this 2nd day of November, in the year of Our Lord, nineteen
hundred and fifty-four and of the Independence of the Philippines, the ninth. (50 Off. Gaz.
5198)

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It is likewise admitted that petitioners assailed the validity of said executive orders in their petition for
a writ of injunction and/or declaratory relief filed with the Court of First Instance of Manila, and that
the lower court, upon declaring Executive Orders Nos. 22, 66 and 80 invalid, issued an order
requiring the Secretary of Agriculture and Natural Resources and the Director of Fisheries to post a
bond for P30,000 if the writ of injunction restraining them from enforcing the executive orders in
question must be stayed.

The Solicitor General avers that the constitutionality of an executive order cannot be ventilated in a
declaratory relief proceeding. We find this untenable, for this Court taking cognizance of an appeal
from the decision of the lower court in the case of Hilado vs. De la Costa, et al., 83 Phil., 471, which
involves the constitutionality of another executive order presented in an action for declaratory relief,
in effect accepted the propriety of such action.

This question being eliminated, the main issues left for Our determination with respect to defendants'
appeal (G.R. No. L-9191), are:

(1) Whether the Secretary of an Executive Department and the Director of a Bureau, acting in their
capacities as such Government officials, could lawfully be required to post a bond in an action
against them;

(2) Whether the President of the Philippines has authority to issue Executive Orders Nos. 22, 66 and
80, banning the operation of trawls in San Miguel Bay, or, said in other words, whether said
Executive Orders Nos. 22, 66 and 80 were issued in accordance with law; and.

(3) Whether Executive Orders Nos. 22, 66 and 80 were valid, for the issuance thereof was not in the
exercise of legislative powers unduly delegated to the President.

Counsel for both parties presented commendable exhaustive defenses in support of their respective
stands. Certainly, these cases deserve such efforts, not only because the constitutionality of an act
of a coordinate branch in our tripartite system of Government is in issue, but also because of the
number of inhabitants, admittedly classified as "subsistence fishermen", that may be affected by any
ruling that We may promulgate herein.

I. As to the first proposition, it is an elementary rule of procedure that an appeal stays the execution
of a judgment. An exception is offered by section 4 of Rule 39 of the Rules of Court which provides
that:

SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT STAYED.

Unless otherwise ordered by the court, a judgment in an action for injunction or in a
receivership action, or a judgment or order directing an accounting in an action for
infringement of letter patent, shall not be stayed after its rendition and before an appeal is
taken or during the pendency of an appeal. The trial court, however, in its discretion, when
an appeal is taken from a judgement granting, dissolving or denying an injunction, may make
an order suspending, modifying, restoring, or granting such injunction during the pendency of
an appeal, upon such terms as to bond or otherwise as it may consider proper for the
security of the rights of the adverse party.

This provision was the basis of the order of the lower court dated February 19, 1955, requiring the
filing by the respondents of a bond for P30,000 as a condition for the non-issuance of the injunction

Page 308 of 547

prayed for by plaintiffs therein, and which the Solicitor General charged to have been issued in
excess of jurisdiction. The State's counsel, however, alleges that while judgment could be stayed in
injunction, receivership and patent accounting cases and although the complaint was styled
"Injunction, and/or Declaratory Relief with Preliminary Injunction", the case is necessarily one for
declaratory relief, there being no allegation sufficient to convince the Court that the plaintiffs intended
it to be one for injunction. But aside from the title of the complaint, We find that plaintiffs pray for the
declaration of the nullity of Executive Order Nos. 22, 66 and 80; the issuance of a writ of preliminary
injunction, and for such other relief as may be deemed just and equitable. This Court has already
held that there are only two requisites to be satisfied if an injunction is to issue, namely, the
existence of the right sought to be protected, and that the acts against which the injunction is to be
directed are violative of said right (North Negros Sugar Co., Inc. vs.Serafin Hidalgo, 63 Phil., 664).
There is no question that at least 11 of the complaining trawl operators were duly licensed to operate
in any of the national waters of the Philippines, and it is undeniable that the executive enactment's
sought to be annulled are detrimental to their interests. And considering further that the granting or
refusal of an injunction, whether temporary or permanent, rests in the sound discretion of the Court,
taking into account the circumstances and the facts of the particular case (Rodulfa vs. Alfonso, 76
Phil,, 225, 42 Off. Gaz., 2439), We find no abuse of discretion when the trial Court treated the
complaint as one for injunction and declaratory relief and executed the judgment pursuant to the
provisions of section 4 of Rule 39 of the Rules of Court.

On the other hand, it shall be remembered that the party defendants in Civil Case No. 24867 of the
Court of First Instance of Manila are Salvador Araneta, as Secretary of Agriculture and Natural
Resources, and, Deogracias Villadolid, as Director of Fisheries, and were sued in such capacities
because they were the officers charged with duty of carrying out the statutes, orders and regulations
on fishing and fisheries. In its order of February 19, 1955, the trial court denied defendants' motion to
set aside judgment and they were required to file a bond for P30,000 to answer for damages that
plaintiffs were allegedly suffering at that time, as otherwise the injunction prayed for by the latter
would be issued.

Because of these facts, We agree with the Solicitor General when he says that the action, being one
against herein petitioners as such Government officials, is essentially one against the Government,
and to require these officials to file a bond would be indirectly a requirement against the Government
for as regards bonds or damages that may be proved, if any, the real party in interest would be the
Republic of the Philippines (L. S. Moon and Co. vs. Harrison, 43 Phi., 39; Salgado vs. Ramos, 64
Phil., 724-727, and others). The reason for this pronouncement is understandable; the State
undoubtedly is always solvent (Tolentino vs. Carlos 66 Phil., 140; Government of the P. I.vs. Judge of
the Court of First Instance of Iloilo, 34 Phil., 167, cited in Joaquin Gutierrez et al. vs. Camus et al. *
G.R. No. L-6725, promulgated October 30, 1954). However, as the records show that herein
petitioners failed to put up the bond required by the lower court, allegedly due to difficulties
encountered with the Auditor General's Office (giving the impression that they were willing to put up
said bond but failed to do so for reasons beyond their control), and that the orders subjects of the
prohibition and certiorari proceedings in G.R. No. L-8895, were enforced, if at all, 2 in accordance with
section 4 of Rule 39, which We hold to be applicable to the case at bar, the issue as to the regularity
or adequacy of requiring herein petitioners to post a bond, becomes moot and academic.

II. Passing upon the question involved in the second proposition, the trial judge extending the
controversy to the determination of which between the Legislative, and Executive Departments of
the Government had "the power to close any definite area of the Philippine waters" instead of limiting
the same to the real issue raised by the enactment of Executive Orders No. 22, 26 and 80,
especially the first and the last "absolutely prohibiting fishing by means trawls in all the waters

Page 309 of 547

comprised within the San Miguel Bay", ruled in favor of Congress had not intended to abdicate its
power to legislate on the matter, he maintained as stated before, that "until the trawler is outlawed by
legislative enactment, it cannot be banned from San Miguel Bay by executive proclamation", and
that "the remedy for respondents and population of the coastal towns of Camarines Sur is to go to
Legislature," and thus declared said Executive Orders Nos. 22, 66 and 80 invalid".

The Solicitor General, on the contrary, asserts that the President is empowered by law to issue the
executive enactment's in question.

Sections 6, 13 and 75 of Act No. 4003, known as the Fisheries Law, the latter two sections as
amended by section 1 of Commonwealth Act No. 471, read as follows:

SEC. 6. WORDS AND PHRASES DEFINED. Words and terms used in this Act shall be
construed as follows:

xxx xxx xxx

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

xxx xxx xxx

SEC. 13. PROTECTION OF FRY OR FISH EGGS. Except for scientific or educational
purpose or for propagation, it shall be unlawful to take or catch fry or fish eggs and the small
fish, not more than three (3) centimeters long, known as siliniasi, in the territorial waters of
the Philippines. Towards this end, the Secretary of Agriculture and Commerce shall be
authorized to provide by regulations such restrictions as may be deemed necessary to be
imposed on THE USE OF ANY FISHING NET OR FISHING DEVICE FOR THE
PROTECTION OF FRY OR FISH EGGS; Provided, however, That the Secretary of
Agriculture and Commerce shall permit the taking of young of certain species of fish known
as hipon under such restrictions as may be deemed necessary.

SEC. 75. FISH REFUGEES AND SANCTUARIES. Upon the recommendation of the
officer or chief of the bureau, office or service concerned, the Secretary of Agriculture and
Commerce may set aside and establish fishery reservation or fish refuges and sanctuaries to
be administered in the manner to be prescribed by him. All streams, ponds and waters within
the game refuge, birds, sanctuaries, national parks, botanical gardens, communal forest and
communal pastures are hereby declared fishing refuges and sanctuaries. It shall be unlawful
for any person, to take, destroy or kill in any of the places aforementioned, or in any manner
disturb or drive away or take therefrom, any fish fry or fish eggs.

Act No. 4003 further provides as follows:

Page 310 of 547

 SEC. 83. OTHER VIOLATIONS. Any other violation of the provisions of this Act or any
rules and regulations promulgated thereunder shall subject the offender to a fine of not more
than two hundred pesos, or imprisonment for not more than six months, or both, in the
discretion of the Court.

As may be seen from the just quoted provisions, the law declares unlawful and fixes the penalty for
the taking (except for scientific or educational purposes or for propagation), destroying or killing of
any fish fry or fish eggs, and the Secretary of Agriculture and Commerce (now the Secretary of
Agriculture and Natural Resources) is authorized to promulgate regulations restricting the use of any
fish net or fishing device (which includes the net used by trawl fishermen) for the protection of fry or
fish eggs, as well as to set aside and establish fishery reservations or fish refuges and sanctuaries to
be administered in the manner prescribed by him, from which no person could lawfully take, destroy
or kill in any of the places aforementioned, or in any manner disturb or drive away or take therefrom
any small or immature fish, fry or fish eggs. It is true that said section 75 mentions certain streams,
ponds and waters within the game refuges, . . . communal forest, etc., which the law itself declares
fish refuges and sanctuaries, but this enumeration of places does not curtail the general and
unlimited power of the Secretary of Agriculture and Natural Resources in the first part of section 75,
to set aside and establish fishery reservations or fish refuges and sanctuaries, which naturally
include seas or bays, like the San Miguel Bay in Camarines.

From the resolution passed at the Conference of Municipal Mayors held at Tinambac, Camarines
Sur, on December 18, 1953 (Exh. F), the following manifestation is made:

WHEREAS, the continuous operation of said trawls even during the close season as
specified in said Executive Order No. 20 caused the wanton destruction of the mother
shrimps laying their eggs and the millions of eggs laid and the inevitable extermination of the
shrimps specie; in order to save the shrimps specie from eventual extermination and in order
to conserve the shrimps specie for posterity;

In the brief submitted by the NAMFREL and addressed to the President of the Philippines (Exh. 2), in
support of the petition of San Miguel Bay fishermen (allegedly 6, 175 in number), praying that
trawlers be banned from operating in San Miguel Bay, it is stated that:

The trawls ram and destroy the fish corrals. The heavy trawl nets dig deep into the ocean
bed. They destroy the fish foods which lies below the ocean floor. Their daytime catches net
millions of shrimps scooped up from the mud. In their nets they bring up the life of the sea:
algea, shell fish and star fish . . .

The absence of some species or the apparent decline in the catch of some fishermen
operating in the bay may be due to several factors, namely: the indiscriminate catching of fry
and immature sizes of fishes, the wide-spread use of explosives inside as well as at the
mouth and approaches of the bay, and the extensive operation of the trawls. (p.9, Report of
Santos B. Rasalan, Exh. A)

Extensive Operation of Trawls: The strenuous effect of the operations of the 17 TRAWLS
of the demersal fisheries of San Miguel Bay is better appreciated when we consider the fact
that out of its about 850 square kilometers area, only about 350 square kilometers of 5
fathoms up could be trawled. With their continuous operation, is greatly strained. This is
shown by the fact that in view of the non-observance of the close season from May to

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 October, each year, majority of their catch are immature. If their operation would continue
unrestricted, the supply would be greatly depleted. (p. 11), Report of Santos B. Rasalan,
Exh. A)

San Miguel Bay can sustain 3 to 4 small trawlers (Otter Trawl Explorations in Philippine
Waters, Research Report 25 of the Fish and Wildlife Service, United States Department of
the Interior, p. 9 Exhibit B).

According to Annex A of the complaint filed in the lower court in Civil Case No. 24867 G.R. No. L-
9191 (Exh. D, p. 53 of the folder of Exhibits), the 18 plaintiffs-appellees operate 29 trawling boats,
and their operation must be in a big scale considering the investments plaintiffs have made
therefore, amounting to P387,000 (Record on Appeal, p. 16-17).

In virtue of the aforementioned provisions of law and the manifestation just copied, We are of the
opinion that with or without said Executive Orders, the restriction and banning of trawl fishing from all
Philippine waters come, under the law, within the powers of the Secretary of Agriculture and Natural
Resources, who in compliance with his duties may even cause the criminal prosecution of those who
in violation of his instructions, regulations or orders are caught fishing with trawls in the Philippine
waters.

Now, if under the law the Secretary of Agriculture and Natural Resources has authority to regulate or
ban the fishing by trawl which, it is claimed, obnoxious for it carries away fish eggs and fry's which
should be preserved, can the President of the Philippines exercise that same power and authority?
Section 10(1), Article VII of the Constitution of the Philippines prescribes:

SEC. 10 (1). The President shall have control of all the executive departments, bureaus or
offices, exercises general supervision over all local governments as may be provided by law,
and take care that the laws be faithfully executed.

Section 63 of the Revised Administrative Code reads as follows:

SEC. 63. EXECUTIVE ORDERS AND EXECUTIVE PROCLAMATION. Administrative

acts and commands of the President of the Philippines touching the organization or mode of
operation of the Government or rearranging or readjusting any of the district, divisions, parts
or ports of the Philippines, and all acts and commands governing the general performance of
duties by public employees or disposing of issues of general concern shall be made in
executive orders.

xxx xxx xxx

Regarding department organization Section 74 of the Revised Administrative Code also provides
that:

All executive functions of the government of the Republic of the Philippines shall be directly
under the Executive Departments subject to the supervision and control of the President of
the Philippines in matters of general policy. The Departments are established for the proper
distribution of the work of the Executive, for the performance of the functions expressly
assigned to them by law, and in order that each branch of the administration may have a
chief responsible for its direction and policy. Each Department Secretary shall assume the

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 burden of, and responsibility for, all activities of the Government under his control and
supervision.

For administrative purposes the President of the Philippines shall be considered the
Department Head of the Executive Office.

One of the executive departments is that of Agriculture and Natural Resources which by law is
placed under the direction and control of the Secretary, who exercises its functions subject to the
general supervision and control of the President of the Philippines (Sec. 75, R. A. C.). Moreover,
"executive orders, regulations, decrees and proclamations relative to matters under the supervision
or jurisdiction of a Department, the promulgation whereof is expressly assigned by law to the
President of the Philippines, shall as a general rule, be issued upon proposition and
recommendation of the respective Department" (Sec. 79-A, R.A.C.), and there can be no doubt that
the promulgation of the questioned Executive Orders was upon the proposition and recommendation
of the Secretary of Agriculture and Natural Resources and that is why said Secretary, who was and
is called upon to enforce said executive Orders, was made a party defendant in one of the cases at
bar (G.R. No. L-9191).

For the foregoing reasons We do hesitate to declare that Executive Orders Nos. 22, 66 and 80,
series of 1954, of the President, are valid and issued by authority of law.

III. But does the exercise of such authority by the President constitute and undue delegation of the
powers of Congress?

As already held by this Court, the true distinction between delegation of the power to legislate and
the conferring of authority or discretion as to the execution of law consists in that the former
necessary involves a discretion as to what the law shall be, wile in the latter the authority or
discretion as to its execution has to be exercised under and in pursuance of the law. The first cannot
be done; to the latter no valid objection can be made (Cruz vs. Youngberg, 56 Phil., 234, 239. See
also Rubi, et al. vs. The Provincial Board of Mindoro, 39 Phil., 660).

In the case of U. S. vs. Ang Tang Ho, 43 Phil. 1, We also held:

THE POWER TO DELEGATE. The Legislature cannot delegate legislative power to enact
any law. If Act No. 2868 is a law unto itself, and it does nothing more than to authorize the
Governor-General to make rules and regulations to carry it into effect, then the Legislature
created the law. There is no delegation of power and it is valid. On the other hand, if the act
within itself does not define a crime and is not complete, and some legislative act remains to
be done to make it a law or a crime, the doing of which is vested in the Governor-General,
the act is delegation of legislative power, is unconstitutional and void.

From the provisions of Act No. 4003 of the Legislature, as amended by Commonwealth Act No. 471,
which have been aforequoted, We find that Congress (a) declared it unlawful "to take or catch fry or
fish eggs in the territorial waters of the Philippines; (b) towards this end, it authorized the Secretary
of Agriculture and Natural Resources to provide by the regulations such restrictions as may be
deemed necessary to be imposed on the use of any fishing net or fishing device for the protection of
fish fry or fish eggs (Sec. 13); (c) it authorized the Secretary of Agriculture and Natural Resources to
set aside and establish fishery reservations or fish refuges and sanctuaries to be administered in the
manner to be prescribed by him and declared it unlawful for any person to take, destroy or kill in any

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of said places, or, in any manner disturb or drive away or take therefrom, any fish fry or fish
eggs (See. 75); and (d) it penalizes the execution of such acts declared unlawful and in violation of
this Act (No. 4003) or of any rules and regulations promulgated thereunder, making the offender
subject to a fine of not more than P200, or imprisonment for not more than 6 months, or both, in the
discretion of the court (Sec. 83).

From the foregoing it may be seen that in so far as the protection of fish fry or fish egg is concerned,
the Fisheries Act is complete in itself, leaving to the Secretary of Agriculture and Natural Resources
the promulgation of rules and regulations to carry into effect the legislative intent. It also appears
from the exhibits on record in these cases that fishing with trawls causes "a wanton destruction of
the mother shrimps laying their eggs and the millions of eggs laid and the inevitable extermination of
the shrimps specie" (Exh. F), and that, "the trawls ram and destroy the fish corrals. The heavy trawl
nets dig deep into the ocean bed. They destroy the fish food which lies below the ocean floor. Their
daytime catches net millions of shrimps scooped up from the mud. In their nets they bring up the life
of the sea" (Exh- 2).

In the light of these facts it is clear to Our mind that for the protection of fry or fish eggs and small
and immature fishes, Congress intended with the promulgation of Act No. 4003, to prohibit the use of
any fish net or fishing device like trawl nets that could endanger and deplete our supply of sea food,
and to that end authorized the Secretary of Agriculture and Natural Resources to provide by
regulations such restrictions as he deemed necessary in order to preserve the aquatic resources of
the land. Consequently, when the President, in response to the clamor of the people and authorities
of Camarines Sur issued Executive Order No. 80 absolutely prohibiting fishing by means of trawls in
all waters comprised within the San Miguel Bay, he did nothing but show an anxious regard for the
welfare of the inhabitants of said coastal province and dispose of issues of general concern (Sec.
63, R.A.C.) which were in consonance and strict conformity with the law.

Wherefore, and on the strength of the foregoing considerations We render judgement, as follows:

(a) Declaring that the issues involved in case G.R. No. L-8895 have become moot, as no writ of
preliminary injunction has been issued by this Court the respondent Judge of the Court of First
Instance of Manila Branch XIV, from enforcing his order of March 3, 1955; and

(b) Reversing the decision appealed from in case G. R. No. L-9191; dissolving the writ of injunction
prayed for in the lower court by plaintiffs, if any has been actually issued by the court a quo; and
declaring Executive Orders Nos. 22, 66 and 80, series of 1954, valid for having been issued by
authority of the Constitution, the Revised Administrative Code and the Fisheries Act.

Without pronouncement as to costs. It is so ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.

Page 314 of 547

G.R. No. L-32096 October 24, 1970

ROMEO F. EDU, in his capacity as Land Transportation Commissioner, petitioner,

vs.
HON. VICENTE G. ERICTA in his capacity as Judge of the Court of First Instance of Rizal, Br.
XVIII, Quezon City, and TEDDY C. GALO respondents.

Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General Hector C. Fule and
Solicitor Vicente A. Torres for petitioner.

Teddy C. Galo in his own behalf.

Judge Vicente Ericta in his own behalf.

FERNANDO, J.:.

Petitioner Romeo F. Edu, the Land Transportation Commissioner, would have us rule squarely on
the constitutionality of the Reflector Law1 in this proceeding for certiorari and prohibition against
respondent Judge, the Honorable Vicente G. Ericta of the Court of First Instance of Rizal, Quezon City
Branch, to annul and set aside his order for the issuance of a writ of preliminary injunction directed
against Administrative Order No. 2 of petitioner for the enforcement of the aforesaid statute, in a pending
suit in his court for certiorari and prohibition, filed by the other respondent Teddy C. Galo assailing; the
validity of such enactment as well as such administrative order. Respondent Judge, in his answer, would
join such a plea asking that the constitutional and legal questions raised be decided "once and for all."
Respondent Teddy C. Galo who was quite categorical in his assertion that both the challenged legislation
and the administrative order transgress the constitutional requirements of due process and non-
delegation, is not averse either to such a definitive ruling. Considering the great public interest involved
and the reliance by respondent Galo and the allegation that the repugnancy to the fundamental law could
be discerned on the face of the statute as enacted and the executive order as promulgated, this Court,
sees no obstacle to the determination in this proceeding of the constitutional questions raised. For
reasons to be hereafter stated, we sustain the validity of the Reflector Law and Administrative Order No. 2
issued in the implementation thereof, the imputation of constitutional infirmity being at best flimsy and
insubstantial.

As noted in the answer of respondent Judge, respondent Galo on his behalf and that of other
motorist filed on May 20, 1970 a suit for certiorari and prohibition with preliminary injunction assailing
the validity of the challenged Act as an invalid exercise of the police power, for being violative of the
due process clause. This he followed on May 28, 1970 with a manifestation wherein he sought as an
alternative remedy that, in the event that respondent Judge would hold said statute constitutional,
Administrative Order No. 2 of the Land Transportation Commissioner, now petitioner, implementing
such legislation be nullified as an undue exercise of legislative power. There was a hearing on the
plea for the issuance of a writ of preliminary injunction held on May 27. 1970 where both parties

Page 315 of 547

were duly represented, but no evidence was presented. The next day, on May 28, 1970, respondent
Judge ordered the issuance of a preliminary injunction directed against the enforcement of such
administrative order. There was the day after, a motion for its reconsideration filed by the Solicitor
General representing petitioner. In the meanwhile, the clerk of court of respondent Judge issued, on
June 1, 1970 the writ of preliminary injunction upon the filing of the required bond. The answer
before the lower court was filed by petitioner Edu on June 4, 1970. Thereafter, on June 9, 1970,
respondent Judge denied the motion for reconsideration of the order of injunction. Hence this
petition for certiorari and prohibition filed with this court on June 18, 1970.

In a resolution of June 22, 1970, this Court required respondents to file an answer to the petition
for certiorari and prohibition. Respondent Judge, the Honorable Vicente G. Ericta, did file his answer
on June 30, 1970 explaining why he restrained the enforcement of Administrative Order No. 2 and,
as noted at the outset, joining the Solicitor General in seeking that the legal questions raised namely
the constitutionality of the Reflector Law and secondly the validity of Administrative Order No. 2
alleged to be in excess of the authority conferred on petitioner and therefore violative of the principle
of non-delegation of legislative power be definitely decided. It was on until July 6, 1970 that
respondent Galo filed his answer seeking the dismissal of this petition concentrating on what he
considered to be the patent invalidity of Administrative Order No. 2 as it went beyond the authority
granted by the Reflector Law, even assuming that it is constitutional. In the meanwhile, on July 2,
1970, the petition was called for hearing with Solicitor Vicente Torres appearing for petitioner and
respondent Galo for himself. It was made clear during the course of such argumentation that the
matter of the constitutionality of the Reflector Law was likewise under consideration by this Court.
The case is thus ripe for decision.

We repeat that we find for petitioner and sustain the Constitutionality of the Reflector Law as well as
the validity of Administrative Order No. 2.

1. The threshold question is whether on the basis of the petition, the answers, and the oral
argument, it would be proper for this Court to resolve the issue of the constitutionality of the
Reflector Law. Our answer, as indicated, is in the affirmative. It is to be noted that the main thrust of
the petition before us is to demonstrate in a rather convincing fashion that the challenged legislation
does not suffer from the alleged constitutional infirmity imputed to it by the respondent Galo. Since
the special civil action for certiorari and prohibition filed before him before respondent Judge would
seek a declaration of nullity of such enactment by the attribution of the violation the face thereof of
the due process guarantee in the deprivation of property rights, it would follow that there is sufficient
basis for us to determine which view should prevail. Moreover, any further hearing by respondent
Judge would likewise to limited to a discussion of the constitutional issues raised, no allegations of
facts having made. This is one case then where the question of validity is ripe for determination. If
we do so, further effort need not be wasted and time is saved moreover, the officials concerned as
well as the public, both vitally concerned with a final resolution of questions of validity, could know
the definitive answer and could act accordingly. There is a great public interest, as was mentioned,
to be served by the final disposition of such crucial issue, petitioner praying that respondent Galo be
declared having no cause of action with respondent Judge being accordingly directed to dismiss his
suit.

There is another reinforcement to this avenue of approach. We have done so before in a

suit, Climaco v. Macadaeg,2 involving the legality of a presidential directive. That was a petition for the review and reversal of a
writ of preliminary injunction issued by the then Judge Macadaeg. We there announced that we "have decided to pass upon the question of
the validity of the presidential directive ourselves, believing that by doing so we would be putting an end to a dispute, a delay in the
disposition of which has caused considerable damage and injury to the Government and to the tobacco planters themselves."

Page 316 of 547

There is no principle of constitutional adjudication that bars this Court from similarly passing upon
the question of the validity of a legislative enactment in a proceeding before it to test the propriety of
the issuance of a preliminary injunction. The same felt need for resolving once and for all the vexing
question as to the constitutionality of a challenged enactment and thus serve public interest exists.
What we have done in the case of an order proceeding from one of the coordinate branches, the
executive, we can very well do in the matter before us involving the alleged nullity of a legislative act.
Accordingly, there is nothing to preclude the grant of the writs prayed for, the burden of showing the
constitutionality of the act having proved to be as will now be shown too much for respondent Galo.

2. The Reflector Law reads in full: "(g) Lights and reflector when parked or disabled. Appropriate
parking lights or flares visible one hundred meters away shall be displayed at a corner of the vehicle
whenever such vehicle is parked on highways or in places that are not well-lighted or is placed in
such manner as to endanger passing traffic. Furthermore, every motor vehicle shall be provided at
all times with built-in reflectors or other similar warning devices either pasted, painted or attached to
its front and back which shall likewise be visible at light at least one hundred meters away. No
vehicle not provided with any of the requirements mentioned in this subsection shall be
registered."3 It is thus obvious that the challenged statute is a legislation enacted under the police power
to promote public safety.

Justice Laurel, in the first leading decision after the Constitution came to force, Calalang v.
Williams,4 identified police power with state authority to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare. Persons and property could thus "be subjected
to all kinds of restraints and burdens in order to secure the general comfort, health and prosperity of the
state." Shortly after independence in 1948, Primicias v. Fugoso,5 reiterated the doctrine, such a
competence being referred to as "the power to prescribe regulations to promote the health, morals,
peace, education, good order or safety, and general welfare of the people." The concept was set forth in
negative terms by Justice Malcolm in a pre-Commonwealth decision as "that inherent and plenary power
in the State which enables it to prohibit all things hurtful to the comfort, safety and welfare of society." 6 In
that sense it could be hardly distinguishable as noted by this Court in Morfe v. Mutuc7 with the totality of
legislative power.

It is in the above sense the greatest and most powerful attribute of government. It is to quote Justice
Malcolm anew "the most essential, insistent, and at least illimitable of powers," 8 extending as Justice Holmes
aptly pointed out "to all the great public needs." 9 Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuring the
greatest benefits. In the language of Justice Cardozo: "Needs that were narrow or parochial in the past may be interwoven in the present
with the well-being of the nation. What is critical or urgent changes with the
The police power is thus a dynamic agency, suitably vague and far from precisely defined, rooted
time." 10
in the conception that men in organizing the state and imposing upon its government limitations to
safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of citizens
to obstruct unreasonably the enactment of such salutary measures calculated to insure communal peace,
safety, good order, and welfare.

It would then be to overturn a host of decisions impressive for their number and unanimity were this
Court to sustain respondent Galo. 11 That we are not disposed to do, especially so as the attack on the
challenged statute ostensibly for disregarding the due process safeguard is angularly unpersuasive. It
would be to close one's eyes to the hazards of traffic in the evening to condemn a statute of this
character. Such an attitude betrays lack of concern for public safety. How can it plausibly alleged then that
there was no observance of due process equated as it has always been with that is reasonable? The
statute assailed is not infected with arbitrariness. It is not the product of whim or caprice. It is far from
oppressive. It is a legitimate response to a felt public need. It can stand the test of the most
unsymphatetic appraisal.

Page 317 of 547

Respondent Galo is of a different mind, having been unable to resist the teaching of many American
State Court decisions referred to in the secondary source, American Jurisprudence principally relied
upon by him. He ought to have been cautioned against an indiscriminate acceptance of such
doctrines predicated on what was once a fundamental postulate in American public law, laissez faire.

It is to be admitted that there was a period when such a concept did influence American court
decisions on constitutional law. As was explicitly stated by Justice Cardozo speaking of that era:
"Laissez-faire was not only a counsel of caution which would do well to heed. It was a categorical
imperative which statesmen as well as judges must obey." 12 For a long time legislation tending to
reduce economic inequality foundered on the rock that was the due process clause, enshrining as it did
the liberty of contract, based on such a basic assumption.

The New Deal administration of President Roosevelt more responsive to the social and economic
forces at work changed matters greatly. By 1937, there was a greater receptivity by the American
Supreme Court to an approach not too reverential of property rights. Even earlier, in 1935, Professor
Coker of Yale, speaking as a historian, could already discern a contrary drift. He did note the
expending range of governmental activity in the United States. 13What is undeniable is that by
1943, laissez-faire was no longer the dominant theory. In the language of Justice Jackson in the leading
case of West Virginia State Board of Education v. Barnette: 14 "We must, transplant these rights to a soil in
which thelaissez-faire concept or non-interference has withered at least as to economic affairs, and social
advancements are increasingly sought through closer integration of society and through expanded and
strengthened governmental controls."

While authoritative precedents from the United States federal and state jurisdictions were deferred to
when the Philippines was still under American rule, it cannot be said that the laissez-faire principle
was invariably adhered to by us even then As early as 1919, in the leading case of Rubi v. Provincial
Board of Mindoro, 15 Justice Malcolm already had occasion to affirm: "The doctrines of laissez-faire and
of unrestricted freedom of the individual, as axioms of economic and political theory, are of the past. The
modern period has shown a widespread belief in the amplest possible demonstration of government
activity. The Courts unfortunately have sometimes seemed to trail after the other two branches of the
Government in this progressive march." People v. Pomar, 16 a 1924 decision which held invalid under the
due process clause a provision providing for maternity leave with pay thirty days before and thirty days
after confinement could be cited to show that such a principle did have its day. It is to be remembered
though that our Supreme Court had no other choice as the Philippines was then under the United States,
and only recently the year before, the American Supreme Court in Adkins v. Children's Hospital, 17 in line
with the laissez-faire theory, did hold that a statute providing for minimum wages was constitutionally
infirm.

What is more, to erase any doubts, the Constitutional Convention saw to it that the concept
of laissez-faire was rejected. It entrusted to our government the responsibility of coping with social
and economic problems with the commensurate power of control over economic affairs. Thereby it
could live up to its commitment to promote the general welfare through state action. No constitutional
objection to regulatory measures adversely affecting property rights, especially so when public
safety is the aim, is likely to be heeded, unless of course on the clearest and most satisfactory proof
of invasion of rights guaranteed by the Constitution. On such a showing, there may be a declaration
of nullity, but not because the laissez-faire principle was disregarded but because the due process,
equal protection, or non-impairment guarantees would call for vindication.

To repeat, our Constitution which took effect in 1935 erased whatever doubts there might be on that
score. Its philosophy is a repudiation of laissez-faire. One of the leading members of the

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Constitutional Convention, Manuel A. Roxas, later the first President of the Republic, made it clear
when he disposed of the objection of Delegate Jose Reyes of Sorsogon, who noted the "vast
extensions in the sphere of governmental functions" and the "almost unlimited power to interfere in
the affairs of industry and agriculture as well as to compete with existing business" as "reflections of
the fascination exerted by [the then] current tendencies" in other jurisdictions. 18 He spoke thus: "My
answer is that this constitution has definite and well defined philosophy not only political but social and
economic. ... If in this Constitution the gentlemen will find declarations of economic policy they are there
because they are necessary to safeguard the interests and welfare of the Filipino people because we
believe that the days have come when in self-defense, a nation may provide in its constitution those
safeguards, the patrimony, the freedom to grow, the freedom to develop national aspirations and national
interests, not to be hampered by the artificial boundaries which a constitutional provision automatically
imposes. 19

It was not expected then when in a concurring opinion, Justice Laurel, who likewise sat in the
Constitutional Convention and was one of its leading lights, explicitly affirmed in a concurring
opinion, later quoted with approval in the leading case of Antamok Goldfields Mining Co. v. Court of
Industrial Relations, 20 that the Constitution did away with thelaissez-faire doctrine. In the course of such concurring opinion and
after noting the changes that have taken place calling for a more affirmative role by the government and its undeniable power to curtail
property rights, he categorically declared the doctrine in People v. Pomar no longer retains "its virtuality as a living principle." 21

It is in the light of such rejection of the laissez-faire principle that during the Commonwealth era, no
constitutional infirmity was found to have attached to legislation covering such subjects as collective
bargaining, 22 security of tenure, 23minimum wages, 24 compulsory arbitration, 25 the regulation of tenancy 26 as well as the issuance
of
securities, 27 and control of public services. 28 So it is likewise under the Republic this Court having given the seal of approval to more
limitation of the hours of labor, 31 imposition of price
favorable tenancy laws, 29nationalization of the retail trade, 30

control, 32
requirement of separation pay for one month, 33 and social security scheme. 34

Respondent Galo thus could have profited by a little more diligence in the scrutiny of Philippine
decisions rendered with not unexpected regularity, during all the while our Constitution has been in
force attesting to the demise of such a shibboleth as laissez-faire. It was one of those fighting faiths
that time and circumstances had upset, to paraphrase Holmes. Yet respondent Galo would seek to
vivify and resurrect it. That, it would appear, is a vain quest, a futile undertaking. The Reflector Law
is thus immune from the attack so recklessly hurled against it. It can survive, and quite easily too, the
constitutional test.

3. The same lack of success marks the effort of respondent Galo to impugn the validity of
Administrative Order No. 2 issued by petitioner in his official capacity, duly approved by the
Secretary of Public Works and Communications, for being contrary to the principle of non-delegation
of legislative power. Such administrative order, which took effect on April 17, 1970, has a provision
on reflectors in effect reproducing what was set forth in the Act. Thus: "No motor vehicles of
whatever style, kind, make, class or denomination shall be registered if not equipped with reflectors.
Such reflectors shall either be factory built-in-reflector commercial glass reflectors, reflection tape or
luminous paint. The luminosity shall have an intensity to be maintained visible and clean at all times
such that if struck by a beam of light shall be visible 100 meters away at night." 35 Then came a
section on dimensions, placement and color. As to dimensions the following is provided for: "Glass
reflectors Not less than 3 inches in diameter or not less than 3 inches square; Reflectorized Tape At
least 3 inches wide and 12 inches long. The painted or taped area may be bigger at the discretion of the
vehicle owner." 36 Provision is then made as to how such reflectors are to be "placed, installed, pasted or
painted." 37 There is the further requirement that in addition to such reflectors there shall be installed,
pasted or painted four reflectors on each side of the motor vehicle parallel to those installed, pasted or

Page 319 of 547

painted in front and those in the rear end of the body thereof. 38 The color required of each reflectors,
whether built-in, commercial glass, reflectorized tape or reflectorized paint placed in the front part of any
motor vehicle shall be amber or yellow and those placed on the sides and in the rear shall all be red. 39

Penalties resulting from a violation thereof could be imposed. Thus: "Non-compliance with the
requirements contained in this Order shall be sufficient cause to refuse registration of the motor
vehicle affected and if already registered, its registration maybe suspended in pursuance of the
provisions of Section 16 of RA 4136; [Provided], However, that in the case of the violation of Section
1(a) and (b) and paragraph (8) Section 3 hereof, a fine of not less than ten nor more than fifty pesos
shall be imposed. 40 It is not to be lost sight of that under Republic Act No. 4136, of which the Reflector
Law is an amendment, petitioner, as the Land Transportation Commissioner, may, with the approval of the
Secretary of Public Works and Communications, issue rules and regulations for its implementation as
long as they do not conflict with its provisions. 41 It is likewise an express provision of the above statute
that for a violation of any of its provisions or regulations promulgated pursuant thereto a fine of not less
than P10 nor not less than P50 could be imposed. 42

It is a fundamental principle flowing from the doctrine of separation of powers that Congress may not
delegate its legislative power to the two other branches of the government, subject to the exception
that local governments may over local affairs participate in its exercise. 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 term 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 legislature 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 indeed 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 exercised under and in pursuance of
the law, to which no valid objection call be made. The Constitution is thus not to be regarded as
denying the legislature the necessary resources of flexibility and practicability.

To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least
that the legislature itself determines matters of principle and lay down fundamental policy. Otherwise,
the charge of complete abdication may be hard to repel. A standard thus defines legislative policy,
marks its limits, its maps out its boundaries and specifies the public agency to apply it. It indicates
the circumstances under which the legislative command is to be effected. It is the criterion by which
legislative purpose may be carried out. Thereafter, the executive or administrative office designated
may in pursuance of the above guidelines promulgate supplemental rules and regulations.

The standard may be either express or implied. If the former, the non-delegation objection is easily
met. The standard though does not have to be spelled out specifically. It could be implied from the
policy and purpose of the act considered as a whole. In the Reflector Law, clearly the legislative
objective is public safety. That is sought to be attained as in Calalang v. Williams is "safe transit upon
the roads." 43

This is to adhere to the recognition given expression by Justice Laurel in a decision announced not
long after the Constitution came into force and effect that the principle of non-delegation "has been
made to adapt itself the complexities of modern governments, giving rise to the adoption, within
certain limits, of the principle of "subordinate legislation" not only in the United States and England
but in practically all modern governments." 44 He continued: "Accordingly, with the growing complexity of

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modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency toward the delegation of greater powers by
the legislature and toward the approval of the practice by the courts." 45 Consistency with the conceptual
approach requires the reminder that what is delegated is authority non-legislative in character, the
completeness of the statute when it leaves the hands of Congress being assumed.

Our later decisions speak to the same effect. Thus from, Justice J. B. L. Reyes in People vs.
Exconde: 46 "It is well establish in this jurisdiction that, while the making of laws is a non-delegable activity
that corresponds exclusively to Congress, nevertheless the latter may constitutionally delegate authority
to promulgate rules and regulations to implement a given legislation and effectuate its policies, for the
reason that the legislature often finds it impracticable (if not impossible) to anticipate and proved for the
multifarious and complex situations that may be met in carrying the law in effect. All that is required is that
the regulation should germane to the objects and purposes of the law; that the regulation be not in
contradiction with it; but conform to the standards that the law prescribes ... " 47

An even more explicit formulation of the controlling principle comes from the pen of the then Justice,
now Chief Justice, Concepcion: "Lastly, the legality of Circular No. 21 is assailed upon the ground
that the grant of authority to issue the same constitutes an undue delegation of legislative power. It is
true that, under our system of government, said power may not be delegated except to local
governments. However, one thing is to delegate the power to determine what the law shall be, and
another thing to delegate the authority to fix the details in the execution of enforcement of a policy
set out in the law itself. Briefly stated, the rule is that the delegated powers fall under the second
category, if the law authorizing the, delegation furnishes a reasonable standard which "sufficiently
marks the field within which the Administrator is to act so that it may be known whether he has kept
within it in compliance with the legislative will." (Yakus vs. United States, 88 L. ed.
848) ... It should be noted, furthermore, that these powers must be construed and exercised in
relation to the objectives of the law creating the Central Bank, which are, among others, "to maintain
monetary stability in the Philippines," and "to promote a rising level of production, employment and
real income in the Philippines." (Section 2, Rep. Act No. 265). These standards are sufficiently
concrete and definite to vest in the delegated authority, the character of administrative details in the
enforcement of the law and to place the grant said authority beyond the category of a delegation
of legislative powers ... " 48

It bears repeating that the Reflector Law construed together with the Land Transportation Code.
Republic Act No. 4136, of which it is an amendment, leaves no doubt as to the stress and emphasis
on public safety which is the prime consideration in statutes of this character. There is likewise a
categorical affirmation Of the power of petitioner as Land Transportation Commissioner to
promulgate rules and regulations to give life to and translate into actuality such fundamental
purpose. His power is clear. There has been no abuse. His Administrative Order No. 2 can easily
survive the attack, far-from-formidable, launched against it by respondent Galo.

WHEREFORE, the writs of certiorari and prohibition prayed for are granted, the orders of May 28,
1970 of respondent Judge for the issuance of a writ of preliminary injunction, the writ of preliminary
injunction of June 1, 1970 and his order of June 9, 1970 denying reconsideration are annulled and
set aside. Respondent Judge is likewise directed to dismiss the petition for certiorari and prohibition
filed by respondent Teddy C. Galo, there being no cause of action as the Reflector Law and
Administrative Order No. 2 of petitioner have not been shown to be tainted by invalidity. Without
pronouncement as to costs.

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Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo and Makasiar, JJ.,
concur.

Concepcion, C.J. and Villamor, J., took no part.

G.R. No. 166715 August 14, 2008

ABAKADA GURO PARTY LIST (formerly AASJS)1 OFFICERS/MEMBERS

SAMSON S. ALCANTARA, ED VINCENT S. ALBANO, ROMEO R. ROBISO,
RENE B. GOROSPE and EDWIN R. SANDOVAL, petitioners,
vs.
HON. CESAR V. PURISIMA, in his capacity as Secretary of Finance, HON.
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the
Bureau of Internal Revenue, and HON. ALBERTO D. LINA, in his
Capacity as Commissioner of Bureau of Customs, respondents.

DECISION

CORONA, J.:

This petition for prohibition1 seeks to prevent respondents from implementing

and enforcing Republic Act (RA) 93352 (Attrition Act of 2005).

RA 9335 was enacted to optimize the revenue-generation capability and

collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs
(BOC). The law intends to encourage BIR and BOC officials and employees to
exceed their revenue targets by providing a system of rewards and sanctions

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through the creation of a Rewards and Incentives Fund (Fund) and a Revenue
Performance Evaluation Board (Board).3 It covers all officials and employees
of the BIR and the BOC with at least six months of service, regardless of
employment status.4

The Fund is sourced from the collection of the BIR and the BOC in excess of
their revenue targets for the year, as determined by the Development Budget
and Coordinating Committee (DBCC). Any incentive or reward is taken from
the fund and allocated to the BIR and the BOC in proportion to their
contribution in the excess collection of the targeted amount of tax revenue.5

The Boards in the BIR and the BOC are composed of the Secretary of the
Department of Finance (DOF) or his/her Undersecretary, the Secretary of the
Department of Budget and Management (DBM) or his/her Undersecretary, the
Director General of the National Economic Development Authority (NEDA) or
his/her Deputy Director General, the Commissioners of the BIR and the BOC
or their Deputy Commissioners, two representatives from the rank-and-file
employees and a representative from the officials nominated by their
recognized organization.6

Each Board has the duty to (1) prescribe the rules and guidelines for the
allocation, distribution and release of the Fund; (2) set criteria and procedures
for removing from the service officials and employees whose revenue
collection falls short of the target; (3) terminate personnel in accordance with
the criteria adopted by the Board; (4) prescribe a system for performance
evaluation; (5) perform other functions, including the issuance of rules and
regulations and (6) submit an annual report to Congress.7

The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC)
were tasked to promulgate and issue the implementing rules and regulations
of RA 9335,8 to be approved by a Joint Congressional Oversight Committee
created for such purpose.9

Petitioners, invoking their right as taxpayers filed this petition challenging the
constitutionality of RA 9335, a tax reform legislation. They contend that, by
establishing a system of rewards and incentives, the law "transform[s] the
officials and employees of the BIR and the BOC into mercenaries and bounty
hunters" as they will do their best only in consideration of such rewards. Thus,
the system of rewards and incentives invites corruption and undermines the
constitutionally mandated duty of these officials and employees to serve the
people with utmost responsibility, integrity, loyalty and efficiency.

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Petitioners also claim that limiting the scope of the system of rewards and
incentives only to officials and employees of the BIR and the BOC violates the
constitutional guarantee of equal protection. There is no valid basis for
classification or distinction as to why such a system should not apply to
officials and employees of all other government agencies.

In addition, petitioners assert that the law unduly delegates the power to fix
revenue targets to the President as it lacks a sufficient standard on that
matter. While Section 7(b) and (c) of RA 9335 provides that BIR and BOC
officials may be dismissed from the service if their revenue collections fall
short of the target by at least 7.5%, the law does not, however, fix the revenue
targets to be achieved. Instead, the fixing of revenue targets has been
delegated to the President without sufficient standards. It will therefore be
easy for the President to fix an unrealistic and unattainable target in order to
dismiss BIR or BOC personnel.

Finally, petitioners assail the creation of a congressional oversight committee

on the ground that it violates the doctrine of separation of powers. While the
legislative function is deemed accomplished and completed upon the
enactment and approval of the law, the creation of the congressional oversight
committee permits legislative participation in the implementation and
enforcement of the law.

In their comment, respondents, through the Office of the Solicitor General,

question the petition for being premature as there is no actual case or
controversy yet. Petitioners have not asserted any right or claim that will
necessitate the exercise of this Courts jurisdiction. Nevertheless, respondents
acknowledge that public policy requires the resolution of the constitutional
issues involved in this case. They assert that the allegation that the reward
system will breed mercenaries is mere speculation and does not suffice to
invalidate the law. Seen in conjunction with the declared objective of RA 9335,
the law validly classifies the BIR and the BOC because the functions they
perform are distinct from those of the other government agencies and
instrumentalities. Moreover, the law provides a sufficient standard that will
guide the executive in the implementation of its provisions. Lastly, the creation
of the congressional oversight committee under the law enhances, rather than
violates, separation of powers. It ensures the fulfillment of the legislative policy
and serves as a check to any over-accumulation of power on the part of the
executive and the implementing agencies.

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After a careful consideration of the conflicting contentions of the parties, the
Court finds that petitioners have failed to overcome the presumption of
constitutionality in favor of RA 9335, except as shall hereafter be discussed.

Actual Case And Ripeness

An actual case or controversy involves a conflict of legal rights, an assertion of

opposite legal claims susceptible of judicial adjudication.10 A closely related
requirement is ripeness, that is, the question must be ripe for adjudication.
And a constitutional question is ripe for adjudication when the governmental
act being challenged has a direct adverse effect on the individual challenging
it.11Thus, to be ripe for judicial adjudication, the petitioner must show a
personal stake in the outcome of the case or an injury to himself that can be
redressed by a favorable decision of the Court.12

In this case, aside from the general claim that the dispute has ripened into a
judicial controversy by the mere enactment of the law even without any further
overt act,13 petitioners fail either to assert any specific and concrete legal claim
or to demonstrate any direct adverse effect of the law on them. They are
unable to show a personal stake in the outcome of this case or an injury to
themselves. On this account, their petition is procedurally infirm.

This notwithstanding, public interest requires the resolution of the

constitutional issues raised by petitioners. The grave nature of their
allegations tends to cast a cloud on the presumption of constitutionality in
favor of the law. And where an action of the legislative branch is alleged to
have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute.14

Accountability of
Public Officers

Section 1, Article 11 of the Constitution states:

Sec. 1. Public office is a public trust. Public officers and employees must
at all times be accountable to the people, serve them with utmost
responsibility, integrity, loyalty, and efficiency, act with patriotism, and
justice, and lead modest lives.

Public office is a public trust. It must be discharged by its holder not for his
own personal gain but for the benefit of the public for whom he holds it in trust.
By demanding accountability and service with responsibility, integrity, loyalty,

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efficiency, patriotism and justice, all government officials and employees have
the duty to be responsive to the needs of the people they are called upon to
serve.

Public officers enjoy the presumption of regularity in the performance of their

duties. This presumption necessarily obtains in favor of BIR and BOC officials
and employees. RA 9335 operates on the basis thereof and reinforces it by
providing a system of rewards and sanctions for the purpose of encouraging
the officials and employees of the BIR and the BOC to exceed their revenue
targets and optimize their revenue-generation capability and collection.15

The presumption is disputable but proof to the contrary is required to rebut it.
It cannot be overturned by mere conjecture or denied in advance (as
petitioners would have the Court do) specially in this case where it is an
underlying principle to advance a declared public policy.

Petitioners claim that the implementation of RA 9335 will turn BIR and BOC
officials and employees into "bounty hunters and mercenaries" is not only
without any factual and legal basis; it is also purely speculative.

A law enacted by Congress enjoys the strong presumption of constitutionality.

To justify its nullification, there must be a clear and unequivocal breach of the
Constitution, not a doubtful and equivocal one.16 To invalidate RA 9335 based
on petitioners baseless supposition is an affront to the wisdom not only of the
legislature that passed it but also of the executive which approved it.

Public service is its own reward. Nevertheless, public officers may by law be
rewarded for exemplary and exceptional performance. A system of incentives
for exceeding the set expectations of a public office is not anathema to the
concept of public accountability. In fact, it recognizes and reinforces
dedication to duty, industry, efficiency and loyalty to public service of
deserving government personnel.

In United States v. Matthews,17 the U.S. Supreme Court validated a law which
awards to officers of the customs as well as other parties an amount not
exceeding one-half of the net proceeds of forfeitures in violation of the laws
against smuggling. Citing Dorsheimer v. United States,18 the U.S. Supreme
Court said:

The offer of a portion of such penalties to the collectors is to stimulate

and reward their zeal and industry in detecting fraudulent attempts to
evade payment of duties and taxes.

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In the same vein, employees of the BIR and the BOC may by law be entitled
to a reward when, as a consequence of their zeal in the enforcement of tax
and customs laws, they exceed their revenue targets. In addition, RA 9335
establishes safeguards to ensure that the reward will not be claimed if it will
be either the fruit of "bounty hunting or mercenary activity" or the product of
the irregular performance of official duties. One of these precautionary
measures is embodied in Section 8 of the law:

SEC. 8. Liability of Officials, Examiners and Employees of the BIR and

the BOC. The officials, examiners, and employees of the [BIR] and the
[BOC] who violate this Act or who are guilty of negligence, abuses or
acts of malfeasance or misfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall be held liable for any
loss or injury suffered by any business establishment or taxpayer as a
result of such violation, negligence, abuse, malfeasance, misfeasance
or failure to exercise extraordinary diligence.

Equal Protection

Equality guaranteed under the equal protection clause is equality under the
same conditions and among persons similarly situated; it is equality among
equals, not similarity of treatment of persons who are classified based on
substantial differences in relation to the object to be accomplished.19When
things or persons are different in fact or circumstance, they may be treated in
law differently. InVictoriano v. Elizalde Rope Workers Union,20 this Court
declared:

The guaranty of equal protection of the laws is not a guaranty of equality

in the application of the laws upon all citizens of the [S]tate. It is not,
therefore, a requirement, in order to avoid the constitutional prohibition
against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean
indiscriminate operation on persons merely as such, but on persons
according to the circumstances surrounding them. It guarantees
equality, not identity of rights. The Constitution does not require that
things which are different in fact be treated in law as though they
were the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not prohibit
legislation which is limited either in the object to which it is
directed or by the territory within which it is to operate.

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 The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars. A
law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the
mere fact of inequality in no manner determines the matter of
constitutionality. All that is required of a valid classification is that it
be reasonable, which means that the classification should be
based on substantial distinctions which make for real differences,
that it must be germane to the purpose of the law; that it must not
be limited to existing conditions only; and that it must apply
equally to each member of the class. This Court has held that the
standard is satisfied if the classification or distinction is based on
a reasonable foundation or rational basis and is not palpably
arbitrary.

In the exercise of its power to make classifications for the purpose of

enacting laws over matters within its jurisdiction, the state is recognized
as enjoying a wide range of discretion. It is not necessary that the
classification be based on scientific or marked differences of things or in
their relation. Neither is it necessary that the classification be made with
mathematical nicety. Hence, legislative classification may in many cases
properly rest on narrow distinctions, for the equal protection guaranty
does not preclude the legislature from recognizing degrees of evil or
harm, and legislation is addressed to evils as they may
appear.21 (emphasis supplied)

The equal protection clause recognizes a valid classification, that is, a

classification that has a reasonable foundation or rational basis and not
arbitrary.22 With respect to RA 9335, its expressed public policy is the
optimization of the revenue-generation capability and collection of the BIR and
the BOC.23 Since the subject of the law is the revenue- generation capability
and collection of the BIR and the BOC, the incentives and/or sanctions
provided in the law should logically pertain to the said agencies. Moreover, the
law concerns only the BIR and the BOC because they have the common
distinct primary function of generating revenues for the national government
through the collection of taxes, customs duties, fees and charges.

The BIR performs the following functions:

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 Sec. 18. The Bureau of Internal Revenue. The Bureau of Internal
Revenue, which shall be headed by and subject to the supervision and
control of the Commissioner of Internal Revenue, who shall be
appointed by the President upon the recommendation of the Secretary
[of the DOF], shall have the following functions:

(1) Assess and collect all taxes, fees and charges and account for
all revenues collected;

(2) Exercise duly delegated police powers for the proper performance of
its functions and duties;

(3) Prevent and prosecute tax evasions and all other illegal economic
activities;

(4) Exercise supervision and control over its constituent and subordinate
units; and

(5) Perform such other functions as may be provided by law.24

xxx xxx xxx (emphasis supplied)

On the other hand, the BOC has the following functions:

Sec. 23. The Bureau of Customs. The Bureau of Customs which shall
be headed and subject to the management and control of the
Commissioner of Customs, who shall be appointed by the President
upon the recommendation of the Secretary[of the DOF] and hereinafter
referred to as Commissioner, shall have the following functions:

(1) Collect custom duties, taxes and the corresponding fees,

charges and penalties;

(2) Account for all customs revenues collected;

(3) Exercise police authority for the enforcement of tariff and customs
laws;

(4) Prevent and suppress smuggling, pilferage and all other economic
frauds within all ports of entry;

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 (5) Supervise and control exports, imports, foreign mails and the
clearance of vessels and aircrafts in all ports of entry;

(6) Administer all legal requirements that are appropriate;

(7) Prevent and prosecute smuggling and other illegal activities in all
ports under its jurisdiction;

(8) Exercise supervision and control over its constituent units;

(9) Perform such other functions as may be provided by law.25

xxx xxx xxx (emphasis supplied)

Both the BIR and the BOC are bureaus under the DOF. They principally
perform the special function of being the instrumentalities through which the
State exercises one of its great inherent functions taxation. Indubitably, such
substantial distinction is germane and intimately related to the purpose of the
law. Hence, the classification and treatment accorded to the BIR and the BOC
under RA 9335 fully satisfy the demands of equal protection.

Undue Delegation

Two tests determine the validity of delegation of legislative power: (1) the
completeness test and (2) the sufficient standard test. A law is complete when
it sets forth therein the policy to be executed, carried out or implemented by
the delegate.26 It lays down a sufficient standard when it provides adequate
guidelines or limitations in the law to map out the boundaries of the delegates
authority and prevent the delegation from running riot.27 To be sufficient, the
standard must specify the limits of the delegates authority, announce the
legislative policy and identify the conditions under which it is to be
implemented.28

RA 9335 adequately states the policy and standards to guide the President in
fixing revenue targets and the implementing agencies in carrying out the
provisions of the law. Section 2 spells out the policy of the law:

SEC. 2. Declaration of Policy. It is the policy of the State to optimize

the revenue-generation capability and collection of the Bureau of
Internal Revenue (BIR) and the Bureau of Customs (BOC) by providing
for a system of rewards and sanctions through the creation of a
Rewards and Incentives Fund and a Revenue Performance Evaluation

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 Board in the above agencies for the purpose of encouraging their
officials and employees to exceed their revenue targets.

Section 4 "canalized within banks that keep it from overflowing"29 the

delegated power to the President to fix revenue targets:

SEC. 4. Rewards and Incentives Fund. A Rewards and Incentives

Fund, hereinafter referred to as the Fund, is hereby created, to be
sourced from the collection of the BIR and the BOC in excess of their
respective revenue targets of the year, as determined by the
Development Budget and Coordinating Committee (DBCC), in the
following percentages:

Excess of Percent (%) of the Excess

Collection of the Collection to Accrue to the
Excess the Revenue Fund
Targets

30% or below 15%

More than 30% 15% of the first 30% plus

20% of the remaining
excess

The Fund shall be deemed automatically appropriated the year

immediately following the year when the revenue collection target was
exceeded and shall be released on the same fiscal year.

Revenue targets shall refer to the original estimated revenue

collection expected of the BIR and the BOC for a given fiscal year
as stated in the Budget of Expenditures and Sources of Financing
(BESF) submitted by the President to Congress. The BIR and the
BOC shall submit to the DBCC the distribution of the agencies revenue
targets as allocated among its revenue districts in the case of the BIR,
and the collection districts in the case of the BOC.

xxx xxx xxx (emphasis supplied)

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Revenue targets are based on the original estimated revenue collection
expected respectively of the BIR and the BOC for a given fiscal year as
approved by the DBCC and stated in the BESF submitted by the President to
Congress.30 Thus, the determination of revenue targets does not rest solely on
the President as it also undergoes the scrutiny of the DBCC.

On the other hand, Section 7 specifies the limits of the Boards authority and
identifies the conditions under which officials and employees whose revenue
collection falls short of the target by at least 7.5% may be removed from the
service:

SEC. 7. Powers and Functions of the Board. The Board in the agency
shall have the following powers and functions:

xxx xxx xxx

(b) To set the criteria and procedures for removing from service
officials and employees whose revenue collection falls short of the
target by at least seven and a half percent (7.5%), with due
consideration of all relevant factors affecting the level of
collection as provided in the rules and regulations promulgated under
this Act, subject to civil service laws, rules and regulations and
compliance with substantive and procedural due process:
Provided, That the following exemptions shall apply:

1. Where the district or area of responsibility is newly-created, not

exceeding two years in operation, as has no historical record of
collection performance that can be used as basis for evaluation;
and

2. Where the revenue or customs official or employee is a recent

transferee in the middle of the period under consideration unless
the transfer was due to nonperformance of revenue targets or
potential nonperformance of revenue targets: Provided, however,
That when the district or area of responsibility covered by revenue
or customs officials or employees has suffered from economic
difficulties brought about by natural calamities orforce majeure or
economic causes as may be determined by the Board,
termination shall be considered only after careful and proper
review by the Board.

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 (c) To terminate personnel in accordance with the criteria adopted in the
preceding paragraph: Provided, That such decision shall be immediately
executory: Provided, further, That the application of the criteria for
the separation of an official or employee from service under this
Act shall be without prejudice to the application of other relevant
laws on accountability of public officers and employees, such as
the Code of Conduct and Ethical Standards of Public Officers and
Employees and the Anti-Graft and Corrupt Practices Act;

xxx xxx xxx (emphasis supplied)

Clearly, RA 9335 in no way violates the security of tenure of officials and

employees of the BIR and the BOC. The guarantee of security of tenure only
means that an employee cannot be dismissed from the service for causes
other than those provided by law and only after due process is accorded the
employee.31 In the case of RA 9335, it lays down a reasonable yardstick for
removal (when the revenue collection falls short of the target by at least 7.5%)
with due consideration of all relevant factors affecting the level of collection.
This standard is analogous to inefficiency and incompetence in the
performance of official duties, a ground for disciplinary action under civil
service laws.32 The action for removal is also subject to civil service laws, rules
and regulations and compliance with substantive and procedural due process.

At any rate, this Court has recognized the following as sufficient standards:
"public interest," "justice and equity," "public convenience and welfare" and
"simplicity, economy and welfare."33 In this case, the declared policy of
optimization of the revenue-generation capability and collection of the BIR and
the BOC is infused with public interest.

Separation Of Powers

Section 12 of RA 9335 provides:

SEC. 12. Joint Congressional Oversight Committee. There is hereby

created a Joint Congressional Oversight Committee composed of seven
Members from the Senate and seven Members from the House of
Representatives. The Members from the Senate shall be appointed by
the Senate President, with at least two senators representing the
minority. The Members from the House of Representatives shall be
appointed by the Speaker with at least two members representing the
minority. After the Oversight Committee will have approved the

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 implementing rules and regulations (IRR) it shall thereafter
become functus officio and therefore cease to exist.

The Joint Congressional Oversight Committee in RA 9335 was created for the
purpose of approving the implementing rules and regulations (IRR) formulated
by the DOF, DBM, NEDA, BIR, BOC and CSC. On May 22, 2006, it approved
the said IRR. From then on, it became functus officio and ceased to exist.
Hence, the issue of its alleged encroachment on the executive function of
implementing and enforcing the law may be considered moot and academic.

This notwithstanding, this might be as good a time as any for the Court to
confront the issue of the constitutionality of the Joint Congressional Oversight
Committee created under RA 9335 (or other similar laws for that matter).

The scholarly discourse of Mr. Justice (now Chief Justice) Puno on the
concept of congressional oversight in Macalintal v. Commission on
Elections34 is illuminating:

Concept and bases of congressional oversight

Broadly defined, the power of oversight embraces all activities

undertaken by Congress to enhance its understanding of and
influence over the implementation of legislation it has enacted.
Clearly, oversight concerns post-enactment measures undertaken
by Congress: (a) to monitor bureaucratic compliance with program
objectives, (b) to determine whether agencies are properly
administered, (c) to eliminate executive waste and dishonesty, (d)
to prevent executive usurpation of legislative authority, and (d) to
assess executive conformity with the congressional perception of
public interest.

The power of oversight has been held to be intrinsic in the grant of

legislative power itself and integral to the checks and balances inherent
in a democratic system of government. x x x x x x x x x

Over the years, Congress has invoked its oversight power with
increased frequency to check the perceived "exponential accumulation
of power" by the executive branch. By the beginning of the 20th century,
Congress has delegated an enormous amount of legislative authority to
the executive branch and the administrative agencies. Congress, thus,
uses its oversight power to make sure that the administrative agencies

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perform their functions within the authority delegated to them. x x x x x x
xxx

Categories of congressional oversight functions

The acts done by Congress purportedly in the exercise of its oversight

powers may be divided into three categories,
namely: scrutiny, investigation and supervision.

a. Scrutiny

Congressional scrutiny implies a lesser intensity and continuity of

attention to administrative operations. Its primary purpose is to
determine economy and efficiency of the operation of government
activities. In the exercise of legislative scrutiny, Congress may
request information and report from the other branches of
government. It can give recommendations or pass resolutions for
consideration of the agency involved.

xxx xxx xxx

b. Congressional investigation

While congressional scrutiny is regarded as a passive process of

looking at the facts that are readily available, congressional
investigation involves a more intense digging of facts. The power
of Congress to conduct investigation is recognized by the 1987
Constitution under section 21, Article VI, xxx xxx xxx

c. Legislative supervision

The third and most encompassing form by which Congress exercises its
oversight power is thru legislative supervision. "Supervision" connotes a
continuing and informed awareness on the part of a congressional
committee regarding executive operations in a given administrative
area. While both congressional scrutiny and investigation involve inquiry
into past executive branch actions in order to influence future executive
branch performance, congressional supervision allows Congress to
scrutinize the exercise of delegated law-making authority, and permits
Congress to retain part of that delegated authority.

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Congress exercises supervision over the executive agencies through its
veto power. It typically utilizes veto provisions when granting the
President or an executive agency the power to promulgate regulations
with the force of law. These provisions require the President or an
agency to present the proposed regulations to Congress, which retains
a "right" to approve or disapprove any regulation before it takes
effect. Such legislative veto provisions usually provide that a proposed
regulation will become a law after the expiration of a certain period of
time, only if Congress does not affirmatively disapprove of the regulation
in the meantime. Less frequently, the statute provides that a proposed
regulation will become law if Congress affirmatively approves it.

Supporters of legislative veto stress that it is necessary to maintain the

balance of power between the legislative and the executive branches of
government as it offers lawmakers a way to delegate vast power to the
executive branch or to independent agencies while retaining the option
to cancel particular exercise of such power without having to pass new
legislation or to repeal existing law. They contend that this arrangement
promotes democratic accountability as it provides legislative check on
the activities of unelected administrative agencies. One proponent thus
explains:

It is too late to debate the merits of this delegation policy: the

policy is too deeply embedded in our law and practice. It suffices
to say that the complexities of modern government have often led
Congress-whether by actual or perceived necessity- to legislate
by declaring broad policy goals and general statutory standards,
leaving the choice of policy options to the discretion of an
executive officer. Congress articulates legislative aims, but leaves
their implementation to the judgment of parties who may or may
not have participated in or agreed with the development of those
aims. Consequently, absent safeguards, in many instances the
reverse of our constitutional scheme could be effected: Congress
proposes, the Executive disposes. One safeguard, of course, is
the legislative power to enact new legislation or to change existing
law. But without some means of overseeing post enactment
activities of the executive branch, Congress would be unable to
determine whether its policies have been implemented in
accordance with legislative intent and thus whether legislative
intervention is appropriate.

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Its opponents, however, criticize the legislative veto as undue
encroachment upon the executive prerogatives. They urge that any
post-enactment measures undertaken by the legislative branch
should be limited to scrutiny and investigation; any measure
beyond that would undermine the separation of powers
guaranteed by the Constitution. They contend that legislative veto
constitutes an impermissible evasion of the Presidents veto authority
and intrusion into the powers vested in the executive or judicial
branches of government. Proponents counter that legislative veto
enhances separation of powers as it prevents the executive branch and
independent agencies from accumulating too much power. They submit
that reporting requirements and congressional committee investigations
allow Congress to scrutinize only the exercise of delegated law-making
authority. They do not allow Congress to review executive proposals
before they take effect and they do not afford the opportunity for
ongoing and binding expressions of congressional intent. In contrast,
legislative veto permits Congress to participate prospectively in the
approval or disapproval of "subordinate law" or those enacted by the
executive branch pursuant to a delegation of authority by Congress.
They further argue that legislative veto "is a necessary response by
Congress to the accretion of policy control by forces outside its
chambers." In an era of delegated authority, they point out that
legislative veto "is the most efficient means Congress has yet devised to
retain control over the evolution and implementation of its policy as
declared by statute."

In Immigration and Naturalization Service v. Chadha, the U.S. Supreme

Court resolved the validity of legislative veto provisions. The case
arose from the order of the immigration judge suspending the
deportation of Chadha pursuant to 244(c)(1) of the Immigration and
Nationality Act. The United States House of Representatives passed a
resolution vetoing the suspension pursuant to 244(c)(2) authorizing
either House of Congress, by resolution, to invalidate the decision of the
executive branch to allow a particular deportable alien to remain in the
United States. The immigration judge reopened the deportation
proceedings to implement the House order and the alien was ordered
deported. The Board of Immigration Appeals dismissed the aliens
appeal, holding that it had no power to declare unconstitutional an act of
Congress. The United States Court of Appeals for Ninth Circuit held that
the House was without constitutional authority to order the aliens

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 deportation and that 244(c)(2) violated the constitutional doctrine on
separation of powers.

On appeal, the U.S. Supreme Court declared 244(c)(2)

unconstitutional. But the Court shied away from the issue of
separation of powers and instead held that the provision violates the
presentment clause and bicameralism. It held that the one-house veto
was essentially legislative in purpose and effect. As such, it is subject to
the procedures set out in Article I of the Constitution requiring the
passage by a majority of both Houses and presentment to the
President. x x x x x x x x x

Two weeks after the Chadha decision, the Court upheld, in

memorandum decision, two lower court decisions invalidating the
legislative veto provisions in the Natural Gas Policy Act of 1978 and the
Federal Trade Commission Improvement Act of 1980. Following this
precedence, lower courts invalidated statutes containing legislative veto
provisions although some of these provisions required the approval of
both Houses of Congress and thus met the bicameralism requirement of
Article I. Indeed, some of these veto provisions were not even
exercised.35(emphasis supplied)

In Macalintal, given the concept and configuration of the power of

congressional oversight and considering the nature and powers of a
constitutional body like the Commission on Elections, the Court struck down
the provision in RA 9189 (The Overseas Absentee Voting Act of 2003)
creating a Joint Congressional Committee. The committee was tasked not
only to monitor and evaluate the implementation of the said law but also to
review, revise, amend and approve the IRR promulgated by the Commission
on Elections. The Court held that these functions infringed on the
constitutional independence of the Commission on Elections.36

With this backdrop, it is clear that congressional oversight is not

unconstitutional per se, meaning, it neither necessarily constitutes an
encroachment on the executive power to implement laws nor undermines the
constitutional separation of powers. Rather, it is integral to the checks and
balances inherent in a democratic system of government. It may in fact even
enhance the separation of powers as it prevents the over-accumulation of
power in the executive branch.

However, to forestall the danger of congressional encroachment "beyond the

legislative sphere," the Constitution imposes two basic and related constraints
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on Congress.37 It may not vest itself, any of its committees or its members with
either executive or judicial power.38 And, when it exercises its legislative
power, it must follow the "single, finely wrought and exhaustively considered,
procedures" specified under the Constitution,39 including the procedure for
enactment of laws and presentment.

Thus, any post-enactment congressional measure such as this should be

limited to scrutiny and investigation. In particular, congressional oversight
must be confined to the following:

(1) scrutiny based primarily on Congress power of appropriation and the

budget hearings conducted in connection with it, its power to ask heads
of departments to appear before and be heard by either of its Houses
on any matter pertaining to their departments and its power of
confirmation40 and

(2) investigation and monitoring41 of the implementation of laws pursuant

to the power of Congress to conduct inquiries in aid of legislation.42

Any action or step beyond that will undermine the separation of powers
guaranteed by the Constitution. Legislative vetoes fall in this class.

Legislative veto is a statutory provision requiring the President or an

administrative agency to present the proposed implementing rules and
regulations of a law to Congress which, by itself or through a committee
formed by it, retains a "right" or "power" to approve or disapprove such
regulations before they take effect. As such, a legislative veto in the form of a
congressional oversight committee is in the form of an inward-turning
delegation designed to attach a congressional leash (other than through
scrutiny and investigation) to an agency to which Congress has by law initially
delegated broad powers.43 It radically changes the design or structure of the
Constitutions diagram of power as it entrusts to Congress a direct role in
enforcing, applying or implementing its own laws.44

Congress has two options when enacting legislation to define national policy
within the broad horizons of its legislative competence.45 It can itself formulate
the details or it can assign to the executive branch the responsibility for
making necessary managerial decisions in conformity with those
standards.46 In the latter case, the law must be complete in all its essential
terms and conditions when it leaves the hands of the legislature.47 Thus, what
is left for the executive branch or the concerned administrative agency when it
formulates rules and regulations implementing the law is to fill up details

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(supplementary rule-making) or ascertain facts necessary to bring the law into
actual operation (contingent rule-making).48

Administrative regulations enacted by administrative agencies to implement

and interpret the law which they are entrusted to enforce have the force of law
and are entitled to respect.49 Such rules and regulations partake of the nature
of a statute50 and are just as binding as if they have been written in the statute
itself. As such, they have the force and effect of law and enjoy the
presumption of constitutionality and legality until they are set aside with finality
in an appropriate case by a competent court.51 Congress, in the guise of
assuming the role of an overseer, may not pass upon their legality by
subjecting them to its stamp of approval without disturbing the calculated
balance of powers established by the Constitution. In exercising discretion to
approve or disapprove the IRR based on a determination of whether or not
they conformed with the provisions of RA 9335, Congress arrogated judicial
power unto itself, a power exclusively vested in this Court by the Constitution.

Considered Opinion of
Mr. Justice Dante O. Tinga

Moreover, the requirement that the implementing rules of a law be subjected

to approval by Congress as a condition for their effectivity violates the cardinal
constitutional principles of bicameralism and the rule on presentment.52

Section 1, Article VI of the Constitution states:

Section 1. The legislative power shall be vested in the Congress of

the Philippines which shall consist of a Senate and a House of
Representatives, except to the extent reserved to the people by the
provision on initiative and referendum. (emphasis supplied)

Legislative power (or the power to propose, enact, amend and repeal
laws)53 is vested in Congress which consists of two chambers, the Senate and
the House of Representatives. A valid exercise of legislative power requires
the act of both chambers. Corrollarily, it can be exercised neither solely by one
of the two chambers nor by a committee of either or both chambers. Thus,
assuming the validity of a legislative veto, both a single-chamber legislative
veto and a congressional committee legislative veto are invalid.

Additionally, Section 27(1), Article VI of the Constitution provides:

Page 340 of 547

 Section 27. (1) Every bill passed by the 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 or 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. (emphasis supplied)

Every bill passed by Congress must be presented to the President for

approval or veto. In the absence of presentment to the President, no bill
passed by Congress can become a law. In this sense, law-making under the
Constitution is a joint act of the Legislature and of the Executive. Assuming
that legislative veto is a valid legislative act with the force of law, it cannot take
effect without such presentment even if approved by both chambers of
Congress.

In sum, two steps are required before a bill becomes a law. First, it must be
approved by both Houses of Congress.54 Second, it must be presented to and
approved by the President.55 As summarized by Justice Isagani Cruz56 and Fr.
Joaquin G. Bernas, S.J.57, the following is the procedure for the approval of
bills:

A bill is introduced by any member of the House of Representatives or

the Senate except for some measures that must originate only in the
former chamber.

The first reading involves only a reading of the number and title of the
measure and its referral by the Senate President or the Speaker to the
proper committee for study.

The bill may be "killed" in the committee or it may be recommended for

approval, with or without amendments, sometimes after public hearings
are first held thereon. If there are other bills of the same nature or

Page 341 of 547

 purpose, they may all be consolidated into one bill under common
authorship or as a committee bill.

Once reported out, the bill shall be calendared for second reading. It is
at this stage that the bill is read in its entirety, scrutinized, debated upon
and amended when desired. The second reading is the most important
stage in the passage of a bill.

The bill as approved on second reading is printed in its final form and
copies thereof are distributed at least three days before the third
reading. On the third reading, the members merely register their votes
and explain them if they are allowed by the rules. No further debate is
allowed.

Once the bill passes third reading, it is sent to the other chamber, where
it will also undergo the three readings. If there are differences between
the versions approved by the two chambers, a conference
committee58 representing both Houses will draft a compromise measure
that if ratified by the Senate and the House of Representatives will then
be submitted to the President for his consideration.

The bill is enrolled when printed as finally approved by the Congress,

thereafter authenticated with the signatures of the Senate President, the
Speaker, and the Secretaries of their respective chambers59

The Presidents role in law-making.

The final step is submission to the President for approval. Once

approved, it takes effect as law after the required publication.60

Where Congress delegates the formulation of rules to implement the law it

has enacted pursuant to sufficient standards established in the said law, the
law must be complete in all its essential terms and conditions when it leaves
the hands of the legislature. And it may be deemed to have left the hands of
the legislature when it becomes effective because it is only upon effectivity of
the statute that legal rights and obligations become available to those entitled
by the language of the statute. Subject to the indispensable requisite of
publication under the due process clause,61 the determination as to when a
law takes effect is wholly the prerogative of Congress.62 As such, it is only
upon its effectivity that a law may be executed and the executive branch
acquires the duties and powers to execute the said law. Before that point, the

Page 342 of 547

role of the executive branch, particularly of the President, is limited to
approving or vetoing the law.63

From the moment the law becomes effective, any provision of law that
empowers Congress or any of its members to play any role in the
implementation or enforcement of the law violates the principle of separation
of powers and is thus unconstitutional. Under this principle, a provision that
requires Congress or its members to approve the implementing rules of a law
after it has already taken effect shall be unconstitutional, as is a provision that
allows Congress or its members to overturn any directive or ruling made by
the members of the executive branch charged with the implementation of the
law.

Following this rationale, Section 12 of RA 9335 should be struck down as

unconstitutional. While there may be similar provisions of other laws that may
be invalidated for failure to pass this standard, the Court refrains from
invalidating them wholesale but will do so at the proper time when an
appropriate case assailing those provisions is brought before us.64

The next question to be resolved is: what is the effect of the unconstitutionality
of Section 12 of RA 9335 on the other provisions of the law? Will it render the
entire law unconstitutional? No.

Section 13 of RA 9335 provides:

SEC. 13. Separability Clause. If any provision of this Act is declared

invalid by a competent court, the remainder of this Act or any provision
not affected by such declaration of invalidity shall remain in force and
effect.

In Tatad v. Secretary of the Department of Energy,65 the Court laid down the
following rules:

The general rule is that where part of a statute is void as repugnant to

the Constitution, while another part is valid, the valid portion, if
separable from the invalid, may stand and be enforced. The presence of
a separability clause in a statute creates the presumption that the
legislature intended separability, rather than complete nullity of the
statute. To justify this result, 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 it had supposed that it could not
constitutionally enact the other. Enough must remain to make a

Page 343 of 547

 complete, intelligible and valid statute, which carries out the legislative
intent. x x x

The exception to the general rule is that when the parts of a statute are
so mutually dependent and connected, as conditions, considerations,
inducements, or compensations for each other, as to warrant a belief
that the legislature intended them as a whole, the nullity of one part will
vitiate the rest. In making the parts of the statute dependent, conditional,
or connected with one another, the legislature intended the statute to be
carried out as a whole and would not have enacted it if one part is void,
in which case if some parts are unconstitutional, all the other provisions
thus dependent, conditional, or connected must fall with them.

The separability clause of RA 9335 reveals the intention of the legislature to

isolate and detach any invalid provision from the other provisions so that the
latter may continue in force and effect. The valid portions can stand
independently of the invalid section. Without Section 12, the remaining
provisions still constitute a complete, intelligible and valid law which carries
out the legislative intent to optimize the revenue-generation capability and
collection of the BIR and the BOC by providing for a system of rewards and
sanctions through the Rewards and Incentives Fund and a Revenue
Performance Evaluation Board.

To be effective, administrative rules and regulations must be published in full if

their purpose is to enforce or implement existing law pursuant to a valid
delegation. The IRR of RA 9335 were published on May 30, 2006 in two
newspapers of general circulation66 and became effective 15 days
thereafter.67 Until and unless the contrary is shown, the IRR are presumed
valid and effective even without the approval of the Joint Congressional
Oversight Committee.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. Section 12 of

RA 9335 creating a Joint Congressional Oversight Committee to approve the
implementing rules and regulations of the law is
declared UNCONSTITUTIONAL and therefore NULL and VOID. The
constitutionality of the remaining provisions of RA 9335 is UPHELD. Pursuant
to Section 13 of RA 9335, the rest of the provisions remain in force and effect.

SO ORDERED.

Page 344 of 547

Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona,
Carpio-Morales, Azcuna, Tinga, Chico-Nazario, Velasco, Jr., Nachura, Reyes,
Leonardo-de-Castro, Brion, JJ., concur.

EN BANC

VICTORIA C. GUTIERREZ, G.R. No. 153266

JOEL R. PEREZ, ARACELI L.
YAMBOT, CORAZON F. SORIANO,
LORNA P. TAMOR, ROMEO S.
CONSIGNADO, DIVINA R. SULIT,
ESTRELITA F. IRESARE, ROSALINDA
L. ALPAY, AUREA L. ILAGAN AND
ALL THE OTHER CONCERNED
EMPLOYEES OF THE OFFICE OF
THE SOLICITOR GENERAL,
Petitioners, Present:
Puno, C.J.,
Carpio,
Corona,
Carpio Morales,
Velasco, Jr.,
Nachura,
- versus - Leonardo-De Castro,
Brion,
Peralta,
Bersamin,
Del Castillo,
Abad,
Villarama, Jr.,
Perez, and
Mendoza, JJ.
DEPARTMENT OF BUDGET AND
MANAGEMENT, HONORABLE

Page 345 of 547

SECRETARY EMILIA T. BONCODIN AND
DIRECTOR LUZ M. CANTOR,
Respondents,

UNIVERSITY OF THE PHILIPPINES,

AMADO EUROPA, MERCEDITA REYES,

CONCHITA ABARCAR, LUCIO ABERIN,
BIENVENIDO BIONG, SOLOMON CELIZ,
WILFREDO CORNEL, TOMAS FORIO, ROGELIO
JUNTERIAL, JAIME PERALTA, PILAR RILLAS,
WILFREDO SAGUN, JESUS SUGUITAN, LUIS
TORRES, JOSE VERSOZA AND ALL THE OTHER
CONCERNED INCUMBENT AND RETIRED
EMPLOYEES OF THE SOCIAL SECURITY
SYSTEM v. SOCIAL SECURITY SYSTEM***

CONSUELO A. TAGARO, REYNALDO S.

CALLANO, AIDA A. MARTINEZ, PRISCILLA P.
COSTES, RICELI C. MENDOZA, ARISTON
CALVO, SAMSON L. MOLAO, MANUEL
SABUTAN, VILMA GONZALES, RUTH C.
MAPANAO, NELSON M. BELGIRA, JESUS
ANTONIO G. DERIJE v. UNIVERSITY OF
SOUTHERN MINDANAO***

CONFEDERATION OF INDEPENDENT UNIONS IN

THE PUBLIC SECTOR (CIU)

ESTHER I. ABADIANO AND OTHER FORTY ONE

THOUSAND INDIVIDUAL TEACHERS
INTERVENORS

ELPIDIO F. FERRER, MARIKINA CITY

FEDERATION OF PUBLIC SCHOOL TEACHERS,
INC., REPRESENTED BY ITS PRESIDENT
ELPIDIO F. FERRER, AND ALL OTHER
INDIVIDUAL PUBLIC SCHOOL TEACHERS IN
CENTRAL LUZON, NORTHERN LUZON,
Page 346 of 547
SOUTHERN TAGALOG, NATIONAL CENTRAL
REGION, CARR AND MINDANAO REPRESENTED
BY THEIR RESPECTIVE ATTORNEYS-IN-FACT,
ATTORNEYS DANTE ILAYA AND VIRGINIA
SUAREZ-PINLAC AND ACTION AND
SOLIDARITY FOR THE EMPOWERMENT OF
TEACHERS (ASSERT), REPRESENTED BY ITS
PRESIDENT AMABLE TUIBEIO, ET AL.

HARRIS M. SINOLINDING, KALANTONGAN P.

AKIL, DAUNDI B. BAKONG, TERESITA C. DE
GUZMAN, QUEENIE A. HABIBUN, JOSE T. MAUN,
VIVIENLE P. MARAGGUN, SAAVEDRA M.
MANTIKAYAN, GIJIT C. PARON, IRWIN R.
QUINAIN, DATUMANONG O. TAGITICAN AND
HYDIE P. WONG, AND ALL OTHER CONCERNED
EMPLOYEES OF THE COTABATO FOUNDATION
COLLEGE OF SCIENCE AND TECHNOLOGY
(CFCST) v. COTABATO FOUNDATION COLLEGE
OF SCIENCE AND TECHNOLOGY AND
DEPARTMENT OF BUDGET AND
MANAGEMENT***

FRANCISCA C. CASTRO, DARIO C. VARGAS, MA.

DEBBIE M. RESMA, RAMON P. CASIL, TERESITA
C. BUSADRE, CRISTINA V. MANALO, SAUL SAN
RAMON, ALEXIS R. REBURIANO, ROSALITO D.
ROSA, DR. FERNANDO C. JAVIER, DR.
ROSEMARIE M. YAGUIE, DR. GIL T. MAGBANUA,
AND ALL OTHER CONCERNED PUBLIC SCHOOL
TEACHERS OF QUEZON CITY v. DEPARTMENT OF
BUDGET AND MANAGEMENT***

WILMA Q. NOBLEZA, ELEANOR M. CASTRO,

JOSE B. BUSTILLO, JR., ABELARDO E. DE
GUZMAN, EDWIN F. FABRIQUIER, ET AL. v. DBM
SECRETARY ROMULO NERI AND DEPARTMENT
OF BUDGET AND MANAGEMENT***

Page 347 of 547

EVA VALDEZ FERIA, WILHELMINA BALDO, ROSE
MARIE L. YCASA, GLORIA G. IGNACIO AND
HJI. AKMAD A. ALSAD AND OTHER TWELVE
THOUSAND FIVE HUNDRED INDIVIDUAL
TEACHERS

BUREAU OF PLANT INDUSTRY EMPLOYEES

ASSOCIATION, MARY ANN GUERRERO, ET AL.
Intervenors.

x ------------------------------------------------------------ x

ESTRELLITA C. AMPONIN, JUDITH G.R. No. 159007

A. CUDAL, ROMEO A. PAGALAN, MARISSA
F. PARIAS, AND RAYMOND F. FLORES, ET
AL.,
Petitioners,

- versus -

COMMISSION ON AUDIT, GUILERMO N.

CARAGUE, IN HIS CAPACITY AS
CHAIRMAN, RAUL C. FLORES, IN HIS
CAPACITY AS COMMISSIONER,
COMMISSION ON AUDIT, AND EMMANUEL
M. DALMAN, IN HIS CAPACITY AS
COMMISSIONER, COMMISSION ON
AUDIT,
Respondents.

x -------------------------------------------------- x

AUGUSTO R. NIEVES, BONIFACIO G.R. No. 159029

H. ATIVO, TARCELA P. DETERA, NILDA G.
CIELO, ANTHONY M. BRAVO, MARIA
LOURDES G. BARROZO, ANTONIO E.
FUENTES, ALFREDO D. DONOR, RICO B.
NAVA, SR., DOLORES C. HUIDEM AND ALL

Page 348 of 547

THE OTHER CONCERNED EMPLOYEES
OF THE SORSOGON STATE COLLEGE,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND

MANAGEMENT AND HONORABLE
SECRETARY EMILIA T. BONCODIN,
Respondents.

x ------------------------------------------------- x

KAPISANAN NG MGA MANGGAGAWA G.R. No. 170084

SA BUREAU OF AGRICULTURAL
STATISTICS (KMB), EVELYN C. TIDON,
RIPOL O. ABALOS, BEATRIZ L. HUBILLA,
MA. CHERYL J. TAJONERA, LOLITA DE
HERNANDEZ, FLORA M. MABAMBA,
DELILAH G. BASSIG AND ALL
CONCERNED INCUMBENT AND RETIRED
EMPLOYEES OF THE BUREAU OF
AGRICULTURAL STATISTICS,
DEPARTMENT OF AGRICULTURE,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND

MANAGEMENT AND HONORABLE
SECRETARY ROMULO NERI***,
Respondents.

x ------------------------------------------------- x

NATIONAL HOUSING AUTHORITY, G.R. No. 172713

Petitioner,

- versus -
EPIFANIO P. RECANA, MERCEDES
AMURAO, ERASMO APOSTOL,
FLORENDO ASUNCION, FIORELLO
JOSEFINA BALTAZAR, ET AL.,

Page 349 of 547

Respondents.

x ------------------------------------------------- x

INSURANCE COMMISSION OFFICERS G.R. No. 173119

AND EMPLOYEES, REPRESENTED BY
INSURANCE COMMISSION EMPLOYEES
WELFARE ASSOCIATION (ICEWA), ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND

MANAGEMENT AND/OR HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.,
Respondents.

x ------------------------------------------------- x

FIBER INDUSTRY DEVELOPMENT G.R. No. 176477

AUTHORITY EMPLOYEES ASSOCIATION
(FIDAEA), REMEDIOS V.J. ABGONA,
CELERINA T. HILARIO, QUIRINO
U.SANTOS, GRACE AURORA F. PASTORES,
RHISA V. PEGENIA, ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND

MANAGEMENT AND/OR HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.

x ------------------------------------------------- x

BUREAU OF ANIMAL INDUSTRY G.R. No. 177990

Page 350 of 547

EMPLOYEES ASSOCIATION (BAIEA),
LORY C. BANGALISAN, EDGARDO
VINCULADO, LORENZO J. ABARCA,
ROLANDO M. VASQUEZ, ALFREDO B.
DUCUSIN, ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND

MANAGEMENT AND/OR HONORABLE
SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.

x ------------------------------------------------- x

RE: REQUEST OF SANDIGANBAYAN A.M. No. 06-4-02-SB

FOR AUTHORITY TO USE THEIR SAVINGS
TO PAY THEIR COLA DIFFERENTIAL
FROM JULY 1, 1989 TO MARCH 16, 1999,
Promulgated:

March 18, 2010

x ---------------------------------------------------------------------------------------- x

DECISION
ABAD, J.:

These consolidated cases question the inclusion of certain allowances and

fringe benefits into the standardized salary rates for offices in the national
government, state universities and colleges, and local government units as required
by the Compensation and Position Classification Act of 1989 and implemented
through the challenged National Compensation Circular 59 (NCC 59).

The Facts and the Case

Congress enacted in 1989 Republic Act (R.A.) 6758, called the

Compensation and Position Classification Act of 1989 to rationalize the
Page 351 of 547
compensation of government employees. Its Section 12 directed the consolidation
of allowances and additional compensation already being enjoyed by employees
into their standardized salary rates. But it exempted certain additional
compensations that the employees may be receiving from such
consolidation. Thus:

Section 12. Consolidation of Allowances and Compensation. -- All

allowances, except for representation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew
on board government vessels and hospital personnel; hazard pay; allowances
of foreign service personnel stationed abroad; and such other additional
compensation not otherwise specified herein as may be determined by the
DBM, shall be deemed included in the standardized salary rates herein
prescribed. Such other additional compensation, whether in cash or in kind,
being received by incumbents only as of July 1, 1989 not integrated into the
standardized salary rates shall continue to be authorized.

Pursuant to the above, the Department of Budget and Management (DBM)

issued NCC 59 dated September 30, 1989, [1] covering the offices of the national
government, state universities and colleges, and local government units. NCC 59
enumerated the specific allowances and additional compensations which were
deemed integrated in the basic salaries and these included the Cost of Living
Allowance (COLA) and Inflation Connected Allowance (ICA). The DBM re-
issued and published NCC 59 on May 3, 2004.[2]

The DBM also issued Corporate Compensation Circular (CCC) 10 dated

October 2, 1989,[3] covering all government-owned or controlled corporations and
government financial institutions. The DBM re-issued this circular on February 15,
1999[4] and published it on March 16, 1999. Accordingly, the Commission on Audit
(COA) disallowed the payments of honoraria and other allowances which were
deemed integrated into the standardized salary rates. Employees of government-
owned or controlled corporations questioned the validity of CCC 10 due to its non-
publication. In De Jesus v. Commission on Audit,[5] this Court declared CCC 10
ineffective because of such non-publication. Until then, it ordered the COA to pass
on audit the employees honoraria which they were receiving prior to
the effectivityof R.A. 6758.

Meanwhile, the DBM also issued Budget Circular 2001-03 dated November
12, 2001,[6] clarifying that only the exempt allowances under Section 12 of R.A.
6758 may continue to be granted the employees; all others were deemed integrated
in the standardized salary rates. Thus, the payment of allowances and

Page 352 of 547

compensation such as COLA, amelioration allowance, and ICA, among others,
which were already deemed integrated in the basic salary were unauthorized. The
Courts ruling in subsequent cases involving government-owned or controlled
corporations followed the De Jesus ruling.

On May 16, 2002 employees of the Office of the Solicitor General filed a
petition for certiorari and mandamus in G.R. 153266, questioning the propriety of
integrating their COLA into their standardized salary rates. Employees of other
offices of the national government followed suit. In addition, petitioners in G.R.
159007 questioned the disallowance of the allowances and fringe benefits that the
COA auditing personnel assigned to the Government Service Insurance System
(GSIS) used to get. Petitioners in G.R. 173119 questioned the disallowance of
the ICA that used to be paid to the officials and employees of the Insurance
Commission.

The Court caused the consolidation of the petitions and treated them as a
class suit for all government employees, excluding the employees of government-
owned or controlled corporations and government financial institutions.[7]

On October 26, 2005 the DBM issued National Budget Circular 2005-
[8]
502 which provided that all Supreme Court rulings on the integration of
allowances, including COLA, of government employees under R.A. 6758 applied
only to specific government-owned or controlled corporations since the
consolidated cases covering the national government employees are still pending
with this Court. Consequently, the payment of allowances and other benefits to
them, such as COLA and ICA, remained prohibited until otherwise provided by
law or ruled by this Court. The circular further said that all agency heads and other
responsible officials and employees found to have authorized the grant of COLA
and other allowances and benefits already integrated in the basic salary shall be
personally held liable for such payment.

The Issues Presented

The common issues presented in these consolidated cases are:

1. Whether or not the COLA should be deemed integrated into the

standardized salary rates of the concerned government employees by virtue of
Section 12 of R.A. 6758;

Page 353 of 547

 2. Whether or not the ICA may still be paid to officials and employees of the
Insurance Commission;

3. Whether or not the GSIS may still pay the allowances and fringe benefits
to COA auditing personnel assigned to it;

4. Whether or not the non-publication of NCC 59 dated September 30, 1989

in the Official Gazette or newspaper of general circulation nullifies the integration
of the COLA into the standardized salary rates; and

5. Whether or not the grant of COLA to military and police personnel to the
exclusion of other government employees violates the equal protection clause.

The Courts Ruling

One. Petitioners espouse the common theory that the DBM needs to
promulgate rules and regulations before the COLA that they were getting prior to
the passage of R.A. 6758 can be deemed integrated in their standardized salary
rates. Respondent DBM counters that R.A. 6758 already specified the allowances
and benefits that were not to be integrated in the new salary rates. All other
allowances, DBM adds, such as COLA, are deemed integrated into those salary
rates.

At the heart of the present controversy is Section 12 of R.A. 6758 which is

quoted anew for clarity:

Section 12. Consolidation of Allowances and Compensation. -- All

allowances, except for representation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew
on board government vessels and hospital personnel; hazard pay; allowances
of foreign service personnel stationed abroad; and such other additional
compensation not otherwise specified herein as may be determined by the
DBM, shall be deemed included in the standardized salary rates herein
prescribed. Such other additional compensation, whether in cash or in kind,
being received by incumbents only as of July 1, 1989 not integrated into the
standardized salary rates shall continue to be authorized.

As will be noted from the first sentence above, all allowances were deemed
integrated into the standardized salary rates except the following:

(1) representation and transportation allowances;

Page 354 of 547

 (2) clothing and laundry allowances;
(3) subsistence allowances of marine officers and crew on board government
vessels;
(4) subsistence allowances of hospital personnel;
(5) hazard pay;
(6) allowances of foreign service personnel stationed abroad; and
(7) such other additional compensation not otherwise specified in Section 12
as may be determined by the DBM.

But, while the provision enumerated certain exclusions, it also authorized

the DBM to identify such other additional compensation that may be granted over
and above the standardized salary rates. In Philippine Ports Authority Employees
Hired After July 1, 1989 v. Commission on Audit,[9] the Court has ruled that while
Section 12 could be considered self-executing in regard to items (1) to (6), it was
not so in regard to item (7). The DBM still needed to amplify item (7) since one
cannot simply assume what other allowances were excluded from the standardized
salary rates. It was only upon the issuance and effectivity of the corresponding
implementing rules and regulations that item (7) could be deemed legally
completed.

Delegated rule-making is a practical necessity in modern governance

because of the increasing complexity and variety of public functions. Congress has
endowed administrative agencies like respondent DBM with the power to make
rules and regulations to implement a given legislation and effectuate its policies.
[10]
Such power is, however, necessarily limited to what the law
provides. Implementing rules and regulations cannot extend the law or expand its
coverage, as the power to amend or repeal a statute belongs to the
legislature. Administrative agencies implement the broad policies laid down in a
law by filling in only its details. The regulations must be germane to the objectives
and purposes of the law and must conform to the standards prescribed by law.[11]

In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of
identifying some of the additional exclusions that Section 12 of R.A. 6758 permits
it to make, the DBM made a list of what allowances and benefits are deemed
integrated into the standardized salary rates. More specifically, NCC 59 identified
thefollowing allowances/additional compensation that are deemed integrated:

(1) Cost of Living Allowance (COLA);

(2) Inflation connected allowance;
(3) Living Allowance;

Page 355 of 547

 (4) Emergency Allowance;
(5) Additional Compensation of Public Health Nurses assigned to public
health nursing;
(6) Additional Compensation of Rural Health Physicians;
(7) Additional Compensation of Nurses in Malacaang Clinic;
(8) Nurses Allowance in the Air Transportation Office;
(9) Assignment Allowance of School Superintendents;
(10) Post allowance of Postal Service Office employees;
(11) Honoraria/allowances which are regularly given except the following:
a. those for teaching overload;
b. in lieu of overtime pay;
c. for employees on detail with task forces/special projects;
d. researchers, experts and specialists who are acknowledged
authorities in their field of specialization;
e. lecturers and resource persons;
f. Municipal Treasurers deputized by the Bureau of Internal
Revenue to collect and remit internal revenue collections; and
g. Executive positions in State Universities and Colleges filled by
designation from among their faculty members.
(12) Subsistence Allowance of employees except those authorized under
EO [Executive Order] 346 and uniformed personnel of the Armed
Forces of the Philippinesand Integrated National Police;
(13) Laundry Allowance of employees except those hospital/sanitaria
personnel who attend directly to patients and who by the nature of
their duties are required to wear uniforms, prison guards and
uniformed personnel of the Armed Forces of the Philippines and
Integrated National Police; and
(14) Incentive allowance/fee/pay except those authorized under the
General Appropriations Act and Section 33 of P.D. 807.

The drawing up of the above list is consistent with Section 12 above. R.A.
6758 did not prohibit the DBM from identifying for the purpose of implementation
what fell into the class of all allowances. With respect to what employees benefits
fell outside the term apart from those that the law specified, the DBM, said this
Court in a case,[12] needed to promulgate rules and regulations identifying those
excluded benefits. This leads to the inevitable conclusion that until and unless the
DBM issues such rules and regulations, the enumerated exclusions in items (1) to
(6) remain exclusive. Thus so, not being an enumerated exclusion, COLA is
deemed already incorporated in the standardized salary rates of government
employees under the general rule of integration.

In any event, the Court finds the inclusion of COLA in the standardized
salary rates proper. In National Tobacco Administration v. Commission on Audit,
[13]
the Court ruled that the enumerated fringe benefits in items (1) to (6) have one

Page 356 of 547

thing in commonthey belong to one category of privilege called allowances which
are usually granted to officials and employees of the government to defray or
reimburse the expenses incurred in the performance of their official
functions. Consequently, if these allowances are consolidated with the standardized
salary rates, then the government official or employee will be compelled to spend
his personal funds in attending to his duties. On the other hand, item (7) is a catch-
all proviso for benefits in the nature of allowances similar to those enumerated.[14]

Clearly, COLA is not in the nature of an allowance intended to reimburse expenses

incurred by officials and employees of the government in the performance of their
official functions. It is not payment in consideration of the fulfillment of official
duty.[15] As defined, cost of living refers to the level of prices relating to a range of
everyday items[16] or the cost of purchasing those goods and services which are
included in an accepted standard level of consumption. [17] Based on this premise,
COLA is a benefit intended to cover increases in the cost of living. Thus, it is and
should be integrated into the standardized salary rates.

Two. Petitioning officials and employees of the Insurance

Commission question the disallowance of their ICA on the ground that it is a
benefit similar to the educational assistance granted by the Court in National
Tobacco Administration[18] based on the second sentence of Section 12 of R.A.
6758 that reads:

Such other additional compensation, whether in cash or in kind, being

received by incumbents only as of July 1, 1989 not integrated into the
standardized salary rates shall continue to be authorized.

In National Tobacco Administration, the Court interpreted this provision as

referring to benefits in the nature of financial assistance, or a bonus or other
payment made to employees in addition to guaranteed hourly wages, as
contradistinguished from the allowance in the first sentence, which cannot, strictly
speaking, be treated as a bonus or additional income. In financial assistance,
reimbursement is not necessary, while in the case of allowance, reimbursement is
required.[19]

To be entitled to the financial assistance under this provision, the following

requisites must concur: (1) the recipients were incumbents when R.A. 6758 took
effect on July 1, 1989; (2) they were in fact, receiving the same, at the time; and (3)
such additional compensation is distinct and separate from the excepted allowances
under CCC 10, as it is not integrated into the standardized salary rates.[20]

Page 357 of 547

 In this case, ICA, like COLA, falls under the general rule of integration. The
DBM specifically identified it as an allowance or additional compensation
integrated into the standardized salary rates. By its very nature, ICA is granted due
to inflation and upon determination that the current salary of officials and
employees of the Insurance Commission is insufficient to address the problem. The
DBM determines whether a need for ICA exists and the fund from which it will be
taken. The Insurance Commission cannot, on its own, determine what allowances
are necessary and then grant them to its officials and employees without the
approval of the DBM.

Moreover, ICA does not qualify under the second sentence of Section 12 of
R.A. 6758 since the employees failed to show that they were actually receiving it
as of June 30, 1989 or immediately prior to the implementation of R.A. 6758. The
Commissioner of the Insurance Commission requested for authority to
grant ICA from the DBM for the years 1981[21] and 1984[22] only. There is no
evidence that the ICA were paid in subsequent years. In the absence of a
subsequent authorization granting or restoring ICA to the officials and employees
of the Insurance Commission, there can be no valid legal basis for its continued
grant from July 1, 1986.

Three. Petitioners COA auditing personnel assigned to the GSIS question

the disallowance of their allowances and fringe benefits based on the allowances
given to GSIS personnel, namely:

5.6. Payment of other allowances/fringe benefits and all other forms of

compensation granted on top of basic salary, whether in cash or in
kind, x x x shall be discontinued effective November 1, 1989. Payment made
for such allowances/fringe benefits after said date shall be considered as
illegal disbursement of public funds.

They alleged that since CCC 10 was declared ineffective, the disallowance should
be lifted until the issuance was published on March 16, 1999.

But, although petitioners alleged that the subject benefits were withheld
from them on the basis of CCC 10, it is clear that the benefits were actually
withheld from them on the basis of Section 18 of R.A. 6758, which reads:

Section 18. Additional Compensation of Commission on Audit

Personnel and of Other Agencies. - In order to preserve the independence and
integrity of the Commission on Audit (COA), its officials and employees are

Page 358 of 547

 prohibited from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, and
government-owned and controlled corporations, and government financial
institution, except those compensation paid directly by the COA out of its
appropriations and contributions.

Government entities, including government-owned or controlled

corporations including financial institutions and local government units are
hereby prohibited from assessing or billing other government entities,
government-owned or controlled corporations including financial institutions
or local government units for services rendered by its officials and employees
as part of their regular functions for purposes of paying additional
compensation to said officials and employees.

As aptly pointed out by the COA, Section 18 of R.A. 6758 was complete
in itself and was operative without the aid of any supplementary or enabling
legislation.[23] The implementing rules and regulations were necessary only for
those provisions, such as item (7) of Section 12, which requires further
clarification and interpretation. Thus, notwithstanding the initial non-publication of
CCC 10, the disallowance of petitioners allowances and fringe benefits as
COA auditing personnel assigned to the GSIS was valid upon the effectivity of
R.A. 6758.

In Tejada v. Domingo,[24] this Court explained that COA personnel assigned

to auditing units of government-owned or controlled corporations or government
financial institutions can receive only such salaries, allowances or fringe benefits
paid directly by the COA out of its appropriations and contributions. The
contributions referred to are the cost of audit services which did not include the
extra emoluments or benefits, such as bank equity pay, longevity pay, amelioration
allowance, and meal allowance, which petitioners claim. The COA is further barred
from assessing or billing government-owned or controlled corporations and
government financial institutions for services rendered by its personnel as part of
their regular audit functions for purposes of paying additional compensation to
such personnel.

In upholding the disallowance, the Court ruled in Villarea v. Commission on

[25]
Audit that valid reasons exist to treat COA officials differently from other
national government officials. The primary function of an auditor is to prevent
irregular, unnecessary, excessive or extravagant expenditures of government
funds. To be able to properly perform their constitutional mandate, COA officials
need to be insulated from unwarranted influences, so that they can act with
independence and integrity.
Page 359 of 547
 Rightly so, the disallowance in this case is valid.

Four. Petitioners argue that since CCC 10 dated October 2, 1989 covering
all government-owned or controlled corporations and government financial
institutions was ineffective until its re-issuance and publication on March 16, 1999,
its counterpart, NCC 59 dated September 30, 1989 covering the offices of the
national government, state universities and colleges, and local government units
should also be regarded as ineffective until its re-issuance and publication on May
3, 2004. Thus, the COLA should not be deemed integrated into the standardized
salary rates from 1989 to 2004. Respondents counter that the fact that NCC 59 was
not published should not be considered as an obstacle to the integration of COLA
into the standardized salary rates. Accordingly, Budget Circular 2001-03, insofar as
it reiterates NCC 59, should not be treated as ineffective since it merely reaffirms
the fact of consolidation of COLA into the employees salary as mandated by
Section 12 of R.A. 6758.

It is a settled rule that publication is required as a condition precedent to

the effectivity of a law to inform the public of its contents before their rights and
interests are affected by the same.[26] Administrative rules and regulations must also
be published if their purpose is to enforce or implement existing law pursuant also
to a valid delegation.[27]

Nonetheless, as previously discussed, the integration of COLA into the

standardized salary rates is not dependent on the publication of CCC 10 and NCC
59.This benefit is deemed included in the standardized salary rates of government
employees since it falls under the general rule of integrationall allowances.

More importantly, the integration was not by mere legal fiction since it was
factually integrated into the employees salaries. Records show that the government
employees were informed by their respective offices of their new position titles and
their corresponding salary grades when they were furnished with the Notices of
Position Allocation and Salary Adjustment (NPASA). The NPASA provided the
breakdown of the employees gross monthly salary as of June 30, 1989 and the
composition of his standardized pay under R.A. 6758.[28] Notably, the COLA was
considered part of the employees monthly income.

In truth, petitioners never really suffered any diminution in pay as a

consequence of the consolidation of COLA into their standardized salary
rates. There is thus nothing in these cases which can be the subject of a back pay

Page 360 of 547

since the amount corresponding to COLA was never withheld from petitioners in
the first place.[29]

Consequently, the non-publication of CCC 10 and NCC 59 in the Official

Gazette or newspaper of general circulation does not nullify the integration of
COLA into the standardized salary rates upon the effectivity of R.A. 6758. As the
Court has said in Philippine International Trading Corporation v. Commission on
Audit,[30] the validity of R.A. 6758 should not be made to depend on the validity of
its implementing rules.

Five. Petitioners contend that the continued grant of COLA to military and
police personnel under CCC 10 and NCC 59 to the exclusion of other government
employees violates the equal protection clause of the Constitution.

But as respondents pointed out, while it may appear that petitioners are
questioning the constitutionality of these issuances, they are in fact attacking the
very constitutionality of Section 11 of R.A. 6758. It is actually this provision which
allows the uniformed personnel to continue receiving their COLA over and above
their basic pay, thus:

Section 11. Military and Police Personnel. - The base pay of uniformed
personnel of the Armed Forces of the Philippines and the Integrated National
Police shall be as prescribed in the salary schedule for these personnel in
R.A. 6638 and R.A. 6648. The longevity pay of these personnel shall be as
prescribed under R.A. 6638, and R.A. 1134 as amended by R.A. 3725 and
R.A. 6648: Provided, however, That the longevity pay of uniformed personnel
of the Integrated National Police shall include those services rendered as
uniformed members of the police, jail and fire departments of the local
government units prior to the police integration.
All existing types of allowances authorized for uniformed personnel of
the Armed Forces of the Philippines and Integrated National Police such as
cost of living allowance, longevity pay, quarters allowance, subsistence
allowance, clothing allowance, hazard pay and other allowances shall
continue to be authorized.

Nothing is more settled than that the constitutionality of a statute cannot be

attacked collaterally because constitutionality issues must be pleaded directly and
not collaterally.[31]

In any event, the Court is not persuaded that the continued grant of COLA to
the uniformed personnel to the exclusion of other national government officials run
afoul the equal protection clause of the Constitution. The fundamental right of

Page 361 of 547

equal protection of the laws is not absolute, but is subject to reasonable
classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from
another.The classification must also be germane to the purpose of the law and must
apply to all those belonging to the same class.[32]

To be valid and reasonable, the classification must satisfy the following

requirements: (1) it must rest on substantial distinctions; (2) it must be germane to
the purpose of the law; (3) it must not be limited to existing conditions only; and
(4) it must apply equally to all members of the same class.[33]

It is clear from the first paragraph of Section 11 that Congress intended the
uniformed personnel to be continually governed by their respective compensation
laws. Thus, the military is governed by R.A. 6638, [34] as amended by R.A.
9166[35] while the police is governed by R.A. 6648,[36] as amended by R.A. 6975.[37]

Certainly, there are valid reasons to treat the uniformed personnel differently
from other national government officials. Being in charged of the actual defense of
the State and the maintenance of internal peace and order, they are expected to be
stationed virtually anywhere in the country. They are likely to be assigned to a
variety of low, moderate, and high-cost areas. Since their basic pay does not vary
based on location, the continued grant of COLA is intended to help them offset the
effects of living in higher cost areas.[38]

WHEREFORE, the Court GRANTS the petition in G.R. No. 172713

and DENIES the petitions in G.R. 153266, 159007, 159029, 170084, 173119,
176477, 177990 and A.M. 06-4-02-SB.

SO ORDERED.

Page 362 of 547

 [G.R. No. 112392. February 29, 2000]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF

APPEALS and BENJAMIN C. NAPIZA, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision of the Court of

[1]

Appeals in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial
Court of Makati, Branch 139, which dismissed the complaint filed by
[2]

petitioner Bank of the Philippine Islands against private respondent Benjamin

C. Napiza for sum of money. Sdaad

On September 3, 1987, private respondent deposited in Foreign Currency

Deposit Unit (FCDU) Savings Account No. 028-187 which he maintained in
[3]

petitioner banks Buendia Avenue Extension Branch, Continental Bank

Managers Check No. 00014757 dated August 17, 1984, payable to "cash" in
[4]

the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side. It appears that the check
[5]

belonged to a certain Henry Chan who went to the office of private respondent
and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with
the understanding that as soon as the check is cleared, both of them would go
to the bank to withdraw the amount of the check upon private respondents
presentation to the bank of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on

October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal
slip shows that the amount was payable to Ramon A. de Guzman and Agnes
C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo.
[6]

On November 20, 1984, petitioner received communication from the Wells

Fargo Bank International of New York that the said check deposited by private

Page 363 of 547

respondent was a counterfeit check because it was "not of the type or style of
[7]

checks issued by Continental Bank International." Consequently, Mr. Ariel

[8]

Reyes, the manager of petitioners Buendia Avenue Extension Branch,

instructed one of its employees, Benjamin D. Napiza IV, who is private
respondents son, to inform his father that the check bounced. Reyes himself [9]

sent a telegram to private respondent regarding the dishonor of the check. In

turn, private respondents son wrote to Reyes stating that the check had been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also
said that upon learning of the dishonor of the check, his father immediately
tried to contact Chan but the latter was out of town. [10]

Private respondents son undertook to return the amount of $2,500.00 to

petitioner bank. On December 18, 1984, Reyes reminded private respondent
of his sons promise and warned that should he fail to return that amount within
seven (7) days, the matter would be referred to the banks lawyers for
appropriate action to protect the banks interest. This was followed by a letter
[11]

of the banks lawyer dated April 8, 1985 demanding the return of the
$2,500.00. [12]

In reply, private respondent wrote petitioners counsel on April 20,

1985 stating that he deposited the check "for clearing purposes" only to
[13]

accommodate Chan. He added:

"Further, please take notice that said check was deposited on

September 3, 1984 and withdrawn on October 23, 1984, or a total
period of fifty (50) days had elapsed at the time of withdrawal.
Also, it may not be amiss to mention here that I merely signed an
authority to withdraw said deposit subject to its clearing, the
reason why the transaction is not reflected in the passbook of the
account. Besides, I did not receive its proceeds as may be
gleaned from the withdrawal slip under the captioned signature of
recipient.

If at all, my obligation on the transaction is moral in nature, which

(sic) I have been and is (sic) still exerting utmost and maximum
efforts to collect from Mr. Henry Chan who is directly liable under
the circumstances. Scsdaad

Page 364 of 547

 xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent,

praying for the return of the amount of $2,500.00 or the prevailing peso
equivalent plus legal interest from date of demand to date of full payment, a
sum equivalent to 20% of the total amount due as attorney's fees, and
litigation and/or costs of suit.

Private respondent filed his answer, admitting that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would be
withdrawn only after the check in question has been cleared. He likewise
alleged that he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank drafts clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount
of $2,500.00. However, without his knowledge, said party was able to
withdraw the amount of $2,541.67 from his dollar savings account through
collusion with one of petitioners employees. Private respondent added that he
had "given the Plaintiff fifty one (51) days with which to clear the bank draft in
question." Petitioner should have disallowed the withdrawal because his
passbook was not presented. He claimed that petitioner had no one to blame
except itself "for being grossly negligent;" in fact, it had allegedly admitted
having paid the amount in the check "by mistake" x x x "if not altogether due
to collusion and/or bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank procedures," by way of
counterclaim, private respondent prayed for moral damages of P100,000.00,
exemplary damages of P50,000.00 and attorneys fees of 30% of whatever
amount that would be awarded to him plus an honorarium of P500.00 per
appearance in court.

Private respondent also filed a motion for admission of a third party complaint
against Chan. He alleged that "thru strategem and/or manipulation," Chan
was able to withdraw the amount of $2,500.00 even without private
respondents passbook. Thus, private respondent prayed that third party
defendant Chan be made to refund to him the amount withdrawn and to pay
attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, wherein it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was

Page 365 of 547

liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case
asserting that private respondents claim could be ventilated in another case.

Private respondent replied that for the parties to obtain complete relief and to
avoid multiplicity of suits, the motion to admit third party complaint should be
granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on May
18, 1988, dismissed the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The

lower court held that petitioner could not hold private respondent liable based
on the checks face value alone. To so hold him liable "would render inutile the
requirement of clearance from the drawee bank before the value of a
particular foreign check or draft can be credited to the account of a depositor
making such deposit." The lower court further held that "it was incumbent
upon the petitioner to credit the value of the check in question to the account
of the private respondent only upon receipt of the notice of final payment and
should not have authorized the withdrawal from the latters account of the
value or proceeds of the check." Having admitted that it committed a "mistake"
in not waiting for the clearance of the check before authorizing the withdrawal
of its value or proceeds, petitioner should suffer the resultant loss. Supremax

On appeal, the Court of Appeals affirmed the lower courts decision. The
appellate court held that petitioner committed "clear gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondents passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondents account. It stressed that the
mere deposit of a check in private respondents account did not mean that the
check was already private respondents property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the banks rules and regulations. Furthermore,
petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the
clearance requirement. Likewise, the requirement of presentation of a

Page 366 of 547

passbook to ascertain the propriety of the accounting reflected would be a
meaningless exercise. After all, these requirements are designed to protect
the bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC, where this Court stated that a personal check is not legal tender
[14]

or money, and held that the check deposited in this case must be cleared
before its value could be properly transferred to private respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals

Decision, petitioner filed this petition for review on certiorari, raising the
following issues:

1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE

UNDER HIS WARRANTIES AS A GENERAL INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS

CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN
GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY

NEGLIGENT IN ALLOWING THE WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):

"SEC. 66. Liability of general indorser. Every indorser who

indorses without qualification, warrants to all subsequent holders
in due course

(a)......The matters and things mentioned in subdivisions (a), (b),

and (c) of the next preceding section; and

(b)......That the instrument is at the time of his indorsement, valid

and subsisting.

And, in addition, he engages that on due presentment, it shall be

accepted or paid, or both, as the case may be, according to its

Page 367 of 547

 tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to
pay it."

Section 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified indorsement: (a)
that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it, and (c) that all prior parties had capacity to
contract. In People v. Maniego, this Court described the liabilities of an
[15] [16]

indorser as follows: Juris

"Appellants contention that as mere indorser, she may not be

liable on account of the dishonor of the checks indorsed by her, is
likewise untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to enforce payment of the
instrument for the full amount thereof against all parties liable
thereon. Among the parties liable thereon is an indorser of the
instrument, i.e., a person placing his signature upon an instrument
otherwise than as a maker, drawer or acceptor * * unless he
clearly indicated by appropriate words his intention to be bound in
some other capacity. Such an indorser who indorses without
qualification, inter alia engages that on due presentment, * * (the
instrument) shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or any subsequent indorser who
may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts, i.e., a person who
has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his
name to some other person. As such, she is under the law liable
on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew * * (her) to be
only an accommodation party, although she has the right, after
paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them is in effect that of
principal and surety, the accommodation party being the surety."

Page 368 of 547

It is thus clear that ordinarily private respondent may be held liable as an
indorser of the check or even as an accommodation party. However, to hold
[17]

private respondent liable for the amount of the check he deposited by the
strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent

"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondents son and the lapse of more than fifty (50)
days from date of deposit of the Continental Bank draft, without the same
being returned yet." We hold, however, that the propriety of the withdrawal
[18]

should be gauged by compliance with the rules thereon that both petitioner
bank and its depositors are duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following

rules on withdrawal of deposits appear:

"4.......Withdrawals must be made by the depositor personally but

in some exceptional circumstances, the Bank may allow
withdrawal by another upon the depositors written authority duly
authenticated; and neither a deposit nor a withdrawal will be
permitted except upon the presentation of the depositors savings
passbook, in which the amount deposited withdrawn shall be
entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic

transfer in currency of the account at the request of the depositor
in writing on the withdrawal slip or by authenticated cable. Such
request must indicate the name of the payee/s, amount and the
place where the funds are to be paid. Any stamp, transmission
and other charges related to such withdrawals shall be for the
account of the depositor and shall be paid by him/her upon
demand. Withdrawals may also be made in the form of travellers
checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).

Page 369 of 547

 6.......Deposits shall not be subject to withdrawal by check, and
may be withdrawn only in the manner above provided, upon
presentation of the depositors savings passbook and with the
withdrawal form supplied by the Bank at the counter." Scjuris
[19]

Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a duly
filled-up withdrawal slip, and (b) the depositors passbook. Private respondent
admits that he signed a blank withdrawal slip ostensibly in violation of Rule
No. 6 requiring that the request for withdrawal must name the payee, the
amount to be withdrawn and the place where such withdrawal should be
made. That the withdrawal slip was in fact a blank one with only private
respondents two signatures affixed on the proper spaces is buttressed by
petitioners allegation in the instant petition that had private respondent
indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that
"(i)n failing to do so (i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any amount and to collect the
same." [20]

Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to "Ramon
A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners
personnel should have been duly warned that Gayon, who was also employed
in petitioners Buendia Ave. Extension branch, was not the proper payee of
[21]

the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman

should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the amount indicated in the
check. Private respondent does not deny having signed such authority.
However, considering petitioners clear admission that the withdrawal slip was
a blank one except for private respondents signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not have
been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.

Page 370 of 547

Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign currency
savings passbook by the depositor in person. For withdrawals thru a
representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person making the
withdrawal is authorized by the depositor to do so. This is clear from Rule No.
6 set out by petitioner so that, for the protection of the banks interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositors
passbook. The fact that private respondents passbook was not presented
during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date
he deposited the controversial check in the amount of $2,500.00. [22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is

printed in the passbook. Thus:

"2.......All deposits will be received as current funds and will be

repaid in the same manner; provided, however, that deposits
of drafts, checks, money orders, etc.will be accepted as subject to
collection only and credited to the account only upon receipt of
the notice of final payment. Collection charges by the Banks
foreign correspondent in effecting such collection shall be for the
account of the depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the account. If, for
any reason, the proceeds of the deposited checks, drafts, money
orders, etc., cannot be collected or if the Bank is required to return
such proceeds, the provisional entry therefor made by the Bank in
the savings passbook and its records shall be deemed
automatically cancelled regardless of the time that has elapsed,
and whether or not the defective items can be returned to the
depositor; and the Bank is hereby authorized to execute
immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first
opportunity to reflect such cancellation." (Italics and underlining
supplied.) Jurissc

As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated

Page 371 of 547

therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting
bank. This is in consonance with the rule that a negotiable instrument, such as
a check, whether a managers check or ordinary check, is not legal tender. As [23]

such, after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondents account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking
practices and with this Courts pronouncement that "the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements." The rule finds more meaning in this case where the check
[24]

involved is drawn on a foreign bank and therefore collection is more difficult

than when the drawee bank is a local one even though the check in question
is a managers check. Misjuris
[25]

In Banco Atlantico v. Auditor General, Banco Atlantico, a commercial bank in

[26]

Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did
so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlanticos foreign department. The
Court held that the encashment of the checks without prior clearance is
"contrary to normal or ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts involved were large."
Accordingly, the Court approved the Auditor Generals denial of Banco
Atlanticos claim for payment of the value of the checks that was withdrawn by
Boncan.

Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship." As such, in dealing with its
[27]

depositors, a bank should exercise its functions not only with the diligence of a
good father of a family but it should do so with the highest degree of care. [28]

Page 372 of 547

In the case at bar, petitioner, in allowing the withdrawal of private respondents
deposit, failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioners personnel negligently handled private
respondents account to petitioners detriment. As this Court once said on this
matter:

"Negligence is the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would do. The seventy-eight
(78)-year-old, yet still relevant, case of Picart v. Smith, provides
the test by which to determine the existence of negligence in a
particular case which may be stated as follows: Did the defendant
in doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in the
same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet pater-familias of the Roman law.
The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that." [29]

Petitioner violated its own rules by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private respondents
dollar deposits that had yet to be cleared. The banks ledger on private
respondents account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00. Upon private respondents
[30]

deposit of $2,500.00 on September 3, 1984, that amount was credited in his

ledger as a deposit resulting in the corresponding total balance of $3,250.00.
On September 10, 1984, the amount of $600.00 and the additional charges
[31]

of $10.00 were indicated therein as withdrawn thereby leaving a balance of

$2,640.00. On September 30, 1984, an interest of $11.59 was reflected in the
ledger and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92. On November 19, 1984 the word
[32]

"hold" was written beside the balance of $109.92. That must have been the
[33]

time when Reyes, petitioners branch manager, was informed unofficially of the
fact that the check deposited was a counterfeit, but petitioners Buendia Ave.

Page 373 of 547

Extension Branch received a copy of the communication thereon from Wells
Fargo Bank International in New York the following day, November 20, 1984.
According to Reyes, Wells Fargo Bank International handled the clearing of
[34]

checks drawn against U.S. banks that were deposited with petitioner. Jjlex
[35]

From these facts on record, it is at once apparent that petitioners personnel

allowed the withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of $2,500.00
although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes contention that after
the lapse of the 35-day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon, otherwise it could take
a long time before a depositor could make a withdrawal, is untenable. Said
[36]

practice amounts to a disregard of the clearance requirement of the banking

system.

While it is true that private respondents having signed a blank withdrawal slip
set in motion the events that resulted in the withdrawal and encashment of the
counterfeit check, the negligence of petitioners personnel was the proximate
cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and
precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred." The proximate cause of the
[37]

withdrawal and eventual loss of the amount of $2,500.00 on petitioners part

was its personnels negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit foreign check and hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of

the Court of Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SECOND DIVISION

THE BOARD OF G.R. No. 170463

TRUSTEES

Page 374 of 547

 OF THE GOVERNMENT
SERVICE INSURANCE
SYSTEM and Present:

WINSTON F. GARCIA, in
his capacity
CARPIO, J., Chairperson,
as GSIS President and
General Manager, NACHURA,

Petitioners, PERALTA,

ABAD, and

- versus - MENDOZA, JJ.

ALBERT M. VELASCO and Promulgated:

MARIO I. MOLINA,

Respondents.
February 2, 2011

x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Page 375 of 547

This is a petition for review1 of the 24 September 2004 Decision2 and the 7 October
2005 Order3 of the Regional Trial Court of Manila, Branch 19 (trial court), in Civil
Case No. 03-108389. In its 24 September 2004 Decision, the trial court granted
respondents Albert M. Velasco4 and Mario I. Molinas5 (respondents) petition for
prohibition. In its 7 October 2005 Order, the trial court denied petitioners Board of
Trustees of the Government Service Insurance System (GSIS) and Winston F. Garcias
(petitioners) motion for reconsideration.

The Facts

On 23 May 2002, petitioners charged respondents administratively with grave

misconduct and placed them under preventive suspension for 90 days. 6 Respondents
were charged for their alleged participation in the demonstration held by some GSIS
employees denouncing the alleged corruption in the GSIS and calling for the ouster of
its president and general manager, petitioner Winston F. Garcia. 7

In a letter dated 4 April 2003, respondent Mario I. Molina (respondent Molina)

requested GSIS Senior Vice President Concepcion L. Madarang (SVP Madarang) for
the implementation of his step increment. 8 On 22 April 2003, SVP Madarang denied
the request citing GSIS Board Resolution No. 372 (Resolution No. 372) 9 issued by
petitioner Board of Trustees of the GSIS (petitioner GSIS Board) which approved the
new GSIS salary structure, its implementing rules and regulations, and the adoption of
the supplemental guidelines on step increment and promotion. 10 The pertinent
provision of Resolution No. 372 provides:

A. Step Increment

xxxx

III. Specific Rules:

x x xx

Page 376 of 547

 3. The step increment adjustment of an employee who is on preventive
suspension shall be withheld until such time that a decision on the case has
been rendered. x x x x

Respondents also asked that they be allowed to avail of the employee privileges under
GSIS Board Resolution No. 306 (Resolution No. 306) approving Christmas raffle
benefits for all GSIS officials and employees effective year 2002. 11 Respondents
request was again denied because of their pending administrative case.

On 27 August 2003, petitioner GSIS Board issued Board Resolution No. 197
(Resolution No. 197) approving the following policy recommendations:

B. On the disqualification from promotion of an employee with a pending

administrative case

To adopt the policy that an employee with pending administrative case shall be
disqualified from the following during the pendency of the case:

a) Promotion;

b) Step Increment;

c) Performance-Based Bonus; and

d) Other benefits and privileges.

On 14 November 2003, respondents filed before the trial court a petition for
prohibition with prayer for a writ of preliminary injunction. 12 Respondents claimed
that they were denied the benefits which GSIS employees were entitled under
Resolution No. 306. Respondents also sought to restrain and prohibit petitioners from
implementing Resolution Nos. 197 and 372. Respondents claimed that the denial of
the employee benefits due them on the ground of their pending administrative cases
violates their right to be presumed innocent and that they are being punished without
hearing. Respondent Molina also added that he had already earned his right to the step
increment before Resolution No. 372 was enacted. Respondents also argued that the
Page 377 of 547
three resolutions were ineffective because they were not registered with the University
of the Philippines (UP) Law Center pursuant to the Revised Administrative Code of
1987.13

On 24 November 2003, petitioners filed their comment with motion to dismiss and
opposition.14 On 2 December 2003, respondents filed their opposition to the motion to
dismiss.15 On 5 December 2003, petitioners filed their reply.16

On 16 January 2004, the trial court denied petitioners motion to dismiss and granted
respondents prayer for a writ of preliminary injunction. 17

Petitioners filed a motion for reconsideration. 18 In its 26 February 2004 Order, the trial
court denied petitioners motion.19

In its 24 September 2004 Decision, the trial court granted respondents petition for
prohibition. The dispositive portion of the 24 September 2004 Decision provides:

WHEREFORE, the petition is GRANTED and respondents Board Resolution

No. 197 of August 27, 2003 and No. 372 of November 21, 2000 are hereby
declared null and void. The writ of preliminary injunction issued by this Court
is hereby made permanent.

SO ORDERED.20

Petitioners filed a motion for reconsideration. In its 7 October 2005 Order, the trial
court denied petitioners motion.

Hence, this petition.

Page 378 of 547

 The Ruling of the Trial Court

On the issue of jurisdiction, the trial court said it can take cognizance of the petition
because the territorial area referred to in Section 4, Rule 65 of the Rules of Court does
not necessarily delimit to a particular locality but rather to the judicial region where
the office or agency is situated so that the prohibitive writ can be enforced.

On the merits of the case, the trial court ruled that respondents were entitled to all
employee benefits as provided under the law by reason of their employment.
According to the trial court, to deny respondents these employee benefits for the
reason alone that they have pending administrative cases is unjustified since it would
deprive them of what is legally due them without due process of law, inflict
punishment on them without hearing, and violate their right to be presumed innocent.

The trial court also found that the assailed resolutions were not registered with the UP
Law Center, per certification of the Office of the National Administrative Register
(ONAR).21 Since they were not registered, the trial court declared that the assailed
resolutions have not become effective citing Sections 3 and 4, Chapter 2, Book 7 of
the Revised Administrative Code of 1987.22

The Issues

Petitioners raise the following issues:

Page 379 of 547

Whether the jurisdiction over the subject matter of Civil Case No. 03-108389
(Velasco, et al. vs. The Board of Trustees of GSIS, et al., RTC-Manila, Branch
19) lies with the Civil Service Commission (CSC) and not with the Regional
Trial Court of Manila, Branch 19.

II

Whether a Special Civil Action for Prohibition against the GSIS Board or its
President and General Manager exercising quasi-legislative and administrative
functions in Pasay City is outside the territorial jurisdiction of RTC-Manila,
Branch 19.

III

Whether internal rules and regulations need not require publication with the
Office of the National [Administrative] Register for their effectivity, contrary to
the conclusion of the RTC-Manila, Branch 19.

IV

Whether a regulation, which disqualifies government employees who have

pending administrative cases from the grant of step increment and Christmas
raffle benefits is unconstitutional.

Whether the nullification of GSIS Board Resolutions is beyond an action for

prohibition, and a writ of preliminary injunction cannot be made permanent
without a decision ordering the issuance of a writ of prohibition. 23

The Ruling of the Court

Page 380 of 547

The petition is partly meritorious.

Petitioners argue that the Civil Service Commission (CSC), not the trial court, has
jurisdiction over Civil Case No. 03-108389 because it involves claims of employee
benefits. Petitioners point out that the trial court should have dismissed the case for
lack of jurisdiction.

Sections 2 and 4, Rule 65 of the Rules of Court provide:

Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal,

corporation, board, officer or person, whether exercising judicial, quasi-judicial
or ministerial functions, are without or in excess of its jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there
is no appeal or any other plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be
rendered commanding the respondent to desist from further proceedings
in the action or matter specified therein, or otherwise granting such
incidental reliefs as law and justice may require.

Sec. 4. Where petition filed. - The petition may be filed not later than sixty (60)
days from notice of the judgment, order or resolution sought to be assailed in
the Supreme Court or, if it related to acts or omissions of a lower court or of
a corporation, board, officer or person in the Regional Trial Court
exercising jurisdiction over the territorial area as defined by the Supreme
Court. It may also be filed in the Court of Appeals whether or not the same is
in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, and
unless otherwise provided by law or these Rules, the petition shall be filed in
and cognizable only by the Court of Appeals. (Emphasis supplied)

Page 381 of 547

Civil Case No. 03-108389 is a petition for prohibition with prayer for the issuance of a
writ of preliminary injunction. Respondents prayed that the trial court declare all acts
emanating from Resolution Nos. 372, 197, and 306 void and to prohibit petitioners
from further enforcing the said resolutions.24 Therefore, the trial court, not the CSC,
has jurisdiction over respondents petition for prohibition.

Petitioners also claim that the petition for prohibition was filed in the wrong territorial
jurisdiction because the acts sought to be prohibited are the acts of petitioners who
hold their principal office in Pasay City, while the petition for prohibition was filed in
Manila.

Section 18 of Batas Pambansa Blg. 129 (BP 129)25 provides:

SEC. 18. Authority to define territory appurtenant to each branch. - The

Supreme Court shall define the territory over which a branch of the
Regional Trial Court shall exercise its authority. The territory thus defined
shall be deemed to be the territorial area of the branch concerned for
purposes of determining the venue of all suits, proceedings or actions,
whether civil or criminal, as well as determining the Metropolitan Trial
Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts over which
the said branch may exercise appellate jurisdiction. The power herein granted
shall be exercised with a view to making the courts readily accessible to the
people of the different parts of the region and making attendance of litigants
and witnesses as inexpensive as possible. (Emphasis supplied)

Page 382 of 547

In line with this, the Supreme Court issued Administrative Order No. 3 26 defining the
territorial jurisdiction of the regional trial courts in the National Capital Judicial
Region, as follows:

a. Branches I to LXXXII, inclusive, with seats at Manila over the City of

Manila only.

b. Branches LXXXIII to CVII, inclusive, with seats at Quezon City over

Quezon City only.

c. Branches CVIII to CXIX, inclusive, with seats at Pasay City over Pasay City
only.

xxxx

The petition for prohibition filed by respondents is a special civil action which may be
filed in the Supreme Court, the Court of Appeals, the Sandiganbayan or the regional
trial court, as the case may be.27 It is also a personal action because it does not affect
the title to, or possession of real property, or interest therein. Thus, it may be
commenced and tried where the plaintiff or any of the principal plaintiffs resides, or
where the defendant or any of the principal defendants resides, at the election of the
plaintiff.28 Since respondent Velasco, plaintiff before the trial court, is a resident of the
City of Manila,29 the petition could properly be filed in the City of Manila. 30 The
choice of venue is sanctioned by Section 2, Rule 4 of the Rules of Court.

Moreover, Section 21(1) of BP 129 provides:

Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall
exercise original jurisdiction:
Page 383 of 547
 (1) In the issuance of writs
of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction, which may be enforced in any part of their
respective regions; x x x(Emphasis supplied)

Since the National Capital Judicial Region is comprised of the cities of Manila,
Quezon, Pasay, Caloocan, Malabon, Mandaluyong, Makati, Pasig,
Marikina, Paraaque, LasPias, Muntinlupa, and Valenzuela and the municipalities
of Navotas, San Juan, Pateros, and Taguig, a writ of prohibition issued by the regional
trial court sitting in the City of Manila, is enforceable in Pasay City. Clearly, the RTC
did not err when it took cognizance of respondents petition for prohibition because it
had jurisdiction over the action and the venue was properly laid before it.

Petitioners also argue that Resolution Nos. 372, 197, and 306 need not be filed with
the UP Law Center ONAR since they are, at most, regulations which are merely
internal in nature regulating only the personnel of the GSIS and not the public.

Not all rules and regulations adopted by every government agency are to be filed with
the UP Law Center. Only those of general or of permanent character are to be filed.
According to the UP Law Centers guidelines for receiving and publication of rules
and regulations, interpretative regulations and those merely internal in nature, that is,
regulating only the personnel of the Administrative agency and not the public, need
not be filed with the UP Law Center.

Resolution No. 372 was about the new GSIS salary structure, Resolution No. 306 was
about the authority to pay the 2002 Christmas Package, and Resolution No. 197 was
about the GSIS merit selection and promotion plan. Clearly, the assailed resolutions
pertained only to internal rules meant to regulate the personnel of the GSIS. There was
no need for the publication or filing of these resolutions with the UP Law Center.

Petitioners insist that petitioner GSIS Board has the power to issue the assailed
resolutions. According to petitioners, it was within the power of petitioner GSIS

Page 384 of 547

Board to disqualify respondents for step increment and from receiving GSIS benefits
from the time formal administrative charges were filed against them until the cases are
resolved.

The Court notes that the trial court only declared Resolution Nos. 197 and 372 void.
The trial court made no ruling on Resolution No. 306 and respondents did not appeal
this matter. Therefore, we will limit our discussion to Resolution Nos. 197 and 372,
particularly to the effects of preventive suspension on the grant of step increment
because this was what respondents raised before the trial court.

First, entitlement to step increment depends on the rules relative to the grant of such
benefit. In point are Section 1(b), Rule II and Section 2, Rule III of Joint Circular No.
1, series of 1990, which provide:

Rule II. Selection Criteria

Section 1. Step increments shall be granted to all deserving officials and

employees x x x

(b) Length of Service For those who have rendered continuous satisfactory
service in a particular position for at least three (3) years.

Rule III. Step Increments

xxxx

Section 2. Length of Service A one (1) step increment shall be granted officials
and employees for every three (3) years of continuous satisfactory service in
the position. Years of service in the position shall include the following:

(a) Those rendered before the position was reclassified to a position title with a
lower or the same salary grade allocation; and

Page 385 of 547

 (b) Those rendered before the incumbent was transferred to another position
within the same agency or to another agency without a change in position title
and salary grade allocation.

In the initial implementation of step increments in 1990, an incumbent shall be

granted step increments equivalent to one (1) step for every three (3) years of
continuous satisfactory service in a given position occupied as of January 1,
1990.

A grant of step increment on the basis of length of service requires that an employee
must have rendered at least three years of continuous and satisfactory service in the
same position to which he is an incumbent.31 To determine whether service is
continuous, it is necessary to define what actual service is. 32 Actual service refers to
the period of continuous service since the appointment of the official or employee
concerned, including the period or periods covered by any previously approved leave
with pay.33

Second, while there are no specific rules on the effects of preventive suspension on
step increment, we can refer to the CSC rules and rulings on the effects of the penalty
of suspension and approved vacation leaves without pay on the grant of step
increment for guidance.

Section 56(d), Rule IV of the Uniform Rules on Administrative Cases in the Civil
Service provides:

Section 56. Duration and effect of administrative penalties. - The following

rules shall govern in the imposition of administrative penalties: x x x

(d) The penalty of suspension shall result in the temporary cessation of work
for a period not exceeding one (1) year.

Page 386 of 547

 Suspension of one day or more shall be considered a gap in the continuity of
service. During the period of suspension, respondent shall not be entitled to all
money benefits including leave credits.

If an employee is suspended as a penalty, it effectively interrupts the continuity of his

government service at the commencement of the service of the said suspension. This
is because a person under penalty of suspension is not rendering actual service. The
suspension will undoubtedly be considered a gap in the continuity of the service for
purposes of the computation of the three year period in the grant of step
increment.34 However, this does not mean that the employee will only be entitled to
the step increment after completing another three years of continuous satisfactory
service reckoned from the time the employee has fully served the penalty of
suspension.35 The CSC has taken this to mean that the computation of the three year
period requirement will only be extended by the number of days that the employee
was under suspension.36 In other words, the grant of step increment will only be
delayed by the same number of days that the employee was under suspension.

This is akin to the status of an employee who incurred vacation leave without pay for
purposes of the grant of step increment.37 Employees who were on approved vacation
leave without pay enjoy the liberal application of the rule on the grant of step
increment under Section 60 of CSC Memorandum Circular No. 41, series of 1998,
which provides:

Section 60. Effect of vacation leave without pay on the grant of length of
service step increment. - For purposes of computing the length of service for
the grant of step increment, approved vacation leave without pay for an
aggregate of fifteen (15) days shall not interrupt the continuity of the three-year
service requirement for the grant of step increment. However, if the total
number of authorized vacation leave without pay included within the three-year
period exceeds fifteen (15) days, the grant of one-step increment will only be
delayed for the same number of days that an official or employee was
absent without pay. (Emphasis supplied)

Page 387 of 547

Third, on preventive suspension, Sections 51 and 52, Chapter 7, Subtitle A, Title I,
Book V of the Revised Administrative Code of 1987 provide:

SEC. 51. Preventive Suspension. - The proper disciplining authority may preventively suspend
any subordinate officer or employee under his authority pending an investigation, if the charge
against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect
in the performance of duty, or if there are reasons to believe that the respondent is guilty of
charges which would warrant his removal from the service.

SEC. 52. Lifting of Preventive Suspension. Pending Administrative

Investigation. - When the administrative case against the officer or
employee under preventive suspension is not finally decided by the
disciplining authority within the period of ninety (90) days after the date of
suspension of the respondent who is not a presidential appointee, the
respondent shall be automatically reinstated in the service: Provided, That
when the delay in the disposition of the case is due to the fault, negligence or
petition of the respondent, the period of delay shall not be counted in
computing the period of suspension herein provided. (Emphasis supplied)

Preventive suspension pending investigation is not a penalty.38 It is a measure intended

to enable the disciplining authority to investigate charges against respondent by
preventing the latter from intimidating or in any way influencing witnesses against
him.39 If the investigation is not finished and a decision is not rendered within that
period, the suspension will be lifted and the respondent will automatically be
reinstated.

Therefore, on the matter of step increment, if an employee who was suspended as a

penalty will be treated like an employee on approved vacation leave without
pay,40 then it is only fair and reasonable to apply the same rules to an employee who
was preventively suspended, more so considering that preventive suspension is not a
penalty. If an employee is preventively suspended, the employee is not rendering
actual service and this will also effectively interrupt the continuity of his government
service. Consequently, an employee who was preventively suspended will still be
entitled to step increment after serving the time of his preventive suspension even if
the pending administrative case against him has not yet been resolved or dismissed.
The grant of step increment will only be delayed for the same number of days, which

Page 388 of 547

must not exceed 90 days, that an official or employee was serving the preventive
suspension.

Fourth, the trial court was correct in declaring that respondents had the right to be
presumed innocent until proven guilty. This means that an employee who has a
pending administrative case filed against him is given the benefit of the doubt and is
considered innocent until the contrary is proven. 41

In this case, respondents were placed under preventive suspension for 90 days
beginning on 23 May 2002. Their preventive suspension ended on 21 August 2002.
Therefore, after serving the period of their preventive suspension and without the
administrative case being finally resolved, respondents should have been reinstated
and, after serving the same number of days of their suspension, entitled to the grant of
step increment.

On a final note, social legislation like the circular on the grant of step increment,
being remedial in character, should be liberally construed and administered in favor of
the persons to be benefited. The liberal approach aims to achieve humanitarian
purposes of the law in order that the efficiency, security and well-being of government
employees may be enhanced.42

WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the

24 September 2004 Decision and the 7 October 2005 Order of the Regional Trial
Court of Manila, Branch 19 in Civil Case No. 03-108389. We DECLARE the
assailed provisions on step increment in GSIS Board Resolution Nos. 197 and
372 VOID. WeMODIFY the 24 September 2004 Decision of the Regional Trial
Court of Manila, Branch 19 and rule that GSIS Board Resolution Nos. 197, 306 and
372 need not be filed with the University of the Philippines Law Center.

Page 389 of 547

 EN BANC
WILLIAM C. DAGAN, CARLOS G.R. No. 175220
H. REYES, NARCISO MORALES,
BONIFACIO MANTILLA, Present:
CESAR AZURIN, WEITONG LIM,
MA. TERESA TRINIDAD, MA. PUNO, C.J.,
CARMELITA FLORENTINO, QUISUMBING,
Petitioners, YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
- versus - CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
VELASCO, JR.,
PHILIPPINE RACING COMMISSION, NACHURA,
MANILA JOCKEY CLUB, INC., and LEONARDO DE CASTRO,
PHILIPPINE RACING CLUB, INC., BRION, and
Respondents PERALTA, JJ.

Promulgated:

February 12, 2009

x ----------------------------------------------------------------------------------- x

DECISION

TINGA, J.:

The subject of this petition for certiorari is the decision [1] of the Court of
Appeals in CA-G.R. SP No. 95212, affirming in toto the judgment[2] of the
Regional Trial Court of Makati in Civil Case No. 04-1228.

The controversy stemmed from the 11 August 2004 directive[3] issued by the
Philippine Racing Commission (Philracom) directing the Manila Jockey Club, Inc.
Page 390 of 547
(MJCI) and Philippine Racing Club, Inc. (PRCI) to immediately come up with
their respective Clubs House Rule to address Equine Infectious Anemia (EIA)
[4]
problem and to rid their facilities of horses infected with EIA. Said directive was
issued pursuant to Administrative Order No. 5 [5] dated 28 March 1994 by the
Department of Agriculture declaring it unlawful for any person, firm or corporation
to ship, drive, or transport horses from any locality or place except when
accompanied by a certificate issued by the authority of the Director of the Bureau
of Animal Industry (BAI).[6]

In compliance with the directive, MJCI and PRCI ordered the owners of
racehorses stable in their establishments to submit the horses to blood sampling
and administration of the Coggins Test to determine whether they are afflicted with
the EIA virus. Subsequently, on 17 September 2004, Philracom issued copies of the
guidelines for the monitoring and eradication of EIA.[7]

Petitioners and racehorse owners William Dagan (Dagan), Carlos Reyes,

Narciso Morales, Bonifacio Montilla, Cezar Azurin, Weitong Lim, Ma. Teresa
Trinidad and Ma. Carmelita Florentino refused to comply with the directive. First,
they alleged that there had been no prior consultation with horse owners. Second,
they claimed that neither official guidelines nor regulations had been issued
relative to the taking of blood samples. And third, they asserted that no
documented case of EIA had been presented to justify the undertaking.[8]

Despite resistance from petitioners, the blood testing proceeded. The horses,
whose owners refused to comply were banned from the races, were removed from
the actual day of race, prohibited from renewing their licenses or evicted from their
stables.

When their complaint went unheeded, the racehorse owners lodged a complaint
before the Office of the President (OP) which in turn issued a directive instructing
Philracom to investigate the matter.

Page 391 of 547

For failure of Philracom to act upon the directive of the OP, petitioners filed a
petition for injunction with application for the issuance of a temporary restraining
order (TRO). In an order[9] dated 11 November 2004, the trial court issued a TRO.

Dagan refused to comply with the directives because, according to him, the same
are unfair as there are no implementing rules on the banning of sick horses from
races. Consequently, his horses were evicted from the stables and transferred to an
isolation area. He also admitted that three of his horses had been found positive for
EIA.[10]

Confronted with two issues, namely: whether there were valid grounds for the
issuance of a writ of injunction and whether respondents had acted with whim and
caprice in the implementation of the contested guideline, the trial court resolved
both queries in the negative.

The trial court found that most racehorse owners, except for Dagan, had already
subjected their racehorses to EIA testing. Their act constituted demonstrated
compliance with the contested guidelines, according to the trial court. Hence, the
acts sought to be enjoined had been rendered moot and academic.

With respect to the subject guidelines, the trial court upheld their validity as an
exercise of police power, thus:
The Petitioners submission that the subject guidelines are
oppressive and hence confiscatory of proprietary rights is likewise
viewed by this Court to be barren of factual and legal support. The
horseracing industry, needless to state, is imbued with public interest
deserving of utmost concern if not constant vigilance. The Petitioners do
not dispute this. It is because of this basic fact that respondents are
expected to police the concerned individuals and adopt measures that
will promote and protect the interests of all the stakeholders starting
from the moneyed horse-owners, gawking bettors down to the lowly
maintainers of the stables. This is a clear and valid exercise of police
power with the respondents acting for the State. Participation in the
business of horseracing is but a privilege; it is not a right. And no clear

Page 392 of 547

 acquiescence to this postulation can there be than the Petitioners' own
undertaking to abide by the rules and conditions issued and imposed by
the respondents as specifically shown by their contracts of lease with
MCJI.[11]

Petitioners appealed to the Court of Appeals. In its Decision dated 27

October 2006, the appellate court affirmed in toto the decision of the trial court.

The appellate court upheld the authority of Philracom to formulate

guidelines since it is vested with exclusive jurisdiction over and control of the
horse-racing industry per Section 8 of Presidential Decree (P.D.) No. 8. The
appellate court further pointed out that P.D. No. 420 also endows Philracom with
the power to prescribe additional rules and regulations not otherwise inconsistent
with the said presidential decree[12] and to perform such duties and exercise all
powers incidental or necessary to the accomplishment of its aims and objectives.
[13]
It similarly concluded that the petition for prohibition should be dismissed on
the ground of mootness in light of evidence indicating that petitioners had already
reconsidered their refusal to have their horses tested and had, in fact, subsequently
requested the administration of the test to the horses.[14]

Aggrieved by the appellate courts decision, petitioners filed the instant

certiorari petition[15] imputing grave abuse of discretion on the part of respondents
in compelling petitioners to subject their racehorses to blood testing.
In their amended petition,[16] petitioners allege that Philracoms unsigned and
undated implementing guidelines suffer from several infirmities. They maintain
that the assailed guidelines do not comply with due process
requirements. Petitioners insist that racehorses already in the MJCI stables were
allowed to be so quartered because the individual horse owners had already
complied with the Philracom regulation that horses should not bear any disease.
There was neither a directive nor a rule that racehorses already lodged in the
stables of the racing clubs should again be subjected to the collection of blood
samples preparatory to the conduct of the EIA tests, [17] petitioners note. Thus, it
came as a surprise to horse owners when told about the administration of a
Page 393 of 547
new Coggins Tests on old horses since the matter had not been taken up with them.
[18]
No investigation or at least a summary proceeding was conducted affording
petitioners an opportunity to be heard.[19] Petitioners also aver that the assailed
guidelines are ultra vires in that the sanctions imposed for refusing to submit to
medical examination are summary eviction from the stables or arbitrary banning of
participation in the races, notwithstanding the penalties prescribed in the contract
of lease.[20]

In its Comment,[21] the PRCI emphasizes that it merely obeyed the terms of
its franchise and abided by the rules enacted by Philracom. [22] For its part,
Philracom, through the Office of the Solicitor-General (OSG), stresses that the case
has become moot and academic since most of petitioners had complied with the
guidelines by subjecting their race horses to EIA testing. The horses found
unafflicted with the disease were eventually allowed to join the races. [23] Philracom
also justified its right under the law to regulate horse racing.[24] MJCI adds that
Philracom need
not delegate its rule-making power to the former since MJCIs right to formulate its
internal rules is subsumed under the franchise granted to it by Congress.[25]

In their Reply,[26] petitioners raise for the first time the issue that Philracom had
unconstitutionally delegated its rule-making power to PRCI and MJCI in
issuing the directive for them to come up with club rules. In response to the claim
that respondents had merely complied with their duties under their franchises,
petitioners counter that the power granted to PRCI and MJCI under their respective
franchises is limited to: (1) the construction, operation and maintenance of
racetracks; (2) the establishment of branches for booking purposes; and (3) the
conduct of horse races.

It appears on record that only Dagan had refused to comply with the orders
of respondents. Therefore, the case subsists as regards Dagan.

Petitioners essentially assail two issuances of Philracom; namely: the

Philracom directive[27] and the subsequent guidelines addressed to MJCI and PRCI.

The validity of an administrative issuance, such as the assailed guidelines,

hinges on compliance with the following requisites:
Page 394 of 547
 1. Its promulgation must be authorized by the legislature;
2. It must be promulgated in accordance with the prescribed procedure;
3. It must be within the scope of the authority given by the legislature;
4. It must be reasonable.[28]

All the prescribed requisites are met as regards the questioned issuances.
Philracoms authority is drawn from P.D. No. 420. The delegation made in the
presidential decree is valid. Philracom did not exceed its authority. And the
issuances are fair and reasonable.

The rule is that what has been delegated cannot be delegated, or as expressed
in the Latin maxim: potestas delegate non delegare potest. This rule is based upon
the ethical principle that such delegated power constitutes not only a right but a
duty to be performed by the delegate by the instrumentality of his own judgment
acting immediately upon the matter of legislation and not through the intervening
mind of another.[29] This rule however admits of recognized exceptions[30] such as
the grant of rule-making power to administrative agencies. They have been granted
by Congress with the authority to issue rules to regulate the implementation of a
law entrusted to them. Delegated rule-making has become a practical necessity in
modern governance due to the increasing complexity and variety of public
functions.[31]

However, 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 standardthe limits of which are sufficiently determinate
and determinableto 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.
[32]

Page 395 of 547

 P.D. No. 420 hurdles the tests of completeness and standards sufficiency.

Philracom was created for the purpose of carrying out the declared policy in
Section 1 which is to promote and direct the accelerated development and
continued growth of horse racing not only in pursuance of the sports development
program but also in order to insure the full exploitation of the sport as a source of
revenue and employment. Furthermore, Philracom was granted exclusive
jurisdiction and control over every aspect of the conduct of horse racing, including
the framing and scheduling of races, the construction and safety of race tracks,
and the security of racing. P.D. No. 420 is already complete in itself.

Section 9 of the law fixes the standards and limitations to which Philracom
must conform in the performance of its functions, to wit:

Section 9. Specific Powers. Specifically, the Commission shall have

the power:

a. To enforce all laws, decrees and executive orders relating to

horse-racing that are not expressly or implied repealed or
modified by this Decree, including all such existing rules and
regulations until otherwise modified or amended by the
Commission;
b. To prescribe additional rules and regulations not otherwise
inconsistent with this Decree;
c. To register race horses, horse owners or associations or
federations thereof, and to regulate the construction of race
tracks and to grant permit for the holding of races;
d. To issue, suspend or revoke permits and licenses and to
impose or collect fees for the issuance of such licenses and
permits to persons required to obtain the same;
e. To review, modify, approve or disapprove the rules and
regulations issued by any person or entity concerning the
conduct of horse races held by them;
f. To supervise all such race meeting to assure integrity at all
times. It can order the suspension of any racing event in case
of violation of any law, ordinance or rules and regulations;
g. To prohibit the use of improper devices, drugs, stimulants or
other means to enhance or diminish the speed of horse or
materially harm their condition;

Page 396 of 547

 h. To approve the annual budget of the omission and such
supplemental budgets as may be necessary;
i. To appoint all personnel, including an Executive Director of the
Commission, as it may be deem necessary in the exercise and
performance of its powers and duties; and
j. To enter into contracts involving obligations chargeable to or
against the funds of the Commission. (Emphasis supplied)

Clearly, there is a proper legislative delegation of rule-making power to

Philracom. Clearly too, for its part Philracom has exercised its rule-making power
in a proper and reasonable manner. More specifically, its discretion to rid the
facilities of MJCI and PRCI of horses afflicted with EIA is aimed at preserving the
security and integrity of horse races.

Petitioners also question the supposed delegation by Philracom of its rule-

making powers to MJCI and PRCI.

There is no delegation of power to speak of between Philracom, as the

delegator and MJCI and PRCI as delegates. The Philracom directive is merely
instructive in character. Philracom had instructed PRCI and MJCI to immediately
come up with Clubs House Rule to address the problem and rid their facilities of
horses infected with EIA. PRCI and MJCI followed-up when they ordered the
racehorse owners to submit blood samples and subject their race horses to blood
testing.Compliance with the Philracoms directive is part of the mandate of PRCI
and MJCI under Sections 1[33] of R.A. No. 7953[34] and Sections 1[35] and 2[36] of
8407.[37]

As correctly proferred by MJCI, its duty is not derived from the delegated
authority of Philracom but arises from the franchise granted to them by Congress
allowing MJCI to do and carry out all such acts, deeds and things as may be
necessary to give effect to the foregoing.[38] As justified by PRCI, obeying the
terms of the franchise and abiding by whatever rules enacted by Philracom is its
duty.[39]

Page 397 of 547

 More on the second, third and fourth requisites.

As to the second requisite, petitioners raise some infirmities relating to

Philracoms guidelines. They question the supposed belated issuance of the
guidelines, that is, only after the collection of blood samples for the Coggins
Test was ordered. While it is conceded that the guidelines were issued a month
after Philracoms directive, this circumstance does not render the directive nor the
guidelines void. The directives validity and effectivity are not dependent on any
supplemental guidelines. Philracom has every right to issue directives to MJCI and
PRCI with respect to the conduct of horse racing, with or without implementing
guidelines.

Petitioners also argue that Philracoms guidelines have no force and effect for
lack of publication and failure to file copies with the University of the Philippines
(UP) Law Center as required by law.

As a rule, the issuance of rules and regulations in the exercise of an

administrative agency of its quasi-legislative power does not require notice 7and
hearing.[40] In Abella, Jr. v. Civil Service Commission,[41] this Court had the
occasion to rule that prior notice and hearing are not essential to the validity of
rules or regulations issued in the exercise of quasi-legislative powers since there is
no determination of past events or facts that have to be established or ascertained.
[42]

The third requisite for the validity of an administrative issuance is that it

must be within the limits of the powers granted to it. The administrative body may
not make rules and regulations which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is administering or which created
it, or which are in derogation of, or defeat, the purpose of a statute.[43]

The assailed guidelines prescribe the procedure for monitoring and

eradicating EIA. These guidelines are in accord with Philracoms mandate under
the law to regulate the conduct of horse racing in the country.

Anent the fourth requisite, the assailed guidelines do not appear to be

unreasonable or discriminatory. In fact, all horses stabled at the MJCI and PRCIs
Page 398 of 547
premises underwent the same procedure. The guidelines implemented were
undoubtedly reasonable as they bear a reasonable relation to the purpose sought to
be accomplished,i.e., the complete riddance of horses infected with EIA.

It also appears from the records that MJCI properly notified the racehorse
owners before the test was conducted.[44] Those who failed to comply were
repeatedly warned of certain consequences and sanctions.

Furthermore, extant from the records are circumstances which allow

respondents to determine from time to time the eligibility of horses as race entries.
The lease contract executed between petitioner and MJC contains a proviso
reserving the right of the lessor, MJCI in this case, the right to determine whether a
particular horse is a qualified horse. In addition, Philracoms rules and regulations
on horse racing provide that horses must be free from any contagious disease or
illness in order to be eligible as race entries.

All told, we find no grave abuse of discretion on the part of Philracom in

issuing the contested guidelines and on the part MJCI and PRCI in complying with
Philracoms directive.

Page 399 of 547

 [G.R. No. 151908. August 12, 2003]

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE

CORPORATION (PILTEL), petitioners, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), respondent.

[G.R. No. 152063. August 12, 2003]

GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO.,

INC. (ISLACOM), petitioners, vs. COURT OF APPEALS (The
Former 6thDivision) and the NATIONAL TELECOMMUNICATIONS
COMMISSION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National

Telecommunications Commission (NTC) issued on June 16, 2000 Memorandum
Circular No. 13-6-2000, promulgating rules and regulations on the billing of
telecommunications services. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the telephone service
not later than 30 days from the end of each billing cycle. In case the statement is
received beyond this period, the subscriber shall have a specified grace period within
which to pay the bill and the public telecommunications entity (PTEs) shall not be
allowed to disconnect the service within the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice
prompt, recorded message or similar facility excluding the customers own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM
cards. Prepaid call cards and SIM cards shall be valid for at least 2 years from the date
Page 400 of 547
of first use. Holders of prepaid SIM cards shall be given 45 days from the date the
prepaid SIM card is fully consumed but not beyond 2 years and 45 days from date of
first use to replenish the SIM card, otherwise the SIM card shall be rendered
invalid. The validity of an invalid SIM card, however, shall be installed upon request
of the customer at no additional charge except the presentation of a valid prepaid call
card.

(4) Subscribers shall be updated of the remaining value of their cards before the start
of every call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or
prepaid shall be reduced from 1 minute per pulse to 6 seconds per pulse. The
authorized rates per minute shall thus be divided by 10. [1]

The Memorandum Circular provided that it shall take effect 15 days after its
publication in a newspaper of general circulation and three certified true copies thereof
furnished the UP Law Center. It was published in the newspaper, The Philippine Star, on
June 22, 2000. Meanwhile, the provisions of the Memorandum Circular pertaining to
[2]

the sale and use of prepaid cards and the unit of billing for cellular mobile telephone
service took effect 90 days from the effectivity of the Memorandum Circular.

On August 30, 2000, the NTC issued a Memorandum to all cellular mobile
telephone service (CMTS) operators which contained measures to minimize if not totally
eliminate the incidence of stealing of cellular phone units. The Memorandum directed
CMTS operators to:

a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and
verification of the identity and addresses of prepaid SIM card customers;

b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of
MC 13-6-2000;

c. deny acceptance to your respective networks prepaid and/or postpaid customers

using stolen cellphone units or cellphone units registered to somebody other than
the applicant when properly informed of all information relative to the stolen
cellphone units;

d. share all necessary information of stolen cellphone units to all other CMTS operators
in order to prevent the use of stolen cellphone units; and

e. require all your existing prepaid SIM card customers to register and present valid
identification cards.[3]

Page 401 of 547

 This was followed by another Memorandum dated October 6, 2000 addressed to all
public telecommunications entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October
2000 and beyond shall be valid for at least two (2) years from date of first use
pursuant to MC 13-6-2000.

In addition, all CMTS operators are reminded that all SIM packs used by
subscribers of prepaid cards sold on 07 October 2000 and beyond shall be valid
for at least two (2) years from date of first use. Also, the billing unit shall be on a
six (6) seconds pulse effective 07 October 2000.

For strict compliance. [4]

On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino
Telephone Corporation filed against the National Telecommunications Commission,
Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio M. Umali and Deputy
Commissioner Nestor C. Dacanay, an action for declaration of nullity of NTC
Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum
dated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction
and temporary restraining order. The complaint was docketed as Civil Case No. Q-00-
42221 at the Regional Trial Court of Quezon City, Branch 77. [5]

Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to
regulate the sale of consumer goods such as the prepaid call cards since such
jurisdiction belongs to the Department of Trade and Industry under the Consumer Act of
the Philippines; that the Billing Circular is oppressive, confiscatory and violative of the
constitutional prohibition against deprivation of property without due process of law; that
the Circular will result in the impairment of the viability of the prepaid cellular service by
unduly prolonging the validity and expiration of the prepaid SIM and call cards; and that
the requirements of identification of prepaid card buyers and call balance
announcement are unreasonable. Hence, they prayed that the Billing Circular be
declared null and void ab initio.

Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc.
filed a joint Motion for Leave to Intervene and to Admit Complaint-in-Intervention. This
[6]

was granted by the trial court.

On October 27, 2000, the trial court issued a temporary restraining order enjoining
the NTC from implementing Memorandum Circular No. 13-6-2000 and the
Memorandum dated October 6, 2000. [7]

Page 402 of 547

 In the meantime, respondent NTC and its co-defendants filed a motion to dismiss
the case on the ground of petitioners failure to exhaust administrative remedies.

Subsequently, after hearing petitioners application for preliminary injunction as well

as respondents motion to dismiss, the trial court issued on November 20, 2000 an
Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the defendants motion to dismiss is hereby

denied for lack of merit. The plaintiffs application for the issuance of a writ of
preliminary injunction is hereby granted. Accordingly, the defendants are hereby
enjoined from implementing NTC Memorandum Circular 13-6-2000 and the NTC
Memorandum, dated October 6, 2000, pending the issuance and finality of the
decision in this case. The plaintiffs and intervenors are, however, required to file a
bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00),
Philippine currency.

SO ORDERED. [8]

Defendants filed a motion for reconsideration, which was denied in an Order dated
February 1, 2001. [9]

Respondent NTC thus filed a special civil action for certiorari and prohibition with
the Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9,
2001, a decision was rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition
is GRANTED, in that, the order of the court a quo denying the petitioners motion to
dismiss as well as the order of the court a quo granting the private respondents prayer
for a writ of preliminary injunction, and the writ of preliminary injunction issued
thereby, are hereby ANNULLED and SET ASIDE. The private respondents complaint
and complaint-in-intervention below are hereby DISMISSED, without prejudice to the
referral of the private respondents grievances and disputes on the assailed issuances of
the NTC with the said agency.

SO ORDERED. [10]

Petitioners motions for reconsideration were denied in a Resolution dated January

10, 2002 for lack of merit. [11]

Hence, the instant petition for review filed by Smart and Piltel, which was docketed
as G.R. No. 151908, anchored on the following grounds:

Page 403 of 547

 A.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR
COURTS HAS JURISDICTION OVER THE CASE.

B.

THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING

THAT THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE
ADMINISTRATIVE REMEDY.

C.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL
AND CONTRARY TO LAW AND PUBLIC POLICY.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE

RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT
THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.[12]

Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No.
152063, assigning the following errors:

1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINES OF PRIMARY JURISDICTION AND EXHAUSTION OF
ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS
FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND
VIOLATIONS OF LAW) OF A PURELY ADMINISTRATIVE REGULATION
PROMULGATED BY AN AGENCY IN THE EXERCISE OF ITS RULE MAKING
POWERS AND INVOLVES ONLY QUESTIONS OF LAW.

2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT
APPLY WHEN THE QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.

3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE

DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT
APPLY WHERE THE ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE,
WHEN THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO
SUFFER GRAVE AND IRREPARABLE INJURY.

Page 404 of 547

 4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE
PETITIONERS IN FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES
AVAILABLE TO THEM.

5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS

QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A
CLEAR RIGHT TO AN INJUNCTION.[13]

The two petitions were consolidated in a Resolution dated February 17, 2003. [14]

On March 24, 2003, the petitions were given due course and the parties were
required to submit their respective memoranda. [15]

We find merit in the petitions.

Administrative agencies possess quasi-legislative or rule-making powers and quasi-

judicial or administrative adjudicatory powers. Quasi-legislative or rule-making power is
the power to make rules and regulations which results in delegated legislation that is
within the confines of the granting statute and the doctrine of non-delegability and
separability of powers.[16]

The rules and regulations that administrative agencies promulgate, which are the
product of a delegated legislative power to create new and additional legal provisions
that have the effect of law, should be within the scope of the statutory authority granted
by the legislature to the administrative agency. It is required that the regulation be
germane to the objects and purposes of the law, and be not in contradiction to, but in
conformity with, the standards prescribed by law. They must conform to and be
[17]

consistent with the provisions of the enabling statute in order for such rule or regulation
to be valid. Constitutional and statutory provisions control with respect to what rules and
regulations may be promulgated by an administrative body, as well as with respect to
what fields are subject to regulation by it. It may not make rules and regulations which
are inconsistent with the provisions of the Constitution or a statute, particularly the
statute it is administering or which created it, or which are in derogation of, or defeat,
the purpose of a statute. In case of conflict between a statute and an administrative
order, the former must prevail.[18]

Not to be confused with the quasi-legislative or rule-making power of an

administrative agency is its quasi-judicial or administrative adjudicatory power. This is
the power to hear and determine questions of fact to which the legislative policy is to
apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body exercises its quasi-
judicial power when it performs in a judicial manner an act which is essentially of an
executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty

Page 405 of 547

entrusted to it.In carrying out their quasi-judicial functions, the administrative officers or
bodies are required to investigate facts or ascertain the existence of facts, hold
hearings, weigh evidence, and draw conclusions from them as basis for their official
action and exercise of discretion in a judicial nature.[19]

In questioning the validity or constitutionality of a rule or regulation issued by an

administrative agency, a party need not exhaust administrative remedies before going to
court. This principle applies only where the act of the administrative agency concerned
was performed pursuant to its quasi-judicial function, and not when the assailed act
pertained to its rule-making or quasi-legislative power. In Association of Philippine
Coconut Dessicators v. Philippine Coconut Authority, it was held:
[20]

The rule of requiring exhaustion of administrative remedies before a party may seek
judicial review, so strenuously urged by the Solicitor General on behalf of respondent,
has obviously no application here. The resolution in question was issued by the PCA
in the exercise of its rule- making or legislative power. However, only judicial review
of decisions of administrative agencies made in the exercise of their quasi-judicial
function is subject to the exhaustion doctrine.

Even assuming arguendo that the principle of exhaustion of administrative remedies

apply in this case, the records reveal that petitioners sufficiently complied with this
requirement. Even during the drafting and deliberation stages leading to the issuance of
Memorandum Circular No. 13-6-2000, petitioners were able to register their protests to
the proposed billing guidelines. They submitted their respective position papers setting
forth their objections and submitting proposed schemes for the billing circular. After the
[21]

same was issued, petitioners wrote successive letters dated July 3, 2000 and July 5,
[22]

2000, asking for the suspension and reconsideration of the so-called Billing
[23]

Circular.These letters were not acted upon until October 6, 2000, when respondent NTC
issued the second assailed Memorandum implementing certain provisions of the Billing
Circular.This was taken by petitioners as a clear denial of the requests contained in their
previous letters, thus prompting them to seek judicial relief.

In like manner, the doctrine of primary jurisdiction applies only where the
administrative agency exercises its quasi-judicial or adjudicatory function. Thus, in
cases involving specialized disputes, the practice has been to refer the same to an
administrative agency of special competence pursuant to the doctrine of primary
jurisdiction. The courts will not determine a controversy involving a question which is
within the jurisdiction of the administrative tribunal prior to the resolution of that question
by the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience and services of
the administrative tribunal to determine technical and intricate matters of fact, and a
uniformity of ruling is essential to comply with the premises of the regulatory statute
administered. The objective of the doctrine of primary jurisdiction is to guide a court in

Page 406 of 547

determining whether it should refrain from exercising its jurisdiction until after an
administrative agency has determined some question or some aspect of some question
arising in the proceeding before the court. It applies where the claim is originally
cognizable in the courts and comes into play whenever enforcement of the claim
requires the resolution of issues which, under a regulatory scheme, has been placed
within the special competence of an administrative body; in such case, the judicial
process is suspended pending referral of such issues to the administrative body for its
view.[24]

However, where what is assailed is the validity or constitutionality of a rule or

regulation issued by the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same. The determination
of whether a specific rule or set of rules issued by an administrative agency contravenes
the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance,
or regulation in the courts, including the regional trial courts. This is within the scope of
[25]

judicial power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. Judicial power includes the
[26]

duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government. [27]

In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000
and its Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or
rule-making power. As such, petitioners were justified in invoking the judicial power of
the Regional Trial Court to assail the constitutionality and validity of the said
issuances. InDrilon v. Lim, it was held:
[28]

We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general
definition of the judicial power to determine what are the valid and binding laws by
the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in
the regional trial courts jurisdiction over all civil cases in which the subject of the
litigation is incapable of pecuniary estimation, even as the accused in a criminal action
has the right to question in his defense the constitutionality of a law he is charged with
violating and of the proceedings taken against him, particularly as they contravene the
Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the
Supreme Court appellate jurisdiction over final judgments and orders of lower courts
in all cases in which the constitutionality or validity of any treaty, international or

Page 407 of 547

executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question. [29]

In their complaint before the Regional Trial Court, petitioners averred that the
Circular contravened Civil Code provisions on sales and violated the constitutional
prohibition against the deprivation of property without due process of law. These are
within the competence of the trial judge. Contrary to the finding of the Court of Appeals,
the issues raised in the complaint do not entail highly technical matters. Rather, what is
required of the judge who will resolve this issue is a basic familiarity with the workings of
the cellular telephone service, including prepaid SIM and call cards and this is judicially
known to be within the knowledge of a good percentage of our population and expertise
in fundamental principles of civil law and the Constitution.

Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No.
Q-00-42221. The Court of Appeals erred in setting aside the orders of the trial court and
in dismissing the case.

WHEREFORE, in view of the foregoing, the consolidated petitions

are GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 64274 dated
October 9, 2001 and its Resolution dated January 10, 2002 are REVERSED and SET
ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon City,
Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to
the court a quo for continuation of the proceedings.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, and Carpio, JJ., concur.

Azcuna, J., took no part.

Page 408 of 547

AVELINA B. CONTE and LETICIA BOISER-PALMA, petitioners, vs.
COMMISSION ON AUDIT (COA), respondent.

DECISION
PANGANIBAN, J.:

Are the benefits provided for under Social Security System Resolution No.
56 to be considered simply as financial assistance for retiring employees, or
does such scheme constitute a supplementary retirement plan proscribed by
Republic Act No. 4968?
The foregoing question is addressed by this Court in resolving the instant
petition for certiorari which seeks to reverse and set aside Decision No. 94-
126 dated March 15, 1994 of respondent Commission on Audit, which denied
[1]

petitioners request for reconsideration of its adverse ruling disapproving

claims for financial assistance under SSS Resolution No. 56.

The Facts

Petitioners Avelina B. Conte and Leticia Boiser-Palma were former

employees of the Social Security System (SSS) who retired from government
service on May 9, 1990and September 13, 1992, respectively. They availed of
compulsory retirement benefits under Republic Act No. 660. [2]

In addition to retirement benefits provided under R.A. 660, petitioners also

claimed SSS financial assistance benefits granted under SSS Resolution No.
56, series of 1971.
A brief historical backgrounder is in order. SSS Resolution No. 56,
approved on January 21, 1971, provides financial incentive and inducement
[3]

to SSS employees qualified to retire to avail of retirement benefits under RA

660 as amended, rather than the retirement benefits under RA 1616 as
amended, by giving them financial assistance equivalent in amount to the

Page 409 of 547

difference between what a retiree would have received under RA 1616, less
what he was entitled to under RA 660. The said SSS Resolution No. 56
states:

RESOLUTION NO. 56

WHEREAS, the retirement benefits of SSS employees are provided for under
Republic Acts 660 and 1616 as amended;

WHEREAS, SSS employees who are qualified for compulsory retirement at age 65 or
for optional retirement at a lower age are entitled to either the life annuity under R.A.
660, as amended, or the gratuity under R.A. 1616, as amended;

WHEREAS, a retirement benefit to be effective must be a periodic income as close as

possible to the monthly income that would have been due to the retiree during the
remaining years of his life were he still employed;

WHEREAS, the life annuity under R.A. 660, as amended, being closer to the monthly
income that was lost on account of old age than the gratuity under R.A. 1616, as
amended, would best serve the interest of the retiree;

WHEREAS, it is the policy of the Social Security Commission to promote and to

protect the interest of all SSS employees, with a view to providing for their well-being
during both their working and retirement years;

WHEREAS, the availment of life annuities built up by premiums paid on behalf of

SSS employees during their working years would mean more savings to the SSS;

WHEREAS, it is a duty of the Social Security Commission to effect savings in every

possible way for economical and efficient operations;

WHEREAS, it is the right of every SSS employee to choose freely and voluntarily the
benefit he is entitled to solely for his own benefit and for the benefit of his family;

NOW, THEREFORE, BE IT RESOLVED, That all the SSS employees who are
simultaneously qualified for compulsory retirement at age 65 or for optional
retirement at a lower age be encouraged to avail for themselves the life annuity under
R.A. 660, as amended;

RESOLVED, FURTHER, That SSS employees who availed themselves of the said
life annuity, in appreciation and recognition of their long and faithful service, be
granted financial assistance equivalent to the gratuity plus return of contributions

Page 410 of 547

under R.A. 1616, as amended, less the five year guaranteed annuity under R.A. 660,
as amended;

RESOLVED, FINALLY, That the Administrator be authorized to act on all

applications for retirement submitted by SSS employees and subject to availability of
funds, pay the corresponding benefits in addition to the money value of all
accumulated leaves. (underscoring supplied)

Long after the promulgation of SSS Resolution No. 56, respondent

Commission on Audit (COA) issued a ruling, captioned as 3rd Indorsement
dated July 10, 1989, disallowing in audit all such claims for financial
[4]

assistance under SSS Resolution No. 56, for the reason that: --

x x x the scheme of financial assistance authorized by the SSS is similar to those

separate retirement plan or incentive/separation pay plans adopted by other
government corporate agencies whichresults in the increase of benefits beyond what is
allowed under existing retirement laws. In this regard, attention x x x is invited to the
view expressed by the Secretary of Budget and Management dated February 17, 1988
to the COA General Counsel against the proliferation of retirement plans which, in
COA Decision No. 591 dated August 31, 1988, was concurred in by this Commission.
x x x.

Accordingly, all such claims for financial assistance under SSS Resolution No. 56
dated January 21, 1971 should be disallowed in audit. (underscoring supplied)

Despite the aforequoted ruling of respondent COA, then SSS

Administrator Jose L. Cuisia, Jr. nevertheless wrote on February 12, 1990
[5]

then Executive Secretary Catalino Macaraig, Jr., seeking presidential authority

for SSS to continue implementing its Resolution No. 56 dated January 21,
1971 granting financial assistance to its qualified retiring employees.
However, in a letter-reply dated May 28, 1990, then Executive Secretary
[6]

Macaraig advised Administrator Cuisia that the Office of the President is not
inclined to favorably act on the herein request, let alone overrule the
disallowance by COA of such claims, because, aside from the fact that
decisions, order or actions of the COA in the exercise of its audit functions are
appealable to the Supreme Court pursuant to Sec. 50 of PD 1445, the
[7]

benefits under said Res. 56, though referred to as financial assistance,

constituted additional retirement benefits, and the scheme partook of the
nature of a supplementary pension/retirement plan proscribed by law.
The law referred to above is RA 4968 (The Teves Retirement Law), which
took effect June 17, 1967 and amended CA 186 (otherwise known as the

Page 411 of 547

Government Service Insurance Act, or the GSIS Charter), making Sec. 28 (b)
of the latter act read as follows:

(b) Hereafter, no insurance or retirement plan for officers or employees shall be

created by employer. All supplementary retirement or pension plans heretofore in
force in any government office, agency or instrumentality or corporation owned or
controlled by the government, are hereby declared inoperative or abolished; Provided,
That the rights of those who are already eligible to retire thereunder shall not be
affected. (underscoring supplied)

On January 12, 1993, herein petitioners filed with respondent COA their
letter-appeal/protest seeking reconsideration of COAs ruling of July 10,
[8]

1989 disallowing claims for financial assistance under Res. 56.

On November 15, 1993, petitioner Conte sought payment from SSS of the
benefits under Res. 56. On December 9, 1993, SSS Administrator Renato C.
Valencia denied the request in consonance with the previous disallowance by
[9]

respondent COA, but assured petitioner that should the COA change its
position, the SSS will resume the grant of benefits under said Res. 56.
On March 15, 1994, respondent COA rendered its COA Decision No. 94-
126 denying petitioners request for reconsideration.
Thus this petition for certiorari under Rule 65 of the Rules of Court.

The Issues

The issues submitted by petitioners may be simplified and re-stated thus:

[10]

Did public respondent abuse its discretion when it disallowed in audit

petitioners claims for benefits under SSS Res. 56?
Petitioners argue that the financial assistance under Res. 56 is not a
retirement plan prohibited by RA 4968, and that Res. 56 provides benefits
different from and aside from what a retiring SSS employee would be entitled
to under RA 660. Petitioners contend that it is a social amelioration and
economic upliftment measure undertaken not only for the benefit of the SSS
but more so for the welfare of its qualified retiring employees. As such, it
should be interpreted in a manner that would give the x x x most advantage to
the recipient -- the retiring employees whose dedicated, loyal, lengthy and
faithful service to the agency of government is recognized and amply
rewarded -- the rationale for the financial assistance plan. Petitioners reiterate
the argument in their letter dated January 12, 1993 to COA that:

Page 412 of 547

Motivation can be in the form of financial assistance, during their stay in the service
or upon retirement, as in the SSS Financial Assistance Plan. This is so, because
Government has to have some attractive remuneration programs to encourage well-
qualified personnel to pursue a career in the government service, rather than in the
private sector or in foreign countries ...

A more developmental view of the financial institutions grant of certain forms of

financial assistance to its personnel, we believe, would enable government
administrators to see these financial forms of remuneration as contributory to the
national developmental efforts for effective and efficient administration of the
personnel programs in different institutions.[11]

The Courts Ruling

Petitioners contentions are not supported by law. We hold that Res. 56

constitutes a supplementary retirement plan.
A cursory examination of the preambular clauses and provisions of Res.
56 provides a number of clear indications that its financial assistance plan
constitutes a supplemental retirement/pension benefits plan. In particular, the
fifth preambular clause which provides that it is the policy of the Social
Security Commission to promote and to protect the interest of all SSS
employees, with a view to providing for their well-being during both their
working and retirement years, and the wording of the resolution itself which
states Resolved, further, that SSS employees who availed themselves of the
said life annuity (under RA 660), in appreciation and recognition of their long
and faithful service, be granted financial assistance x x x can only be
interpreted to mean that the benefit being granted is none other than a kind of
amelioration to enable the retiring employee to enjoy (or survive) his
retirement years and a reward for his loyalty and service. Moreover, it is plain
to see that the grant of said financial assistance is inextricably linked with and
inseparable from the application for and approval of retirement benefits under
RA 660, i.e., that availment of said financial assistance under Res. 56 may not
be done independently of but only in conjunction with the availment of
retirement benefits under RA 660, and that the former is in augmentation or
supplementation of the latter benefits.
Likewise, then SSS Administrator Cuisias historical overview of the origins
and purpose of Res. 56 is very instructive and sheds much light on the
controversy: [12]

Page 413 of 547

Resolution No. 56, x x x, applies where a retiring SSS employee is qualified to claim
under either RA 660 (pension benefit, that is, 5 year lump sum pension and after 5
years, life time pension), or RA 1616 (gratuity benefit plus return of contribution), at
his option. The benefits under RA 660 are entirely payable by GSIS while those under
RA 1616 are entirely shouldered by SSS except the return of contribution by GSIS.

Resolution No. 56 came about upon observation that qualified SSS employees have
invariably opted to retire under RA 1616 instead of RA 660 because the total benefit
under the former is muchgreater than the 5-year lump sum under the latter. As a
consequence, the SSS usually ended up virtually paying the entire retirement benefit,
instead of GSIS which is the main insurance carrier for government employees.
Hence, the situation has become so expensive for SSS that a study of the problem
became inevitable.

As a result of the study and upon the recommendation of its Actuary, the SSS
Management recommended to the Social Security Commission that retiring
employees who are qualified to claim under either RA 660 or 1616 should be
encouraged to avail for themselves the life annuity under RA 660, as amended, with
the SSS providing a financial assistance equivalent to the differencebetween the
benefit under RA 1616 (gratuity plus return of contribution) and the 5-year lump sum
pension under RA 660.

The Social Security Commission, as the policy-making body of the SSS approved the
recommendation in line with its mandate to insure the efficient, honest
and economical administration of the provisions and purposes of this Act. (Section 3
(c) of the Social Security Law).

Necessarily, the situation was reversed with qualified SSS employees opting to retire
under RA No. 660 or RA 1146 instead of RA 1616, resulting in substantial savings for
the SSS despite its having to pay financial assistance.

Until Resolution No. 56 was questioned by COA. (underscoring part of original text;
italics ours)

Although such financial assistance package may have been instituted for
noble, altruistic purposes as well as from self-interest and a desire to cut costs
on the part of the SSS, nevertheless, it is beyond any dispute that such
package effectively constitutes a supplementary retirement plan. The fact that
it was designed to equalize the benefits receivable from RA 1616 with those
payable under RA 660 and make the latter program more attractive, merely
confirms the foregoing finding.

Page 414 of 547

 That the Res. 56 package is labelled financial assistance does not change
its essential nature. Retirement benefits are, after all, a form of reward for an
employees loyalty and service to the employer, and are intended to help the
employee enjoy the remaining years of his life, lessening the burden of
worrying about his financial support or upkeep. On the other hand, a pension
[13]

partakes of the nature of retained wages of the retiree for a dual purpose: to
entice competent people to enter the government service, and to permit them
to retire from the service with relative security, not only for those who have
retained their vigor, but more so for those who have been incapacitated by
illness or accident.
[14]

Is SSS Resolution No. 56 then within the ambit of and thus proscribed by
Sec. 28 (b) of CA 186 as amended by RA 4968?
We answer in the affirmative. Said Sec. 28 (b) as amended by RA 4968 in
no uncertain terms bars the creation of any insurance or retirement plan --
other than the GSIS -- for government officers and employees, in order to
prevent the undue and inequitous proliferation of such plans. It is beyond cavil
that Res. 56 contravenes the said provision of law and is therefore invalid,
void and of no effect. To ignore this and rule otherwise would be tantamount to
permitting every other government office or agency to put up its own
supplementary retirement benefit plan under the guise of such financial
assistance.
We are not unmindful of the laudable purposes for promulgating Res. 56,
and the positive results it must have had, not only in reducing costs and
expenses on the part of the SSS in connection with the pay-out of retirement
benefits and gratuities, but also in improving the quality of life for scores of
retirees. But it is simply beyond dispute that the SSS had no authority to
maintain and implement such retirement plan, particularly in the face of the
statutory prohibition. The SSS cannot, in the guise of rule-making, legislate or
amend laws or worse, render them nugatory.
It is doctrinal that in case of conflict between a statute and an
administrative order, the former must prevail. A rule or regulation must
[15]

conform to and be consistent with the provisions of the enabling statute in

order for such rule or regulation to be valid. The rule-making power of a
[16]

public administrative body is a delegated legislative power, which it may not

use either to abridge the authority given it by the Congress or the Constitution
or to enlarge its power beyond the scope intended. Constitutional and
statutory provisions control with respect to what rules and regulations may be
promulgated by such a body, as well as with respect to what fields are subject
to regulation by it. It may not make rules and regulations which are

Page 415 of 547

inconsistent with the provisions of the Constitution or a statute, particularly the
statute it is administering or which created it, or which are in derogation of, or
defeat, the purpose of a statute. Though well-settled is the rule that
[17]

retirement laws are liberally interpreted in favor of the retiree, nevertheless,

[18]

there is really nothing to interpret in either RA 4968 or Res. 56, and

correspondingly, the absence of any doubt as to the ultra-vires nature and
illegality of the disputed resolution constrains us to rule against petitioners.
As a necessary consequence of the invalidity of Res. 56, we can hardly
impute abuse of discretion of any sort to respondent Commission for denying
petitioners request for reconsideration of the 3rd Indorsement of July 10,
1989. On the contrary, we hold that public respondent in its assailed Decision
acted with circumspection in denying petitioners claim. It reasoned thus:

After a careful evaluation of the facts herein obtaining, this Commission finds the
instant request to be devoid of merit. It bears stress that the financial assistance
contemplated under SSS Resolution No. 56 is granted to SSS employees who opt to
retire under R.A. No. 660. In fact, by the aggrieved parties own admission (page 2 of
the request for reconsideration dated January 12, 1993), it is a financial assistance
granted by the SSS management to its employees, in addition to the retirement
benefits under Republic Act No. 660. (underscoring supplied for emphasis) There is
therefore no question, that the said financial assistance partakes of the nature of a
retirement benefit that has the effect of modifying existing retirement laws particularly
R.A. No. 660.

Petitioners also asseverate that the scheme of financial assistance under

Res. 56 may be likened to the monetary benefits of government officials and
employees who are paid, over and above their salaries and allowances as
provided by statute, an additional honorarium in varying amounts. We find this
comparison baseless and misplaced. As clarified by the Solicitor General: [19]

Petitioners comparison of SSS Resolution No. 56 with the honoraria given to

government officials and employees of the National Prosecution Service of the
Department of Justice, Office of the Government Corporate Counsel and even in the
Office of the Solicitor General is devoid of any basis. The monetary benefits or
honoraria given to these officials or employees are categorized as travelling and/or
representation expenses which are incurred by them in the course of handling cases,
attending court/administrative hearings, or performing other field work. These
monetary benefits are given upon rendition of service while the financial benefits
under SSS Resolution No. 56 are given upon retirement from service.

Page 416 of 547

 In a last-ditch attempt to convince this Court that their position is tenable,
petitioners invoke equity. They believe that they are deserving of justice and
equity in their quest for financial assistance under SSS Resolution No. 56, not
so much because the SSS is one of the very few stable agencies of
government where no doubt this recognition and reputation is earned x x x but
more so due to the miserable scale of compensation granted to employees in
various agencies to include those obtaining in the SSS. [20]

We must admit we sympathize with petitioners in their financial

predicament as a result of their misplaced decision to avail of retirement
benefits under RA 660, with the false expectation that financial assistance
under the disputed Res. 56 will also materialize. Nevertheless, this Court has
always held that equity, which has been aptly described as justice outside
legality, is applied only in the absence of, and never against, statutory law or
judicial rules of procedure. In this case, equity cannot be applied to give
[21]

validity and effect to Res. 56, which directly contravenes the clear mandate of
the provisions of RA 4968.
Likewise, we cannot but be aware that the clear imbalance between the
benefits available under RA 660 and those under RA 1616 has created an
unfair situation for it has shifted the burden of paying such benefits from the
GSIS (the main insurance carrier of government employees) to the
SSS. Without the corrective effects of Res. 56, all retiring SSS employees
without exception will be impelled to avail of benefits under RA 1616. The
cumulative effect of such availments on the financial standing and stability of
the SSS is better left to actuarians. But the solution or remedy for such
situation can be provided only by Congress. Judicial hands cannot, on the
pretext of showing concern for the welfare of government employees, bestow
equity contrary to the clear provisions of law.
Nevertheless, insofar as herein petitioners are concerned, this Court
cannot just sit back and watch as these two erstwhile government employees,
who after spending the best parts of their lives in public service have retired
hoping to enjoy their remaining years, face a financially dismal if not
distressed future, deprived of what should have been due them by way of
additional retirement benefits, on account of a bureaucratic boo-boo
improvidently hatched by their higher-ups. It is clear to our mind that
petitioners applied for benefits under RA 660 only because of the incentives
offered by Res. 56, and that absent such incentives, they would have without
fail availed of RA 1616 instead. We likewise have no doubt that petitioners are
simply innocent bystanders in this whole bureaucratic rule-making/financial
scheme-making drama, and that therefore, to the extent possible, petitioners
ought not be penalized or made to suffer as a result of the subsequently

Page 417 of 547

determined invalidity of Res. 56, the promulgation and implementation of
which they had nothing to do with.
And here is where equity may properly be invoked: since SSS employees
who are qualified for compulsory retirement at age 65 or for optional
retirement at a lower age are entitled to either the life annuity under R.A. 660,
as amended, or the gratuity under R.A. 1616, as amended, it appears that
[22]

petitioners, being qualified to avail of benefits under RA 660, may also readily
qualify under RA 1616. It would therefore not be misplaced to enjoin the SSS
to render all possible assistance to petitioners for the prompt processing and
approval of their applications under RA 1616, and in the meantime, unless
barred by existing regulations, to advance to petitioners the difference
between the amounts due under RA 1616, and the amounts they already
obtained, if any, under RA 660.
WHEREFORE, the petition is hereby DISMISSED for lack of merit, there
having been no grave abuse of discretion on the part of respondent
Commission. The assailed Decision of public respondent is AFFIRMED, and
SSS Resolution No. 56 is hereby declared ILLEGAL, VOID AND OF NO
EFFECT. The SSS is hereby urged to assist petitioners and facilitate their
applications under RA 1616, and to advance to them, unless barred by
existing regulations, the corresponding amounts representing the difference
between the two benefits programs. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Puno, Vitug, Kapunan, Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr.,
JJ., concur.

Page 418 of 547

G.R. No. L-44291 August 15, 1936

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
AUGUSTO A. SANTOS, defendant-appellee.

Office of the Solicitor-General Hilado for appellant.

Arsenio Santos for appellee.

VILLA-REAL, J.:

This case is before us by virtue of an appeal taken by the prosecuting attorney from the order of the
Court of First Instance of Cavite which reads as follows:

ORDER

When this case was called for trial for the arraignment, counsel for the accused appeared
stating that in view of the ruling laid down by this court in criminal case No. 6785 of this court,
holding that the penalty applicable is under section 83 of Act No. 4003 which falls within the
original jurisdiction of the justice of the peace court he requests that the case be remanded
to the justice of the peace court of Cavite which conducted the preliminary investigation, so
that the latter may try it, being within its original jurisdiction.

We agree that it falls within the jurisdiction of the corresponding justice of the peace court,
but it being alleged in the information that the infraction was committed within the waters of
the Island of Corregidor, the competent justice of the peace court is that of Corregidor, not
Cavite.

Wherefore, we decree the dismissal of this case, cancelling the bond filed by the accused,
with costs de oficio, without prejudice to the filing by the prosecuting attorney of a new
information in the justice of the peace court of Corregidor, if he so deems convenient. It is so
ordered.

In support of his appeal the appellant assigns as the sole alleged error committed by the court a
quo its having dismissed the case on the ground that it does not fall within its original jurisdiction.

On June 18, 1930, the provincial fiscal of Cavite filed against the accused -appellee Augusta A.
Santos an information which reads as follows:

Page 419 of 547

 The undersigned Provincial Fiscal accuses Augusta A. Santos of violation of section 28 of
Fish and Game Administrative Order No. 2 and penalized by section 29 thereof committed
as follows:

That on or about April 29, 1935, within 1,500 yards north of Cavalry Point, Corregidor Island,
Province of Cavite, P.I., the said accused Augusta A. Santos, the registered owner of two
fishing motor boats Malabon IIand Malabon III, did then and there willfully, unlawfully and
criminally have his said boats, manned and operated by his fishermen, fish, loiter and anchor
without permission from the Secretary of Agriculture and Commerce within three (3)
kilometers from the shore line of the Island of Corregidor over which the naval and military
authorities of the United States exercise jurisdiction.

Contrary to law.

Cavite, Cavite, June 18, 1935.

Section 28 of Administrative Order No. 2 relative to fish and game, issued by the Secretary of
Agriculture and Commerce, provides as follows:

28. Prohibited fishing areas. No boats licensed in accordance with the provisions of Act
No. 4003 and this order to catch, collect, gather, take, or remove fish and other sea products
from Philippine waters shall be allowed to fish, loiter, or anchor within 3 kilometers of the
shore line of islands and reservations over which jurisdiction is exercised by naval or military
authorities of the United States, particularly Corregidor, Pulo Caballo, La Monja, El Fraile,
and Carabao, and all other islands and detached rocks lying between Mariveles Reservation
on the north side of the entrance to Manila Bay and Calumpan Point Reservation on the
south side of said entrance: Provided, That boats not subject to license under Act No. 4003
and this order may fish within the areas mentioned above only upon receiving written
permission therefor, which permission may be granted by the Secretary of Agriculture and
Commerce upon recommendation of the military or naval authorities concerned.

A violation of this paragraph may be proceeded against under section 45 of the Federal
Penal Code.

The above quoted provisions of Administrative, Order No. 2 were issued by the then Secretary of
Agriculture and Natural Resources, now Secretary of Agriculture and Commerce, by virtue of the
authority vested in him by section 4 of Act No. 4003 which reads as follows:

SEC. 4. Instructions, orders, rules and regulations. The Secretary of Agriculture and
Natural Resources shall from time to time issue such instructions, orders, rules and
regulations consistent with this Act, as may be necessary and proper to carry into effect the
provisions thereof and for the conduct of proceedings arising under such provisions.

The herein accused and appellee Augusto A. Santos is charged with having ordered his fishermen to
manage and operate the motor launches Malabon II and Malabon Ill registered in his name and to
fish, loiter and anchor within three kilometers of the shore line of the Island of Corregidor over which
jurisdiction is exercised by naval and military authorities of the United States, without permission
from the Secretary of Agriculture and Commerce.

These acts constitute a violation of the conditional clause of section 28 above quoted, which reads
as follows:

Page 420 of 547

 Provided, That boats not subject to license under Act No. 4003 and this order may fish within
the areas mentioned above (within 3 kilometers of the shore line of islands and reservations
over which jurisdiction is exercised by naval and military authorities of the United States,
particularly Corregidor) only upon receiving written permission therefor, which permission
may be granted by the Secretary of Agriculture and Commerce upon recommendation of the
military and naval authorities of concerned. (Emphasis supplied.)

Act No. 4003 contains no similar provision prohibiting boats not subject to license from fishing within
three kilometers of the shore line of islands and reservations over which jurisdiction is exercised by
naval and military authorities of the United States, without permission from the Secretary of
Agriculture and Commerce upon recommendation of the military and naval authorities concerned.
Inasmuch as the only authority granted to the Secretary of Agriculture and Commerce, by section 4
of Act No. 4003, is to issue from time to time such instructions, orders, rules, and regulations
consistent with said Act, as may be necessary and proper to carry into effect the provisions thereof
and for the conduct of proceedings arising under such provisions; and inasmuch as said Act No.
4003, as stated, contains no provisions similar to those contained in the above quoted conditional
clause of section 28 of Administrative Order No. 2, the conditional clause in question supplies a
defect of the law, extending it. This is equivalent to legislating on the matter, a power which has not
been and cannot be delegated to him, it being exclusively reserved to the then Philippine Legislature
by the Jones Law, and now to the National Assembly by the Constitution of the Philippines. Such act
constitutes not only an excess of the regulatory power conferred upon the Secretary of Agriculture
and Commerce, but also an exercise of a legislative power which he does not have, and therefore
said conditional clause is null and void and without effect (12 Corpus Juris, 845; Rubi vs. Provincial
Board of Mindoro, 39 Phil., 660; U.S. vs. Ang Tang Ho, 43 Phil., 1; U.S. vs. Barrias, 11 Phil., 327).

For the foregoing considerations, we are of the opinion and so hold that the conditional clause of
section 28 of Administrative Order No. 2. issued by the Secretary of Agriculture and Commerce, is
null and void and without effect, as constituting an excess of the regulatory power conferred upon
him by section 4 of Act No. 4003 and an exercise of a legislative power which has not been and
cannot be delegated to him.

Wherefore, inasmuch as the facts with the commission of which Augusto A. Santos is charged do not
constitute a crime or a violation of some criminal law within the jurisdiction of the civil courts, the
information filed against him is dismissed, with the costs de oficio. So ordered.

Avancea, C. J., Abad Santos, Imperial, Diaz, Recto, and Laurel, JJ., concur.

Page 421 of 547

 EN BANC

G.R. No. L-6791 March 29, 1954

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
QUE PO LAY, defendant-appellant.

Prudencio de Guzman for appellant.

First Assistant Solicitor General Ruperto Kapunan, Jr., and Solicitor Lauro G. Marquez for appellee.

MONTEMAYOR, J.:

Que Po Lay is appealing from the decision of the Court of First Instance of Manila, finding him guilty
of violating Central Bank Circular No. 20 in connection with section 34 of Republic Act No. 265, and
sentencing him to suffer six months imprisonment, to pay a fine of P1,000 with subsidiary
imprisonment in case of insolvency, and to pay the costs.

The charge was that the appellant who was in possession of foreign exchange consisting of U.S.
dollars, U.S. checks and U.S. money orders amounting to about $7,000 failed to sell the same to the
Central Bank through its agents within one day following the receipt of such foreign exchange as
required by Circular No. 20. the appeal is based on the claim that said circular No. 20 was not
published in the Official Gazette prior to the act or omission imputed to the appellant, and that
consequently, said circular had no force and effect. It is contended that Commonwealth Act. No., 638
and Act 2930 both require said circular to be published in the Official Gazette, it being an order or
notice of general applicability. The Solicitor General answering this contention says that
Commonwealth Act. No. 638 and 2930 do not require the publication in the Official Gazette of said
circular issued for the implementation of a law in order to have force and effect.

We agree with the Solicitor General that the laws in question do not require the publication of the
circulars, regulations and notices therein mentioned in order to become binding and effective. All that
said two laws provide is that laws, resolutions, decisions of the Supreme Court and Court of
Appeals, notices and documents required by law to be of no force and effect. In other words, said
two Acts merely enumerate and make a list of what should be published in the Official Gazette,
presumably, for the guidance of the different branches of the Government issuing same, and of the
Bureau of Printing.

Page 422 of 547

However, section 11 of the Revised Administrative Code provides that statutes passed by Congress
shall, in the absence of special provision, take effect at the beginning of the fifteenth day after the
completion of the publication of the statute in the Official Gazette. Article 2 of the new Civil Code
(Republic Act No. 386) equally provides that laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette, unless it is otherwise provided. It is true that
Circular No. 20 of the Central Bank is not a statute or law but being issued for the implementation of
the law authorizing its issuance, it has the force and effect of law according to settled jurisprudence.
(See U.S. vs. Tupasi Molina, 29 Phil., 119 and authorities cited therein.) Moreover, as a rule,
circulars and regulations especially like the Circular No. 20 of the Central Bank in question which
prescribes a penalty for its violation should be published before becoming effective, this, on the
general principle and theory that before the public is bound by its contents, especially its penal
provisions, a law, regulation or circular must first be published and the people officially and
specifically informed of said contents and its penalties.

Our Old Civil code, ( Spanish Civil Code of 1889) has a similar provision about the effectivity of laws,
(Article 1 thereof), namely, that laws shall be binding twenty days after their promulgation, and that
their promulgation shall be understood as made on the day of the termination of the publication of
the laws in the Gazette. Manresa, commenting on this article is of the opinion that the word "laws"
include regulations and circulars issued in accordance with the same. He says:

El Tribunal Supremo, ha interpretado el articulo 1. del codigo Civil en Sentencia de 22 de

Junio de 1910, en el sentido de que bajo la denominacion generica de leyes, se
comprenden tambien los Reglamentos, Reales decretos, Instrucciones, Circulares y Reales
ordenes dictadas de conformidad con las mismas por el Gobierno en uso de su potestad.
Tambien el poder ejecutivo lo ha venido entendiendo asi, como lo prueba el hecho de que
muchas de sus disposiciones contienen la advertencia de que empiezan a regir el mismo dia
de su publicacion en la Gaceta, advertencia que seria perfectamente inutil si no fuera de
aplicacion al caso el articulo 1.o del Codigo Civil. (Manresa, Codigo Civil Espaol, Vol. I. p.
52).

In the present case, although circular No. 20 of the Central Bank was issued in the year 1949, it was
not published until November 1951, that is, about 3 months after appellant's conviction of its
violation. It is clear that said circular, particularly its penal provision, did not have any legal effect and
bound no one until its publication in the Official Gazzette or after November 1951. In other words,
appellant could not be held liable for its violation, for it was not binding at the time he was found to
have failed to sell the foreign exchange in his possession thereof.

But the Solicitor General also contends that this question of non-publication of the Circular is being
raised for the first time on appeal in this Court, which cannot be done by appellant. Ordinarily, one
may raise on appeal any question of law or fact that has been raised in the court below and which is
within the issues made by the parties in their pleadings. (Section 19, Rule 48 of the Rules of Court).
But the question of non-publication is fundamental and decisive. If as a matter of fact Circular No. 20
had not been published as required by law before its violation, then in the eyes of the law there was
no such circular to be violated and consequently appellant committed no violation of the circular or
committed any offense, and the trial court may be said to have had no jurisdiction. This question may
be raised at any stage of the proceeding whether or not raised in the court below.

In view of the foregoing, we reverse the decision appealed from and acquit the appellant, with
costs de oficio.

Paras, C.J., Bengzon, Padilla, Reyes, Bautista Angelo, Labrador, Concepcion and Diokno,
JJ., concur.

Page 423 of 547

G.R. No. L-32166 October 18, 1977

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO
REYES, BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL ROSARIO, accused-appellees.

Office of the Solicitor General for appellant.

Rustics F. de los Reyes, Jr. for appellees.

AQUINO, J.: t.hqw

This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water
fisheries, promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner
of Fisheries under the old Fisheries Law and the law creating the Fisheries Commission.

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and
Carlito del Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz,
Laguna with having violated Fisheries Administrative Order No. 84-1.

It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to
electro fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca,
equipped with motor; with a generator colored green with attached dynamo colored gray or
somewhat white; and electrocuting device locally known as sensored with a somewhat webbed
copper wire on the tip or other end of a bamboo pole with electric wire attachment which was
attached to the dynamo direct and with the use of these devices or equipments catches fish thru
electric current, which destroy any aquatic animals within its cuffed reach, to the detriment and
prejudice of the populace" (Criminal Case No. 5429).

Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed.
The Court of First Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The
case is now before this Court on appeal by the prosecution under Republic Act No. 5440.

Page 424 of 547

The lower court held that electro fishing cannot be penalize because electric current is not an
obnoxious or poisonous substance as contemplated in section I I of the Fisheries Law and that it is
not a substance at all but a form of energy conducted or transmitted by substances. The lower court
further held that, since the law does not clearly prohibit electro fishing, the executive and judicial
departments cannot consider it unlawful.

As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of
any obnoxious or poisonous substance" in fishing.

Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in
fishing with a fine of not more than five hundred pesos nor more than five thousand, and by
imprisonment for not less than six months nor more than five years.

It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding
the silence of the law, the Secretary of Agriculture and Natural Resources, upon the
recommendation of the Commissioner of Fisheries, promulgated Fisheries Administrative Order No.
84 (62 O.G. 1224), prohibiting electro fishing in all Philippine waters. The order is quoted below: +.wph!1

SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS +.wph!1

OF THE PHILIPPINES.

Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following
rules and regulations regarding the prohibition of electro fishing in all waters of the Philippines are
promulgated for the information and guidance of all concerned. +.wph!1

SECTION 1. Definition. Words and terms used in this Order 11 construed as

follows:

(a) Philippine waters or territorial waters of the Philippines' includes all waters of the
Philippine Archipelago, as defined in the t between the United States and Spain,
dated respectively the tenth of December, eighteen hundred ninety eight and the
seventh of November, nineteen hundred. For the purpose of this order, rivers, lakes
and other bodies of fresh waters are included.

(b) Electro Fishing. Electro fishing is the catching of fish with the use of electric
current. The equipment used are of many electrical devices which may be battery or
generator-operated and from and available source of electric current.

(c) 'Persons' includes firm, corporation, association, agent or employee.

(d) 'Fish' includes other aquatic products.

SEC. 2. Prohibition. It shall be unlawful for any person to engage in electro

fishing or to catch fish by the use of electric current in any portion of the Philippine
waters except for research, educational and scientific purposes which must be
covered by a permit issued by the Secretary of Agriculture and Natural Resources
which shall be carried at all times.

Page 425 of 547

 SEC. 3. Penalty. Any violation of the provisions of this Administrative Order
shall subject the offender to a fine of not exceeding five hundred pesos (P500.00) or
imprisonment of not extending six (6) months or both at the discretion of the Court.

SEC. 4. Repealing Provisions. All administrative orders or parts thereof

inconsistent with the provisions of this Administrative Order are hereby revoked.

SEC. 5. Effectivity. This Administrative Order shall take effect six (60) days
after its publication in the Office Gazette.

On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of
the Fisheries Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of
Administrative Order No. 84, by restricting the ban against electro fishing to fresh water fisheries (63
O.G. 9963).

Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the
amendatory order to read as follows: "in fresh water fisheries in the Philippines, such as rivers,
lakes, swamps, dams, irrigation canals and other bodies of fresh water."

The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is
punishable under section 83 of the Fisheries Law (not under section 76 thereof), which provides that
any other violation of that law "or of any rules and regulations promulgated thereunder shall subject
the offender to a fine of not more than two hundred pesos (P200), or in t for not more than six
months, or both, in the discretion of the court."

That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a
fm of not exceeding P500 on a person engaged in electro fishing, which amount the 83. It seems
that the Department of Fisheries prescribed their own penalty for swift fishing which penalty is less
than the severe penalty imposed in section 76 and which is not Identified to the at penalty imposed
in section 83.

Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of
electro fishing would be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f],
Judiciary Law; People vs. Ragasi, L-28663, September 22,

We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of
electro fishing which is punishable with a sum up to P500, falls within the concurrent original
jurisdiction of the inferior courts and the Court of First instance (People vs. Nazareno, L-40037, April
30, 1976, 70 SCRA 531 and the cases cited therein).

And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital,
the order of d rendered by that municipal court was directly appealable to the Court, not to the Court
of First Instance of Laguna (Sec. 45 and last par. of section 87 of the Judiciary Law; Esperat vs.
Avila, L-25992, June 30, 1967, 20 SCRA 596).

It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its
order affirming the municipal court's order of dismissal is void for lack of motion. This appeal shall be
treated as a direct appeal from the municipal court to this Court. (See People vs. Del Rosario, 97
Phil. 67).

Page 426 of 547

In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued
under section 11 of the Fisheries Law which, as indicated above, punishes fishing by means of an
obnoxious or poisonous substance. This contention is not well-taken because, as already stated, the
Penal provision of Administrative Order No. 84 implies that electro fishing is penalized as a form of
fishing by means of an obnoxious or poisonous substance under section 11.

The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water
fisheries (1) the rule-making power of the Department Secretary under section 4 of the Fisheries
Law; (2) the function of the Commissioner of Fisheries to enforce the provisions of the Fisheries Law
and the regulations Promulgated thereunder and to execute the rules and regulations consistent with
the purpose for the creation of the Fisheries Commission and for the development of fisheries (Sec.
4[c] and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote and
conserve our fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83 of the Fisheries
Law which provides that "any other violation of" the Fisheries Law or of any rules and regulations
promulgated thereunder "shall subject the offender to a fine of not more than two hundred pesos, or
imprisonment for not more than six months, or both, in the discretion of the court."

As already pointed out above, the prosecution's reference to section 83 is out of place because the
penalty for electro fishing under Administrative order No. 84 is not the same as the penalty fixed in
section 83.

We are of the opinion that the Secretary of Agriculture and Natural Resources and the Commissioner
of Fisheries exceeded their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1
and that those orders are not warranted under the Fisheries Commission, Republic Act No. 3512.

The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is
not banned under that law, the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries are powerless to penalize it. In other words, Administrative Orders Nos.
84 and 84-1, in penalizing electro fishing, are devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could
have been easily embodied in the old Fisheries Law.

That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2)
unlawful fishing in deepsea fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of
sponges; (5) failure of licensed fishermen to report the kind and quantity of fish caught, and (6) other
violations.

Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing
electro fishing, does not contemplate that such an offense fails within the category of "other
violations" because, as already shown, the penalty for electro fishing is the penalty next lower to the
penalty for fishing with the use of obnoxious or poisonous substances, fixed in section 76, and is not
the same as the penalty for "other violations" of the law and regulations fixed in section 83 of the
Fisheries Law.

The lawmaking body cannot delegate to an executive official the power to declare what acts should
constitute an offense. It can authorize the issuance of regulations and the imposition of the penalty
provided for in the law itself. (People vs. Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11
32).

Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against
electro fishing was confined to fresh water fisheries. The amendment created the impression that

Page 427 of 547

electro fishing is not condemnable per se. It could be tolerated in marine waters. That circumstances
strengthens the view that the old law does not eschew all forms of electro fishing.

However, at present, there is no more doubt that electro fishing is punishable under the Fisheries
Law and that it cannot be penalized merely by executive revolution because Presidential Decree No.
704, which is a revision and consolidation of all laws and decrees affecting fishing and fisheries and
which was promulgated on May 16, 1975 (71 O.G. 4269), expressly punishes electro fishing in fresh
water and salt water areas.

That decree provides: +.wph!1

SEC. 33. Illegal fishing, dealing in illegally caught fish or fishery/aquatic products.
It shall he unlawful for any person to catch, take or gather or cause to be caught,
taken or gathered fish or fishery/aquatic products in Philippine waters with the use of
explosives, obnoxious or poisonous substance, or by the use of electricity as defined
in paragraphs (1), (m) and (d), respectively, of Section 3 hereof: ...

The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential
Decrees Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and regulations or parts
thereof inconsistent with it (Sec. 49, P. D. No. 704).

The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition
of the deficiency or silence on that point of the old Fisheries Law. It is an admission that a mere
executive regulation is not legally adequate to penalize electro fishing.

Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative
Order No. 84 and which is not provided for the old Fisheries Law, is now found in section 3(d) of the
decree. Note further that the decree penalty electro fishing by "imprisonment from two (2) to four (4)
years", a punishment which is more severe than the penalty of a time of not excluding P500 or
imprisonment of not more than six months or both fixed in section 3 of Fisheries Administrative Order
No. 84.

An examination of the rule-making power of executive officials and administrative agencies and, in
particular, of the Secretary of Agriculture and Natural Resources (now Secretary of Natural
Resources) under the Fisheries Law sustains the view that he ex his authority in penalizing electro
fishing by means of an administrative order.

Administrative agent are clothed with rule-making powers because the lawmaking body finds it
impracticable, if not impossible, to anticipate and provide for the multifarious and complex situations
that may be encountered in enforcing the law. All that is required is that the regulation should be
germane to the defects and purposes of the law and that it should conform to the standards that the
law prescribes (People vs. Exconde 101 Phil. 1125; Director of Forestry vs. Mu;oz, L-24796, June
28, 1968, 23 SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712).

The lawmaking body cannot possibly provide for all the details in the enforcement of a particular
statute (U.S. vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506;
Interprovincial Autobus Co., Inc. vs. Coll. of Internal Revenue, 98 Phil. 290, 295-6).

The grant of the rule-making power to administrative agencies is a relaxation of the principle of
separation of powers and is an exception to the nondeleption of legislative, powers. Administrative
regulations or "subordinate legislation calculated to promote the public interest are necessary

Page 428 of 547

because of "the growing complexity of modem life, the multiplication of the subjects of governmental
regulations, and the increased difficulty of administering the law" Calalang vs. Williams, 70 Phil. 726;
People vs. Rosenthal and Osme;a, 68 Phil. 328).

Administrative regulations adopted under legislative authority by a particular department must be in

harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. vs.
Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs.
Estenzo, 109 Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA
660; Deluao vs. Casteel, L-21906, August 29, 1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating the mode or proceeding to carry
into effect the law as it his been enacted. The power cannot be extended to amending or expanding
the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the
statute cannot be sanctioned. (University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382, citing
12 C.J. 845-46. As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319, Wise &
Co. vs. Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299, June 27,
1973, 51 SCRA 340, 349).

There is no question that the Secretary of Agriculture and Natural Resources has rule-making
powers. Section 4 of the Fisheries law provides that the Secretary "shall from time to time issue
instructions, orders, and regulations consistent" with that law, "as may be and proper to carry into
effect the provisions thereof." That power is now vested in the Secretary of Natural Resources by on
7 of the Revised Fisheries law, Presidential December No. 704.

Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon
the approval of the Secretary of Agriculture and Natural Resources, forms instructions, rules and
regulations consistent with the purpose" of that enactment "and for the development of fisheries."

Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have the
power to promulgate, whenever he may see fit do so, all rules, regulates, orders, memorandums,
and other instructions, not contrary to law, to regulate the proper working and harmonious and
efficient administration of each and all of the offices and dependencies of his Department, and for
the strict enforcement and proper execution of the laws relative to matters under the jurisdiction of
said Department; but none of said rules or orders shall prescribe penalties for the violation thereof,
except as expressly authorized by law."

Administrative regulations issued by a Department Head in conformity with law have the force of law
(Valerie vs. Secretary of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc.
vs. Zayco, L- 20051, May 30, 1966, 17 SCRA 316). As he exercises the rule-making power by
delegation of the lawmaking body, it is a requisite that he should not transcend the bound
demarcated by the statute for the exercise of that power; otherwise, he would be improperly
exercising legislative power in his own right and not as a surrogate of the lawmaking body.

Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders
and regulations shall be valid only when they are not contrary to the laws or the Constitution."

As noted by Justice Fernando, "except for constitutional officials who can trace their competence to
act to the fundamental law itself, a public office must be in the statute relied upon a grant of power
before he can exercise it." "department zeal may not be permitted to outrun the authority conferred

Page 429 of 547

by statute." (Radio Communications of the Philippines, Inc. vs. Santiago, L-29236, August 21, 1974,
58 SCRA 493, 496-8).

"Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon
the administrative agency by law, partake of the nature of a statute, and compliance therewith may
be enforced by a penal sanction provided in the law. This is so because statutes are usually couched
in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended
by the legislature. The details and the manner of carrying out the law are oftentimes left to the
administrative agency entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal provisions that
have the effect of law." The rule or regulation should be within the scope of the statutory authority
granted by the legislature to the administrative agency. (Davis, Administrative Law, p. 194, 197, cited
in Victories Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558).

In case of discrepancy between the basic law and a rule or regulation issued to implement said law,
the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of
the basic law (People vs. Lim, 108 Phil. 1091).

This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention
of technical men in the executive departments, who draft rules and regulations, to the importance
and necessity of closely following the legal provisions which they intend to implement so as to avoid
any possible misunderstanding or confusion.

The rule is that the violation of a regulation prescribed by an executive officer of the government in
conformity with and based upon a statute authorizing such regulation constitutes an offense and
renders the offender liable to punishment in accordance with the provisions of the law (U.S. vs.
Tupasi Molina, 29 Phil. 119, 124).

In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime
punishable as provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101
Phil. 1125, 1132).

It has been held that "to declare what shall constitute a crime and how it shall be punished is a
power vested exclusively in the legislature, and it may not be delegated to any other body or agency"
(1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs. Montgomery, 73 F. Supp. 527).

In the instant case the regulation penalizing electro fishing is not strictly in accordance with the
Fisheries Law, under which the regulation was issued, because the law itself does not expressly
punish electro fishing.

The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28
of Fish and Game Administrative Order No. 2 issued by the Secretary of Agriculture and Natural
Resources pursuant to the aforementioned section 4 of the Fisheries Law.

Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under
the said administrative order may fish within three kilometers of the shoreline of islands and
reservations over which jurisdiction is exercised by naval and military reservations authorities of the
United States only upon receiving written permission therefor, which permission may be granted by
the Secretary upon recommendation of the military or naval authorities concerned. A violation of the
proviso may be proceeded against under section 45 of the Federal Penal Code.

Page 430 of 547

Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for
having caused his two fishing boats to fish, loiter and anchor without permission from the Secretary
within three kilometers from the shoreline of Corrigidor Island.

This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing
within three kilometers of the shoreline of islands and reservations over which jurisdiction is
exercised by naval and military authorities of the United States, without permission from the
Secretary of Agriculture and Natural Resources upon recommendation of the military and naval
authorities concerned.

As the said law does not penalize the act mentioned in section 28 of the administrative order, the
promulgation of that provision by the Secretary "is equivalent to legislating on the matter, a power
which has not been and cannot be delegated to him, it being expressly reserved" to the lawmaking
body. "Such an act constitutes not only an excess of the regulatory power conferred upon the
Secretary but also an exercise of a legislative power which he does not have, and therefore" the said
provision "is null and void and without effect". Hence, the charge against Santos was dismiss.

A penal statute is strictly construed. While an administrative agency has the right to make ranks and
regulations to carry into effect a law already enacted, that power should not be confused with the
power to enact a criminal statute. An administrative agency can have only the administrative or
policing powers expressly or by necessary implication conferred upon it. (Glustrom vs. State, 206
Ga. 734, 58 Second 2d 534; See 2 Am. Jr. 2nd 129-130).

Where the legislature has delegated to executive or administrative officers and boards authority to
promulgate rules to carry out an express legislative purpose, the rules of administrative officers and
boards, which have the effect of extending, or which conflict with the authority granting statute, do
not represent a valid precise of the rule-making power but constitute an attempt by an administrative
body to legislate (State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51).

In a prosecution for a violation of an administrative order, it must clearly appear that the order is one
which falls within the scope of the authority conferred upon the administrative body, and the order
will be scrutinized with special care. (State vs. Miles supra).

The Miles case involved a statute which authorized the State Game Commission "to adopt,
promulgate, amend and/or repeal, and enforce reasonable rules and regulations governing and/or
prohibiting the taking of the various classes of game.

Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay
or receive any reward, prize or compensation for the hunting, pursuing, taking, killing or displaying of
any game animal, game bird or game fish or any part thereof."

Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the
person displaying the largest deer in his store during the open for hunting such game animals. For
that act, he was charged with a violation of the rule Promulgated by the State Game Commission.

It was held that there was no statute penalizing the display of game. What the statute penalized was
the taking of game. If the lawmaking body desired to prohibit the display of game, it could have
readily said so. It was not lawful for the administrative board to extend or modify the statute. Hence,
the indictment against Miles was quashed. The Miles case is similar to this case.

Page 431 of 547

WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate
jurisdiction and the order of dismissal rendered by the municipal court of Sta. Cruz, Laguna in
Criminal Case No. 5429 is affirmed. Costs de oficio.

SO ORDERED.

Barredo, Concepcion, Jr., Santos and Guerrero, JJ., concur. 1wph1.t

Fernando and Antonio, JJ., took no part.

Guerrero, J., was designated to sit in the Second Division.

G.R. No. 95832 August 10, 1992

MAYNARD R. PERALTA, petitioner,

vs.
CIVIL SERVICE COMMISSION, respondent.

Tranquilino F. Meris Law Office for petitioner.

PADILLA, J.:

Petitioner was appointed Trade-Specialist II on 25 September 1989 in the Department of Trade and
Industry (DTI). His appointment was classified as "Reinstatement/Permanent". Before said
appointment, he was working at the Philippine Cotton Corporation, a government-owned and
controlled corporation under the Department of Agriculture.

On 8 December 1989, petitioner received his initial salary, covering the period from 25 September to
31 October 1989. Since he had no accumulated leave credits, DTI deducted from his salary the
amount corresponding to his absences during the covered period, namely, 29 September 1989 and
20 October 1989, inclusive of Saturdays and Sundays. More specifically, the dates of said absences
for which salary deductions were made, are as follows:

1. 29 September 1989 Friday

2. 30 September 1989 Saturday

3. 01 October 1989 Sunday

4. 20 October 1989 Friday

Page 432 of 547

 5. 21 October 1989 Saturday

6. 22 October 1989 Sunday

Petitioner sent a memorandum to Amando T. Alvis (Chief, General Administrative Service) on 15

December 1989 inquiring as to the law on salary deductions, if the employee has no leave credits.

Amando T. Alvis answered petitioner's query in a memorandum dated 30 January 1990 citing
Chapter 5.49 of the Handbook of Information on the Philippine Civil Service which states that "when
an employee is on leave without pay on a day before or on a day immediately preceding a Saturday,
Sunday or Holiday, such Saturday, Sunday, or Holiday shall also be without pay (CSC, 2nd Ind.,
February 12, 1965)."

Petitioner then sent a latter dated 20 February 1990 addressed to Civil Service Commission (CSC)
Chairman Patricia A. Sto. Tomas raising the following question:

Is an employee who was on leave of absence without pay on a day before or on a

day time immediately preceding a Saturday, Sunday or Holiday, also considered on
leave of absence without pay on such Saturday, Sunday or Holiday? 1

Petitioner in his said letter to the CSC Chairman argued that a reading of the General Leave Law as
contained in the Revised Administrative Code, as well as the old Civil Service Law (Republic Act No.
2260), the Civil Service Decree (Presidential Decree No. 807), and the Civil Service Rules and
Regulation fails to disclose a specific provision which supports the CSC rule at issue. That being the
case, the petitioner contented that he cannot be deprived of his pay or salary corresponding to the
intervening Saturdays, Sundays or Holidays (in the factual situation posed), and that the withholding
(or deduction) of the same is tantamount to a deprivation of property without due process of law.

On 25 May 1990, respondent Commission promulgated Resolution No. 90-497, ruling that the action
of the DTI in deducting from the salary of petitioner, a part thereof corresponding to six (6) days
(September 29, 30, October 1, 20, 21, 22, 1989) is in order. 2 The CSC stated that:

In a 2nd Indorsement dated February 12, 1965 of this Commission, which embodies
the policy on leave of absence without pay incurred on a Friday and Monday, reads:

Mrs. Rosalinda Gonzales is not entitled to payment of salary

corresponding to January 23 and 24, 1965, Saturday and Sunday,
respectively, it appearing that she was present on Friday, January 22,
1965 but was on leave without pay beginning January 25, the
succeeding Monday. It is the view of this Office that an employee
who has no more leave credit in his favor is not entitled to the
payment of salary on Saturdays, Sundays or holidays unless such
non-working days occur within the period of service actually
rendered. (Emphasis supplied)

The rationale for the above ruling which applies only to those employees who are
being paid on monthly basis, rests on the assumption that having been absent on
either Monday or Friday, one who has no leave credits, could not be favorably
credited with intervening days had the same been working days. Hence, the above
policy that for an employee on leave without pay to be entitled to salary on
Saturdays, Sundays or holidays, the same must occur between the dates where the

Page 433 of 547

 said employee actually renders service. To rule otherwise would allow an employee
who is on leave of absent (sic) without pay for a long period of time to be entitled to
payment of his salary corresponding to Saturdays, Sundays or holidays. It also
discourages the employees who have exhausted their leave credits from absenting
themselves on a Friday or Monday in order to have a prolonged weekend, resulting
in the prejudice of the government and the public in general. 3

Petitioner filed a motion for reconsideration and in Resolution No. 90-797, the respondent
Commission denied said motion for lack of merit. The respondent Commission in explaining its
action held:

The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service
Commission rulings to be observed whenever an employee of the government who
has no more leave credits, is absent on a Friday and/or a Monday is enough basis
for the deduction of his salaries corresponding to the intervening Saturdays and
Sundays. What the Commission perceived to be without basis is the demand of
Peralta for the payment of his salaries corresponding to Saturdays and Sundays
when he was in fact on leave of absence without pay on a Friday prior to the said
days. A reading of Republic Act No. 2260 (sic) does not show that a government
employee who is on leave of absence without pay on a day before or immediately
preceding Saturdays, Sunday or legal holiday is entitled to payment of his salary for
said days. Further, a reading of Senate Journal No. 67 dated May 4, 1960 of House
Bill No. 41 (Republic Act No. 2625) reveals that while the law excludes Saturdays,
Sundays and holidays in the computation of leave credits, it does not, however,
include a case where the leave of absence is without pay. Hence, applying the
principle of inclusio unius est exclusio alterius, the claim of Peralta has no merit.
Moreover, to take a different posture would be in effect giving more premium to
employees who are frequently on leave of absence without pay, instead of
discouraging them from incurring further absence without
pay. 4

Petitioner's motion for reconsideration having been denied, petitioner filed the present petition.

What is primarily questioned by the petitioner is the validity of the respondent Commission's policy
mandating salary deductions corresponding to the intervening Saturdays, Sundays or Holidays
where an employee without leave credits was absent on the immediately preceding working day.

During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-
540 dated 23 April 1991 amending the questioned policy, considering that employees paid on a
monthly basis are not required to work on Saturdays, Sunday or Holidays. In said amendatory
Resolution, the respondent Commission resolved "to adopt the policy that when an employee,
regardless of whether he has leave credits or not, is absent without pay on day immediately
preceding or succeeding Saturday, Sunday or holiday, he shall not be considered absent on those
days." Memorandum Circular No. 16 Series of 1991 dated 26 April 1991, was also issued by CSC
Chairman Sto. Tomas adopting and promulgating the new policy and directing the Heads of
Departments, Bureaus and Agencies in the national and local governments, including government-
owned or controlled corporations with original charters, to oversee the strict implementation of the
circular.

Because of these developments, it would seem at first blush that this petition has become moot and
academic since the very CSC policy being questioned has already been amended and, in effect,
Resolutions No. 90-497 and 90-797, subject of this petition for certiorari, have already been set

Page 434 of 547

aside and superseded. But the issue of whether or not the policy that had been adopted and in force
since 1965 is valid or not, remains unresolved. Thus, for reasons of public interest and public policy,
it is the duty of the Court to make a formal ruling on the validity or invalidity of such questioned
policy.

The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the
following powers and duties:

Sec. 16 (e) with the approval by the President to prescribe, amend and enforce
suitable rules and regulations for carrying into effect the provisions of this Civil
Service Law, and the rules prescribed pursuant to the provisions of this law shall
become effective thirty days after publication in the Official Gazette;

xxx xxx xxx

(k) To perform other functions that properly belong to a central personnel agency. 5

Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy.
Said policy was embodied in a 2nd Indorsement dated 12 February 1965 of the respondent
Commission involving the case of a Mrs. Rosalinda Gonzales. The respondent Commission ruled
that an employee who has no leave credits in his favor is not entitled to the payment of salary on
Saturdays, Sundays or Holidays unless such non-working days occur within the period of service
actually rendered. The same policy is reiterated in the Handbook of Information on the Philippine
Civil Service. 6 Chapter Five on leave of absence provides that:

5.51. When intervening Saturday, Sunday or holiday considered as leave without pay
when an employee is on leave without pay on a day before or on a day
immediately preceding a Saturday, Sunday or holiday, such Saturday, Sunday or
holiday shall also be without pay. (CSC, 2nd Ind., Feb. 12, 1965).

It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and
Answers on Leave of Absences, which states the following:

27. How is leave of an employee who has no more leave credits computed if:

(1) he is absent on a Friday and the

following Monday?

(2) if he is absent on Friday but

reports to work the following Monday?

(3) if he is absent on a Monday but

present the preceding Friday?

- (1) He is considered on leave without

pay for 4 days covering Friday to
Monday;

- (2) He is considered on leave without

pay for 3 days from Friday to Sunday;

Page 435 of 547

 - (3) He is considered on leave without
pay for 3 days from Saturday to
Monday.

When an administrative or executive agency renders an opinion or issues a statement of policy, it

merely interprets a pre-existing law; and the administrative interpretation of the law is at best
advisory, for it is the courts that finally determine what the law means. 8 It has also been held that interpretative
9
regulations need not be published.

In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission
interpreted the provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending
the Revised Administrative Code, and which stated as follows:

Sec. 1. Sections two hundred eighty-four and two hundred eighty-five-A of the
Administrative Code, as amended, are further amended to read as follows:

Sec. 284. After at least six months' continues (sic) faithful, and
satisfactory service, the President or proper head of department, or
the chief of office in the case of municipal employees may, in his
discretion, grant to an employee or laborer, whether permanent or
temporary, of the national government, the provincial government, the
government of a chartered city, of a municipality, of a municipal
district or of government-owned or controlled corporations other than
those mentioned in Section two hundred sixty-eight, two hundred
seventy-one and two hundred seventy-four hereof, fifteen days
vacation leave of absence with full pay, exclusive of Saturdays,
Sundays and holidays, for each calendar year of service.

Sec. 285-A. In addition to the vacation leave provided in the two

preceding sections each employee or laborer, whether permanent or
temporary, of the national government, the provincial government, the
government of a chartered city, of a municipality or municipal district
in any regularly and specially organized province, other than those
mentioned in Section two hundred sixty-eight, two hundred seventy-
one and two hundred seventy-four hereof, shall be entitled to fifteen
days of sick leave for each year of service with full pay, exclusive of
Saturdays, Sundays and holidays: Provided, That such sick leave will
be granted by the President, Head of Department or independent
office concerned, or the chief of office in case of municipal
employees, only on account of sickness on the part of the employee
or laborer concerned or of any member of his immediate family.

The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as
referring only to government employees who have earned leave credits against which their
absences may be charged with pay, as its letters speak only of leaves of absence with full pay. The
respondent Commission ruled that a reading of R.A. 2625 does not show that a government
employee who is on leave of absence without pay on a day before or immediately preceding a
Saturday, Sunday or legal holiday is entitled to payment of his salary for said days.

Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an
administrative agency may be disturbed or set aside by the judicial department if there is an error of

Page 436 of 547

law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with
either the letter or the spirit of a legislative enactment. 10

We find this petition to be impressed with merit.

As held in Hidalgo vs. Hidalgo: 11

. . . . where the true intent of the law is clear that calls for the application of the
cardinal rule of statutory construction that such intent or spirit must prevail over the
letter thereof, for whatever is within the spirit of a statute is within the statute, since
adherence to the letter would result in absurdity, injustice and contradictions and
would defeat the plain and vital purpose of the statute.

The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others,
the sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No.
41 (which became R.A. 2625). He said:

The law actually provides for sick leave and vacation leave of 15 days each year of
service to be with full pay. But under the present law, in computing these periods of
leaves, Saturday, Sunday and holidays are included in the computation so that if an
employee should become sick and absent himself on a Friday and then he reports
for work on a Tuesday, in the computation of the leave the Saturday and Sunday will
be included, so that he will be considered as having had a leave of Friday, Saturday,
Sunday and Monday, or four days.

The purpose of the present bill is to exclude from the computation of the leave those
days, Saturdays and Sundays, as well as holidays, because actually the employee is
entitled not to go to office during those days. And it is unfair and unjust to him that
those days should be counted in the computation of leaves. 12

With this in mind, the construction by the respondent Commission of R.A. 2625 is not in accordance
with the legislative intent. R.A. 2625 specifically provides that government employees are entitled to
fifteen (15) days vacation leave of absence with full pay and fifteen (15) days sick leave with full
pay, exclusive of Saturdays, Sundays and Holidays in both cases. Thus, the law speaks of the
granting of a right and the law does not provide for a distinction between those who have
accumulated leave credits and those who have exhausted their leave credits in order to enjoy such
right. Ubi lex non distinguit nec nos distinguere debemus. The fact remains that government
employees, whether or not they have accumulated leave credits, are not required by law to work on
Saturdays, Sundays and Holidays and thus they can not be declared absent on such non-working
days. They cannot be or are not considered absent on non-working days; they cannot and should
not be deprived of their salary corresponding to said non-working days just because they were
absent without pay on the day immediately prior to, or after said non-working days. A different rule
would constitute a deprivation of property without due process.

Furthermore, before their amendment by R.A. 2625, Sections 284 and 285-A of the Revised
Administrative Code applied to all government employee without any distinction. It follows that the
effect of the amendment similarly applies to all employees enumerated in Sections 284 and 285-A,
whether or not they have accumulated leave credits.

As the questioned CSC policy is here declared invalid, we are next confronted with the question of
what effect such invalidity will have. Will all government employees on a monthly salary basis,
deprived of their salaries corresponding to Saturdays, Sundays or legal holidays (as herein petitioner

Page 437 of 547

was so deprived) since 12 February 1965, be entitled to recover the amounts corresponding to such
non-working days?

The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no office; it is in legal contemplation as
inoperative as though it had never been passed. 13

But, as held in Chicot County Drainage District vs. Baxter State

Bank: 14

. . . . It is quite clear, however, that such broad statements as to the effect of a

determination of unconstitutionality must be taken with qualifications. The actual
existence of a statute, prior to such determination is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased
by a new judicial declaration. The effect of the subsequent ruling as to invalidity may
have to be considered in various aspects with respect to particular relations,
individual and corporate; and particular conduct, private and official.

To allow all the affected government employees, similarly situated as petitioner herein, to claim their
deducted salaries resulting from the past enforcement of the herein invalidated CSC policy, would
cause quite a heavy financial burden on the national and local governments considering the length
of time that such policy has been effective. Also, administrative and practical considerations must be
taken into account if this ruling will have a strict restrospective application. The Court, in this
connection, calls upon the respondent Commission and the Congress of the Philippines, if
necessary, to handle this problem with justice and equity to all affected government employees.

It must be pointed out, however, that after CSC Memorandum Circular No. 16 Series of 1991
amending the herein invalidated policy was promulgated on 26 April 1991, deductions from
salaries made after said date in contravention of the new CSC policy must be restored to the
government employees concerned.

WHEREFORE, the petition is GRANTED, CSC Resolutions No. 90-497 and 90-797 are declared
NULL and VOID. The respondent Commission is directed to take the appropriate action so that
petitioner shall be paid the amounts previously but unlawfully deducted from his monthly salary as
above indicated. No costs.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr.,
Romero, Nocon and Bellosillo, JJ., concur.

Page 438 of 547

G.R. No. 102549 August 10, 1992

EDWIN B. JAVELLANA, petitioner,

vs.
DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT AND LUIS T. SANTOS,
SECRETARY, respondents.

Reyes, Lozada and Sabado for petitioner.

GRIO-AQUINO, J.:

This petition for review on certiorari involves the right of a public official to engage in the practice of
his profession while employed in the Government.

Attorney Erwin B. Javellana was an elected City Councilor of Bago City, Negros Occidental. On
October 5, 1989, City Engineer Ernesto C. Divinagracia filed Administrative Case No. C-10-90
against Javellana for: (1) violation of Department of Local Government (DLG) Memorandum Circular
No. 80-38 dated June 10, 1980 in relation to DLG Memorandum Circular No. 74-58 and of Section 7,
paragraph b, No. 2 of Republic Act No. 6713, otherwise known as the "Code of Conduct and Ethical
Standards for Public Officials and Employees," and (2) for oppression, misconduct and abuse of
authority.

Divinagracia's complaint alleged that Javellana, an incumbent member of the City Council or
Sanggunian Panglungsod of Bago City, and a lawyer by profession, has continuously engaged in the
practice of law without securing authority for that purpose from the Regional Director, Department of
Local Government, as required by DLG Memorandum Circular No. 80-38 in relation to DLG

Page 439 of 547

Memorandum Circular No. 74-58 of the same department; that on July 8, 1989, Javellana, as
counsel for Antonio Javiero and Rolando Catapang, filed a case against City Engineer Ernesto C.
Divinagracia of Bago City for "Illegal Dismissal and Reinstatement with Damages" putting him in
public ridicule; that Javellana also appeared as counsel in several criminal and civil cases in the city,
without prior authority of the DLG Regional Director, in violation of DLG Memorandum Circular No.
80-38 which provides:

MEMORANDUM CIRCULAR NO. 80-38

TO ALL: PROVINCIAL GOVERNORS, CITY AND MUNICIPALITY MAYORS,

KLGCD REGIONAL DIRECTORS AND ALL CONCERNED

SUBJECT: AMENDING MEMORANDUM CIRCULAR NO. 80-18 ON

SANGGUNIAN SESSIONS, PER DIEMS, ALLOWANCES, STAFFING AND
OTHER RELATED MATTERS

In view of the issuance or Circular No. 5-A by the Joint Commission on Local
Government Personnel Administration which affects certain provisions of MC 80-18,
there is a need to amend said Memorandum Circular to substantially conform to the
pertinent provisions of Circular No. 9-A.

xxx xxx xxx

C. Practice of Profession

The Secretary (now Minister) of Justice in an Opinion No. 46 Series of 1973

stated inter alia that "members of local legislative bodies, other than the provincial
governors or the mayors, do not keep regular office hours." "They merely attend
meetings or sessions of the provincial board or the city or municipal council" and that
provincial board members are not even required "to have an office in the provincial
building." Consequently, they are not therefore to required to report daily as other
regular government employees do, except when they are delegated to perform
certain administrative functions in the interest of public service by the Governor or
Mayor as the case may be. For this reason, they may, therefore, be allowed to
practice their professions provided that in so doing an authority . . . first be secured
from the Regional Directors pursuant to Memorandum Circular No. 74-58, provided,
however, that no government personnel, property, equipment or supplies shall be
utilized in the practice of their professions. While being authorized to practice their
professions, they should as much as possible attend regularly any and all sessions,
which are not very often, of their Sanggunians for which they were elected as
members by their constituents except in very extreme cases, e.g., doctors who are
called upon to save a life. For this purpose it is desired that they always keep a
calendar of the dates of the sessions, regular or special of their Sanggunians so that
conflicts of attending court cases in the case of lawyers and Sanggunian sessions
can be avoided.

As to members of the bar the authority given for them to practice their profession
shall always be subject to the restrictions provided for in Section 6 of Republic Act
5185. In all cases, the practice of any profession should be favorably recommended
by the Sanggunian concerned as a body and by the provincial governors, city or
municipal mayors, as the case may be. (Emphasis ours, pp. 28-30, Rollo.)

Page 440 of 547

On August 13, 1990, a formal hearing of the complaint was held in Iloilo City in which the
complainant, Engineer Divinagracia, and the respondent, Councilor Javellana, presented their
respective evidence.

Meanwhile, on September 10, 1990, Javellana requested the DLG for a permit to continue his
practice of law for the reasons stated in his letter-request. On the same date, Secretary Santos
replied as follows:

1st Indorsement
September 10, 1990

Respectfully returned to Councilor Erwin B. Javellana, Bago City, his within letter
dated September 10, 1990, requesting for a permit to continue his practice of law for
reasons therein stated, with this information that, as represented and consistent with
law, we interpose no objection thereto, provided that such practice will not conflict or
tend to conflict with his official functions.

LUIS T.
SANTO
S
Secreta
ry.

(p. 60, Rollo.)

On September 21, 1991, Secretary Luis T. Santos issued Memorandum Circular No. 90-81 setting
forth guidelines for the practice of professions by local elective officials as follows:

TO: All Provincial Governors, City and Municipal Mayors, Regional

Directors and All Concerned.

SUBJECT: Practice of Profession and Private Employment of Local

Elective Officials

Section 7 of Republic Act No. 6713 (Code of Conduct and Ethical Standards for
Public Officials and Employees), states, in part, that "In addition to acts and omission
of public officials . . . now prescribed in the Constitution and existing laws, the
following shall constitute prohibited acts and transactions of any public officials . . .
and are hereby declared to be unlawful: . . . (b) Public Officials . . . during their
incumbency shall not: (1) . . . accept employment as officer, employee, consultant,
counsel, broker, agent, trustee or nominee in any private enterprise regulated,
supervised or licensed by their office unless expressly allowed by law; (2) Engage in
the private practice of their profession unless authorized by the Constitution or law,
provided that such practice will not conflict or tend to conflict with their official
functions: . . .

xxx xxx xxx

Under Memorandum Circular No. 17 of the Office of the President dated September
4, 1986, the authority to grant any permission, to accept private employment in any
capacity and to exercise profession, to any government official shall be granted by

Page 441 of 547

the head of the Ministry (Department) or agency in accordance with Section 12, Rule
XVIII of the Revised Civil Service Rules, which provides, in part, that:

No officer shall engage directly in any . . . vocation or profession . . .

without a written permission from the head of the
Department: Provided, that this prohibition will be absolute in the
case of those officers . . . whose duties and responsibilities require
that their entire time be at the disposal of the Government: Provided,
further, That if an employee is granted permission to engage in
outside activities, the time so devoted outside of office should be
fixed by the Chief of the agency to the end that it will not impair in
anyway the efficiency of the officer or employee . . . subject to any
additional conditions which the head of the office deems necessary in
each particular case in the interest of the service, as expressed in the
various issuances of the Civil Service Commission.

Conformably with the foregoing, the following guidelines are to be observed in the
grant of permission to the practice of profession and to the acceptance of private
employment of local elective officials, to wit:

1) The permission shall be granted by the Secretary of Local

Government;

2) Provincial Governors, City and Municipal Mayors whose duties and

responsibilities require that their entire time be at the disposal of the
government in conformity with Sections 141, 171 and 203 of the
Local Government Code (BP 337), are prohibited to engage in the
practice of their profession and to accept private employment during
their incumbency:

3) Other local elective officials may be allowed to practice their

profession or engage in private employment on a limited basis at the
discretion of the Secretary of Local Government, subject to existing
laws and to the following conditions:

a) That the time so devoted outside of office hours

should be fixed by the local chief executive concerned
to the end that it will not impair in any way the
efficiency of the officials concerned;

b) That no government time, personnel, funds or

supplies shall be utilized in the pursuit of one's
profession or private employment;

c) That no conflict of interests between the practice of

profession or engagement in private employment and
the official duties of the concerned official shall arise
thereby;

d) Such other conditions that the Secretary deems

necessary to impose on each particular case, in the

Page 442 of 547

 interest of public service. (Emphasis supplied, pp. 31-
32, Rollo.)

On March 25, 1991, Javellana filed a Motion to Dismiss the administrative case against him on the
ground mainly that DLG Memorandum Circulars Nos. 80-38 and 90-81 are unconstitutional because
the Supreme Court has the sole and exclusive authority to regulate the practice of law.

In an order dated May 2, 1991, Javellana's motion to dismiss was denied by the public respondents.
His motion for reconsideration was likewise denied on June 20, 1991.

Five months later or on October 10, 1991, the Local Government Code of 1991 (RA 7160) was
signed into law, Section 90 of which provides:

Sec. 90. Practice of Profession. (a) All governors, city and municipal mayors are
prohibited from practicing their profession or engaging in any occupation other than
the exercise of their functions as local chief executives.

(b) Sanggunian members may practice their professions, engage in any occupation,
or teach in schools except during session hours: Provided, That sanggunian
members who are members of the Bar shall not:

(1) Appear as counsel before any court in any civil case wherein a
local government unit or any office, agency, or instrumentality of the
government is the adverse party;

(2) Appear as counsel in any criminal case wherein an officer or

employee of the national or local government is accused of an
offense committed in relation to his office;

(3) Collect any fee for their appearance in administrative

proceedings involving the local government unit of which he is an
official; and

(4) Use property and personnel of the Government except when the
sanggunian member concerned is defending the interest of the
Government.

(c) Doctors of medicine may practice their profession even during official hours of
work only on occasions of emergency: Provided, That the officials concerned do not
derive monetary compensation therefrom. (Emphasis ours.)

Administrative Case No. C-10-90 was again set for hearing on November 26, 1991. Javellana
thereupon filed this petition for certiorari praying that DLG Memorandum Circulars Nos. 80-38 and
90-81 and Section 90 of the new Local Government Code (RA 7160) be declared unconstitutional
and null void because:

(1) they violate Article VIII, Section 5 of the 1987 Constitution, which provides:

Sec. 5. The Supreme Court shall have the following powers:

xxx xxx xxx

Page 443 of 547

 (5) Promulgate rules concerning the protection and enforcement of constitutional
rights, pleading, practice, and procedure in all courts, the admission to the practice of
law, the Integrated Bar, and legal assistance to the underprivileged. Such rules shall
provide a simplified and inexpensive procedure for the speedy disposition of cases,
shall be uniform for all courts of the same grade, and shall not diminish, increase, or
modify substantive rights. Rules of procedure of special courts and quasi-
judicialbodies shall remain effective unless disapproved by the Supreme Court.

(2) They constitute class legislation, being discriminatory against the legal and medical professions
for only sanggunian members who are lawyers and doctors are restricted in the exercise of their
profession while dentists, engineers, architects, teachers, opticians, morticians and others are not so
restricted (RA 7160, Sec. 90 [b-1]).

In due time, the Solicitor General filed his Comment on the petition and the petitioner submitted a
Reply. After deliberating on the pleadings of the parties, the Court resolved to dismiss the petition for
lack of merit.

As a matter of policy, this Court accords great respect to the decisions and/or actions of
administrative authorities not only because of the doctrine of separation of powers but also for their
presumed knowledgeability and expertise in the enforcement of laws and regulations entrusted to
their jurisdiction (Santiago vs. Deputy Executive Secretary, 192 SCRA 199, citing Cuerdo vs. COA,
166 SCRA 657). With respect to the present case, we find no grave abuse of discretion on the part
of the respondent, Department of Interior and Local Government (DILG), in issuing the questioned
DLG Circulars Nos. 80-30 and 90-81 and in denying petitioner's motion to dismiss the administrative
charge against him.

In the first place, complaints against public officers and employees relating or incidental to the
performance of their duties are necessarily impressed with public interest for by express
constitutional mandate, a public office is a public trust. The complaint for illegal dismissal filed by
Javiero and Catapang against City Engineer Divinagracia is in effect a complaint against the City
Government of Bago City, their real employer, of which petitioner Javellana is a councilman. Hence,
judgment against City Engineer Divinagracia would actually be a judgment against the City
Government. By serving as counsel for the complaining employees and assisting them to prosecute
their claims against City Engineer Divinagracia, the petitioner violated Memorandum Circular No. 74-
58 (in relation to Section 7[b-2] of RA 6713) prohibiting a government official from engaging in the
private practice of his profession, if such practice would represent interests adverse to the
government.

Petitioner's contention that Section 90 of the Local Government Code of 1991 and DLG
Memorandum Circular No. 90-81 violate Article VIII, Section 5 of the Constitution is completely off
tangent. Neither the statute nor the circular trenches upon the Supreme Court's power and authority
to prescribe rules on the practice of law. The Local Government Code and DLG Memorandum
Circular No. 90-81 simply prescribe rules of conduct for public officials to avoid conflicts of interest
between the discharge of their public duties and the private practice of their profession, in those
instances where the law allows it.

Section 90 of the Local Government Code does not discriminate against lawyers and doctors. It
applies to all provincial and municipal officials in the professions or engaged in any occupation.
Section 90 explicitly provides that sanggunian members "may practice their professions, engage in
any occupation, or teach in schools expect during session hours." If there are some prohibitions that
apply particularly to lawyers, it is because of all the professions, the practice of law is more likely
than others to relate to, or affect, the area of public service.

Page 444 of 547

WHEREFORE, the petition is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION,respondents.

VITUG, J.:p

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of
respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994
resolution of the Court of Tax Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands
of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January
1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon
Diaz of the Presidential Commission on Good Government, "the initial position of the Commission
was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World
Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR'])
that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand."3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:

BRAND AD VALOREM TAX RATE

E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90

Hope Luxury M. 100's

Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%

Page 445 of 547

Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by
the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new
law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal
Revenue Code ("NIRC") to read; as follows:

Sec. 142. Cigars and Cigarettes.

xxx xxx xxx

(c) Cigarettes packed by machine. There shall be levied, assessed and collected
on cigarettes packed by machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual manufacturer's wholesale
price, whichever is higher:

(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.

xxx xxx xxx

When the registered manufacturer's wholesale price or the actual manufacturer's

wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%). 7 (Emphasis supplied)

About a month after the enactment and two (2) days before the effectivity of RA 7654,
Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full
text of which expressed:

REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1,
1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

Page 446 of 547

TO: All Internal Revenue Officers and Others Concerned.

In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION"

cigarettes which are locally manufactured are appropriately considered as locally
manufactured cigarettes bearing a foreign brand, this Office is compelled to review
the previous rulings on the matter.

Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:

On locally manufactured cigarettes bearing a foreign brand, fifty-five

percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. Whenever it has to
be determined whether or not a cigarette bears a foreign brand, the
listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable, ". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. . . ."

"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.

Since there is no showing who among the above-listed manufacturers of the

cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE"
and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

Page 447 of 547

 (SGD)
LIWAYWAY
VINZONS-
CHATO
Commissioner

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr.,
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox
copy of RMC 37-93.

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune
Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was
denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands

of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by
Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found to be defective,
invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993,
the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55%
pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and
were therefore still classified as other locally manufactured cigarettes and taxed at
45% or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune

Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.

Respondent Commissioner of Internal Revenue is hereby enjoined from collecting

the deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.

SO ORDERED. 9

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's
10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the
appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and
resolution.

In the instant petition, the Solicitor General argues: That

Page 448 of 547

 I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER
OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF
THE TAX CODE.

II. BEING AN INTERPRETATIVE RULING OR OPINION, THE

PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF
WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT
NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.

III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN

NOTIFIED OR RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO

ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY
SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES.

V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM

RECLASSIFYING "HOPE," "MORE" AND "CHAMPION"
CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE

INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR
ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS CORRECT. 10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which
can thus become effective without any prior need for notice and hearing, nor publication, and
that its issuance is not discriminatory since it would apply under similar circumstances to all
locally manufactured cigarettes.

The Court must sustain both the appellate court and the tax court.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for
the effective implementation of the provisions of the National Internal Revenue Code. Let it
be made clear that such authority of the Commissioner is not here doubted. Like any other
government agency, however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.

Let us first distinguish between two kinds of administrative issuances a legislative rule and
an interpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance

Secretary, 11 the Court expressed:

. . . a legislative rule is in the nature of subordinate legislation, designed to

implement a primary legislation by providing the details thereof . In the same way
that laws must have the benefit of public hearing, it is generally required that before
a legislative rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:

Page 449 of 547

 Public Participation. If not otherwise required by law, an agency shall, as far as
practicable, publish or circulate notices of proposed rules and afford interested
parties the opportunity to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2)
weeks before the first hearing thereon.

(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in
charge of enforcing. 12

It should be understandable that when an administrative rule is merely interpretative in

nature, its applicability needs nothing further than its bare issuance for it gives no real
consequence more than what the law itself has already prescribed. When, upon the other
hand, the administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation of the law but substantially adds to or
increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.

A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure
(revoking in the process the previous holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and "Champion" within the
classification of locally manufactured cigarettes bearing foreign brands and to thereby have
them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence,
without RMC 37-93, the enactment of RA 7654, would have had no new tax rate
consequence on private respondent's products. Evidently, in order to place "Hope Luxury,"
"Premium More," and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so
doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-
legislative authority. The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the
tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly
suffer from legal infirmity in the light of the constitutional provision on "due process of

Page 450 of 547

 law" and the essence of the Civil Code provision concerning effectivity of laws,
whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New
Civil Code).

In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby
prescribed for the drafting, issuance and implementation of the said Revenue Tax
Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b)
Revenue Audit Memorandum Orders; and (c) Revenue Memorandum
Circulars and Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.

(2) Except when the law otherwise expressly provides, the aforesaid
internal revenue tax issuances shall not begin to be operative until
after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after
the following procedures have been taken;

xxx xxx xxx

(5) Strict compliance with the foregoing procedures is

enjoined. 13

Nothing on record could tell us that it was either impossible or impracticable for the BIR to
observe and comply with the above requirements before giving effect to its questioned
circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform
and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated,
are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all
taxable articles or kinds of property of the same class must be taxed at the same rate 15 and the
tax must operate with the same force and effect in every place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion"
cigarettes and, unless petitioner would be willing to concede to the submission of private
respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo
so expresses in his separate opinion, be consideredadjudicatory in nature and thus violative
of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity
of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands
have not been similarly included within the scope of the circular, such as

1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) "PALM TREE" is listed as manufactured by office of Monopoly,

Korea (Exhibit "R")

Page 451 of 547

 2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) "GOLDEN KEY" is listed being manufactured by United Tobacco,

Pakistan (Exhibit "S")

(b) "CANNON" is listed as being manufactured by Alpha Tobacco,

Bangladesh (Exhibit "T")

3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) "WHITE HORSE" is listed as being manufactured by Rothman's,

Malaysia (Exhibit "U")

(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks,

Sweden (Exhibit "V-1")

4. Locally manufactured by MIGHTY CORPORATION

(a) "WHITE HORSE" is listed as being manufactured by Rothman's,

Malaysia (Exhibit "U-1")

5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) "UNION" is listed as being manufactured by Sumatra Tobacco,

Indonesia and Brown and Williamson, USA (Exhibit "U-3")

(b) "WINNER" is listed as being manufactured by Alpha Tobacco,

Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan
Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar,
Sudan (Exhibit "U-4"). 17

The court quoted at length from the transcript of the hearing conducted on 10 August 1993
by the Committee on Ways and Means of the House of Representatives; viz:

THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You
don't have specific information on other tobacco manufacturers. Now, there are other
brands which are similarly situated. They are locally manufactured bearing foreign
brands. And may I enumerate to you all these brands, which are also listed in the
World Tobacco Directory . . . Why were these brand not reclassified at 55 if your want
to give a level playing filed to foreign manufacturers?

MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue

Memorandum Circular that was supposed to come after RMC No. 37-93 which have
really named specifically the list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes and includes all these brands that you mentioned at
55 percent except that at that time, when we had to come up with this, we were
forced to study the brands of Hope, More and Champion because we were given
documents that would indicate the that these brands were actually being claimed or
patented in other countries because we went by Revenue Memorandum Circular
1488 and we wanted to give some rationality to how it came about but we couldn't
find the rationale there. And we really found based on our own interpretation that the

Page 452 of 547

 only test that is given by that existing law would be registration in the World Tobacco
Directory. So we came out with this proposed revenue memorandum circular which
we forwarded to the Secretary of Finance except that at that point in time, we went
by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed at 55
percent. So we were saying that when this law took effect in July 3 and if we are
going to come up with this revenue circular thereafter, then I think our action would
really be subject to question but we feel that . . . Memorandum Circular Number 37-
93 would really cover even similarly situated brands. And in fact, it was really
because of the study, the short time that we were given to study the matter that we
could not include all the rest of the other brands that would have been really
classified as foreign brand if we went by the law itself. I am sure that by the reading
of the law, you would without that ruling by Commissioner Tan they would really have
been included in the definition or in the classification of foregoing brands. These
brands that you referred to or just read to us and in fact just for your information, we
really came out with a proposed revenue memorandum circular for those brands.
(Emphasis supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I
felt that we . . . I wanted to come up with a more extensive coverage and precisely
why I asked that revenue memorandum circular that would cover all those similarly
situated would be prepared but because of the lack of time and I came out with a
study of RA 7654, it would not have been possible to really come up with the
reclassification or the proper classification of all brands that are listed
there. . . (emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?

MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us to come up with the
right actions on the matter, we were really caught by the July 3 deadline. But in fact,
We have already prepared a revenue memorandum circular clarifying with the other .
. . does not yet, would have been a list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes which would include all the other brands that
were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d,"
par. IX-4). 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid
and effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is
AFFIRMED. No costs.

SO ORDERED.

Page 453 of 547

Kapunan, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read

Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or
the actual manufacturer's wholesale price, whichever is higher.

(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "Hope, More andChampion being manufactured
by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect subjected Hope
Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC,
as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.

Page 454 of 547

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled

Revenue Memorandum Circular No. 37-93 reclassifying the brands of

cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and
unenforceable . . . . Accordingly, the deficiency ad valorem tax assessment issued on
petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that
RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by
the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA. 3 Hence, the instant petition for review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium More andChampion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary. 4 It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining
whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette
brandsHope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor
General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that
RMC 37-93 discriminates against its cigarette brands since those of its competitors which are
similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more

Page 455 of 547

than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law. 7 The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which
is essentially of an executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. 8 In
carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific
persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must
be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case of Ang Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right
to a hearing, which includes the right of the party interested or affected to present his own case and
submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial; (5) the decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its
decision in such manner that the parties to the proceeding may know the various issues involved and the
reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means

Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner to the
local manufacturer. Whenever it has to be determined whether or not a cigarette

Page 456 of 547

 bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign manufacturers

Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by: (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands

Since there is no showing who among the above-listed manufacturers of the

cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands

In view of the foregoing, the aforesaid brands of

cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a

Page 457 of 547

conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.

We quote RMC 47-91 promulgated 11 June 1991

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra

TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:

COCOFED MARKETING RESEARCH CORPORATION

6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Attention:
Ms. Esmyrna E. Reyes
Vice President
Finance

Sirs:

This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food

product, is exempt from VAT only if sale is made by the primary

Page 458 of 547

 producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very
truly
yours,

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

Page 459 of 547

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brands Hope,More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
and solely on respondent corporation as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end the manner and the circumstances under which the cigarettes of private
respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein and of the majority have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretended loss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have

Page 460 of 547

earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued without prior notice and hearing, and singling out private respondent alone when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute which was undeniably priorly known to petitioner
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.

Page 461 of 547

 Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations.

The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valoremexcise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:

. . . Whenever it has to be determined whether or not a cigarette bears a foreign

brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for the
given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.

The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is

not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177
SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. "Specialized in the particular field assigned
to them, they can deal with the problems thereof with more expertise and dispatch
than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.

Page 462 of 547

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654 2 on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be
reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and
make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify
cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act
took effect on July 3, 1993.

The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent

(55%) Provided, That this rate shall apply regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even
petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.

Page 463 of 547

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying
taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same. 4

Page 464 of 547

 The Questioned Circular embodies an interpretative
ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities. 5 In the realm of administrative law, we
understand that such an empowerment of administrative agencies was evolved in response to the needs
of a changing society. This development arose as the need for broad social control over complex
conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the
empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with
which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or

regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation
of the law is at best merely advisory, for it is the courts that finally determine what the
law means. 10

Page 465 of 547

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends
upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges." 11 This is because interpretative regulations
are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited

provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Page 466 of 547

Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law." 12 Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be
blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and
hearing.

Neither is the questioned Circular tainted by a

violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of
conveniently changing its brand names to avoid falling under a classification that would subject it to
higherad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial
determination that private respondent's cigarette brands are foreign brands. The consequent specific
mention of such brands in the questioned Circular, does not change the fact that the questioned
Circular has always been intended for and did cover, all cigarettes similarly situated as "Hope,"
"More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does

Page 467 of 547

 not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular
reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and
has rendered the assessment against private respondent of deficiency ad valorem excise taxes to
be without legal basis. The majority agrees with private respondent and respondent Courts. As the
foregoing opinion chronicles the fatal flaws in private respondent's arguments, it becomes more
apparent that the questioned Circular is in fact a valid and subsisting interpretative ruling that the
petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read

Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or
the actual manufacturer's wholesale price, whichever is higher.

(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "Hope, More andChampion being manufactured
by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect subjected Hope

Page 468 of 547

Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC,
as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled

Revenue Memorandum Circular No. 37-93 reclassifying the brands of

cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and
unenforceable . . . . Accordingly, the deficiency ad valorem tax assessment issued on
petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that
RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by
the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA. 3 Hence, the instant petition for review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium More andChampion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary. 4 It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining
whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette
brandsHope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor
General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that
RMC 37-93 discriminates against its cigarette brands since those of its competitors which are
similarly situated have not been reclassified.

Page 469 of 547

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or

administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more
than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law. 7 The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which
is essentially of an executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. 8 In
carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific
persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must
be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case of Ang Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right
to a hearing, which includes the right of the party interested or affected to present his own case and
submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial; (5) the decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own

Page 470 of 547

independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its
decision in such manner that the parties to the proceeding may know the various issues involved and the
reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means

Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner to the
local manufacturer. Whenever it has to be determined whether or not a cigarette
bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign manufacturers

Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by: (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands

Since there is no showing who among the above-listed manufacturers of the

cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be

Page 471 of 547

 established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands

In view of the foregoing, the aforesaid brands of

cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.

We quote RMC 47-91 promulgated 11 June 1991

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of Copra

TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:

COCOFED MARKETING RESEARCH CORPORATION

6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila

Page 472 of 547

 Attention:
Ms. Esmyrna E. Reyes
Vice President
Finance

Sirs:

This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food

product, is exempt from VAT only if sale is made by the primary
producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very
truly
yours,

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.

(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue

Page 473 of 547

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular

In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brands Hope,More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
and solely on respondent corporation as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end the manner and the circumstances under which the cigarettes of private

Page 474 of 547

respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein and of the majority have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretended loss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued without prior notice and hearing, and singling out private respondent alone when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute which was undeniably priorly known to petitioner
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.

Page 475 of 547

The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.

Section 245 of the National Internal Revenue Code,

as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations.

The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valoremexcise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:

. . . Whenever it has to be determined whether or not a cigarette bears a foreign

brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for the
given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.

Page 476 of 547

 The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is
not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177
SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. "Specialized in the particular field assigned
to them, they can deal with the problems thereof with more expertise and dispatch
than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654 2 on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be
reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and
make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify
cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act
took effect on July 3, 1993.

The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent

(55%) Provided, That this rate shall apply regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even

Page 477 of 547

petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying

Page 478 of 547

taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same. 4

The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities. 5 In the realm of administrative law, we
understand that such an empowerment of administrative agencies was evolved in response to the needs
of a changing society. This development arose as the need for broad social control over complex
conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the
empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with
which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or

regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or

Page 479 of 547

 authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation
of the law is at best merely advisory, for it is the courts that finally determine what the
law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends

upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges." 11 This is because interpretative regulations
are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Page 480 of 547

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited
provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law." 12 Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be
blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and
hearing.

Neither is the questioned Circular tainted by a

violation of the equal protection clause under the
Constitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of

Page 481 of 547

conveniently changing its brand names to avoid falling under a classification that would subject it to
higherad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial
determination that private respondent's cigarette brands are foreign brands. The consequent specific
mention of such brands in the questioned Circular, does not change the fact that the questioned
Circular has always been intended for and did cover, all cigarettes similarly situated as "Hope,"
"More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular
reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and
has rendered the assessment against private respondent of deficiency ad valorem excise taxes to
be without legal basis. The majority agrees with private respondent and respondent Courts. As the
foregoing opinion chronicles the fatal flaws in private respondent's arguments, it becomes more
apparent that the questioned Circular is in fact a valid and subsisting interpretative ruling that the
petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concu

EN BANC

Page 482 of 547

G.R. No. L-16704 March 17, 1962

VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.

Ross, Selph and Carrascoso for petitioner-appellant.

Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.

BARRERA, J.:

On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following
tenor: .

Effective November 1, 1958, all Employers in computing the premiums due the System, will
take into consideration and include in the Employee's remuneration all bonuses and overtime
pay, as well as the cash value of other media of remuneration. All these will comprise the
Employee's remuneration or earnings, upon which the 3-1/2% and 2-1/2% contributions will
be based, up to a maximum of P500 for any one month.

Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the
Social Security Commission in effect protesting against the circular as contradictory to a previous
Circular No. 7, dated October 7, 1957 expressly excluding overtime pay and bonus in the
computation of the employers' and employees' respective monthly premium contributions, and
submitting, "In order to assist your System in arriving at a proper interpretationof the term
'compensation' for the purposes of" such computation, their observations on Republic Act 1161 and
its amendment and on the general interpretation of the words "compensation", "remuneration" and
"wages". Counsel further questioned the validity of the circular for lack of authority on the part of the
Social Security Commission to promulgate it without the approval of the President and for lack of
publication in the Official Gazette.

Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule
or regulation that needed the approval of the President and publication in the Official Gazette to be
effective, but a mere administrative interpretation of the statute, a mere statement of general policy
or opinion as to how the law should be construed.

Not satisfied with this ruling, petitioner comes to this Court on appeal.

The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as
contemplated in Section 4(a) of Republic Act 1161 empowering the Social Security Commission "to
adopt, amend and repeal subject to the approval of the President such rules and regulations as may
be necessary to carry out the provisions and purposes of this Act."

There can be no doubt that there is a distinction between an administrative rule or regulation and an
administrative interpretation of a law whose enforcement is entrusted to an administrative body.
When an administrative agency promulgates rules and regulations, it "makes" a new law with the
force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it
merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis, Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and compliance therewith
may be enforced by a penal sanction provided in the law. This is so because statutes are usually

Page 483 of 547

couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions
intended by the legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been said that rules
and regulations are the product of a delegated power to create new or additional legal provisions
that have the effect of law. (Davis, op. cit., p. 194.) .

A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its
scope is within the statutory authority granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom (Davis, op. cit., 195-197). On the other
hand, administrative interpretation of the law is at best merely advisory, for it is the courts that finally
determine what the law means.

Circular No. 22 in question was issued by the Social Security Commission, in view of the
amendment of the provisions of the Social Security Law defining the term "compensation" contained
in Section 8 (f) of Republic Act No. 1161 which, before its amendment, reads as follows: .

(f) Compensation All remuneration for employment include the cash value of any
remuneration paid in any medium other than cash except (1) that part of the remuneration in
excess of P500 received during the month; (2) bonuses, allowances or overtime pay; and (3)
dismissal and all other payments which the employer may make, although not legally
required to do so.

Republic Act No. 1792 changed the definition of "compensation" to:

(f) Compensation All remuneration for employment include the cash value of any
remuneration paid in any medium other than cash except that part of the remuneration in
excess of P500.00 received during the month.

It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay
given in addition to the regular or base pay were expressly excluded, or exempted from the definition
of the term "compensation", such exemption or exclusion was deleted by the amendatory law. It thus
became necessary for the Social Security Commission to interpret the effect of such deletion or
elimination. Circular No. 22 was, therefore, issued to apprise those concerned of the interpretation or
understanding of the Commission, of the law as amended, which it was its duty to enforce. It did not
add any duty or detail that was not already in the law as amended. It merely stated and circularized
the opinion of the Commission as to how the law should be construed. 1wph1.t

The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited by appellant,
does not support its contention that the circular in question is a rule or regulation. What was there
said was merely that a regulation may be incorporated in the form of a circular. Such statement
simply meant that the substance and not the form of a regulation is decisive in determining its
nature. It does not lay down a general proposition of law that any circular, regardless of its substance
and even if it is only interpretative, constitutes a rule or regulation which must be published in the
Official Gazette before it could take effect.

The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the
present case, because the penalty that may be incurred by employers and employees if they refuse
to pay the corresponding premiums on bonus, overtime pay, etc. which the employer pays to his
employees, is not by reason of non-compliance with Circular No. 22, but for violation of the specific
legal provisions contained in Section 27(c) and (f) of Republic Act No. 1161.

Page 484 of 547

We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System
of what, in the light of the amendment of the law, they should include in determining the monthly
compensation of their employees upon which the social security contributions should be based, and
that such circular did not require presidential approval and publication in the Official Gazette for its
effectivity.

It hardly need be said that the Commission's interpretation of the amendment embodied in its
Circular No. 22, is correct. The express elimination among the exemptions excluded in the old law, of
all bonuses, allowances and overtime pay in the determination of the "compensation" paid to
employees makes it imperative that such bonuses and overtime pay must now be included in the
employee's remuneration in pursuance of the amendatory law. It is true that in previous cases, this
Court has held that bonus is not demandable because it is not part of the wage, salary, or
compensation of the employee. But the question in the instant case is not whether bonus is
demandable or not as part of compensation, but whether, after the employer does, in fact, give or
pay bonus to his employees, such bonuses shall be considered compensation under the Social
Security Act after they have been received by the employees. While it is true that terms or words are
to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such
term or word is specifically defined in a particular law, such interpretation must be adopted in
enforcing that particular law, for it can not be gainsaid that a particular phrase or term may have one
meaning for one purpose and another meaning for some other purpose. Such is the case that is now
before us. Republic Act 1161 specifically defined what "compensation" should mean "For the
purposes of this Act". Republic Act 1792 amended such definition by deleting same exemptions
authorized in the original Act. By virtue of this express substantial change in the phraseology of the
law, whatever prior executive or judicial construction may have been given to the phrase in question
should give way to the clear mandate of the new law.

IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against
appellant. So ordered.

Page 485 of 547

NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his
capacity as Regional Director, NFA Regional Office No. 1, San
Juan, La Union, petitioners, vs. MASADA SECURITY AGENCY,
INC., represented by its Acting President & General Manager,
COL. EDWIN S. ESPEJO (RET.), respondents.

DECISION
YNARES-SANTIAGO, J.:

Assailed in this petition for review under Rule 45 of the Rules of Court is
the February 12, 2004 decision[1] of the Court of Appeals in CA-G.R. CV No.
76677, which dismissed the appeal filed by petitioner National Food Authority
(NFA) and its April 30, 2004 resolution denying petitioners motion for
reconsideration.
The antecedent facts show that on September 17, 1996, respondent
MASADA Security Agency, Inc., entered into a one year[2] contract[3] to provide
security services to the various offices, warehouses and installations of NFA
within the scope of the NFA Region I, comprised of the provinces of
Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration
of said contract, the parties extended the effectivity thereof on a monthly basis
under same terms and condition.[4]
Meanwhile, the Regional Tripartite Wages and Productivity Board issued
several wage orders mandating increases in the daily wage rate. Accordingly,
respondent requested NFA for a corresponding upward adjustment in the
monthly contract rate consisting of the increases in the daily minimum wage of
the security guards as well as the corresponding raise in their overtime pay,
holiday pay, 13th month pay, holiday and rest day pay. It also claimed
increases in Social Security System (SSS) and Pag-ibig premiums as well as
in the administrative costs and margin. NFA, however, granted the request
only with respect to the increase in the daily wage by multiplying the amount
of the mandated increase by 30 days and denied the same with respect to the
adjustments in the other benefits and remunerations computed on the basis of
the daily wage.
Respondent sought the intervention of the Office of the Regional Director,
Regional Office No. I, La Union, as Chairman of the Regional Tripartite Wages
and Productivity Board and the DOLE Secretary through the Executive
Director of the National Wages and Productivity Commission. Despite the
advisory[5] of said offices sustaining the claim of respondent that the increase
mandated by Republic Act No. 6727 (RA 6727) and the wage orders issued by
the RTWPB is not limited to the daily pay, NFA maintained its stance that it is
Page 486 of 547
not liable to pay the corresponding adjustments in the wage related benefits of
respondents security guards.
On May 4, 2001, respondent filed with the Regional Trial Court of Quezon,
City, Branch 83, a case for recovery of sum of money against NFA. Docketed
as Civil Case No. Q-01-43988, the complaint[6] sought reimbursement of the
following amounts allegedly paid by respondent to the security guards, to wit:
P2,949,302.84, for unpaid wage related benefits brought about by the
effectivity of Wage Order Nos. RB 1-05 and RB CAR-04; [7] RB 1-06 and RB
CAR-05;[8] RB 1-07 and RB CAR-06;[9] and P975,493.04 for additional cost and
margin, plus interest. It also prayed for damages and litigation expenses.[10]
In its answer with counterclaim,[11] NFA denied that respondent paid the
security guards their wage related benefits and that it shouldered the
additional costs and margin arising from the implementation of the wage
orders. It admitted, however, that it heeded respondents request for
adjustment only with respect to increase in the minimum wage and not with
respect to the other wage related benefits. NFA argued that respondent
cannot demand an adjustment on said salary related benefits because it is
bound by their contract expressly limiting NFAs obligation to pay only the
increment in the daily wage.
At the pre-trial, the only issue raised was whether or not respondent is
entitled to recover from NFA the wage related benefits of the security guards.
[12]

On September 19, 2002, the trial court rendered a decision[13] in favor of

respondent holding that NFA is liable to pay the security guards wage related
benefits pursuant to RA 6727, because the basis of the computation of said
benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium, is the
increased minimum wage. It also found NFA liable for the consequential
adjustments in administrative costs and margin. The trial court absolved
defendant Juanito M. David having been impleaded in his official capacity as
Regional Director of NFA Regional Office No. 1, San Juan, La Union. The
dispositive portion thereof, reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security

Agency, Inc., and against defendant National Food Authority ordering said defendant
to make the corresponding adjustment in the contract price in accordance with the
increment mandated under the various wage orders, particularly Wage Order Nos.
RBI-05, RBCAR-04, RBI-06, RBCAR-05, RBI-07 and RBCAR-06 and to pay
plaintiff the amounts representing the adjustments in the wage-related benefits of the
security guards and consequential increase in its administrative cost and margin upon
presentment by plaintiff of the corresponding voucher claims.
Page 487 of 547
Plaintiffs claims for damages and attorneys fees and defendants counterclaim for
damages are hereby DENIED.

Defendant Juanito M. David is hereby absolved from any liability.

SO ORDERED.[14]

NFA appealed to the Court of Appeals but the same was dismissed on
February 12, 2004. The appellate court held that the proper recourse of NFA is
to file a petition for review under Rule 45 with this Court, considering that the
appeal raised a pure question of law. Nevertheless, it proceeded to discuss
the merits of the case for purposes of academic discussion and eventually
sustained the ruling of the trial court that NFA is under obligation to pay the
administrative costs and margin and the wage related benefits of the
respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for
reconsideration.[16] Hence, the instant petition.
The issue for resolution is whether or not the liability of principals in
service contracts under Section 6 of RA 6727 and the wage orders issued by
the Regional Tripartite Wages and Productivity Board is limited only to the
increment in the minimum wage.
At the outset, it should be noted that the proper remedy of NFA from the
adverse decision of the trial court is a petition for review under Rule 45 directly
with this Court because the issue involved a question of law. However, in the
interest of justice we deem it wise to overlook the procedural technicalities if
only to demonstrate that despite the procedural infirmity, the instant petition is
impressed with merit.[17]
RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989,
[19]
declared it a policy of the State to rationalize the fixing of minimum wages
and to promote productivity-improvement and gain-sharing measures to
ensure a decent standard of living for the workers and their families; to
guarantee the rights of labor to its just share in the fruits of production; to
enhance employment generation in the countryside through industrial
dispersal; and to allow business and industry reasonable returns on
investment, expansion and growth.[20]
In line with its declared policy, RA 6727, created the National Wages and
Productivity Commission (NWPC),[21] vested, inter alia, with the power to
prescribe rules and guidelines for the determination of appropriate minimum
wage and productivity measures at the regional, provincial or industry levels;

Page 488 of 547

[22]
and the Regional Tripartite Wages and Productivity Boards (RTWPB)
which, among others, determine and fix the minimum wage rates applicable in
their respective region, provinces, or industries therein and issue the
corresponding wage orders, subject to the guidelines issued by the NWPC.
[23]
Pursuant to its wage fixing authority, the RTWPB issue wage orders which
set the daily minimum wage rates.[24]
Payment of the increases in the wage rate of workers is ordinarily
shouldered by the employer. Section 6 of RA 6727, however, expressly lodged
said obligation to the principals or indirect employers in construction projects
and establishments providing security, janitorial and similar services.
Substantially the same provision is incorporated in the wage orders issued by
the RTWPB.[25] Section 6 of RA 6727, provides:

SEC. 6. In the case of contracts for construction projects and for security, janitorial
and similar services, the prescribed increases in the wage rates of the workers shall
be borne by the principals or clients of the construction/service contractors and the
contract shall be deemed amended accordingly. In the event, however, that the
principal or client fails to pay the prescribed wage rates, the construction/service
contractor shall be jointly and severally liable with his principal or client. (Emphasis
supplied)

NFA claims that its additional liability under the aforecited provision is
limited only to the payment of the increment in the statutory minimum wage
rate, i.e., the rate for a regular eight (8) hour work day.
The contention is meritorious.
In construing the word wage in Section 6 of RA 6727, reference must be
had to Section 4 (a) of the same Act. It states:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for
all workers and employees in the private sector, whether agricultural or non-
agricultural, shall be increased by twenty-five pesos (P25) per day (Emphasis
supplied)

The term wage as used in Section 6 of RA 6727 pertains to no other than

the statutory minimum wage which is defined under the Rules Implementing
RA 6727 as the lowest wage rate fixed by law that an employer can pay his
worker.[26] The basis thereof under Section 7 of the same Rules is the normal
working hours, which shall not exceed eight hours a day. Hence, the
prescribed increases or the additional liability to be borne by the principal

Page 489 of 547

under Section 6 of RA 6727 is the increment or amount added to the
remuneration of an employee for an 8-hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is
expressly limited to certain matters, it may not, by interpretation or
construction, be extended to others.[27] Since the increase in wage referred to
in Section 6 pertains to the statutory minimum wage as defined herein,
principals in service contracts cannot be made to pay the corresponding wage
increase in the overtime pay, night shift differential, holiday and rest day pay,
premium pay and other benefits granted to workers. While basis of said
remuneration and benefits is the statutory minimum wage, the law cannot be
unduly expanded as to include those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain
and free from ambiguity, it must be given its literal meaning and applied
without interpretation. This plain meaning rule or verba legis derived from the
maxim index animi sermo est (speech is the index of intention) rests on the
valid presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from construing it
differently. The legislature is presumed to know the meaning of the words, to
have used words advisedly, and to have expressed its intent by use of such
words as are found in the statute. Verba legis non est recedendum, or from
the words of a statute there should be no departure.[28]
The presumption therefore is that lawmakers are well aware that the word
wage as used in Section 6 means the statutory minimum wage. If their
intention was to extend the obligation of principals in service contracts to the
payment of the increment in the other benefits and remuneration of workers, it
would have so expressly specified. In not so doing, the only logical conclusion
is that the legislature intended to limit the additional obligation imposed on
principals in service contracts to the payment of the increment in the statutory
minimum wage.
The general rule is that construction of a statute by an administrative
agency charged with the task of interpreting or applying the same is entitled to
great weight and respect. The Court, however, is not bound to apply said rule
where such executive interpretation, is clearly erroneous, or when there is no
ambiguity in the law interpreted, or when the language of the words used is
clear and plain, as in the case at bar. Besides, administrative interpretations
are at best advisory for it is the Court that finally determines what the law
means.[29] Hence, the interpretation given by the labor agencies in the instant
case which went as far as supplementing what is otherwise not stated in the
law cannot bind this Court.

Page 490 of 547

 It is not within the province of this Court to inquire into the wisdom of the
law for indeed, we are bound by the words of the statute. [30] The law is applied
as it is. At any rate, the interest of the employees will not be adversely affected
if the obligation of principals under the subject provision will be limited to the
increase in the statutory minimum wage. This is so because all remuneration
and benefits other than the increased statutory minimum wage would be
shouldered and paid by the employer or service contractor to the workers
concerned. Thus, in the end, all allowances and benefits as computed under
the increased rate mandated by RA 6727 and the wage orders will be
received by the workers.
Moreover, the law secures the welfare of the workers by imposing a
solidary liability on principals and the service contractors. Under the second
sentence of Section 6 of RA 6727, in the event that the principal or client fails
to pay the prescribed wage rates, the service contractor shall be held
solidarily liable with the former. Likewise, Articles 106, 107 and 109 of the
Labor Code provides:

ART. 106. Contractor or Subcontractor. Whenever an employer enters into contract

with another person for the performance of the formers work, the employees of the
contractor and of the latters subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wage of his employees
in accordance with this Code, the employer shall be jointly and severally liable with
his contractor or subcontractor to such employees to the extent of the work performed
under the contract, in the same manner and extent that he is liable to employees
directly employed by him.

ART. 107. Indirect Employer. The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor for the performance of
any work, task, job or project.

ART. 109. Solidary Liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with
his contractor or subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this Chapter, they shall
be considered as direct employers.

Based on the foregoing interpretation of Section 6 of RA 6727, the parties

may enter into stipulations increasing the liability of the principal. So long as

Page 491 of 547

the minimum obligation of the principal, i.e., payment of the increased
statutory minimum wage is complied with, the Wage Rationalization Act is not
violated.
In the instant case, Article IV.4 of the service contract provides:

IV.4. In the event of a legislated increase in the minimum wage of security guards
and/or in the PADPAO rate, the AGENCY may negotiate for an adjustment in the
contract price. Any adjustment shall be applicable only to the increment, based on
published and circulated rates and not on mere certification. [31]

In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:

3. For purposes of wage adjustments, consider only the rate based on the wage Order
issued by the Regional Tripartite Wage Productivity Board (RTWPB). Unless
otherwise provided in the Wage Order issued by the RTWPB, the wage adjustment
shall be limited to the increment in the legislated minimum wage;[32]

The parties therefore acknowledged the application to their contract of the

wage orders issued by the RTWPB pursuant to RA 6727. There being no
assumption by NFA of a greater liability than that mandated by Section 6 of
the Act, its obligation is limited to the payment of the increased statutory
minimum wage rates which, as admitted by respondent, had already been
satisfied by NFA.[33] Under Article 1231 of the Civil Code, one of the modes of
extinguishing an obligation is by payment. Having discharged its obligation to
respondent, NFA no longer have a duty that will give rise to a correlative legal
right of respondent. The latters complaint for collection of remuneration and
benefits other than the increased minimum wage rate, should therefore be
dismissed for lack of cause of action.
The same goes for respondents claim for administrative cost and margin.
Considering that respondent failed to establish a clear obligation on the part of
NFA to pay the same as well as to substantiate the amount thereof with
documentary evidence, the claim should be denied.
WHEREFORE, the petition is GRANTED. The February 12, 2004 decision
and the April 30, 2004 resolution of the Court of Appeals which dismissed
petitioner National Food Authoritys appeal and motion for reconsideration,
respectively, in CA-G.R. CV No. 76677, are REVERSED and SET ASIDE. The
complaint filed by respondent MASADA Security Agency, Inc., docketed as
Civil Case No. Q-01-43988, before the Regional Trial Court of Quezon, City,
Branch 83, is ordered DISMISSED.
SO ORDERED.
Davide Jr., C.J., (Chairman), Quisumbing, Carpio and Azcuna, JJ., concur.

Page 492 of 547

COMMISSIONER OF G.R. No. 159694
INTERNAL REVENUE,
Petitioner, Present:
Panganiban, CJ,
- versus - Chairman,
Ynares-Santiago,
Austria-Martinez,
AZUCENA T. REYES, Callejo, Sr., and
Respondent. Chico-Nazario, JJ
x -- -- -- -- -- -- -- -- -- -- -- -- -- x

AZUCENA T. REYES, G.R. No. 163581

Petitioner,
- versus -
COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondent. January 27, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- x

Page 493 of 547

 DECISION

PANGANIBAN, CJ.:

U
nder the present provisions of the Tax Code and
pursuant to elementary due process, taxpayers must be
informed in writing of the law and the facts upon which a
tax assessment is based; otherwise, the assessment is
void. Being invalid, the assessment cannot in turn be
used as a basis for the perfection of a tax compromise.

The Case

Before us are two consolidated[1] Petitions for

Review[2] filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision[3] of the Court of
Page 494 of 547
Appeals (CA) in CA-GR SP No. 71392.
The dispositive portion of the assailed Decision reads as
follows:

WHEREFORE, the petition is GRANTED. The assailed

decision of the Court of Tax Appeals is ANNULLED and SET
ASIDE without prejudice to the action of the National Evaluation
Board on the proposed compromise settlement of the Maria
C. Tancinco estates tax liability.[4]

The Facts

The CA narrated the facts as follows:

On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a

1,292 square-meter residential lot and an old house thereon (or
subject property) located
at 4931 Pasay Road, Dasmarias Village, Makati City.

On the basis of a sworn information-for-reward filed on February 17,

1997 by a certain Raymond Abad (or Abad), Revenue District Office
No. 50 (South Makati) conducted an investigation on the decedents
estate (or estate). Subsequently, it issued a Return Verification
Order. But without the required preliminary findings being submitted,
it issued Letter of Authority No. 132963 for the regular investigation
of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the
decedents heirs, received the Letter of Authority on March 14, 1997.

Page 495 of 547

On February 12, 1998, the Chief, Assessment Division, Bureau of
Internal Revenue (or BIR), issued a preliminary assessment notice
against the estate in the amount of P14,580,618.67. On May 10,
1998, the heirs of the decedent (or heirs) received a final estate tax
assessment notice and a demand letter, both dated April 22, 1998,
for the amount of P14,912,205.47, inclusive of surcharge and
interest.

On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested

the assessment [o]n behalf of the heirs on the ground that the
subject property had already been sold by the decedent sometime in
1990.

On November 12, 1998, the Commissioner of Internal Revenue (or

[CIR]) issued a preliminary collection letter to [Reyes], followed by a
Final Notice Before Seizure dated December 4, 1998.

On January 5, 1999, a Warrant of Distraint and/or Levy was served

upon the estate, followed on February 11, 1999 by Notices of Levy
on Real Property and Tax Lien against it.

On March 2, 1999, [Reyes] protested the notice of levy. However,

on March 11, 1999, the heirs proposed a compromise settlement
of P1,000,000.00.

In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to

pay 50% of the basic tax due, citing the heirs inability to pay the tax
assessment.On March 20, 2000, [the CIR] rejected [Reyess] offer,
pointing out that since the estate tax is a charge on the estate and
not on the heirs, the latters financial incapacity is immaterial as, in
fact, the gross value of the estate amounting to P32,420,360.00 is
more than sufficient to settle the tax liability.Thus, [the CIR]
demanded payment of the amount of P18,034,382.13 on or

Page 496 of 547

before April 15, 2000[;] otherwise, the notice of sale of the subject
property would be published.

On April 11, 2000, [Reyes] again wrote to [the CIR], this time
proposing to pay 100% of the basic tax due in the amount
of P5,313,891.00. She reiterated the proposal in a letter dated May
18, 2000.

As the estate failed to pay its tax liability within the April 15, 2000
deadline, the Chief, Collection Enforcement Division, BIR, notified
[Reyes] on June 6, 2000 that the subject property would be sold at
public auction on August 8, 2000.

On June 13, 2000, [Reyes] filed a protest with the BIR Appellate
Division. Assailing the scheduled auction sale, she asserted that
x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file
the corresponding estate tax return and pay the correct amount of
tax without surcharge [or] interest.

Without acting on [Reyess] protest and offer, [the CIR] instructed the
Collection Enforcement Division to proceed with the August 8,
2000 auction sale.Consequently, on June 28, 2000, [Reyes] filed a
[P]etition for [R]eview with the Court of Tax Appeals (or CTA),
docketed as CTA Case No. 6124.

On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of
Preliminary Injunction or Status Quo Order, which was granted by
the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in
the amount of P27,000,000.00, the CTA issued a [R]esolution dated
August 16, 2000 ordering [the CIR] to desist and refrain from
proceeding with the auction sale of the subject property or from
issuing a [W]arrant of [D]istraint or [G]arnishmentof
[B]ank [A]ccount[,] pending determination of the case and/or unless
a contrary order is issued.

Page 497 of 547

[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i)
that the CTA no longer has jurisdiction over the case[,] because the
assessment against the estate is already final and executory; and (ii)
that the petition was filed out of time. In a
[R]esolution dated November 23, 2000, the CTA denied [the CIRs]
motion.

During the pendency of the [P]etition for [R]eview with the CTA,
however, the BIR issued Revenue Regulation (or RR) No. 6-2000
and Revenue Memorandum Order (or RMO) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed
assessments an opportunity to compromise their tax liability.

On November 25, 2000, [Reyes] filed an application with the BIR for
the compromise settlement (or compromise) of the assessment
against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.

On December 26, 2000, [Reyes] filed an Ex-Parte Motion for

Postponement of the hearing before the CTA scheduled on January
9, 2001, citing her pending application for compromise with the
BIR. The motion was granted and the hearing was reset to February
6, 2001.

On January 29, 2001, [Reyes] moved for postponement of the

hearing set on February 6, 2001, this time on the ground that she
had already paid the compromise amount of P1,062,778.20 but was
still awaiting approval of the National Evaluation Board (or
NEB). The CTA granted the motion and reset the hearing
to February 27, 2001.

On February 19, 2001, [Reyes] filed a Motion to Declare Application

for the Settlement of Disputed Assessment as a Perfected
Compromise. In said motion, she alleged that [the CIR] had not yet

Page 498 of 547

signed the compromise[,] because of procedural red tape requiring
the initials of four Deputy Commissioners on relevant documents
before the compromise is signed by the [CIR]. [Reyes] posited that
the absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise.

Commenting on the motion, [the CIR] countered that[,] without the

approval of the NEB, [Reyess] application for compromise with the
BIR cannot be considered a perfected or consummated
compromise.

On March 9, 2001, the CTA denied [Reyess] motion, prompting her

to file a Motion for Reconsideration Ad Cautelam. In a
[R]esolution dated April 10, 2001, the CTA denied the [M]otion for
[R]econsideration with the suggestion that[,] for an orderly
presentation of her case and to prevent piecemeal resolutions of
different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already
a perfected compromise.

On May 2, 2001, [Reyes] filed a Supplemental Petition for Review

with the CTA, followed on June 4, 2001 by its Amplificatory
Arguments (for the Supplemental Petition for Review), raising the
following issues:

1. Whether or not an offer to compromise by the [CIR], with the

acquiescence by the Secretary of Finance, of a tax liability
pending in court, that was accepted and paid by the taxpayer, is a
perfected and consummated compromise.

2. Whether this compromise is covered by the provisions of

Section 204 of the Tax Code (CTRP) that requires approval by the
BIR [NEB].

Answering the Supplemental Petition, [the CIR] averred that

an application for compromise of a tax liability under RR No. 6-2000
Page 499 of 547
and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or REB), as the case
may be.

On June 14, 2001, [Reyes] filed a Motion for Judgment on the

Pleadings; the motion was granted on July 11, 2001. After
submission of memoranda, the case was submitted for [D]ecision.

On June 19, 2002, the CTA rendered a [D]ecision,

the decretal portion of which pertinently reads:

WHEREFORE, in view of all the foregoing, the instant

[P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is
hereby ORDERED to PAY deficiency estate tax in the amount of
Nineteen Million Five Hundred Twenty Four Thousand Nine
Hundred Nine and 78/100 (P19,524,909.78), computed as follows:

xxxxxxxxx

[Reyes] is likewise ORDERED to PAY 20% delinquency

interest on deficiency estate tax due of P17,934,382.13 from
January 11, 2001 until full payment thereof pursuant to Section
249(c) of the Tax Code, as amended.

In arriving at its decision, the CTA ratiocinated that there can only be
a perfected and consummated compromise of the estates tax
liability[,] if theNEB has approved [Reyess]
application for compromise in accordance with RR No. 6-2000, as
implemented by RMO No. 42-2000.

Anent the validity of the assessment notice and letter of demand

against the estate, the CTA stated that at the time the questioned
assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based. It
also observed that the petition was not filed within the 30-

Page 500 of 547

 day reglementary period provided under Sec. 11 of Rep. Act No.
1125 and Sec. 228 of the Tax Code.[5]

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section

228 of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice
and the demand letter should have stated the facts and
the law on which they were based; otherwise, they were
deemed void.[6] The appellate court held that while
administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law
and equity to observe substantive due process. The
reason behind this requirement, said the CA, was to
ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments
against them.[7] Since the assessment and the demand
were void, the proceedings emanating from them were
likewise void, and any order emanating from them could
never attain finality.

Page 501 of 547

The appellate court added, however, that it was
premature to declare as perfected and consummated the
compromise of the estates tax liability. It explained that,
where the basic tax assessed exceeded P1 million, or
where the settlement offer was less than the prescribed
minimum rates, the National Evaluation Boards (NEB)
prior evaluation and approval were the conditio sine qua
non to the perfection and consummation of any
compromise.[8] Besides, the CA pointed out, Section
204(A) of the Tax Code applied to all compromises,
whether government-initiated or not.[9]Where the law did
not distinguish, courts too should not distinguish.

Hence, this Petition.[10]

The Issues

In GR No. 159694, petitioner raises the following issues

for the Courts consideration:

Page 502 of 547

 I.

Whether petitioners assessment against the estate is valid.

II.

Whether respondent can validly argue that she, as well as the other
heirs, was not aware of the facts and the law on which the
assessment in question is based, after she had opted to propose
several compromises on the estate tax due, and even prematurely
acting on such proposal by paying 20% of the basic estate tax due.
[11]

The foregoing issues can be simplified as

follows: first, whether the assessment against the
estate is valid; and, second, whether the
compromise entered into is also valid.

The Courts Ruling

The Petition is unmeritorious.

Page 503 of 547

 First Issue:
Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax

Code[12] is clear and mandatory. It provides as follows:

Sec. 228. Protesting of Assessment. --

xxxxxxxxx

The taxpayers shall be informed in writing of the law and the facts on
which the assessment is made: otherwise, the assessment shall be
void.

In the present case, Reyes was not informed in writing of

the law and the facts on which the assessment of estate
taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the
provisions of former Section 229[13] prior to its
amendment by Republic Act (RA) No. 8424, otherwise
known as the Tax Reform Act of 1997.

Page 504 of 547

First, RA 8424 has already amended the provision of
Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of
the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on
which an assessment would be made; otherwise, the
assessment itself would be invalid.

It was on February 12, 1998, that a preliminary

assessment notice was issued against the
estate. On April 22, 1998, the final estate tax assessment
notice, as well as demand letter, was also issued. During
those dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient
under the new law.

To be simply informed in writing of the investigation

being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean
that Reyes already knew the law and the facts on which

Page 505 of 547

the assessment was based. It does not at all conform to
the compulsory requirement under Section
228. Moreover, the Letter of Authority received by
respondent on March 14, 1997 was for the sheer
purpose of investigation and was not even the requisite
notice under the law.

The procedure for protesting an assessment under the

Tax Code is found in Chapter III of Title VIII, which deals
with remedies. Being procedural in nature, can its
provision then be applied retroactively? The answer is
yes.

The general rule is that statutes are

prospective. However, statutes that are remedial, or that
do not create new or take away vested rights, do not fall
under the general rule against the retroactive operation
of statutes.[14] Clearly, Section 228 provides for the
procedure in case an assessment is protested. The
provision does not create new or take away vested
rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either
expressly or by necessary implication, that pending

Page 506 of 547

actions are excepted from the operation of Section 228,
or that applying it to pending proceedings would impair
vested rights.

Second, the non-retroactive application of Revenue

Regulation (RR) No. 12-99 is of no moment, considering
that it merely implements the law.

A tax regulation is promulgated by the finance secretary

to implement the provisions of the Tax Code.[15] While it
is desirable for the government authority or
administrative agency to have one immediately issued
after a law is passed, the absence of the regulation does
not automatically mean that the law itself would become
inoperative.

At the time the pre-assessment notice was issued to

Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the
assessment was based. Thus, the CIR should have
required the assessment officers of the Bureau of
Internal Revenue (BIR) to follow the clear mandate of
the new law. The old regulation governing the issuance
Page 507 of 547
of estate tax assessment notices ran afoul of the rule that
tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.[16]

It may be argued that the Tax Code provisions are not

self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would
simply require tax officials to inform the taxpayer, in any
manner, of the law and the facts on which an assessment
was based.That requirement is neither difficult to make
nor its desired results hard to achieve.

Moreover, an administrative rule interpretive of a

statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as
of the date of the effectivity of the statute.[17] RR 12-99 is
one such rule. Being interpretive of the provisions of the
Tax Code, even if it was issued only on September 6,
1999, this regulation was to retroact to January 1,
1998 -- a date prior to the issuance of the preliminary
assessment notice and demand letter.

Page 508 of 547

Third, neither Section 229 nor RR 12-85 can prevail over
Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The

provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between
the law as amended and its implementing but old
regulation, the former necessarily prevails.[18] Thus,
between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because
it cannot go beyond the provision of the law. The law
must still be followed, even though the existing tax
regulation at that time provided for a different
procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed,
and that no consequence would ensue for failure to
comply with that form.

Fourth, petitioner violated the cardinal rule in

administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no
valid notice was sent, either. A void assessment bears no
valid fruit.

Page 509 of 547

The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is
evidently violative of the cardinal principle in
administrative investigations: that taxpayers should be
able to present their case and adduce supporting
evidence.[19] In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without
complying with the unequivocal mandate of first
informing the taxpayer of the governments claim, there
can be no deprivation of property, because no effective
protest can be made.[20] The haphazard shot at slapping
an assessment, supposedly based on estate taxations
general provisions that are expected to be known by the
taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment

notice, as well as the demand letter sent, reveals the lack
of basis for -- not to mention the insufficiency of -- the
gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived
at. Although taxes are

Page 510 of 547

the lifeblood of the government, their assessment and
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government
itself.[21]

Fifth, the rule against estoppel does not apply. Although

the government cannot be estopped by the negligence or
omission of its agents, the obligatory provision on
protesting a tax assessment cannot be rendered
nugatory by a mere act of the CIR .

Tax laws are civil in nature.[22] Under our Civil Code, acts
executed against the mandatory provisions of law are
void, except when the law itself authorizes the validity of
those acts.[23] Failure to comply with Section 228 does
not only render the assessment void, but also finds no
validation in any provision in the Tax Code. We cannot
condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.

Second Issue:

Page 511 of 547

 Validity of Compromise

It would be premature for this Court to declare that the

compromise on the estate tax liability has been perfected
and consummated, considering the earlier determination
that the assessment against the estate was void. Nothing
has been settled or finalized. Under Section 204(A) of
the Tax Code, where the basic tax involved exceeds one
million pesos or the settlement offered is less than the
prescribed minimum rates, the compromise shall be
subject to the approval of the NEB composed of the
petitioner and four deputy commissioners.

Finally, as correctly held by the appellate court, this

provision applies to all compromises, whether
government-initiated or
not. Ubi lex non distinguit, necnos distinguere debemos.
Where the law does not distinguish, we should not
distinguish.

Page 512 of 547

WHEREFORE, the Petition is hereby DENIED and the
assailed Decision AFFIRMED. No pronouncement as to
costs.

SO ORDERED.

G.R. No. 175451 April 13, 2007

ROSARIO L. DADULO, Petitioner,

vs.
THE HON. COURT OF APPEALS, OFFICE OF THE OMBUDSMAN, HON. FELICIANO
BELMONTE, JR., in his capacity as City Mayor of Quezon City and GLORIA
PATANGUI, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition is the July 20, 2006 Decision1 of the Court of Appeals in CA-G.R. SP No.
89909, affirming the March 4, 2003 Decision2 of the Office of the Ombudsman in OMB-C-A-02-0470-

Page 513 of 547

J, which found petitioner Rosario Dadulo guilty of conduct prejudicial to the best interest of the
service and imposed upon her the penalty of six months suspension.

On September 26, 2002, private respondent Gloria Patangui (Patangui) filed before the Office of the
Ombudsman an administrative complaint against petitioner Rosario Dadulo, Barangay Chairperson
of Barangay Payatas A, Quezon City; and against Barangay Security Development Officers (BSDOs)
Edgar Saraga and Rogelio Dumadigo; and Deputy BSDO Efren Pagabao. Patangui declared in
her Salaysay ng Pagrereklamo3 that at around 4:30 in the afternoon of September 22, 2002, while
she was out of their house, petitioner and the said BSDOs stole several galvanized iron sheets,
lumber, and rolled plain iron sheets from her backyard. The incident was purportedly witnessed by
Patanguis two daughters who saw two men cart away the items upon the orders of a woman who
was standing nearby. A BSDO on duty told Patangui that it was petitioner who ordered the seizure of
the subject construction materials. The same information was relayed to her by a certain Elsie
Castillejos. The following day, Patangui found out that some of the galvanized iron sheets taken from
her backyard were utilized in building the new barangay outpost. She recognized said items because
she is familiar with the campaign stickers still posted on the galvanized iron sheets.

In her Sinumpaang Salaysay,4 Jessica, 9 year old daughter of Patangui, stated that while she was
playing in their yard, two men seized their construction materials upon the orders of a woman. The
following day, she pointed to a BSDO wearing a black jacket as one of those who took the
construction materials. Upon inquiry, said man was identified as Edgar Saraga. Jessica later learned
from their neighbors and from her mother that the woman who was standing near their house and
giving orders to the BSDOs, was petitioner Rosario Dadulo.

Deputy BSDO Efren Pagabao stated in his counter-affidavit that they were directed by petitioner to
inspect the house of Patangui to verify whether she has the necessary permit in connection with the
ongoing construction in the site. He stressed that they acted with courtesy during the said
inspection.5 BSDOs Edgar Saraga and Rogelio Dumadigo added that the complaint filed against
them was fabricated and aimed to conceal that Patangui was illegally building a structure on a land
owned by the government.6

In her counter-affidavit, petitioner denied the charge against her and declared that on September 11,
2002, a certain Elsie Castillejos applied for a permit to construct a house extension but was denied
because the structure was intended to be built on the land owned by the National Waterworks and
Sewerage Authority (NAWASA). Nevertheless, the construction proceeded. Petitioner inspected the
site and found out that the structure is owned by Patangui and not by Elsie Castillejos. 7

Based on the affidavit of the parties, the Office of the Ombudsman rendered the assailed Decision
finding petitioner and BSDO Edgar Saraga guilty of conduct prejudicial to the best interest of the
service and imposed upon them the penalty of six months suspension. The charges against BSDO
Rogelio Dumadigo and Deputy BSDO Efren Pagabao were dismissed for not having been identified
as among those who took the construction materials of petitioner. The dispositive portion of the
decision of the Office of the Ombudsman, reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered finding respondents

ROSARIO DADULO and EDGAR SARAGA Guilty of Conduct Prejudicial to the Best Interest of the
Service, for which the penalty of Suspension for Six (6) Months Without Pay is hereby
recommended, pursuant to the provisions of Section 10, Rule III of Administrative Order No. 07, in
relation to Section 25 of Republic Act No. 6770.

Page 514 of 547

The Honorable, the Mayor, Quezon City, is hereby furnished a copy of this Decision for its
implementation in accordance with law, with the directive to inform this Office of the action taken
thereon.

SO RESOLVED.8

Only petitioner elevated the case to the Court of Appeals which affirmed the assailed decision of the
Office of the Ombudsman on July 20, 2006.9 It held that there is substantial evidence to prove that
petitioner ordered the seizure of the construction materials of Patangui. The dispositive portion
thereof, provides:

WHEREFORE, premises considered, the appealed decision of the Office of the Ombudsman in
OMB-C-A-02-0470-J is hereby AFFIRMED and the petition is DENIED.

SO ORDERED.10 1a\^/phi1.net

On October 26, 2006, public respondent Feliciano Belmonte, Jr. issued an Order implementing the
suspension of petitioner.11 Hence, the instant recourse with prayer for the issuance of a temporary
restraining order. On December 13, 2006, the Court issued a Resolution enjoining the
implementation of petitioners suspension.12

The issue for resolution is whether there is substantial evidence to show that petitioner ordered the
seizure of Patanguis construction materials.

Administrative proceedings are governed by the "substantial evidence rule." Otherwise stated, a
finding of guilt in an administrative case would have to be sustained for as long as it is supported by
substantial evidence that the respondent has committed acts stated in the complaint. 13 Substantial
evidence is more than a mere scintilla of evidence. It means such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion, even if other minds equally reasonable
might conceivably opine otherwise.14

A review of the records of the case shows that the factual findings of the Ombudsman upon which its
decision on petitioners administrative liability was based are supported by the evidence on record.
Petitioner and BSDO Edgar Saraga were identified as the persons who took the construction
materials. Respondents claim was corroborated by the testimony of her daughter who saw the
actual taking of the construction materials. Moreover, respondent testified that the materials taken
from her premises were used in the construction of the new barangay outpost. 15

On the other hand, the defense proffered by petitioner failed to rebut the charges against her. She
cannot rely on the sweeping general denial of the charges in the face of a positive and categorical
assertion made by respondent and her witness.16 Petitioner was afforded the opportunity to disprove
the charges against her but still failed to offer any plausible explanation as to why the construction
materials were in their possession, some of which were even used in the barangay outpost. Instead,
she accused private respondent of illegally constructing a structure. However, even if the
construction materials were to be used in constructing an illegal structure, their summary seizure
would still make the public officers ordering or affecting the seizure administratively liable.

Findings of fact of the Office of the Ombudsman are conclusive when supported by substantial
evidence and are accorded due respect and weight especially when they are affirmed by the Court

Page 515 of 547

of Appeals. It is only when there is grave abuse of discretion by the Ombudsman that a review of
factual findings may aptly be made.17 In reviewing administrative decisions, it is beyond the province
of this Court to weigh the conflicting evidence, determine the credibility of witnesses, or otherwise
substitute its judgment for that of the administrative agency with respect to the sufficiency of
evidence.18 It is not the function of this Court to analyze and weigh the parties evidence all over
again except when there is serious ground to believe that a possible miscarriage of justice would
thereby result. Our task in an appeal by petition for review on certiorari is limited, as a jurisdictional
matter, to reviewing errors of law that might have been committed by the Court of Appeals. 19 1awphi1.nt

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP. No.
1awphi1.nt

89909, affirming the March 4, 2003 Decision of the Office of the Ombudsman in OMB-C-A-0470-J
which found petitioner Rosario Dadulo guilty of conduct prejudicial to the best interest of the service
and imposed upon her the penalty of suspension for six months is AFFIRMED.

SO ORDERED.

[G.R. No. 147096. January 15, 2002]

REPUBLIC OF THE PHILIPPINES, represented by NATIONAL

TELECOMMUNICATIONS COMMISSION, petitioner, vs. EXPRESS
TELECOMMUNICATION CO., INC. and BAYAN
TELECOMMUNICATIONS CO., INC., respondents.

Page 516 of 547

 [G.R. No. 147210. January 15, 2002]

BAYAN TELECOMMUNICATIONS (Bayantel), INC., petitioner,

vs. EXPRESS TELECOMMUNICATION CO., INC.
(Extelcom), respondent.

DECISION
YNARES-SANTIAGO, J.:

On December 29, 1992, International Communications Corporation

(now Bayan Telecommunications, Inc. or Bayantel) filed an application with
the National Telecommunications Commission (NTC) for a Certificate of Public
Convenience or Necessity (CPCN) to install, operate and maintain a digital
Cellular Mobile Telephone System/Service (CMTS) with prayer for a
Provisional Authority (PA). The application was docketed as NTC Case No.
92-486. [1]

Shortly thereafter, or on January 22, 1993, the NTC issued Memorandum

Circular No. 4-1-93 directing all interested applicants for nationwide or
regional CMTS to file their respective applications before the Commission on
or before February 15, 1993, and deferring the acceptance of any application
filed after said date until further orders. [2]

On May 6, 1993, and prior to the issuance of any notice of hearing by the
NTC with respect to Bayantels original application, Bayantel filed an
urgent ex-parte motion to admit an amended application. On May 17, 1993,
[3]

the notice of hearing issued by the NTC with respect to this amended
application was published in the Manila Chronicle.Copies of the application as
well as the notice of hearing were mailed to all affected parties. Subsequently,
hearings were conducted on the amended application. But
beforeBayantel could complete the presentation of its evidence, the NTC
issued an Order dated December 19, 1993 stating:

In view of the recent grant of two (2) separate Provisional Authorities in favor of
ISLACOM and GMCR, Inc., which resulted in the closing out of all available
frequencies for the service being applied for by herein applicant, and in order that this
case may not remain pending for an indefinite period of time, AS PRAYED FOR, let
this case be, as it is, hereby ordered ARCHIVED without prejudice to its
reinstatement if and when the requisite frequency becomes available.

Page 517 of 547

SO ORDERED.[4]

On June 18, 1998, the NTC issued Memorandum Circular No. 5-6-98 re-
allocating five (5) megahertz (MHz) of the radio frequency spectrum for the
expansion of CMTS networks. The re-allocated 5 MHz were taken from the
following bands: 1730-1732.5 / 1825-1827.5 MHz and 1732.5-1735 / 1827.5-
1830 MHz. [5]

Likewise, on March 23, 1999, Memorandum Circular No. 3-3-99 was

issued by the NTC re-allocating an additional five (5) MHz frequencies for
CMTS service, namely: 1735-1737.5 / 1830-1832.5 MHz; 1737.5-1740 /
1832.5-1835 MHz; 1740-1742.5 / 1835-1837.5 MHz; and 1742.5-1745 /
1837.5-1840 MHz. [6]

On May 17, 1999, Bayantel filed an Ex-Parte Motion to Revive Case,

citing the availability of new frequency bands for CMTS operators, as
[7]

provided for under Memorandum Circular No. 3-3-99.

On February 1, 2000, the NTC granted BayanTels motion to revive the

latters application and set the case for hearings on February 9, 10, 15, 17 and
22, 2000. The NTC noted that the application was ordered archived without
[8]

prejudice to its reinstatement if and when the requisite frequency shall

become available.

Respondent Express Telecommunication Co., Inc. (Extelcom) filed in NTC

Case No. 92-486 an Opposition (With Motion to Dismiss) praying for the
dismissal of Bayantelsapplication. Extelcom argued that Bayantels motion
[9]

sought the revival of an archived application filed almost eight (8) years
ago. Thus, the documentary evidence and the allegations of
respondent Bayantel in this application are all outdated and should no longer
be used as basis of the necessity for the proposed CMTS
service. Moreover,Extelcom alleged that there was no public need for the
service applied for by Bayantel as the present five CMTS operators
--- Extelcom, Globe Telecom, Inc., Smart Communication, Inc., Pilipino
Telephone Corporation, and Isla Communication Corporation, Inc. --- more
than adequately addressed the market demand, and all are in the process of
enhancing and expanding their respective networks based on recent
technological developments.

Page 518 of 547

 Extelcom likewise contended that there were no available radio
frequencies that could accommodate a new CMTS operator as the frequency
bands allocated in NTC Memorandum Circular No. 3-3-99 were intended for
and had in fact been applied for by the existing CMTS operators. The NTC, in
its Memorandum Circular No. 4-1-93, declared it its policy to defer the
acceptance of any application for CMTS. All the frequency bands allocated for
CMTS use under the NTCs Memorandum Circular No. 5-11-88and
Memorandum Circular No. 2-12-92 had already been allocated to the existing
CMTS operators. Finally, Extelcom pointed out that Bayantel is its substantial
stockholder to the extent of about 46% of its outstanding capital stock,
and Bayantels application undermines the very operations of Extelcom.

On March 13, 2000, Bayantel filed a Consolidated Reply/Comment,

stating that the opposition was actually a motion seeking a reconsideration
[10]

of the NTC Order reviving the instant application, and thus cannot dwell on the
material allegations or the merits of the case. Furthermore, Extelcom cannot
claim that frequencies were not available inasmuch as the allocation and
assignment thereof rest solely on the discretion of the NTC.

In the meantime, the NTC issued on March 9, 2000 Memorandum Circular

No. 9-3-2000, re-allocating the following radio frequency bands for
assignment to existing CMTS operators and to public telecommunication
entities which shall be authorized to install, operate and maintain CMTS
networks, namely: 1745-1750MHz / 1840-1845MHz; 1750-1775MHz / 1845-
1850MHz; 1765-1770MHz / 1860-1865MHz; and 1770-1775MHz / 1865-
1870MHz. [11]

On May 3, 2000, the NTC issued an Order granting in favor of Bayantel a

provisional authority to operate CMTS service. The Order stated in pertinent
[12]

part:

On the issue of legal capacity on the part of Bayantel, this Commission has already
taken notice of the change in name of International Communications Corporation
to BayanTelecommunications, Inc. Thus, in the Decision entered in NTC Case No.
93-284/94-200 dated 19 July 1999, it was recognized that Bayan Telecommunications,
Inc., was formerly named International Communications Corp. Bayantel and ICC
Telecoms, Inc. are one and the same entity, and it necessarily follows that what legal
capacity ICC Telecoms has or has acquired is also the legal capacity
that Bayantel possesses.

Page 519 of 547

On the allegation that the Commission has committed an error in allowing the revival
of the instant application, it appears that the Order dated 14 December 1993 archiving
the same was anchored on the non-availability of frequencies for CMTS. In the same
Order, it was expressly stated that the archival hereof, shall be without prejudice to its
reinstatement if and when the requisite frequency becomes available. Inherent in the
said Order is the prerogative of the Commission in reviving the same, subject to
prevailing conditions. The Order of 1 February 2001, cited the availability of
frequencies for CMTS, and based thereon, the Commission, exercising its prerogative,
revived and reinstated the instant application. The fact that the motion for revival
hereof was made ex-parte by the applicant is of no moment, so long as
the oppositors are given the opportunity to be later heard and present the merits of
their respective oppositions in the proceedings.

On the allegation that the instant application is already obsolete and overtaken by
developments, the issue is whether applicant has the legal, financial and technical
capacity to undertake the proposed project. The determination of such capacity lies
solely within the discretion of the Commission, through its applicable rules and
regulations. At any rate, the oppositors are not precluded from showing evidence
disputing such capacity in the proceedings at hand. On the alleged non-availability of
frequencies for the proposed service in view of the pending applications for the same,
the Commission takes note that it has issued Memorandum Circular 9-3-2000,
allocating additional frequencies for CMTS. The eligibility of existing operators who
applied for additional frequencies shall be treated and resolved in their respective
applications, and are not in issue in the case at hand.

Accordingly, the Motions for Reconsideration filed by SMARTCOM and GLOBE

TELECOMS/ISLACOM and the Motion to Dismiss filed by EXTELCOM are hereby
DENIED for lack of merit.[13]

The grant of the provisional authority was anchored on the following

findings:

COMMENTS:

1. Due to the operational mergers between Smart Communications, Inc. and Pilipino
Telephone Corporation (Piltel) and between Globe Telecom, Inc. (Globe)
and IslaCommunications, Inc. (Islacom), free and effective competition in the CMTS
market is threatened. The fifth operator, Extelcom, cannot provide good competition
in as much as it provides service using the analog AMPS. The GSM system
dominates the market.

Page 520 of 547

 2. There are at present two applicants for the assignment of the frequencies in the
1.7 Ghz and 1.8 Ghz allocated to CMTS, namely Globe and Extelcom. Based on the
number of subscribers Extelcom has, there appears to be no congestion in its
network - a condition that is necessary for an applicant to be assigned additional
frequencies. Globe has yet to prove that there is congestion in its network
considering its operational merger with Islacom.

3. Based on the reports submitted to the Commission, 48% of the total number of cities
and municipalities are still without telephone service despite the more than 3 million
installed lines waiting to be subscribed.

CONCLUSIONS:

1. To ensure effective competition in the CMTS market considering the operational

merger of some of the CMTS operators, new CMTS operators must be allowed to
provide the service.

2. The re-allocated frequencies for CMTS of 3 blocks of 5 Mhz x 2 is sufficient for the
number of applicants should the applicants be qualified.

3. There is a need to provide service to some or all of the remaining cities and
municipalities without telephone service.

4. The submitted documents are sufficient to determine compliance to the technical

requirements. The applicant can be directed to submit details such as channeling
plans, exact locations of cell sites, etc. as the project implementation progresses,
actual area coverage ascertained and traffic data are made available. Applicant
appears to be technically qualified to undertake the proposed project and offer the
proposed service.

IN VIEW OF THE FOREGOING and considering that there is prima facie evidence
to show that Applicant is legally, technically and financially qualified and that the
proposed service is technically feasible and economically viable, in the interest of
public service, and in order to facilitate the development of telecommunications
services in all areas of the country, as well as to ensure healthy competition among
authorized CMTS providers, let a PROVISIONAL AUTHORITY (P.A.) be issued to
Applicant BAYAN TELECOMMUNICATIONS, INC. authorizing it to construct,
install, operate and maintain a Nationwide Cellular Mobile Telephone Systems
(CMTS), subject to the following terms and conditions without prejudice to a final
decision after completion of the hearing which shall be called within thirty (30) days
from grant of authority, in accordance with Section 3, Rule 15, Part IV of the
Commissions Rules of Practice and Procedure. xxx.[14]

Page 521 of 547

 Extelcom filed with the Court of Appeals a petition for certiorari and
prohibition, docketed as CA-G.R. SP No. 58893, seeking the annulment of
[15]

the Order reviving the application of Bayantel, the Order granting Bayantel a
provisional authority to construct, install, operate and maintain a nationwide
CMTS, and Memorandum Circular No. 9-3-2000 allocating frequency bands to
new public telecommunication entities which are authorized to install, operate
and maintain CMTS.

On September 13, 2000, the Court of Appeals rendered the assailed

Decision, the dispositive portion of which reads:
[16]

WHEREFORE, the writs of certiorari and prohibition prayed for

are GRANTED. The Orders of public respondent dated February 1, 2000 and May 3,
2000 in NTC Case No. 92-486 are herebyANNULLED and SET ASIDE and the
Amended Application of respondent Bayantel is DISMISSED without prejudice to
the filing of a new CMTS application. The writ of preliminary injunction issued under
our Resolution dated August 15, 2000, restraining and enjoining the respondents from
enforcing the Orders dated February 1, 2000 and May 3, 2000 in the said NTC case is
hereby made permanent. The Motion for Reconsideration of
respondent Bayantel dated August 28, 2000 is denied for lack of merit.

SO ORDERED.[17]

Bayantel filed a motion for reconsideration of the above decision. The [18]

NTC, represented by the Office of the Solicitor General (OSG), also filed its
own motion for reconsideration. On the other hand, Extelcom filed a Motion
[19]

for Partial Reconsideration, praying that NTC Memorandum Circular No. 9-3-
2000 be also declared null and void. [20]

On February 9, 2001, the Court of Appeals issued the assailed Resolution

denying all of the motions for reconsideration of the parties for lack of merit. [21]

Hence, the NTC filed the instant petition for review on certiorari, docketed
as G.R. No. 147096, raising the following issues for resolution of this Court:

A. Whether or not the Order dated February 1, 2000 of the petitioner which revived
the application of respondent Bayantel in NTC Case No. 92-486 violated
respondent Extelcoms right to procedural due process of law;

Page 522 of 547

B. Whether or not the Order dated May 3, 2000 of the petitioner granting
respondent Bayantel a provisional authority to operate a CMTS is in substantial
compliance with NTC Rules of Practice and Procedure and Memorandum Circular
No. 9-14-90 dated September 4, 1990.[22]

Subsequently, Bayantel also filed its petition for review, docketed as G.R.
No. 147210, assigning the following errors:

I. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF

THE PRINCIPLE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES WHEN IT
FAILED TO DISMISS HEREIN RESPONDENTS PETITION FOR CERTIORARI
DESPITE ITS FAILURE TO FILE A MOTION FOR RECONSIDERATION.

II. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE
REVIVAL OF NTC CASE NO. 92-486 ANCHORED ON A EX-PARTE MOTION TO
REVIVE CASE WAS TANTAMOUNT TO GRAVE ABUSE OF DISCRETION ON
THE PART OF THE NTC.

III. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT DENIED THE

MANDATE OF THE NTC AS THE AGENCY OF GOVERNMENT WITH THE SOLE
DISCRETION REGARDING ALLOCATION OF FREQUENCY BAND TO
TELECOMMUNICATIONS ENTITIES.

IV. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF

THE LEGAL PRINCIPLE THAT JURISDICTION ONCE ACQUIRED CANNOT BE
LOST WHEN IT DECLARED THAT THE ARCHIVED APPLICATION SHOULD BE
DEEMED AS A NEW APPLICATION IN VIEW OF THE SUBSTANTIAL CHANGE IN
THE CIRCUMSTANCES ALLEGED IN ITS AMENDMENT APPLICATION.

V. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING

OF THE BAYANTEL APPLICATION WAS A VALID ACT ON THE PART OF THE
NTC EVEN IN THE ABSENCE OF A SPECIFIC RULE ON ARCHIVING OF CASES
SINCE RULES OF PROCEDURE ARE, AS A MATTER OF COURSE, LIBERALLY
CONSTRUED IN PROCEEDINGS BEFORE ADMINISTRATIVE BODIES AND
SHOULD GIVE WAY TO THE GREATER HIERARCHY OF PUBLIC WELFARE AND
PUBLIC INTEREST.

VI. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING

OF BAYANTELS APPLICATION WAS NOT VIOLATIVE OF THE SUMMARY
NATURE OF THE PROCEEDINGS IN THE NTC UNDER SEC. 3, RULE 1 OF
THE NTC REVISED RULES OF PROCEDURE.

VII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE
ARCHIVING OF BAYANTELS APPLICATION WAS VIOLATIVE OF THE
ALLEGED DECLARED POLICY OF THE GOVERNMENT ON THE

Page 523 of 547

 TRANSPARENCY AND FAIRNESS OF ADMINISTRATIVE PROCESS IN THE
NTC AS LAID DOWN IN SEC 4(1) OF R.A. NO. 7925.

VIII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE
NTC VIOLATED THE PROVISIONS OF THE CONSTITUTION PERTAINING TO
DUE PROCESS OF LAW.

IX. THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT THE MAY
3, 2000 ORDER GRANTING BAYANTEL A PROVISIONAL AUTHORITY SHOULD
BE SET ASIDE AND REVERSED.

i. Contrary to the finding of the Court of Appeals, there was no violation of the NTC
Rule that the legal, technical, financial and economic documentations in support of
the prayer for provisional authority should first be submitted.

ii. Contrary to the finding of the Court of Appeals, there was no violation of Sec. 3, Rule
15 of the NTC Rules of Practice and Procedure that a motion must first be filed
before a provisional authority could be issued.

iii. Contrary to the finding of the Court of Appeals that a plea for provisional authority
necessitates a notice and hearing, the very rule cited by the petitioner (Section 5,
Rule 4 of the NTC Rules of Practice and Procedure) provides otherwise.

iv. Contrary to the finding of the Court of Appeals, urgent public need is not the only
basis for the grant of a provisional authority to an applicant;

v. Contrary to the finding of the Court of Appeals, there was no violation of the
constitutional provision on the right of the public to information when the Common
Carrier Authorization Department (CCAD) prepared its evaluation report.[23]

Considering the identity of the matters involved, this Court resolved to

consolidate the two petitions. [24]

At the outset, it is well to discuss the nature and functions of the NTC, and
analyze its powers and authority as well as the laws, rules and regulations
that govern its existence and operations.

The NTC was created pursuant to Executive Order No. 546, promulgated
on July 23, 1979. It assumed the functions formerly assigned to the Board of
Communications and the Telecommunications Control Bureau, which were
both abolished under the said Executive Order. Previously,
the NTCs functions were merely those of the defunct Public Service
Commission (PSC), created under Commonwealth Act No. 146, as amended,
otherwise known as the Public Service Act, considering that the Board of

Page 524 of 547

Communications was the successor-in-interest of the PSC. Under Executive
Order No. 125-A, issued in April 1987, the NTC became an attached agency
of the Department of Transportation and Communications.

In the regulatory telecommunications industry, the NTC has the sole

authority to issue Certificates of Public Convenience and Necessity (CPCN)
for the installation, operation, and maintenance of communications facilities
and services, radio communications systems, telephone and telegraph
systems. Such power includes the authority to determine the areas of
operations of applicants for telecommunications services. Specifically, Section
16 of the Public Service Act authorizes the then PSC, upon notice and
hearing, to issue Certificates of Public Convenience for the operation of public
services within the Philippines whenever the Commission finds that the
operation of the public service proposed and the authorization to do business
will promote the public interests in a proper and suitable manner. The [25]

procedure governing the issuance of such authorizations is set forth in Section

29 of the said Act, the pertinent portion of which states:

All hearings and investigations before the Commission shall be governed by rules
adopted by the Commission, and in the conduct thereof, the Commission shall not be
bound by the technical rules of legal evidence. xxx.

In granting Bayantel the provisional authority to operate a CMTS, the NTC

applied Rule 15, Section 3 of its 1978 Rules of Practice and Procedure, which
provides:

Sec. 3. Provisional Relief. --- Upon the filing of an application, complaint or petition
or at any stage thereafter, the Board may grant on motion of the pleader or on its own
initiative, the relief prayed for, based on the pleading, together with the affidavits and
supporting documents attached thereto, without prejudice to a final decision after
completion of the hearing which shall be called within thirty (30) days from grant of
authority asked for. (underscoring ours)

Respondent Extelcom, however, contends that the NTC should have

applied the Revised Rules which were filed with the Office of the National
Administrative Register onFebruary 3, 1993. These Revised Rules deleted the
phrase on its own initiative; accordingly, a provisional authority may be issued
only upon filing of the proper motion before the Commission.

Page 525 of 547

 In answer to this argument, the NTC, through the Secretary of the
Commission, issued a certification to the effect that inasmuch as the 1993
Revised Rules have not been published in a newspaper of general circulation,
the NTC has been applying the 1978 Rules.

The absence of publication, coupled with the certification by the

Commissioner of the NTC stating that the NTC was still governed by the 1978
Rules, clearly indicate that the 1993 Revised Rules have not taken effect at
the time of the grant of the provisional authority to Bayantel. The fact that the
1993 Revised Rules were filed with the UP LawCenter on February 3, 1993 is
of no moment. There is nothing in the Administrative Code of 1987 which
implies that the filing of the rules with the UP Law Center is the operative act
that gives the rules force and effect. Book VII, Chapter 2, Section 3 thereof
merely states:

Filing. --- (1) Every agency shall file with the University of
the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules
in force on the date of effectivity of this Code which are not filed within three (3)
months from the date shall not thereafter be the basis of any sanction against any party
or persons.

(2) The records officer of the agency, or his equivalent functionary, shall carry out the
requirements of this section under pain or disciplinary action.

(3) A permanent register of all rules shall be kept by the issuing agency and shall be
open to public inspection.

The National Administrative Register is merely a bulletin of codified rules

and it is furnished only to the Office of the President, Congress, all appellate
courts, the National Library, other public offices or agencies as the Congress
may select, and to other persons at a price sufficient to cover publication and
mailing or distribution costs. In a similar case, we held:
[26]

This does not imply however, that the subject Administrative Order is a valid exercise
of such quasi-legislative power. The original Administrative Order issued on August
30, 1989, under which the respondents filed their applications for importations, was
not published in the Official Gazette or in a newspaper of general circulation. The
questioned Administrative Order, legally, until it is published, is invalid within the
context of Article 2 of Civil Code, which reads:

Page 526 of 547

Article 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette (or in a newspaper of general circulation in
the Philippines), unless it is otherwise provided. x x x

The fact that the amendments to Administrative Order No. SOCPEC 89-08-01 were
filed with, and published by the UP Law Center in the National Administrative
Register, does not cure the defect related to the effectivity of the Administrative Order.

This Court, in Taada vs. Tuvera (G.R. No. L-63915, December 29, 1986, 146 SCRA
446) stated, thus:

We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative power or, at present, directly conferred by the
Constitution.Administrative Rules and Regulations must also be published if their
purpose is to enforce or implement existing law pursuant also to a valid delegation.

Interpretative regulations and those merely internal in nature, that is, regulating only
the personnel of the administrative agency and not the public, need not be
published. Neither is publication required of the so-called letters of instructions issued
by administrative superiors concerning the rules or guidelines to be followed by their
subordinates in the performance of their duties.

xxx

We agree that the publication must be in full or it is no publication at all since its
purpose is to inform the public of the contents of the laws.

The Administrative Order under consideration is one of those issuances which should
be published for its effectivity, since its purpose is to enforce and implement an
existing law pursuant to a valid delegation, i.e., P.D. 1071, in relation to LOI 444 and
EO 133.[27]

Thus, publication in the Official Gazette or a newspaper of general

circulation is a condition sine qua non before statutes, rules or regulations can
take effect. This is explicit from Executive Order No. 200, which repealed
Article 2 of the Civil Code, and which states that:

Page 527 of 547

Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in
the Philippines, unless it is otherwise provided. [28]

The Rules of Practice and Procedure of the NTC, which implements

Section 29 of the Public Service Act (C.A. 146, as amended), fall squarely
within the scope of these laws, as explicitly mentioned in the
case Taada v. Tuvera. [29]

Our pronouncement in Taada vs. Tuvera is clear and categorical. Administrative rules
and regulations must be published if their purpose is to enforce or implement existing
law pursuant to a valid delegation. The only exceptions are interpretative regulations,
those merely internal in nature, or those so-called letters of instructions issued by
administrative superiors concerning the rules and guidelines to be followed by their
subordinates in the performance of their duties. [30]

Hence, the 1993 Revised Rules should be published in the Official Gazette
or in a newspaper of general circulation before it can take effect. Even the
1993 Revised Rules itself mandates that said Rules shall take effect only after
their publication in a newspaper of general circulation. In the absence of
[31]

such publication, therefore, it is the 1978 Rules that governs.

In any event, regardless of whether the 1978 Rules or the 1993 Revised
Rules should apply, the records show that the amended application filed
by Bayantel in fact included a motion for the issuance of a provisional
authority. Hence, it cannot be said that the NTC granted the provisional
authority motu proprio. The Court of Appeals, therefore, erred when it found
that the NTC issued its Order of May 3, 2000 on its own initiative. This much
is acknowledged in the Decision of the Court of Appeals:

As prayer, ICC asked for the immediate grant of provisional authority to construct,
install, maintain and operate the subject service and to charge the proposed rates and
after due notice and hearing, approve the instant application and grant the
corresponding certificate of public convenience and necessity.[32]

The Court of Appeals also erred when it declared that the NTCs Order
archiving Bayantels application was null and void. The archiving of cases is a
widely accepted measure designed to shelve cases in which no immediate
action is expected but where no grounds exist for their outright dismissal,
albeit without prejudice. It saves the petitioner or applicant from the added
Page 528 of 547
trouble and expense of re-filing a dismissed case. Under this scheme, an
inactive case is kept alive but held in abeyance until the situation obtains
wherein action thereon can be taken.

In the case at bar, the said application was ordered archived because of
lack of available frequencies at the time, and made subject to reinstatement
upon availability of the requisite frequency. To be sure, there was nothing
irregular in the revival of the application after the condition therefor was
fulfilled.

While, as held by the Court of Appeals, there are no clear provisions in the
Rules of the NTC which expressly allow the archiving of any application, this
recourse may be justified under Rule 1, Section 2 of the 1978 Rules, which
states:

Sec. 2. Scope.--- These rules govern pleadings, practice and procedure before the
Board of Communications (now NTC) in all matters of hearing, investigation and
proceedings within the jurisdiction of the Board. However, in the broader interest of
justice and in order to best serve the public interest, the Board may, in any particular
matter, except it from these rules and apply such suitable procedure to improve the
service in the transaction of the public business. (underscoring ours)

The Court of Appeals ruled that the NTC committed grave abuse of
discretion when it revived Bayantels application based on an ex-
parte motion. In this regard, the pertinent provisions of the NTC Rules:

Sec. 5. Ex-parte Motions. --- Except for motions for provisional authorization of
proposed services and increase of rates, ex-parte motions shall be acted upon by the
Board only upon showing of urgent necessity therefor and the right of the opposing
party is not substantially impaired.[33]

Thus, in cases which do not involve either an application for rate increase
or an application for a provisional authority, the NTC may entertain ex-
parte motions only where there is an urgent necessity to do so and no rights
of the opposing parties are impaired.

The Court of Appeals ruled that there was a violation of the fundamental
right of Extelcom to due process when it was not afforded the opportunity to
question the motion for the revival of the application. However, it must be
noted that said Order referred to a simple revival of the archived application

Page 529 of 547

of Bayantel in NTC Case No. 92-426. At this stage, it cannot be said
that Extelcoms right to procedural due process was prejudiced. It will still have
the opportunity to be heard during the full-blown adversarial hearings that will
follow. In fact, the records show that the NTC has scheduled several hearing
dates for this purpose, at which all interested parties shall be allowed to
register their opposition. We have ruled that there is no denial of due process
where full-blown adversarial proceedings are conducted before an
administrative body. With Extelcom having fully participated in the
[34]

proceedings, and indeed, given the opportunity to file its opposition to the
application, there was clearly no denial of its right to due process.

In Zaldivar vs. Sandiganbayan (166 SCRA 316 [1988]), we held that the right to be
heard does not only refer to the right to present verbal arguments in court. A party
may also be heard through his pleadings. where opportunity to be heard is accorded
either through oral arguments or pleadings, there is no denial of procedural due
process. As reiterated in National Semiconductor (HK) Distribution, Ltd. vs.
NLRC (G.R. No. 123520, June 26, 1998), the essence of due process is simply an
opportunity to be heard, or as applied to administrative proceedings, an opportunity to
explain one's side. Hence, in Navarro III vs. Damaso (246 SCRA 260 [1995]), we
held that a formal or trial-type hearing is not at all times and not in all instances
essential. Plainly, petitioner was not denied due process. [35]

Extelcom had already entered its appearance as a party and filed its
opposition to the application. It was neither precluded nor barred from
participating in the hearings thereon. Indeed, nothing, not even the Order
reviving the application, bars or prevents Extelcom and the
other oppositors from participating in the hearings and adducing evidence in
support of their respective oppositions. The motion to revive could not have
possibly caused prejudice to Extelcom since the motion only sought the
revival of the application. It was merely a preliminary step towards the
resumption of the hearings on the application of Bayantel. The latter will still
have to prove its capability to undertake the proposed CMTS. Indeed, in its
Order dated February 1, 2000, the NTC set several hearing dates precisely
intended for the presentation of evidence on Bayantels capability and
qualification. Notice of these hearings were sent to all parties concerned,
including Extelcom.

As regards the changes in the personal circumstances of Bayantel, the

same may be ventilated at the hearings during Bayantels presentation of

Page 530 of 547

evidence. In fact, Extelcomwas able to raise its arguments on this matter in
the Opposition (With Motion to Dismiss) anent the re-opening and re-
instatement of the application of Bayantel. Extelcom was thus heard on this
particular point.

Likewise, the requirements of notice and publication of the application is

no longer necessary inasmuch as the application is a mere revival of an
application which has already been published earlier. At any rate, the records
show that all of the five (5) CMTS operators in the country were duly notified
and were allowed to raise their respective oppositions to Bayantels application
through the NTCs Order dated February 1, 2000.

It should be borne in mind that among the declared national policies under
Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of thePhilippines, is the healthy competition among
telecommunications carriers, to wit:

A healthy competitive environment shall be fostered, one in which

telecommunications carriers are free to make business decisions and to interact with
one another in providing telecommunications services, with the end in view of
encouraging their financial viability while maintaining affordable rates. [36]

The NTC is clothed with sufficient discretion to act on matters solely within
its competence. Clearly, the need for a healthy competitive environment in
telecommunications is sufficient impetus for the NTC to consider all those
applicants who are willing to offer competition, develop the market and
provide the environment necessary for greater public service. This was the
intention that came to light with the issuance of Memorandum Circular 9-3-
2000, allocating new frequency bands for use of CMTS. This memorandum
circular enumerated the conditions prevailing and the reasons which
necessitated its issuance as follows:

- the international accounting rates are rapidly declining, threatening the subsidy to the
local exchange service as mandated in EO 109 and RA 7925;

- the public telecommunications entities which were obligated to install, operate and
maintain local exchange network have performed their obligations in varying
degrees;

Page 531 of 547

 - after more than three (3) years from the performance of the obligations only 52% of
the total number of cities and municipalities are provided with local telephone
service.

- there are mergers and consolidations among the existing cellular mobile telephone
service (CMTS) providers threatening the efficiency of competition;

- there is a need to hasten the installation of local exchange lines in unserved areas;

- there are existing CMTS operators which are experiencing congestion in the network
resulting to low grade of service;

- the consumers/customers shall be given the freedom to choose CMTS operators from
which they could get the service.[37]

Clearly spelled out is the need to provide enhanced competition and the
requirement for more landlines and telecommunications facilities
in unserved areas in the country.On both scores, therefore, there was
sufficient showing that the NTC acted well within its jurisdiction and in
pursuance of its avowed duties when it allowed the revival
ofBayantels application.

We now come to the issue of exhaustion of administrative remedies. The

rule is well-entrenched that a party must exhaust all administrative remedies
before resorting to the courts. The premature invocation of the intervention of
the court is fatal to ones cause of action. This rule would not only give the
administrative agency an opportunity to decide the matter by itself correctly,
but would also prevent the unnecessary and premature resort to courts. In [38]

the case of Lopez v. City of Manila, we held:

[39]

As a general rule, where the law provides for the remedies against the action of an
administrative board, body or officer, relief to courts can be sought only after
exhausting all remedies provided.The reason rests upon the presumption that the
administrative body, if given the chance to correct its mistake or error, may amend its
decision on a given matter and decide it properly. Therefore, where a remedy is
available within the administrative machinery, this should be resorted to before resort
can be made to the courts, not only to give the administrative agency the opportunity
to decide the matter by itself correctly, but also to prevent unnecessary and premature
resort to courts.

Clearly, Extelcom violated the rule on exhaustion of administrative

remedies when it went directly to the Court of Appeals on a petition

Page 532 of 547

for certiorari and prohibition from the Order of the NTC dated May 3, 2000,
without first filing a motion for reconsideration. It is well-settled that the filing of
a motion for reconsideration is a prerequisite to the filing of a special civil
action for certiorari.

The general rule is that, in order to give the lower court the opportunity to correct
itself, a motion for reconsideration is a prerequisite to certiorari. It also basic that
petitioner must exhaust all other available remedies before resorting to certiorari. This
rule, however, is subject to certain exceptions such as any of the following: (1) the
issues raised are purely legal in nature, (2) public interest is involved, (3) extreme
urgency is obvious or (4) special circumstances warrant immediate or more direct
action.[40]

This case does not fall under any of the recognized exceptions to this
rule. Although the Order of the NTC dated May 3, 2000 granting provisional
authority to Bayantel was immediately executory, it did not preclude the filing
of a motion for reconsideration. Under the NTC Rules, a party adversely
affected by a decision, order, ruling or resolution may within fifteen (15) days
file a motion for reconsideration. That the Order of the NTC became
immediately executory does not mean that the remedy of filing a motion for
reconsideration is foreclosed to the petitioner. [41]

Furthermore, Extelcom does not enjoy the grant of any vested interest on
the right to render a public service. The Constitution is quite emphatic that the
operation of a public utility shall not be exclusive. Thus:

No franchise, certificate, or any other form of authorization for the operation of a

public utility shall be granted to citizens of the Philippines or to corporations
organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so
requires. xxx xxx xxx.[42]

In Radio Communications of the Phils., Inc. v. National

Telecommunications Commission, we held:[43]

It is well within the powers of the public respondent to authorize the installation by
the private respondent network of radio communications systems
Page 533 of 547
in Catarman, Samar and San Jose, Mindoro.Under the circumstances, the mere fact
that the petitioner possesses a franchise to put up and operate a radio communications
system in certain areas is not an insuperable obstacle to the public respondents issuing
the proper certificate to an applicant desiring to extend the same services to those
areas. The Constitution mandates that a franchise cannot be exclusive in nature nor
can a franchise be granted except that it must be subject to amendment, alteration, or
even repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of
the 1986 Constitution).There is an express provision in the petitioners franchise which
provides compliance with the above mandate (RA 2036, sec. 15).

Even in the provisional authority granted to Extelcom, it is expressly stated

that such authority is not exclusive. Thus, the Court of Appeals erred when it
gave due course toExtelcoms petition and ruled that it constitutes an
exception to the rule on exhaustion of administrative remedies.

Also, the Court of Appeals erred in annulling the Order of the NTC
dated May 3, 2000, granting Bayantel a provisional authority to install, operate
and maintain CMTS. The general rule is that purely administrative and
discretionary functions may not be interfered with by the courts. Thus,
in Lacuesta v. Herrera, it was held:
[44]

xxx (T)he powers granted to the Secretary of Agriculture and Commerce (natural
resources) by law regarding the disposition of public lands such as granting of
licenses, permits, leases and contracts, or approving, rejecting, reinstating, or
canceling applications, are all executive and administrative in nature. It is a well
recognized principle that purely administrative and discretionary functions may not be
interfered with by the courts. (Coloso vs. Board of Accountancy, G.R. No. L-
5750, April 20, 1953) In general, courts have no supervising power over the
proceedings and actions of the administrative departments of the government. This is
generally true with respect to acts involving the exercise of judgement or discretion
and findings of fact. (54 Am. Jur. 558-559) xxx.

The established exception to the rule is where the issuing authority has
gone beyond its statutory authority, exercised unconstitutional powers or
clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion. None of these obtains in the case at bar.
[45]

Page 534 of 547

 Moreover, in petitions for certiorari, evidentiary matters or matters of fact
raised in the court below are not proper grounds nor may such be ruled upon
in the proceedings.As held in National Federation of Labor v. NLRC: [46]

At the outset, it should be noted that a petition for certiorari under Rule 65 of the
Rules of Court will prosper only if there is a showing of grave abuse of discretion or
an act without or in excess of jurisdiction on the part of the National Labor Relations
Commission. It does not include an inquiry as to the correctness of the evaluation of
evidence which was the basis of the labor official or officer in determining his
conclusion. It is not for this Court to re-examine conflicting evidence, re-evaluate the
credibility of witnesses nor substitute the findings of fact of an administrative tribunal
which has gained expertise in its special field. Considering that the findings of fact of
the labor arbiter and the NLRC are supported by evidence on record, the same must be
accorded due respect and finality.

This Court has consistently held that the courts will not interfere in matters
which are addressed to the sound discretion of the government agency
entrusted with the regulation of activities coming under the special and
technical training and knowledge of such agency. It has also been held
[47]

that the exercise of administrative discretion is a policy decision and a matter

that can best be discharged by the government agency concerned, and not by
the courts. In Villanueva v. Court of Appeals, it was held that findings of fact
[48] [49]

which are supported by evidence and the conclusion of experts should not be
disturbed. This was reiterated in Metro Transit Organization, Inc. v. National
Labor Relations Commission, wherein it was ruled that factual findings of
[50]

quasi-judicial bodies which have acquired expertise because their jurisdiction

is confined to specific matters are generally accorded not only respect but
even finality and are binding even upon the Supreme Court if they are
supported by substantial evidence.

Administrative agencies are given a wide latitude in the evaluation of

evidence and in the exercise of its adjudicative functions. This latitude
includes the authority to take judicial notice of facts within its special
competence.

In the case at bar, we find no reason to disturb the factual findings of the
NTC which formed the basis for awarding the provisional authority
to Bayantel. As found by the NTC, Bayantel has been granted several
provisional and permanent authorities before to operate various

Page 535 of 547

telecommunications services. Indeed, it was established thatBayantel was
[51]

the first company to comply with its obligation to install local exchange lines
pursuant to E.O. 109 and R.A. 7925. In recognition of the same, the
provisional authority awarded in favor of Bayantel to operate Local Exchange
Services in Quezon City, Malabon, Valenzuela and the entire Bicol region was
made permanent and a CPCN for the said service was granted in its
favor. Prima facie evidence was likewise found showing Bayantels legal,
financial and technical capacity to undertake the proposed cellular mobile
telephone service.

Likewise, the May 3, 2000 Order did not violate NTC Memorandum
Circular No. 9-14-90 dated September 4, 1990, contrary to the ruling of the
Court of Appeals. The memorandum circular sets forth the procedure for the
issuance of provisional authority thus:

EFFECTIVE THIS DATE, and as part of the Commissions drive to streamline and
fast track action on applications/petitions for CPCN other forms of authorizations, the
Commission shall be evaluating applications/petitions for immediate issuance of
provisional authorizations, pending hearing and final authorization of an application
on its merit.

For this purpose, it is hereby directed that all applicants/petitioners seeking for
provisional authorizations, shall submit immediately to the Commission, either
together with their application or in a Motion all their legal, technical, financial,
economic documentations in support of their prayer for provisional authorizations for
evaluation. On the basis of their completeness and their having complied with
requirements, the Commission shall be issuing provisional authorizations.

Clearly, a provisional authority may be issued even pending hearing and

final determination of an application on its merits.

Finally, this Court finds that the Manifestations of Extelcom alleging forum
shopping on the part of the NTC and Bayantel are not impressed with
merit. The divisions of the Supreme Court are not to be considered as
separate and distinct courts. The Supreme Court remains a unit
notwithstanding that it works in divisions. Although it may have three divisions,
it is but a single court. Actions considered in any of these divisions and
decisions rendered therein are, in effect, by the same Tribunal. The divisions

Page 536 of 547

of this Court are not to be considered as separate and distinct courts but as
divisions of one and the same court. [52]

Moreover, the rules on forum shopping should not be literally

interpreted. We have stated thus:

It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and
applied as to achieve the purposes projected by the Supreme Court when it
promulgated that circular. Circular No. 28-91 was designed to serve as an instrument
to promote and facilitate the orderly administration of justice and should not be
interpreted with such absolute literalness as to subvert its own ultimate and legitimate
objection or the goal of all rules of procedure which is to achieve substantial justice as
expeditiously as possible.[53]

Even assuming that separate actions have been filed by two different
parties involving essentially the same subject matter, no forum shopping was
committed as the parties did not resort to multiple judicial remedies. The
Court, therefore, directed the consolidation of the two cases because they
involve essentially the same issues. It would also prevent the absurd situation
wherein two different divisions of the same court would render altogether
different rulings in the cases at bar.

We rule, likewise, that the NTC has legal standing to file and initiate legal
action in cases where it is clear that its inaction would result in an impairment
of its ability to execute and perform its functions. Similarly, we have previously
held in Civil Service Commission v. Dacoycoy that the Civil Service
[54]

Commission, as an aggrieved party, may appeal the decision of the Court of

Appeals to this Court.

As correctly stated by the NTC, the rule invoked by Extelcom is Rule 65 of

the Rules of Civil Procedure, which provides that public respondents shall not
appear in or file an answer or comment to the petition or any pleading therein.
The instant petition, on the other hand, was filed under Rule 45 where no
[55]

similar proscription exists.

WHEREFORE, in view of the foregoing, the consolidated petitions are

GRANTED. The Court of Appeals Decision dated September 13, 2000 and
Resolution datedFebruary 9, 2001 are REVERSED and SET ASIDE. The
permanent injunction issued by the Court of Appeals is LIFTED. The Orders of

Page 537 of 547

the NTC dated February 1, 2000 andMay 3, 2000 are REINSTATED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. L-49774 February 24, 1981

SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,

vs.
Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-COLA FREE
WORKERS UNION,respondents.

Page 538 of 547

DE CASTRO, J.:

Petition for certiorari and prohibition, with preliminary injunction to review the Order 1 dated December
19, 1978 rendered by the Deputy Minister of Labor in STF ROX Case No. 009-77 docketed as "Cagayan
Coca-Cola Free Workers Union vs. Cagayan Coca-Cola Plant, San Miguel Corporation, " which denied
herein petitioner's motion for reconsideration and ordered the immediate execution of a prior
Order 2 dated June 7, 1978.

On January 3, 1977, Cagayan Coca-Cola Free Workers Union, private respondent herein, filed a
complaint against San Miguel Corporation (Cagayan Coca-Cola Plant), petitioner herein, alleging
failure or refusal of the latter to include in the computation of 13th- month pay such items as sick,
vacation or maternity leaves, premium for work done on rest days and special holidays, including
pay for regular holidays and night differentials.

An Order 3 dated February 15, 1977 was issued by Regional Office No. X where the complaint was filed
requiring herein petitioner San Miguel Corporation (Cagayan Coca-Cola Plant) "to pay the difference of
whatever earnings and the amount actually received as 13th month pay excluding overtime premium and
emergency cost of living allowance. "

Herein petitioner appealed from that Order to the Minister of Labor in whose behalf the Deputy
Minister of Labor Amado G. Inciong issued an Order 4 dated June 7, 1978 affirming the Order of
Regional Office No. X and dismissing the appeal for lack of merit. Petitioner's motion for reconsideration
having been denied, it filed the instant petition.

On February 14, 1979, this Court issued a Temporary Restraining Order 5 enjoining respondents from
enforcing the Order dated December 19, 1978.

The crux of the present controversy is whether or not in the computation of the 13th-month pay
under Presidential Decree 851, payments for sick, vacation or maternity leaves, premium for work
done on rest days and special holidays, including pay for regular holidays and night differentials
should be considered.

Public respondent's consistent stand on the matter since the effectivity of Presidential Decree 851 is
that "payments for sick leave, vacation leave, and maternity benefits, as well as salaries paid to
employees for work performed on rest days, special and regular holidays are included in the
computation of the 13th-month pay. 6 On its part, private respondent cited innumerable past rulings,
opinions and decisions rendered by then Acting Labor Secretary Amado G. Inciong to the effect that, "in
computing the mandatory bonus, the basis is the total gross basic salary paid by the employer during the
calendar year. Such gross basic salary includes: (1) regular salary or wage; (2) payments for sick,
vacation and maternity leaves; (3) premium for work performed on rest days or holidays: (4) holiday pay
for worked or unworked regular holiday; and (5) emergency allowance if given in the form of a wage
adjustment." 7

Petitioner, on the other hand, assails as erroneous the aforesaid order, ruling and opinions,
vigorously contends that Presidential Decree 851 speaks only of basic salary as basis for the
determination of the 13th-month pay; submits that payments for sick, vacation, or maternity leaves,
night differential pay, as well as premium paid for work performed on rest days, special and regular
holidays do not form part of the basic salary; and concludes that the inclusion of those payments in
the computation of the 13th-month pay is clearly not sanctioned by Presidential Decree 851.

Page 539 of 547

The Court finds petitioner's contention meritorious.

The provision in dispute is Section 1 of Presidential Decree 851 and provides:

All employers are hereby required to pay all their employees receiving a basic salary
of not more than Pl,000 a month, regardless of the nature of the employment, a 13th-
month pay not later than December 24 of every year.

Section 2 of the Rules and Regulations for the implementation of Presidential Decree 851 provides:

a) Thirteenth-month pay shall mean one twelfth (1/12) of the basic salary of an
employee within a calendar year

b) Basic salary shall include all remunerations on earnings paid by an employer to an

employee for services rendered but may not include cost-of-living allowances
granted pursuant to Presidential Decree No. 525 or Letter of Instructions No. 174,
profit sharing payments and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of the employee at the
time of the promulgation of the Decree on December 16, 1975.

Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used
as the basis in the determination of his 13th-month pay. Any compensations or remunerations which
are deemed not part of the basic pay is excluded as basis in the computation of the mandatory
bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following
compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter

of Instructions No. 174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as
part of the regular basic salary of tile employee at the time of the promulgation of the
Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851
issued by the then Labor Secretary Blas Ople, overtime pay, earnings and other remunerations are
excluded as part of the basic salary and in the computation of the 13th-month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instructions
No. 174, and profit sharing payments indicate the intention to strip basic salary of other payments
which are properly considered as "fringe" benefits. Likewise, the catch-all exclusionary phrase "all
allowances and monetary benefits which are not considered or integrated as part of the basic salary"
shows also the intention to strip basic salary of any and all additions which may be in the form of
allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even
more emphatic in declaring that earnings and other remunerations which are not part of the basic
salary shall not be included in the computation of the 13th-month pay.

Page 540 of 547

While doubt may have been created by the prior Rules and Regulations Implementing Presidential
Decree 851 which defines basic salary to include all remunerations or earnings paid by an employer
to an employee, this cloud is dissipated in the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the definition of basic salary earnings and other
remunerations paid by employer to an employee. A cursory perusal of the two sets of Rules indicates
that what has hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary rules and Regulations cure the seeming tendency of the former rules to include all
remunerations and earnings within the definition of basic salary.

The all-embracing phrase "earnings and other renumeration" which are deemed not part of the basic
salary includes within its meaning payments for sick, vacation, or maternity leaves. Maternity
premium for works performed on rest days and special holidays pays for regular holidays and night
differentials. As such they are deemed not part of the basic salary and shall not be considered in the
computation of the 13th-month they, were not so excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in the computation of the 13th-month pay. Then the exclusionary
provision would prove to be Idle and with no purpose.

This conclusion finds strong support under the Labor Code of the Philippines. To cite a few
provisions:

Art. 87. overtime work. Work may be performed beyond eight hours a day
provided what the employee is paid for the overtime work, additional compensation
equivalent to his regular wage plus at least twenty-five (25%) percent thereof.

It is clear that overtime pay is an additional compensation other than and added to the regular wage
or basic salary, for reason of which such is categorically excluded from the definition of basic salary
under the Supplementary Rules and Regulations Implementing Presidential Decree 851.

In Article 93 of the same Code, paragraph

c) work performed on any special holiday shall be paid an additional compensation of

at least thirty percent (30%) of the regular wage of the employee.

It is likewise clear that prernium for special holiday which is at least 30% of the regular wage is an
additional compensation other than and added to the regular wage or basic salary. For similar
reason it shall not be considered in the computation of the 13th- month pay.

WHEREFORE, the Orders of the Deputy Labor Minister dated June 7, 1978 and December 19, 1978
are hereby set aside and a new one entered as above indicated. The Temporary Restraining Order
issued by this Court on February 14, 1979 is hereby made permanent. No pronouncement as to
costs.

SO ORDERED.

G.R. No. L-19337 September 30, 1969

ASTURIAS SUGAR CENTRAL, INC., petitioner,

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

Page 541 of 547

Laurea, Laurea and Associates for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and
Solicitor Sumilang V. Bernardo for respondents.

CASTRO, J.:

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

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

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

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

Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags
within one year from their importation, the Collector of Customs of Iloilo, on March 17, 1958, required
it to pay the amount of P28,629.42 representing the customs duties and special import tax due
thereon, which amount the petitioner paid under protest.

In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the
refund of the amount it had paid, on the ground that its request for extension of the period of one
year was filed on time, and that its failure to export the jute bags within the required one-year period
was due to delay in the arrival of the vessel on which they were to be loaded and to the picketing of
the Central railroad line. Alternatively, the petitioner asked for refund of the same amount in the form
of a drawback under section 106(b) in relation to section 105(x) of the Tariff and Customs Code.

Page 542 of 547

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

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

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

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

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

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

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

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

And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated
August 25, 1948 was issued, prescribing rules and regulations governing the importation,
exportation and identification thereof under section 23 of the Philippine Tariff Act of 1909. Said
administrative order provides:

That importation of jute bags intended for use as containers of Philippine products for
exportation to foreign countries shall be declared in a regular import entry supported by a
surety bond in an amount equal to double the estimated duties, conditioned for the
exportation or payment of the corresponding duties thereon within one year from the date of
importation.

It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of
the Tariff and Customs Code, while fixing at one year the period within which the containers therein
mentioned must be exported, are silent as to whether the said period may be extended. It was surely
by reason of this silence that the Bureau of Customs issued Administrative Orders 389 and 66,

Page 543 of 547

already adverted to, to eliminate confusion and provide a guide as to how it shall apply the law, 2 and,
more specifically, to make officially known its policy to consider the one-year period mentioned in the
law as non-extendible.

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

Only where the court of last resort has not previously interpreted the statute is the rule applicable
that courts will give consideration to construction by administrative or executive departments of the
state.4
1awphl.nt

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

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

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

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

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

The correctness of the interpretation given a statute by the agency charged with
administering its provision is indicated where it appears that Congress, with full knowledge of
the agency's interpretation, has made significant additions to the statute without amending it
to depart from the agency's view.7

Considering that the Bureau of Customs is the office charged with implementing and enforcing the
provisions of our Tariff and Customs Code, the construction placed by it thereon should be given
controlling weight. 1awphl.nt

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

If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to
be construed instrictissimi juris against the taxpayer and liberally in favor of the taxing

Page 544 of 547

authority, 10 then we are hard put to sustain the petitioner's stand that it was entitled to an extension
of time within which to export the jute bags and, consequently, to a refund of the amount it had paid
as customs duties.

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

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

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

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

SEC. 106. Drawbacks: ...

b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes
Thereof. Upon the exportation of articles manufactured or produced in the Philippines,
including the packing, covering, putting up, marking or labeling thereof, either in whole or in
part of imported materials, or from similar domestic materials of equal quantity and
productive manufacturing quality and value, such question to be determined by the Collector
of Customs, there shall be allowed a drawback equal in amount to the duties paid on the
imported materials so used, or where similar domestic materials are used, to the duties paid

Page 545 of 547

 on the equivalent imported similar materials, less one per cent thereof: Provided, That the
exportation shall be made within three years after the importation of the foreign material
used or constituting the basis for drawback ... .

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

The contention is palpably devoid of merit.

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

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

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

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

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

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

Page 546 of 547

 nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant,
meaningless, inoperative, or nugatory. 14

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

Page 547 of 547