1
Taxation
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or
prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg.
135 depends upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21 of the National Internal Revenue
Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net
profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as
taxpayer alleges that by virtue thereof, "he would be unduly discriminated
against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-visthose which are imposed upon
fixed income or salaried individual taxpayers. 4 He characterizes the above
sction as arbitrary amounting to class legislation, oppressive and
capricious in character 5 For petitioner, therefore, there is a transgression
of both the equal protection and due process clauses 6 of the Constitution
as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file
an answer within 10 days from notice. Such an answer, after two
extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982. 8The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their]
Special and Affirmative Defenses." 9 The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not
support petitioner's stand." 10 The prayer is for the dismissal of the
petition for lack of merit.
This Court finds such a plea more than justified. The petition must be
dismissed.
1. It is manifest that the field of state activity has assumed a much wider
scope, The reason was so clearly set forth by retired Chief Justice
Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,' continue to
lose their well-defined boundaries and to be absorbed within activities
that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the need for
more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the
source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an
attribute of sovereignty. It is the strongest of all the powers of of
government." 13 It is, of course, to be admitted that for all its plenitude
'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue
measure. if it were otherwise, there would -be truth to the 1803 dictum of
Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice
Frankfurter, after referring to it as an 1, unfortunate remark characterized
it as "a flourish of rhetoric [attributable to] the intellectual fashion of the
times following] a free use of absolutes." 16 This is merely to emphasize
that it is riot and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this
Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the
fundamental law overrides any legislative or executive, act that runs
counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision — as petitioner here alleges — fails to
abide by its command, then this Court must so declare and adjudge it null.
The injury thus is centered on the question of whether the imposition of a
higher tax rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here. does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has
not made out a case. This is merely to adhere to the authoritative doctrine
that were the due process and equal protection clauses are invoked,
considering that they arc not fixed rules but rather broad standards, there
is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must
prevail. 18
5. It is undoubted that the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the Constitution. An
obvious example is where it can be shown to amount to the confiscation
of property. That would be a clear abuse of power. It then becomes the
duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the
application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
 2
6. Now for equal protection. The applicable standard to avoid the charge
that there is a denial of this constitutional mandate whether the assailed
act is in the exercise of the lice power or the power of eminent domain is
to demonstrated that the governmental act assailed, far from being
inspired by the attainment of the common weal was prompted by the
spirit of hostility, or at the very least, discrimination that finds no support
in reason. It suffices then that the laws operate equally and uniformly on
all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different, both in the
privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection
and security shall be given to every person under circumtances which if
not Identical are analogous. If law be looked upon in terms of burden or
charges, those that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group equally binding
on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble
concept of approximating the Ideal of the laws benefits being available to
all and the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the Idea of law. There is,
however, wisdom, as well as realism in these words of Justice Frankfurter:
"The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions of policy arising
out of specific difficulties, address to the attainment of specific ends by
the use of specific remedies. The Constitution does not require things
which are different in fact or opinion to be treated in law as though they
were the same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a
leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been repeatedly
held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: "The rule of taxation shag be uniform and
equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax
"operates with the same force and effect in every place where the subject
may be found. " 26 He likewise added: "The rule of uniformity does not call
for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of
justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation."30
8. Further on this point. Apparently, what misled petitioner is his failure to
take into consideration the distinction between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories.
To repeat, it. is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax rates
on the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation
as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without
merit, considering the (1) lack of factual foundation to show the arbitrary
character of the assailed provision; 31 (2) the force of controlling doctrines
on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net
income of professionals and businessman certainly not a suspect
classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova,
Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their
capacities as appointed and Acting Members of the CENTRAL BOARD OF
ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL
ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting
Members of the BOARD OF ASSESSMENT APPEALS of Manila; and
NICOLAS CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977
decision of the Central Board of Assessment Appeals1 in CBAA Cases Nos.
72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment
Appeals of Manila and City Assessor of Manila" which affirmed the March
29, 1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases
Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of
Manila" and "Edmundo Reyes and Milagros Reyes v. City Assessor of
 3
Manila" upholding the classification and assessments made by the City
Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of
parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila,
which are leased and entirely occupied as dwelling sites by tenants. Said
tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted
Republic Act No. 6359 prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units or of lands on which
another's dwelling is located, where such rentals do not exceed three
hundred pesos (P300.00) a month but allowing an increase in rent by not
more than 10% thereafter. The said Act also suspended paragraph (1) of
Article 1673 of the Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon the expiration of the usual legal
period of lease. On October 12, 1972, Presidential Decree No. 20 amended
R.A. No. 6359 by making absolute the prohibition to increase monthly
rentals below P300.00 and by indefinitely suspending the aforementioned
provision of the Civil Code, excepting leases with a definite period.
Consequently, the Reyeses, petitioners herein, were precluded from
raising the rentals and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and reassessed the value of the subject
properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision, as expected, entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement with the Board of Tax Assessment Appeals. They averred
that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed
upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used
in determining the land values instead of the comparable sales approach
which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax
Assessment Appeals, however, considered the assessments valid, holding
thus:
WHEREFORE, and considering that the appellants have failed to submit
concrete evidence which could overcome the presumptive regularity of
the classification and assessments appear to be in accordance with the
base schedule of market values and of the base schedule of building unit
values, as approved by the Secretary of Finance, the cases should be, as
they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p.
22).
The Reyeses appealed to the Central Board of Assessment
Appeals.1âwphi1 They submitted, among others, the summary of the
yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds
of sale showing the different market values of the real property situated in
the same vicinity where the subject properties of petitioners are located.
To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the
presence of two representatives of the City Assessor prior to the healing
of the case. Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices served
them. It was found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its
decision, the dispositive portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and
assessment of the lots covered by Tax Declaration Nos. (5835) PD-5847,
(5839), (5831) PD-5844 and PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509,
146 and (1) PD-266, the appealed Decision is modified by allowing a 20%
reduction in their respective market values and applying therein the
assessment level of 30% to arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo,
p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence,
this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach"
method would have been more realistic for in disregarding the effect of
the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and
unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of
the values assigned to their properties as revised and increased on the
ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals
admits in its decision that the income approach is used in determining
land values in some vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the consideration and
study of land values as in the case of properties affected by the Rent
Control Law for they do not project the true market value in the open
market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of
the properties predicated upon prices paid in actual, market transactions
would be a uniform and a more credible standards to use especially in
case of mass appraisal of properties (Ibid.). Otherwise stated, public
respondents would have this Court completely ignore the effects of the
restrictions of P.D. No. 20 on the market value of properties within its
coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable
methods of appraisal for taxation purposes (The Law on Transfer and
Business Taxation by Hector S. De Leon, 1988 Edition). However, it is
conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army &
Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it
has been stressed that the assessors, in finding the value of the property,
 4
have to consider all the circumstances and elements of value and must
exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the
rule of taxation must not only be uniform, but must also be equitable and
progressive.
Uniformity has been defined as that principle by which all taxable articles
or kinds of property of the same class shall be taxed at the same rate
(Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable
or progressive aspects of taxation required in the 1973 Charter (Fernando
"The Constitution of the Philippines", p. 221, Second Edition). Thus, the
need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able
to pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest
of all the powers of government. But for all its plenitude the power to tax
is not unconfined as there are restrictions. Adversely effecting as it does
property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a
revenue measure. If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that "the power to tax involves the power
to destroy." The web or unreality spun from Marshall's famous dictum
was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The
power to tax is not the power to destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An
obvious example is where it can be shown to amount to confiscation of
property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not
be prompted by a spirit of hostility, or at the very least discrimination that
finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed (Ibid.,
p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is
declared that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties
covered by P.D. No. 20 be equated with the market value of properties
not so covered. The former has naturally a much lesser market value in
view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the
sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable
property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the given circumstances
be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely
temporary in character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. However, such collection should
be made in accordance with law as any arbitrariness will negate the very
reason for government itself It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so
that the real purpose of taxations, which is the promotion of the common
good, may be achieved (Commissioner of Internal Revenue v. Algue Inc.,
et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government by the imposition
of excessive taxes petitioners can ill afford and eventually result in the
forfeiture of their properties.
By the public respondents' own computation the assessment by income
approach would amount to only P10.00 per sq. meter at the time in
question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed
decisions of public respondents are REVERSED and SET ASIDE; and (e) the
respondent Board of Assessment Appeals of Manila and the City Assessor
of Manila are ordered to make a new assessment by the income approach
method to guarantee a fairer and more realistic basis of computation
(Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano,
Gancayco, Padilla, Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado
and Davide, Jr., JJ., concur.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK
CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks from passive income are
subject to a twenty percent final withholding tax (20% FWT). This tax is
withheld at source and is thus not actuallyand physically received by the
banks, because it is paid directly to the government by the entities from
which the banks derived the income. Apart from the 20% FWT, banks are
also subject to a five percent gross receipts tax (5% GRT) which is imposed
by the Tax Code on their gross receipts, including the passive income.

Since the 20% FWT is constructively received by the banks and
forms part of their gross receipts or earnings, it follows that it is subject to
the 5% GRT. After all, the amount withheld is paid to the government on
their behalf, in satisfaction of their withholding taxes. That they do
not actually receive the amount does not alter the fact that it is remitted
for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax
system in place in this country, this 20 percent portion of the passive
income of banks would actually be paid to the banks and then remitted by
them to the government in payment of their income tax. The institution of
the withholding tax system does not alter the fact that the 20 percent
portion of their passive income constitutes part of their actual earnings,
except that it is paid directly to the government on their behalf in
satisfaction of the 20 percent final income tax due on their passive
incomes.
The Case
Before us is a Petition for Review[1]
under Rule 45 of the Rules of
Court, seeking to annul the July 18, 2000 Decision[2] and the May 8,
2001 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No.
54599. The decretal portion of the assailed Decision reads as follows:
WHEREFORE, we AFFIRM in toto the assailed decision and resolution of
the Court of Tax Appeals.[5]
The challenged Resolution denied petitioners Motion
Reconsideration.
The Facts
Quoting petitioner, the CA[6] summarized the facts of this case as
follows:
For the calendar year 1995, [respondent] seasonably filed its Quarterly
Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross
Receipts Tax] rate) in the total amount of P1,474,691,693.44 with
corresponding gross receipts tax payments in the sum of P73,734,584.60,
broken down as follows:
Period Covered Gross Receipts Gross Receipts Tax
January to March 1994 P 188,406,061.95 P 9,420,303.10
April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98
Total P 1,474,691,693.44 P 73,734,584.60
[Respondent] alleges that the total gross receipts in the amount
of P1,474,691,693.44 included the sum of P350,807,875.15 representing
gross receipts from passive income which was already subjected to 20%
final withholding tax.
5
On January 30, 1996, [the Court of Tax Appeals] rendered a decision in
CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of
Internal Revenue[,] wherein it was held that the 20% final withholding tax
on [a] banks interest income should not form part of its taxable gross
receipts for purposes of computing the gross receipts tax.
On June 19, 1997, on the strength of the aforementioned decision,
[respondent] filed with the Bureau of Internal Revenue [BIR] a
letter-request for the refund or issuance of [a] tax credit certificate in the
aggregate amount of P3,508,078.75, representing allegedly overpaid gross
receipts tax for the year 1995, computed as follows:
Gross Receipts Subjected to the Final Tax
Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] P 3,508,078.75
Without waiting for an action from the [petitioner], [respondent] on the
same day filed [a] petition for review [with the Court of Tax Appeals] in
order to toll the running of the two-year prescriptive period to judicially
claim for the refund of [any] overpaid internal revenue tax[,] pursuant to
Section 230 [now 229] of the Tax Code [also National Internal Revenue
Code] x x x.
xxxxxxxxx
After trial on the merits, the [Court of Tax Appeals], on August 6, 1999,
for
rendered its decision ordering x x x petitioner to refund in favor of x x x
respondent the reduced amount of P1,555,749.65 as overpaid [gross
receipts tax] for the year 1995. The legal issue x x x was resolved by the
[Court of Tax Appeals], with Hon. Amancio Q. Saga dissenting, on the
strength of its earlier pronouncement in x x x Asian Bank Corporation vs.
Commissioner of Internal Revenue x x x, wherein it was held that the 20%
[final withholding tax] on [a] banks interest income should not form part
of its taxable gross receipts for purposes of computing the [gross receipts
tax].[7]
Ruling of the CA
The CA held that the 20% FWT on a banks interest income did not
form part of the taxable gross receipts in computing the 5% GRT, because
the FWT was not actually received by the bank but was directly remitted
to the government. The appellate court curtly said that while the Tax Code
does not specifically state any exemption, x x x the statute must receive a
sensible construction such as will give effect to the legislative intention,
and so as to avoid an unjust or absurd conclusion.[8]
Hence, this appeal.[9]
Issue
Petitioner raises this lone issue for our consideration:
 6

Whether or not the 20% final withholding tax on [a] banks interest income
forms part of the taxable gross receipts in computing the 5% gross
receipts tax.[10]
Provided, however, That in case the maturity period referred to in
paragraph (a) is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination for purposes of
classifying the transaction as short, medium or long term and the correct
rate of tax shall be applied accordingly.

The Courts Ruling

Nothing in this Code shall preclude the Commissioner from imposing the
same tax herein provided on persons performing similar banking activities.
The Petition is meritorious.
The 5% GRT[15] is included under Title V. Other Percentage Taxes of
the Tax Code and is not subject to withholding. The banks and non-bank
financial intermediaries liable therefor shall, under Section
Sole Issue:
125(a)(1),[16] file quarterly returns on the amount of gross receipts and pay
Whether the 20% FWT Forms Part
the taxes due thereon within twenty (20) [17] days after the end of each
of the Taxable Gross Receipts
taxable quarter.

The 20% FWT,[18] on the other hand, falls under Section

Petitioner claims that although the 20% FWT on respondents
interest income was not actually received by respondent because it was
remitted directly to the government, the fact that the amount redounded
to the banks benefit makes it part of the taxable gross receipts in
computing the 5% GRT. Respondent, on the other hand, maintains that
the CA correctly ruled otherwise.
We agree with petitioner. In fact, the same issue has been raised
recently in China Banking Corporation v. CA,[11] where this Court held that
the amount of interest income withheld in payment of the 20% FWT forms
part of gross receipts in computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 119[12] of the Tax Code,[13] which
provides:
SEC. 119. Tax on banks and non-bank financial intermediaries. There shall
be collected a tax on gross receipts derived from sources within
the Philippines by all banks and non-bank financial intermediaries in
accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well
as income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years5%
Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
(b) On dividends...0%
(c) On royalties, rentals of property, real or personal,
profits from exchange and all other
items treated as gross income under
Section 28[14] of this
Code...................................................
.................5%
24(e)(1)[19] of Title II. Tax on Income. It is a tax on passive income,
deducted and withheld at source by the payor-corporation and/or person
as withholding agent pursuant to Section 50,[20] and paid in the same
manner and subject to the same conditions as provided for in Section
51.[21]
A perusal of these provisions clearly shows that two types of taxes
are involved in the present controversy: (1) the GRT, which is a percentage
tax; and (2) the FWT, which is an income tax. As a bank, petitioner is
covered by both taxes.
A percentage tax is a national tax measured by a certain percentage
of the gross selling price or gross value in money of goods sold, bartered
or imported; or of the gross receipts or earnings derived by any person
engaged in the sale of services.[22] It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the
net or the gross income realized in a taxable year. [23] It is subject to
withholding.
In a withholding tax system, the payee is the taxpayer, the person
on whom the tax is imposed; the payor, a separate entity, acts as no more
than an agent of the government for the collection of the tax in order to
ensure its payment. Obviously, this amount that is used to settle the tax
liability is deemed sourced from the proceeds constitutive of the tax
base.[24] These proceeds are either actual or constructive. Both parties
herein agree that there is no actual receipt by the bank of the amount
withheld. What needs to be determined is if there is constructive receipt
thereof. Since the payee -- not the payor -- is the real taxpayer, the rule on
constructive receipt can be easily rationalized, if not made clearly
manifest.[25]
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations (RR) No.
17-84,[26] petitioner contends that there is constructive receipt of the
interest on deposits and yield on deposit substitutes. [27]Respondent,
however, claims that even if there is, it is Section 4(e) of RR 12-80[28] that
nevertheless governs the situation.
Section 7 of RR 17-84 states:
 7
SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.
(a) The interest earned on Philippine Currency bank deposits and yield
from deposit substitutes subjected to the withholding taxes in accordance
with these regulations need not be included in the gross income in
computing the depositors/investors income tax liability in accordance with
the provision of Section 29(b),[29] (c)[30] and (d) of the National Internal
Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit
substitutes declared for purposes of imposing the withholding taxes in
accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are financial
institutions, the same shall be included as part of the tax base upon which
the gross receipt[s] tax is imposed.
Section 4(e) of RR 12-80, on the other hand, states that the tax rates
to be imposed on the gross receipts of banks, non-bank financial
intermediaries, financing companies, and other non-bank financial
intermediaries not performing quasi-banking activities shall be based on
all items of income actually received. This provision reads:
SEC. 4. x x x x x x x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries,
financing companies, and other non-bank financial intermediaries not
performing quasi-banking activities. The rates of tax to be imposed on the
gross receipts of such financial institutions shall be based on all items of
income actually received. Mere accrual shall not be considered, but once
payment is received on such accrual or in cases of prepayment, then the
amount actually received shall be included in the tax base of such financial
institutions, as provided hereunder x x x.
Respondent argues that the above-quoted provision is plain and
clear: since there is no actual receipt, the FWT is not to be included in the
tax base for computing the GRT. There is supposedly no pecuniary benefit
or advantage accruing to the bank from the FWT, because the income is
subjected to a tax burden immediately upon receipt through the
withholding process. Moreover, the earlier RR 12-80 covered matters not
falling under the later RR 17-84.[31]
We are not persuaded.
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of
our Civil Code.
Under Article 531:[32]
Possession is acquired by the material occupation of a thing or the
exercise of a right, or by the fact that it is subject to the action of our will,
or by the proper acts and legal formalities established for acquiring such
right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it, by his
legal representative, by his agent, or by any person without any power
whatever; but in the last case, the possession shall not be considered as
acquired until the person in whose name the act of possession was
executed has ratified the same, without prejudice to the juridical
consequences of negotiorum gestio in a proper case.[33]
The last means of acquiring possession under Article 531 refers to
juridical acts -- the acquisition of possession by sufficient title to which the
law gives the force of acts of possession.[34] Respondent argues that only
items of income actually received should be included in its gross
receipts. It claims that since the amount had already been withheld at
source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts and legal
formalities established therefor. The withholding process is one such
act. There may not be actual receipt of the income withheld; however, as
provided for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor
as the withholding agent of the government, because the taxpayer ratifies
the very act of possession for the government. There is
thus constructive receipt. The processes of bookkeeping and accounting
for interest on deposits and yield on deposit substitutes that are subjected
to FWT are indeed -- for legal purposes -- tantamount to delivery, receipt
or remittance.[35] Besides, respondent itself admits that its income is
subjected to a tax burden immediately upon receipt, although it claims
that it derives no pecuniary benefit or advantage through the withholding
process. There being constructive receipt of such income -- part of which is
withheld -- RR 17-84 applies, and that income is included as part of the tax
base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue regulations on interest
income constructively received.
In general, rules and regulations issued by administrative or
executive officers pursuant to the procedure or authority conferred by law
upon the administrative agency have the force and effect, or partake of
the nature, of a statute.[36] The reason is that statutes express the policies,
purposes, objectives, remedies and sanctions intended by the legislature
in general terms. The details and manner of carrying them out are
oftentimes left to the administrative agency entrusted with their
enforcement.
In the present case, it is the finance secretary who promulgates the
revenue regulations, upon recommendation of the BIR
commissioner. These regulations are the consequences of a delegated
power to issue legal provisions that have the effect of law.[37]
A revenue regulation is binding on the courts as long as the
procedure fixed for its promulgation is followed. Even if the courts may
not be in agreement with its stated policy or innate wisdom, it is
nonetheless valid, provided that its scope is within the statutory authority
or standard granted by the legislature.[38] Specifically, the regulation must
(1) be germane to the object and purpose of the law; [39] (2) not contradict,
but conform to, the standards the law prescribes;[40] and (3) be issued for
the sole purpose of carrying into effect the general provisions of our tax
laws.[41]
 8
In the present case, there is no question about the regularity in the
performance of official duty. What needs to be determined is whether RR
12-80 has been repealed by RR 17-84.
A repeal may be express or implied. It is express when there is a
declaration in a regulation -- usually in its repealing clause -- that another
regulation, identified by its number or title, is repealed. All others are
implied repeals.[42] An example of the latter is a general provision that
predicates the intended repeal on a substantial conflict between the
existing and the prior regulations.[43]
As stated in Section 11 of RR 17-84, all regulations, rules, orders or
portions thereof that are inconsistent with the provisions of the said RR
are thereby repealed. This declaration proceeds on the premise that RR
17-84 clearly reveals such an intention on the part of the Department of
Finance. Otherwise, later RRs are to be construed as a continuation of,
and not a substitute for, earlier RRs; and will continue to speak, so far as
the subject matter is the same, from the time of the first promulgation.[44]
There are two well-settled categories of implied repeals: (1) in case
the provisions are in irreconcilable conflict, the later regulation, to the
extent of the conflict, constitutes an implied repeal of an earlier one; and (2)
if the later regulation covers the whole subject of an earlier one and is clearly
intended as a substitute, it will similarly operate as a repeal of the earlier
one.[45] There is no implied repeal of an earlier RR by the mere fact that its subject
matter is related to a later RR, which may simply be a cumulation or continuation
of the earlier one.[46]
Where a part of an earlier regulation embracing the same subject as
a later one may not be enforced without nullifying the pertinent provision
of the latter, the earlier regulation is deemed impliedly amended or
modified to the extent of the repugnancy.[47] The unaffected provisions or
portions of the earlier regulation remain in force, while its omitted
portions are deemed repealed.[48] An exception therein that is amended
by its subsequent elimination shall now cease to be so and instead be
included within the scope of the general rule.[49]
Section 4(e) of the earlier RR 12-80 provides that only items of
income actually received shall be included in the tax base for computing
the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction
and provides that all interests earned shall be included. The exception
having been eliminated, the clear intent is that the later RR 17-84 includes
the exception within the scope of the general rule.
Repeals by implication are not favored and will not be indulged,
unless it is manifest that the administrative agency intended them. As a
regulation is presumed to have been made with deliberation and full
knowledge of all existing rules on the subject, it may reasonably be
concluded that its promulgation was not intended to interfere with or
abrogate any earlier rule relating to the same subject, unless it is either
repugnant to or fully inclusive of the subject matter of an earlier one, or
unless the reason for the earlier one is beyond peradventure
removed.[50] Every effort must be exerted to make all regulations stand --
and a later rule will not operate as a repeal of an earlier one, if by any
reasonable construction, the two can be reconciled.[51]
RR 12-80 imposes the GRT only on all items of
income actually received, as opposed to their mere accrual, while RR
17-84 includes all interest income in computing the GRT. RR 12-80 is
superseded by the later rule, because Section 4(e) thereof is not restated
in RR 17-84. Clearly therefore, as petitioner correctly states, this particular
provision was impliedly repealed when the later regulations took effect.[52]
Reconciling the Two Regulations
Granting that the two regulations can be reconciled, respondents
reliance on Section 4(e) of RR 12-80 is misplaced and deceptive. The
accrual referred to therein should not be equated with the determination
of the amount to be used as tax base in computing the GRT. Such accrual
merely refers to an accounting method that recognizes income as earned
although not received, and expenses as incurred although not yet paid.
Accrual should not be confused with the concept
of constructive possession or receipt as earlier discussed. Petitioner
correctly points out that income that is merely accrued -- earned, but not
yet received -- does not form part of the taxable gross receipts; income
that has been received, albeit constructively, does.[53]
The word actually, used confusingly in Section 4(e), will be clearer if
removed entirely. Besides, if actually is that important, accrual should
have been eliminated for being a mere surplusage. The inclusion
of accrual stresses the fact that Section 4(e) does not distinguish
between actual and constructive receipt. It merely focuses on the method
of accounting known as the accrual system.
Under this system, income is accrued or earned in the year in which
the taxpayers right thereto becomes fixed and definite, even though it
may not be actually received until a later year; while a deduction for a
liability is to be accrued or incurred and taken when the liability becomes
fixed and certain, even though it may not be actually paid until later.[54]
Under any system of accounting, no duty or liability to pay an
income tax upon a transaction arises until the taxable year in which the
event constituting the condition precedent occurs.[55] The liability to pay a
tax may thus arise at a certain time and the tax paid within another given
time.[56]
In reconciling these two regulations, the earlier one includes in the
tax base for GRT all income, whether actually or constructively received,
while the later one includes specifically interest income. In computing the
income tax liability, the only exception cited in the later regulations is the
exclusion from gross income of interest income, which is already
subjected to withholding. This exception, however, refers to a different
tax altogether. To extend mischievously such exception to the GRT will
certainly lead to results not contemplated by the legislators and the
administrative body promulgating the regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v. Manila Jockey Club,[57] we
held that the term gross receipts shall not include money which, although
delivered, has been especially earmarked by law or regulation for some
person other than the taxpayer.[58]
To begin, we have to nuance the definition of gross receipts[59] to
determine what it is exactly. In this regard, we note that US cases have
persuasive effect in our jurisdiction, because Philippine income tax law is
patterned after its US counterpart.[60]
[G]ross receipts with respect to any period means the sum of: (a) The total
amount received or accrued during such period from the sale, exchange,
or other disposition of x x x other property of a kind which would properly
be included in the inventory of the taxpayer if on hand at the close of the
 9
taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of its trade or business, and (b) The gross
income, attributable to a trade or business, regularly carried on by the
taxpayer, received or accrued during such period x x x.[61]
x x x [B]y gross earnings from operations x x x was intended all operations
xxx including incidental, subordinate, and subsidiary operations, as well as
principal operations.[62]
When we speak of the gross earnings of a person or corporation, we mean
the entire earnings or receipts of such person or corporation from the
business or operations to which we refer.[63]
From these cases, gross receipts[64] refer to the total, as opposed to
the net, income.[65] These are therefore the total receipts before any
deduction[66] for the expenses of management.[67] Websters New
International Dictionary, in fact, defines gross as whole or entire.
Statutes taxing the gross receipts, earnings, or income of particular
corporations are found in many jurisdictions.[68] Tax thereon is generally
held to be within the power of a state to impose; or constitutional, unless
it interferes with interstate commerce or violates the requirement as to
uniformity of taxation.[69]
Moreover, we have emphasized that the BIR has consistently ruled
that gross receipts does not admit of any deduction. [70] Following the
principle of legislative approval by reenactment,[71] this interpretation has
been adopted by the legislature throughout the various reenactments of
then Section 119 of the Tax Code.[72]
Given that a tax is imposed upon total receipts and not upon net
earnings,[73] shall the income withheld be included in the tax base upon
which such tax is imposed? In other words, shall interest
income constructively received still be included in the tax base for
computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this case. Earmarking is not
the same as withholding. Amounts earmarked do not form part of gross
receipts, because, although delivered or received, these are by law or
regulation reserved for some person other than the taxpayer. On the
contrary, amounts withheld form part of gross receipts, because these are
in constructivepossession and not subject to any reservation, the
withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse
owners and jockeys amounts that never became the property of the race
track.[74] Unlike these amounts, the interest income that had
been withheld for the government became property of the financial
institutions upon constructive possession thereof. Possession was indeed
acquired, since it was ratified by the financial institutions in whose name
the act of possession had been executed. The money indeed belonged to
the taxpayers; merely holding it in trust was not enough.[75]
The government subsequently becomes the owner of the money
when the financial institutions pay the FWT to extinguish their obligation
to the government. As this Court has held before, this is the consideration
for the transfer of ownership of the FWT from these institutions to the
government.[76] It is ownership that determines whether interest income
forms part of taxable gross receipts.[77] Being originally owned by these
financial institutions as part of their interest income, the FWT should form
part of their taxable gross receipts.
Besides, these amounts withheld are in payment of an income tax
liability, which is different from a percentage tax liability. Commissioner of
Internal Revenue v. Tours Specialists, Inc. aptly held thus:[78]
x x x [G]ross receipts subject to tax under the Tax Code do not include
monies or receipts entrusted to the taxpayer which do not belong to them
and do not redound to the taxpayers benefit; and it is not necessary that
there must be a law or regulation which would exempt such monies and
receipts within the meaning of gross receipts under the Tax Code.[79]
In the construction and interpretation of tax statutes and of statutes
in general, the primary consideration is to ascertain and give effect to the
intention of the legislature.[80] We ought to impute to the lawmaking body
the intent to obey the constitutional mandate, as long as its enactments
fairly admit of such construction.[81] In fact, x x x no tax can be levied
without express authority of law, but the statutes are to receive a
reasonable construction with a view to carrying out their purpose and
intent.[82]
Looking again into Sections 24(e)(1) and 119 of the Tax Code, we
find that the first imposes an income tax; the second, a percentage
tax. The legislature clearly intended two different taxes. The FWT is a tax
on passive income, while the GRT is on business. [83] The withholding of
one is not equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is essential to the very
existence of government. Certainly, one of the highest attributes of
sovereignty is the power of taxation,[84] which may legitimately be
exercised on the objects to which it is applicable to the utmost extent as
the government may choose.[85] Being an incident of sovereignty, such
power is coextensive with that to which it is an incident. [86] The interest on
deposits and yield on deposit substitutes of financial institutions, on the
one hand, and their business as such, on the other, are the two objects
over which the State has chosen to extend its sovereign power. Those not
so chosen are, upon the soundest principles, exempt from taxation.[87]
While courts will not enlarge by construction the governments
power of taxation,[88] neither will they place upon tax laws so loose a
construction as to permit evasions, merely on the basis of fanciful and
insubstantial distinctions.[89] When the legislature imposes a tax on
income and another on business, the imposition must be respected. The
Tax Code should be so construed, if need be, as to avoid empty
declarations or possibilities of crafty tax evasion schemes. We have
consistently ruled thus:
x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the
means to carry on its operations, and it is of the utmost importance that
the modes adopted to enforce the collection of the taxes levied should be
summary and interfered with as little as possible. x x x.[90]
Any delay in the proceedings of the officers, upon whom the duty is
devolved of collecting the taxes, may derange the operations of
government, and thereby cause serious detriment to the public.[91]
No government could exist if all litigants were permitted to delay the
collection of its taxes.[92]
 10
A taxing act will be construed, and the intent and meaning of the
legislature ascertained, from its language.[93] Its clarity and implied intent
must exist to uphold the taxes as against a taxpayer in whose favor doubts
will be resolved.[94] No such doubts exist with respect to the Tax Code,
because the income and percentage taxes we have cited earlier have been
imposed in clear and express language for that purpose.[95]
This Court has steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its express
terms -- construction and interpretation being called for only when such
literal application is impossible or inadequate without them. [96] In Quijano
v. Development Bank of the Philippines,[97] we stressed as follows:
No process of interpretation or construction need be resorted to where a
provision of law peremptorily calls for application. [98]
A literal application of any part of a statute is to be rejected if it will
operate unjustly, lead to absurd results, or contradict the evident meaning
of the statute taken as a whole.[99] Unlike the CA, we find that the literal
application of the aforesaid sections of the Tax Code and its implementing
regulations does not operate unjustly or contradict the evident meaning
of the statute taken as a whole. Neither does it lead to absurd
results. Indeed, our courts are not to give words meanings that would lead
to absurd or unreasonable consequences.[100] We have repeatedly held
thus:
x x x [S]tatutes should receive a sensible construction, such as will give
effect to the legislative intention and so as to avoid an unjust or an absurd
conclusion.[101]
While it is true that the contemporaneous construction placed upon a
statute by executive officers whose duty is to enforce it should be given
great weight by the courts, still if such construction is so erroneous, x x x
the same must be declared as null and void.[102]
It does not even matter that the CTA, like in China Banking
Corporation,[103] relied erroneously on Manila Jockey Club. Under our tax
system, the CTA acts as a highly specialized body specifically created for
the purpose of reviewing tax cases.[104] Because of its recognized expertise,
its findings of fact will ordinarily not be reviewed, absent any showing of
gross error or abuse on its part.[105] Such findings are binding on the Court
and, absent strong reasons for us to delve into facts, only questions of law
are open for determination.[106]
Respondent claims that it is entitled to a refund on the basis of
excess GRT payments. We disagree.
Tax refunds are in the nature of tax exemptions.[107] Such
exemptions are strictly construed against the taxpayer, being highly
disfavored[108] and almost said to be odious to the law.Hence, those who
claim to be exempt from the payment of a particular tax must do so under
clear and unmistakable terms found in the statute. They must be able to
point to some positive provision, not merely a vague implication,[109] of the
law creating that right.[110]
The right of taxation will not be surrendered, except in words too
plain to be mistaken. The reason is that the State cannot strip itself of this
highest attribute of sovereignty -- its most essential power of taxation --
by vague or ambiguous language. Since tax refunds are in the nature of tax
exemptions, these are deemed to be in derogation of sovereign authority
and to be construed strictissimi juris against the person or entity claiming
the exemption.[111]
No less than our 1987 Constitution provides for the mechanism for
granting tax exemptions.[112] They certainly cannot be granted by
implication or mere administrative regulation. Thus, when an exemption is
claimed, it must indubitably be shown to exist, for every presumption is
against it,[113] and a well-founded doubt is fatal to the claim.[114] In the
instant case, respondent has not been able to satisfactorily show that its
FWT on interest income is exempt from the GRT. Like China Banking
Corporation, its argument creates a tax exemption where none exists.[115]
No exemptions are normally allowed when a GRT is imposed. It is
precisely designed to maintain simplicity in the tax collection effort of the
government and to assure its steady source of revenue even during an
economic slump.[116]
No Double Taxation
We have repeatedly said that the two taxes, subject of this litigation,
are different from each other. The basis of their imposition may be the
same, but their natures are different, thus leading us to a final point. Is
there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it
should be taxed only once; that is, x x x taxing the same person twice by
the same jurisdiction for the same thing.[117] It is obnoxious when the
taxpayer is taxed twice, when it should be but once.[118] Otherwise described as
direct duplicate taxation,[119] the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and they must be of the same
kind or character.[120]
First, the taxes herein are imposed on two different subject
matters. The subject matter of the FWT is the passive income generated in
the form of interest on deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in the business of
banking.
A tax based on receipts is a tax on business rather than on the
property; hence, it is an excise[121] rather than a property tax.[122] It is not
an income tax, unlike the FWT. In fact, we have already held that one can
be taxed for engaging in business and further taxed differently for the
income derived therefrom.[123] Akin to our ruling in Velilla v.
Posadas,[124] these two taxes are entirely distinct and are assessed under
different provisions.
Second, although both taxes are national in scope because they are
imposed by the same taxing authority -- the national government under
the Tax Code -- and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they affect are
different. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only
after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT
is an income tax subject to withholding, while the GRT is a percentage tax
not subject to withholding.
In short, there is no double taxation, because there is no taxing
twice, by the same taxing authority, within the same jurisdiction, for the
same purpose, in different taxing periods, some of the property in the
 11
territory.[125] Subjecting interest income to a 20% FWT and including it in
the computation of the 5% GRT is clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. No costs.
SO ORDERED.
LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and
CONSTANTINO P. ROSAS, in his capacity as City Assessor of
Quezon City, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court, as amended, of the Decision[1] dated July 17, 2000 of the Court of
Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the
Central Board of Assessment Appeals holding that the lot owned by the
petitioner and its hospital building constructed thereon are subject to
assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and
non-profit entity established on January 16, 1981 by virtue of Presidential
Decree No. 1823.[2] It is the registered owner of a parcel of land,
particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495,
located at Quezon Avenue corner Elliptical Road, Central District, Quezon
City. The lot has an area of 121,463 square meters and is covered by
Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of
Quezon City. Erected in the middle of the aforesaid lot is a hospital known
as the Lung Center of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small store spaces, and to
medical or professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional
services. Almost one-half of the entire area on the left side of the building
along Quezon Avenue is vacant and idle, while a big portion on the right
side, at the corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also
renders medical services to out-patients, both paying and
non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the
petitioner were assessed for real property taxes in the amount
of P4,554,860 by the City Assessor of Quezon City.[3]Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A)
were issued for the land and the hospital building,
respectively.[4] On August 25, 1993, the petitioner filed a Claim for
Exemption[5] from real property taxes with the City Assessor, predicated
on its claim that it is a charitable institution. The petitioners request was
denied, and a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal
of the resolution of the City Assessor. The petitioner alleged that under
Section 28, paragraph 3 of the 1987 Constitution, the property is exempt
from real property taxes. It averred that a minimum of 60% of its hospital
beds are exclusively used for charity patients and that the major thrust of
its hospital operation is to serve charity patients. The petitioner contends
that it is a charitable institution and, as such, is exempt from real property
taxes. The QC-LBAA rendered judgment dismissing the petition and
holding the petitioner liable for real property taxes.[6]
The QC-LBAAs decision was, likewise, affirmed on appeal by the
Central Board of Assessment Appeals of Quezon City (CBAA, for
brevity)[7] which ruled that the petitioner was not a charitable institution
and that its real properties were not actually, directly and exclusively used
for charitable purposes; hence, it was not entitled to real property tax
exemption under the constitution and the law. The petitioner sought relief
from the Court of Appeals, which rendered judgment affirming the
decision of the CBAA.[8]
Undaunted, the petitioner filed its petition in this Court contending
that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS
NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE
GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT
ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR
CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY
TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID
EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON
PROPER APPLICATION.
The petitioner avers that it is a charitable institution within the
context of Section 28(3), Article VI of the 1987 Constitution. It asserts that
its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases
portions of the land to private parties, and rents out portions of the
hospital to private medical practitioners from which it derives income to
be used for operational expenses. The petitioner points out that for the
years 1995 to 1999, 100% of its out-patients were charity patients and of
the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to
charity patients. It asserts that the fact that it receives subsidies from the
government attests to its character as a charitable institution. It contends
that the exclusivity required in the Constitution does not necessarily mean
solely. Hence, even if a portion of its real estate is leased out to private
individuals from whom it derives income, it does not lose its character as a
charitable institution, and its exemption from the payment of real estate
taxes on its real property. The petitioner cited our ruling in Herrera v.
QC-BAA[9] to bolster its pose. The petitioner further contends that even if
P.D. No. 1823 does not exempt it from the payment of real estate taxes, it
is not precluded from seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the
petitioner is not a charitable entity. The petitioners real property is not
exempt from the payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in a
newspaper report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its administrative
officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and
Garden Center, for entering into a lease contract over 7,663.13 square
meters of the property in 1990 for only P20,000 a month, when the
monthly rental should be P357,000 a month as determined by the
Commission on Audit; and that instead of complying with the directive of
 12
the COA for the cancellation of the contract for being grossly prejudicial to
the government, the petitioner renewed the same on March 13, 1995 for
a monthly rental of only P24,000. They assert that the petitioner uses the
subsidies granted by the government for charity patients and uses the rest
of its income from the property for the benefit of paying patients, among
other purposes. They aver that the petitioner failed to adduce substantial
evidence that 100% of its out-patients and 170 beds in the hospital are
reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of
its record of service. That before a patient is admitted for treatment in the
Center, first impression is that it is pay-patient and required to pay a
certain amount as deposit. That even if a patient is living below the
poverty line, he is charged with high hospital bills. And, without these bills
being first settled, the poor patient cannot be allowed to leave the
hospital or be discharged without first paying the hospital bills or issue a
promissory note guaranteed and indorsed by an influential agency or
person known only to the Center; that even the remains of deceased poor
patients suffered the same fate. Moreover, before a patient is admitted
for treatment as free or charity patient, one must undergo a series of
interviews and must submit all the requirements needed by the Center,
usually accompanied by endorsement by an influential agency or person
known only to the Center. These facts were heard and admitted by the
Petitioner LCP during the hearings before the Honorable QC-BAA and
Honorable CBAA. These are the reasons of indigent patients, instead of
seeking treatment with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the Center be called charitable?[10]
The Issues
The issues for resolution are the following: (a) whether the
petitioner is a charitable institution within the context of Presidential
Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b)
of Republic Act No. 7160; and (b) whether the real properties of the
petitioner are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable
institution within the context of the 1973 and 1987 Constitutions. To
determine whether an enterprise is a charitable institution/entity or not,
the elements which should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.[11]
In the legal sense, a charity may be fully defined as a gift, to be
applied consistently with existing laws, for the benefit of an indefinite
number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of government. [12] It
may be applied to almost anything that tend to promote the well-doing
and well-being of social man. It embraces the improvement and
promotion of the happiness of man.[13] The word charitable is not
restricted to relief of the poor or sick.[14] The test of a charity and a
charitable organization are in law the same. The test whether an
enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit,
or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock
corporation which, subject to the provisions of the decree, is to be
administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally to
help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison detre for the creation of the petitioner is stated
in the decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern,
having been the leading cause of illness and death in the Philippines,
comprising more than 45% of the total annual deaths from all causes, thus,
exacting a tremendous toll on human resources, which ailments are likely
to increase and degenerate into serious lung diseases on account of
unabated pollution, industrialization and unchecked cigarette smoking in
the country;
Whereas, the more common lung diseases are, to a great extent,
preventable, and curable with early and adequate medical care,
immunization and through prompt and intensive prevention and health
education programs;
Whereas, there is an urgent need to consolidate and reinforce existing
programs, strategies and efforts at preventing, treating and rehabilitating
people affected by lung diseases, and to undertake research and training
on the cure and prevention of lung diseases, through a Lung Center which
will house and nurture the above and related activities and provide
tertiary-level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide
material and financial support towards the establishment and
maintenance of a Lung Center for the welfare and benefit of the Filipino
people.[15]
The purposes for which the petitioner was created are spelled out in
its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as
follows:
1. To construct, establish, equip, maintain, administer and conduct an
integrated medical institution which shall specialize in the treatment, care,
rehabilitation and/or relief of lung and allied diseases in line with the
concern of the government to assist and provide material and financial
support in the establishment and maintenance of a lung center primarily
to benefit the people of the Philippines and in pursuance of the policy of
the State to secure the well-being of the people by providing them
specialized health and medical services and by minimizing the incidence of
lung diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research related to the
prevention of lung or pulmonary ailments and the care of lung patients,
including the holding of a series of relevant congresses, conventions,
seminars and conferences;
 13
3. To stimulate and, whenever possible, underwrite scientific researches
on the biological, demographic, social, economic, eugenic and
physiological aspects of lung or pulmonary diseases and their control; and
to collect and publish the findings of such research for public
consumption;
4. To facilitate the dissemination of ideas and public acceptance of
information on lung consciousness or awareness, and the development of
fact-finding, information and reporting facilities for and in aid of the
general purposes or objects aforesaid, especially in human lung
requirements, general health and physical fitness, and other relevant or
related fields;
5. To encourage the training of physicians, nurses, health officers, social
workers and medical and technical personnel in the practical and scientific
implementation of services to lung patients;
6. To assist universities and research institutions in their studies about
lung diseases, to encourage advanced training in matters of the lung and
related fields and to support educational programs of value to general
health;
7. To encourage the formation of other organizations on the national,
provincial and/or city and local levels; and to coordinate their various
efforts and activities for the purpose of achieving a more effective
programmatic approach on the common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any form from both international and
local foundations and organizations; and to administer grants and funds
that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to the
public and, in general, to promote and protect the health of the masses of
our people, which has long been recognized as an economic asset and a
social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary afflictions
and maladies of the people in any and all walks of life, including those who
are poor and needy, all without regard to or discrimination, because of
race, creed, color or political belief of the persons helped; and to enable
them to obtain treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any activity designed
and carried on to promote the general health of the community;
12. To acquire and/or borrow funds and to own all funds or equipment,
educational materials and supplies by purchase, donation, or otherwise
and to dispose of and distribute the same in such manner, and, on such
basis as the Center shall, from time to time, deem proper and best, under
the particular circumstances, to serve its general and non-profit purposes
and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer
and dispose of properties, whether real or personal, for purposes herein
mentioned; and
14. To do everything necessary, proper, advisable or convenient for the
accomplishment of any of the powers herein set forth and to do every
other act and thing incidental thereto or connected therewith.[16]
Hence, the medical services of the petitioner are to be rendered to
the public in general in any and all walks of life including those who are
poor and the needy without discrimination.After all, any person, the rich
as well as the poor, may fall sick or be injured or wounded and become a
subject of charity.[17]
As a general principle, a charitable institution does not lose its
character as such and its exemption from taxes simply because it derives
income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the
persons managing or operating the institution.[18] In Congregational
Sunday School, etc. v. Board of Review,[19] the State Supreme Court of
Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent
exemption from taxation, by reason of the fact that those recipients of its
benefits who are able to pay are required to do so, where no profit is
made by the institution and the amounts so received are applied in
furthering its charitable purposes, and those benefits are refused to none
on account of inability to pay therefor. The fundamental ground upon
which all exemptions in favor of charitable institutions are based is the
benefit conferred upon the public by them, and a consequent relief, to
some extent, of the burden upon the state to care for and advance the
interests of its citizens.[20]
As aptly stated by the State Supreme Court of South Dakota
in Lutheran Hospital Association of South Dakota v. Baker:[21]
[T]he fact that paying patients are taken, the profits derived from
attendance upon these patients being exclusively devoted to the
maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the
deserving poor can with difficulty be persuaded to enter an asylum of any
kind confined to the reception of objects of charity; and that their honest
pride is much less wounded by being placed in an institution in which
paying patients are also received. The fact of receiving money from some
of the patients does not, we think, at all impair the character of the charity,
so long as the money thus received is devoted altogether to the charitable
object which the institution is intended to further.[22]
The money received by the petitioner becomes a part of the trust
fund and must be devoted to public trust purposes and cannot be diverted
to private profit or benefit.[23]
Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a charitable
institution simply because the gift or donation is in the form of subsidies
granted by the government. As held by the State Supreme Court of Utah
in Yorgason v. County Board of Equalization of Salt Lake County:[24]
Second, the government subsidy payments are provided to the
project. Thus, those payments are like a gift or donation of any other kind
except they come from the government. In both Intermountain Health
Care and the present case, the crux is the presence or absence of material
 14
reciprocity. It is entirely irrelevant to this analysis that the government,
rather than a private benefactor, chose to make up the deficit resulting
from the exchange between St. Marks Tower and the tenants by making a
contribution to the landlord, just as it would have been irrelevant
in Intermountain Health Care if the patients income supplements had
come from private individuals rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions
does not dictate the denial of a charitable exemption if the facts otherwise
support such an exemption, as they do here.[25]
In this case, the petitioner adduced substantial evidence that it
spent its income, including the subsidies from the government for 1991
and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we
hold, anent the second issue, that those portions of its real property that
are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable
purposes.
The settled rule in this jurisdiction is that laws granting exemption
from tax are construed strictissimi juris against the taxpayer and liberally
in favor of the taxing power. Taxation is the rule and exemption is the
exception. The effect of an exemption is equivalent to an
appropriation. Hence, a claim for exemption from tax payments must be
clearly shown and based on language in the law too plain to be
mistaken.[26] As held in Salvation Army v. Hoehn:[27]
An intention on the part of the legislature to grant an exemption from the
taxing power of the state will never be implied from language which will
admit of any other reasonable construction. Such an intention must be
expressed in clear and unmistakable terms, or must appear by necessary
implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter
or act of incorporation, it is to be construed strictly against the property
owner and in favor of the public. This principle applies with peculiar force
to a claim of exemption from taxation . [28]
Section 2 of Presidential Decree No. 1823, relied upon by the
petitioner, specifically provides that the petitioner shall enjoy the tax
exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock
corporation organized primarily to help combat the high incidence of lung
and pulmonary diseases in the Philippines, all donations, contributions,
endowments and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under
Section 30, paragraph (h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be exempt from the payment of
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases made by, or for the Lung Center.[29]
It is plain as day that under the decree, the petitioner does not
enjoy any property tax exemption privileges for its real properties as well
as the building constructed thereon. If the intentions were otherwise, the
same should have been among the enumeration of tax exempt privileges
under Section 2:
It is a settled rule of statutory construction that the express mention of
one person, thing, or consequence implies the exclusion of all others. The
rule is expressed in the familiar maxim, expressio unius est exclusio
alterius.
The rule of expressio unius est exclusio alterius is formulated in a number
of ways. One variation of the rule is principle that what is expressed puts
an end to that which is implied. Expressium facit cessare tacitum. Thus,
where a statute, by its terms, is expressly limited to certain matters, it may
not, by interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are
canons of restrictive interpretation. They are based on the rules of logic
and the natural workings of the human mind. They are predicated upon
ones own voluntary act and not upon that of others. They proceed from
the premise that the legislature would not have made specified
enumeration in a statute had the intention been not to restrict its
meaning and confine its terms to those expressly mentioned.[30]
The exemption must not be so enlarged by construction since the
reasonable presumption is that the State has granted in express terms all
it intended to grant at all, and that unless the privilege is limited to the
very terms of the statute the favor would be intended beyond what was
meant.[31]
Section 28(3), Article VI of the 1987 Philippine Constitution provides,
thus:
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from
taxation.[32]
The tax exemption under this constitutional provision
covers property taxes only.[33] As Chief Justice Hilario G. Davide, Jr., then a
member of the 1986 Constitutional Commission, explained: . . . what is
exempted is not the institution itself . . .; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes.[34]
Consequently, the constitutional provision is implemented by
Section 234(b) of Republic Act No. 7160 (otherwise known as the Local
Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands,
 15
buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes.[35]
We note that under the 1935 Constitution, ... all lands, buildings,
and improvements used exclusively for charitable purposes shall be
exempt from taxation.[36] However, under the 1973 and the present
Constitutions, for lands, buildings, and improvements of the charitable
institution to be considered exempt, the same should not only be
exclusively used for charitable purposes; it is required that such property
be used actually and directly for such purposes.[37]
In light of the foregoing substantial changes in the Constitution, the
petitioner cannot rely on our ruling in Herrera v. Quezon City Board of
Assessment Appeals which was promulgated on September 30,
1961 before the 1973 and 1987 Constitutions took effect.[38] As this Court
held in Province of Abra v. Hernando:[39]
Under the 1935 Constitution: Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable, or educational purposes shall be
exempt from taxation. The present Constitution added charitable
institutions, mosques, and non-profit cemeteries and required that for the
exemption of lands, buildings, and improvements, they should not only be
exclusively but also actually and directly used for religious or charitable
purposes. The Constitution is worded differently. The change should not
be ignored. It must be duly taken into consideration. Reliance on past
decisions would have sufficed were the words actually as well as directly
not added. There must be proof therefore of the actual and direct use of
the lands, buildings, and improvements for religious or charitable
purposes to be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, the petitioner is burdened to prove,
by clear and unequivocal proof, that (a) it is a charitable institution; and (b)
its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. Exclusive is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or enjoyment; and
exclusively is defined, in a manner to exclude; as enjoying a privilege
exclusively.[40] If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is
subject to taxation.[41] The words dominant use or principal use cannot be
substituted for the words used exclusively without doing violence to the
Constitutions and the law.[42] Solely is synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual application of
the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt
purposes.[44]
The petitioner failed to discharge its burden to prove that the
entirety of its real property is actually, directly and exclusively used for
charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them,
whether paying or non-paying, other portions thereof are being leased to
private individuals for their clinics and a canteen. Further, a portion of the
land is being leased to a private individual for her business enterprise
under the business name Elliptical Orchids and Garden Center. Indeed, the
petitioners evidence shows that it collected P1,136,483.45 as rentals in
1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private individuals
are not exempt from such taxes.[45] On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property
taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to
determine, after due hearing, the precise portions of the land and the
area thereof which are leased to private persons, and to compute the real
property taxes due thereon as provided for by law.
SO ORDERED.
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
finding petitioner National Power Corporation (NPC) liable to pay
franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended.4 It is tasked to undertake
the "development of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and other sources, as
well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others,
the power to construct, operate and maintain power plants, auxiliary
plants, power stations and substations for the purpose of developing
hydraulic power and supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in
1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the preceding
year.9
Petitioner, whose capital stock was subscribed and paid wholly by the
Philippine Government,10 refused to pay the tax assessment. It argued
that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes,
Duties, Fees, Imposts and Other Charges by Government and
Governmental Instrumentalities.- The Corporation shall be non-profit and
shall devote all its return 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 exempt:
 16
(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 and duties to the Republic of the Philippines, its
provinces, cities, 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 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."12
The respondent filed a collection suit in the Regional Trial Court of
Cabanatuan City, demanding that petitioner pay the assessed tax due, plus
a surcharge equivalent to 25% of the amount of tax, and 2% monthly
interest.13Respondent alleged that petitioner's exemption from local taxes
has been repealed by section 193 of Rep. Act No. 7160, 14 which reads as
follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case.
It ruled that the tax exemption privileges granted to petitioner subsist
despite the passage of Rep. Act No. 7160 for the following reasons: (1)
Rep. Act No. 6395 is a particular law and it may not be repealed by Rep.
Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is
in the nature of an implied repeal which is not favored; and (3) local
governments have no power to tax instrumentalities of the national
government. Pertinent portion of the Order reads:
"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 repealing provisions which
expressly and specifically cite(s) the particular law or laws, and portions
thereof, that are intended to be repealed. 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 repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause
because it fails to identify the act or acts that are intended to be repealed.
It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and
repugnancy for the legislative is presumed to know the existing laws on
the subject and not to have enacted inconsistent or conflicting statutes. It
is also a well-settled rule that, generally, general law does not repeal a
special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned
Ordinance No. 165-92 was based, the tax exemption privileges of
defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by
the National Government. xxx Being an instrumentality of the government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by mere
local government.'
Like PAGCOR, NPC, being a government owned and controlled corporation
with an original charter and its shares of stocks owned by the National
Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's
declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from
all services to meet the needs of industrial development and dispersal and
needs of rural electrification are primary objectives of the nations which
shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to its
tax-ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation.
Its taxing power is limited to that which is provided for in its charter or
other statute. Any grant of taxing power is to be construed strictly, with
doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very
clear that the plaintiff could not impose the subject tax on the
defendant."16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the
ground that section 193, in relation to sections 137 and 151 of the LGC,
expressly withdrew the exemptions granted to the petitioner.18 It ordered
the petitioner to pay the respondent city government the following: (a)
the sum of P808,606.41 representing the franchise tax due based on gross
receipts for the year 1992, (b) the tax due every year thereafter based in
the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of
25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation
expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the
Court of Appeal's Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its
arguments reiterated therein that the taxing power of the province under
Art. 137 (sic) of the Local Government Code refers merely to private
persons or corporations in which category it (NPC) does not belong, and
that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special law—finds the answer in Section 193 of the
LGC to the effect that 'tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
 17
government-owned or controlled corporations except local water districts
xxx are hereby withdrawn.' The repeal is direct and unequivocal, not
implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX
AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED
TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT
AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD
PREVAIL OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the
authority to issue Ordinance No. 165-92 and impose an annual tax on
"businesses enjoying a franchise," pursuant to section 151 in relation to
section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial
jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein." (emphasis
supplied)
x x x federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with
the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise
tax to the respondent city government. It contends that sections 137 and
151 of the LGC in relation to section 131, limit the taxing power of the
respondent city government to private entities that are engaged in trade
or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege,
affected with public interest which is conferred upon private persons or
corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of the public welfare,
security and safety." From the phraseology of this provision, the petitioner
claims that the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term "franchise," petitioner
submits that it should refer specifically to franchises granted to private
natural persons and to private corporations.23 Ergo, its charter should not
be considered a "franchise" for the purpose of imposing the franchise tax
in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade
or commercial activity regularly engaged in as means of livelihood or with
a view to profit." Petitioner claims that it is not engaged in an activity for
profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of
profit is merely incidental to its operation; all these profits are required by
law to be channeled for expansion and improvement of its facilities and
services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation26where this Court held that local governments have
no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the
National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to
control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
This doctrine emanates from the 'supremacy' of the National Government
over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even seriously
burden it from accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)
 18
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as ' a tool regulation' (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to
destroy' (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent
power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing
the tax privileges of government-owned or controlled corporations, is in
the nature of an implied repeal. A special law, its charter cannot be
amended or modified impliedly by the local government code which is a
general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of the
LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes
by implication are not favored and as much as possible, effect must be
given to all enactments of the legislature. Moreover, it has to be conceded
that the charter of the NPC constitutes a special law. Republic Act No.
7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. 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."28
Finally, petitioner submits that the charter of the NPC, being a valid
exercise of police power, should prevail over the LGC. It alleges that the
power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most
pervasive, the least limitable and most demanding of all powers, including
the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it
to promote public interest and common good. The theory behind the
exercise of the power to tax emanates from necessity;32 without taxes,
government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.
In recent years, the increasing social challenges of the times expanded the
scope of state activity, and taxation has become a tool to realize social
justice and the equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges 34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees and charges shall
accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development
can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the country's highly
centralized government structure has bred a culture of dependence
among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in
matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give
the LGUs a wider role in the delivery of basic services, and confer them
sufficient powers to generate their own sources for the purpose. To
achieve this goal, section 3 of Article X of the 1987 Constitution mandates
Congress to enact a local government code that will, consistent with the
basic policy of local autonomy, set the guidelines and limitations to this
grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government
structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities, and
resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials,
and all other matters relating to the organization and operation of the
local units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as
the Local Government Code of 1991 (LGC), various measures have been
enacted to promote local autonomy. These include the Barrio Charter of
1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives,
however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems
that hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base, (b) lack of
fiscal control over external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over
personnel of national line agencies.41
Considered as the most revolutionary piece of legislation on local
autonomy,42 the LGC effectively deals with the fiscal constraints faced by
LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose tax
rates in accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax
rates and leaves the determination of the actual rates to the
respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a general
rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize
the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz:
 19
"Section 133. Common Limitations on the Taxing Powers of the Local
Government Units.- Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
x x x state."53 It is not levied on the corporation simply for existing as a
(o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units." (emphasis
supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation 44 relied upon by the
petitioner to support its claim no longer applies. To emphasize,
the Basco case was decided prior to the effectivity of the LGC, when no
law empowering the local government units to tax instrumentalities of the
National Government was in effect. However, as this Court ruled in the
case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental
functions may be subject to tax.46 In enacting the LGC, Congress exercised
its prerogative to tax instrumentalities and agencies of government as it
sees fit. Thus, after reviewing the specific provisions of the LGC, this Court
held that MCIAA, although an instrumentality of the national government,
was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in section 133, the taxing
power of local governments cannot extend to the levy of inter alia, 'taxes,
fees and charges of any kind on the national government, its agencies and
instrumentalities, and local government units'; however, pursuant to
section 232, provinces, cities and municipalities in the Metropolitan
Manila Area may impose the real property tax except on, inter alia, 'real
property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person as provided in the item (a)
of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner
the franchise tax in question.
In its general signification, a franchise is a privilege conferred by
government authority, which does not belong to citizens of the country
generally as a matter of common right.48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to
a special law creating the corporation.49 The right under a primary or
general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.50 On the other hand, the
latter refers to the right or privileges conferred upon an existing
corporation such as the right to use the streets of a municipality to lay
pipes of tracks, erect poles or string wires. 51 The rights under a secondary
or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation
to dispose of its property, except such special or secondary franchises as
are charged with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise
in the sense of a secondary or special franchise. This is to avoid any
confusion when the word franchise is used in the context of taxation. As
commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the
corporation, upon its property54 or its income,55 but on its exercise of the
rights or privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business and
exercise its franchise.56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner
is covered by the franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as
amended by Rep. Act No. 7395, constitutes petitioner's primary and
secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of its
corporate officers, and its corporate life span. 57 As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner the
following powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water
power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or
waterfall in the Philippines, for the purposes specified in this Act; to
intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be
necessary for said purposes, upon payment of just compensation therefor;
to alter, straighten, obstruct or increase the flow of water in streams or
water channels intersecting or connecting therewith or contiguous to its
works or any part thereof: Provided, That just compensation shall be paid
to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants,
dams, reservoirs, pipes, mains, transmission lines, power stations and
substations, and other works for the purpose of developing hydraulic
power from any river, creek, lake, spring and waterfall in the Philippines
and supplying such power to the inhabitants thereof; to acquire, construct,
install, maintain, operate, and improve gas, oil, or steam engines, and/or
other prime movers, generators and machinery in plants and/or auxiliary
plants for the production of electric power; to establish, develop, operate,
maintain and administer power and lighting systems for the transmission
and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other
government institutions, (3) electric cooperatives, (4) franchise holders,
and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,
encumber and otherwise dispose of property incident to, or necessary,
convenient or proper to carry out the purposes for which the Corporation
was created: Provided, That in case a right of way is necessary for its
transmission lines, easement of right of way shall only be sought: Provided,
however, That in case the property itself shall be acquired by purchase,
 20
the cost thereof shall be the fair market value at the time of the taking of
such property;
(i) To construct works across, or otherwise, any stream, watercourse,
canal, ditch, flume, street, avenue, highway or railway of private and
public ownership, as the location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in
the manner provided by law for instituting condemnation proceedings by
the national, provincial and municipal governments;
x x x
(m) To cooperate with, and to coordinate its operations with those of the
National Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds
surrounding the reservoirs of plants and/or projects constructed or
proposed to be constructed by the Corporation. Upon determination by
the Corporation of the areas required for watersheds for a specific project,
the Bureau of Forestry, the Reforestation Administration and the Bureau
of Lands shall, upon written advice by the Corporation, forthwith
surrender jurisdiction to the Corporation of all areas embraced within the
watersheds, subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation
shall adopt measures to prevent environmental pollution and promote the
conservation, development and maximum utilization of natural resources
xxx "58
With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. This monopoly was
strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the
electric power industry. Although Exec. Order No. 21560 thereafter
allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the
respondent city government's territorial jurisdiction pursuant to the
powers granted to it by Commonwealth Act No. 120, as amended. From
its operations in the City of Cabanatuan, petitioner realized a gross income
of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the
franchise tax simply because its stocks are wholly owned by the National
Government, and its charter characterized it as a "non-profit"
organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on
the exercise by the corporation of a privilege to do business. The taxable
entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and
be sued under its own name,61 and can exercise all the powers of a
corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is not engaged in business.
Section 2 of Pres. Decree No. 202963 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental
functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary
functions, which is directly chartered by special law or if organized under
the general corporation law is owned or controlled by the government
directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting
capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the part of
the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and
are merely optional on the government.64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the
National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance
System (GSIS), and the National Water Sewerage Authority
(NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities do
not partake of the sovereign functions of the government. They are purely
private and commercial undertakings, albeit imbued with public interest.
The public interest involved in its activities, however, does not distract
from the true nature of the petitioner as a commercial enterprise, in the
same league with similar public utilities like telephone and telegraph
companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of
which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the
character of the petitioner's enterprise as a "business," although it limits
petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or
necessary for the proper transaction of its business or to carry out the
purposes for which it was organized, to contract indebtedness and issue
bonds subject to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably
necessary to carry out the business and purposes for which it was
organized, or which, from time to time, may be declared by the Board to
be necessary, useful, incidental or auxiliary to accomplish the said purpose
xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at
least sixty percent (60%) of its electricity requirement from the petitioner
are likewise imposed the cap of twelve percent (12%) on profits. 69 The
main difference is that the petitioner is mandated to devote "all its returns
 21
from its capital investment, as well as excess revenues from its operation,
for expansion"70 while other franchise holders have the option to
distribute their profits to its stockholders by declaring dividends. We do
not see why this fact can be a source of difference in tax treatment. In
both instances, the taxable entity is the corporation, which exercises the
franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax
exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions.71 In the case at bar, the petitioner's
sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "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." However, section 193 of the
LGC withdrew, subject to limited exceptions, the sweeping tax privileges
previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit
general, repeal of all statutes granting tax exemptions from local taxes.72 It
reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio alterius.73 Not being a local
water district, a cooperative registered under R.A. No. 6938, or a
non-stock and non-profit hospital or educational institution, petitioner
clearly does not belong to the exception. It is therefore incumbent upon
the petitioner to point to some provisions of the LGC that expressly grant
it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City Government of
San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of
franchise taxes was brought as an issue before this Court. The same issue
was involved in the subsequent case of Manila Electric Company v.
Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite
any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137
and 193 of the LGC to support their position that MERALCO's tax
exemption has been withdrawn. The explicit language of section 137
which authorizes the province to impose franchise tax 'notwithstanding
any exemption granted by any law or other special law' is
all-encompassing and clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code, tax
exemptions or incentives granted to or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and
educational institutions, are withdrawn upon the effectivity of this code,
the obvious import is to limit the exemptions to the three enumerated
entities. It is a basic precept of statutory construction that the express
mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under
the LGC the local government unit may now impose a local tax at a rate
not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar based on the incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on
(sic) Sections 137 and 193 categorically withdrawing such exemption
subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. No
more unequivocal language could have been used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs,
through ordinances duly approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which
imposes an annual franchise tax "notwithstanding any exemption granted
by law or other special law," the respondent city government clearly did
not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in
the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises."78 With the added burden of devolution, it is
even more imperative for government entities to share in the
requirements of development, fiscal or otherwise, by paying taxes or
other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed
Decision and Resolution of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
22
 23
Bill of Rights
Due Process
G.R. No. L-14078 March 7, 1919
RUBI, ET AL. (manguianes), plaintiffs,
vs.
THE PROVINCIAL BOARD OF MINDORO, defendant.
D. R. Williams & Filemon Sotto for plaintiff.
Office of the Solicitor-General Paredes for defendant.
MALCOLM, J.:
In one of the cases which denote a landmark in American Constitutional
History (Worcester vs. Georgia [1832], 6 Pet., 515), Chief Justice Marshall,
the first luminary of American jurisprudence, began his opinion (relating
to the status of an Indian) with words which, with a slight change in
phraseology, can be made to introduce the present opinion — This cause,
in every point of view in which it can be placed, is of the deepest interest.
The legislative power of state, the controlling power of the constitution
and laws, the rights if they have any, the political existence of a people,
the personal liberty of a citizen, are all involved in the subject now to be
considered.
To imitate still further the opinion of the Chief Justice, we adopt his
outline and proceed first, to introduce the facts and the issues, next to
give a history of the so called "non-Christians," next to compare the status
of the "non-Christians" with that of the American Indians, and, lastly, to
resolve the constitutional questions presented.
I. INTRODUCTION.
This is an application for habeas corpus in favor of Rubi and other
Manguianes of the Province of Mindoro. It is alleged that the Maguianes
are being illegally deprived of their liberty by the provincial officials of that
province. Rubi and his companions are said to be held on the reservation
established at Tigbao, Mindoro, against their will, and one Dabalos is said
to be held under the custody of the provincial sheriff in the prison at
Calapan for having run away form the reservation.
The return of the Solicitor-General alleges:
1. That on February 1, 1917, the provincial board of Mindoro adopted
resolution No. 25 which is as follows:
The provincial governor, Hon. Juan Morente, Jr., presented the following
resolution:
"Whereas several attempts and schemes have been made for the
advancement of the non-Christian people of Mindoro, which were all a
failure,
"Whereas it has been found out and proved that unless some other
measure is taken for the Mangyan work of this province, no successful
result will be obtained toward educating these people.
"Whereas it is deemed necessary to obliged them to live in one place in
order to make a permanent settlement,
"Whereas the provincial governor of any province in which non-Christian
inhabitants are found is authorized, when such a course is deemed
necessary in the interest of law and order, to direct such inhabitants to
take up their habitation on sites on unoccupied public lands to be selected
by him and approved by the provincial board.
"Whereas the provincial governor is of the opinion that the sitio of Tigbao
on Lake Naujan is a place most convenient for the Mangyanes to live on,
Now, therefore be it
"Resolved, that under section 2077 of the Administrative Code, 800
hectares of public land in the sitio of Tigbao on Naujan Lake be selected as
a site for the permanent settlement of Mangyanes in Mindoro subject to
the approval of the Honorable Secretary of the Interior, and
"Resolved further, That Mangyans may only solicit homesteads on this
reservation providing that said homestead applications are previously
recommended by the provincial governor."
2. That said resolution No. 25 (series 1917) of the provincial board of
Mindoro was approved by the Secretary of the Interior of February 21,
1917.
3. That on December 4, 1917, the provincial governor of Mindoro issued
executive order No. 2 which says:
"Whereas the provincial board, by Resolution No. 25, current series, has
selected a site in the sitio of Tigbao on Naujan Lake for the permanent
settlement of Mangyanes in Mindoro.
"Whereas said resolution has been duly approve by the Honorable, the
Secretary of the Interior, on February 21, 1917.
"Now, therefore, I, Juan Morente, jr., provincial governor of Mindoro,
pursuant to the provisions of section 2145 of the revised Administrative
 24
Code, do hereby direct that all the Mangyans in the townships of Naujan
and Pola and the Mangyans east of the Baco River including those in the
districts of Dulangan and Rubi's place in Calapan, to take up their
habitation on the site of Tigbao, Naujan Lake, not later than December 31,
1917.
"Any Mangyan who shall refuse to comply with this order shall upon
conviction be imprisoned not exceed in sixty days, in accordance with
section 2759 of the revised Administrative Code."
4. That the resolution of the provincial board of Mindoro copied in
paragraph 1 and the executive order of the governor of the same province
copied in paragraph 3, were necessary measures for the protection of the
Mangyanes of Mindoro as well as the protection of public forests in which
they roam, and to introduce civilized customs among them.
5. That Rubi and those living in his rancheria have not fixed their dwelling
within the reservation of Tigbao and are liable to be punished in
accordance with section 2759 of Act No. 2711.
6. That the undersigned has not information that Doroteo Dabalos is being
detained by the sheriff of Mindoro but if he is so detained it must be by
virtue of the provisions of articles Nos. 2145 and 2759 of Act No. 2711.
It thus appears that the provincial governor of Mindoro and the provincial
board thereof directed the Manguianes in question to take up their
habitation in Tigbao, a site on the shore of Lake Naujan, selected by the
provincial governor and approved by the provincial board. The action was
taken in accordance with section 2145 of the Administrative Code of 1917,
and was duly approved by the Secretary of the Interior as required by said
action. Petitioners, however, challenge the validity of this section of the
Administrative Code. This, therefore, becomes the paramount question
which the court is called upon the decide.
Section 2145 of the Administrative Code of 1917 reads as follows:
SEC. 2145. Establishment of non-Christina upon sites selected by provincial
governor. — With the prior approval of the Department Head, the
provincial governor of any province in which non-Christian inhabitants are
found is authorized, when such a course is deemed necessary in the
interest of law and order, to direct such inhabitants to take up their
habitation on sites on unoccupied public lands to be selected by him an
approved by the provincial board.
In connection with the above-quoted provisions, there should be noted
section 2759 of the same Code, which read as follows:
SEC. 2759. Refusal of a non-Christian to take up appointed habitation. —
Any non-Christian who shall refuse to comply with the directions lawfully
given by a provincial governor, pursuant to section two thousand one
hundred and forty-five of this Code, to take up habitation upon a site
designated by said governor shall upon conviction be imprisonment for a
period not exceeding sixty days.
The substance of what is now found in said section 2145 is not new to
Philippine law. The genealogical tree of this section, if we may be
permitted to use such terminology, would read: Section 2077,
Administrative Code of 1916; section 62, Act No. 1397; section 2 of various
special provincial laws, notably of Act No. 547, specifically relating to the
Manguianes; section 69, Act No. 387.
Section 2145 and its antecedent laws make use of the term
"non-Christians." This word, as will later be disclosed, is also found in
varying forms in other laws of the Philippine Islands. In order to put the
phrase in its proper category, and in order to understand the policy of the
Government of the Philippine Islands with reference to the uncivilized
elements of the Islands, it is well first of all to set down a skeleton history
of the attitude assumed by the authorities towards these "non-Christians,"
with particular regard for the legislation on the subject.
II. HISTORY.
A. BEFORE ACQUISITION OF THE PHILIPPINE BY THE UNITED STATES.
The most important of the laws of the Indies having reference to the
subject at hand are compiled in Book VI, Title III, in the following language.
LAW I.
The Emperor Charles and the Prince, the governor, at Cigales, on March 21,
1551. Philip II at Toledo, on February 19, 1560. In the forest of Segovia on
September 13, 1565. In the Escorial on November 10, 1568. Ordinance
149 of the poblaciones of 1573. In San Lorenzo, on May 20, 1578,
THAT THE "INDIOS" BE REDUCED INTO "POBLACIONES" COMMUNITIES).
In order that the indios may be instructed in the Sacred Catholic Faith and
the evangelical law, and in order that they may forget the blunders of
their ancient rites and ceremonies to the end that they may live in
harmony and in a civilized manner, it has always been endeavored, with
great care and special attention, to use all the means most convenient to
the attainment of these purposes. To carry out this work with success, our
Council of the Indies and other religious persons met at various times; the
prelates of new Spain assembled by order of Emperor Charles V of
glorious memory in the year one thousand five hundred and forty-six — all
of which meetings were actuated with a desire to serve God an our
Kingdom. At these meetings it was resolved that indios be made to live in
communities, and not to live in places divided and separated from one
another by sierras and mountains, wherein they are deprived of all
spiritual and temporal benefits and wherein they cannot profit from the
aid of our ministers and from that which gives rise to those human
necessities which men are obliged to give one another. Having realized
that convenience of this resolution, our kings, our predecessors, by
different orders, have entrusted and ordered the viceroys, presidents, and
governors to execute with great care and moderation the concentration of
the indios into reducciones; and to deal with their doctrine with such
forbearance and gentleness, without causing inconveniences, so that
those who would not presently settle and who would see the good
treatment and the protection of those already in settlements would, of
their own accord, present themselves, and it is ordained that they be not
required to pay taxes more than what is ordered. Because the above has
been executed in the greater part of our Indies, we hereby order and
decree that the same be complied with in all the remaining parts of the
Indies, and the encomederos shall entreat compliance thereof in the
manner and form prescribed by the laws of this title.
xxx xxx xxx
LAW VIII.
 25
Philip II at the Pardo, on December 1, 1573. Philip III at Madrid, October
10, 1618.
THE "REDUCCTIONES" BE MADE IN ACCORDANCE WITH THE CONDITIONS
OF THIS LAW.
The places wherein the pueblos and reducciones shall be formed should
have the facilities of waters. lands, and mountains, ingress and egress,
husbandry and passageway of one league long, wherein the indios can
have their live stock that they may not be mixed with those of the
Spaniards.
LAW IX.
Philip II at Toledo, on February 19, 1956.
THAT THE "INDIOS" IN "REDUCCIONES" BE NOT DEPRIVED OF THE LANDS
PREVIOUSLY HELD BY THEM.
With more good-will and promptness, the indios shall be concentrated
in reducciones. Provided they shall not be deprived of the lands and
granaries which they may have in the places left by them. We hereby
order that no change shall be made in this respect, and that they be
allowed to retain the lands held by them previously so that they may
cultivate them and profit therefrom.
xxx xxx xxx
LAW XIII.
THE SAME AS ABOVE.
THAT THE "REDUCCIONES" BE NOT REMOVED WITHOUT ORDER OF THE
KING, VICEROY, OR COURT.
No governor, or magistrate, or alcalde mayor, or any other court, has the
right to alter or to remove thepueblos or the reducciones once constituted
and founded, without our express order or that of the viceroy, president,
or the royal district court, provided, however, that the encomenderos,
priests, or indios request such a change or consent to it by offering or
giving information to that en. And, because these claims are often made
for private interests and not for those of the indios, we hereby order that
this law be always complied with, otherwise the change will be considered
fraudulently obtained. The penalty of one thousand pesos shall be
imposed upon the judge or encomendero who should violate this law.
LAW XV.
Philip III at Madrid, on October 10, 1618.
THAT THERE BE MAYORS AND ALDERMEN IN THE "REDUCTIONES," WHO
SHALL BE "INDIOS."
We order that in each town and reduccion there be a mayor, who should
be an indio of the same reduccion; if there be more than eighty houses,
there should be two mayors and two aldermen, also indios; and, even if
the town be a big one, there should, nevertheless, be more than two
mayors and four aldermen, If there be less than eighty indios but not less
than forty, there should be not more than one mayor and one alderman,
who should annually elect nine others, in the presence of the priests , as is
the practice in town inhabited by Spaniards and indios.
LAW XXI.
Philip II, in Madrid, On May 2, 1563, and on November 25, 1578. At Tomar,
on May 8, 1581. At Madrid, on January 10, 1589. Philip III, at Todesillas, on
July 12, 1600. Philip IV, at Madrid, on October 1 and December 17, 1646.
For this law and the one following, see Law I, Tit. 4, Book 7.
THAT IN THE TOWNS OF THE "INDIOS," THERE SHALL LIVE NO SPANIARDS,
NEGROES, "MESTIZOS," AND MULATTOES.
We hereby prohibit and forbid Spaniards, negroes, mulattores,
or mestizos to live to live in the reduccionesand towns and towns of
the indios, because it has been found that some Spaniards who deal, trade,
live, and associate with the indios are men of troublesome nature, of dirty
ways of living; robbers, gamblers, and vicious and useless men; and, to
avoid the wrongs done them, the indios would leave their towns and
provinces; and the negroes, mestizos, and mulattoes, besides maltreating
them and utilizing their services, contaminate them with their bad
customs, idleness, and also some of their blunders and vices which may
corrupt and pervert the goal which we desire to reach with regard to their
salvation, increase, and tranquillity. We hereby order the imposition of
grave penalties upon the commission of the acts above-mentioned which
should not be tolerated in the towns, and that the viceroys, presidents,
governors, and courts take great care in executing the law within their
powers and avail themselves of the cooperation of the ministers who are
truly honest. As regards the mestizos and Indian and Chinese half-breeds
(zambaigos), who are children of indiasand born among them, and who
are to inherit their houses and haciendas, they all not be affected by this
law, it appearing to be a harsh thing to separate them from their parents.
(Law of the Indies, vol. 2, pp. 228, 229, 230, 231.)
A clear exposition of the purposes of the Spanish government, in its
efforts to improve the condition of the less advanced inhabitants of the
Islands by concentrating them in "reducciones," is found in the Decree of
the Governor-General of the Philippine Islands of January 14, 1881,
reading as follows:
It is a legal principle as well as a national right that every inhabitant of a
territory recognized as an integral part of a nation should respect and
obey the laws in force therein; while, on other hand, it is the duty to
conscience and to humanity for all governments to civilize those backward
races that might exist in the nation, and which living in the obscurity of
ignorance, lack of all the nations which enable them to grasp the moral
and material advantages that may be acquired in those towns under the
protection and vigilance afforded them by the same laws.
It is equally highly depressive to our national honor to tolerate any longer
the separation and isolation of the non-Christian races from the social life
of the civilized and Christian towns; to allow any longer the commission of
depredations, precisely in the Island of Luzon wherein is located the seat
of the representative of the Government of the, metropolis.
It is but just to admit the fact that all the governments have occupied
themselves with this most important question, and that much has been
heretofore accomplished with the help and self-denial of the missionary
fathers who have even sacrificed their lives to the end that those
 26
degenerate races might be brought to the principles of Christianity, but
the means and the preaching employed to allure them have been
insufficient to complete the work undertaken. Neither have the
punishments imposed been sufficient in certain cases and in those which
have not been guarded against, thus giving and customs of isolation.
As it is impossible to consent to the continuation of such a lamentable
state of things, taking into account the prestige which the country
demands and the inevitable duty which every government has in
enforcing respect and obedience to the national laws on the part of all
who reside within the territory under its control, I have proceeded in the
premises by giving the most careful study of this serious question which
involves important interests for civilization, from the moral and material
as well as the political standpoints. After hearing the illustrious opinions of
all the local authorities, ecclesiastics, and missionaries of the provinces of
Northern Luzon, and also after finding the unanimous conformity of the
meeting held with the Archbishop of Manila, the Bishops of Jaro and Cebu,
and the provincial prelates of the orders of the Dominicans, Agustinians,
Recoletos, Franciscans, and Jesuits as also of the meeting of the Council of
Authorities, held for the object so indicated, I have arrived at an intimate
conviction of the inevitable necessity of proceeding in a practical manner
for the submission of the said pagan and isolated races, as well as of the
manner and the only form of accomplishing such a task.
For the reasons above stated and for the purpose of carrying out these
objects, I hereby promulgate the following:
DECREE.
1. All the indian inhabitants (indios) of the Islands of Luzon are, from this
date, to be governed by the common law, save those exceptions
prescribed in this decree which are bases upon the differences of
instructions, of the customs, and of the necessities of the different pagan
races which occupy a part of its territory.
2. The diverse rules which should be promulgated for each of these races
— which may be divided into three classes; one, which comprises those
which live isolated and roaming about without forming a town nor a home;
another, made up of those subdued pagans who have not as yet entered
completely the social life; and the third, of those mountain and rebellious
pagans — shall be published in their respective dialects, and the officials,
priests, and missionaries of the provinces wherein they are found are
hereby entrusted in the work of having these races learn these rules.
These rules shall have executive character, beginning with the first day of
next April, and, as to their compliance, they must be observed in the
manner prescribed below.
3. The provincial authorities in conjunction with the priests shall proceed,
from now on, with all the means which their zeal may suggest to them, to
the taking of the census of the inhabitants of the towns or settlement
already subdued, and shall adopt the necessary regulations for the
appointment of local authorities, if there be none as yet; for the
construction of courts and schools, and for the opening or fixing up of
means of communication, endeavoring, as regards the administrative
organization of the said towns or settlements, that this be finished before
the first day of next July, so that at the beginning of the fiscal year they
shall have the same rights and obligations which affect the remaining
towns of the archipelago, with the only exception that in the first two
years they shall not be obliged to render personal services other than
those previously indicated.
4. So long as these subdued towns or settlements are located infertile
lands appropriate for cultivation, the inhabitants thereof shall not be
obliged to move their dwelling-houses; and only in case of absolute
necessity shall a new residence be fixed for them, choosing for this
purpose the place most convenient for them and which prejudices the
least their interest; and, in either of these cases, an effort must be made
to establish their homes with the reach of the sound of the bell.
5. For the protection and defense of these new towns, there shall be
established an armed force composed precisely of native Christian, the
organization and service of which shall be determined in a regulations
based upon that of the abolished Tercios de Policia (division of
the Guardia Civil).
6. The authorities shall see to it that the inhabitants of the new towns
understand all the rights and duties affecting them and the liberty which
they have as to where and now they shall till their lands and sell the
products thereof, with the only exception of the tobacco which shall be
bought by the Hacienda at the same price and conditions allowed other
producers, and with the prohibition against these new towns as well as
the others from engaging in commerce of any other transaction with the
rebellious indios, the violation of which shall be punished with
deportation.
7. In order to properly carry out this express prohibition, the limits of the
territory of the rebellious indios shall be fixed; and whoever should go
beyond the said limits shall be detained and assigned governmentally
wherever convenient.
8. For the purpose of assisting in the conversion of the pagans into the
fraternity of the Catholic Church, all by this fact along be exempt for eight
years from rendering personal labor.
9. The authorities shall offer in the name of the State to the races not
subdued (aetas and mountains igorrots the following advantages in
returns for their voluntary submission: to live in towns; unity among their
families; concession of good lands and the right to cultivate them in the
manner they wish and in the way them deem most productive; support
during a year, and clothes upon effecting submission; respect for their
habits and customs in so far as the same are not opposed to natural law;
freedom to decide of their own accord as to whether they want to be
Christians or not; the establishment of missions and families of recognized
honesty who shall teach, direct, protect, and give them security and trust
them; the purchase or facility of the sale of their harvests; the exemption
from contributions and tributes for ten years and from the quintas (a kind
of tax) for twenty years; and lastly, that those who are governed by the
local authorities as the ones who elect such officials under the direct
charge of the authorities of the province or district.
10. The races indicated in the preceding article, who voluntarily admit the
advantages offered, shall, in return, have the obligation of constituting
their new towns, of constructing their town hall, schools, and country
roads which place them in communication with one another and with the
Christians; provided, the location of these towns be distant from their
actual residences, when the latter do not have the good conditions of
location and cultivations, and provided further the putting of families in a
place so selected by them be authorized in the towns already constituted.
11. The armed force shall proceed to the prosecution and punishment of
the tribes, that, disregarding the peace, protection, and advantages
 27
offered them, continue in their rebellious attitude on the first of next April,
committing from now on the crimes and vexations against the Christian
towns; and for the this purposes, the Captain General's Office shall
proceed with the organization of the divisions of the Army which, in
conjunction with the rural guards (cuadrilleros), shall have to enter the
territory of such tribes. On the expiration of the term, they shall destroy
their dwelling-houses, labors, and implements, and confiscate their
products and cattle. Such a punishment shall necessarily be repeated
twice a year, and for this purpose the military headquarters shall
immediately order a detachment of the military staff to study the zones
where such operations shall take place and everything conducive to the
successful accomplishment of the same.
12. The chiefs of provinces, priests, and missioners, local authorities, and
other subordinates to my authorities, local authorities, and other
subordinates to may authority, civil as well as military authorities, shall
give the most effective aid and cooperation to the said forces in all that is
within the attributes and the scope of the authority of each.
13. With respect to the reduccion of the pagan races found in some of the
provinces in the southern part of the Archipelago, which I intend to visit,
the preceding provisions shall conveniently be applied to them.
14. There shall be created, under my presidency as Governor-General,
Vice-Royal Patron, a council or permanent commission which shall attend
to and decide all the questions relative to the application of the foregoing
regulations that may be brought to it for consultations by the chiefs of
provinces and priests and missionaries.
15. The secondary provisions which may be necessary, as a complement
to the foregoing, in brining about due compliance with this decree, shall
be promulgated by the respective official centers within their respective
jurisdictions. (Gaceta de Manila, No. 15) (Diccionario de la Administracion,
vol. 7, pp. 128-134.)
B. AFTER ACQUISITON OF THE PHILIPPINES BY THE UNITED STATES.
Ever since the acquisition of the Philippine Islands by the United States,
the question as to the best method for dealing with the primitive
inhabitants has been a perplexing one.
1. Organic law.
The first order of an organic character after the inauguration of the
American Government in the Philippines was President McKinley's
Instructions to the Commission of April 7, 1900, later expressly approved
and ratified by section 1 of the Philippine Bill, the Act of Congress of July 1,
1902. Portions of these instructions have remained undisturbed by
subsequent congressional legislation. One paragraph of particular interest
should here be quoted, namely:
In dealing with the uncivilized tribes of the Islands, the Commission should
adopt the same course followed by Congress in permitting the tribes of
our North American Indians to maintain their tribal organization and
government and under which many of these tribes are now living in peace
and contentment, surrounded by civilization to which they are unable or
unwilling to conform. Such tribal governments should, however, be
subjected to wise and firm regulation; and, without undue or petty
interference, constant and active effort should be exercised to prevent
barbarous practices and introduce civilized customs.
Next comes the Philippine Bill, the Act of Congress of July 1, 1902, in the
nature of an Organic Act for the Philippines. The purpose of section 7 of
the Philippine Bill was to provide for a legislative body and, with this end
in view, to name the prerequisites for the organization of the Philippine
Assembly. The Philippine Legislature, composed of the Philippine
Commission and the Philippine Assembly, was to have jurisdiction over the
Christian portion of the Islands. The Philippine Commission was to retain
exclusive jurisdiction of that part of said Islands inhabited by Moros or
other non-Christian tribes.
The latest Act of Congress, nearest to a Constitution for the Philippines, is
the Act of Congress of August 29, 1916, commonly known as the Jones
Law. This transferred the exclusive legislative jurisdiction and authority
theretofore exercised by the Philippine Commission, to the Philippine
Legislature (sec. 12). It divided the Philippine Islands into twelve senatorial
districts, the twelfth district to be composed of the Mountain Province,
Baguio, Nueva Vizcaya, and the Department of Mindanao and Sulu. The
Governor-General of the Philippine Islands was authorized to appoint
senators and representatives for the territory which, at the time of the
passage of the Jones Law, was not represented in the Philippine Assembly,
that is, for the twelfth district (sec. 16). The law establish a bureau to be
known as the "Bureau of non-Christian Tribes" which shall have general
supervision over the public affairs of the inhabitants which are
represented in the Legislature by appointed senators and
representatives( sec. 22).
Philippine organic law may, therefore, be said to recognized a dividing line
between the territory not inhabited by Moros or other non-Christian
tribes, and the territory which Moros or other non-Christian tribes, and
the territory which is inhabited by Moros or other non-Christian tribes.
2. Statute law.
Local governments in the Philippines have been provided for by various
acts of the Philippine Commission and Legislature. The most notable are
Acts Nos. 48 and 49 concerning the Province of Benguet and the Igorots;
Act NO. 82, the Municipal Code; ;Act no. 83, the Provincial Government
Act; Act No. 183, the Character of the city of Manila; Act No. 7887,
providing for the organization and government of the Moro Province; Act
No. 1396, the Special Provincial Government Act; Act No. 1397, the
Township Government Act; Act No. 1667, relating to the organization of
settlements; Act No. 1963, the Baguio charger; and Act No. 2408, the
Organic Act of the Department of Mindanao and Sulu. The major portion
of these laws have been carried forward into the Administrative Codes of
1916 an d1917.
Of more particular interest are certain special laws concerning the
government of the primitive peoples. Beginning with Act No. 387, sections
68-71, enacted on April 9, 1902, by the United States Philippine
Commission, having reference to the Province of Nueva Vizcaya, Acts Nos.
4111, 422, 445, 500, 547, 548, 549, 550, 579, 753, 855, 1113, 1145, 4568,
1306 were enacted for the provinces of Abra, Antique, Bataan, Ilocos
Norte, Ilocos Sur, Isabela. Lepanto-Bontoc, Mindoro, Misamis, Nueva
Vizcaya, Pangasinan, Paragua (Palawan), Tarlac, Tayabas, and Zambales.
As an example of these laws, because referring to the Manguianes, we
insert Act No. 547:
No. 547. — AN ACT PROVIDING FOR THE ESTABLISHMENT OF LOCAL CIVIL
GOVERNMENTS FOR THE MANGUIANES IN THE PROVINCE OF MINDORO.
 28
By authority of the United States, be it enacted by the Philippine
Commission, that:
SECTION 1. Whereas the Manguianes of the Provinces of Mindoro have
not progressed sufficiently in civilization to make it practicable to bring
them under any form of municipal government, the provincial governor is
authorized, subject to the approval of the Secretary of the Interior, in
dealing with these Manguianes to appoint officers from among them, to
fix their designations and badges of office, and to prescribe their powers
and duties: Provided, That the powers and duties thus prescribed shall not
be in excess of those conferred upon township officers by Act Numbered
Three hundred and eighty-seven entitled "An Act providing for the
establishment of local civil Governments in the townships and settlements
of Nueva Vizcaya."
SEC. 2. Subject to the approval of the Secretary of the Interior, the
provincial governor is further authorized, when he deems such a course
necessary in the interest of law and order, to direct such Manguianes to
take up their habitation on sites on unoccupied public lands to be selected
by him and approved by the provincial board. Manguianes who refuse to
comply with such directions shall upon conviction be imprisonment for a
period not exceeding sixty days.
SEC. 3. The constant aim of the governor shall be to aid the Manguianes of
his province to acquire the knowledge and experience necessary for
successful local popular government, and his supervision and control over
them shall be exercised to this end, an to the end that law and order and
individual freedom shall be maintained.
SEC. 4. When in the opinion of the provincial board of Mindoro any
settlement of Manguianes has advanced sufficiently to make such a
course practicable, it may be organized under the provisions of sections
one to sixty-seven, inclusive, of Act Numbered three hundred and
eighty-seven, as a township, and the geographical limits of such township
shall be fixed by the provincial board.
SEC. 5. The public good requiring the speedy enactment of this bill, the
passage of the same is hereby expedited in accordance with section two
of 'An Act prescribing the order of procedure by the Commission in the
enactment of laws,' passed September twenty-sixth, nineteen hundred.
SEC. 6. This Act shall take effect on its passage.
Enacted, December 4, 1902.
All of these special laws, with the exception of Act No. 1306, were
repealed by Act No. 1396 and 1397. The last named Act incorporated and
embodied the provisions in general language. In turn, Act No. 1397 was
repealed by the Administrative Code of 1916. The two Administrative
Codes retained the provisions in questions.
These different laws, if they of the non-Christian inhabitants of the
Philippines and a settled and consistent practice with reference to the
methods to be followed for their advancement.
C. TERMINOLOGY.
The terms made use of by these laws, organic and statutory, are found in
varying forms.
"Uncivilized tribes" is the denomination in President McKinley's
instruction to the Commission.
The most commonly accepted usage has sanctioned the term
"non-Christian tribes." These words are to be found in section 7 of the
Philippine Bill and in section 22 of the Jones Law. They are also to be
found in Act No. 253 of the Philippines Commission, establishing a Bureau
of non-Christian Tribes and in Act No. 2674 of the Philippine Legislature,
carried forward into sections 701-705 of the Administrative Code of 1917,
reestablishing this Bureau. Among other laws which contain the phrase,
there can be mentioned Acts Nos. 127, 128, 387, 547, 548, 549, 550, 1397,
1639, and 2551.
"Non-Christian people," "non-Christian inhabitants," and "non-Christian
Filipinos" have been the favorite nomenclature, in lieu of the unpopular
word "tribes," since the coming into being of a Filipinized legislature.
These terms can be found in sections 2076, 2077, 2390, 2394,
Administrative Code of 1916; sections 701-705, 2145, 2422, 2426,
Administrative Code of 1917; and in Acts Nos. 2404, 2435, 2444, 2674 of
the Philippine Legislatures, as well as in Act No. 1667 of the Philippine
Commission.
The Administrative Code specifically provides that the term
"non-Christian" shall include Mohammedans and pagans. (Sec. 2576,
Administrative Code of 1917; sec. 2561, Administrative Code of 1916,
taken from Act No. 2408, sec. 3.)
D. MEANING OF TERM "NON-CHRISTIAN."
If we were to follow the literal meaning of the word "non-Christian," it
would of course result in giving to it a religious signification. Obviously,
Christian would be those who profess the Christian religion, and
non-Christians, would be those who do not profess the Christian religion.
In partial corroboration of this view, there could also be cited section 2576
of the last Administrative Code and certain well-known authorities, as
Zuñiga, "Estadismo de las Islas Filipinas," Professor Ferdinand Blumentritt,
"Philippine Tribes and Languages," and Dr. N. M. Saleeby, "The Origin of
Malayan Filipinos." (See Blair & Robertson, "The Philippine Islands,"
1493-1898, vol. III, p. 300, note; Craig-Benitez, "Philippine Progress prior
to 1898," vol. I. p. 107.)
Not content with the apparent definition of the word, we shall investigate
further to ascertain what is its true meaning.
In one sense, the word can have a geographical signification. This is plainly
to be seen by the provisions of many laws. Thus, according to the
Philippine Bill, the authority of the Philippine Assembly was recognized in
the "territory" of the Islands not inhabited by Moros or other
non-Christian tribes. Again, the Jones Law confers similar recognition in
the authorization of the twelfth senatorial district for the "territory not
now represented in the Philippine Assembly." The Philippines Legislature
has, time and again, adopted acts making certain other acts applicable to
that "part" of the Philippine Islands inhabited by Moros or other
non-Christian tribes.
Section 2145, is found in article XII of the Provincial Law of the
Administrative Code. The first section of this article, preceding section
2145, makes the provisions of the article applicable only in specially
organized provinces. The specially organized provinces are the Mountain
Province, Nueva Vizcaya, Mindoro, Batanes, and Palawan. These are the
 29
provinces to which the Philippine Legislature has never seen fit to give all
the powers of local self-government. They do not, however, exactly
coincide with the portion of the Philippines which is not granted popular
representation. Nevertheless, it is still a geographical description.
It is well-known that within the specially organized provinces, there live
persons some of who are Christians and some of whom are not Christians.
In fact, the law specifically recognizes this. ( Sec. 2422, Administrative
Code of 1917, etc.)
If the religious conception is not satisfactory, so against the geographical
conception is likewise inadquate. The reason it that the motive of the law
relates not to a particular people, because of their religion, or to a
particular province because of its location, but the whole intent of the law
is predicated n the civilization or lack of civilization of the inhabitants.
At most, "non-Christian" is an awkward and unsatisfactory word.
Apologetic words usually introduce the term. "The so-called
non-Christian" is a favorite expression. The Secretary of the Interior who
for so many years had these people under his jurisdiction, recognizing the
difficulty of selecting an exact designation, speaks of the "backward
Philippine peoples, commonly known as the 'non-Christian tribes."' (See
Hearings before the Committee on the Philippines, United States Senate,
Sixty-third Congress, third session on H.R. 18459, An Act to declare the
purpose of the People of the United States as to the future political status
of the Philippine Islands and to provide a more autonomous government
for the Islands, pp. 346, 351; letter of the Secretary of the Interior of June
30, 1906, circulated by the Executive Secretary.)
The idea that the term "non-Christian" is intended to relate to degree of
civilization, is substantiated by reference to legislative, judicial, and
executive authority.
The legislative intent is borne out by Acts Nos. 48, 253, 387, 1667, and
2674, and sections 701 et seq, and sections 2422 et seq, of the
Administrative Code of 1917. For instance, Act No. 253 charged the
Bureau of non-Christian tribes to conduct "systematic investigations with
reference to non-Christian tribes . . . with special view to determining the
most practicable means for bringing about their advancement in
civilization and material property prosperity."
As authority of a judicial nature is the decision of the Supreme Court in the
case of United States vs. Tubban [Kalinga] ([1915], 29, Phil., 434). The
question here arose as to the effect of a tribal marriage in connection with
article 423 of the Penal code concerning the husband who surprises his
wife in the act of adultery. In discussing the point, the court makes use of
the following language:
. . . we are not advised of any provision of law which recognizes as legal a
tribal marriage of so-called non-Christians or members of uncivilized tribes,
celebrated within that province without compliance with the requisites
prescribed by General Orders no. 68. . . . We hold also that the fact that
the accused is shown to be a member of an uncivilized tribe, of a low order
of intelligence, uncultured and uneducated, should be taken into
consideration as a second marked extenuating circumstance.
Of much more moment is the uniform construction of execution officials
who have been called upon to interpret and enforce the law. The official
who, as a member of the Philippine Commission, drafted much of the
legislation relating to the so-called Christians and who had these people
under his authority, was the former Secretary of the Interior. Under date
of June 30, 1906, this official addressed a letter to all governor of
provinces, organized under the Special Provincial Government Act, a letter
which later received recognition by the Governor-General and was
circulated by the Executive Secretary, reading as follows:
Sir: Within the past few months, the question has arisen as to whether
people who were originally non-Christian but have recently been baptized
or who are children of persons who have been recently baptized are, for
the purposes of Act 1396 and 1397, to be considered Christian or
non-Christians.
It has been extremely difficult, in framing legislation for the tribes in these
islands which are not advanced far in civilization, to hit upon any suitable
designation which will fit all cases. The number of individual tribes is so
great that it is almost out of the question to enumerate all of them in an
Act. It was finally decided to adopt the designation 'non-Christians' as the
one most satisfactory, but the real purpose of the Commission was not so
much to legislate for people having any particular religious belief as for
those lacking sufficient advancement so that they could, to their own
advantage, be brought under the Provincial Government Act and the
Municipal Code.
The mere act of baptism does not, of course, in itself change the degree of
civilization to which the person baptized has attained at the time the act
of baptism is performed. For practical purposes, therefore, you will give
the member of so-called "wild tribes" of your province the benefit of the
doubt even though they may recently have embraced Christianity.
The determining factor in deciding whether they are to be allowed to
remain under the jurisdiction of regularly organized municipalities or what
form of government shall be afforded to them should be the degree of
civilization to which they have attained and you are requested to govern
yourself accordingly.
I have discussed this matter with the Honorable, the Governor-General,
who concurs in the opinion above expressed and who will have the
necessary instructions given to the governors of the provinces organized
under the Provincial Government Act. (Internal Revenue Manual, p. 214.)
The present Secretary of the Interior, in a memorandum furnished a
member of this court, has the following to say on the subject:
As far as names are concerned the classification is indeed unfortunate, but
while no other better classification has as yet been made the present
classification should be allowed to stand . . . I believe the term carries the
same meaning as the expressed in the letter of the Secretary of the
Interior (of June 30, 1906, herein quoted). It is indicative of the degree of
civilization rather than of religious denomination, for the hold that it is
indicative of religious denomination will make the law invalid as against
that Constitutional guaranty of religious freedom.
Another official who was concerned with the status of the non-Christians,
was the Collector of Internal Revenue. The question arose for ruling
relatives to the cedula taxation of the Manobos and the Aetas. Thereupon,
the view of the Secretary of the Interior was requested on the point, who,
by return indorsement, agreed with the interpretation of the Collector of
Internal Revenue. This Construction of the Collector of Internal Revenue
can be found in circular letter No. 188 of the Bureau of Internal Revenue,
 30
dated June 11, 1907, reading as follows (Internal Revenue Manual, p.
214):
The internal revenue law exempts "members of non-Christian tribes" from
the payment of cedula taxes. The Collector of Internal Revenue has
interpreted this provision of law to mean not that persons who profess
some form of Christian worship are alone subject to the cedula tax, and
that all other person are exempt; he has interpreted it to mean that all
persons preserving tribal relations with the so-called non-Christian tribes
are exempt from the cedula tax, and that all others, including Jews,
Mohammedans, Confucians, Buddists, etc., are subject to said tax so long
as they live in cities or towns, or in the country in a civilized condition. In
other words, it is not so much a matter of a man's form of religious
worship or profession that decides whether or not he is subject to the
cedula tax; it is more dependent on whether he is living in a civilized
manner or is associated with the mountain tribes, either as a member
thereof or as a recruit. So far, this question has not come up as to whether
a Christian, maintaining his religious belief, but throwing his lot and living
with a non-Christian tribe, would or would not be subject to the cedula tax.
On one occasion a prominent Hebrew of Manila claimed to this office that
he was exempt from the cedula tax, inasmuch as he was not a Christian.
This Office, however, continued to collect cedula taxes from all the Jews,
East Indians, Arabs, Chinamen, etc., residing in Manila. Quite a large
proportion of the cedula taxes paid in this city are paid by men belonging
to the nationalities mentioned. Chinamen, Arabs and other s are quite
widely scattered throughout the Islands, and a condition similar to that
which exist in Manila also exists in most of the large provincial towns.
Cedula taxes are therefore being collected by this Office in all parts of
these Islands on the broad ground that civilized people are subject to such
taxes, and non-civilized people preserving their tribal relations are not
subject thereto.
(Sgd.) JNO. S. HORD,
Collector of Internal Revenue.
On September 17, 1910, the Collector of Internal Revenue addressed
circular letter No. 327, approved by the Secretary of Finance and Justice,
to all provincial treasurers. This letter in part reads:
In view of the many questions that have been raised by provincial
treasurers regarding cedula taxes due from members of non-Christian
tribes when they come in from the hills for the purposes of settling down
and becoming members of the body politic of the Philippine Islands, the
following clarification of the laws governing such questions and digest of
rulings thereunder is hereby published for the information of all
concerned:
Non-Christian inhabitants of the Philippine Islands are so classed, not by
reason of the fact that they do not profess Christianity, but because of
their uncivilized mode of life and low state of development. All inhabitants
of the Philippine Islands classed as members of non-Christian tribes may
be divided into three classes in so far as the cedula tax law is
concerned . . .
Whenever any member of an non-Christian tribe leaves his wild and
uncivilized mode of life, severs whatever tribal relations he may have had
and attaches himself civilized community, belonging a member of the
body politic, he thereby makes himself subject to precisely the same law
that governs the other members of that community and from and after
the date when he so attaches himself to the community the same cedula
and other taxes are due from him as from other members thereof. If he
comes in after the expiration of the delinquency period the same rule
should apply to him as to persons arriving from foreign countries or
reaching the age of eighteen subsequent to the expiration of such period,
and a regular class A, D, F, or H cedula, as the case may be, should be
furnished him without penalty and without requiring him to pay the tax
for former years.
In conclusion, it should be borne in mind that the prime factors in
determining whether or not a man is subject to the regular cedula tax is
not the circumstance that he does or does not profess Christianity, nor
even his maintenance of or failure to maintain tribal relations with some
of the well known wild tribes, but his mode of life, degree of advancement
in civilization and connection or lack of connection with some civilized
community. For this reason so called "Remontados" and "Montescos" will
be classed by this office as members of non-Christian tribes in so far as the
application of the Internal Revenue Law is concerned, since, even though
they belong to no well recognized tribe, their mode of life, degree of
advancement and so forth are practically the same as those of the Igorrots
and members of other recognized non-Christina tribes.
Very respectfully,
(Sgd.) ELLIS CROMWELL,
Collector of Internal Revenue,
Approved:
(Sgd.) GREGORIO ARANETA,
Secretary of Finance and Justice.
The two circular above quoted have since been repealed by Bureau of
Internal Revenue Regulations No. 1, promulgated by Venancio Concepcion,
Acting Collector of Internal Revenue, and approved on April 16, 1915, by
Honorable Victorino Mapa, Secretary of Finance and Justice. Section 30 of
the regulations is practically a transcript of Circular Letter No. 327.
The subject has come before the Attorney-General for consideration. The
Chief of Constabulary request the opinion of the Attorney-General as to
the status of a non-Christian who has been baptized by a minister of the
Gospel. The precise questions were these: "Does he remain non-Christian
or is he entitled to the privileges of a Christian? By purchasing intoxicating
liquors, does he commit an infraction of the law and does the person
selling same lay himself liable under the provision of Act No. 1639?" The
opinion of Attorney-General Avanceña, after quoting the same authorities
hereinbefore set out, concludes:
In conformity with the above quoted constructions, it is probable that is
probable that the person in question remains a non-Christian, so that, in
purchasing intoxicating liquors both he and the person selling the same
make themselves liable to prosecution under the provisions of Act No.
1639. At least, I advise you that these should be the constructions place
upon the law until a court shall hold otherwise.
Solicitor-General Paredes in his brief in this case says:
With respect to the meaning which the phrase non-Christian inhabitants
has in the provisions of the Administrative code which we are studying, we
submit that said phrase does not have its natural meaning which would
include all non-Christian inhabitants of the Islands, whether Filipino or
strangers, civilized or uncivilized, but simply refers to those uncivilized
members of the non-Christian tribes of the Philippines who, living without
 31
home or fixed residence, roam in the mountains, beyond the reach of law
and order . . .
The Philippine Commission in denominating in its laws that portion of the
inhabitants of the Philippines which live in tribes as non-Christian tribes,
as distinguished from the common Filipinos which carry on a social and
civilized life, did not intended to establish a distinction based on the
religious beliefs of the individual, but, without dwelling on the difficulties
which later would be occasioned by the phrase, adopted the expression
which the Spanish legislation employed to designate the uncivilized
portion of the inhabitants of the Philippines.
The phrase 'non-Christian inhabitants' used in the provisions of articles
2077 and 2741 of Act No. 2657 (articles 2145 and 2759) should be
understood as equivalent to members of uncivilized tribes of the
Philippines, not only because this is the evident intention of the law, but
because to give it its lateral meaning would make the law null and
unconstitutional as making distinctions base the religion of the individual.
The Official Census of 1903, in the portion written by no less an authority
than De. David P. Barrows, then "Chief of the Bureau of non-Christian
Tribes," divides the population in the Christian or Civilized Tribes, and
non-Christian or Wild Tribes. (Census of the Philippine Islands [1903], vol.
1, pp. 411 et seq). The present Director of the Census, Hon. Ignacio
Villamor, writes that the classification likely to be used in the Census now
being taken is: "Filipinos and Primitive Filipinos." In a Pronouncing
Gazetteer and Geographical Dictionary of the Philippine Islands, prepared
in the Bureau of Insular Affairs, War Department, a sub-division under the
title non-Christian tribes is, "Physical and Political Characteristics of the
non-Christian Tribes," which sufficiently shows that the terms refers to
culture and not to religion.
In resume, therefore, the Legislature and the Judiciary, inferentially, and
different executive officials, specifically, join in the proposition that the
term "non-Christian" refers, not to religious belief, but, in a way , to
geographical area, and, more directly, to natives of the Philippine Islands
of a law grade of civilization, usually living in tribal relationship apart from
settled communities.
E. THE MANGUIANES.
The so-called non-Christians are in various state approaching civilization.
The Philippine Census of 1903 divided them into four classes. Of the third
class, are the Manguianes (or Mangyans) of Mindoro.
Of the derivation of the name "Manguian" Dr. T. H. Pardo de Tavera in
his Etimilogia de los nombres de Rozas de Filipinas, says:
In Tagalog, Bicol, and Visaya, Manguian signifies "savage," "mountainer,"
"pagan," "negro." It may be that the use of this word is applicable to a
great number of Filipinos, but nevertheless it has been applied only to
certain inhabitants of Mindoro. Even in primitive times without doubt this
name was given to those of that island who bear it to-day, but its
employed in three Filipino languages shows that the radical ngian had in
all these languages a sense to-day forgotten. In Pampango this ending still
exists and signifies "ancient," from which we can deduce that the name
was applied to men considered to be the ancient inhabitants, and that
these men were pushed back into the interior by the modern invaders, in
whose language they were called the "ancients."
The Manguianes are very low in culture. They have considerable Negrito
blood and have not advanced beyond the Negritos in civilization. They are
a peaceful, timid, primitive, semi-nomadic people. They number
approximately 15,000. The manguianes have shown no desire for
community life, and, as indicated in the preamble to Act No. 547, have not
progressed sufficiently in civilization to make it practicable to bring them
under any form of municipal government. (See Census of the Philippine
(Islands [1903], vol. I, pp. 22, 23, 460.)
III. COMPARATIVE — THE AMERICAN INDIANS.
Reference was made in the Presidents' instructions to the Commission to
the policy adopted by the United States for the Indian Tribes. The
methods followed by the Government of the Philippines Islands in its
dealings with the so-called non-Christian people is said, on argument, to
be practically identical with that followed by the United States
Government in its dealings with the Indian tribes. Valuable lessons, it is
insisted, can be derived by an investigation of the American-Indian policy.
From the beginning of the United States, and even before, the Indians
have been treated as "in a state of pupilage." The recognized relation
between the Government of the United States and the Indians may be
described as that of guardian and ward. It is for the Congress to determine
when and how the guardianship shall be terminated. The Indians are
always subject to the plenary authority of the United States.
Chief Justice Marshall in his opinion in Worcester vs. Georgia,
hereinbefore mentioned, tells how the Congress passed an Act in 1819
"for promoting those humane designs of civilizing the neighboring
Indians." After quoting the Act, the opinion goes on — "This act avowedly
contemplates the preservation of the Indian nations as an object sought
by the United States, and proposes to effect this object by civilizing and
converting them from hunters into agriculturists."
A leading case which discusses the status of the Indians is that of the
United States vs. Kagama ([1886], 118 U.S., 375). Reference is herein
made to the clause of the United States Constitution which gives Congress
"power to regulate commerce with foreign nations, and among the
several States, and with the Indian tribes." The court then proceeds to
indicate a brief history of the position of the Indians in the United States (a
more extended account of which can be found in Marshall's opinion in
Worcester vs. Georgia, supra), as follows:
The relation of the Indian tribes living within the borders of the United
States, both before and since the Revolution, to the people of the United
States, has always been an anomalous one and of a complex character.
Following the policy of the European Governments in the discovery of
American towards the Indians who were found here, the colonies before
the Revolution and the States and the United States since, have
recognized in the Indians a possessory right to the soil over which they
roamed and hunted and established occasional villages. But they asserted
an ultimate title in the land itself, by which the Indian tribes were
forbidden to sell or transfer it to other nations or peoples without the
consent of this paramount authority. When a tribe wished to dispose of its
lands, or any part of it, or the State or the United States wished to
purchase it, a treaty with the tribe was the only mode in which this could
be done. The United States recognized no right in private persons, or in
other nations, to make such a purchase by treaty or otherwise. With the
Indians themselves these relation are equally difficult to define. They were,
 32
and always have been, regarded as having a semi-independent position
when they preserved their tribal relations; not as States, not as nation not
a possessed of the fall attributes of sovereignty, but as a separate people,
with the power of regulating their internal and social relations, and thus
far not brought under the laws of the Union or of the State within whose
limits they resided.
The opinion then continues:
It seems to us that this (effect of the law) is within the competency of
Congress. These Indian tribes are the wards of the nation. The are
communities dependent on the United States. dependent largely for their
daily food. Dependent for their political rights. They owe no allegiance to
the States, and receive from the no protection. Because of the local ill
feeling, the people of the States where they are found are often their
deadliest enemies. From their very weakness and helplessness, so largely
due to the course of dealing of the Federal Government with them and
the treaties in which it has been promised, there arise the duty of
protection, and with it the power. This has always been recognized by the
Executive and by Congress, and by this court, whenever the question has
arisen . . . The power of the General Government over these remnants of
race once powerful, now weak and diminished in numbers, is necessary to
their protection, as well as to the safety of those among whom they dwell.
it must exist in that government, because it never has existed anywhere
else, because the theater of its exercise is within the geographical limits of
the United States, because it has never been denied, and because it alone
can enforce its laws on all the tribes.
In the later case of United States vs. Sandoval ([1913], 231 U.S., 28) the
question to be considered was whether the status of the Pueblo Indians
and their lands was such that Congress could prohibit the introduction of
intoxicating liquor into those lands notwithstanding the admission of New
Mexico to statehood. The court looked to the reports of the different
superintendent charged with guarding their interests and founds that
these Indians are dependent upon the fostering care and protection of the
government "like reservation Indians in general." Continuing, the court
said "that during the Spanish dominion, the Indians of the pueblos were
treated as wards requiring special protection, where subjected to
restraints and official supervisions in the alienation of their property." And
finally, we not the following: "Not only does the Constitution expressly
authorize Congress to regulate commerce with the Indians tribes, but
long-continued legislative and executive usage and an unbroken current of
judicial decisions have attributed to the United States as a superior and
civilized nation the power and the duty of exercising a fostering care and
protection over all dependent Indian communities within its borders,
whether within its original territory or territory subsequently acquired,
and whether within or without the limits of a state."
With reference to laws affecting the Indians, it has been held that it is not
within the power of the courts to overrule the judgment of Congress. For
very good reason, the subject has always been deemed political in nature,
not subject to the jurisdiction of the judicial department of the
government. (Matter of Heff [1905], 197 U.S., 488; U.S. vs. Celestine
[1909], 215 U.S., 278; U.S. vs. Sandoval, supra;
Worcester vs. Georgia, supra; U.S. vs. Rogers [1846], 4 How., 567; the
Cherokee Tobacco [1871], 11 Wall, 616; Roff vs. Burney [1897], 168 U.S.,
218; Thomas vs.Gay [1898], 169 U.S.., 264; Lone Wolf vs. Hitchcock[1903],
187 U.S., 553; Wallace vs. Adams [1907], 204 U.S., 415;
Conley vs. Bollinger [1910], 216 U.S., 84; Tiger vs. Western Invest. Co.
[1911], 221 U.S., 286; U.S. vs. Lane [1913], 232 U.S.., 598; Cyr vs. Walker
(1911], 29 Okla, 281; 35 L.R.A. [N. S.], 795.) Whenever, therefore, the
United States sets apart any public land as an Indian reservation, it has full
authority to pass such laws and authorize such measures as may be
necessary to give to the Indians thereon full protection in their persons
and property. (U.S. vs.Thomas [1894], 151 U.S., 577.)
All this borne out by long-continued legislative and executive usage, and
an unbroken line of judicial decisions.
The only case which is even remotely in point and which, if followed
literally, might result in the issuance of habeas corpus, is that of United
States vs. Crook ([1879], Fed. Cas. No. 14891). This was a hearing upon
return to a writ of habeas corpus issued against Brigadier General George
Crook at the relation of Standing Bear and other Indians, formerly
belonging to the Ponca Tribe of Indians. The petition alleged in substance
that the relators are Indians who have formerly belonged to the Ponca
tribe of Indians, now located in the Indian Territory; that they had some
time previously withdrawn from the tribe, and completely severed their
tribal relations therewith, and had adopted the general habits of the
whites, and were then endeavoring to maintain themselves by their own
exertions, and without aid or assistance from the general government;
that whilst they were thus engaged, and without being guilty of violating
any of the laws of the United States, they were arrested and restrained of
their liberty by order of the respondent, George Crook. The substance of
the return to the writ was that the relators are individual members of, and
connected with, the Ponca tribe of Indians; that they had fled or escaped
form a reservation situated some place within the limits of the Indian
Territory — had departed therefrom without permission from the
Government; and, at the request of the Secretary of the Interior, the
General of the Army had issued an order which required the respondent
to arrest and return the relators to their tribe in the Indian Territory, and
that, pursuant to the said order, he had caused the relators to be arrested
on the Omaha Indian Territory.
The first question was whether an Indian can test the validity of an illegal
imprisonment by habeas corpus. The second question, of much greater
importance, related to the right of the Government to arrest and hold the
relators for a time, for the purpose of being returned to the Indian
Territory from which it was alleged the Indian escaped. In discussing this
question, the court reviewed the policy the Government had adopted in
its dealing with the friendly tribe of Poncase. Then, continuing, the court
said: "Laws passed for the government of the Indian country, and for the
purpose of regulating trade and intercourse with the Indian tribes, confer
upon certain officers of the Government almost unlimited power over the
persons who go upon the reservations without lawful authority . . .
Whether such an extensive discretionary power is wisely vested in the
commissioner of Indian affairs or not , need not be questioned. It is
enough to know that the power rightfully exists, and, where existing, the
exercise of the power must be upheld." The decision concluded as follows:
The reasoning advanced in support of my views, leads me to conclude:
1. that an Indian is a 'person' within the meaning of the laws of the United
States, and has, therefore, the right to sue out a writ of habeas corpus in a
federal court, or before a federal judge, in all cases where he may be
confined or in custody under color of authority of the United States or
where he is restrained of liberty in violation of the constitution or laws of
the United States.
2. That General George Crook, the respondent, being commander of the
military department of the Platte, has the custody of the relators, under
 33
color of authority of the United States, and in violation of the laws
therefore.
3. That n rightful authority exists for removing by force any of the relators
to the Indian Territory, as the respondent has been directed to do.
4. that the Indians possess the inherent right of expatriation, as well as the
more fortunate white race, and have the inalienable right to "life, liberty,
and the pursuit of happiness," so long as they obey the laws and do not
trespass on forbidden ground. And,
5. Being restrained of liberty under color of authority of the United States,
and in violation of the laws thereof, the relators must be discharged from
custody, and it is so ordered.
As far as the first point is concerned, the decision just quoted could be
used as authority to determine that Rubi, the Manguian petitioner, a
Filipino, and a citizen of the Philippine Islands, is a "person" within the
meaning of the Habeas Corpus Act, and as such, entitled to sue out a writ
in the Philippine courts. (See also In re Race Horse [1895], 70 Fed., 598.)
We so decide.
As to the second point the facts in the Standing Bear case an the Rubi case
are not exactly identical. But even admitting similarity of facts, yet it is
known to all that Indian reservations do exist in the United States, that
Indians have been taken from different parts of the country and placed on
these reservation, without any previous consultation as to their own
wishes, and that, when once so located, they have been made to remain
on the reservation for their own good and for the general good of the
country. If any lesson can be drawn form the Indian policy of the United
States, it is that the determination of this policy is for the legislative and
executive branches of the government and that when once so decided
upon, the courts should not interfere to upset a carefully planned
governmental system. Perhaps, just as may forceful reasons exists for the
segregation as existed for the segregation of the different Indian tribes in
the United States.
IV. CONSTITUTIONAL QUESTIONS.
A. DELEGATION OF LEGISLATIVE POWER.
The first constitutional objection which confronts us is that the Legislature
could not delegate this power to provincial authorities. In so attempting, it
is contended, the Philippine Legislature has abdicated its authority and
avoided its full responsibility.
That the maxim of Constitutional Law forbidding the delegation of
legislative power should be zealously protected, we agree. An
understanding of the rule will, however, disclose that it has not bee
violated in his instance.
The rule has nowhere been better stated than in the early Ohio case
decided by Judge Ranney, and since followed in a multitude of case,
namely: "The true distinction therefore 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 later no valid objection can be made." (Cincinnati, W. & Z. R.
Co. vs. Comm'rs. Clinton County [1852], 1 Ohio S.t, 88.) Discretion, as held
by Chief Justice Marshall in Wayman vs. Southard ([1825], 10 Wheat., 1)
may be committed by the Legislature to an executive department or
official. The Legislature may make decisions of executive departments of
subordinate official thereof, to whom t has committed the execution of
certain acts, final on questions of fact. (U.S. vs. Kinkead [1918], 248 Fed.,
141.) The growing tendency in the decision is to give prominence to the
"necessity" of the case.
Is not all this exactly what the Legislature has attempted to accomplish by
the enactment of section 21454 of the Administrative Code? Has not the
Legislature merely conferred upon the provincial governor, with the
approval of the provincial board and the Department Head, discretionary
authority as to the execution of the law? Is not this "necessary"?
The case of West vs. Hitchock, ([1906], 205 U.S., 80) was a petition for
mandamus to require the Secretary of the Interior to approve the
selection and taking of one hundred and sixty acres by the relator out of
the lands ceded to the United States by the Wichita and affiliated bands of
Indians. Section 463 of the United States Revised Statutes provided: "The
Commissioner of Indian Affairs shall, under the direction of the Secretary
of the Interior, and agreeably to such regulations as the President may
prescribe, have the management of all Indian affairs, and of all matters
arising out to the Indian relations." Justice Holmes said: "We should
hesitate a good deal, especially in view of the long established practice of
the Department, before saying that this language was not broad enough
to warrant a regulation obviously made for the welfare of the rather
helpless people concerned. The power of Congress is not doubted. The
Indians have been treated as wards of the nation. Some such supervision
was necessary, and has been exercised. In the absence of special
provisions naturally it would be exercised by the Indian Department." (See
also as corroborative authority, it any is needed, Union Bridge Co. vs. U.S.
[1907], 204 U.S.., 364, reviewing the previous decisions of the United
States Supreme Court: U.S. vs. Lane [1914], 232 U.S., 598.)
There is another aspect of the question, which once accepted, is decisive.
An exception to the general rule. sanctioned by immemorial practice,
permits the central legislative body to delegate legislative powers to local
authorities. The Philippine Legislature has here conferred authority upon
the Province of Mindoro, to be exercised by the provincial governor and
the provincial board.
Who but the provincial governor and the provincial board, as the official
representatives of the province, are better qualified to judge "when such
as course is deemed necessary in the interest of law and order?" As
officials charged with the administration of the province and the
protection of its inhabitants, who but they are better fitted to select sites
which have the conditions most favorable for improving the people who
have the misfortune of being in a backward state?
Section 2145 of the Administrative Code of 1917 is not an unlawful
delegation of legislative power by the Philippine Legislature to provincial
official and a department head.
B. RELIGIOUS DISCRIMINATION
The attorney de officio, for petitioners, in a truly remarkable brief,
submitted on behalf of his unknown clients, says that — "The statute is
perfectly clear and unambiguous. In limpid English, and in words as plain
and unequivocal as language can express, it provides for the segregation
of 'non-Christians' and none other." The inevitable result, them, is that the
law "constitutes an attempt by the Legislature to discriminate between
 34
individuals because of their religious beliefs, and is, consequently,
unconstitutional."
Counsel's premise once being conceded, his arguments is answerable —
the Legislature must be understood to mean what it has plainly expressed;
judicial construction is then excluded; religious equality is demanded by
the Organic Law; the statute has violated this constitutional guaranty, and
Q. E. D. is invalid. But, as hereinbefore stated, we do not feel free to
discard the long continued meaning given to a common expression,
especially as classification of inhabitants according to religious belief leads
the court to what it should avoid, the nullification of legislative action. We
hold that the term "non-Christian" refers to natives of the Philippines
Islands of a low grade of civilization, and that section 2145 of the
Administrative Code of 1917, does not discriminate between individuals
an account of religious differences.
C. LIBERTY; DUE PROCESS OF LAW; EQUAL PROTECTION OF THE LAWS.
The third constitutional argument is grounded on those portions of the
President's instructions of to the Commission, the Philippine Bill, and the
Jones Law, providing "That no law shall be enacted in said Islands which
shall deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws." This
constitutional limitation is derived from the Fourteenth Amendment to
the United States Constitution — and these provisions, it has been said
"are universal in their application, to all persons within the territorial
jurisdiction, without regard to any differences of race, of color, or of
nationality." (Yick Wo vs. Hopkins [1886], 118 U.S., 356.) The protection
afforded the individual is then as much for the non-Christian as for the
Christian.
The conception of civil liberty has been variously expressed thus:
Every man may claim the fullest liberty to exercise his faculties,
compatible with the possession of like liberty by every other. (Spencer,
Social Statistics, p. 94.)
Liberty is the creature of law, essentially different from that authorized
licentiousness that trespasses on right. That authorized licentiousness that
trespasses on right. It is a legal and a refined idea, the offspring of high
civilization, which the savage never understood, and never can understand.
Liberty exists in proportion to wholesome restraint; the more restraint on
others to keep off from us, the more liberty we have . . . that man is free
who is protected from injury. (II Webster's Works, p. 393.)
Liberty consists in the ability to do what one caught to desire and in not
being forced to do what one ought not do desire. (Montesque, spirit of
the Laws.)
Even liberty itself, the greatest of all rights, is no unrestricted license to ac
according to one's own will. It is only freedom from restraint under
conditions essential to the equal enjoyment of the same right by others.
(Field, J., in Crowley vs. Christensen [1890], 137 U.S., 86.)
Liberty does not import "an absolute right in each person to be, at all
times and in all circumstances, wholly freed from restraint. There are
manifold restraints to which every person is necessarily subject for the
common good. On any other basis, organized society could not exist with
safety to its members. Society based on the rule that each one is a law
unto himself would soon be confronted with disorder and anarchy. Real
liberty for all could not exist under the operation of a principle which
recognizes the right of each individual person to use his own, whether in
respect of his person or his property, regardless of the injury that may be
done to others . . . There is, of course, a sphere with which the individual
may asserts the supremacy of his own will, and rightfully dispute the
authority of any human government — especially of any free government
existing under a written Constitution — to interfere with the exercise of
that will. But it is equally true that in very well-ordered society charged
with the duty of conserving the safety of its members, the rights of the
individual in respect of his liberty may at times, under the pressure of
great dangers, be subjected to such restraint to be enforced by reasonable
regulations, as the safety of the general public may demand." (Harlan, J.,
In Jacobson vs. Massachusetts [1905] 197 U.S., 11.)
Liberty is freedom to do right and never wrong; it is ever guided by reason
and the upright and honorable conscience of the individual. (Apolinario
Mabini.)
Civil Liberty may be said to mean that measure of freedom which may be
enjoyed in a civilized community, consistently with the peaceful
enjoyment of like freedom in others. The right to Liberty guaranteed by
the Constitution includes the right to exist and the right to be free from
arbitrary personal restraint or servitude. The term cannot be dwarfed into
mere freedom from physical restraint of the person of the citizen, but is
deemed to embrace the right of man to enjoy the faculties with which he
has been endowed by this Creator, subject only to such restraints as are
necessary for the common welfare. As enunciated in a long array of
authorities including epoch-making decisions of the United States
Supreme Court, Liberty includes the right of the citizens to be free to use
his faculties in all lawful ways; to live an work where he will; to earn his
livelihood by an lawful calling; to pursue any avocations, an for that
purpose. to enter into all contracts which may be proper, necessary, and
essential to his carrying out these purposes to a successful conclusion. The
chief elements of the guaranty are the right to contract, the right to
choose one's employment, the right to labor, and the right of locomotion.
In general, it may be said that Liberty means the opportunity to do those
things which are ordinarily done by free men. (There can be noted
Cummings vs. Missouri [1866], 4 Wall, 277; Wilkinson vs. Leland [1829], 2
Pet., 627; Williams vs. Fears [1900], 179 U.S., 274; Allgeyer vs. Louisiana
[1896], 165, U.S., 578; State vs. Kreutzberg [1902], 114 Wis., 530. See 6
R.C.L., 258, 261.)
One thought which runs through all these different conceptions of Liberty
is plainly apparent. It is this: "Liberty" as understood in democracies, is not
license; it is "Liberty regulated by law." Implied in the term is restraint by
law for the good of the individual and for the greater good of the peace
and order of society and the general well-being. No man can do exactly as
he pleases. Every man must renounce unbridled license. The right of the
individual is necessarily subject to reasonable restraint by general law for
the common good. Whenever and wherever the natural rights of citizen
would, if exercises without restraint, deprive other citizens of rights which
are also and equally natural, such assumed rights must yield to the
regulation of law. The Liberty of the citizens may be restrained in the
interest of the public health, or of the public order and safety, or
otherwise within the proper scope of the police power. (See
Hall vs. Geiger-Jones [1916], 242 U.S., 539; Hardie-Tynes Manufacturing
Co. vs. Cruz [1914], 189 Al., 66.)
None of the rights of the citizen can be taken away except by due process
of law. Daniel Webster, in the course of the argument in the Dartmouth
 35
College Case before the United States Supreme Court, since a classic in
forensic literature, said that the meaning of "due process of law" is, that
"every citizen shall hold his life, liberty, property, an immunities under the
protection of the general rules which govern society." To constitute "due
process of law," as has been often held, a judicial proceeding is not always
necessary. In some instances, even a hearing and notice are not requisite
a rule which is especially true where much must be left to the discretion of
the administrative officers in applying a law to particular cases. (See
McGehee, Due Process of Law, p. 371.) Neither is due process a stationary
and blind sentinel of liberty. "Any legal proceeding enforced by public
authority, whether sanctioned by age and customs, or newly devised in
the discretion of the legislative power, in furtherance of the public good,
which regards and preserves these principles of liberty and justice, must
be held to be due process of law." (Hurtado vs.California [1883], 110, U.S.,
516.) "Due process of law" means simply . . . "first, that there shall be a
law prescribed in harmony with the general powers of the legislative
department of the Government; second, that this law shall be reasonable
in its operation; third, that it shall be enforced according to the regular
methods of procedure prescribed; and fourth, that it shall be applicable
alike to all the citizens of the state or to all of a class." (U.S. vs. Ling Su Fan
[1908], 10 Phil., 104, affirmed on appeal to the United States Supreme
Court. 1) "What is due process of law depends on circumstances. It varies
with the subject-matter and necessities of the situation."
(Moyer vs. Peablody [1909], 212 U. S., 82.)
The pledge that no person shall be denied the equal protection of the laws
is not infringed by a statute which is applicable to all of a class. The
classification must have a reasonable basis and cannot be purely arbitrary
in nature.
We break off with the foregoing statement, leaving the logical deductions
to be made later on.
D. SLAVERY AND INVOLUNTARY SERVITUDE.
The fourth constitutional contention of petitioner relates to the Thirteen
Amendment to the United States Constitution particularly as found in
those portions of Philippine Organic Law providing "That slavery shall not
exist in said Islands; nor shall involuntary servitude exist except as a
punishment for crime whereof the party shall have been duly convicted."
It is quite possible that the Thirteenth Amendment, since reaching to "any
place subject to" the "jurisdiction" of the United States, has force in the
Philippine. However this may be, the Philippine Legislature has, by
adoption, with necessary modifications, of sections 268 to 271 inclusive of
the United States Criminal Code, prescribed the punishment for these
crimes. Slavery and involuntary servitude, together wit their corollary,
peonage, all denote "a condition of enforced, compulsory service of one
to another." (Hodges vs. U.S. [1906], 203 U.S., 1.) The term of broadest
scope is possibly involuntary servitude. It has been applied to any
servitude in fact involuntary, no matter under what form such servitude
may have been disguised. (Bailey vs. Alabama [1910], 219 U.S., 219.)
So much for an analysis of those constitutional provisions on which
petitioners rely for their freedom. Next must come a description of the
police power under which the State must act if section 2145 is to be held
valid.
E. THE POLICE POWER.
Not attempting to phrase a definition of police power, all that it is
necessary to note at this moment is the farreaching scope of the power,
that it has become almost possible to limit its weep, and that among its
purposes is the power to prescribe regulations to promote the health,
peace, morals, education, and good order of the people, and to legislate
so as to increase the industries of the State, develop its resources and add
to is wealth and prosperity. (See Barbier vs. Connolly [1884], 113 U.S., 27.)
What we are not interested in is the right of the government to restrain
liberty by the exercise of the police power.
"The police power of the State," one court has said, . . . "is a power
coextensive with self-protection, and is not inaptly termed the 'law of
overruling necessity.' It may be said to be that inherent and plenary power
in the State which enables it to prohibit all things hurtful to the comfort,
safety and welfare of society." (Lake View vs. Rose Hill Cemetery Co.
[1873], 70 Ill., 191.) Carried onward by the current of legislation, the
judiciary rarely attempt to dam the on rushing power of legislative
discretion, provided the purposes of the law do not go beyond the great
principles that mean security for the public welfare or do not arbitrarily
interfere with the right of the individual.
The Government of the Philippine Islands has both on reason and
authority the right to exercise the sovereign police power in the
promotion of the general welfare and the public interest. "There can be
not doubt that the exercise of the police power of the Philippine
Government belongs to the Legislature and that this power is limited only
by the Acts of Congress and those fundamental principles which lie at the
foundation of all republican forms of government." (Churchill and
Tait vs. Rafferty [1915], 32 Phil., 580; U.S. vs. Pompeya [1915], 31 Phil.,
245.)
With the foregoing approximation of the applicable basic principles before
us, before finally deciding whether any constitutional provision has indeed
been violated by section 2145 of the Administrative Code, we should
endeavor to ascertain the intention of the Legislature in enacting this
section. If legally possible, such legislative intention should be effectuated.
F. LEGISLATIVE INTENT.
The preamble of the resolution of the provincial board of Mindoro which
set apart the Tigbao reservation, it will be remembered, assigned as
reasons fort the action, the following: (1) The failure of former attempts
for the advancement of the non-Christian people of the province; and (2)
the only successfully method for educating the Manguianes was to oblige
them to live in a permanent settlement. The Solicitor-General adds the
following; (3) The protection of the Manguianes; (4) the protection of the
public forests in which they roam; (5) the necessity of introducing civilized
customs among the Manguianes.
The present Secretary of the Interior says of the Tigbao reservation and of
the motives for its selection, the following:
To inform himself of the conditions of those Manguianes who were taken
together to Tigbao, the Secretary of the Interior on June 10 to 13, 1918,
made a trip to the place. There he found that the site selected is a good
one; that creditable progress has been made in the clearing of forests,
construction of buildings, etc., that there appears to be encouraging
reaction by the boys to the work of the school the requirements of which
they appear to meet with enthusiastic interest after the first weeks which
are necessarily a somewhat trying period for children wholly
 36
unaccustomed to orderly behaviour and habit of life. He also gathered the
impression that the results obtained during the period of less than one
year since the beginning of the institution definitely justify its continuance
and development.
Of course, there were many who were protesting against that segregation.
Such was naturally to be expected. But the Secretary of the Interior, upon
his return to Manila, made the following statement to the press:
"It is not deemed wise to abandon the present policy over those who
prefer to live a nomadic life and evade the influence of civilization. The
Government will follow its policy to organize them into political
communities and to educate their children with the object of making them
useful citizens of this country. To permit them to live a wayfaring life will
ultimately result in a burden to the state and on account of their
ignorance, they will commit crimes and make depredation, or if not they
will be subject to involuntary servitude by those who may want to abuse
them."
The Secretary of the Interior, who is the official charged with the
supervision of all the non-Christian people, has adopted as the polaris of
his administration — "the advancement of the non-Christian elements of
our population to equality and unification with the highly civilized
Christian inhabitants." This is carried on by the adoption of the following
measures:
(a) Pursuance of the closer settlement policy whereby people of
seminomadic race are induced to leave their wild habitat and settle in
organized communities.
(b) The extension of the public school system and the system of public
health throughout the regions inhabited by the non-Christian people.
(c) The extention of public works throughout the Mohammedan regions to
facilitate their development and the extention of government control.
(d) Construction of roads and trials between one place and another among
non-Christians, to promote social and commercial intercourse and
maintain amicable relations among them and with the Christian people.
(e) Pursuance of the development of natural economic resources,
especially agriculture.
( f ) The encouragement of immigration into, and of the investment of
private capital in, the fertile regions of Mindanao and Sulu.
The Secretary adds:
To attain the end desired, work of a civilizing influence have been
continued among the non-Christian people. These people are being taught
and guided to improve their living conditions in order that they may fully
appreciate the benefits of civilization. Those of them who are still given to
nomadic habits are being persuaded to abandon their wild habitat and
settle in organized settlements. They are being made to understand that it
is the purpose of the Government to organize them politically into fixed
and per manent communities, thus bringing them under the control of the
Government, to aid them to live and work, protect them from involuntary
servitude and abuse, educate their children, and show them the
advantages of leading a civilized life with their civilized brothers. In short,
they are being impressed with the purposes and objectives of the
Government of leading them to economic, social, and political equality,
and unification with the more highly civilized inhabitants of the country.
(See Report of the Department for 1917.)
The fundamental objective of governmental policy is to establish friendly
relations with the so-called non-Christians, and to promote their
educational, agricultural, industrial, and economic development and
advancement in civilization. (Note Acts Nos. 2208, 2404, 2444.) Act No.
2674 in reestablishing the Bureau of non-Christian Tribes, defines the aim
of the Government towards the non-Christian people in the following
unequivocal terms:
It shall be the duty of the Bureau of non-Christian Tribes to continue the
work for advancement and liberty in favor of the region inhabited by
non-Christian Filipinos and foster by all adequate means and in a
systematical, rapid, and complete manner the moral, material, economic,
social, and political development of those regions, always having in view
the aim of rendering permanent the mutual intelligence between, and
complete fusion of, all the Christian and non-Christian elements
populating the provinces of the Archipelago. (Sec. 3.)
May the Manguianes not be considered, as are the Indians in the United
States, proper wards of the Filipino people? By the fostering care of a wise
Government, may not these unfortunates advance in the "habits and arts
of civilization?" Would it be advisable for the courts to intrude upon a plan,
carefully formulated, and apparently working out for the ultimate good of
these people?
In so far as the Manguianes themselves are concerned, the purpose of the
Government is evident. Here, we have on the Island of Mindoro, the
Manguianes, leading a nomadic life, making depredations on their more
fortunate neighbors, uneducated in the ways of civilization, and doing
nothing for the advancement of the Philippine Islands. What the
Government wished to do by bringing than into a reservation was to
gather together the children for educational purposes, and to improve the
health and morals — was in fine, to begin the process of civilization. this
method was termed in Spanish times, "bringing under the bells." The
same idea adapted to the existing situation, has been followed with
reference to the Manguianes and other peoples of the same class,
because it required, if they are to be improved, that they be gathered
together. On these few reservations there live under restraint in some
cases, and in other instances voluntarily, a few thousands of the
uncivilized people. Segregation really constitutes protection for the
manguianes.
Theoretically, one may assert that all men are created free and equal.
Practically, we know that the axiom is not precisely accurate. The
Manguianes, for instance, are not free, as civilized men are free, and they
are not the equals of their more fortunate brothers. True, indeed, they are
citizens, with many but not all the rights which citizenship implies. And
true, indeed, they are Filipinos. But just as surely, the Manguianes are
citizens of a low degree of intelligence, and Filipinos who are a drag upon
the progress of the State.
In so far as the relation of the Manguianes to the State is concerned, the
purposes of the Legislature in enacting the law, and of the executive
branch in enforcing it, are again plain. Settlers in Mindoro must have their
crops and persons protected from predatory men, or they will leave the
country. It is no argument to say that such crimes are punished by the
Penal Code, because these penalties are imposed after commission of the
 37
offense and not before. If immigrants are to be encouraged to develop the
resources of the great Islands of Mindoro, and its, as yet, unproductive
regions, the Government must be in a position to guarantee peace and
order.
Waste lands do not produce wealth. Waste people do not advance the
interest of the State. Illiteracy and thriftlessness are not conducive to
homogeneity. The State to protect itself from destruction must prod on
the laggard and the sluggard. The great law of overwhelming necessity is
all convincing.
To quote again from the instructive memorandum of the Secretary of the
Interior:
Living a nomadic and a wayfaring life and evading the influence of
civilization, they (the manguianes) are engaged in the works of destruction
— burning and destroying the forests and making illegal caiñgins thereon.
Not bringing any benefit to the State but instead injuring and damaging its
interests, what will ultimately become of these people with the sort of
liberty they wish to preserve and for which they are now fighting in court?
They will ultimately become a heavy burden to the State and on account
of their ignorance they will commit crimes and make depredations, or if
not they will be subjected to involuntary servitude by those who may
want to abuse them.
There is no doubt in my mind that this people a right conception of liberty
and does not practice liberty in a rightful way. They understand liberty as
the right to do anything they will — going from one place to another in the
mountains, burning and destroying forests and making illegal caiñgins
thereon.
Not knowing what true liberty is and not practising the same rightfully,
how can they allege that they are being deprived thereof without due
process of law?
xxx xxx xxx
But does the Constitutional guaranty that 'no person shall be deprived of
his liberty without due process of law' apply to a class of persons who do
not have a correct idea of what liberty is and do not practise liberty in a
rightful way?
To say that it does will mean to sanction and defend an erroneous idea of
such class of persons as to what liberty is. It will mean, in the case at bar,
that the Government should not adopt any measures looking to the
welfare and advancement of the class of persons in question. It will mean
that this people should be let along in the mountains and in a permanent
state of savagery without even the remotest hope of coming to
understand liberty in its true and noble sense.
In dealing with the backward population, like the Manguianes, the
Government has been placed in the alternative of either letting them
alone or guiding them in the path of civilization. The latter measure was
adopted as the one more in accord with humanity and with national
conscience.
xxx xxx xxx
The national legislation on the subject of non-Christian people has tended
more and more towards the education and civilization of such people and
fitting them to be citizens. The progress of those people under the
tutelage of the Government is indeed encouraging and the signs of the
times point to a day which is not far distant when they will become useful
citizens. In the light of what has already been accomplished which has
been winning the gratitude of most of the backward people, shall we give
up the noble work simply because a certain element, believing that their
personal interests would be injured by such a measure has come forward
and challenged the authority of the Government to lead this people in the
pat of civilization? Shall we, after expending sweat, treasure, and even
blood only to redeem this people from the claws of ignorance and
superstition, now willingly retire because there has been erroneously
invoked in their favor that Constitutional guaranty that no person shall be
deprived of his liberty without due process of law? To allow them to
successfully invoke that Constitutional guaranty at this time will leave the
Government without recourse to pursue the works of civilizing them and
making them useful citizens. They will thus left in a permanent state of
savagery and become a vulnerable point to attack by those who doubt,
nay challenge, the ability of the nation to deal with our backward
brothers.
The manguianes in question have been directed to live together at Tigbao.
There they are being taught and guided to improve their living conditions.
They are being made to understand that they object of the government is
to organize them politically into fixed and permanent communities. They
are being aided to live and work. Their children are being educated in a
school especially established for them. In short, everything is being done
from them in order that their advancement in civilization and material
prosperity may be assured. Certainly their living together in Tigbao does
not make them slaves or put them in a condition compelled to do services
for another. They do not work for anybody but for themselves. There is,
therefore, no involuntary servitude.
But they are compelled to live there and prohibited from emigrating to
some other places under penalty of imprisonment. Attention in this
connection is invited to the fact that this people, living a nomadic and
wayfaring life, do not have permanent individual property. They move
from one place to another as the conditions of living warrants, and the
entire space where they are roving about is the property of the nation, the
greater part being lands of public domain. Wandering from one place to
another on the public lands, why can not the government adopt a
measure to concentrate them in a certain fixed place on the public lands,
instead of permitting them to roam all over the entire territory? This
measure is necessary both in the interest of the public as owner of the
lands about which they are roving and for the proper accomplishment of
the purposes and objectives of the government. For as people accustomed
to nomadic habit, they will always long to return to the mountains and
follow a wayfaring life, and unless a penalty is provinced for, you can not
make them live together and the noble intention of the Government of
organizing them politically will come to naught.
G. APPLICATION AND CONCLUSION.
Our exhaustive study should have left us in a position to answer specific
objections and to reach a general conclusion.
In the first place, it is argued that the citizen has the right, generally
speaking, to go where he pleases. Could be not, however, be kept away
from certain localities ? To furnish an example from the Indian legislation.
The early Act of Congress of 1802 (2 U.S. Stat. at L., p. 141) Indian
 38
reservation. Those citizens certainly did not possess absolute freedom of
locomotion. Again the same law provided for the apprehension of
marauding Indians. Without any doubt, this law and other similar were
accepted and followed time and again without question.
It is said that, if we hold this section to be constitutional, we leave this
weak and defenseless people confined as in a prison at the mercy of
unscrupulous official. What, it is asked, would be the remedy of any
oppressed Manguian? The answer would naturally be that the official into
whose hands are given the enforcement of the law would have little or
not motive to oppress these people; on the contrary, the presumption
would all be that they would endeavor to carry out the purposes of the
law intelligently and patriotically. If, indeed, they did ill-treat any person
thus confined, there always exists the power of removal in the hands of
superior officers, and the courts are always open for a redress of
grievances. When, however, only the validity of the law is generally
challenged and no particular case of oppression is called to the attention
of the courts, it would seems that the Judiciary should not unnecessarily
hamper the Government in the accomplishment of its laudable purpose.
The question is above all one of sociology. How far, consistently with
freedom, may the right and liberties of the individual members of society
be subordinated to the will of the Government? It is a question which has
assailed the very existence of government from the beginning of time.
Now purely an ethical or philosophical subject, nor now to be decided by
force, it has been transferred to the peaceful forum of the Judiciary. In
resolving such an issue, the Judiciary must realize that the very existence
of government renders imperatives a power to restrain the individual to
some extent, dependent, of course, on the necessities of the class
attempted to be benefited. As to the particular degree to which the
Legislature and the Executive can go in interfering with the rights of the
citizen, this is, and for a along time to come will be, impossible for the
courts to determine.
The doctrines of laissez faire and of unrestricted freedom of the individual,
as axioms of economics and political theory, are of the past. The modern
period has shown as widespread belief in the amplest possible
demonstration of governmental activity. The courts unfortunately have
sometimes seemed to trial after the other two branches of the
government in this progressive march.
Considered, therefore, purely as an exercise of the police power, the
courts cannot fairly say that the Legislature has exceeded its rightful
authority. it is, indeed, an unusual exercise of that power. But a great
malady requires an equally drastic remedy.
Further, one cannot hold that the liberty of the citizen is unduly interfered
without when the degree of civilization of the Manguianes is considered.
They are restrained for their own good and the general good of the
Philippines. Nor can one say that due process of law has not been
followed. To go back to our definition of due process of law and equal
protection of the law, there exists a law ; the law seems to be reasonable;
it is enforced according to the regular methods of procedure prescribed;
and it applies alike to all of a class.
As a point which has been left for the end of this decision and which, in
case of doubt, would lead to the determination that section 2145 is valid.
it the attitude which the courts should assume towards the settled policy
of the Government. In a late decision with which we are in full accord,
Gambles vs. Vanderbilt University (200 Southwestern Reporter, 510) the
Chief Justice of the Supreme Court of Tennessee writes:
We can seen objection to the application of public policy as a ratio
decidendi. Every really new question that comes before the courts is, in
the last analysis, determined on that theory, when not determined by
differentiation of the principle of a prior case or line of cases, or by the aid
of analogies furnished by such prior case. In balancing conflicting solutions,
that one is perceived to tip the scales which the court believes will best
promote the public welfare in its probable operation as a general rule or
principle. But public policy is not a thing inflexible. No court is wise enough
to forecast its influence in all possible contingencies. Distinctions must be
made from time to time as sound reason and a true sense of justice may
dictate."
Our attempt at giving a brief history of the Philippines with reference to
the so-called non-Christians has been in vain, if we fail to realize that a
consistent governmental policy has been effective in the Philippines from
early days to the present. The idea to unify the people of the Philippines
so that they may approach the highest conception of nationality. If all are
to be equal before the law, all must be approximately equal in intelligence.
If the Philippines is to be a rich and powerful country, Mindoro must be
populated, and its fertile regions must be developed. The public policy of
the Government of the Philippine Islands is shaped with a view to benefit
the Filipino people as a whole. The Manguianes, in order to fulfill this
governmental policy, must be confined for a time, as we have said, for
their own good and the good of the country.
Most cautiously should the power of this court to overrule the judgment
of the Philippine Legislature, a coordinate branch, be exercised. The whole
tendency of the best considered case is toward non-interference on the
part of the courts whenever political ideas are the moving consideration.
Justice Holmes, in one of the aphorisms for which he is justly famous, said
that "constitutional law, like other mortal contrivances, has to take some
chances." (Blinn vs.Nelson [1911], 222 U.S., 1.) If in the final decision of
the many grave questions which this case presents, the courts must take
"a chance," it should be with a view to upholding the law, with a view to
the effectuation of the general governmental policy, and with a view to
the court's performing its duty in no narrow and bigoted sense, but with
that broad conception which will make the courts as progressive and
effective a force as are the other departments of the Government.
We are of the opinion that action pursuant to section 2145 of the
Administrative Code does not deprive a person of his liberty without due
process of law and does not deny to him the equal protection of the laws,
and that confinement in reservations in accordance with said section does
not constitute slavery and involuntary servitude. We are further of the
opinion that section 2145 of the Administrative Code is a legitimate
exertion of the police power, somewhat analogous to the Indian policy of
the United States. Section 2145 of the Administrative Code of 1917 is
constitutional.
Petitioners are not unlawfully imprisoned or restrained of their liberty.
Habeas corpus can, therefore, not issue. This is the true ruling of the court.
Costs shall be taxes against petitioners. So ordered.
Arellano, C.J., Torres and Avanceña, JJ., concur
G.R. No. 74457 March 20, 1987
RESTITUTO YNOT, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, THE STATION COMMANDER,
 39
INTEGRATED NATIONAL POLICE, BAROTAC NUEVO, ILOILO and THE
REGIONAL DIRECTOR, BUREAU OF ANIMAL INDUSTRY, REGION IV, ILOILO
CITY, respondents.
Ramon A. Gonzales for petitioner.
CRUZ, J.:
The essence of due process is distilled in the immortal cry of Themistocles
to Alcibiades "Strike — but hear me first!" It is this cry that the petitioner
in effect repeats here as he challenges the constitutionality of Executive
Order No. 626-A.
The said executive order reads in full as follows:
WHEREAS, the President has given orders prohibiting the interprovincial
movement of carabaos and the slaughtering of carabaos not complying
with the requirements of Executive Order No. 626 particularly with
respect to age;
WHEREAS, it has been observed that despite such orders the violators still
manage to circumvent the prohibition against inter-provincial movement
of carabaos by transporting carabeef instead; and
WHEREAS, in order to achieve the purposes and objectives of Executive
Order No. 626 and the prohibition against interprovincial movement of
carabaos, it is necessary to strengthen the said Executive Order and
provide for the disposition of the carabaos and carabeef subject of the
violation;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution, do hereby
promulgate the following:
SECTION 1. Executive Order No. 626 is hereby amended such that
henceforth, no carabao regardless of age, sex, physical condition or
purpose and no carabeef shall be transported from one province to
another. The carabao or carabeef transported in violation of this Executive
Order as amended shall be subject to confiscation and forfeiture by the
government, to be distributed to charitable institutions and other similar
institutions as the Chairman of the National Meat Inspection Commission
may ay see fit, in the case of carabeef, and to deserving farmers through
dispersal as the Director of Animal Industry may see fit, in the case of
carabaos.
SECTION 2. This Executive Order shall take effect immediately.
Done in the City of Manila, this 25th day of October, in the year of Our
Lord, nineteen hundred and eighty.
(SGD.) FERDINAND E. MARCOS
President
Republic of the Philippines
The petitioner had transported six carabaos in a pump boat from Masbate
to Iloilo on January 13, 1984, when they were confiscated by the police
station commander of Barotac Nuevo, Iloilo, for violation of the above
measure. 1 The petitioner sued for recovery, and the Regional Trial Court
of Iloilo City issued a writ of replevin upon his filing of a supersedeas bond
of P12,000.00. After considering the merits of the case, the court
sustained the confiscation of the carabaos and, since they could no longer
be produced, ordered the confiscation of the bond. The court also
declined to rule on the constitutionality of the executive order, as raise by
the petitioner, for lack of authority and also for its presumed validity. 2
The petitioner appealed the decision to the Intermediate Appellate
Court,* 3 which upheld the trial court, ** and he has now come before us
in this petition for review on certiorari.
The thrust of his petition is that the executive order is unconstitutional
insofar as it authorizes outright confiscation of the carabao or carabeef
being transported across provincial boundaries. His claim is that the
penalty is invalid because it is imposed without according the owner a
right to be heard before a competent and impartial court as guaranteed
by due process. He complains that the measure should not have been
presumed, and so sustained, as constitutional. There is also a challenge to
the improper exercise of the legislative power by the former President
under Amendment No. 6 of the 1973 Constitution. 4
While also involving the same executive order, the case of Pesigan v.
Angeles 5 is not applicable here. The question raised there was the
necessity of the previous publication of the measure in the Official Gazette
before it could be considered enforceable. We imposed the requirement
then on the basis of due process of law. In doing so, however, this Court
did not, as contended by the Solicitor General, impliedly affirm the
constitutionality of Executive Order No. 626-A. That is an entirely different
matter.
This Court has declared that while lower courts should observe a
becoming modesty in examining constitutional questions, they are
nonetheless not prevented from resolving the same whenever warranted,
subject only to review by the highest tribunal. 6 We have jurisdiction under
the Constitution to "review, revise, reverse, modify or affirm on appeal
or certiorari, as the law or rules of court may provide," final judgments
and orders of lower courts in, among others, all cases involving the
constitutionality of certain measures. 7 This simply means that the
resolution of such cases may be made in the first instance by these lower
courts.
And while it is true that laws are presumed to be constitutional, that
presumption is not by any means conclusive and in fact may be rebutted.
Indeed, if there be a clear showing of their invalidity, and of the need to
declare them so, then "will be the time to make the hammer fall, and
heavily," 8 to recall Justice Laurel's trenchant warning. Stated otherwise,
courts should not follow the path of least resistance by simply presuming
the constitutionality of a law when it is questioned. On the contrary, they
should probe the issue more deeply, to relieve the abscess, paraphrasing
another distinguished jurist, 9 and so heal the wound or excise the
affliction.
Judicial power authorizes this; and when the exercise is demanded, there
should be no shirking of the task for fear of retaliation, or loss of favor, or
popular censure, or any other similar inhibition unworthy of the bench,
especially this Court.
 40
The challenged measure is denominated an executive order but it is really
presidential decree, promulgating a new rule instead of merely
implementing an existing law. It was issued by President Marcos not for
the purpose of taking care that the laws were faithfully executed but in
the exercise of his legislative authority under Amendment No. 6. It was
provided thereunder that whenever in his judgment there existed a grave
emergency or a threat or imminence thereof or whenever the legislature
failed or was unable to act adequately on any matter that in his judgment
required immediate action, he could, in order to meet the exigency, issue
decrees, orders or letters of instruction that were to have the force and
effect of law. As there is no showing of any exigency to justify the exercise
of that extraordinary power then, the petitioner has reason, indeed, to
question the validity of the executive order. Nevertheless, since the
determination of the grounds was supposed to have been made by the
President "in his judgment, " a phrase that will lead to protracted
discussion not really necessary at this time, we reserve resolution of this
matter until a more appropriate occasion. For the nonce, we confine
ourselves to the more fundamental question of due process.
It is part of the art of constitution-making that the provisions of the
charter be cast in precise and unmistakable language to avoid
controversies that might arise on their correct interpretation. That is the
Ideal. In the case of the due process clause, however, this rule was
deliberately not followed and the wording was purposely kept ambiguous.
In fact, a proposal to delineate it more clearly was submitted in the
Constitutional Convention of 1934, but it was rejected by Delegate Jose P.
Laurel, Chairman of the Committee on the Bill of Rights, who forcefully
argued against it. He was sustained by the body. 10
The due process clause was kept intentionally vague so it would remain
also conveniently resilient. This was felt necessary because due process is
not, like some provisions of the fundamental law, an "iron rule" laying
down an implacable and immutable command for all seasons and all
persons. Flexibility must be the best virtue of the guaranty. The very
elasticity of the due process clause was meant to make it adapt easily to
every situation, enlarging or constricting its protection as the changing
times and circumstances may require.
Aware of this, the courts have also hesitated to adopt their own specific
description of due process lest they confine themselves in a legal
straitjacket that will deprive them of the elbow room they may need to
vary the meaning of the clause whenever indicated. Instead, they have
preferred to leave the import of the protection open-ended, as it were, to
be "gradually ascertained by the process of inclusion and exclusion in the
course of the decision of cases as they arise." 11 Thus, Justice Felix
Frankfurter of the U.S. Supreme Court, for example, would go no farther
than to define due process — and in so doing sums it all up — as nothing
more and nothing less than "the embodiment of the sporting Idea of fair
play." 12
When the barons of England extracted from their sovereign liege the
reluctant promise that that Crown would thenceforth not proceed against
the life liberty or property of any of its subjects except by the lawful
judgment of his peers or the law of the land, they thereby won for
themselves and their progeny that splendid guaranty of fairness that is
now the hallmark of the free society. The solemn vow that King John made
at Runnymede in 1215 has since then resounded through the ages, as a
ringing reminder to all rulers, benevolent or base, that every person, when
confronted by the stern visage of the law, is entitled to have his say in a
fair and open hearing of his cause.
The closed mind has no place in the open society. It is part of the sporting
Idea of fair play to hear "the other side" before an opinion is formed or a
decision is made by those who sit in judgment. Obviously, one side is only
one-half of the question; the other half must also be considered if an
impartial verdict is to be reached based on an informed appreciation of
the issues in contention. It is indispensable that the two sides complement
each other, as unto the bow the arrow, in leading to the correct ruling
after examination of the problem not from one or the other perspective
only but in its totality. A judgment based on less that this full appraisal, on
the pretext that a hearing is unnecessary or useless, is tainted with the
vice of bias or intolerance or ignorance, or worst of all, in repressive
regimes, the insolence of power.
The minimum requirements of due process are notice and
hearing 13 which, generally speaking, may not be dispensed with because
they are intended as a safeguard against official arbitrariness. It is a
gratifying commentary on our judicial system that the jurisprudence of
this country is rich with applications of this guaranty as proof of our fealty
to the rule of law and the ancient rudiments of fair play. We have
consistently declared that every person, faced by the awesome power of
the State, is entitled to "the law of the land," which Daniel Webster
described almost two hundred years ago in the famous Dartmouth College
Case, 14 as "the law which hears before it condemns, which proceeds
upon inquiry and renders judgment only after trial." It has to be so if the
rights of every person are to be secured beyond the reach of officials who,
out of mistaken zeal or plain arrogance, would degrade the due process
clause into a worn and empty catchword.
This is not to say that notice and hearing are imperative in every case for,
to be sure, there are a number of admitted exceptions. The conclusive
presumption, for example, bars the admission of contrary evidence as
long as such presumption is based on human experience or there is a
rational connection between the fact proved and the fact ultimately
presumed therefrom. 15 There are instances when the need for
expeditions action will justify omission of these requisites, as in the
summary abatement of a nuisance per se, like a mad dog on the loose,
which may be killed on sight because of the immediate danger it poses to
the safety and lives of the people. Pornographic materials, contaminated
meat and narcotic drugs are inherently pernicious and may be summarily
destroyed. The passport of a person sought for a criminal offense may be
cancelled without hearing, to compel his return to the country he has
fled. 16 Filthy restaurants may be summarily padlocked in the interest of
the public health and bawdy houses to protect the public morals. 17 In
such instances, previous judicial hearing may be omitted without violation
of due process in view of the nature of the property involved or the
urgency of the need to protect the general welfare from a clear and
present danger.
The protection of the general welfare is the particular function of the
police power which both restraints and is restrained by due process. The
police power is simply defined as the power inherent in the State to
regulate liberty and property for the promotion of the general
welfare. 18 By reason of its function, it extends to all the great public
needs and is described as the most pervasive, the least limitable and the
most demanding of the three inherent powers of the State, far outpacing
taxation and eminent domain. The individual, as a member of society, is
hemmed in by the police power, which affects him even before he is born
and follows him still after he is dead — from the womb to beyond the
tomb — in practically everything he does or owns. Its reach is virtually
limitless. It is a ubiquitous and often unwelcome intrusion. Even so, as
long as the activity or the property has some relevance to the public
 41
welfare, its regulation under the police power is not only proper but
necessary. And the justification is found in the venerable Latin
maxims, Salus populi est suprema lex and Sic utere tuo ut alienum non
laedas, which call for the subordination of individual interests to the
benefit of the greater number.
It is this power that is now invoked by the government to justify Executive
Order No. 626-A, amending the basic rule in Executive Order No. 626,
prohibiting the slaughter of carabaos except under certain conditions. The
original measure was issued for the reason, as expressed in one of its
Whereases, that "present conditions demand that the carabaos and the
buffaloes be conserved for the benefit of the small farmers who rely on
them for energy needs." We affirm at the outset the need for such a
measure. In the face of the worsening energy crisis and the increased
dependence of our farms on these traditional beasts of burden, the
government would have been remiss, indeed, if it had not taken steps to
protect and preserve them.
A similar prohibition was challenged in United States v. Toribio, 19 where a
law regulating the registration, branding and slaughter of large cattle was
claimed to be a deprivation of property without due process of law. The
defendant had been convicted thereunder for having slaughtered his own
carabao without the required permit, and he appealed to the Supreme
Court. The conviction was affirmed. The law was sustained as a valid
police measure to prevent the indiscriminate killing of carabaos, which
were then badly needed by farmers. An epidemic had stricken many of
these animals and the reduction of their number had resulted in an acute
decline in agricultural output, which in turn had caused an incipient
famine. Furthermore, because of the scarcity of the animals and the
consequent increase in their price, cattle-rustling had spread alarmingly,
necessitating more effective measures for the registration and branding of
these animals. The Court held that the questioned statute was a valid
exercise of the police power and declared in part as follows:
To justify the State in thus interposing its authority in behalf of the public,
it must appear, first, that the interests of the public generally, as
distinguished from those of a particular class, require such interference;
and second, that the means are reasonably necessary for the
accomplishment of the purpose, and not unduly oppressive upon
individuals. ...
From what has been said, we think it is clear that the enactment of the
provisions of the statute under consideration was required by "the
interests of the public generally, as distinguished from those of a
particular class" and that the prohibition of the slaughter of carabaos for
human consumption, so long as these animals are fit for agricultural work
or draft purposes was a "reasonably necessary" limitation on private
ownership, to protect the community from the loss of the services of such
animals by their slaughter by improvident owners, tempted either by
greed of momentary gain, or by a desire to enjoy the luxury of animal food,
even when by so doing the productive power of the community may be
measurably and dangerously affected.
In the light of the tests mentioned above, we hold with the Toribio Case
that the carabao, as the poor man's tractor, so to speak, has a direct
relevance to the public welfare and so is a lawful subject of Executive
Order No. 626. The method chosen in the basic measure is also reasonably
necessary for the purpose sought to be achieved and not unduly
oppressive upon individuals, again following the above-cited doctrine.
There is no doubt that by banning the slaughter of these animals except
where they are at least seven years old if male and eleven years old if
female upon issuance of the necessary permit, the executive order will be
conserving those still fit for farm work or breeding and preventing their
improvident depletion.
But while conceding that the amendatory measure has the same lawful
subject as the original executive order, we cannot say with equal certainty
that it complies with the second requirement, viz., that there be a lawful
method. We note that to strengthen the original measure, Executive
Order No. 626-A imposes an absolute ban not on the slaughter of the
carabaos but on their movement, providing that "no carabao regardless of
age, sex, physical condition or purpose (sic) and no carabeef shall be
transported from one province to another." The object of the prohibition
escapes us. The reasonable connection between the means employed and
the purpose sought to be achieved by the questioned measure is missing
We do not see how the prohibition of the inter-provincial transport of
carabaos can prevent their indiscriminate slaughter, considering that they
can be killed anywhere, with no less difficulty in one province than in
another. Obviously, retaining the carabaos in one province will not
prevent their slaughter there, any more than moving them to another
province will make it easier to kill them there. As for the carabeef, the
prohibition is made to apply to it as otherwise, so says executive order, it
could be easily circumvented by simply killing the animal. Perhaps so.
However, if the movement of the live animals for the purpose of
preventing their slaughter cannot be prohibited, it should follow that
there is no reason either to prohibit their transfer as, not to be flippant
dead meat.
Even if a reasonable relation between the means and the end were to be
assumed, we would still have to reckon with the sanction that the
measure applies for violation of the prohibition. The penalty is outright
confiscation of the carabao or carabeef being transported, to be meted
out by the executive authorities, usually the police only. In the Toribio
Case, the statute was sustained because the penalty prescribed was fine
and imprisonment, to be imposed by the court after trial and conviction of
the accused. Under the challenged measure, significantly, no such trial is
prescribed, and the property being transported is immediately impounded
by the police and declared, by the measure itself, as forfeited to the
government.
In the instant case, the carabaos were arbitrarily confiscated by the police
station commander, were returned to the petitioner only after he had
filed a complaint for recovery and given a supersedeas bond of P12,000.00,
which was ordered confiscated upon his failure to produce the carabaos
when ordered by the trial court. The executive order defined the
prohibition, convicted the petitioner and immediately imposed
punishment, which was carried out forthright. The measure struck at once
and pounced upon the petitioner without giving him a chance to be heard,
thus denying him the centuries-old guaranty of elementary fair play.
It has already been remarked that there are occasions when notice and
hearing may be validly dispensed with notwithstanding the usual
requirement for these minimum guarantees of due process. It is also
conceded that summary action may be validly taken in administrative
proceedings as procedural due process is not necessarily judicial only. 20 In
the exceptional cases accepted, however. there is a justification for the
omission of the right to a previous hearing, to wit, the immediacy of the
problem sought to be corrected and the urgency of the need to correct it.
In the case before us, there was no such pressure of time or action calling
for the petitioner's peremptory treatment. The properties involved were
 42
not even inimical per se as to require their instant destruction. There
certainly was no reason why the offense prohibited by the executive order
should not have been proved first in a court of justice, with the accused
being accorded all the rights safeguarded to him under the Constitution.
Considering that, as we held in Pesigan v. Angeles, 21 Executive Order No.
626-A is penal in nature, the violation thereof should have been
pronounced not by the police only but by a court of justice, which alone
would have had the authority to impose the prescribed penalty, and only
after trial and conviction of the accused.
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 carabeef, and to deserving farmers through dispersal as the
Director of Animal Industry may see fit, in the case of carabaos."
(Emphasis 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 said 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.
To sum up then, we find that the challenged measure is an invalid exercise
of the police power because the method employed to conserve the
carabaos is not reasonably necessary to the purpose of the law and, worse,
is unduly oppressive. Due process is violated because the owner of the
property confiscated is denied the right to be heard in his defense and is
immediately condemned and punished. The conferment on the
administrative authorities of the power to adjudge the guilt of the
supposed offender is a clear encroachment on judicial functions and
militates against the doctrine of separation of powers. There is, finally,
also an invalid delegation of legislative powers to the officers mentioned
therein who are granted unlimited discretion in the distribution of the
properties arbitrarily taken. For these reasons, we hereby declare
Executive Order No. 626-A unconstitutional.
We agree with the respondent court, however, that the police station
commander who confiscated the petitioner's carabaos is not liable in
damages for enforcing the executive order in accordance with its mandate.
The law was at that time presumptively valid, and it was his obligation, as
a member of the police, to enforce it. It would have been impertinent of
him, being a mere subordinate of the President, to declare the executive
order unconstitutional and, on his own responsibility alone, refuse to
execute it. Even the trial court, in fact, and the Court of Appeals itself did
not feel they had the competence, for all their superior authority, to
question the order we now annul.
The Court notes that if the petitioner had not seen fit to assert and protect
his rights as he saw them, this case would never have reached us and the
taking of his property under the challenged measure would have become
a faitaccompli despite its invalidity. We commend him for his spirit.
Without the present challenge, the matter would have ended in that
pump boat in Masbate and another violation of the Constitution, for all its
obviousness, would have been perpetrated, allowed without protest, and
soon forgotten in the limbo of relinquished rights.
The strength of democracy lies not in the rights it guarantees but in the
courage of the people to invoke them whenever they are ignored or
violated. Rights are but weapons on the wall if, like expensive tapestry, all
they do is embellish and impress. Rights, as weapons, must be a promise
of protection. They become truly meaningful, and fulfill the role assigned
to them in the free society, if they are kept bright and sharp with use by
those who are not afraid to assert them.
WHEREFORE, Executive Order No. 626-A is hereby declared
unconstitutional. Except as affirmed above, the decision of the Court of
Appeals is reversed. The supersedeas bond is cancelled and the amount
thereof is ordered restored to the petitioner. No costs.
HON. RENATO C. CORONA, in his capacity as Assistant Secretary for Legal
Affairs, HON. JESUS B. GARCIA, in his capacity as Acting
Secretary, Department of Transportation and Communications,
and ROGELIO A. DAYAN, in his capacity as General Manager of
Philippine Ports Authority, petitioners, vs. UNITED HARBOR
PILOTS ASSOCIATION OF THE PHILIPPINES and MANILA PILOTS
ASSOCIATION, respondents.
DECISION
ROMERO, J.:
In issuing Administrative Order No. 04-92 (PPA-AO No. 04-92),
limiting the term of appointment of harbor pilots to one year subject to
yearly renewal or cancellation, did the Philippine Ports Authority (PPA)
violate respondents right to exercise their profession and their right to
due process of law?
The PPA was created on July 11, 1974, by virtue of Presidential
Decree No. 505. On December 23, 1975, Presidential Decree No. 857 was
issued revising the PPAs charter. Pursuant to its power of control,
regulation, and supervision of pilots and the pilotage profession, [1] the
PPA promulgated PPA-AO-03-85 [2] on March 21, 1985, which embodied
the Rules and Regulations Governing Pilotage Services, the Conduct of
Pilots and Pilotage Fees in Philippine Ports. These rules mandate, inter alia,
that aspiring pilots must be holders of pilot licenses [3]and must train as
probationary pilots in outports for three months and in the Port of Manila
for four months. It is only after they have achieved satisfactory
performance [4] that they are given permanent and regular
appointments by the PPA itself [5] to exercise harbor pilotage until they
reach the age of 70, unless sooner removed by reason of mental or
physical unfitness by the PPA General Manager. [6] Harbor pilots in every
harbor district are further required to organize themselves into pilot
associations which would make available such equipment as may be
required by the PPA for effective pilotage services. In view of this mandate,
pilot associations invested in floating, communications, and office
equipment. In fact, every new pilot appointed by the PPA automatically
becomes a member of a pilot association and is required to pay a
proportionate equivalent equity or capital before being allowed to assume
his duties, as reimbursement to the association concerned of the amount
it paid to his predecessor.
Subsequently, then PPA General Manager Rogelio A. Dayan issued
PPA-AO No. 04-92 [7] on July 15, 1992, whose avowed policy was to instill
effective discipline and thereby afford better protection to the port users
 43
through the improvement of pilotage services. This was implemented by
providing therein that all existing regular appointments which have been
previously issued either by the Bureau of Customs or the PPA shall remain
valid up to 31 December 1992 only and that all appointments to harbor
pilot positions in all pilotage districts shall, henceforth, be only for a term
of one (1) year from date of effectivity subject to yearly renewal or
cancellation by the Authority after conduct of a rigid evaluation of
performance.
On August 12, 1992, respondents United Harbor Pilots Association
and the Manila Pilots Association, through Capt. Alberto C. Compas,
questioned PPA-AO No. 04-92 before the Department of Transportation
and Communication, but they were informed by then DOTC Secretary
Jesus B. Garcia that the matter of reviewing, recalling or annulling PPAs
administrative issuances lies exclusively with its Board of Directors as its
governing body.
Meanwhile, on August 31, 1992, the PPA issued Memorandum
Order No. 08-92 [8] which laid down the criteria or factors to be considered
in the reappointment of harbor pilots, viz.: (1) Qualifying Factors: [9] safety
record and physical/mental medical exam report and (2) Criteria for
Evaluation: [10] promptness in servicing vessels, compliance with PPA
Pilotage Guidelines, number of years as a harbor pilot, average GRT of
vessels serviced as pilot, awards/commendations as harbor pilot, and age.
Respondents reiterated their request for the suspension of the
implementation of PPA-AO No. 04-92, but Secretary Garcia insisted on his
position that the matter was within the jurisdiction of the Board of
Directors of the PPA. Compas appealed this ruling to the Office of the
President (OP), reiterating his arguments before the DOTC.
On December 23, 1992, the OP issued an order directing the PPA to
hold in abeyance the implementation of PPA-AO No. 04-92. In its answer,
the PPA countered that said administrative order was issued in the
exercise of its administrative control and supervision over harbor pilots
under Section 6-a (viii), Article IV of P. D. No. 857, as amended, and it,
along with its implementing guidelines, was intended to restore order in
the ports and to improve the quality of port services.
On March 17, 1993, the OP, through then Assistant Executive
Secretary for Legal Affairs Renato C. Corona, dismissed the appeal/petition
and lifted the restraining order issued earlier. [11] He concluded that
PPA-AO No. 04-92 applied to all harbor pilots and, for all intents and
purposes, was not the act of Dayan, but of the PPA, which was merely
implementing Section 6 of P.D. No. 857, mandating it to control, regulate
and supervise pilotage and conduct of pilots in any port district.
On the alleged unconstitutionality and illegality of PPA-AO No.
04-92 and its implementing memoranda and circulars, Secretary Corona
opined that:
The exercise of ones profession falls within the constitutional guarantee
against wrongful deprivation of, or interference with, property rights
without due process. In the limited context of this case, PPA-AO 04-92
does not constitute a wrongful interference with, let alone a wrongful
deprivation of, the property rights of those affected thereby. As may be
noted, the issuance aims no more than to improve pilotage services by
limiting the appointment to harbor pilot positions to one year, subject to
renewal or cancellation after a rigid evaluation of the appointees
performance.
PPA-AO 04-92 does not forbid, but merely regulates, the exercise by
harbor pilots of their profession in PPAs jurisdictional area. (Emphasis
supplied)
Finally, as regards the alleged absence of ample prior consultation
before the issuance of the administrative order, Secretary Corona cited
Section 26 of P.D. No. 857, which merely requires the PPA to consult with
relevant Government agencies. Since the PPA Board of Directors is
composed of the Secretaries of the DOTC, the Department of Public Works
and Highways, the Department of Finance, and the Department of
Environment and Natural Resources, as well as the Director-General of the
National Economic Development Agency, the Administrator of the
Maritime Industry Authority (MARINA), and the private sector
representative who, due to his knowledge and expertise, was appointed
by the President to the Board, he concluded that the law has been
sufficiently complied with by the PPA in issuing the assailed administrative
order.
Consequently, respondents filed a petition for certiorari, prohibition
and injunction with prayer for the issuance of a temporary restraining
order and damages, before Branch 6 of the Regional Trial Court of Manila,
which was docketed as Civil Case No. 93-65673. On September 6, 1993,
the trial court rendered the following judgment: [12]
WHEREFORE, for all the foregoing, this Court hereby rules that:
1. Respondents (herein petitioners) have acted in excess of
jurisdiction and with grave abuse of discretion and in a
capricious, whimsical and arbitrary manner in
promulgating PPA Administrative Order 04-92 including
all its implementing Memoranda, Circulars and Orders;
2. PPA Administrative Order 04-92 and its implementing Circulars and
Orders are declared null and void;
3. The respondents are permanently enjoined from implementing PPA
Administrative Order 04-92 and its implementing Memoranda, Circulars
and Orders.
No costs.
SO ORDERED.
The court a quo pointed out that the Bureau of Customs, the
precursor of the PPA, recognized pilotage as a profession and, therefore, a
property right under Callanta v. Carnation Philippines, Inc. [13] Thus,
abbreviating the term within which that privilege may be exercised would
be an interference with the property rights of the harbor
pilots. Consequently, any withdrawal or alteration of such property right
must be strictly made in accordance with the constitutional mandate of
due process of law. This was apparently not followed by the PPA when it
did not conduct public hearings prior to the issuance of PPA-AO No. 04-92;
respondents allegedly learned about it only after its publication in the
newspapers. From this decision, petitioners elevated their case to this
Court on certiorari.
After carefully examining the records and deliberating on the
arguments of the parties, the Court is convinced that PPA-AO No. 04-92
was issued in stark disregard of respondents right against deprivation of
property without due process of law. Consequently, the instant petition
must be denied.
Section 1 of the Bill of Rights lays down what is known as the due
process clause of the Constitution, viz.:
 44
SECTION 1. No person shall be deprived of life, liberty, or
property without due process of law, x x x.
In order to fall within the aegis of this provision, two conditions
must concur, namely, that there is a deprivation and that such deprivation
is done without proper observance of due process. When one speaks of
due process of law, however, a distinction must be made between matters
of procedure and matters of substance. In essence, procedural due
process refers to the method or manner by which the law is enforced,
while substantive due process requires that the law itself, not merely the
procedures by which the law would be enforced, is fair, reasonable, and
just. [14] PPA-AO No. 04-92 must be examined in light of this distinction.
Respondents argue that due process was not observed in the
adoption of PPA-AO No. 04-92 allegedly because no hearing was
conducted whereby relevant government agencies and the pilots
themselves could ventilate their views. They are obviously referring to the
procedural aspect of the enactment. Fortunately, the Court has
maintained a clear position in this regard, a stance it has stressed in the
recent case of Lumiqued v. Hon. Exevea, [15] where it declared that (a)s
long as a party was given the opportunity to defend his interests in due
course, he cannot be said to have been denied due process of law, for this
opportunity to be heard is the very essence of due process. Moreover, this
constitutional mandate is deemed satisfied if a person is granted an
opportunity to seek reconsideration of the action or ruling complained of.
In the case at bar, respondents questioned PPA-AO No. 04-92 no
less than four times [16] before the matter was finally elevated to this
Tribunal. Their arguments on this score, however, fail to persuade. While
respondents emphasize that the Philippine Coast Guard, which issues the
licenses of pilots after administering the pilots examinations, was not
consulted, [17] the facts show that the MARINA, which took over the
licensing function of the Philippine Coast Guard, was duly represented in
the Board of Directors of the PPA. Thus, petitioners correctly argued that,
there being no matters of naval defense involved in the issuance of the
administrative order, the Philippine Coast Guard need not be consulted.[18]
Neither does the fact that the pilots themselves were not consulted
in any way taint the validity of the administrative order. As a general rule,
notice and hearing, as the fundamental requirements of procedural due
process, are essential only when an administrative body exercises its
quasi-judicial function. In the performance of its executive or legislative
functions, such as issuing rules and regulations, an administrative body
need not comply with the requirements of notice and hearing.[19]
Upon the other hand, it is also contended that the sole and
exclusive right to the exercise of harbor pilotage by pilots is a settled
issue. Respondents aver that said right has become vested and can only be
withdrawn or shortened by observing the constitutional mandate of due
process of law. Their argument has thus shifted from the procedural to
one of substance. It is here where PPA-AO No. 04-92 fails to meet the
condition set by the organic law.
There is no dispute that pilotage as a profession has taken on the
nature of a property right. Even petitioner Corona recognized this when
he stated in his March 17, 1993, decision that (t)he exercise of ones
profession falls within the constitutional guarantee against wrongful
deprivation of, or interference with, property rights without due
process. [20] He merely expressed the opinion that (i)n the limited context
of this case, PPA-AO 04-92 does not constitute a wrongful interference
with, let alone a wrongful deprivation of, the property rights of those
affected thereby, and that PPA-AO 04-92 does not forbid, but merely
regulates, the exercise by harbor pilots of their profession. As will be
presently demonstrated, such supposition is gravely erroneous and tends
to perpetuate an administrative order which is not only unreasonable but
also superfluous.
Pilotage, just like other professions, may be practiced only by duly
licensed individuals. Licensure is the granting of license especially to
practice a profession. It is also the system of granting licenses (as for
professional practice) in accordance with established standards. [21] A
license is a right or permission granted by some competent authority to
carry on a business or do an act which, without such license, would be
illegal. [22]
Before harbor pilots can earn a license to practice their profession,
they literally have to pass through the proverbial eye of a needle by taking,
not one but five examinations, each followed by actual training and
practice. Thus, the court a quo observed:
Petitioners (herein respondents) contend, and the respondents (herein
petitioners) do not deny, that here (sic) in this jurisdiction, before a person
can be a harbor pilot, he must pass five (5) government professional
examinations, namely, (1) For Third Mate and after which he must work,
train and practice on board a vessel for at least a year; (2) For Second
Mate and after which he must work, train and practice for at least a year;
(3) For Chief Mate and after which he must work, train and practice for at
least a year; (4) For a Master Mariner and after which he must work as
Captain of vessels for at least two (2) years to qualify for an examination
to be a pilot; and finally, of course, that given for pilots.
Their license is granted in the form of an appointment which allows
them to engage in pilotage until they retire at the age 70 years. This is a
vested right. Under the terms of PPA-AO No. 04-92, (a)ll existing regular
appointments which have been previously issued by the Bureau of
Customs or the PPA shall remain valid up to 31 December 1992 only, and
(a)ll appointments to harbor pilot positions in all pilotage districts shall,
henceforth, be only for a term of one (1) year from date of effectivity
subject to renewal or cancellation by the Authority after conduct of a rigid
evaluation of performance.
It is readily apparent that PPA-AO No. 04-92 unduly restricts the
right of harbor pilots to enjoy their profession before their compulsory
retirement. In the past, they enjoyed a measure of security knowing that
after passing five examinations and undergoing years of on-the-job
training, they would have a license which they could use until their
retirement, unless sooner revoked by the PPA for mental or physical
unfitness. Under the new issuance, they have to contend with an annual
cancellation of their license which can be temporary or permanent
depending on the outcome of their performance evaluation. Veteran
pilots and neophytes alike are suddenly confronted with one-year terms
which ipso facto expire at the end of that period.Renewal of their license
is now dependent on a rigid evaluation of performance which is
conducted only after the license has already been cancelled. Hence, the
use of the term renewal. It is this pre-evaluation cancellation which
primarily makes PPA-AO No. 04-92 unreasonable and constitutionally
infirm. In a real sense, it is a deprivation of property without due process
of law.
The Court notes that PPA-AO No. 04-92 and PPA-MO No. 08-92 are
already covered by PPA-AO No. 03-85, which is still
operational. Respondents are correct in pointing out that PPA-AO No.
04-92 is a surplusage [23] and, therefore, an unnecessary
enactment. PPA-AO 03-85 is a comprehensive order setting forth the
Rules and Regulations Governing Pilotage Services, the Conduct of Pilots
and Pilotage Fees in Philippine Ports. It provides, inter alia, for the
qualification, appointment, performance evaluation, disciplining and
 45
removal of harbor pilots - matters which are duplicated in PPA-AO No.
04-92 and its implementing memorandum order. Since it adds nothing
new or substantial, PPA-AO No. 04-92 must be struck down.
Finally, respondents insinuation that then PPA General Manager
Dayan was responsible for the issuance of the questioned administrative
order may have some factual basis; after all, power and authority were
vested in his office to propose rules and regulations. The trial courts
finding of animosity between him and private respondents might likewise
have a grain of truth.Yet the number of cases filed in court between
private respondents and Dayan, including cases which have reached this
Court, cannot certainly be considered the primordial reason for the
issuance of PPA-AO No. 04-92. In the absence of proof to the
contrary, Dayan should be presumed to have acted in accordance with law
and the best of professional motives. In any event, his actions are certainly
always subject to scrutiny by higher administrative authorities.
WHEREFORE, the instant petition is hereby DISMISSED and the
assailed decision of the court a quo dated September 6, 1993, in Civil Case
No. 93-65673 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-63915 December 29, 1986
LORENZO M. TAÑ;ADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF
ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
(MABINI), petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the
President, HON. JOAQUIN VENUS, in his capacity as Deputy Executive
Assistant to the President, MELQUIADES P. DE LA CRUZ, ETC., ET
AL., respondents.
RESOLUTION
CRUZ, J.:
Due process was invoked by the petitioners in demanding the disclosure
of a number of presidential decrees which they claimed had not been
published as required by law. The government argued that while
publication was necessary as a rule, it was not so when it was "otherwise
provided," as when the decrees themselves declared that they were to
become effective immediately upon their approval. In the decision of this
case on April 24, 1985, the Court affirmed the necessity for the publication
of some of these decrees, declaring in the dispositive portion as follows:
WHEREFORE, the Court hereby orders respondents to publish in the
Official Gazette all unpublished presidential issuances which are of general
application, and unless so published, they shall have no binding force and
effect.
The petitioners are now before us again, this time to move for
reconsideration/clarification of that decision. 1Specifically, they ask the
following questions:
1. What is meant by "law of public nature" or "general applicability"?
2. Must a distinction be made between laws of general applicability and
laws which are not?
3. What is meant by "publication"?
4. Where is the publication to be made?
5. When is the publication to be made?
Resolving their own doubts, the petitioners suggest that there should be
no distinction between laws of general applicability and those which are
not; that publication means complete publication; and that the
publication must be made forthwith in the Official Gazette. 2
In the Comment 3 required of the then Solicitor General, he claimed first
that the motion was a request for an advisory opinion and should
therefore be dismissed, and, on the merits, that the clause "unless it is
otherwise provided" in Article 2 of the Civil Code meant that the
publication required therein was not always imperative; that publication,
when necessary, did not have to be made in the Official Gazette; and that
in any case the subject decision was concurred in only by three justices
and consequently not binding. This elicited a Reply 4 refuting these
arguments. Came next the February Revolution and the Court required
the new Solicitor General to file a Rejoinder in view of the supervening
events, under Rule 3, Section 18, of the Rules of Court. Responding, he
submitted that issuances intended only for the internal administration of a
government agency or for particular persons did not have to be 'Published;
that publication when necessary must be in full and in the Official Gazette;
and that, however, the decision under reconsideration was not binding
because it was not supported by eight members of this Court. 5
The subject of contention is Article 2 of the Civil Code providing as follows:
ART. 2. Laws shall take effect after fifteen days following the completion
of their publication in the Official Gazette, unless it is otherwise provided.
This Code shall take effect one year after such publication.
After a careful study of this provision and of the arguments of the parties,
both on the original petition and on the instant motion, we have come to
the conclusion and so hold, that the clause "unless it is otherwise
provided" refers to the date of effectivity and not to the requirement of
publication itself, which cannot in any event be omitted. This clause does
not mean that the legislature may make the law effective immediately
upon approval, or on any other date, without its previous publication.
Publication is indispensable in every case, but the legislature may in its
discretion provide that the usual fifteen-day period shall be shortened or
extended. An example, as pointed out by the present Chief Justice in his
separate concurrence in the original decision, 6 is the Civil Code which did
not become effective after fifteen days from its publication in the Official
Gazette but "one year after such publication." The general rule did not
apply because it was "otherwise provided. "
It is not correct to say that under the disputed clause publication may be
dispensed with altogether. The reason. is that such omission would offend
due process insofar as it would deny the public knowledge of the laws that
are supposed to govern the legislature could validly provide that a law e
effective immediately upon its approval notwithstanding the lack of
publication (or after an unreasonably short period after publication), it is
not unlikely that persons not aware of it would be prejudiced as a result
 46
and they would be so not because of a failure to comply with but simply
because they did not know of its existence, Significantly, this is not true
only of penal laws as is commonly supposed. One can think of many
non-penal measures, like a law on prescription, which must also be
communicated to the persons they may affect before they can begin to
operate.
We note at this point the conclusive presumption that every person knows
the law, which of course presupposes that the law has been published if
the presumption is to have any legal justification at all. It is no less
important to remember that Section 6 of the Bill of Rights recognizes "the
right of the people to information on matters of public concern," and this
certainly applies to, among others, and indeed especially, the legislative
enactments of the government.
The term "laws" should refer to all laws and not only to those of general
application, for strictly speaking all laws relate to the people in general
albeit there are some that do not apply to them directly. An example is a
law granting citizenship to a particular individual, like a relative of
President Marcos who was decreed instant naturalization. It surely cannot
be said that such a law does not affect the public although it
unquestionably does not apply directly to all the people. The subject of
such law is a matter of public interest which any member of the body
politic may question in the political forums or, if he is a proper party, even
in the courts of justice. In fact, a law without any bearing on the public
would be invalid as an intrusion of privacy or as class legislation or as
an ultra vires act of the legislature. To be valid, the law must invariably
affect the public interest even if it might be directly applicable only to one
individual, or some of the people only, and t to the public as a whole.
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 date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative powers
whenever the same are validly delegated by the legislature or, at present,
directly conferred by the Constitution. administrative rules and
regulations must a 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.
Accordingly, even the charter of a city must be published notwithstanding
that it applies to only a portion of the national territory and directly
affects only the inhabitants of that place. All presidential decrees must be
published, including even, say, those naming a public place after a favored
individual or exempting him from certain prohibitions or requirements.
The circulars issued by the Monetary Board must be published if they are
meant not merely to interpret but to "fill in the details" of the Central
Bank Act which that body is supposed to enforce.
However, no publication is required of the instructions issued by, say, the
Minister of Social Welfare on the case studies to be made in petitions for
adoption or the rules laid down by the head of a government agency on
the assignments or workload of his personnel or the wearing of office
uniforms. Parenthetically, municipal ordinances are not covered by this
rule but by the Local Government Code.
We agree that 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. As correctly
pointed out by the petitioners, the mere mention of the number of the
presidential decree, the title of such decree, its whereabouts (e.g., "with
Secretary Tuvera"), the supposed date of effectivity, and in a mere
supplement of the Official Gazette cannot satisfy the publication
requirement. This is not even substantial compliance. This was the manner,
incidentally, in which the General Appropriations Act for FY 1975, a
presidential decree undeniably of general applicability and interest, was
"published" by the Marcos administration. 7 The evident purpose was to
withhold rather than disclose information on this vital law.
Coming now to the original decision, it is true that only four justices were
categorically for publication in the Official Gazette 8 and that six others felt
that publication could be made elsewhere as long as the people were
sufficiently informed. 9 One reserved his vote 10 and another merely
acknowledged the need for due publication without indicating where it
should be made. 11 It is therefore necessary for the present membership
of this Court to arrive at a clear consensus on this matter and to lay down
a binding decision supported by the necessary vote.
There is much to be said of the view that the publication need not be
made in the Official Gazette, considering its erratic releases and limited
readership. Undoubtedly, newspapers of general circulation could better
perform the function of communicating, the laws to the people as such
periodicals are more easily available, have a wider readership, and come
out regularly. The trouble, though, is that this kind of publication is not the
one required or authorized by existing law. As far as we know, no
amendment has been made of Article 2 of the Civil Code. The Solicitor
General has not pointed to such a law, and we have no information that it
exists. If it does, it obviously has not yet been published.
At any rate, this Court is not called upon to rule upon the wisdom of a law
or to repeal or modify it if we find it impractical. That is not our function.
That function belongs to the legislature. Our task is merely to interpret
and apply the law as conceived and approved by the political departments
of the government in accordance with the prescribed procedure.
Consequently, we have no choice but to pronounce that under Article 2 of
the Civil Code, the publication of laws must be made in the Official Gazett
and not elsewhere, as a requirement for their effectivity after fifteen days
from such publication or after a different period provided by the
legislature.
We also hold that the publication must be made forthwith or at least as
soon as possible, to give effect to the law pursuant to the said Article 2.
There is that possibility, of course, although not suggested by the parties
that a law could be rendered unenforceable by a mere refusal of the
executive, for whatever reason, to cause its publication as required. This is
a matter, however, that we do not need to examine at this time.
Finally, the claim of the former Solicitor General that the instant motion is
a request for an advisory opinion is untenable, to say the least, and
deserves no further comment.
 47
The days of the secret laws and the unpublished decrees are over. This is
once again an open society, with all the acts of the government subject to
public scrutiny and available always to public cognizance. This has to be so
if our country is to remain democratic, with sovereignty residing in the
people and all government authority emanating from them.
Although they have delegated the power of legislation, they retain the
authority to review the work of their delegates and to ratify or reject it
according to their lights, through their freedom of expression and their
right of suffrage. This they cannot do if the acts of the legislature are
concealed.
Laws must come out in the open in the clear light of the sun instead of
skulking in the shadows with their dark, deep secrets. Mysterious
pronouncements and rumored rules cannot be recognized as binding
unless their existence and contents are confirmed by a valid publication
intended to make full disclosure and give proper notice to the people. The
furtive law is like a scabbarded saber that cannot feint parry or cut unless
the naked blade is drawn.
WHEREFORE, it is hereby declared that all laws as above defined shall
immediately upon their approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to become effective only after
fifteen days from their publication, or on another date specified by the
legislature, in accordance with Article 2 of the Civil Code.
SO ORDERED.
G.R. Nos. L-50581-50617 January 30, 1982
RUFINO V. NUÑEZ petitioner,
vs.
SANDIGANBAYAN and PEOPLE OF THE PHILIPPINES, respondents.
FERNANDO, C.J.:
In categorical and explicit language, the Constitution provided for but
did not create a special Court, the Sandiganbayan with "jurisdiction over
criminal and civil cases involving graft and corrupt practices and such
other offenses committed by public officers and employees, including
those in government-owned or controlled corporations, in relation to
their office as may be determined by law." 1 It came into existence with
the issuance in 1978 of a Presidential Decree. 2 Even under the 1935
Constitution, to be precise, in 1955, an anti-graft statute was passed, 3 to
be supplemented five years later by another act, 4 the validity of which
was upheld in Morfe v. Mutuc, 5 a 1968 decision. As set forth in the
opinion of the Court: "Nothing can be clearer therefore than that the
AntiGraft Act of 1960 like the earlier statute was precisely aimed at
curtailing and minimizing the opportunities for official corruption and
maintaining a standard of honesty in the public service. It is intended to
further promote morality in public administration. A public office must
indeed be a public trust. Nobody can cavil at its objective; the goal to be
pursued commands the assent of all. The conditions then prevailing
called for norms of such character. The times demanded such a remedial
device." 6 It should occasion no surprise, therefore, why the 1971
Constitutional Convention, with full awareness of the continuity need to
combat the evils of graft and corruption, included the above-cited
provision.
Petitioner in this certiorari and prohibition proceeding assails the validity
of the Presidential Decree creating the Sandiganbayan, He was accused
before such respondent Court of estafa through falsification of public
and commercial documents committed in connivance with his other
co-accused, all public officials, in several cases. 7 The informations were
filed respectively on February 21 and March 26, 1979. Thereafter, on
May 15 of that year, upon being arraigned, he filed a motion to quash on
constitutional and jurisdictional grounds. 8 A week later. respondent
Court denied such motion. 9 There was a motion for reconsideration filed
the next day; it met the same fate. 10 Hence this petition for certiorari
and prohibition It is the claim of petitioner that Presidential Decree No.
1486, as amended, creating the respondent Court is violative of the due
process, 11 equal protection, 12 and ex post facto 13 clauses of the
Constitution. 14
The overriding concern, made manifest in the Constitution itself, to cope
more effectively with dishonesty and abuse of trust in the public service
whether committed by government officials or not, with the essential
cooperation of the private citizens with whom they deal, cannot of itself
justify any departure from or disregard of constitutional rights. That is
beyond question. With due recognition, however, of the vigor and
persistence of counsel of petitioner 15 in his pleadings butressed by
scholarly and diligent research, the Court, equally aided in the study of
the issues raised by the exhaustive memorandum of the Solicitor
General, 16 is of the view that the invalidity of Presidential Decree No,
1486 as amended, creating respondent Court has not been
demonstrated.
The petition then cannot be granted. The unconstitutionality of such
Decree cannot be adjudged.
1. It is to be made clear that the power of the then President and Prime
Minister Ferdinand E. Marcos to create the Sandiganbayan in 1978 is not
challenged in this proceeding. While such competence under the 1973
Constitution contemplated that such an act should come from the
National Assembly, the 1976 Amendments made clear that he as
incumbent President "shall continue to exercise legislative powers until
martial law shall have been lifted. " 17 Thus, there is an affirmation of the
ruling of this Court in Aquino Jr. v. Commission on Elections 18 decided in
1975. In the language of the ponente, Justice Makasiar, it dissipated "all
doubts as to the legality of such law-making authority by the President
during the period of Martial Law, ... . 19 As the opinion went on to state:
"It is not a grant of authority to legislate, but a recognition of such
power as already existing in favor of the incumbent President during the
period of Martial Law. " 20
2. Petitioner in his memorandum invokes the guarantee of equal
protection in seeking to nullify Presidential Decree No. 1486. What does
it signify? To quote from J. M. Tuason & Co. v. Land Tenure
Administration: 21 "The Ideal situation is for the law's benefits to be
available to all, that none be placed outside the sphere of its coverage.
Only thus could chance and favor be excluded and the affairs of men
governed by that serene and impartial uniformity which is of the very
essence of the Idea of law." 22 There is recognition, however, in the
opinion that what in fact exists "cannot approximate the Ideal. Nor is the
law susceptible to the reproach that it does not take into account the
realities of the situation. The constitutional guarantee then is not to be
given a meaning that disregards what is, what does in fact exist .To
assure that the general welfare be promoted, which is the end of law, a
regulatory measure may cut into the rights to liberty and property.
Those adversely affected may under such circumstances invoke the
 48
equal protection clause only if they can show that the governmental act
assailed, far from being inspired by the attainment of the common weal
was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. " 23 Classification is thus
not ruled out, it being sufficient to quote from the Tuason decision anew
"that the laws operate equally and uniformly on all persons under
similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances which, if not
Identical, are analogous. If law be looked upon in terms of burden or
charges, those that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group equally binding
on the rest." 24
3. The premise underlying petitioner's contention on this point is set
forth in his memorandum thus: " 1. The Sandiganbayan proceedings
violates petitioner's right to equal protection, because - appeal as a
matter of right became minimized into a mere matter of discretion; -
appeal likewise was shrunk and limited only to questions of law,
excluding a review of the facts and trial evidence; and - there is only one
chance to appeal conviction, by certiorari to the Supreme Court, instead
of the traditional two chances; while all other estafa indictees are
entitled to appeal as a matter of right covering both law and facts and to
two appellate courts, i.e., first to the Court of Appeals and thereafter to
the Supreme Court." 25 ,that is hardly convincing, considering that the
classification satisfies the test announced by this Court through Justice
Laurel in People v. Vera 26 requiring that it "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. 27 To repeat, the
Constitution specifically makes mention of the creation of a special court,
the Sandiganbayan 4 precisely in response to a problem, the urgency of
which cannot be denied, namely, dishonesty in the public service. It
follows that those who may thereafter be tried by such court ought to
have been aware as far back as January 17, 1973, when the present
Constitution came into force, that a different procedure for the accused
therein, whether a private citizen as petitioner is or a public official, is
not necessarily offensive to the equal protection clause of the
Constitution. Petitioner, moreover, cannot be unaware of the ruling of
this Court in Co Chiong v. Cuaderno 28 a 1949 decision, that the general
guarantees of the Bill of Rights, included among which are the due
process of law and equal protection clauses must "give way to [a]
specific provision, " in that decision, one reserving to "Filipino citizens of
the operation of public services or utilities." 29 The scope of such a
principle is not to be constricted. It is certainly broad enough to cover
the instant situation.
4. The contention that the challenged Presidential Decree is contrary to
the ex post facto provision of the Constitution is similarly premised on
the allegation that "petitioner's right of appeal is being diluted or eroded
efficacy wise ... ." 30 A more searching scrutiny of its rationale would
demonstrate the lack of permisiveness of such an argument. The Kay
Villegas Kami 31 decision promulgated in 1970, cited by petitioner,
supplies the most recent and binding pronouncement on the matter. To
quote from the ponencia of Justice Makasiar: "An ex post facto law is
one which: (1) makes criminal an act done before the passage of the law
and which was innocent when done, and punishes such an act; (2)
aggravates a crime, or makes it greater than it was, when committed; (3)
changes the punishment and inflicts a greater punishment than the law
annexed to the crime when committed; (4) alters the legal rules of
evidences, and authorizes conviction upon less or different testimony .
than the law required at the time of the commission to regulate civil
rights and remedies only, in effect imposes penalty or deprivation of a
right for something which when done was lawful, and (6) deprives a
person accused of a crime of some lawful protection to which he has
become entitled, such as the protection of a former conviction or
acquittal, or a proclamation of amnesty." 32 Even the most careful
scrutiny of the above definition fails to sustain the claim of petitioner.
The "lawful protection" to which an accused "has become entitled" is
qualified, not given a broad scope. It hardly can be argued that the mode
of procedure provided for in the statutory right to appeal is therein
embraced. This is hardly a controversial matter. This Court has spoken in
no uncertain terms. In People v. Vilo 33 a 1949 decision, speaking through
the then Justice, later Chief Justice Paras, it made clear that seven of the
nine Justices then composing this Court, excepting only
the ponente himself and the late Justice Perfecto, were of the opinion
that Section 9 of the Judiciary Act of 1948, doing away with the
requirement of unanimity under Article 47 of the Revised Penal Code
with eight votes sufficing for the imposition of the death sentence, does
not suffer from any constitutional infirmity. For them its applicability to
crimes committed before its enactment would not make the law ex post
facto.
5. It may not be amiss to pursue the subject further. The first
authoritative exposition of what is prohibited by the ex post facto clause
is found in Mekin v. Wolfe, 34 decided in 1903. Thus: "An ex post
facto law has been defined as one - (a) Which makes an action done
before the passing of the law and which was innocent when done
criminal, and punishes such action; or (b) Which aggravates a crime or
makes it greater than it was when committed; or (c) Which changes the
punishment and inflicts a greater punishment than the law annexed to
the crime when it was committed; or (d) Which alters the legal rules of
evidence and receives less or different testimony than the law required
at the time of the commission of the offense in order to convict the
defendant. " 35 There is relevance to the next paragraph of the opinion of
Justice Cooper: "The case clearly does not come within this definition,
nor can it be seen in what way the act in question alters the situation of
petitioner to his disadvantage. It gives him, as well as the Government,
the benefit of the appeal, and is intended
First Instance may commit error in his favor and wrongfully discharge
him appears to be the only foundation for the claim. A person can have
no vested right in such a possibility. 36
6. Mekin v. Wolfe is traceable to Calder v. Bull, 37 a 1798 decision of the
United States Supreme Court. Even the very language as to what falls
with the category of this provision is well-nigh Identical. Thus: "I will
state what laws I consider ex post facto laws, within the words and the
intent of the prohibition. Ist. Every law that makes an action done before
the passing of the law, and which was innocent when done, criminal;
and punishes such action. 2nd. Every law that aggravates a crime, or
makes it greater than it was, when committed. 3rd. Every law that
changes the punishment, and inflicts a greater punishment, than the law
annexed to the crime, when committed. 4th Every law that alters the
legal rules of evidence, and receives less, or different, testimony, than
the law required at the time of the commission of the offense, in order
to convict the offender. All these, and similar laws, are manifestly unjust
and oppressive." 38 The opinion of Justice Chase who spoke for the
United States Supreme Court went on to state: "The expressions 'ex post
facto laws,' are technical, they had been in use long before the
Revolution, and had acquired an appropriate meaning, by legislators,
 49
lawyers, and authors. The celebrated and judicious Sir William
Blackstone in his commentaries, considers an ex post facto law precisely
in the same light I have done. His opinion is confirmed by his successor,
Mr. Wooddeson and by the author of the Federalist, who I esteem
superior to both, for his extensive and accurate knowledge of the true
principle of government. " 39
7. Petitioner relies on Thompson v. Utaha. 40 As it was decided by the
American Supreme Court in April of 1898 - the very same year when the
Treaty of Paris, by virtue of which, American sovereignty over the
Philippines was acquired - it is understandable why he did so. Certainly,
the exhaustive opinion of the first Justice Harlan, as was mentioned by
an author, has a cutting edge, but it cuts both ways. It also renders clear
why the obstacles to declaring unconstitutional the challenged
Presidential Decree are well-nigh insuperable. After a review of the
previous pronouncements of the American Supreme Court on this
subject, Justice Harlan made this realistic appraisal: "The difficulty is not
so much as to the soundness of the general rule that an accused has no
vested right in particular modes of procedure as in determining whether
particular statutes by their operation take from an accused any right that
was regarded, at the time of the adoption of the constitution, as vital for
the protection of life and liberty, and which he enjoyed at the time of
the commission of the offense charged against him." 41 An 1894 decision
of the American Supreme Court, Duncan v. Missouri 42 was also cited by
petitioner, The opinion of the then Chief Justice Fuller, speaking for the
Court, is to the same effect. It was categorically stated that "the
prescribing of different modes of procedure and the abolition of courts
and the creation of new ones, leaving untouched all the substantial
protections with which the existing laws surrounds the person accused
of crime, are not considered within the constitutional inhibition." 43
8. Even from the standpoint then of the American decisions relied upon,
it cannot be successfully argued that there is a dilution of the right to
appeal. Admittedly under Presidential Decree No. 1486, there is no
recourse to the Court of Appeals, the review coming from this Court. The
test as to whether the ex post facto clause is disregarded, in the
language of Justice Harlan in the just-cited Thompson v. Utah decision
taking "from an accused any right that was regarded, at the time of the
adoption of the constitution as vital for the protection of life and liberty,
and which he enjoyed at the time of the commission of the offense
charged against him." The crucial words are "vital for the protection of
life and liberty" of a defendant in a criminal case. Would the omission of
the Court of Appeals as an intermediate tribunal deprive petitioner of a
right vital to the protection of his liberty? The answer must be in the
negative. In the first place, his innocence or guilt is passed upon by the
three-judge court of a division of respondent Court. Moreover, a
unanimous vote is required, failing which "the Presiding Justice shall
designate two other justices from among the members of the Court to
sit temporarily with them, forming a division of five justices, and the
concurrence of a majority of such division shall be necessary for
rendering judgment. " 44 Then if convicted, this Court has the duty if he
seeks a review to see whether any error of law was committed to justify
a reversal of the judgment. Petitioner makes much, perhaps excessively
so as is the wont of advocates, of the fact that there is no review of the
facts. What Cannot be too sufficiently stressed is that this Court in
determining whether or not to give due course to the petition for review
must be convinced that the constitutional presumption of
innocence 45 has been overcome. In that sense, it cannot be said that on
the appellate level there is no way of scrutinizing whether the quantum
of evidence required for a finding of guilt has been satisfied. The
standard as to when there is proof of such weight to justify a conviction
is set forth in People v. Dramayo. 46 Thus: "Accusation is not, according
to the fundamental law, as synonymous with guilt. It is incumbent on
the prosecution to demonstrate that culpability lies. Appellants were not
even called upon then to offer evidence on their behalf. Their freedom is
forfeit only if the requisite quantum of proof necessary for conviction be
in existence. Their guilt must be shown beyond reasonable doubt. To
such a standard, this Court has always been committed. There is need,
therefore, for the most careful scrutiny of the testimony of the state,
both oral and documentary, independently of whatever defense, is
offered by the accused. Only if the judge below and thereafter the
appellate tribunal could arrive at a conclusion that the crime had been
committed precisely by the person on trial under such an exacting test
should the sentence be one of conviction. It is thus required that every
circumstance favoring his innocence be duly taken into account. The
proof against him must survive the test of reason; the strongest
suspicion must not be permitted to sway judgment. The conscience must
be satisfied that on the defendant could be laid the responsibility for the
offense charged: that not only did he perpetrate the act but that it
amounted to a crime. What is required then is moral certainty." 47 This
Court has repeatedly reversed convictions on a showing that this
fundamental and basic right to De presumed innocent has been
disregarded. 48 It does seem farfetched and highly unrealistic to conclude
that the omission of the Court of Appeals as a reviewing authority
results in the loss "vital protection" of liberty.
9. The argument based on denial of due process has much less to
recommend it. In the exhaustive forty-two page memorandum of
petitioner, only four and a half pages were devoted to its discussion.
There is the allegation of lack of fairness. Much is made of what is
characterized as "the tenor and thrust" of the leading American Supreme
Court decision, Snyder v. Massachusetts. 49 Again this citation cuts both
ways. With his usual felicitous choice of words, Justice Cardozo, who
penned the opinion, emphasized: "The law, as we have seen, is sedulous
in maintaining for a defendant charged with crime whatever forms of
procedure are of the essence of an opportunity to defend. Privileges so
fundamental as to be inherent in every concept of a fair trial that could
be acceptable to the thought of reasonable men will be kept inviolate
and inviolable, however crushing may be the pressure of incriminating
proof. But justice, though due to the accused, is due to the accuser also,
The concept of fairness must not be strained till it is narrowed to a
filament. We are to keep the balance true." 50 What is required for
compliance with the due process mandate in criminal proceedings? In
Arnault v. Pecson, 51 this Court with Justice Tuason as ponente, succinctly
Identified it with "a fair and impartial trial and reasonable opportunity
for the preparation of defense." 52 In criminal proceedings then, due
process is satisfied if the accused is "informed as to why he is proceeded
against and what charge he has to meet, with his conviction being made
to rest on evidence that is not tainted with falsity after full opportunity
for him to rebut it and the sentence being imposed in accordance with a
valid law. It is assumed, of course, that the court that rendered the
decision is one of competent jurisdiction." 53 The above formulation is a
reiteration of what was decided by the American Supreme Court in a
case of Philippine origin, Ong Chang Wing v. United States 54 decided
during the period of American rule, 1910 to be precise. Thus: "This court
has had frequent occasion to consider the requirements of due process
of law as applied to criminal procedure, and, generally speaking, it may
be said that if an accused has been heard in a court of competent
jurisdiction, and proceeded against under the orderly processes of law,
and only punished after inquiry and investigation, upon notice to him,
with an opportunity to be heard, and a judgment awarded within the
authority of a constitutional law, then he has had due process of law." 55
 50

10. This Court holds that petitioner has been unable to make a case ya han dejado deser empleados suyos por terminacion del contrato en
calling for a declaration of unconstitutionality of Presidential Decree No. virtud del paro.
1486 as amended by Presidential Decree No. 1606. The decision does not
go as far as passing on any question not affecting the right of petitioner The respondent National Labor Union, Inc., on the other hand, prays for
to a trial with all the safeguards of the Constitution. It is true that other the vacation of the judgement rendered by the majority of this Court and
Sections of the Decree could have been worded to avoid any the remanding of the case to the Court of Industrial Relations for a new
constitutional objection. As of now, however, no ruling is called for. The trial, and avers:
view is given expression in the concurring and dissenting opinion of
Justice Makasiar that in such a case to save the Decree from the dire fate
1. That Toribio Teodoro's claim that on September 26, 1938, there was
of invalidity, they must be construed in such a way as preclude any
shortage of leather soles in ANG TIBAY making it necessary for him to
possible erosion on the powers vested in this Court by the Constitution.
temporarily lay off the members of the National Labor Union Inc., is
That is a proposition too plain to be contested. It commends itself for
entirely false and unsupported by the records of the Bureau of Customs
approval. Nor should there be any doubt either that a review by
and the Books of Accounts of native dealers in leather.
certiorari of a decision of conviction by the Sandiganbayan calls for strict
observance of the constitutional presumption of innocence.
2. That the supposed lack of leather materials claimed by Toribio Teodoro
was but a scheme to systematically prevent the forfeiture of this bond
WHEREFORE, the petition is dismissed. No costs.
despite the breach of his CONTRACT with the Philippine Army.

G.R. No. L-46496 February 27, 1940

3. That Toribio Teodoro's letter to the Philippine Army dated September
29, 1938, (re supposed delay of leather soles from the States) was but a
ANG TIBAY, represented by TORIBIO TEODORO, manager and propietor, scheme to systematically prevent the forfeiture of this bond despite the
and breach of his CONTRACT with the Philippine Army.
NATIONAL WORKERS BROTHERHOOD, petitioners,
vs.
4. That the National Worker's Brotherhood of ANG TIBAY is a company or
THE COURT OF INDUSTRIAL RELATIONS and NATIONAL LABOR UNION,
employer union dominated by Toribio Teodoro, the existence and
INC., respondents.
functions of which are illegal. (281 U.S., 548, petitioner's printed
memorandum, p. 25.)
Office of the Solicitor-General Ozaeta and Assistant Attorney Barcelona for
the Court of Industrial Relations.
5. That in the exercise by the laborers of their rights to collective
Antonio D. Paguia for National Labor Unon.
bargaining, majority rule and elective representation are highly essential
Claro M. Recto for petitioner "Ang Tibay".
and indispensable. (Sections 2 and 5, Commonwealth Act No. 213.)
Jose M. Casal for National Workers' Brotherhood.

6. That the century provisions of the Civil Code which had been (the)
LAUREL, J.:
principal source of dissensions and continuous civil war in Spain cannot
and should not be made applicable in interpreting and applying the
The Solicitor-General in behalf of the respondent Court of Industrial salutary provisions of a modern labor legislation of American origin where
Relations in the above-entitled case has filed a motion for reconsideration the industrial peace has always been the rule.
and moves that, for the reasons stated in his motion, we reconsider the
following legal conclusions of the majority opinion of this Court:
7. That the employer Toribio Teodoro was guilty of unfair labor practice
for discriminating against the National Labor Union, Inc., and unjustly
1. Que un contrato de trabajo, asi individual como colectivo, sin termino favoring the National Workers' Brotherhood.
fijo de duracion o que no sea para una determinada, termina o bien por
voluntad de cualquiera de las partes o cada vez que ilega el plazo fijado
8. That the exhibits hereto attached are so inaccessible to the respondents
para el pago de los salarios segun costumbre en la localidad o cunado se
that even with the exercise of due diligence they could not be expected to
termine la obra;
have obtained them and offered as evidence in the Court of Industrial
Relations.
2. Que los obreros de una empresa fabril, que han celebrado contrato, ya
individual ya colectivamente, con ell, sin tiempo fijo, y que se han visto
9. That the attached documents and exhibits are of such far-reaching
obligados a cesar en sus tarbajos por haberse declarando paro forzoso en
importance and effect that their admission would necessarily mean the
la fabrica en la cual tarbajan, dejan de ser empleados u obreros de la
modification and reversal of the judgment rendered herein.
misma;

3. Que un patrono o sociedad que ha celebrado un contrato colectivo de
trabajo con sus osbreros sin tiempo fijo de duracion y sin ser para una
obra determiminada y que se niega a readmitir a dichos obreros que
cesaron como consecuencia de un paro forzoso, no es culpable de practica
injusta in incurre en la sancion penal del articulo 5 de la Ley No. 213 del
Commonwealth, aunque su negativa a readmitir se deba a que dichos
obreros pertenecen a un determinado organismo obrero, puesto que tales
The petitioner, Ang Tibay, has filed an opposition both to the motion for
reconsideration of the respondent National Labor Union, Inc.
In view of the conclusion reached by us and to be herein after stead with
reference to the motion for a new trial of the respondent National Labor
Union, Inc., we are of the opinion that it is not necessary to pass upon the
motion for reconsideration of the Solicitor-General. We shall proceed to
dispose of the motion for new trial of the respondent labor union. Before
 51
doing this, however, we deem it necessary, in the interest of orderly
procedure in cases of this nature, in interest of orderly procedure in cases
of this nature, to make several observations regarding the nature of the
powers of the Court of Industrial Relations and emphasize certain guiding
principles which should be observed in the trial of cases brought before it.
We have re-examined the entire record of the proceedings had before the
Court of Industrial Relations in this case, and we have found no substantial
evidence that the exclusion of the 89 laborers here was due to their union
affiliation or activity. The whole transcript taken contains what transpired
during the hearing and is more of a record of contradictory and conflicting
statements of opposing counsel, with sporadic conclusion drawn to suit
their own views. It is evident that these statements and expressions of
views of counsel have no evidentiary value.
The Court of Industrial Relations is a special court whose functions are
specifically stated in the law of its creation (Commonwealth Act No. 103).
It is more an administrative than a part of the integrated judicial system of
the nation. It is not intended to be a mere receptive organ of the
Government. Unlike a court of justice which is essentially passive, acting
only when its jurisdiction is invoked and deciding only cases that are
presented to it by the parties litigant, the function of the Court of
Industrial Relations, as will appear from perusal of its organic law, is more
active, affirmative and dynamic. It not only exercises judicial or
quasi-judicial functions in the determination of disputes between
employers and employees but its functions in the determination of
disputes between employers and employees but its functions are far more
comprehensive and expensive. It has jurisdiction over the entire
Philippines, to consider, investigate, decide, and settle any question,
matter controversy or dispute arising between, and/or affecting
employers and employees or laborers, and regulate the relations between
them, subject to, and in accordance with, the provisions of
Commonwealth Act No. 103 (section 1). It shall take cognizance or
purposes of prevention, arbitration, decision and settlement, of any
industrial or agricultural dispute causing or likely to cause a strike or
lockout, arising from differences as regards wages, shares or
compensation, hours of labor or conditions of tenancy or employment,
between landlords and tenants or farm-laborers, provided that the
number of employees, laborers or tenants of farm-laborers involved
exceeds thirty, and such industrial or agricultural dispute is submitted to
the Court by the Secretary of Labor or by any or both of the parties to the
controversy and certified by the Secretary of labor as existing and proper
to be by the Secretary of Labor as existing and proper to be dealth with by
the Court for the sake of public interest. (Section 4, ibid.) It shall, before
hearing the dispute and in the course of such hearing, endeavor to
reconcile the parties and induce them to settle the dispute by amicable
agreement. (Paragraph 2, section 4, ibid.) When directed by the President
of the Philippines, it shall investigate and study all industries established in
a designated locality, with a view to determinating the necessity and
fairness of fixing and adopting for such industry or locality a minimum
wage or share of laborers or tenants, or a maximum "canon" or rental to
be paid by the "inquilinos" or tenants or less to landowners. (Section
5, ibid.) In fine, it may appeal to voluntary arbitration in the settlement of
industrial disputes; may employ mediation or conciliation for that purpose,
or recur to the more effective system of official investigation and
compulsory arbitration in order to determine specific controversies
between labor and capital industry and in agriculture. There is in reality
here a mingling of executive and judicial functions, which is a departure
from the rigid doctrine of the separation of governmental powers.
In the case of Goseco vs. Court of Industrial Relations et al., G.R. No. 46673,
promulgated September 13, 1939, we had occasion to joint out that the
Court of Industrial Relations et al., G. R. No. 46673, promulgated
September 13, 1939, we had occasion to point out that the Court of
Industrial Relations is not narrowly constrained by technical rules of
procedure, and the Act requires it to "act according to justice and equity
and substantial merits of the case, without regard to technicalities or legal
forms and shall not be bound by any technicalities or legal forms and shall
not be bound by any technical rules of legal evidence but may inform its
mind in such manner as it may deem just and equitable." (Section 20,
Commonwealth Act No. 103.) It shall not be restricted to the specific relief
claimed or demands made by the parties to the industrial or agricultural
dispute, but may include in the award, order or decision any matter or
determination which may be deemed necessary or expedient for the
purpose of settling the dispute or of preventing further industrial or
agricultural disputes. (section 13, ibid.) And in the light of this legislative
policy, appeals to this Court have been especially regulated by the rules
recently promulgated by the rules recently promulgated by this Court to
carry into the effect the avowed legislative purpose. The fact, however,
that the Court of Industrial Relations may be said to be free from the
rigidity of certain procedural requirements does not mean that it can, in
justifiable cases before it, entirely ignore or disregard the fundamental
and essential requirements of due process in trials and investigations of an
administrative character. There are primary rights which must be
respected even in proceedings of this character:
(1) The first of these rights is 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. In the language of Chief Hughes,
in Morgan v. U.S., 304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed. 1129, "the
liberty and property of the citizen shall be protected by the rudimentary
requirements of fair play.
(2) Not only must the party be given an opportunity to present his case
and to adduce evidence tending to establish the rights which he asserts
but the tribunal must consider the evidence presented. (Chief Justice
Hughes in Morgan v. U.S. 298 U.S. 468, 56 S. Ct. 906, 80 law. ed. 1288.) In
the language of this court in Edwards vs. McCoy, 22 Phil., 598, "the right to
adduce evidence, without the corresponding duty on the part of the board
to consider it, is vain. Such right is conspicuously futile if the person or
persons to whom the evidence is presented can thrust it aside without
notice or consideration."
(3) "While the duty to deliberate does not impose the obligation to decide
right, it does imply a necessity which cannot be disregarded, namely, that
of having something to support it is a nullity, a place when directly
attached." (Edwards vs. McCoy, supra.) This principle emanates from the
more fundamental is contrary to the vesting of unlimited power anywhere.
Law is both a grant and a limitation upon power.
(4) Not only must there be some evidence to support a finding or
conclusion (City of Manila vs. Agustin, G.R. No. 45844, promulgated
November 29, 1937, XXXVI O. G. 1335), but the evidence must be
"substantial." (Washington, Virginia and Maryland Coach Co. v. national
labor Relations Board, 301 U.S. 142, 147, 57 S. Ct. 648, 650, 81 Law. ed.
965.) It means such relevant evidence as a reasonable mind accept as
adequate to support a conclusion." (Appalachian Electric Power v.
National Labor Relations Board, 4 Cir., 93 F. 2d 985, 989; National Labor
Relations Board v. Thompson Products, 6 Cir., 97 F. 2d 13, 15;
Ballston-Stillwater Knitting Co. v. National Labor Relations Board, 2 Cir., 98
F. 2d 758, 760.) . . . The statute provides that "the rules of evidence
prevailing in courts of law and equity shall not be controlling.' The obvious
purpose of this and similar provisions is to free administrative boards from
the compulsion of technical rules so that the mere admission of matter
 52
which would be deemed incompetent inn judicial proceedings would not
invalidate the administrative order. (Interstate Commerce Commission v.
Baird, 194 U.S. 25, 44, 24 S. Ct. 563, 568, 48 Law. ed. 860; Interstate
Commerce Commission v. Louisville and Nashville R. Co., 227 U.S. 88, 93
33 S. Ct. 185, 187, 57 Law. ed. 431; United States v. Abilene and Southern
Ry. Co. S. Ct. 220, 225, 74 Law. ed. 624.) But this assurance of a desirable
flexibility in administrative procedure does not go far as to justify orders
without a basis in evidence having rational probative force. Mere
uncorroborated hearsay or rumor does not constitute substantial
evidence. (Consolidated Edison Co. v. National Labor Relations Board, 59 S.
Ct. 206, 83 Law. ed. No. 4, Adv. Op., p. 131.)"
(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. (Interstate Commence Commission vs. L. & N. R. Co., 227 U.S. 88,
33 S. Ct. 185, 57 Law. ed. 431.) Only by confining the administrative
tribunal to the evidence disclosed to the parties, can the latter be
protected in their right to know and meet the case against them. It should
not, however, detract from their duty actively to see that the law is
enforced, and for that purpose, to use the authorized legal methods of
securing evidence and informing itself of facts material and relevant to the
controversy. Boards of inquiry may be appointed for the purpose of
investigating and determining the facts in any given case, but their report
and decision are only advisory. (Section 9, Commonwealth Act No. 103.)
The Court of Industrial Relations may refer any industrial or agricultural
dispute or any matter under its consideration or advisement to a local
board of inquiry, a provincial fiscal. a justice of the peace or any public
official in any part of the Philippines for investigation, report and
recommendation, and may delegate to such board or public official such
powers and functions as the said Court of Industrial Relations may deem
necessary, but such delegation shall not affect the exercise of the Court
itself of any of its powers. (Section 10, ibid.)
(6) The Court of Industrial Relations or any of its judges, therefore, 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. It may be that the volume of work is such that it is literally
Relations personally to decide all controversies coming before them. In
the United States the difficulty is solved with the enactment of statutory
authority authorizing examiners or other subordinates to render final
decision, with the right to appeal to board or commission, but in our case
there is no such statutory authority.
(7) The Court of Industrial Relations should, in all controversial questions,
render its decision in such a manner that the parties to the proceeding can
know the various issues involved, and the reasons for the decision
rendered. The performance of this duty is inseparable from the authority
conferred upon it.
In the right of the foregoing fundamental principles, it is sufficient to
observe here that, except as to the alleged agreement between the Ang
Tibay and the National Worker's Brotherhood (appendix A), the record is
barren and does not satisfy the thirst for a factual basis upon which to
predicate, in a national way, a conclusion of law.
This result, however, does not now preclude the concession of a new trial
prayed for the by respondent National Labor Union, Inc., it is alleged that
"the supposed lack of material claimed by Toribio Teodoro was but a
scheme adopted to systematically discharged all the members of the
National Labor Union Inc., from work" and this avernment is desired to be
proved by the petitioner with the "records of the Bureau of Customs and
the Books of Accounts of native dealers in leather"; that "the National
Workers Brotherhood Union of Ang Tibay is a company or employer union
dominated by Toribio Teodoro, the existence and functions of which are
illegal." Petitioner further alleges under oath that the exhibits attached to
the petition to prove his substantial avernments" are so inaccessible to
the respondents that even within the exercise of due diligence they could
not be expected to have obtained them and offered as evidence in the
Court of Industrial Relations", and that the documents attached to the
petition "are of such far reaching importance and effect that their
admission would necessarily mean the modification and reversal of the
judgment rendered herein." We have considered the reply of Ang Tibay
and its arguments against the petition. By and large, after considerable
discussions, we have come to the conclusion that the interest of justice
would be better served if the movant is given opportunity to present at
the hearing the documents referred to in his motion and such other
evidence as may be relevant to the main issue involved. The legislation
which created the Court of Industrial Relations and under which it acts is
new. The failure to grasp the fundamental issue involved is not entirely
attributable to the parties adversely affected by the result. Accordingly,
the motion for a new trial should be and the same is hereby granted, and
the entire record of this case shall be remanded to the Court of Industrial
Relations, with instruction that it reopen the case, receive all such
evidence as may be relevant and otherwise proceed in accordance with
the requirements set forth hereinabove. So ordered.
Avanceña, C. J., Villa-Real, Imperial, Diaz, Concepcion and Moran, JJ.,
concur.
G.R. No. 93891 March 11, 1991
POLLUTION ADJUDICATION BOARD, petitioner
vs.
COURT OF APPEALS and SOLAR TEXTILE FINISHING
CORPORATION, respondents.
Oscar A. Pascua and Charemon Clio L. Borre for petitioner.
Leonardo A. Aurelio for respondent Solar Textile Finishing Corp.
RESOLUTION
FELICIANO, J.:
Petitioner Pollution Adjudication Board ("Board") asks us to review the
Decision and Resolution promulgated on 7 February 1990 and 10 May
1990, respectively, by the Court of Appeals in C.A.-G R. No. SP 18821
entitled "Solar Textile Finishing Corporation v. Pollution Adjudication
Board." In that Decision and Resolution, the Court of Appeals reversed an
order of the Regional Trial Court, Quezon City, Branch 77, in Civil Case No.
Q-89-2287 dismissing private respondent Solar Textile Finishing
Corporation's ("Solar") petition for certiorari and remanded the case to
the trial court for further proceedings.
On 22 September 1988, petitioner Board issued an ex parte Order
directing Solar immediately to cease and desist from utilizing its
wastewater pollution source installations which were discharging
untreated wastewater directly into a canal leading to the adjacent
 53
Tullahan-Tinejeros River. The Order signed by Hon. Fulgencio Factoran, Jr.,
as Board Chairman, reads in full as follows:
Respondent, Solar Textile Finishing Corporation with plant and place of
business at 999 General Pascual Avenue, Malabon, Metro Manila is
involved in bleaching, rinsing and dyeing textiles with wastewater of about
30 gpm. being directly discharged untreated into the sewer. Based on
findings in the Inspections conducted on 05 November 1986 and 15
November 1986, the volume of untreated wastewater discharged in the
final out fall outside of the plant's compound was even greater. The result
of inspection conducted on 06 September 1988 showed that respondent's
Wastewater Treatment Plant was noted unoperational and the combined
wastewater generated from its operation was about 30 gallons per minute
and 80% of the wastewater was being directly discharged into a drainage
canal leading to the Tullahan-Tinejeros River by means of a by-pass and
the remaining 20% was channelled into the plant's existing Wastewater
Treatment Plant (WTP). Result of the analyses of the sample taken from
the by-pass showed that the wastewater is highly pollutive in terms of
Color units, BOD and Suspended Solids, among others. These acts of
respondent in spite of directives to comply with the requirements are
clearly in violation of Section 8 of Presidential Decree No. 984 and Section
103 of its Implementing Rules and Regulations and the 1982 Effluent
Regulations.
WHEREFORE, pursuant to Section 7 of P.D. 984 and Section 38 of its
Implementing Rules and Regulations, respondent is hereby ordered to
cease and desist from utilizing its wastewater pollution source installation
and discharging its untreated wastewater directly into the canal leading to
the Tullahan-Tinejeros River effective immediately upon receipt hereof
and until such time when it has fully complied with all the requirements
and until further orders from this Board.
SO ORDERED.1
We note that the above Order was based on findings of several
inspections of Solar's plant:
a. inspections conducted on 5 November 1986 and 12 November 1986 by
the National Pollution Control Commission ("NPCC"), the predecessor of
the Board ;2 and
b. the inspection conducted on 6 September 1988 by the Department of
Environment and Natural Resources ("DENR").
The findings of these two (2) inspections were that Solar's wastewater
treatment plant was non-operational and that its plant generated about
30 gallons per minute of wastewater, 80% of which was being directly
discharged into a drainage canal leading to the Tullahan-Tinejeros River.
The remaining 20% of the wastewater was being channeled through
Solar's non-operational wastewater treatment plant. Chemical analysis of
samples of Solar's effluents showed the presence of pollutants on a level
in excess of what was permissible under P.D. No. 984 and its
Implementing Regulations.
A copy of the above Order was received by Solar on 26 September 1988. A
Writ of Execution issued by the Board was received by Solar on 31 March
1989.
Meantime, Solar filed a motion for reconsideration/appeal with prayer for
stay of execution of the Order dated 22 September 1988. Acting on this
motion, the Board issued an Order dated 24 April 1989 allowing Solar to
operate temporarily, to enable the Board to conduct another inspection
and evaluation of Solar's wastewater treatment facilities. In the same
Order, the Board directed the Regional Executive Director of the DENR/
NCR to conduct the inspection and evaluation within thirty (30) days.
On 21 April 1989, however, Solar went to the Regional Trial Court of
Quezon City, Branch 77, on petition for certiorari with preliminary
injunction against the Board, the petition being docketed as Civil Case No.
Q-89-2287.
On 21 July 1989, the Regional Trial Court dismissed Solar's petition upon
two (2) grounds, i.e., that appeal and not certiorari from the questioned
Order of the Board as well as the Writ of Execution was the proper
remedy, and that the Board's subsequent Order allowing Solar to operate
temporarily had rendered Solar's petition moot and academic.
Dissatisfied, Solar went on appeal to the Court of Appeals which, in the
Decision here assailed, reversed the Order of dismissal of the trial court
and remanded the case to that court for further proceedings. In addition,
the Court of Appeals declared the Writ of Execution null and void. At the
same time, the Court of Appeals said in the dispositive portion of its
Decision that:
. . .. Still and all, this decision is without prejudice to whatever action the
appellee [Board] may take relative to the projected 'inspection and
evaluation' of appellant's [Solar's] water treatment facilities.3
The Court of Appeals, in so ruling, held that certiorari was a proper
remedy since the Orders of petitioner Board may result in great and
irreparable injury to Solar; and that while the case might be moot and
academic, "larger issues" demanded that the question of due process be
settled. Petitioner Board moved for reconsideration, without success.
The Board is now before us on a Petition for Review basically arguing that:
1. its ex parte Order dated 22 September 1988 and the Writ of Execution
were issued in accordance with law and were not violative of the
requirements of due process; and
2. the ex parte Order and the Writ of Execution are not the proper
subjects of a petition for certiorari.
The only issue before us at this time is whether or not the Court of
Appeals erred in reversing the trial court on the ground that Solar had
been denied due process by the Board.
Petitioner Board claims that under P.D. No. 984, Section 7(a), it has legal
authority to issue ex parte orders to suspend the operations of an
establishment when there is prima facie evidence that such establishment
is discharging effluents or wastewater, the pollution level of which
exceeds the maximum permissible standards set by the NPCC (now, the
Board). Petitioner Board contends that the reports before it concerning
the effluent discharges of Solar into the Tullahan-Tinejeros River
provided prima facie evidence of violation by Solar of Section 5 of the
1982 Effluent Code.
Solar, on the other hand, contends that under the Board's own rules and
regulations, an ex parte order may issue only if the effluents discharged
 54

pose an "immediate threat to life, public health, safety or welfare, or to Sec. 68. Water Usage and Classification. — The quality of Philippine waters
animal and plant life." In the instant case, according to Solar, the shall be maintained in a safe and satisfactory condition according to their
inspection reports before the Board made no finding that Solar's best usages. For this purpose, all water shall be classified according to the
wastewater discharged posed such a threat. following beneficial usages:

The Court is not persuaded by Solar's contention. Section 7(a) of P.D. No. (a) Fresh Surface Water
984 authorized petitioner Board to issue ex parte cease and desist orders
under the following circumstances: Classification
Best usage

P.D. 984, Section 7, paragraph (a), provides: xxx xxx xxx

For agriculture, irrigation,
Class D livestock watering and industrial
(a) Public Hearing. . . . Provided, That whenever the Commission finds
prima facie evidence that the discharged sewage or wastes are of cooling and processing.
immediate threat to life, public health, safety or welfare, or to animal or
xxx xxx xxx
plant life, or exceeds the allowable standards set by the Commission, the
Commissioner may issue an ex-parte order directing the discontinuance of
the same or the temporary suspension or cessation of operation of the (Emphases supplied)
establishment or person generating such sewage or wastes without the
necessity of a prior public hearing. The said ex-parte order shall be
The reports on the inspections carried on Solar's wastewater treatment
immediately executory and shall remain in force until said establishment
facilities on 5 and 12 November 1986 and 6 September 1988 set forth the
or person prevents or abates the said pollution within the allowable
following Identical finding:
standards or modified or nullified by a competent court. (Emphasis
supplied)
a. For legal action in [view of] implementing rules and regulations of P.D.
No. 984 and Section 5 of the Effluent Regulations of 1982.6
We note that under the above-quoted portion of Section 7(a) of P.D. No.
984, an ex parte cease and desist order may be issued by the Board (a)
whenever the wastes discharged by an establishment pose an "immediate Placing the maximum allowable standards set in Section 5 of the Effluent
threat to life, public health, safety or welfare, or to animal or plant life," or Regulations of 1982 alongside the findings of the November 1986 and
(b) whenever such discharges or wastes exceed "the allowable standards September 1988 inspection reports, we get the following results:
set by the [NPCC]." On the one hand, it is not essential that the Board
prove that an "immediate threat to life, public health, safety or welfare, or
to animal or plant life" exists before an ex parte cease and desist order
may be issued. It is enough if the Board finds that the wastes discharged
November September
do exceed "the allowable standards set by the [NPCC]." In respect of "Inland
1986 1988
discharges of wastes as to which allowable standards have been set by the Waters
Report8 Report9
Commission, the Board may issue an ex parte cease and desist order when (Class C & D7
Station 1 Station 1
there is prima facie evidence of an establishment exceeding such
allowable standards. Where, however, the effluents or discharges have
Color in
not yet been the subject matter of allowable standards set by the Color units
platinum
Commission, then the Board may act on an ex parte basis when it finds at a) 100 a) (Apparent 250 125
cobalt
least prima facie proof that the wastewater or material involved presents Color)
units
an "immediate threat to life, public health, safety or welfare or to animal
or plant life." Since the applicable standards set by the Commission
b) pH 6-8.5 b) pH 9.3 8.7
existing at any given time may well not cover every possible or imaginable
kind of effluent or waste discharge, the general standard of an "immediate
Tempera- Temperature
threat to life, public health, safety or welfare, or to animal and plant life" c) 40 c)
ture in °C (°C)
remains necessary.
Phenols in Phenols in
Upon the other hand, the Court must assume that the extant allowable d) 0.1 d)
mg.1 mg./1.
standards have been set by the Commission or Board precisely in order to
avoid or neutralize an "immediate threat to life, public health, safety or Suspended Suspended
welfare, or to animal or plant life.'' e) solids in 75 e) solids in 340 80
mg./1. mg./1.
Section 5 of the Effluent Regulations of 19824 sets out the maximum
permissible levels of physical and chemical substances which effluents BOD in BOD (5-day)
f) 80 f) 1,100 152
from domestic wastewater treatment plants and industrial plants" must mg./1. mg./1
not exceed "when discharged into bodies of water classified as Class A, B,
C, D, SB and SC in accordance with the 1978 NPCC Rules and Regulations." oil/Grease Oil/Grease
g) 10 g)
The waters of Tullahan-Tinejeros River are classified as inland waters Class in mg./1. mg./1.
D under Section 68 of the 1978 NPCC Rules and Regulations5 which in part
provides that:
 55

Detergents Detergents for primary treatment. There was no effluent discharge [from such
h) 5 h) 2.93 collection tank].
mg./1." mg./1. MBAS

Dissolved 3. A sample from the bypass wastewater was collected for laboratory
i) oxygen, 0 analyses. Result of the analyses show that the bypass wastewater is
mg./1. polluted in terms of color units, BOD and suspended solids, among others.
(Please see attached laboratory resul .)11
Settleable
j) Matter, 0.4 1.5
From the foregoing reports, it is clear to this Court that there was at
mg./1.
least prima facie evidence before the Board that the effluents emanating
from Solar's plant exceeded the maximum allowable levels of physical and
Total Dis
chemical substances set by the NPCC and that accordingly there was
k) solved Solids 800 610
adequate basis supporting the ex parte cease and desist order issued by
mg./1.
the Board. It is also well to note that the previous owner of the plant
facility Fine Touch Finishing Corporation had been issued a Notice of
l) Total Solids 1,400 690
Violation on 20 December 1985 directing it to cease and refrain from
carrying out dyeing operations until the water treatment plant was
NTU /
m) Turbidity 70 completed and operational. Solar, the new owner, informed the NPCC of
ppm, SiO3
the acquisition of the plant on March 1986. Solar was summoned by the
NPCC to a hearing on 13 October 1986 based on the results of the
sampling test conducted by the NPCC on 8 August 1986. Petitioner Board
The November 1986 inspections report concluded that: refrained from issuing an ex parte cease and desist order until after the
November 1986 and September 1988 re-inspections were conducted and
Records of the Commission show that the plant under its previous owner, the violation of applicable standards was confirmed. In other words,
Fine Touch Finishing Corporation, was issued a Notice of Violation on 20 petitioner Board appears to have been remarkably forbearing in its efforts
December 1985 directing same to cease and desist from conducting to enforce the applicable standards vis-a-vis Solar. Solar, on the other
dyeing operation until such time the waste treatment plant is already hand, seemed very casual about its continued discharge of untreated,
completed and operational. The new owner Solar Textile Corporation pollutive effluents into the Tullahan- Tinerejos River, presumably loath to
informed the Commission of the plant acquisition thru its letter dated spend the money necessary to put its Wastewater Treatment Plant
March 1986 (sic). ("WTP") in an operating condition.

The new owner was summoned to a hearing held on 13 October 1986
based on the adverse findings during the inspection/water sampling test
conducted on 08 August 1986. As per instruction of the Legal Division a re-
inspection/sampling text should be conducted first before an appropriate
legal action is instituted; hence, this inspection.
Based on the above findings, it is clear that the new owner continuously
violates the directive of the Commission by undertaking dyeing operation
without completing first and operating its existing WTP. The analysis of
results on water samples taken showed that the untreated wastewater
from the firm pollutes our water resources. In this connection, it is
recommended that appropriate legal action be instituted immediately
against the firm. . . .10
The September 1988 inspection report's conclusions were:
1. The plant was undertaking dyeing, bleaching and rinsing operations
during the inspection. The combined wastewater generated from the said
operations was estimated at about 30 gallons per minute. About 80% of
the wastewater was traced directly discharged into a drainage canal
leading to the Tullahan-Tinejeros river by means of a bypass. The
remaining 20% was channeled into the plant's existing wastewater
treatment plant (WTP).
2. The WTP was noted not yet fully operational- some accessories were
not yet installed.1âwphi1 Only the sump pit and the holding/collecting
tank are functional but appeared seldom used. The wastewater
mentioned channeled was noted held indefinitely into the collection tank
In this connection, we note that in Technology Developers, Inc. v. Court of
appeals, et al.,12 the Court very recently upheld the summary closure
ordered by the Acting Mayor of Sta. Maria, Bulacan, of a pollution-causing
establishment, after finding that the records showed that:
1. No mayor's permit had been secured. While it is true that the matter of
determining whether there is a pollution of the environment that requires
control if not prohibition of the operation of a business is essentially
addressed to the then National Pollution Control Commission of the
Ministry of Human Settlements, now the Environmental Management
Bureau of the Department of Environment and Natural Resources, it must
be recognized that the mayor of a town has as much responsibility to
protect its inhabitants from pollution, and by virtue of his police power, he
may deny the application for a permit to operate a business or otherwise
close the same unless appropriate measures are taken to control and/or
avoid injury to the health of the residents of the community from the
emission in the operation of the business.
2. The Acting Mayor, in a letter of February l6, 1989, called the attention
of petitioner to the pollution emitted by the fumes of its plant whose
offensive odor "not only pollute the air in the locality but also affect the
health of the residents in the area," so that petitioner was ordered to stop
its operation until further orders and it was required to bring the
following:
xxx xxx xxx
(3) Region III-Department of Environment and Natural Resources
Anti-Pollution permit. (Annex A-2, petition)
 56
3. This action of the Acting Mayor was in response to the complaint of the
residents of Barangay Guyong, Sta. Maria, Bulacan, directed to the
Provincial Governor through channels (Annex A-B, petition).. . .
4. The closure order of the Acting Mayor was issued only after an
investigation was made by Marivic Guina who in her report of December 8,
1988 observed that the fumes emitted by the plant of petitioner goes
directly to the surrounding houses and that no proper air pollution device
has been installed. (Annex A-9, petition)
xxx xxx xxx
6. While petitioner was able to present a temporary permit to operate by
the then National Pollution Control Commission on December 15,1987,
the permit was good only up to May 25,1988 (Annex A-12, petition).
Petitioner had not exerted any effort to extend or validate its permit much
less to install any device to control the pollution and prevent any hazard
to the health of the residents of the community."
In the instant case, the ex parte cease and desist Order was issued not by
a local government official but by the Pollution Adjudication Board, the
very agency of the Government charged with the task of determining
whether the effluents of a particular industrial establishment comply with
or violate applicable anti-pollution statutory and regulatory provisions.
Ex parte cease and desist orders are permitted by law and regulations in
situations like that here presented precisely because stopping the
continuous discharge of pollutive and untreated effluents into the rivers
and other inland waters of the Philippines cannot be made to wait until
protracted litigation over the ultimate correctness or propriety of such
orders has run its full course, including multiple and sequential appeals
such as those which Solar has taken, which of course may take several
years. The relevant pollution control statute and implementing regulations
were enacted and promulgated in the exercise of that pervasive,
sovereign power to protect the safety, health, and general welfare and
comfort of the public, as well as the protection of plant and animal life,
commonly designated as the police power. It is a constitutional
commonplace that the ordinary requirements of procedural due process
yield to the necessities of protecting vital public interests like those here
involved, through the exercise of police power. The Board's ex parte Order
and Writ of Execution would, of course, have compelled Solar temporarily
to stop its plant operations, a state of affairs Solar could in any case have
avoided by simply absorbing the bother and burden of putting its WTP on
an operational basis. Industrial establishments are not constitutionally
entitled to reduce their capitals costs and operating expenses and to
increase their profits by imposing upon the public threats and risks to its
safety, health, general welfare and comfort, by disregarding the
requirements of anti- pollution statutes and their implementing
regulations.
It should perhaps be made clear the Court is not here saying that the
correctness of the ex parte Order and Writ of Execution may not be
contested by Solar in a hearing before the Board itself. Where the
establishment affected by an ex parte cease and desist order contests the
correctness of the prima facie findings of the Board, the Board must hold a
public hearing where such establishment would have an opportunity to
controvert the basis of such ex parteorder. That such an opportunity is
subsequently available is really all that is required by the due process
clause of the Constitution in situations like that we have here. The Board's
decision rendered after the public hearing may then be tested judicially by
an appeal to the Court of Appeals in accordance with Section 7(c) of P.D.
No. 984 and Section 42 of the Implementing Rules and Regulations. A
subsequent public hearing is precisely what Solar should have sought
instead of going to court to seek nullification of the Board's Order and
Writ of Execution and instead of appealing to the Court of Appeals. It will
be recalled the at the Board in fact gave Solar authority temporarily to
continue operations until still another inspection of its wastewater
treatment facilities and then another analysis of effluent samples could be
taken and evaluated.
Solar claims finally that the petition for certiorari was the proper remedy
as the questioned Order and Writ of Execution issued by the Board were
patent nullities. Since we have concluded that the Order and Writ of
Execution were entirely within the lawful authority of petitioner Board,
the trial court did not err when it dismissed Solar's petition for certiorari.
It follows that the proper remedy was an appeal from the trial court to the
Court of Appeals, as Solar did in fact appeal.
ACCORDINGLY, the Petition for Review is given DUE COURSE and the
Decision of the Court of Appeals dated 7 February 1990 and its Resolution
dated 10 May 1990 in A.C.-G.R. No. SP 18821 are hereby SET ASIDE. The
Order of petitioner Board dated 22 September 1988 and the Writ of
Execution, as well as the decision of the trial court dated 21 July 1989, are
hereby REINSTATED, without prejudice to the right of Solar to contest the
correctness of the basis of the Board's Order and Writ of Execution at a
public hearing before the Board.
G.R. No. 89317 May 20, 1990
ARIEL NON, REX MAGANA, ALVIN AGURA, NORMANDY OCCIANO, JORGE
DAYAON, LOURDES BANARES, BARTOLOME IBASCO, EMMANUEL BARBA,
SONNY MORENO, GIOVANI PALMA, JOSELITO VILLALON, LUIS SANTOS,
and DANIEL TORRES, petitioners,
vs.
HON. SANCHO DANES II, in his capacity as the Presiding Judge of 5th
Regional Trial Court, Br. 38, Daet, Camarines Norte; and MABINI
COLLEGES, INC., represented by its president ROMULO ADEVA and by
the chairman of the Board of Trustees, JUSTO LUKBAN, respondents.
Antonio A. Ayo Jr. and Soliman M. Santos, Jr., for petitioners
Pedro A. Venida Agustin A. Ferrer and Gil F. Echaro for private
respondents.
CORTES, J.:
Petitioners urge the Court en banc to review and reverse the doctrine laid
down in Alcuaz, et al. v. Philippine School of Business Administration, et al.,
G.R. No. 76353, May 2, 1988, 161 SCRA 7, to the effect that a college
student, once admitted by the school, is considered enrolled only for one
semester and, hence, may be refused readmission after the semester is
over, as the contract between the student and the school is deemed
terminated.
Petitioners, students in private respondent Mabini Colleges, Inc. in Daet,
Camarines Norte, were not allowed to re-enroll by the school for the
academic year 1988-1989 for leading or participating in student mass
actions against the school in the preceding semester. The subject of the
protests is not, however, made clear in the pleadings.
 57

Petitioners filed a petition in the court a quo seeking their readmission or
re-enrollment to the school, but the trial court dismissed the petition in an
order dated August 8, 1988; the dispositive portion of which reads:
WHEREFORE, premises considered, and the fact that the ruling in
the Alcuaz vs. PSBA is exactly on the point at issue in this case but the
authority of the school regarding admission of students, save as a matter
of compassionate equity — when any of the petitioners would, at the
least, qualify for re-enrollment, this petition is hereby DISMISSED.
SO ORDERED. [Rollo, p. 12-A.]
A motion for reconsideration was filed, but this was denied by the trial
court on February 24, 1989 in this wise:
Perhaps many will agree with the critical comment of Joaquin G. Bernas
S.J., and that really there must be a better way of treating students and
teachers than the manner ruled (not suggested) by the Supreme Court,
the Termination of Contract at the end of the semester, that is.
xxx xxx xxx
3. I will respect my Alma Matter the Mabini College, which I represent and
see to it that I conduct myself in such a manner that the college wig not be
put to a bad light;
xxx xxx xxx
9. I will not release false or unauthorized announcement which tend to
cause confusion or disrupt the normal appreciation of the college.
Moreover, a clear legal right must first be established for a petition for
mandamus to prosper (Sec. 3, Rule 65). It being a mere privilege and not a
legal right for a student to be enrolled or reenrolled, respondent Mabini
College is free to admit or not admit the petitioners for re-enrollment in
view of the academic freedom enjoyed by the school in accordance with
the Supreme Court rulings in the cases of Garcia vs. Faculty [Admission
Committee] (G.R. No. 40779, November 28, 1975) and Tangonon vs.Pano,
et al. (L-45157, June 27, 1985).

But applicable rule in the case is that enunciated by the Supreme Court in WHEREFORE, premises and jurisprudence considered, and for lack of merit,
the case of Sophia Alcuaz, et al. vs. Philippine School of Business the motion for reconsideration of the order of this Court dated August 8,
Administration, Quezon City Branch (PSBA), et al., G.R. No. 76353, May 2, 1988 is hereby DENIED.
1988; that of the termination at the end of the semester, reason for the
critical comments of Joaquin G. Bernas and Doods Santos, who both do SO ORDERED. [Rollo pp. 15-16.]
not agree with the ruling.
Hence, petitioners filed the instant petition for certiorari with prayer for
Petitioners' claim of lack of due process cannot prosper in view of their preliminary mandatory injunction.
failure to specifically deny respondent's affirmative defenses that "they
were given all the chances to air their grievances on February 9, 10, 16,
The case was originally assigned to the Second Division of the Court, which
and 18, 1988, and also on February 22, 1988 during which they were
resolved on April 10, 1989 to refer the case to the Court of Appeals for
represented by Atty. Jose L. Lapak" and that on February 22, 1988, the
proper determination and disposition. The Court of Appeals ordered
date of the resumption of classes at Mabini College, petitioners continued
respondents to comment on the petition and set the application for
their rally picketing, even though without any renewal permit, physically
issuance of a writ of preliminary mandatory injunction for hearing. After
coercing students not to attend their classes, thereby disrupting the
considering the comment and hearing the injunction application, the
scheduled classes and depriving a great majority of students of their right
Court of Appeals resolved on May 22, 1989 to certify the case back to the
to be present in their classes.
Supreme Court considering that only pure questions of law were raised.

Against this backdrop, it must be noted that the petitioners waived their
The case was assigned to the Third Division of the Court, which then
privilege to be admitted for re-enrollment with respondent college when
transferred it to the Court en banc on August 21, 1989 considering that
they adopted, signed, and used its enrollment form for the first semester
the issues raised are jurisdictional. On September 14, 1989, the Court en
of school year 1988-89. Said form specifically states that:
banc accepted the case and required respondents to comment.

The Mabini College reserves the right to deny admission of students

Respondents filed their comment on November 13, 1989. Petitioners were
whose scholarship and attendance are unsatisfactory and to require
required to reply. As reply, they filed a pleading entitled
withdrawal of students whose conduct discredits the institution and/or
"Counter-Comment," to which respondents filed a rejoinder entitled
whose activities unduly disrupts or interfere with the efficient operation
"Reply to Counter-Comment To this petitioners filed a "Rejoinder to
of the college. Students, therefore, are required to behave in accord with
Reply."
the Mabini College code of conduct and discipline.

In addition, for the same semester, petitioners duly signed pledges which
among others uniformly reads:
In consideration of my admission to the Mabini College and of my
privileges as student of this institution, I hereby pledge/ promise under
oath to abide and comply with all the rules and regulations laid down by
competent authorities in the College Department or School in which I am
enrolled. Specifically:
The issues having been joined, the case was deemed submitted.
At the heart of the controversy is the doctrine encapsuled in the following
excerpt from Alcuaz:
It is beyond dispute that a student once admitted by the school is
considered enrolled for one semester. It is provided in Paragraph 137
Manual of Regulations for Private Schools, that when a college student
registers in a school, it is understood that he is enrolling for the entire
semester. Likewise, it is provided in the Manual, that the "written
 58
contracts" required for college teachers are for "one semester." It is thus
evident that after the close of the first semester, the PSBA-QC no longer
has any existing contract either with the students or with the intervening
teachers. Such being the case, the charge of denial of due process is
untenable. It is a time-honored principle that contracts are respected as
the law between the contracting parties (Henson vs. Intermediate
Appellate Court, et al., G.R. No. 72456, February 19, 1987, citing: Castro vs.
Court of Appeals, 99 SCRA 722; Escano vs. Court of Appeals, 100 SCRA
197). The contract having been terminated, there is no more contract to
speak of. The school cannot be compelled to enter into another contract
with said students and teachers. "The courts, be they the original trial
court or the appellate court, have no power to make contracts for the
parties.' (Henson vs. Intermediate Appellate Court, et al., supra). [At 161
SCRA 17-18; Emphasis supplied.]
In Alcuaz, the Second Division of the Court dismissed the petition filed by
the students, who were barred from re-enrolling after they led mass
assemblies and put up barricades, but it added that "in the light of
compassionate equity, students who were, in view of the absence of
academic deficiencies, scheduled to graduate during the school year when
this petition was filed, should be allowed to re-enroll and to graduate in
due time." [At 161 SCRA 22.] Mr. Justice Sarmiento dissented from the
majority opinion.
A motion for reconsideration was filed by the dismissed teachers in Alcuaz.
The students did not move for reconsideration. The Court en banc, to
which the case had been transferred, denied the motion for
reconsideration in a Resolution dated September 29, 1989, but added as
an obiter dictum:
In conclusion, We wish to reiterate that while We value the right of
students to complete their education in the school or university of their
choice, and while We fully respect their right to resort to rallies and
demonstrations for the redress of their grievances and as part of their
freedom of speech and their right to assemble, still such rallies,
demonstrations, and assemblies must always be conducted peacefully,
and without resort to intimidation, coercion, or violence. Academic
freedom in all its forms, demands the full display of discipline. To hold
otherwise would be to subvert freedom into degenerate license.
The majority's failure to expressly repudiate the "termination of contract"
doctrine enunciated in the decision provoked several dissents on that
issue. Although seven (7) members of the Court * disagreed with the
Second Division's dismissal of the students petition, a definitive ruling on
the issue could not have been made because no timely motion for
reconsideration was filed by the students. (As stated above, the motion
for reconsideration was filed by the dismissed teachers.)
Be that as it may, the reassessment of the doctrine laid down in Alcuaz,
insofar as it allowed schools to bar the readmission or re-enrollment of
students on the ground of termination of contract, shall be made in this
case where the issue is squarely raised by petitioners [Petition, p. 4; Rollo,
p. 5].
Initially, the case at bar must be put in the proper perspective. This is not a
simple case of a school refusing readmission or re-enrollment of returning
students. Undisputed is the fact that the refusal to readmit or re-enroll
petitioners was decided upon and implemented by school authorities as a
reaction to student mass actions directed against the school. Petitioners
are students of respondent school who, after leading and participating in
student protests, were denied readmission or re-enrollment for the next
semester. This is a case that focuses on the right to speech and assembly
as exercised by students vis-a-vis the right of school officials to discipline
them.
Thus, although respondent judge believed himself bound by the ruling
in Alcuaz [Order dated August 8, 1988; Rollo, pp. 1212-A], he actually
viewed the issue as a conflict between students' rights and the school's
power to discipline them, to wit:
Students should not be denied their constitutional and statutory right to
education, and there is such denial when students are expelled or barred
from enrollment for the exercise of their right to free speech and
peaceable assembly and/or subjected to disciplinary action without
abiding with the requirements of due process. Also, it is understandable
for student leaders to let loose extremely critical and, at times, vitriolic
language against school authorities during a student rally.
But the right of students is no license and not without limit . . . [Order of
February 24, 1989; Rollo, p. 13.]
1. The Student Does Not Shed His Constitutionally Protected Rights at the
Schoolgate.
Central to the democratic tradition which we cherish is the recognition
and protection of the rights of free speech and assembly. Thus, our
Constitution provides:
Sec. 4. No law shall be passed abridging the freedom of speech, of
expression, or of the press, or the right of the people peaceably to
assemble and petition the government for redress of grievances. [Art. III.]
This guarantee is not peculiar to the 1987 Constitution. A similar provision
was found in the 1973 Constitution, as amended [Art. VI, sec. 9], the 1935
Constitution, as amended [Art. III, sec. 81, the Philippine Autonomy Act
(Jones Law) [Sec. 3, para. 13], and the Philippine Bill of 1902 [Sec. 15, para.
13]. Thus, as early as 1907, the Court in People v. Apurado, 7 Phil. 422,
upheld the right to speech and assembly to overturn a conviction for
sedition. It said:
Section 5 of the Act No. 292 is as follows:
All persons who rise publicly and tumultuously in order to attain by force
or outside of legal methods any of the following objects are guilty of
sedition:
xxx xxx xxx
2. To prevent the Insular Government, or any provincial or municipal
government or any public official, from freely exercising its or his duties or
the due execution of any judicial or administrative order.
But this law must not be interpreted so as to abridge "the freedom of
speech" or "the right of the people peaceably to assemble and petition
the Government for redress of grievances" guaranteed by the express
provisions of section 5 of "the Philippine Bill."
xxx xxx xxx
 59

It is rather to be expected that more or less disorder will mark the public
assembly of the people to protest against grievances whether real or
imaginary, because on such occasions feeling is always wrought to a high
pitch of excitement, and the greater the grievance and the more intense
the feeling, the less perfect, as a rule, will be the disciplinary control of the
leaders over their irresponsible followers. But if the prosecution be
permitted to seize upon every instance of such disorderly conduct by
individual members of a crowd as an excuse to characterize the assembly
as a seditious and tumultuous rising against the authorities, then the right
to assemble and to petition for redress of grievances would become a
delusion and a snare and the attempt to exercise it on the most righteous
occasion and in the most peaceable manner would expose all those who
took part therein to the severest and most unmerited punishment, if the
purposes which they sought to attain did not happen to be pleasing to the
prosecuting authorities. If instances of disorderly conduct occur on such
occasions, the guilty individuals should be sought out and punished
therefor, but the utmost discretion must be exercise in drawing the line
between disorderly and seditious conduct and between an essentially
peaceable assembly and a tumultuous uprising. [At pp. 424, 426.]
informed through a memorandum that they were under preventive
suspension for their failure to explain the holding of an illegal assembly in
front of the Life Science Building. The validity thereof was challenged by
petitioners both before the Court of First Instance of Rizal in a petition
for mandamus with damages against private respondents and before the
Ministry of Education, Culture, and Sports. On October 20, 1982,
respondent Ramento, as Director of the National Capital Region, found
petitioners guilty of the charge of having violated par. 146(c) of the
Manual for Private Schools more specifically their holding of an illegal
assembly which was characterized by the violation of the permit granted
resulting in the disturbance of classes and oral defamation. The penalty
was suspension for one academic year. . . . [At pp. 363-364.]
The Court found the penalty imposed on the students too severe and
reduced it to a one-week suspension.
The rule laid down in Malabanan was applied with equal force in three
other en banc decisions of the Court.

In Villar v. Technological Institute of the Philippines, G.R. No. 69198, April

That the protection to the cognate rights of speech and assembly
17, 1985, 135 SCRA 706, the Court reiterated that the exercise of the
guaranteed by the Constitution is similarly available to students is
freedom of assembly could not be a basis for barring students from
well-settled in our jurisdiction. In the leading case of Malabanan
enrolling. It enjoined the school and its officials from acts of surveillance,
v. Ramento, G.R. No. 62270, May 21, 1984, 129 SCRA 359, the Court,
blacklisting, suspension and refusal to re-enroll. But the Court allowed the
speaking through Mr. Chief Justice Fernando in an en bancdecision,
non-enrollment of students who clearly incurred marked academic
declared:
deficiency, with the following caveat:

xxx xxx xxx

xxx xxx xxx

4. Petitioners invoke their rights to peaceable assembly and free speech.

4. The academic freedom enjoyed by ''institutions of higher learning"
They are entitled to do so. They enjoy like the rest of the citizens the
includes the right to set academic standards to determine under what
freedom to express their views and communicate their thoughts to those
circumstances failing grades suffice for the expulsion of students. Once it
disposed to listen in gatherings such as was held in this case. They do not,
has done so, however, that standard should be followed meticulously. It
to borrow from the opinion of Justice Fortas in Tinker v. Des Moines
cannot be utilized to discriminate against those students who exercise
Community School District, "shed their constitutional rights to freedom of
their constitutional rights to peaceable assembly and free speech. If it
speech or expression at the schoolhouse gate." While therefore, the
does so, then there is a legitimate grievance by the students thus
authority of educational institutions over the conduct of students must be
prejudiced, their right to the equal protection clause being disregarded.
recognized, it cannot go so far as to be violative of constitutional
[At p. 711.]
safeguards. [At pp. 367-368.]

In Arreza v. Gregorio Araneta University Foundation, G.R. No. 62297, June

The facts in Malabanan are only too familiar in the genre of cases
19, 1985, 137 SCRA 94, a case arising from almost the same facts as those
involving student mass actions:
in Malabanan, the Court rejected "the infliction of the highly-
disproportionate penalty of denial of enrollment and the consequent
. . . Petitioners were officers of the Supreme Student Council of failure of senior students to graduate, if in the exercise of the cognate
respondent [Gregorio Araneta] University. They sought and were granted rights of free speech and peaceable assembly, improper conduct could be
by the school authorities a permit to hold a meeting from 8:00 A.M. to attributed to them. [At p. 98].
12:00 P.M. on August 27, 1982. Pursuant to such permit, along with other
students, they held a general assembly at the Veterinary Medicine and
In Guzman v. National University, G.R. No. 68288, July 11, 1986, 142 SCRA
Animal Science (VMAS) the place indicated in such permit, not in the
699, respondent school was directed to allow the petitioning students to
basketball court as therein stated but at the respond floor lobby. At such
re-enroll or otherwise continue with their respective courses, without
gathering they manifested in vehement and vigorous language their
prejudice to any disciplinary proceedings that may be conducted in
opposition to the proposed merger of the Institute of Animal Science with
connection with their participation in the protests that led to the stoppage
the Institute of Agriculture. At 10:30 A.M., the same day, they marched
of classes.
toward the Life Science building and continued their rally. It was outside
the area covered by their permit. They continued their demonstration,
giving utterance to language severely critical of the University authorities 2. Permissible Limitations on Student Exercise of Constitutional Rights
and using megaphones in the process. There was, as a result, disturbance Within the School.
of the classes being held. Also, the non-academic employees, within
hearing distance, stopped their work because of the noise created. They While the highest regard must be afforded the exercise of the rights to
were asked to explain on the same day why they should not be held liable free speech and assembly, this should not be taken to mean that school
for holding an illegal assembly. Then on September 9, 1982, they were authorities are virtually powerless to discipline students. This was made
 60
clear by the Court in Malabanan, when it echoed Tinker v. Des Moines
Community School District, 393 US 503, 514: "But conduct by the student,
in class or out of it, which for any reason — whether it stems from time,
place, or type of behavior — materially disrupts classwork or involves
substantial disorder or invasion of the rights of others is, of course, not
immunized by the constitutional guarantee of freedom of speech."
Thus, in Malabanan, the Court said:
xxx xxx xxx
8. It does not follow, however, that petitioners can be totally absolved for
the events that transpired. Admittedly, there was a violation of the terms
of the permit. The rally was held at a place other than that specified, in
the second floor lobby, rather than the basketball court, of the (VMAS)
building of the University. Moreover, it was continued longer than the
period allowed. According to the decision of respondent Ramento, the
"concerted activity [referring to such assembly went on until 5:30 p.m."
Private respondents could thus, take disciplinary action. . . . [ At pp.
370-371].
But, as stated in Guzman, the imposition of disciplinary sanctions requires
observance of procedural due process. Thus:
. . . There are withal minimum standards which must be met to satisfy the
demands of procedural due process; and these are, that (1) the students
must be informed in writing of the nature and cause of any accusation
against them; (2) they shall have the right to answer the charges against
them, with the assistance of counsel, if desired; (3) they shall be informed
of the evidence against them; (4) they shall have the right to adduce
evidence in their own behalf; and (5) the evidence must be duly
considered by the investigating committee or official designated by the
school authorities to hear and decide the case. [At pp. 706-707].
Moreover, the penalty imposed must be proportionate to the offense
committed. As stated in Malabanan, "[i]f the concept of proportionality
between the offense committed and sanction imposed is not followed, an
element of arbitrariness intrudes." [At p. 371].
3. Circumventing Established Doctrine.
Malabanan was decided by the Court in 1984. Since then, student mass
actions have escalated not only because of political events that unfurled
but also because of the constantly raging controversy over increases in
tuition fees. But the over-eager hands of some school authorities were not
effectively tied down by the ruling in Malabanan. Instead of suspending or
expelling student leaders who fell into disfavor with school authorities, a
new variation of the same stratagem was adopted by the latter: refusing
the students readmission or re-enrollment on grounds not related to, their
alleged misconduct of "illegal assembly" in leading or participating in
student mass actions directed against the school. Thus, the spate of
expulsions or exclusions due to "academic deficiency."
4. The Nature of the Contract Between a School and its Student.
The Court, in Alcuaz, anchored its decision on the "termination of
contract" theory. But it must be repeatedly emphasized that the contract
between the school and the student is not an ordinary contract. It is
imbued with public interest, considering the high priority given by the
Constitution to education and the grant to the State of supervisory and
regulatory powers over all educational institutions [See Art. XIV, secs. 1-2,
4(1)].
Respondent school cannot justify its actions by relying on Paragraph 137
of the Manual of Regulations for Private Schools, which provides that
"[w]hen a student registers in a school, it is understood that he is
enrolling . . . for the entire semester for collegiate courses," which the
Court in Alcuaz construed as authority for schools to refuse enrollment to
a student on the ground that his contract, which has a term of one
semester, has already expired.
The "termination of contract" theory does not even find support in the
Manual. Paragraph 137 merely clarifies that a college student enrolls for
the entire semester. It serves to protect schools wherein tuition fees are
collected and paid on an installment basis, i.e. collection and payment of
the downpayment upon enrollment and the balance before examinations.
Thus, even if a student does not complete the semester for which he was
enrolled, but has stayed on for more than two weeks, he may be required
to pay his tuition fees for the whole semester before he is given his
credentials for transfer. This is the import of Paragraph 137, subsumed
under Section VII on Tuition and Other Fees, which in its totality provides:
137. When a student registers in a school, it is understood that he is
enrolling for the entire school year for elementary and secondary courses,
and for the entire semester for collegiate courses. A student who transfers
or otherwise withdraws, in writing, within two weeks after the beginning
of classes and who has already paid the pertinent tuition and other school
fees in full or for any length of time longer than one month may be
charged ten per cent of the total amount due for the term if he withdraws
within the first week of classes, or twenty per cent if within the second
week of classes, regardless of whether or not he has actually attended
classes. The student may be charged all the school fees in full if he
withdraws anytime after the second week of classes. However, if the
transfer or withdrawal is due to a justifiable reason, the student shall be
charged the pertinent fees only up to and including the last month of
attendance.
Clearly, in no way may Paragraph 137 be construed to mean that the
student shall be enrolled for only one semester, and that after that
semester is over his re-enrollment is dependent solely on the sound
discretion of the school. On the contrary, the Manual recognizes the right
of the student to be enrolled in his course for the entire period he is
expected to complete it. Thus, Paragraph 107 states:
Every student has the right to enrol in any school, college or university
upon meeting its specific requirement and reasonable
regulation: Provided, that except in the case of academic delinquency and
violation of disciplinary regulation, the student is presumed to be qualified
for enrolment for the entire period he is expected to complete his course
without prejudice to his right to transfer.
This "presumption" has been translated into a right in Batas Pambansa Blg.
232, the "Education Act of 1982." Section 9 of this act provides:
Sec. 9. Rights of Students in School. — In addition to other rights, and
subject to the limitations prescribed by law and regulations, students and
pupils in all schools shall enjoy the following rights:
xxx xxx xxx
 61
2. The right to freely choose their field of study subject to existing
curricula and to continue their course therein up to graduation, except in
cases of academic deficiency, or violation of disciplinary regulations.
xxx xxx xxx
5. Academic Freedom Not a Ground for Denying Students' Rights.
Respondent judge, in his order dated February 24, 1989, stated that
"respondent Mabini College is free to admit or not admit the petitioners
for re-enrollment in view of the academic freedom enjoyed by the school"
[Rollo, p. 16]. To support this conclusion, he cited the cases of Garcia
v. The Faculty Admission Committee, Loyola School of Theology, G.R. No.
L-40779, November 28, 1975, 68 SCRA 277, and Tangonan v. Pano, G.R.
No. L-45157, June 27, 1985, 137 SCRA 245, where the Court emphasized
the institutions' discretion on the admission and enrollment of students as
a major component of the academic freedom guaranteed to institutions of
higher learning.
These cases involve different facts and issues. In Garcia, the issue was
whether a female lay student has a clear legal right to compel a seminary
for the priesthood to admit her for theological studies leading to a degree.
In Tangonan, the issue was whether a nursing student, who was admitted
on probation and who has failed in her nursing subjects, may compel her
school to readmit her for enrollment.
Moreover, respondent judge loses sight of the Court's unequivocal
statement in Villar that the right of an institution of higher learning to set
academic standards cannot be utilized to discriminate against students
who exercise their constitutional rights to speech and assembly, for
otherwise there win be a violation of their right to equal protection [At p.
711]
6. Capitol Medical Center and Licup.
In support of the action taken by respondent judge, private respondents
cite the recent cases of Capitol Medical Center, Inc. v. Court of
Appeals, G.R. No. 82499, October 13, 1989, and Licup v. University of San
Carlos, G.R. No. 85839, October 19, 1989, both decided by the First
Division of the Court.
We find the issues raised and resolved in these two decisions dissimilar
from the issues in the present case.
In Capitol Medical Center, the Court upheld the decision of the school
authorities to close down the school because of problems emanating from
a labor dispute between the school and its faculty. The Court ruled that
the students had no clear legal right to demand the reopening of the
school.
On the other hand, in Licup the issue resolved was whether or not the
students were afforded procedural due process before disciplinary action
was taken against them. Thus, the Court stated:
The Court finds no cogent basis for the protestations of petitioners that
they were deprived of due process of law and that the investigation
conducted was far from impartial and fair. On the contrary, what appear
from the record is that the charges against petitioners were adequately
established in an appropriate investigation. The imputation of bias and
partiality is not supported by the record. . . .
Moreover, Licup, far from adopting the "termination of contract" theory
in Alcuaz, impliedly rejected it, to wit:
While it is true that the students are entitled to the right to pursue their
education, the USC as an educational institution is also entitled to pursue
its academic freedom and in the process has the concommitant right to
see to it that this freedom is not jeopardized.
True, an institution of learning has a contractual obligation to afford its
students a fair opportunity to complete the course they seek to pursue.
However, when a student commits a serious breach of discipline or fails to
maintain the required academic standard, he forfeits his contractual right;
and the court should not review the discretion of university authorities.
(Emphasis supplied.)
7. The Instant Case.
To justify the school's action, respondents, in their Comment dated
November 12, 1989, quoting from their answer filed in the trial court,
allege that of the thirteen (13) petitioners eight (8) have incurred failing
grades, to wit:
a) Ariel Non has not only failed in four (4) subjects but also failed to cause
the submission of Form 137 which is a pre-requisite to his re- enrollment
and to his continuing as a student of Mabini;
b) Rex Magana not only has failed in one (1) subject but also has
incomplete grades in four (4) subjects as well as no grades in two (2)
subjects;
c) Elvin Agura failed in two (2) subjects and has three (3) incomplete
grades;
d) Emmanuel Barba has failed in one (1) subject, and has to still take CMT
1 1 to 22. He is already enrolled at Ago Foundation;
e) Joselito Villalon has incomplete grades in nine (9) subjects;
f) Luis Santos has failed in one (1) subject;
g) George Dayaon has failed in four (4) subjects and has to remove the
incomplete grade in one (1) subject;
h) Daniel Torres has failed in five (5) subjects, has to remove incomplete
grades in five (5) more objects and has no grade in one (1) subject. [Rollo,
p. 79.]
Petitioners have not denied this, but have countered this allegation as
follows:
xxx xxx xxx
(11) Petitioners were and are prepared to show, among others, that:
a) Three of the 13 of them were graduating. (Admitted in the Answer.)
 62

b) Their academic deficiencies, if any, do not warrant non- readmission.
(The Answer indicates only 8 of the 13 as with deficiencies.)
c) Their breach of discipline, if any, was not serious.
d) The improper conduct attributed to them was during the exercise of the
cognate rights of free speech and peaceable assembly, particularly a
February 1988 student rally. (The crux of the matter, as shown even in the
Answer.)
e) There was no due investigation that could serve as basis for disciplinary
action. (In effect, admitted in the Answer; even Alcuaz required due
process.)
f) Respondents admit students with worse deficiencies — a clear case of
discrimination against petitioners for their role in the student rally. (An
equal protection question.)
g) Respondent school is their choice institution near their places of
residence which they can afford to pay for tertiary education, of which
they have already lost one-and-a-half school-years — in itself punishment
enough. [Rollo, p. 86].
Clearly, the five (5) students who did not incur failing marks, namely,
Normandy Occiano, Lourdes Banares, Bartolome Ibasco, Sonny Moreno
and Giovani Palma, were refused re-enrollment without just cause and,
hence, should be allowed to re-enroll.
On the other hand, it does not appear that the petitioners were afforded
due process, in the manner expressed in Guzman, before they were
refused re-enrollment. In fact, it would appear from the pleadings that the
decision to refuse them re-enrollment because of failing grades was a
mere afterthought. It is not denied that what incurred the ire of the school
authorities was the student mass actions conducted in February 1988 and
which were led and/or participated in by petitioners. Certainly, excluding
students because of failing grades when the cause for the action taken
against them undeniably related to possible breaches of discipline not
only is a denial of due process but also constitutes a violation of the basic
tenets of fair play.
However, these should not be taken to mean that no disciplinary action
could have been taken against petitioners for breach of discipline if the
facts had so warranted. In line with the Court's ruling in Malabanan,
petitioners could have been subjected to disciplinary proceedings in
connection with the February 1988 mass actions. But the penalty that
could have been imposed must be commensurate to the offense
committed and, as set forth in Guzman, it must be imposed only after the
requirements of procedural due process have been complied with. This is
explicit from the Manual of Regulations for Private Schools, which
provides in Paragraph 145 that "[n]o penalty shall be imposed upon any
student, except for cause as defined in this Manual and/or in the school's
rules and regulations duly promulgated and only after due investigation
shall have been conducted."
But this matter of disciplinary proceedings and the imposition of
administrative sanctions have become moot and academic. Petitioners,
who have been refused readmission or re-enrollment and who have been
effectively excluded from respondent school for four (4) semesters, have
already been more than sufficiently penalized for any breach of discipline
they might have committed when they led and participated in the mass
actions that, according to respondents, resulted in the disruption of
classes. To still subject them to disciplinary proceedings would serve no
useful purpose and would only further aggravate the strained relations
between petitioners and the officials of respondent school which
necessarily resulted from the heated legal battle here, in the Court of
Appeals and before the trial court.
WHEREFORE, the petition is GRANTED. The orders of respondent judge
dated August 8, 1988 and February 24, 1989 are hereby ANNULLED.
Respondent Mabini College is ORDERED to readmit and to allow the re-
enrollment of petitioners, if they are still so minded, without prejudice to
its taking the appropriate action as to petitioners Ariel Non, Joselito
Villalon, George (Jorge) Dayaon and Daniel Torres, if it is shown by their
records (Form 137) that they have failed to satisfy the school's prescribed
academic standards.
SO ORDERED

Moreover, of the eight (8) students with failing grades, some have only
one or two failures, namely, Rex Magana, Elvin Agura, Emmanuel Barba,
and Luis Santos. Certainly, their failures cannot be considered marked
academic deficiency within the context of the Court's decision in Villar.

Then, as to the students who incurred several failing grades, namely, Ariel
Non, Joselito Villalon, George (Jorge) Dayaon, and Daniel Torres, it is not
clear from respondents' enumeration whether the failures were incurred
in only one semester or through the course of several semesters of study
in the school. Neither are the academic standards of respondent school,
from which we can gauge whether or not these students are academically
deficient, alleged by respondents. Thus, while the prerogative of schools
to set academic standards is recognized, we cannot affirm respondent
school's action as to petitioners Non, Villalon, Dayaon and Torres because
of insufficient information.

With regard to petitioner Emmanuel Barba who respondents claim has

enrolled in Ago Foundation, such fact alone, if true, will not bar him from
seeking readmission in respondent school.