Republic of the Philippines ATTY. JOSE MALV AR VILLEGAS, JR.
, Petitioner,
SUPREME COURT
Manila
EN BANC
G.R. No. 209287 July 1, 2014
MARIA CAROLINA P. ARAULLO, CHAIRPERSON,
BAGONG ALYANSANG MAKABAYAN; JUDY M.
TAGUIWALO, PROFESSOR, UNIVERSITY OF THE
PHILIPPINES DILIMAN, CO-CHAIRPERSON,
PAGBABAGO; HENRI KAHN, CONCERNED CITIZENS
MOVEMENT; REP. LUZ ILAGAN, GABRIELA WOMEN'S
PARTY REPRESENTATIVE; REP. CARLOS ISAGANI
ZARATE, BAY AN MUNA PARTY-LIST REPRESENTATIVE;
RENATO M. REYES, JR., SECRETARY GENERAL OF
BAYAN; MANUEL K. DAYRIT, CHAIRMAN, ANG
KAPATIRAN PARTY; VENCER MARI E. CRISOSTOMO,
CHAIRPERSON, ANAKBAYAN; VICTOR VILLANUEVA,
CONVENOR, YOUTH ACT NOW, Petitioners,
vs.
BENIGNO SIMEON C. AQUINO III, PRESIDENT OF THE
REPUBLIC OF THE PHILIPPINES; PAQUITO N. OCHOA,
JR., EXECUTIVE SECRETARY; AND FLORENCIO B.
ABAD, SECRETARY OF THE DEPARTMENT OF BUDGET
AND MANAGEMENT, Respondents.
x-----------------------x
G.R. No. 209135
AUGUSTO L. SY JUCO JR., Ph.D., Petitioner,
vs.
FLORENCIO B. ABAD, IN HIS CAPACITY AS THE
SECRETARY OF DEPARTMENT OF BUDGET AND
MANAGEMENT; AND HON. FRANKLIN MAGTUNAO
DRILON, IN HIS CAP A CITY AS THE SENATE PRESIDENT
OF THE PHILIPPINES, Respondents.
x-----------------------x
G.R. No. 209136
MANUELITO R. LUNA, Petitioner,
vs.
SECRETARY FLORENCIO ABAD, IN HIS OFFICIAL
CAPACITY AS HEAD OF THE DEPARTMENT OF BUDGET
AND MANAGEMENT; AND EXECUTIVE SECRETARY
PAQUITO OCHOA, IN HIS OFFICIAL CAPACITY AS ALTER
EGO OF THE PRESIDENT, Respondents.
x-----------------------x
G.R. No. 209155
vs.
THE HONORABLE EXECUTIVE SECRETARY PAQUITO N.
OCHOA, JR.; AND THE SECRETARY OF BUDGET AND
MANAGEMENT FLORENCIO B. ABAD, Respondents.
x-----------------------x
G.R. No. 209164
PHILIPPINE CONSTITUTION ASSOCIATION (PHILCONSA),
REPRESENTED BY DEAN FROILAN M. BACUNGAN,
BENJAMIN E. DIOKNO AND LEONOR M.
BRIONES, Petitioners,
vs.
DEPARTMENT OF BUDGET AND MANAGEMENT AND/OR
HON. FLORENCIO B. ABAD, Respondents.
x-----------------------x
G.R. No. 209260
INTEGRATED BAR OF THE PHILIPPINES (IBP), Petitioner,
vs.
SECRETARY FLORENCIO B. ABAD OF THE
DEPARTMENT OF BUDGET AND MANAGEMENT
(DBM), Respondent.
x-----------------------x
G.R. No. 209442
GRECO ANTONIOUS BEDA B. BELGICA; BISHOP
REUBEN MABANTE AND REV. JOSE L.
GONZALEZ, Petitioners,
vs.
PRESIDENT BENIGNO SIMEON C. AQUINO III, THE
SENATE OF THE PHILIPPINES, REPRESENTED BY
SENATE PRESIDENT FRANKLIN M. DRILON; THE HOUSE
OF REPRESENTATIVES, REPRESENTED BY SPEAKER
FELICIANO BELMONTE, JR.; THE EXECUTIVE OFFICE,
REPRESENTED BY EXECUTIVE SECRETARY PAQUITO N.
OCHOA, JR.; THE DEPARTMENT OF BUDGET AND
MANAGEMENT, REPRESENTED BY SECRETARY
FLORENCIO ABAD; THE DEPARTMENT OF FINANCE,
REPRESENTED BY SECRETARY CESAR V. PURISIMA;
AND THE BUREAU OF TREASURY, REPRESENTED BY
ROSALIA V. DE LEON, Respondents.
x-----------------------x
G.R. No. 209517
CONFEDERATION FOR UNITY, RECOGNITION AND ADV
AN CEMENT OF GOVERNMENT EMPLOYEES
(COURAGE), REPRESENTED BY ITS 1ST VICE
PRESIDENT, SANTIAGO DASMARINAS, JR.; ROSALINDA
NARTATES, FOR HERSELF AND AS NATIONAL
PRESIDENT OF THE CONSOLIDATED UNION OF
EMPLOYEES NATIONAL HOUSING AUTHORITY
(CUENHA); MANUEL BACLAGON, FOR HIMSELF AND AS
PRESIDENT OF THE SOCIAL WELFARE EMPLOYEES
ASSOCIATION OF THE PHILIPPINES, DEPARTMENT OF
SOCIAL WELFARE AND DEVELOPMENT CENTRAL
OFFICE (SWEAP-DSWD CO); ANTONIA PASCUAL, FOR
HERSELF AND AS NATIONAL PRESIDENT OF THE
DEPARTMENT OF AGRARIAN REFORM EMPLOYEES
ASSOCIATION (DAREA); ALBERT MAGALANG, FOR
HIMSELF AND AS PRESIDENT OF THE ENVIRONMENT
AND MANAGEMENT BUREAU EMPLOYEES UNION
(EMBEU); AND MARCIAL ARABA, FOR HIMSELF AND AS
PRESIDENT OF THE KAPISANAN PARA SA KAGALINGAN
NG MGA KAW ANI NG MMDA (KKKMMDA), Petitioners,
vs.
BENIGNO SIMEON C. AQUINO Ill, PRESIDENT OF THE
REPUBLIC OF THE PHILIPPINES; PAQUITO OCHOA, JR.,
EXECUTIVE SECRETARY; AND HON. FLORENCIO B.
ABAD, SECRETARY OF THE DEPARTMENT OF BUDGET
AND MANAGEMENT, Respondents.
x-----------------------x
G.R. No. 209569
VOLUNTEERS AGAINST CRIME AND CORRUPTION
(VACC), REPRESENTED BY DANTE L.
JIMENEZ, Petitioner,
vs.
PAQUITO N. OCHOA, EXECUTIVE SECRETARY, AND
FLORENCIO B. ABAD, SECRETARY OF THE
DEPARTMENT OF BUDGET AND
MANAGEMENT, Respondents.
DECISION
BERSAMIN, J.:
For resolution are the consolidated petitions assailing the
constitutionality of the Disbursement Acceleration
Program(DAP), National Budget Circular (NBC) No. 541, and
related issuances of the Department of Budget and
Management (DBM) implementing the DAP.
At the core of the controversy is Section 29(1) of Article VI of
the 1987 Constitution, a provision of the fundamental law that
firmly ordains that "[n]o money shall be paid out of the
Treasury except in pursuance of an appropriation made by
law." The tenor and context of the challenges posed by the
petitioners against the DAP indicate that the DAP contravened
this provision by allowing the Executive to allocate public
money pooled from programmed and unprogrammed funds of
its various agencies in the guise of the President exercising
his constitutional authority under Section 25(5) of the 1987
Constitution to transfer funds out of savings to augment the
appropriations of offices within the Executive Branch of the
Government. But the challenges are further complicated by
the interjection of allegations of transfer of funds to agencies
or offices outside of the Executive.
Antecedents
What has precipitated the controversy?
On September 25, 2013, Sen. Jinggoy Ejercito Estrada
delivered a privilege speech in the Senate of the Philippines to
reveal that some Senators, including himself, had been
allotted an additional ₱50 Million each as "incentive" for voting
in favor of the impeachment of Chief Justice Renato C.
Corona.
Responding to Sen. Estrada’s revelation, Secretary Florencio
Abad of the DBM issued a public statement entitled Abad:
Releases to Senators Part of Spending Acceleration
Program,1 explaining that the funds released to the Senators
had been part of the DAP, a program designed by the DBM to
ramp up spending to accelerate economic expansion. He
clarified that the funds had been released to the Senators
based on their letters of request for funding; and that it was not
the first time that releases from the DAP had been made
because the DAP had already been instituted in 2011 to ramp
up spending after sluggish disbursements had caused the
growth of the gross domestic product (GDP) to slow down. He
explained that the funds under the DAP were usually taken
from (1) unreleased appropriations under Personnel
Services;2 (2) unprogrammed funds; (3) carry-over
appropriations unreleased from the previous year; and (4)
budgets for slow-moving items or projects that had been
realigned to support faster-disbursing projects.
The DBM soon came out to claim in its website3 that the DAP
releases had been sourced from savings generated by the
Government, and from unprogrammed funds; and that the
savings had been derived from (1) the pooling of unreleased
appropriations, like unreleased Personnel
Services4 appropriations that would lapse at the end of the
year, unreleased appropriations of slow-moving projects and
discontinued projects per zero based budgeting findings;5 and
(2) the withdrawal of unobligated allotments also for slow-
moving programs and projects that had been earlier released
to the agencies of the National Government.
The DBM listed the following as the legal bases for the DAP’s
use of savings,6 namely: (1) Section 25(5), Article VI of the
1987 Constitution, which granted to the President the authority
to augment an item for his office in the general appropriations
law; (2) Section 49 (Authority to Use Savings for Certain
Purposes) and Section 38 (Suspension of Expenditure
Appropriations), Chapter 5, Book VI of Executive Order (EO)
No. 292 (Administrative Code of 1987); and (3) the General
Appropriations Acts (GAAs) of 2011, 2012 and 2013,
particularly their provisions on the (a) use of savings; (b)
meanings of savings and augmentation; and (c) priority in the
use of savings.
As for the use of unprogrammed funds under the DAP, the
DBM cited as legal bases the special provisions on
unprogrammed fund contained in the GAAs of 2011, 2012 and
2013.
The revelation of Sen. Estrada and the reactions of Sec. Abad
and the DBM brought the DAP to the consciousness of the
Nation for the first time, and made this present controversy
inevitable. That the issues against the DAP came at a time
when the Nation was still seething in anger over
Congressional pork barrel – "an appropriation of government
spending meant for localized projects and secured solely or
primarily to bring money to a representative’s district"7 –
excited the Nation as heatedly as the pork barrel controversy.
Nine petitions assailing the constitutionality of the DAP and the
issuances relating to the DAP were filed within days of each
other, as follows: G.R. No. 209135 (Syjuco), on October 7,
2013; G.R. No. 209136 (Luna), on October 7, 2013; G.R. No.
209155 (Villegas),8 on October 16, 2013; G.R. No. 209164
(PHILCONSA), on October 8, 2013; G.R. No. 209260 (IBP),
on October 16, 2013; G.R. No. 209287 (Araullo), on October
17, 2013; G.R. No. 209442 (Belgica), on October 29, 2013;
G.R. No. 209517 (COURAGE), on November6, 2013; and
G.R. No. 209569 (VACC), on November 8, 2013.
In G.R. No. 209287 (Araullo), the petitioners brought to the
Court’s attention NBC No. 541 (Adoption of Operational
Efficiency Measure – Withdrawal of Agencies’ Unobligated
Allotments as of June 30, 2012), alleging that NBC No. 541,
which was issued to implement the DAP, directed the
withdrawal of unobligated allotments as of June 30, 2012 of
government agencies and offices with low levels of
obligations, both for continuing and current allotments.
In due time, the respondents filed their Consolidated Comment
through the Office of the Solicitor General (OSG).
The Court directed the holding of oral arguments on the
significant issues raised and joined.
Issues
Under the Advisory issued on November 14, 2013, the
presentations of the parties during the oral arguments were
limited to the following, to wit:
Procedural Issue:
A. Whether or not certiorari, prohibition, and mandamus are
proper remedies to assail the constitutionality and validity of
the Disbursement Acceleration Program (DAP), National
Budget Circular (NBC) No. 541, and all other executive
issuances allegedly implementing the DAP. Subsumed in this
issue are whether there is a controversy ripe for judicial
determination, and the standing of petitioners.
Substantive Issues:
B. Whether or not the DAP violates Sec. 29, Art. VI of the
1987 Constitution, which provides: "No money shall be paid
out of the Treasury except in pursuance of an appropriation
made by law."
C. Whether or not the DAP, NBC No. 541, and all other
executive issuances allegedly implementing the DAP violate
Sec. 25(5), Art. VI of the 1987 Constitution insofar as:
(a)They treat the unreleased
appropriations and unobligated
allotments withdrawn from government
agencies as "savings" as the term is used
in Sec. 25(5), in relation to the provisions
of the GAAs of 2011, 2012 and 2013;
(b)They authorize the disbursement of
funds for projects or programs not
provided in the GAAs for the Executive
Department; and
(c)They "augment" discretionary lump
sum appropriations in the GAAs.
D. Whether or not the DAP violates: (1) the Equal Protection
Clause, (2) the system of checks and balances, and (3) the
principle of public accountability enshrined in the 1987
Constitution considering that it authorizes the release of funds
upon the request of legislators.
E. Whether or not factual and legal justification exists to issue
a temporary restraining order to restrain the implementation of
the DAP, NBC No. 541, and all other executive issuances
allegedly implementing the DAP.
In its Consolidated Comment, the OSG raised the matter of
unprogrammed funds in order to support its argument
regarding the President’s power to spend. During the oral
arguments, the propriety of releasing unprogrammed funds to
support projects under the DAP was considerably discussed.
The petitioners in G.R. No. 209287 (Araullo) and G.R. No.
209442 (Belgica) dwelled on unprogrammed funds in their
respective memoranda. Hence, an additional issue for the oral
arguments is stated as follows:
F. Whether or not the release of unprogrammed funds under
the DAP was in accord with the GAAs.
During the oral arguments held on November 19, 2013, the
Court directed Sec. Abad to submit a list of savings brought
under the DAP that had been sourced from (a) completed
programs; (b) discontinued or abandoned programs; (c)
unpaid appropriations for compensation; (d) a certified copy of
the President’s directive dated June 27, 2012 referred to in
NBC No. 541; and (e) all circulars or orders issued in relation
to the DAP.9
In compliance, the OSG submitted several documents, as
follows:
(1) A certified copy of the Memorandum for the
President dated June 25, 2012 (Omnibus Authority
to Consolidate Savings/Unutilized Balances and
their Realignment);10
(2) Circulars and orders, which the respondents
identified as related to the DAP, namely:
a. NBC No. 528 dated January 3, 2011
(Guidelines on the Release of Funds for
FY 2011);
b. NBC No. 535 dated December 29,
2011 (Guidelines on the Release of
Funds for FY 2012);
c. NBC No. 541 dated July 18, 2012
(Adoption of Operational Efficiency
Measure – Withdrawal of Agencies’
Unobligated Allotments as of June 30,
2012);
d. NBC No. 545 dated January 2, 2013
(Guidelines on the Release of Funds for
FY 2013);
e. DBM Circular Letter No. 2004-2 dated
January 26, 2004 (Budgetary Treatment
of Commitments/Obligations of the
National Government);
f. COA-DBM Joint Circular No. 2013-1
dated March 15, 2013 (Revised
Guidelines on the Submission of
Quarterly Accountability Reports on
Appropriations, Allotments, Obligations
and Disbursements);
g. NBC No. 440 dated January 30, 1995
(Adoption of a Simplified Fund Release
System in the Government).
(3) A breakdown of the sources of savings,
including savings from discontinued projects and
unpaid appropriations for compensation from 2011
to 2013
On January 28, 2014, the OSG, to comply with the Resolution
issued on January 21, 2014 directing the respondents to
submit the documents not yet submitted in compliance with
the directives of the Court or its Members, submitted several
evidence packets to aid the Court in understanding the factual
bases of the DAP, to wit:
(1) First Evidence Packet11 – containing seven
memoranda issued by the DBM through Sec. Abad,
inclusive of annexes, listing in detail the 116 DAP
identified projects approved and duly signed by the
President, as follows:
a. Memorandum for the President dated
October 12, 2011 (FY 2011 Proposed
Disbursement Acceleration Program
(Projects and Sources of Funds);
b. Memorandum for the President dated
December 12, 2011 (Omnibus Authority
to Consolidate Savings/Unutilized
Balances and its Realignment);
c. Memorandum for the President dated
June 25, 2012 (Omnibus Authority to
Consolidate Savings/Unutilized Balances
and their Realignment);
d. Memorandum for the President dated
September 4, 2012 (Release of funds for
other priority projects and expenditures of
the Government);
e. Memorandum for the President dated
December 19, 2012 (Proposed Priority
Projects and Expenditures of the
Government);
f. Memorandum for the President dated
May 20, 2013 (Omnibus Authority to
Consolidate Savings/Unutilized Balances
and their Realignment to Fund the
Quarterly Disbursement Acceleration
Program); and
g. Memorandum for the President dated
September 25, 2013 (Funding for the
Task Force Pablo Rehabilitation Plan).
(2) Second Evidence Packet12 – consisting of 15
applications of the DAP, with their corresponding
Special Allotment Release Orders (SAROs) and
appropriation covers;
 (3) Third Evidence Packet13 – containing a list and
G.R. No. 209135 Certiorari, Prohibition
descriptions of 12 projects under the DAP;
(Syjuco) and Mandamus

(4) Fourth Evidence Packet14 – identifying the DAP- G.R. No. 209136 Certiorariand
related portions of the Annual Financial Report (Luna) Prohibition
(AFR) of the Commission on Audit for 2011 and
2012; G.R. No. 209155 Certiorariand
(Villegas) Prohibition
(5) Fifth Evidence Packet15 – containing a letter of G.R. No. 209164 Certiorariand
Department of Transportation and (PHILCONSA) Prohibition
Communications(DOTC) Sec. Joseph Abaya
addressed to Sec. Abad recommending the G.R. No. 209260
withdrawal of funds from his agency, inclusive of Prohibition
(IBP)
annexes; and
G.R. No. 209287 Certiorariand
(6) Sixth Evidence Packet16 – a print-out of the (Araullo) Prohibition
Solicitor General’s visual presentation for the
January 28, 2014 oral arguments. G.R. No. 209442
Certiorari
(Belgica)
On February 5, 2014,17 the OSG forwarded the Seventh G.R. No. 209517 Certiorari and
Evidence Packet,18 which listed the sources of funds brought (COURAGE) Prohibition
under the DAP, the uses of such funds per project or activity
pursuant to DAP, and the legal bases thereof. G.R. No. 209569 Certiorari and
(VACC) Prohibition
On February 14, 2014, the OSG submitted another set of
documents in further compliance with the Resolution dated
The respondents submit that there is no actual controversy
January 28, 2014, viz: that is ripe for adjudication in the absence of adverse claims
between the parties;19 that the petitioners lacked legal
(1) Certified copies of the certifications issued by the Bureau standing to sue because no allegations were made to the
of Treasury to the effect that the revenue collections exceeded effect that they had suffered any injury as a result of the
the original revenue targets for the years 2011, 2012 and adoption of the DAP and issuance of NBC No. 541; that their
2013, including collections arising from sources not being taxpayers did not immediately confer upon the
considered in the original revenue targets, which certifications petitioners the legal standing to sue considering that the
were required for the release of the unprogrammed funds as adoption and implementation of the DAP and the issuance of
provided in Special Provision No. 1 of Article XLV, Article XVI, NBC No. 541 were not in the exercise of the taxing or
and Article XLV of the 2011, 2012 and 2013 GAAs; and (2) A spending power of Congress;20 and that even if the petitioners
report on releases of savings of the Executive Department for had suffered injury, there were plain, speedy and adequate
the use of the Constitutional Commissions and other branches remedies in the ordinary course of law available to them, like
of the Government, as well as the fund releases to the Senate assailing the regularity of the DAP and related issuances
and the Commission on Elections (COMELEC). before the Commission on Audit (COA) or in the trial courts.21

RULING
I.
Procedural Issue:
a) The petitions under Rule 65 are proper remedies
All the petitions are filed under Rule 65 of the Rules of Court,
and include applications for the issuance of writs of preliminary
prohibitory injunction or temporary restraining orders. More
specifically, the nature of the petitions is individually set forth
hereunder, to wit:
The respondents aver that the special civil actions of certiorari
and prohibition are not proper actions for directly assailing the
constitutionality and validity of the DAP, NBC No. 541, and the
other executive issuances implementing the DAP.22
In their memorandum, the respondents further contend that
there is no authorized proceeding under the Constitution and
the Rules of Court for questioning the validity of any law
unless there is an actual case or controversy the resolution of
which requires the determination of the constitutional question;
that the jurisdiction of the Court is largely appellate; that for a
court of law to pass upon the constitutionality of a law or any
act of the Government when there is no case or controversy is
for that court to set itself up as a reviewer of the acts of
Congress and of the President in violation of the principle of
separation of powers; and that, in the absence of a pending
case or controversy involving the DAP and NBC No. 541, any
decision herein could amount to a mere advisory opinion that
no court can validly render.23
The respondents argue that it is the application of the DAP to
actual situations that the petitioners can question either in the
trial courts or in the COA; that if the petitioners are dissatisfied
with the ruling either of the trial courts or of the COA, they can
appeal the decision of the trial courts by petition for review on
certiorari, or assail the decision or final order of the COA by
special civil action for certiorari under Rule 64 of the Rules of
Court.24
The respondents’ arguments and submissions on the
procedural issue are bereft of merit.
Section 1, Article VIII of the 1987 Constitution expressly
provides:
Section 1. The judicial power shall be vested in one Supreme
Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
Thus, the Constitution vests judicial power in the Court and in
such lower courts as may be established by law. In creating a
lower court, Congress concomitantly determines the
jurisdiction of that court, and that court, upon its creation,
becomes by operation of the Constitution one of the
repositories of judicial power.25 However, only the Court is a
constitutionally created court, the rest being created by
Congress in its exercise of the legislative power.
The Constitution states that judicial power includes the duty of
the courts of justice not only "to settle actual controversies
involving rights which are legally demandable and
enforceable" but also "to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of
the Government." It has thereby expanded the concept of
judicial power, which up to then was confined to its traditional
ambit of settling actual controversies involving rights that were
legally demandable and enforceable.
The background and rationale of the expansion of judicial
power under the 1987 Constitution were laid out during the
deliberations of the 1986 Constitutional Commission by
Commissioner Roberto R. Concepcion (a former Chief Justice
of the Philippines) in his sponsorship of the proposed
provisions on the Judiciary, where he said:–
The Supreme Court, like all other courts, has one main
function: to settle actual controversies involving conflicts of
rights which are demandable and enforceable. There are
rights which are guaranteed by law but cannot be enforced by
a judicial party. In a decided case, a husband complained that
his wife was unwilling to perform her duties as a wife. The
Court said: "We can tell your wife what her duties as such are
and that she is bound to comply with them, but we cannot
force her physically to discharge her main marital duty to her
husband. There are some rights guaranteed by law, but they
are so personal that to enforce them by actual compulsion
would be highly derogatory to human dignity." This is why the
first part of the second paragraph of Section 1 provides that:
Judicial power includes the duty of courts to settle actual
controversies involving rights which are legally demandable or
enforceable…
The courts, therefore, cannot entertain, much less decide,
hypothetical questions. In a presidential system of
government, the Supreme Court has, also, another important
function. The powers of government are generally considered
divided into three branches: the Legislative, the Executive and
the Judiciary. Each one is supreme within its own sphere and
independent of the others. Because of that supremacy power
to determine whether a given law is valid or not is vested in
courts of justice.
Briefly stated, courts of justice determine the limits of power of
the agencies and offices of the government as well as those of
its officers. In other words, the judiciary is the final arbiter on
the question whether or not a branch of government or any of
its officials has acted without jurisdiction or in excess of
jurisdiction, or so capriciously as to constitute an abuse of
discretion amounting to excess of jurisdiction or lack of
jurisdiction. This is not only a judicial power but a duty to pass
judgmenton matters of this nature.
This is the background of paragraph 2 of Section 1, which
means that the courts cannot hereafter evade the duty to
settle matters of this nature, by claiming that such matters
constitute a political question. (Bold emphasis supplied)26
Upon interpellation by Commissioner Nolledo, Commissioner
Concepcion clarified the scope of judicial power in the
following manner:–
MR. NOLLEDO. x x x
The second paragraph of Section 1 states: "Judicial power
includes the duty of courts of justice to settle actual
controversies…" The term "actual controversies" according to
the Commissioner should refer to questions which are political
in nature and, therefore, the courts should not refuse to decide
those political questions. But do I understand it right that this is
restrictive or only an example? I know there are cases which
are not actual yet the court can assume jurisdiction. An
example is the petition for declaratory relief.
May I ask the Commissioner’s opinion about that?
MR. CONCEPCION. The Supreme Court has no jurisdiction to
grant declaratory judgments.
MR. NOLLEDO. The Gentleman used the term "judicial
power" but judicial power is not vested in the Supreme Court
alone but also in other lower courts as may be created by law.
MR. CONCEPCION. Yes.
MR. NOLLEDO. And so, is this only an example?
MR. CONCEPCION. No, I know this is not. The Gentleman
seems to identify political questions with jurisdictional
questions. But there is a difference.
MR. NOLLEDO. Because of the expression "judicial power"?
MR. CONCEPCION. No. Judicial power, as I said, refers to
ordinary cases but where there is a question as to whether the
government had authority or had abused its authority to the
extent of lacking jurisdiction or excess of jurisdiction, that is
not a political question. Therefore, the court has the duty to
decide.27
Our previous Constitutions equally recognized the extent of
the power of judicial review and the great responsibility of the
Judiciary in maintaining the allocation of powers among the
three great branches of Government. Speaking for the Court in
Angara v. Electoral Commission,28 Justice Jose P. Laurel
intoned:
x x x In times of social disquietude or political excitement, the
great landmarks of the Constitution are apt to be forgotten or
marred, if not entirely obliterated. In cases of conflict, the
judicial department is the only constitutional organ which can
be called upon to determine the proper allocation of powers
between the several department and among the integral or
constituent units thereof.
xxxx
The Constitution is a definition of the powers of government.
Who is to determine the nature, scope and extent of such
powers? The Constitution itself has provided for the
instrumentality of the judiciary as the rational way. And when
the judiciary mediates to allocate constitutional boundaries, it
does not assert any superiority over the other department; it
does not in reality nullify or invalidate an act of the legislature,
but only asserts the solemn and sacred obligation assigned to
it by the Constitution to determine conflicting claims of
authority under the Constitution and to establish for the parties
in an actual controversy the rights which that instrument
secures and guarantees to them. This is in truth all that is
involved in what is termed "judicial supremacy" which properly
is the power of judicial review under the Constitution. x x x29
What are the remedies by which the grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government may be
determined under the Constitution?
The present Rules of Court uses two special civil actions for
determining and correcting grave abuse of discretion
amounting to lack or excess of jurisdiction. These are the
special civil actions for certiorari and prohibition, and both are
governed by Rule 65. A similar remedy of certiorari exists
under Rule 64, but the remedy is expressly applicable only to
the judgments and final orders or resolutions of the
Commission on Elections and the Commission on Audit.
The ordinary nature and function of the writ of certiorari in our
present system are aptly explained in Delos Santos v.
Metropolitan Bank and Trust Company:30
In the common law, from which the remedy of certiorari
evolved, the writ of certiorari was issued out of Chancery, or
the King’s Bench, commanding agents or officers of the
inferior courts to return the record of a cause pending before
them, so as to give the party more sure and speedy justice, for
the writ would enable the superior court to determine from an
inspection of the record whether the inferior court’s judgment
was rendered without authority. The errors were of such a
nature that, if allowed to stand, they would result in a
substantial injury to the petitioner to whom no other remedy
was available. If the inferior court acted without authority, the
record was then revised and corrected in matters of law. The
writ of certiorari was limited to cases in which the inferior court
was said to be exceeding its jurisdiction or was not proceeding
according to essential requirements of law and would lie only
to review judicial or quasi-judicial acts.
The concept of the remedy of certiorari in our judicial system
remains much the same as it has been in the common law. In
this jurisdiction, however, the exercise of the power to issue
the writ of certiorari is largely regulated by laying down the
instances or situations in the Rules of Court in which a
superior court may issue the writ of certiorari to an inferior
court or officer. Section 1, Rule 65 of the Rules of Court
compellingly provides the requirements for that purpose, viz:
xxxx
The sole office of the writ of certiorari is the correction of errors
of jurisdiction, which includes the commission of grave abuse
of discretion amounting to lack of jurisdiction. In this regard,
mere abuse of discretion is not enough to warrant the
issuance of the writ. The abuse of discretion must be grave,
which means either that the judicial or quasi-judicial power
was exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, or that the respondent judge,
tribunal or board evaded a positive duty, or virtually refused to
perform the duty enjoined or to act in contemplation of law,
such as when such judge, tribunal or board exercising judicial
or quasi-judicial powers acted in a capricious or whimsical
manner as to be equivalent to lack of jurisdiction.31
Although similar to prohibition in that it will lie for want or
excess of jurisdiction, certiorari is to be distinguished from
prohibition by the fact that it is a corrective remedy used for
the re-examination of some action of an inferior tribunal, and is
directed to the cause or proceeding in the lower court and not
to the court itself, while prohibition is a preventative remedy
issuing to restrain future action, and is directed to the court
itself.32 The Court expounded on the nature and function of the
writ of prohibition in Holy Spirit Homeowners Association, Inc.
v. Defensor:33
A petition for prohibition is also not the proper remedy to assail
an IRR issued in the exercise of a quasi-legislative function.
Prohibition is an extraordinary writ directed against any
tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions,
ordering said entity or person to desist from further
proceedings when said proceedings are without or in excess
of said entity’s or person’s jurisdiction, or are accompanied
with grave abuse of discretion, and there is no appeal or any
other plain, speedy and adequate remedy in the ordinary
course of law. Prohibition lies against judicial or ministerial
functions, but not against legislative or quasi-legislative
functions. Generally, the purpose of a writ of prohibition is to
keep a lower court within the limits of its jurisdiction in order to
maintain the administration of justice in orderly channels.
Prohibition is the proper remedy to afford relief against
usurpation of jurisdiction or power by an inferior court, or
when, in the exercise of jurisdiction in handling matters clearly
within its cognizance the inferior court transgresses the
bounds prescribed to it by the law, or where there is no
adequate remedy available in the ordinary course of law by
which such relief can be obtained. Where the principal relief
sought is to invalidate an IRR, petitioners’ remedy is an
ordinary action for its nullification, an action which properly
falls under the jurisdiction of the Regional Trial Court. In any
case, petitioners’ allegation that "respondents are performing
or threatening to perform functions without or in excess of their
jurisdiction" may appropriately be enjoined by the trial court
through a writ of injunction or a temporary restraining order.
With respect to the Court, however, the remedies of certiorari
and prohibition are necessarily broader in scope and reach,
and the writ of certiorari or prohibition may be issued to correct
errors of jurisdiction committed not only by a tribunal,
corporation, board or officer exercising judicial, quasi-judicial
or ministerial functions but also to set right, undo and restrain
any act of grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or instrumentality of the
Government, even if the latter does not exercise judicial,
quasi-judicial or ministerial functions. This application is
expressly authorized by the text of the second paragraph of
Section 1, supra.
Thus, petitions for certiorari and prohibition are appropriate
remedies to raise constitutional issues and to review and/or
prohibit or nullify the acts of legislative and executive
officials.34
Necessarily, in discharging its duty under Section 1, supra, to
set right and undo any act of grave abuse of discretion
amounting to lack or excess of jurisdiction by any branch or
instrumentality of the Government, the Court is not at all
precluded from making the inquiry provided the challenge was
properly brought by interested or affected parties. The Court
has been thereby entrusted expressly or by necessary
implication with both the duty and the obligation of
determining, in appropriate cases, the validity of any assailed
legislative or executive action. This entrustment is consistent
with the republican system of checks and balances.35
Following our recent dispositions concerning the
congressional pork barrel, the Court has become more alert to
discharge its constitutional duty. We will not now refrain from
exercising our expanded judicial power in order to review and
determine, with authority, the limitations on the Chief
Executive’s spending power.
b) Requisites for the exercise of the
power of judicial review were
complied with
The requisites for the exercise of the power of judicial review
are the following, namely: (1) there must bean actual case or
justiciable controversy before the Court; (2) the question
before the Court must be ripe for adjudication; (3) the person
challenging the act must be a proper party; and (4) the issue
of constitutionality must be raised at the earliest opportunity
and must be the very litis mota of the case.36
The first requisite demands that there be an actual case
calling for the exercise of judicial power by the Court.37 An
actual case or controversy, in the words of Belgica v.
Executive Secretary Ochoa:38
x x x is one which involves a conflict of legal rights, an
assertion of opposite legal claims, susceptible of judicial
resolution as distinguished from a hypothetical or abstract
difference or dispute. In other words, "[t]here must be a
contrariety of legal rights that can be interpreted and enforced
on the basis of existing law and jurisprudence." Related to the
requirement of an actual case or controversy is the
requirement of "ripeness," meaning that the questions raised
for constitutional scrutiny are already ripe for adjudication. "A
question is ripe for adjudication when the act being challenged
has had a direct adverse effect on the individual challenging it.
It is a prerequisite that something had then been
accomplished or performed by either branch before a court
may come into the picture, and the petitioner must allege the
existence of an immediate or threatened injury to itself as a
result of the challenged action." "Withal, courts will decline to
pass upon constitutional issues through advisory opinions,
bereft as they are of authority to resolve hypothetical or moot
questions."
An actual and justiciable controversy exists in these
consolidated cases. The incompatibility of the perspectives of
the parties on the constitutionality of the DAP and its relevant
issuances satisfy the requirement for a conflict between legal
rights. The issues being raised herein meet the requisite
ripeness considering that the challenged executive acts were
already being implemented by the DBM, and there are
averments by the petitioners that such implementation was
repugnant to the letter and spirit of the Constitution. Moreover,
the implementation of the DAP entailed the allocation and
expenditure of huge sums of public funds. The fact that public
funds have been allocated, disbursed or utilized by reason or
on account of such challenged executive acts gave rise,
therefore, to an actual controversy that is ripe for adjudication
by the Court.
It is true that Sec. Abad manifested during the January 28,
2014 oral arguments that the DAP as a program had been
meanwhile discontinued because it had fully served its
purpose, saying: "In conclusion, Your Honors, may I inform the
Court that because the DAP has already fully served its
purpose, the Administration’s economic managers have
recommended its termination to the President. x x x."39
The Solicitor General then quickly confirmed the termination of
the DAP as a program, and urged that its termination had
already mooted the challenges to the DAP’s constitutionality,
viz:
DAP as a program, no longer exists, thereby mooting these
present cases brought to challenge its constitutionality. Any
constitutional challenge should no longer be at the level of the
program, which is now extinct, but at the level of its prior
applications or the specific disbursements under the now
defunct policy. We challenge the petitioners to pick and
choose which among the 116 DAP projects they wish to
nullify, the full details we will have provided by February 5. We
urge this Court to be cautious in limiting the constitutional
authority of the President and the Legislature to respond to the
dynamic needs of the country and the evolving demands of
governance, lest we end up straight jacketing our elected
representatives in ways not consistent with our constitutional
structure and democratic principles.40
A moot and academic case is one that ceases to present a
justiciable controversy by virtue of supervening events, so that
a declaration thereon would be of no practical use or value.41
The Court cannot agree that the termination of the DAP as a
program was a supervening event that effectively mooted
these consolidated cases. Verily, the Court had in the past
exercised its power of judicial review despite the cases being
rendered moot and academic by supervening events, like: (1)
when there was a grave violation of the Constitution; (2) when
the case involved a situation of exceptional character and was
of paramount public interest; (3) when the constitutional issue
raised required the formulation of controlling principles to
guide the Bench, the Bar and the public; and (4) when the
case was capable of repetition yet evading review.42
Assuming that the petitioners’ several submissions against the
DAP were ultimately sustained by the Court here, these cases
would definitely come under all the exceptions. Hence, the
Court should not abstain from exercising its power of judicial
review.
Did the petitioners have the legal standing to sue?
Legal standing, as a requisite for the exercise of judicial
review, refers to "a right of appearance in a court of justice on
a given question."43 The concept of legal standing, or locus
standi, was particularly discussed in De Castro v. Judicial and
Bar Council,44 where the Court said:
In public or constitutional litigations, the Court is often
burdened with the determination of the locus standi of the
petitioners due to the ever-present need to regulate the
invocation of the intervention of the Court to correct any official
action or policy in order to avoid obstructing the efficient
functioning of public officials and offices involved in public
service. It is required, therefore, that the petitioner must have
a personal stake in the outcome of the controversy, for, as
indicated in Agan, Jr. v. Philippine International Air Terminals
Co., Inc.:
The question on legal standing is whether such parties have
"alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional
questions." Accordingly, it has been held that the interest of a
person assailing the constitutionality of a statute must be
direct and personal. He must be able to show, not only that the
law or any government act is invalid, but also that he
sustained or is in imminent danger of sustaining some direct
injury as a result of its enforcement, and not merely that he
suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some
right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason
of the statute or act complained of.
It is true that as early as in 1937, in People v. Vera, the Court
adopted the direct injury test for determining whether a
petitioner in a public action had locus standi. There, the Court
held that the person who would assail the validity of a statute
must have "a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury as a
result." Vera was followed in Custodio v. President of the
Senate, Manila Race Horse Trainers’ Association v. De la
Fuente, Anti-Chinese League of the Philippines v. Felix, and
Pascual v. Secretary of Public Works.
Yet, the Court has also held that the requirement of locus
standi, being a mere procedural technicality, can be waived by
the Court in the exercise of its discretion. For instance, in
1949, in Araneta v. Dinglasan, the Court liberalized the
approach when the cases had "transcendental importance."
Some notable controversies whose petitioners did not pass
the direct injury test were allowed to be treated in the same
way as in Araneta v. Dinglasan.
In the 1975 decision in Aquino v. Commission on Elections,
this Court decided to resolve the issues raised by the petition
due to their "far reaching implications," even if the petitioner
had no personality to file the suit. The liberal approach of
Aquino v. Commission on Elections has been adopted in
several notable cases, permitting ordinary citizens, legislators,
and civic organizations to bring their suits involving the
constitutionality or validity of laws, regulations, and rulings.
However, the assertion of a public right as a predicate for
challenging a supposedly illegal or unconstitutional executive
or legislative action rests on the theory that the petitioner
represents the public in general. Although such petitioner may
not be as adversely affected by the action complained against
as are others, it is enough that he sufficiently demonstrates in
his petition that he is entitled to protection or relief from the
Court in the vindication of a public right.
Quite often, as here, the petitioner in a public action sues as a
citizen or taxpayer to gain locus standi. That is not surprising,
for even if the issue may appear to concern only the public in
general, such capacities nonetheless equip the petitioner with
adequate interest to sue. In David v. Macapagal-Arroyo, the
Court aptly explains why:
Case law in most jurisdiction snow allows both "citizen" and
"taxpayer" standing in public actions. The distinction was first
laid down in Beauchamp v. Silk, where it was held that the
plaintiff in a taxpayer’s suit is in a different category from the
plaintiff in a citizen’s suit. In the former, the plaintiff is affected
by the expenditure of public funds, while in the latter, he is but
the mere instrument of the public concern. As held by the New
York Supreme Court in People ex rel Case v. Collins: "In
matter of mere public right, however…the people are the real
parties…It is at least the right, if not the duty, of every citizen
to interfere and see that a public offence be properly pursued
and punished, and that a public grievance be remedied." With
respect to taxpayer’s suits, Terr v. Jordan held that "the right
of a citizen and a taxpayer to maintain an action in courts to
restrain the unlawful use of public funds to his injury cannot be
denied."45
The Court has cogently observed in Agan, Jr. v. Philippine
International Air Terminals Co., Inc.46 that "[s]tanding is a
peculiar concept in constitutional law because in some cases,
suits are not brought by parties who have been personally
injured by the operation of a law or any other government act
but by concerned citizens, taxpayers or voters who actually
sue in the public interest."
Except for PHILCONSA, a petitioner in G.R. No. 209164, the
petitioners have invoked their capacities as taxpayers who, by
averring that the issuance and implementation of the DAP and
its relevant issuances involved the illegal disbursements of
public funds, have an interest in preventing the further
dissipation of public funds. The petitioners in G.R. No. 209287
(Araullo) and G.R. No. 209442 (Belgica) also assert their right
as citizens to sue for the enforcement and observance of the
constitutional limitations on the political branches of the
Government.47
On its part, PHILCONSA simply reminds that the Court has
long recognized its legal standing to bring cases upon
constitutional issues.48 Luna, the petitioner in G.R. No.
209136, cites his additional capacity as a lawyer. The IBP, the
petitioner in G.R. No. 209260, stands by "its avowed duty to
work for the rule of law and of paramount importance of the
question in this action, not to mention its civic duty as the
official association of all lawyers in this country."49
Under their respective circumstances, each of the petitioners
has established sufficient interest in the outcome of the
controversy as to confer locus standi on each of them.
In addition, considering that the issues center on the extent of
the power of the Chief Executive to disburse and allocate
public funds, whether appropriated by Congress or not, these
cases pose issues that are of transcendental importance to
the entire Nation, the petitioners included. As such, the
determination of such important issues call for the Court’s
exercise of its broad and wise discretion "to waive the
requirement and so remove the impediment to its addressing
and resolving the serious constitutional questions raised."50
II.
Substantive Issues
1.
Overview of the Budget System
An understanding of the Budget System of the Philippines will
aid the Court in properly appreciating and justly resolving the
substantive issues.
a) Origin of the Budget System
The term "budget" originated from the Middle English word
bouget that had derived from the Latin word bulga (which
means bag or purse).51
In the Philippine setting, Commonwealth Act (CA) No. 246
(Budget Act) defined "budget" as the financial program of the
National Government for a designated fiscal year, consisting
of the statements of estimated receipts and expenditures for
the fiscal year for which it was intended to be effective based
on the results of operations during the preceding fiscal years.
The term was given a different meaning under Republic Act
No. 992 (Revised Budget Act) by describing the budget as the
delineation of the services and products, or benefits that would
accrue to the public together with the estimated unit cost of
each type of service, product or benefit.52 For a forthright
definition, budget should simply be identified as the financial
plan of the Government,53 or "the master plan of
government."54
The concept of budgeting has not been the product of recent
economies. In reality, financing public goals and activities was
an idea that existed from the creation of the State.55 To protect
the people, the territory and sovereignty of the State, its
government must perform vital functions that required public
expenditures. At the beginning, enormous public expenditures
were spent for war activities, preservation of peace and order,
security, administration of justice, religion, and supply of
limited goods and services.56 In order to finance those
expenditures, the State raised revenues through taxes and
impositions.57 Thus, budgeting became necessary to allocate
public revenues for specific government functions.58 The
State’s budgeting mechanism eventually developed through
the years with the growing functions of its government and
changes in its market economy.
The Philippine Budget System has been greatly influenced by
western public financial institutions. This is because of the
country’s past as a colony successively of Spain and the
United States for a long period of time. Many aspects of the
country’s public fiscal administration, including its Budget
System, have been naturally patterned after the practices and
experiences of the western public financial institutions. At any
rate, the Philippine Budget System is presently guided by two
principal objectives that are vital to the development of a
progressive democratic government, namely: (1) to carry on all
government activities under a comprehensive fiscal plan
developed, authorized and executed in accordance with the
Constitution, prevailing statutes and the principles of sound
public management; and (2) to provide for the periodic review
and disclosure of the budgetary status of the Government in
such detail so that persons entrusted by law with the
responsibility as well as the enlightened citizenry can
determine the adequacy of the budget actions taken,
authorized or proposed, as well as the true financial position of
the Government.59
b) Evolution of the Philippine Budget System
The budget process in the Philippines evolved from the early
years of the American Regime up to the passage of the Jones
Law in 1916. A Budget Office was created within the
Department of Finance by the Jones Law to discharge the
budgeting function, and was given the responsibility to assist
in the preparation of an executive budget for submission to the
Philippine Legislature.60
As early as under the 1935 Constitution, a budget policy and a
budget procedure were established, and subsequently
strengthened through the enactment of laws and executive
acts.61 EO No. 25, issued by President Manuel L. Quezon on
April 25, 1936, created the Budget Commission to serve as
the agency that carried out the President’s responsibility of
preparing the budget.62 CA No. 246, the first budget law, went
into effect on January 1, 1938 and established the Philippine
budget process. The law also provided a line-item budget as
the framework of the Government’s budgeting system,63 with
emphasis on the observance of a "balanced budget" to tie up
proposed expenditures with existing revenues.
CA No. 246 governed the budget process until the passage on
June 4, 1954 of Republic Act (RA) No. 992,whereby Congress
introduced performance-budgeting to give importance to
functions, projects and activities in terms of expected
results.64 RA No. 992 also enhanced the role of the Budget
Commission as the fiscal arm of the Government.65
The 1973 Constitution and various presidential decrees
directed a series of budgetary reforms that culminated in the
enactment of PD No. 1177 that President Marcos issued on
July30, 1977, and of PD No. 1405, issued on June 11, 1978.
The latter decree converted the Budget Commission into the
Ministry of Budget, and gave its head the rank of a Cabinet
member.
The Ministry of Budget was later renamed the Office of Budget
and Management (OBM) under EO No. 711. The OBM
became the DBM pursuant to EO No. 292 effective on
November 24, 1989.
c) The Philippine Budget Cycle66
Four phases comprise the Philippine budget process,
specifically: (1) Budget Preparation; (2) Budget Legislation; (3)
Budget Execution; and (4) Accountability. Each phase is
distinctly separate from the others but they overlap in the
implementation of the budget during the budget year.
c.1.Budget Preparation67
The budget preparation phase is commenced through the
issuance of a Budget Call by the DBM. The Budget Call
contains budget parameters earlier set by the Development
Budget Coordination Committee (DBCC) as well as policy
guidelines and procedures to aid government agencies in the
preparation and submission of their budget proposals. The
Budget Call is of two kinds, namely: (1) a National Budget
Call, which is addressed to all agencies, including state
universities and colleges; and (2) a Corporate Budget Call,
which is addressed to all government-owned and -controlled
corporations (GOCCs) and government financial institutions
(GFIs).
Following the issuance of the Budget Call, the various
departments and agencies submit their respective Agency
Budget Proposals to the DBM. To boost citizen participation,
the current administration has tasked the various departments
and agencies to partner with civil society organizations and
other citizen-stakeholders in the preparation of the Agency
Budget Proposals, which proposals are then presented before
a technical panel of the DBM in scheduled budget hearings
wherein the various departments and agencies are given the
opportunity to defend their budget proposals. DBM bureaus
thereafter review the Agency Budget Proposals and come up
with recommendations for the Executive Review Board,
comprised by the DBM Secretary and the DBM’s senior
officials. The discussions of the Executive Review Board cover
the prioritization of programs and their corresponding support
vis-à-vis the priority agenda of the National Government, and
their implementation.
The DBM next consolidates the recommended agency
budgets into the National Expenditure Program (NEP)and a
Budget of Expenditures and Sources of Financing (BESF).
The NEP provides the details of spending for each department
and agency by program, activity or project (PAP), and is
submitted in the form of a proposed GAA. The Details of
Selected Programs and Projects is the more detailed
disaggregation of key PAPs in the NEP, especially those in
line with the National Government’s development plan. The
Staffing Summary provides the staffing complement of each
department and agency, including the number of positions and
amounts allocated.
The NEP and BESF are thereafter presented by the DBM and
the DBCC to the President and the Cabinet for further
refinements or reprioritization. Once the NEP and the BESF
are approved by the President and the Cabinet, the DBM
prepares the budget documents for submission to Congress.
The budget documents consist of: (1) the President’s Budget
Message, through which the President explains the policy
framework and budget priorities; (2) the BESF, mandated by
Section 22, Article VII of the Constitution,68 which contains the
macroeconomic assumptions, public sector context,
breakdown of the expenditures and funding sources for the
fiscal year and the two previous years; and (3) the NEP.
Public or government expenditures are generally classified
into two categories, specifically: (1) capital expenditures or
outlays; and (2) current operating expenditures. Capital
expenditures are the expenses whose usefulness lasts for
more than one year, and which add to the assets of the
Government, including investments in the capital of
government-owned or controlled corporations and their
subsidiaries.69 Current operating expenditures are the
purchases of goods and services in current consumption the
benefit of which does not extend beyond the fiscal year.70 The
two components of current expenditures are those for
personal services (PS), and those for maintenance and other
operating expenses(MOOE).
Public expenditures are also broadly grouped according to
their functions into: (1) economic development expenditures
(i.e., expenditures on agriculture and natural resources,
transportation and communications, commerce and industry,
and other economic development efforts);71 (2) social services
or social development expenditures (i.e., government outlay
on education, public health and medicare, labor and welfare
and others);72 (3) general government or general public
services expenditures (i.e., expenditures for the general
government, legislative services, the administration of justice,
and for pensions and gratuities);73 (4) national defense
expenditures (i.e., sub-divided into national security
expenditures and expenditures for the maintenance of peace
and order);74 and (5) public debt.75
Public expenditures may further be classified according to the
nature of funds, i.e., general fund, special fund or bond fund.76
On the other hand, public revenues complement public
expenditures and cover all income or receipts of the
government treasury used to support government
expenditures.77
Classical economist Adam Smith categorized public revenues
based on two principal sources, stating: "The revenue which
must defray…the necessary expenses of government may be
drawn either, first from some fund which peculiarly belongs to
the sovereign or commonwealth, and which is independent of
the revenue of the people, or, secondly, from the revenue of
the people."78 Adam Smith’s classification relied on the two
aspects of the nature of the State: first, the State as a juristic
person with an artificial personality, and, second, the State as
a sovereign or entity possessing supreme power. Under the
first aspect, the State could hold property and engage in trade,
thereby deriving what is called its quasi private income or
revenues, and which "peculiarly belonged to the sovereign."
Under the second aspect, the State could collect by imposing
charges on the revenues of its subjects in the form of taxes.79
In the Philippines, public revenues are generally derived from
the following sources, to wit: (1) tax revenues(i.e., compulsory
contributions to finance government activities); 80 (2) capital
revenues(i.e., proceeds from sales of fixed capital assets or
scrap thereof and public domain, and gains on such sales like
sale of public lands, buildings and other structures, equipment,
and other properties recorded as fixed assets); 81 (3)
grants(i.e., voluntary contributions and aids given to the
Government for its operation on specific purposes in the form
of money and/or materials, and do not require any monetary
commitment on the part of the recipient);82 (4) extraordinary
income(i.e., repayment of loans and advances made by
 government corporations and local governments and the
receipts and shares in income of the Banko Sentral ng
Pilipinas, and other receipts);83 and (5) public borrowings(i.e.,
proceeds of repayable obligations generally with interest from
domestic and foreign creditors of the Government in general,
including the National Government and its political
subdivisions).84
More specifically, public revenues are classified as follows:85
examine the PAPs of the departments and agencies.
Thereafter, the House of Representatives drafts the General
Appropriations Bill (GAB).87
The GABis sponsored, presented and defended by the House
of Representatives’ Appropriations Committee and Sub-
Committees in plenary session. As with other laws, the GAB is
approved on Third Reading before the House of
Representatives’ version is transmitted to the Senate.88

General Income Specific Income After transmission, the Senate conducts its own committee
hearings on the GAB. To expedite proceedings, the Senate
1. Subsidy Income from National
1. Income Taxes may conduct its committee hearings simultaneously with the
Government 2. Property Taxes House of Representatives’ deliberations. The Senate’s
2. Subsidy from Central Office Finance Committee and its Sub-Committees may submit the
3. Taxes on Goods and Services proposed amendments to the GAB to the plenary of the
3. Subsidy from Regional 4. Taxes on International Trade and Senate only after the House of Representatives has formally
Office/Staff Bureaus Transactions transmitted its version to the Senate. The Senate version of
4. Income from Government the GAB is likewise approved on Third Reading.89
5. Other Taxes 6.Fines and Penalties-Tax Revenue
Services
7. Other Specific Income The House of Representatives and the Senate then constitute
5. Income from Government
Business Operations a panel each to sit in the Bicameral Conference Committee for
the purpose of discussing and harmonizing the conflicting
6. Sales Revenue provisions of their versions of the GAB. The "harmonized"
7. Rent Income version of the GAB is next presented to the President for
approval.90 The President reviews the GAB, and prepares the
8. Insurance Income
Veto Message where budget items are subjected to direct
9. Dividend Income veto,91 or are identified for conditional implementation.
10. Interest Income
11. Sale of Confiscated Goods and If, by the end of any fiscal year, the Congress shall have failed
Properties to pass the GAB for the ensuing fiscal year, the GAA for the
preceding fiscal year shall be deemed re-enacted and shall
12. Foreign Exchange (FOREX) remain in force and effect until the GAB is passed by the
Gains Congress.92
13. Miscellaneous Operating and
Service Income c.3. Budget Execution93
14. Fines and Penalties-Government
Services and Business Operations With the GAA now in full force and effect, the next step is the
implementation of the budget. The Budget Execution Phase is
15. Income from Grants and
primarily the function of the DBM, which is tasked to perform
Donations
the following procedures, namely: (1) to issue the programs
and guidelines for the release of funds; (2) to prepare an
Allotment and Cash Release Program; (3) to release
allotments; and (4) to issue disbursement authorities.
c.2. Budget Legislation86
The implementation of the GAA is directed by the guidelines
The Budget Legislation Phase covers the period commencing issued by the DBM. Prior to this, the various departments and
from the time Congress receives the President’s Budget, agencies are required to submit Budget Execution
which is inclusive of the NEPand the BESF, up to the Documents(BED) to outline their plans and performance
President’s approval of the GAA. This phase is also known as targets by laying down the physical and financial plan, the
the Budget Authorization Phase, and involves the significant monthly cash program, the estimate of monthly income, and
participation of the Legislative through its deliberations. the list of obligations that are not yet due and demandable.

Initially, the President’s Budget is assigned to the House of Thereafter, the DBM prepares an Allotment Release Program
Representatives’ Appropriations Committee on First Reading. (ARP)and a Cash Release Program (CRP).The ARP sets a
The Appropriations Committee and its various Sub- limit for allotments issued in general and to a specific agency.
Committees schedule and conduct budget hearings to
The CRP fixes the monthly, quarterly and annual
disbursement levels.
Allotments, which authorize an agency to enter into
obligations, are issued by the DBM. Allotments are lesser in
scope than appropriations, in that the latter embrace the
general legislative authority to spend. Allotments may be
released in two forms – through a comprehensive Agency
Budget Matrix (ABM),94 or, individually, by SARO.95
Armed with either the ABM or the SARO, agencies become
authorized to incur obligations96 on behalf of the Government
in order to implement their PAPs. Obligations may be incurred
in various ways, like hiring of personnel, entering into
contracts for the supply of goods and services, and using
utilities.
In order to settle the obligations incurred by the agencies, the
DBM issues a disbursement authority so that cash may be
allocated in payment of the obligations. A cash or
disbursement authority that is periodically issued is referred to
as a Notice of Cash Allocation (NCA),97 which issuance is
based upon an agency’s submission of its Monthly Cash
Program and other required documents. The NCA specifies
the maximum amount of cash that can be withdrawn from a
government servicing bank for the period indicated. Apart from
the NCA, the DBM may issue a Non-Cash Availment
Authority(NCAA) to authorize non-cash disbursements, or a
Cash Disbursement Ceiling(CDC) for departments with
overseas operations to allow the use of income collected by
their foreign posts for their operating requirements.
Actual disbursement or spending of government funds
terminates the Budget Execution Phase and is usually
accomplished through the Modified Disbursement Scheme
under which disbursements chargeable against the National
Treasury are coursed through the government servicing
banks.
c.4. Accountability98
Accountability is a significant phase of the budget cycle
because it ensures that the government funds have been
effectively and efficiently utilized to achieve the State’s socio-
economic goals. It also allows the DBM to assess the
performance of agencies during the fiscal year for the purpose
of implementing reforms and establishing new policies.
An agency’s accountability may be examined and evaluated
through (1) performance targets and outcomes; (2) budget
accountability reports; (3) review of agency performance; and
(4) audit conducted by the Commission on Audit(COA).
2.
Nature of the DAP as a fiscal plan
a. DAP was a program designed to
promote economic growth
Policy is always a part of every budget and fiscal decision of
any Administration.99 The national budget the Executive
prepares and presents to Congress represents the
Administration’s "blueprint for public policy" and reflects the
Government’s goals and strategies.100 As such, the national
budget becomes a tangible representation of the programs of
the Government in monetary terms, specifying therein the
PAPs and services for which specific amounts of public funds
are proposed and allocated.101 Embodied in every national
budget is government spending.102
When he assumed office in the middle of 2010, President
Aquino made efficiency and transparency in government
spending a significant focus of his Administration. Yet,
although such focus resulted in an improved fiscal deficit of
0.5% in the gross domestic product (GDP) from January to
July of 2011, it also unfortunately decelerated government
project implementation and payment schedules.103 The World
Bank observed that the Philippines’ economic growth could be
reduced, and potential growth could be weakened should the
Government continue with its underspending and fail to
address the large deficiencies in infrastructure.104 The
economic situation prevailing in the middle of 2011 thus paved
the way for the development and implementation of the DAP
as a stimulus package intended to fast-track public spending
and to push economic growth by investing on high-impact
budgetary PAPs to be funded from the "savings" generated
during the year as well as from unprogrammed funds.105 In
that respect, the DAP was the product of "plain executive
policy-making" to stimulate the economy by way of
accelerated spending.106 The Administration would thereby
accelerate government spending by: (1) streamlining the
implementation process through the clustering of infrastructure
projects of the Department of Public Works and Highways
(DPWH) and the Department of Education (DepEd),and (2)
front loading PPP-related projects107 due for implementation in
the following year.108
Did the stimulus package work?
The March 2012 report of the World Bank,109 released after
the initial implementation of the DAP, revealed that the DAP
was partially successful. The disbursements under the DAP
contributed 1.3 percentage points to GDP growth by the fourth
quarter of 2011.110 The continued implementation of the DAP
strengthened growth by 11.8% year on year while
infrastructure spending rebounded from a 29% contraction to a
34% growth as of September 2013.111
The DAP thus proved to be a demonstration that expenditure
was a policy instrument that the Government could use to
direct the economies towards growth and development.112 The
Government, by spending on public infrastructure, would
signify its commitment of ensuring profitability for prospective
investors.113 The PAPs funded under the DAP were chosen for
 this reason based on their: (1) multiplier impact on the
economy and infrastructure development; (2) beneficial effect programs for
on the poor; and (3) translation into disbursements.114 discontinuance)

FY 2010 12,336 Supported by the GFI Approve and

b. History of the implementation of
Unprogrammed Dividends authorize its u
the DAP, and sources of funds
Fund for the 2011
under the DAP Disbursement
Acceleration
How the Administration’s economic managers conceptualized Program
and developed the DAP, and finally presented it to the
President remains unknown because theFY relevant
2010 documents 21,544 Unreleased With prior
appear to be scarce. Carryover appropriations (slow approval from
Appropriation moving projects and the President
The earliest available document relating to the genesis of the programs for November 20
DAP was the memorandum of October 12,2011 from Sec. discontinuance) and to declare as
Abad seeking the approval of the President to implement the savings from Zero-based Budgeting savings and w
proposed DAP. The memorandum, which contained a list of Initiative authority to us
the funding sources for ₱72.11 billion and of the proposed for priority
priority projects to be funded,115 reads: projects

FY 2011 Budget
MEMORANDUM FOR THE PRESIDENT 7,748 FY 2011 Agency For informatio
items for Budget items that can
realignment be realigned within the
xxxx
agency to fund new fast
disbursing projects
SUBJECT: FY 2011 PROPOSED DISBURSEMENT DPWH-3.981 Billion
ACCELERATION PROGRAM (PROJECTS AND SOURCES DA – 2.497 Billion
OF FUNDS) DOT – 1.000 Billion
DepEd – 270 Million
DATE: OCTOBER 12, 2011
TOTAL 72.110
Mr. President, this is to formally confirm your approval of the
Disbursement Acceleration Program totaling ₱72.11 billion.
We are already working with all the agencies concerned for B. Projects in the Disbursement Acceleration Program
the immediate execution of the projects therein.
(Descriptions of projects attached as Annex A)
A. Fund Sources for the Acceleration Program
GOCCs and GFIs
Amount Agency/Project Allotment
Action
Sources (In million Description (SARO and NCA Release) (in Million Php)
Requested
Php)
1. LRTA: Rehabilitation of LRT 1 and 2 1,868
30,000 Unreleased Personnel Declare as
d Services (PS) 2. NHA: savings and 11,050
appropriations which approve/
PS) will lapse at the end of a. Resettlement of authorize
North Triangle residents to
its use 450
ons FY 2011 but may be Camarin A7 for the 2011
pooled as savings and b. Housing for BFP/BJMP
Disbursement 500
realigned for priority c. On-site development for families living
Acceleration 10,000
programs that require along dangerous Program
immediate funding d. Relocation sites for informal settlers 100
along Iloilo River and its tributaries
482 Unreleased
d appropriations (slow 3. PHIL. HEART CENTER: Upgrading of 357
ons moving projects and ageing physical plant and medical equipment
4. CREDIT INFO CORP: Establishment of Integrated Community
75 Based Multi-Species
centralized credit information system Hatchery and Aquasilvi
Farming 1,629 1,629
5. PIDS: purchase of land to relocate the PIDS b. Mindanao Rural100
office and building construction Development Project 919 183
6. HGC: Equity infusion for credit insurance c. NIA Agno River 400
Integrated
and mortgage guaranty operations of HGC Irrigation Project 411 411
7. PHIC: Obligations incurred (premium 17. DAR: 1,496 1,293 1,293
subsidy for indigent families) in January-June a. Agrarian Reform
2010, booked for payment in Jul[y] – Dec Communities Project 2 1,293 132
2010. The delay in payment is due to the b. Landowners Compensation 5,432
delay in the certification of the LGU
counterpart. Without it, the NG is obliged to 18. DBM: Conduct of National
pay the full amount. Survey of
Farmers/Fisherfolks/Ips 625 625
8. Philpost: Purchase of foreclosed property. 644
Payment of Mandatory Obligations, (GSIS, 19. DOJ: Operating requirements
PhilHealth, ECC), Franking Privilege of 50 investigation agents and
15 state attorneys 11 11
9. BSP: First equity infusion out of Php 40B 10,000
capitalization under the BSP Law 20. DOT: Preservation of the Cine
Corregidor Complex 25 25
10. PCMC: Capital and Equipment Renovation 280
21. OPAPP: Activities for Peace
11. LCOP: Process (PAMANA-105 Project
a. Pediatric Pulmonary Program details: budget breakdown,
b. Bio-regenerative Technology Program implementation plan,35and
Stem-Cell Research – subject to legal conditions on fund release
eview and presentation) 70
attached as Annex B) 1,819 1,819
12. TIDCORP: NG Equity infusion 22. DOST 570 425 425
a. Establishment of National
TOTAL Meterological and26,945
Climate
Center 275 275
b. Enhancement of Doppler
NGAs/LGUs Radar Network for National
Weather Watch, Accurate
Agency/Project Allotment
Forecasting and Flood Early
(SARO)
Warning Cash 190 190
(In Million Requirement
23.
Php)DOF-BOC: To settle
(NCA) the
principal obligations with
13. DOF-BIR: NPSTAR PDIC consistent with the
centralization of data agreement with the CISS and
processing and others (To be SGS 2,800 2,800
synchronized with GFMIS
activities) 24.
758OEO-FDCP: Establishment
758 of
the National Film Archive and
14. COA: IT infrastructure local cinematheques, and other
program and hiring of local activities 20 20
additional litigational experts 144 144
25. DPWH: Various infrastructure
15. DND-PAF: On Base Housing projects 5,500 5,500
Facilities and Communication
Equipment 26.
30DepEd/ERDT/DOST:30 Thin
Client Cloud Computing
16. DA: 2,959
Project 2,223 270 270
a. Irrigation, FMRs and
 2011116 requesting omnibus authority to consolidate the
27. DOH: Hiring of nurses and
savings and unutilized balances for fiscal year 2011. Pertinent
midwives 294 294
portions of the memorandum of December 12, 2011 read:
28. TESDA: Training Program in
partnership with BPO industry MEMORANDUM FOR THE PRESIDENT
and other sectors 1,100 1,100
xxxx
29. DILG: Performance Challenge
Fund (People Empowered
Community Driven SUBJECT: Omnibus Authority to Consolidate
Development with DSWD and Savings/Unutilized Balances and its Realignment
NAPC) 250 50
DATE: December 12, 2011
30. ARMM: Comprehensive Peace
and Development Intervention 8,592 8,592
This is to respectfully request for the grant of Omnibus
31. DOTC-MRT: Purchase of Authority to consolidate savings/unutilized balances in FY
additional MRT cars 4,500 2011
- corresponding to completed or discontinued projects
which may be pooled to fund additional projects or
32. LGU Support Fund 6,500 expenditures.
6,500

33. Various Other Local Projects 6,500 6,500

In addition, Mr. President, this measure will allow us to
undertake projects even if their implementation carries over to
34. Development Assistance to the
2012 without necessarily impacting on our budget deficit cap
Province of Quezon 750 750
next year.
TOTAL 45,165 44,000
BACKGROUND

C. Summary 1.0 The DBM, during the course of

performance reviews conducted on the
Fund Sources agencies’ operations, particularly on the
Identified for Allotments Cash implementation of their projects/activities,
Approval for Release Requirements for including expenses incurred in
(In Million Release in FY undertaking the same, have identified
Php) 2011 savings out of the 2011 General
Appropriations Act. Said savings
Total 72,110 72,110 70,895 correspond to completed or discontinued
projects under certain
GOCCs 26,895 26,895 departments/agencies which may be
pooled, for the following:
NGAs/LGUs 45,165 44,000
1.1 to provide for new activities
For His Excellency’s Consideration which have not been
anticipated during preparation
of the budget;
(Sgd.) FLORENCIO B. ABAD
1.2 to augment additional
[/] APPROVED requirements of on-going
priority projects; and
[ ] DISAPPROVED
1.3 to provide for deficiencies
(Sgd.) H.E. BENIGNO S. AQUINO, III under the Special Purpose
Funds, e.g., PDAF, Calamity
OCT 12, 2011 Fund, Contingent Fund

The memorandum of October 12, 2011 was followed by 1.4 to cover for the
another memorandum for the President dated December 12, modifications of the original
allotment class allocation as a
 result of on-going priority
projects and implementation of
new activities
2.0 x x x x
2.1 x x x
2.2 x x x
ON THE UTILIZATION OF POOLED SAVINGS
3.0 It may be recalled that the President
approved our request for omnibus
authority to pool savings/unutilized
balances in FY 2010 last November 25,
2010.
4.0 It is understood that in the utilization
of the pooled savings, the DBM shall
secure the corresponding
approval/confirmation of the President.
Furthermore, it is assured that the
proposed realignments shall be within the
authorized Expenditure level.
5.0 Relative thereto, we have identified
some expenditure items that may be
sourced from the said pooled
appropriations in FY 2010 that will expire
on December 31, 2011 and
appropriations in FY 2011 that may be
declared as savings to fund additional
expenditures.
5.1 The 2010 Continuing
Appropriations (pooled
savings) is proposed to be
spent for the projects that we
have identified to be immediate
actual disbursements
considering that this same fund
source will expire on
December 31, 2011.
5.2 With respect to the
proposed expenditure items to
be funded from the FY 2011
Unreleased Appropriations,
most of these are the same
projects for which the DBM is
directed by the Office of the
President, thru the Executive
Secretary, to source funds.
6.0 Among others, the following are such
proposed additional projects that have
been chosen given their multiplier impact
on economy and infrastructure
development, their beneficial effect on the
poor, and their translation into
disbursements. Please note that we have
classified the list of proposed projects as
follows:
7.0 x x x
FOR THE PRESIDENT’S APPROVAL
8.0 Foregoing considered, may we
respectfully request for the President’s
approval for the following:
8.1 Grant of omnibus authority
to consolidate FY 2011
savings/unutilized balances
and its realignment; and
8.2 The proposed additional
projects identified for funding.
For His Excellency’s consideration and approval.
(Sgd.)
[/] APPROVED
[ ] DISAPPROVED
(Sgd.) H.E. BENIGNO S. AQUINO, III
DEC 21, 2011
Substantially identical requests for authority to pool savings
and to fund proposed projects were contained in various other
memoranda from Sec. Abad dated June 25,
2012,117 September 4, 2012,118 December 19, 2012,119 May
20, 2013,120 and September 25, 2013.121 The President
apparently approved all the requests, withholding approval
only of the proposed projects contained in the June 25, 2012
memorandum, as borne out by his marginal note therein to the
effect that the proposed projects should still be "subject to
further discussions."122
In order to implement the June25, 2012 memorandum, Sec.
Abad issued NBC No. 541 (Adoption of Operational Efficiency
Measure – Withdrawal of Agencies’ Unobligated Allotments as
of June 30, 2012),123 reproduced herein as follows:
NATIONAL BUDGET CIRCULAR No. 541
July 18, 2012 and undertake other priority expenditures of the national
government.
TO: All Heads of Departments/Agencies/State Universities and
Colleges and other Offices of the National Government, 2.0 Purpose
Budget and Planning Officers; Heads of Accounting Units and
All Others Concerned 2.1 To provide the conditions and
parameters on the withdrawal of
SUBJECT : Adoption of Operational Efficiency Measure – unobligated allotments of agencies as of
Withdrawal of Agencies’ Unobligated Allotments as of June June 30, 2012 to fund priority and/or fast-
30, 2012 moving programs/projects of the national
government;
1.0 Rationale
2.2 To prescribe the reports and
The DBM, as mandated by Executive Order (EO) No. 292 documents to be used as bases on the
(Administrative Code of 1987), periodically reviews and withdrawal of said unobligated allotments;
evaluates the departments/agencies’ efficiency and and
effectiveness in utilizing budgeted funds for the delivery of
services and production of goods, consistent with the 2.3 To provide guidelines in the utilization
government priorities. or reallocation of the withdrawn
allotments.
In the event that a measure is necessary to further improve
the operational efficiency of the government, the President is 3.0 Coverage
authorized to suspend or stop further use of funds allotted for
any agency or expenditure authorized in the General 3.1 These guidelines shall cover the
Appropriations Act. Withdrawal and pooling of unutilized withdrawal of unobligated allotments as
allotment releases can be effected by DBM based on authority of June 30, 2012 of all national
of the President, as mandated under Sections 38 and 39, government agencies (NGAs) charged
Chapter 5, Book VI of EO 292. against FY 2011 Continuing
Appropriation (R.A. No.10147) and FY
For the first five months of 2012, the National Government has 2012 Current Appropriation (R.A. No.
not met its spending targets. In order to accelerate spending 10155), pertaining to:
and sustain the fiscal targets during the year, expenditure
measures have to be implemented to optimize the utilization of 3.1.1 Capital Outlays (CO);
available resources.
3.1.2 Maintenance and Other
Departments/agencies have registered low spending levels, in Operating Expenses (MOOE)
terms of obligations and disbursements per initial review of related to the implementation
their 2012 performance. To enhance agencies’ performance, of programs and projects, as
the DBM conducts continuous consultation meetings and/or well as capitalized MOOE; and
send call-up letters, requesting them to identify slow-moving
programs/projects and the factors/issues affecting their
performance (both pertaining to internal systems and those 3.1.3 Personal Services
which are outside the agencies’ spheres of control). Also, they corresponding to unutilized
are asked to formulate strategies and improvement plans for pension benefits declared as
the rest of 2012. savings by the agencies
concerned based on their
updated/validated list of
Notwithstanding these initiatives, some departments/agencies pensioners.
have continued to post low obligation levels as of end of first
semester, thus resulting to substantial unobligated allotments.
3.2 The withdrawal of unobligated
allotments may cover the identified
In line with this, the President, per directive dated June 27, programs, projects and activities of the
2012 authorized the withdrawal of unobligated allotments of departments/agencies reflected in the
agencies with low levels of obligations as of June 30, 2012, DBM list shown as Annex A or specific
both for continuing and current allotments. This measure will programs and projects as may be
allow the maximum utilization of available allotments to fund identified by the agencies.
4.0 Exemption and Lubricants,
Water, Illumination,
These guidelines shall not apply to the following: Power Services,
Telephone, other
Communication
4.1 NGAs Services and Rent.

4.1.1 Constitutional 4.2.3 Foreign-Assisted Projects

Offices/Fiscal Autonomy
(loan proceeds and peso
Group, granted fiscal counterpart);
autonomy under the Philippine
Constitution; and
4.2.4 Special Purpose Funds
such as: E-Government Fund,
4.1.2 State Universities and
International Commitments
Colleges, adopting the Fund, PAMANA, Priority
Normative Funding allocation Development Assistance Fund,
scheme i.e., distribution of a Calamity Fund, Budgetary
predetermined budget ceiling. Support to GOCCs and
Allocation to LGUs, among
4.2 Fund Sources others;

4.2.1 Personal Services other 4.2.5 Quick Response Funds;

than pension benefits; and

4.2.2 MOOE items earmarked 4.2.6 Automatic Appropriations

for specific purposes or subject i.e., Retirement Life Insurance
to realignment conditions per Premium and Special Accounts
General Provisions of the GAA: in the General Fund.

• Confidential and 5.0 Guidelines

Intelligence Fund;
5.1 National government agencies shall
• Savings from continue to undertake procurement
Traveling, activities notwithstanding the
Communication, implementation of the policy of withdrawal
Transportation and of unobligated allotments until the end of
Delivery, Repair and the third quarter, FY 2012. Even without
Maintenance, the allotments, the agency shall proceed
Supplies and in undertaking the procurement
Materials and Utility processes (i.e., procurement planning up
which shall be used to the conduct of bidding but short of
for the grant of awarding of contract) pursuant to GPPB
Collective Circular Nos. 02-2008 and 01-2009 and
Negotiation DBM Circular Letter No. 2010-9.
Agreement incentive
benefit;
5.2 For the purpose of determining the
amount of unobligated allotments that
• Savings from shall be withdrawn, all
mandatory departments/agencies/operating units
expenditures which (OUs) shall submit to DBM not later than
can be realigned July 30, 2012, the following budget
only in the last accountability reports as of June 30,
quarter after taking 2012;
into consideration
the agency’s full • Statement of Allotments,
year requirements, Obligations and Balances
i.e., Petroleum, Oil
(SAOB);
 • Financial Report of
Operations (FRO); and
• Physical Report of
Operations.
5.3 In the absence of the June 30, 2012
reports cited under item 5.2 of this
Circular, the agency’s latest report
available shall be used by DBM as basis
for withdrawal of allotment. The DBM
shall compute/approximate the agency’s
obligation level as of June 30 to derive its
unobligated allotments as of same period.
Example: If the March 31 SAOB or FRO
reflects actual obligations of P 800M then
the June 30 obligation level shall
approximate to ₱1,600 M (i.e., ₱800 M x
2 quarters).
5.4 All released allotments in FY 2011
charged against R.A. No. 10147 which
remained unobligated as of June 30,
2012 shall be immediately considered for
withdrawal. This policy is based on the
following considerations:
5.4.1 The
departments/agencies’
approved priority programs and
projects are assumed to be
implementation-ready and
doable during the given fiscal
year; and
5.4.2 The practice of having
substantial carryover
appropriations may imply that
the agency has a slower-than-
programmed implementation
capacity or agency tends to
implement projects within a
two-year timeframe.
5.5. Consistent with the President’s
directive, the DBM shall, based on
evaluation of the reports cited above and
results of consultations with the
departments/agencies, withdraw the
unobligated allotments as of June 30,
2012 through issuance of negative
Special Allotment Release Orders
(SAROs).
5.6 DBM shall prepare and submit to the
President, a report on the magnitude of
withdrawn allotments. The report shall
highlight the agencies which failed to
submit the June 30 reports required
under this Circular.
5.7 The withdrawn allotments may be:
5.7.1 Reissued for the original
programs and projects of the
agencies/OUs concerned, from
which the allotments were
withdrawn;
5.7.2 Realigned to cover
additional funding for other
existing programs and projects
of the agency/OU; or
5.7.3 Used to augment existing
programs and projects of any
agency and to fund priority
programs and projects not
considered in the 2012 budget
but expected to be started or
implemented during the current
year.
5.8 For items 5.7.1 and 5.7.2 above,
agencies/OUs concerned may submit to
DBM a Special Budget Request (SBR),
supported with the following:
5.8.1 Physical and Financial
Plan (PFP);
5.8.2 Monthly Cash Program
(MCP); and
5.8.3 Proof that the
project/activity has started the
procurement processes i.e.,
Proof of Posting and/or
Advertisement of the Invitation
to Bid.
5.9 The deadline for submission of
request/s pertaining to these categories
shall be until the end of the third quarter
i.e., September 30, 2012. After said cut-
off date, the withdrawn allotments shall
be pooled and form part of the overall
savings of the national government.
5.10 Utilization of the consolidated
withdrawn allotments for other priority
programs and projects as cited under
item 5.7.3 of this Circular, shall be subject
 to approval of the President. Based on
the approval of the President, DBM shall
issue the SARO to cover the approved
priority expenditures subject to
submission by the agency/OU concerned
of the SBR and supported with PFP and
MCP.
5.11 It is understood that all releases to
be made out of the withdrawn allotments
(both 2011 and 2012 unobligated
allotments) shall be within the approved
Expenditure Program level of the national
government for the current year. The
SAROs to be issued shall properly
disclose the appropriation source of the
release to determine the extent of
allotment validity, as follows:
• For charges under R.A.
10147 – allotments shall be
valid up to December 31, 2012;
and
• For charges under R.A.
10155 – allotments shall be
valid up to December 31, 2013.
5.12 Timely compliance with the
submission of existing BARs and other
reportorial requirements is reiterated for
monitoring purposes.
6.0 Effectivity
This circular shall take effect immediately.
(Sgd.) FLORENCIO B. ABAD
Secretary
As can be seen, NBC No. 541 specified that the unobligated
allotments of all agencies and departments as of June 30,
2012 that were charged against the continuing appropriations
for fiscal year 2011 and the 2012 GAA (R.A. No. 10155) were
subject to withdrawal through the issuance of negative
SAROs, but such allotments could be either: (1) reissued for
the original PAPs of the concerned agencies from which they
were withdrawn; or (2) realigned to cover additional funding for
other existing PAPs of the concerned agencies; or (3) used to
augment existing PAPs of any agency and to fund priority
PAPs not considered in the 2012 budget but expected to be
started or implemented in 2012. Financing the other priority
PAPs was made subject to the approval of the President. Note
here that NBC No. 541 used terminologies like "realignment"
and "augmentation" in the application of the withdrawn
unobligated allotments.
Taken together, all the issuances showed how the DAP was to
be implemented and funded, that is — (1) by declaring
"savings" coming from the various departments and agencies
derived from pooling unobligated allotments and withdrawing
unreleased appropriations; (2) releasing unprogrammed funds;
and (3) applying the "savings" and unprogrammed funds to
augment existing PAPs or to support other priority PAPs.
c. DAP was not an appropriation
measure; hence, no appropriation
law was required to adopt or to
implement it
Petitioners Syjuco, Luna, Villegas and PHILCONSA state that
Congress did not enact a law to establish the DAP, or to
authorize the disbursement and release of public funds to
implement the DAP. Villegas, PHILCONSA, IBP, Araullo, and
COURAGE observe that the appropriations funded under the
DAP were not included in the 2011, 2012 and 2013 GAAs. To
petitioners IBP, Araullo, and COURAGE, the DAP, being
actually an appropriation that set aside public funds for public
use, should require an enabling law for its validity. VACC
maintains that the DAP, because it involved huge allocations
that were separate and distinct from the GAAs, circumvented
and duplicated the GAAs without congressional authorization
and control.
The petitioners contend in unison that based on how it was
developed and implemented the DAP violated the mandate of
Section 29(1), Article VI of the 1987 Constitution that "[n]o
money shall be paid out of the Treasury except in pursuance
of an appropriation made by law."
The OSG posits, however, that no law was necessary for the
adoption and implementation of the DAP because of its being
neither a fund nor an appropriation, but a program or an
administrative system of prioritizing spending; and that the
adoption of the DAP was by virtue of the authority of the
President as the Chief Executive to ensure that laws were
faithfully executed.
We agree with the OSG’s position.
The DAP was a government policy or strategy designed to
stimulate the economy through accelerated spending. In the
context of the DAP’s adoption and implementation being a
function pertaining to the Executive as the main actor during
the Budget Execution Stage under its constitutional mandate
to faithfully execute the laws, including the GAAs, Congress
did not need to legislate to adopt or to implement the DAP.
Congress could appropriate but would have nothing more to
do during the Budget Execution Stage. Indeed, appropriation
was the act by which Congress "designates a particular fund,
or sets apart a specified portion of the public revenue or of the
money in the public treasury, to be applied to some general
object of governmental expenditure, or to some individual
purchase or expense."124 As pointed out in Gonzales v.
Raquiza:125 ‘"In a strict sense, appropriation has been defined
‘as nothing more than the legislative authorization prescribed
by the Constitution that money may be paid out of the
Treasury,’ while appropriation made by law refers to ‘the act of
the legislature setting apart or assigning to a particular use a
certain sum to be used in the payment of debt or dues from
the State to its creditors.’"126
On the other hand, the President, in keeping with his duty to
faithfully execute the laws, had sufficient discretion during the
execution of the budget to adapt the budget to changes in the
country’s economic situation.127 He could adopt a plan like the
DAP for the purpose. He could pool the savings and identify
the PAPs to be funded under the DAP. The pooling of savings
pursuant to the DAP, and the identification of the PAPs to be
funded under the DAP did not involve appropriation in the
strict sense because the money had been already set apart
from the public treasury by Congress through the GAAs. In
such actions, the Executive did not usurp the power vested in
Congress under Section 29(1), Article VI of the Constitution.
3.
Unreleased appropriations and withdrawn
unobligated allotments under the DAP
were not savings, and the use of such
appropriations contravened Section 25(5),
Article VI of the 1987 Constitution.
Notwithstanding our appreciation of the DAP as a plan or
strategy validly adopted by the Executive to ramp up spending
to accelerate economic growth, the challenges posed by the
petitioners constrain us to dissect the mechanics of the actual
execution of the DAP. The management and utilization of the
public wealth inevitably demands a most careful scrutiny of
whether the Executive’s implementation of the DAP was
consistent with the Constitution, the relevant GAAs and other
existing laws.
a. Although executive discretion
and flexibility are necessary in
the execution of the budget, any
transfer of appropriated funds
should conform to Section 25(5),
Article VI of the Constitution
We begin this dissection by reiterating that Congress cannot
anticipate all issues and needs that may come into play once
the budget reaches its execution stage. Executive discretion is
necessary at that stage to achieve a sound fiscal
administration and assure effective budget implementation.
The heads of offices, particularly the President, require
flexibility in their operations under performance budgeting to
enable them to make whatever adjustments are needed to
meet established work goals under changing conditions.128 In
particular, the power to transfer funds can give the President
the flexibility to meet unforeseen events that may otherwise
impede the efficient implementation of the PAPs set by
Congress in the GAA.
Congress has traditionally allowed much flexibility to the
President in allocating funds pursuant to the
GAAs,129 particularly when the funds are grouped to form lump
sum accounts.130 It is assumed that the agencies of the
Government enjoy more flexibility when the GAAs provide
broader appropriation items.131 This flexibility comes in the
form of policies that the Executive may adopt during the
budget execution phase. The DAP – as a strategy to improve
the country’s economic position – was one policy that the
President decided to carry out in order to fulfill his mandate
under the GAAs.
Denying to the Executive flexibility in the expenditure process
would be counterproductive. In Presidential Spending
Power,132 Prof. Louis Fisher, an American constitutional
scholar whose specialties have included budget policy, has
justified extending discretionary authority to the Executive
thusly:
[T]he impulse to deny discretionary authority altogether should
be resisted. There are many number of reasons why
obligations and outlays by administrators may have to differ
from appropriations by legislators. Appropriations are made
many months, and sometimes years, in advance of
expenditures. Congress acts with imperfect knowledge in
trying to legislate in fields that are highly technical and
constantly undergoing change. New circumstances will
develop to make obsolete and mistaken the decisions reached
by Congress at the appropriation stage. It is not practicable for
Congress to adjust to each new development by passing
separate supplemental appropriation bills. Were Congress to
control expenditures by confining administrators to narrow
statutory details, it would perhaps protect its power of the
purse but it would not protect the purse itself. The realities and
complexities of public policy require executive discretion for
the sound management of public funds.
xxxx
x x x The expenditure process, by its very nature, requires
substantial discretion for administrators. They need to exercise
judgment and take responsibility for their actions, but those
actions ought to be directed toward executing congressional,
not administrative policy. Let there be discretion, but channel it
and use it to satisfy the programs and priorities established by
Congress.
In contrast, by allowing to the heads of offices some power to
transfer funds within their respective offices, the Constitution
itself ensures the fiscal autonomy of their offices, and at the
same time maintains the separation of powers among the
three main branches of the Government. The Court has
recognized this, and emphasized so in Bengzon v.
Drilon,133 viz:
The Judiciary, the Constitutional Commissions, and the
Ombudsman must have the independence and flexibility
needed in the discharge of their constitutional duties. The
imposition of restrictions and constraints on the manner the
independent constitutional offices allocate and utilize the funds
appropriated for their operations is anathema to fiscal
autonomy and violative not only of the express mandate of the
Constitution but especially as regards the Supreme Court, of
the independence and separation of powers upon which the
entire fabric of our constitutional system is based.
In the case of the President, the power to transfer funds from
one item to another within the Executive has not been the
mere offshoot of established usage, but has emanated from
law itself. It has existed since the time of the American
Governors-General.134 Act No. 1902 (An Act authorizing the
Governor-General to direct any unexpended balances of
appropriations be returned to the general fund of the Insular
Treasury and to transfer from the general fund moneys which
have been returned thereto), passed on May 18, 1909 by the
First Philippine Legislature,135 was the first enabling law that
granted statutory authority to the President to transfer funds.
The authority was without any limitation, for the Act explicitly
empowered the Governor-General to transfer any unexpended
balance of appropriations for any bureau or office to another,
and to spend such balance as if it had originally been
appropriated for that bureau or office.
From 1916 until 1920, the appropriations laws set a cap on the
amounts of funds that could be transferred, thereby limiting the
power to transfer funds. Only 10% of the amounts
appropriated for contingent or miscellaneous expenses could
be transferred to a bureau or office, and the transferred funds
were to be used to cover deficiencies in the appropriations
also for miscellaneous expenses of said bureau or office.
In 1921, the ceiling on the amounts of funds to be transferred
from items under miscellaneous expenses to any other item of
a certain bureau or office was removed.
During the Commonwealth period, the power of the President
to transfer funds continued to be governed by the GAAs
despite the enactment of the Constitution in 1935. It is notable
that the 1935 Constitution did not include a provision on the
power to transfer funds. At any rate, a shift in the extent of the
President’s power to transfer funds was again experienced
during this era, with the President being given more flexibility
in implementing the budget. The GAAs provided that the
power to transfer all or portions of the appropriations in the
Executive Department could be made in the "interest of the
public, as the President may determine."136
In its time, the 1971 Constitutional Convention wanted to
curtail the President’s seemingly unbounded discretion in
transferring funds.137 Its Committee on the Budget and
Appropriation proposed to prohibit the transfer of funds among
the separate branches of the Government and the
independent constitutional bodies, but to allow instead their
respective heads to augment items of appropriations from
savings in their respective budgets under certain
limitations.138 The clear intention of the Convention was to
further restrict, not to liberalize, the power to transfer
appropriations.139 Thus, the Committee on the Budget and
Appropriation initially considered setting stringent limitations
on the power to augment, and suggested that the
augmentation of an item of appropriation could be made "by
not more than ten percent if the original item of appropriation
to be augmented does not exceed one million pesos, or by not
more than five percent if the original item of appropriation to
be augmented exceeds one million pesos."140 But two
members of the Committee objected to the ₱1,000,000.00
threshold, saying that the amount was arbitrary and might not
be reasonable in the future. The Committee agreed to
eliminate the ₱1,000,000.00 threshold, and settled on the ten
percent limitation.141
In the end, the ten percent limitation was discarded during the
plenary of the Convention, which adopted the following final
version under Section 16, Article VIII of the 1973 Constitution,
to wit:
(5) No law shall be passed authorizing any transfer of
appropriations; however, the President, the Prime Minister, the
Speaker, the Chief Justice of the Supreme Court, and the
heads of Constitutional Commissions may by law be
authorized to augment any item in the general appropriations
law for their respective offices from savings in other items of
their respective appropriations.
The 1973 Constitution explicitly and categorically prohibited
the transfer of funds from one item to another, unless
Congress enacted a law authorizing the President, the Prime
Minister, the Speaker, the Chief Justice of the Supreme Court,
and the heads of the Constitutional omissions to transfer funds
for the purpose of augmenting any item from savings in
another item in the GAA of their respective offices. The leeway
was limited to augmentation only, and was further constricted
by the condition that the funds to be transferred should come
from savings from another item in the appropriation of the
office.142
On July 30, 1977, President Marcos issued PD No. 1177,
providing in its Section 44 that:
Section 44. Authority to Approve Fund Transfers. The
President shall have the authority to transfer any fund
appropriated for the different departments, bureaus, offices
and agencies of the Executive Department which are included
in the General Appropriations Act, to any program, project, or
activity of any department, bureau or office included in the
General Appropriations Act or approved after its enactment.
The President shall, likewise, have the authority to augment
any appropriation of the Executive Department in the General
Appropriations Act, from savings in the appropriations of
another department, bureau, office or agency within the
Executive Branch, pursuant to the provisions of Article VIII,
Section 16 (5) of the Constitution.
In Demetria v. Alba, however, the Court struck down the first
paragraph of Section 44 for contravening Section 16(5)of the
1973 Constitution, ruling:
Paragraph 1 of Section 44 of P.D. No. 1177 unduly over-
extends the privilege granted under said Section 16. It
empowers the President to indiscriminately transfer funds from
one department, bureau, office or agency of the Executive
Department to any program, project or activity of any
department, bureau or office included in the General
Appropriations Act or approved after its enactment, without
regard as to whether or not the funds to be transferred are
actually savings in the item from which the same are to be
taken, or whether or not the transfer is for the purpose of
augmenting the item to which said transfer is to be made. It
does not only completely disregard the standards set in the
fundamental law, thereby amounting to an undue delegation of
legislative powers, but likewise goes beyond the tenor thereof.
Indeed, such constitutional infirmities render the provision in
question null and void.143
It is significant that Demetria was promulgated 25 days after
the ratification by the people of the 1987 Constitution, whose
Section 25(5) of Article VI is identical to Section 16(5), Article
VIII of the 1973 Constitution, to wit:
Section 25. x x x
xxxx
5) No law shall be passed authorizing any transfer of
appropriations; however, the President, the President of the
Senate, the Speaker of the House of Representatives, the
Chief Justice of the Supreme Court, and the heads of
Constitutional Commissions may, by law, be authorized to
augment any item in the general appropriations law for their
respective offices from savings in other items of their
respective appropriations.
xxxx
The foregoing history makes it evident that the Constitutional
Commission included Section 25(5), supra, to keep a tight rein
on the exercise of the power to transfer funds appropriated by
Congress by the President and the other high officials of the
Government named therein. The Court stated in Nazareth v.
Villar:144
In the funding of current activities, projects, and programs, the
general rule should still be that the budgetary amount
contained in the appropriations bill is the extent Congress will
determine as sufficient for the budgetary allocation for the
proponent agency. The only exception is found in Section 25
(5), Article VI of the Constitution, by which the President, the
President of the Senate, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, and
the heads of Constitutional Commissions are authorized to
transfer appropriations to augmentany item in the GAA for
their respective offices from the savings in other items of their
respective appropriations. The plain language of the
constitutional restriction leaves no room for the petitioner’s
posture, which we should now dispose of as untenable.
It bears emphasizing that the exception in favor of the high
officials named in Section 25(5), Article VI of the Constitution
limiting the authority to transfer savings only to augment
another item in the GAA is strictly but reasonably construed as
exclusive. As the Court has expounded in Lokin, Jr. v.
Commission on Elections:
When the statute itself enumerates the exceptions to the
application of the general rule, the exceptions are strictly but
reasonably construed. The exceptions extend only as far as
their language fairly warrants, and all doubts should be
resolved in favor of the general provision rather than the
exceptions. Where the general rule is established by a statute
with exceptions, none but the enacting authority can curtail the
former. Not even the courts may add to the latter by
implication, and it is a rule that an express exception excludes
all others, although it is always proper in determining the
applicability of the rule to inquire whether, in a particular case,
it accords with reason and justice.
The appropriate and natural office of the exception is to
exempt something from the scope of the general words of a
statute, which is otherwise within the scope and meaning of
such general words. Consequently, the existence of an
exception in a statute clarifies the intent that the statute shall
apply to all cases not excepted. Exceptions are subject to the
rule of strict construction; hence, any doubt will be resolved in
favor of the general provision and against the exception.
Indeed, the liberal construction of a statute will seem to require
in many circumstances that the exception, by which the
operation of the statute is limited or abridged, should receive a
restricted construction.
Accordingly, we should interpret Section 25(5), supra, in the
context of a limitation on the President’s discretion over the
appropriations during the Budget Execution Phase.
b. Requisites for the valid transfer of
appropriated funds under Section
25(5), Article VI of the 1987
Constitution
The transfer of appropriated funds, to be valid under Section
25(5), supra, must be made upon a concurrence of the
following requisites, namely:
 (1) There is a law authorizing the President, the
President of the Senate, the Speaker of the House
of Representatives, the Chief Justice of the
Supreme Court, and the heads of the Constitutional
Commissions to transfer funds within their
respective offices;
(2) The funds to be transferred are savings
generated from the appropriations for their
respective offices; and (3) The purpose of the
transfer is to augment an item in the general
appropriations law for their respective offices.
b.1. First Requisite–GAAs of 2011 and
2012 lacked valid provisions to
authorize transfers of funds under
the DAP; hence, transfers under the
DAP were unconstitutional
Section 25(5), supra, not being a self-executing provision of
the Constitution, must have an implementing law for it to be
operative. That law, generally, is the GAA of a given fiscal
year. To comply with the first requisite, the GAAs should
expressly authorize the transfer of funds.
Did the GAAs expressly authorize the transfer of funds?
In the 2011 GAA, the provision that gave the President and
the other high officials the authority to transfer funds was
Section 59, as follows:
Section 59. Use of Savings. The President of the Philippines,
the Senate President, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, the
Heads of Constitutional Commissions enjoying fiscal
autonomy, and the Ombudsman are hereby authorized to
augment any item in this Act from savings in other items of
their respective appropriations.
In the 2012 GAA, the empowering provision was Section 53,
to wit:
Section 53. Use of Savings. The President of the Philippines,
the Senate President, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, the
Heads of Constitutional Commissions enjoying fiscal
autonomy, and the Ombudsman are hereby authorized to
augment any item in this Act from savings in other items of
their respective appropriations.
In fact, the foregoing provisions of the 2011 and 2012 GAAs
were cited by the DBM as justification for the use of savings
under the DAP.145
A reading shows, however, that the aforequoted provisions of
the GAAs of 2011 and 2012 were textually unfaithful to the
Constitution for not carrying the phrase "for their respective
offices" contained in Section 25(5), supra. The impact of the
phrase "for their respective offices" was to authorize only
transfers of funds within their offices (i.e., in the case of the
President, the transfer was to an item of appropriation within
the Executive). The provisions carried a different phrase ("to
augment any item in this Act"), and the effect was that the
2011 and 2012 GAAs thereby literally allowed the transfer of
funds from savings to augment any item in the GAAs even if
the item belonged to an office outside the Executive. To that
extent did the 2011 and 2012 GAAs contravene the
Constitution. At the very least, the aforequoted provisions
cannot be used to claim authority to transfer appropriations
from the Executive to another branch, or to a constitutional
commission.
Apparently realizing the problem, Congress inserted the
omitted phrase in the counterpart provision in the 2013 GAA,
to wit:
Section 52. Use of Savings. The President of the Philippines,
the Senate President, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, the
Heads of Constitutional Commissions enjoying fiscal
autonomy, and the Ombudsman are hereby authorized to use
savings in their respective appropriations to augment actual
deficiencies incurred for the current year in any item of their
respective appropriations.
Even had a valid law authorizing the transfer of funds pursuant
to Section 25(5), supra, existed, there still remained two other
requisites to be met, namely: that the source of funds to be
transferred were savings from appropriations within the
respective offices; and that the transfer must be for the
purpose of augmenting an item of appropriation within the
respective offices.
b.2. Second Requisite – There were
no savings from which funds
could be sourced for the DAP
Were the funds used in the DAP actually savings?
The petitioners claim that the funds used in the DAP — the
unreleased appropriations and withdrawn unobligated
allotments — were not actual savings within the context of
Section 25(5), supra, and the relevant provisions of the GAAs.
Belgica argues that "savings" should be understood to refer to
the excess money after the items that needed to be funded
have been funded, or those that needed to be paid have been
paid pursuant to the budget.146 The petitioners posit that there
could be savings only when the PAPs for which the funds had
been appropriated were actually implemented and completed,
or finally discontinued or abandoned. They insist that savings
could not be realized with certainty in the middle of the fiscal
year; and that the funds for "slow-moving" PAPs could not be
considered as savings because such PAPs had not actually
been abandoned or discontinued yet.147 They stress that NBC
No. 541, by allowing the withdrawn funds to be reissued to the
"original program or project from which it was withdrawn,"
conceded that the PAPs from which the supposed savings
were taken had not been completed, abandoned or
discontinued.148
The OSG represents that "savings" were "appropriations
balances," being the difference between the appropriation
authorized by Congress and the actual amount allotted for the
appropriation; that the definition of "savings" in the GAAs set
only the parameters for determining when savings occurred;
that it was still the President (as well as the other officers
vested by the Constitution with the authority to augment) who
ultimately determined when savings actually existed because
savings could be determined only during the stage of budget
execution; that the President must be given a wide discretion
to accomplish his tasks; and that the withdrawn unobligated
allotments were savings inasmuch as they were clearly
"portions or balances of any programmed appropriation…free
from any obligation or encumbrances which are (i) still
available after the completion or final discontinuance or
abandonment of the work, activity or purpose for which the
appropriation is authorized…"
We partially find for the petitioners.
In ascertaining the meaning of savings, certain principles
should be borne in mind. The first principle is that Congress
wields the power of the purse. Congress decides how the
budget will be spent; what PAPs to fund; and the amounts of
money to be spent for each PAP. The second principle is that
the Executive, as the department of the Government tasked to
enforce the laws, is expected to faithfully execute the GAA and
to spend the budget in accordance with the provisions of the
GAA.149 The Executive is expected to faithfully implement the
PAPs for which Congress allocated funds, and to limit the
expenditures within the allocations, unless exigencies result to
deficiencies for which augmentation is authorized, subject to
the conditions provided by law. The third principle is that in
making the President’s power to augment operative under the
GAA, Congress recognizes the need for flexibility in budget
execution. In so doing, Congress diminishes its own power of
the purse, for it delegates a fraction of its power to the
Executive. But Congress does not thereby allow the Executive
to override its authority over the purse as to let the Executive
exceed its delegated authority. And the fourth principle is that
savings should be actual. "Actual" denotes something that is
real or substantial, or something that exists presently in fact,
as opposed to something that is merely theoretical, possible,
potential or hypothetical.150
The foregoing principles caution us to construe savings strictly
against expanding the scope of the power to augment. It is
then indubitable that the power to augment was to be used
only when the purpose for which the funds had been allocated
were already satisfied, or the need for such funds had ceased
to exist, for only then could savings be properly realized. This
interpretation prevents the Executive from unduly
transgressing Congress’ power of the purse.
The definition of "savings" in the GAAs, particularly for 2011,
2012 and 2013, reflected this interpretation and made it
operational, viz:
Savings refer to portions or balances of any programmed
appropriation in this Act free from any obligation or
encumbrance which are: (i) still available after the completion
or final discontinuance or abandonment of the work, activity or
purpose for which the appropriation is authorized; (ii) from
appropriations balances arising from unpaid compensation
and related costs pertaining to vacant positions and leaves of
absence without pay; and (iii) from appropriations balances
realized from the implementation of measures resulting in
improved systems and efficiencies and thus enabled agencies
to meet and deliver the required or planned targets, programs
and services approved in this Act at a lesser cost.
The three instances listed in the GAAs’ aforequoted definition
were a sure indication that savings could be generated only
upon the purpose of the appropriation being fulfilled, or upon
the need for the appropriation being no longer existent.
The phrase "free from any obligation or encumbrance" in the
definition of savings in the GAAs conveyed the notion that the
appropriation was at that stage when the appropriation was
already obligated and the appropriation was already released.
This interpretation was reinforced by the enumeration of the
three instances for savings to arise, which showed that the
appropriation referred to had reached the agency level. It
could not be otherwise, considering that only when the
appropriation had reached the agency level could it be
determined whether (a) the PAP for which the appropriation
had been authorized was completed, finally discontinued, or
abandoned; or (b) there were vacant positions and leaves of
absence without pay; or (c) the required or planned targets,
programs and services were realized at a lesser cost because
of the implementation of measures resulting in improved
systems and efficiencies.
The DBM declares that part of the savings brought under the
DAP came from "pooling of unreleased appropriations such as
unreleased Personnel Services appropriations which will lapse
at the end of the year, unreleased appropriations of slow
moving projects and discontinued projects per Zero-Based
Budgeting findings."
The declaration of the DBM by itself does not state the clear
legal basis for the treatment of unreleased or unalloted
appropriations as savings.
The fact alone that the appropriations are unreleased or
unalloted is a mere description of the status of the items as
unalloted or unreleased. They have not yet ripened into
categories of items from which savings can be generated.
Appropriations have been considered "released" if there has
already been an allotment or authorization to incur obligations
and disbursement authority. This means that the DBM has
issued either an ABM (for those not needing clearance), or a
SARO (for those needing clearance), and consequently an
NCA, NCAA or CDC, as the case may be. Appropriations
remain unreleased, for instance, because of noncompliance
with documentary requirements (like the Special Budget
Request), or simply because of the unavailability of funds. But
the appropriations do not actually reach the agencies to which
they were allocated under the GAAs, and have remained with
the DBM technically speaking. Ergo, unreleased
appropriations refer to appropriations with allotments but
without disbursement authority.
For us to consider unreleased appropriations as savings,
unless these met the statutory definition of savings, would
seriously undercut the congressional power of the purse,
because such appropriations had not even reached and been
used by the agency concerned vis-à-vis the PAPs for which
Congress had allocated them. However, if an agency has
unfilled positions in its plantilla and did not receive an
allotment and NCA for such vacancies, appropriations for such
positions, although unreleased, may already constitute
savings for that agency under the second instance.
Unobligated allotments, on the other hand, were
encompassed by the first part of the definition of "savings" in
the GAA, that is, as "portions or balances of any programmed
appropriation in this Act free from any obligation or
encumbrance." But the first part of the definition was further
qualified by the three enumerated instances of when savings
would be realized. As such, unobligated allotments could not
be indiscriminately declared as savings without first
determining whether any of the three instances existed. This
signified that the DBM’s withdrawal of unobligated allotments
had disregarded the definition of savings under the GAAs.
Justice Carpio has validly observed in his Separate
Concurring Opinion that MOOE appropriations are deemed
divided into twelve monthly allocations within the fiscal year;
hence, savings could be generated monthly from the excess
or unused MOOE appropriations other than the Mandatory
Expenditures and Expenditures for Business-type Activities
because of the physical impossibility to obligate and spend
such funds as MOOE for a period that already lapsed.
Following this observation, MOOE for future months are not
savings and cannot be transferred.
The DBM’s Memorandum for the President dated June 25,
2012 (which became the basis of NBC No. 541) stated:
ON THE AUTHORITY TO WITHDRAW UNOBLIGATED
ALLOTMENTS
5.0 The DBM, during the course of performance
reviews conducted on the agencies’ operations,
particularly on the implementation of their
projects/activities, including expenses incurred in
undertaking the same, have been continuously
calling the attention of all National Government
agencies (NGAs) with low levels of obligations as of
end of the first quarter to speedup the
implementation of their programs and projects in the
second quarter.
6.0 Said reminders were made in a series of
consultation meetings with the concerned agencies
and with call-up letters sent.
7.0 Despite said reminders and the availability of
funds at the department’s disposal, the level of
financial performance of some departments
registered below program, with the targeted
obligations/disbursements for the first semester still
not being met.
8.0 In order to maximize the use of the available
allotment, all unobligated balances as of June 30,
2012, both for continuing and current allotments
shall be withdrawn and pooled to fund fast moving
programs/projects.
9.0 It may be emphasized that the allotments to be
withdrawn will be based on the list of slow moving
projects to be identified by the agencies and their
catch up plans to be evaluated by the DBM.
It is apparent from the foregoing text that the withdrawal of
unobligated allotments would be based on whether the
allotments pertained to slow-moving projects, or not. However,
NBC No. 541 did not set in clear terms the criteria for the
withdrawal of unobligated allotments, viz:
3.1. These guidelines shall cover the withdrawal of
unobligated allotments as of June 30, 2012 ofall
national government agencies (NGAs) charged
against FY 2011 Continuing Appropriation (R.A. No.
10147) and FY 2012 Current Appropriation (R.A.
No. 10155), pertaining to:
3.1.1 Capital Outlays (CO);
3.1.2 Maintenance and Other Operating
Expenses (MOOE) related to the
implementation of programs and projects,
as well as capitalized MOOE; and
3.1.3 Personal Services corresponding to
unutilized pension benefits declared as
savings by the agencies concerned
based on their undated/validated list of
pensioners.
A perusal of its various provisions reveals that NBC No. 541
targeted the "withdrawal of unobligated allotments of agencies
with low levels of obligations"151 "to fund priority and/or fast-
moving programs/projects."152 But the fact that the withdrawn
allotments could be "[r]eissued for the original programs and
projects of the agencies/OUs concerned, from which the
allotments were withdrawn"153 supported the conclusion that
the PAPs had not yet been finally discontinued or abandoned.
Thus, the purpose for which the withdrawn funds had been
appropriated was not yet fulfilled, or did not yet cease to exist,
rendering the declaration of the funds as savings impossible.
Worse, NBC No. 541 immediately considered for withdrawal
all released allotments in 2011 charged against the 2011 GAA
that had remained unobligated based on the following
considerations, to wit:
5.4.1 The departments/agencies’ approved priority
programs and projects are assumed to be
implementation-ready and doable during the given
fiscal year; and
5.4.2 The practice of having substantial carryover
appropriations may imply that the agency has a
slower-than-programmed implementation capacity
or agency tends to implement projects within a two-
year timeframe.
Such withdrawals pursuant to NBC No. 541, the circular that
affected the unobligated allotments for continuing and current
appropriations as of June 30, 2012, disregarded the 2-year
period of availability of the appropriations for MOOE and
capital outlay extended under Section 65, General Provisions
of the 2011 GAA, viz:
Section 65. Availability of Appropriations. — Appropriations for
MOOE and capital outlays authorized in this Act shall be
available for release and obligation for the purpose specified,
and under the same special provisions applicable thereto, for
a period extending to one fiscal year after the end of the year
in which such items were appropriated: PROVIDED, That
appropriations for MOOE and capital outlays under R.A. No.
9970 shall be made available up to the end of FY 2011:
PROVIDED, FURTHER, That a report on these releases and
obligations shall be submitted to the Senate Committee on
Finance and the House Committee on Appropriations.
and Section 63 General Provisions of the 2012 GAA, viz:
Section 63. Availability of Appropriations. — Appropriations for
MOOE and capital outlays authorized in this Act shall be
available for release and obligation for the purpose specified,
and under the same special provisions applicable thereto, for
a period extending to one fiscal year after the end of the year
in which such items were appropriated: PROVIDED, That a
report on these releases and obligations shall be submitted to
the Senate Committee on Finance and the House Committee
on Appropriations, either in printed form or by way of
electronic document.154
Thus, another alleged area of constitutional infirmity was that
the DAP and its relevant issuances shortened the period of
availability of the appropriations for MOOE and capital outlays.
Congress provided a one-year period of availability of the
funds for all allotment classes in the 2013 GAA (R.A. No.
10352), to wit:
Section 63. Availability of Appropriations.— All appropriations
authorized in this Act shall be available for release and
obligation for the purposes specified, and under the same
special provisions applicable thereto, until the end of FY 2013:
PROVIDED, That a report on these releases and obligations
shall be submitted to the Senate Committee on Finance and
House Committee on Appropriations, either in printed form or
by way of electronic document.
Yet, in his memorandum for the President dated May 20,
2013, Sec. Abad sought omnibus authority to consolidate
savings and unutilized balances to fund the DAP on a
quarterly basis, viz:
7.0 If the level of financial performance of some
department will register below program, even with
the availability of funds at their disposal, the
targeted obligations/disbursements for each quarter
will not be met. It is important to note that these
funds will lapse at the end of the fiscal year if these
remain unobligated.
8.0 To maximize the use of the available allotment,
all unobligated balances at the end of every quarter,
both for continuing and current allotments shall be
withdrawn and pooled to fund fast moving
programs/projects.
9.0 It may be emphasized that the allotments to be
withdrawn will be based on the list of slow moving
projects to be identified by the agencies and their
catch up plans to be evaluated by the DBM.
The validity period of the affected appropriations, already
given the brief Lifes pan of one year, was further shortened to
only a quarter of a year under the DBM’s memorandum dated
May 20, 2013.
The petitioners accuse the respondents of forcing the
generation of savings in order to have a larger fund available
for discretionary spending. They aver that the respondents, by
withdrawing unobligated allotments in the middle of the fiscal
year, in effect deprived funding for PAPs with existing
appropriations under the GAAs.155
The respondents belie the accusation, insisting that the
unobligated allotments were being withdrawn upon the
instance of the implementing agencies based on their own
assessment that they could not obligate those allotments
pursuant to the President’s directive for them to spend their
appropriations as quickly as they could in order to ramp up the
economy.156
We agree with the petitioners.
Contrary to the respondents’ insistence, the withdrawals were
upon the initiative of the DBM itself. The text of NBC No. 541
bears this out, to wit:
5.2 For the purpose of determining the amount of unobligated
allotments that shall be withdrawn, all
departments/agencies/operating units (OUs) shall submit to
DBM not later than July 30, 2012, the following budget
accountability reports as of June 30, 2012;
• Statement of Allotments, Obligation and Balances
(SAOB);
• Financial Report of Operations (FRO); and
• Physical Report of Operations.
5.3 In the absence of the June 30, 2012 reports cited under
item 5.2 of this Circular, the agency’s latest report available
shall be used by DBM as basis for withdrawal of allotment.
The DBM shall compute/approximate the agency’s obligation
level as of June 30 to derive its unobligated allotments as of
same period. Example: If the March 31 SAOB or FRO reflects
actual obligations of P 800M then the June 30 obligation level
shall approximate to ₱1,600 M (i.e., ₱800 M x 2 quarters).
The petitioners assert that no law had authorized the
withdrawal and transfer of unobligated allotments and the
pooling of unreleased appropriations; and that the unbridled
withdrawal of unobligated allotments and the retention of
appropriated funds were akin to the impoundment of
appropriations that could be allowed only in case of
"unmanageable national government budget deficit" under the
GAAs,157 thus violating the provisions of the GAAs of 2011,
2012 and 2013 prohibiting the retention or deduction of
allotments.158
In contrast, the respondents emphasize that NBC No. 541
adopted a spending, not saving, policy as a last-ditch effort of
the Executive to push agencies into actually spending their
appropriations; that such policy did not amount to an
impoundment scheme, because impoundment referred to the
decision of the Executive to refuse to spend funds for political
or ideological reasons; and that the withdrawal of allotments
under NBC No. 541 was made pursuant to Section 38,
Chapter 5, Book VI of the Administrative Code, by which the
President was granted the authority to suspend or otherwise
stop further expenditure of funds allotted to any agency
whenever in his judgment the public interest so required.
The assertions of the petitioners are upheld. The withdrawal
and transfer of unobligated allotments and the pooling of
unreleased appropriations were invalid for being bereft of legal
support. Nonetheless, such withdrawal of unobligated
allotments and the retention of appropriated funds cannot be
considered as impoundment.
According to Philippine Constitution Association v.
Enriquez:159 "Impoundment refers to a refusal by the
President, for whatever reason, to spend funds made available
by Congress. It is the failure to spend or obligate budget
authority of any type." Impoundment under the GAA is
understood to mean the retention or deduction of
appropriations. The 2011 GAA authorized impoundment only
in case of unmanageable National Government budget deficit,
to wit:
Section 66. Prohibition Against Impoundment of
Appropriations. No appropriations authorized under this Act
shall be impounded through retention or deduction, unless in
accordance with the rules and regulations to be issued by the
DBM: PROVIDED, That all the funds appropriated for the
purposes, programs, projects and activities authorized under
this Act, except those covered under the Unprogrammed
Fund, shall be released pursuant to Section 33 (3), Chapter 5,
Book VI of E.O. No. 292.
Section 67. Unmanageable National Government Budget
Deficit. Retention or deduction of appropriations authorized in
this Act shall be effected only in cases where there is an
unmanageable national government budget deficit.
Unmanageable national government budget deficit as used in
this section shall be construed to mean that (i) the actual
national government budget deficit has exceeded the quarterly
budget deficit targets consistent with the full-year target deficit
as indicated in the FY 2011 Budget of
Expenditures and Sources of Financing submitted by the
President and approved by Congress pursuant to Section 22,
Article VII of the Constitution, or (ii) there are clear economic
indications of an impending occurrence of such condition, as
determined by the Development Budget Coordinating
Committee and approved by the President.
The 2012 and 2013 GAAs contained similar provisions.
The withdrawal of unobligated allotments under the DAP
should not be regarded as impoundment because it entailed
only the transfer of funds, not the retention or deduction of
appropriations.
Nor could Section 68 of the 2011 GAA (and the similar
provisions of the 2012 and 2013 GAAs) be applicable. They
uniformly stated:
Section 68. Prohibition Against Retention/Deduction of
Allotment. Fund releases from appropriations provided in this
Act shall be transmitted intact or in full to the office or agency
concerned. No retention or deduction as reserves or overhead
shall be made, except as authorized by law, or upon direction
of the President of the Philippines. The COA shall ensure
compliance with this provision to the extent that sub-allotments
by agencies to their subordinate offices are in conformity with
the release documents issued by the DBM.
The provision obviously pertained to the retention or deduction
of allotments upon their release from the DBM, which was a
different matter altogether. The Court should not expand the
meaning of the provision by applying it to the withdrawal of
allotments.
The respondents rely on Section 38, Chapter 5, Book VI of the
Administrative Code of 1987 to justify the withdrawal of
unobligated allotments. But the provision authorized only the
suspension or stoppage of further expenditures, not the
withdrawal of unobligated allotments, to wit:
Section 38. Suspension of Expenditure of Appropriations.-
Except as otherwise provided in the General Appropriations
Act and whenever in his judgment the public interest so
requires, the President, upon notice to the head of office
concerned, is authorized to suspend or otherwise stop further
expenditure of funds allotted for any agency, or any other
expenditure authorized in the General Appropriations Act,
except for personal services appropriations used for
permanent officials and employees.
Moreover, the DBM did not suspend or stop further
expenditures in accordance with Section 38, supra, but
instead transferred the funds to other PAPs.
It is relevant to remind at this juncture that the balances of
appropriations that remained unexpended at the end of the
fiscal year were to be reverted to the General
Fund.1âwphi1 This was the mandate of Section 28, Chapter
IV, Book VI of the Administrative Code, to wit:
Section 28. Reversion of Unexpended Balances of
Appropriations, Continuing Appropriations.- Unexpended
balances of appropriations authorized in the General
Appropriation Act shall revert to the unappropriated surplus of
the General Fund at the end of the fiscal year and shall not
thereafter be available for expenditure except by subsequent
legislative enactment: Provided, that appropriations for capital
outlays shall remain valid until fully spent or reverted:
provided, further, that continuing appropriations for current
operating expenditures may be specifically recommended and
approved as such in support of projects whose effective
implementation calls for multi-year expenditure commitments:
provided, finally, that the President may authorize the use of
savings realized by an agency during given year to meet non-
recurring expenditures in a subsequent year.
The balances of continuing appropriations shall be reviewed
as part of the annual budget preparation process and the
preparation process and the President may approve upon
recommendation of the Secretary, the reversion of funds no
longer needed in connection with the activities funded by said
continuing appropriations.
The Executive could not circumvent this provision by declaring
unreleased appropriations and unobligated allotments as
savings prior to the end of the fiscal year.
b.3. Third Requisite – No funds from
savings could be transferred under
the DAP to augment deficient items
not provided in the GAA
The third requisite for a valid transfer of funds is that the
purpose of the transfer should be "to augment an item in the
general appropriations law for the respective offices." The term
"augment" means to enlarge or increase in size, amount, or
degree.160
The GAAs for 2011, 2012 and 2013 set as a condition for
augmentation that the appropriation for the PAP item to be
augmented must be deficient, to wit: –
x x x Augmentation implies the existence in this Act of a
program, activity, or project with an appropriation, which upon
implementation, or subsequent evaluation of needed
resources, is determined to be deficient. In no case shall a
non-existent program, activity, or project, be funded by
augmentation from savings or by the use of appropriations
otherwise authorized in this Act.
In other words, an appropriation for any PAP must first be
determined to be deficient before it could be augmented from
savings. Note is taken of the fact that the 2013 GAA already
made this quite clear, thus:
Section 52. Use of Savings. The President of the Philippines,
the Senate President, the Speaker of the House of
Representatives, the Chief Justice of the Supreme Court, the
Heads of Constitutional Commissions enjoying fiscal
autonomy, and the Ombudsman are hereby authorized to use
savings in their respective appropriations to augment actual
deficiencies incurred for the current year in any item of their
respective appropriations.
As of 2013, a total of ₱144.4 billion worth of PAPs were
implemented through the DAP.161
Of this amount ₱82.5 billion were released in 2011 and ₱54.8
billion in 2012.162 Sec. Abad has reported that 9% of the total
DAP releases were applied to the PAPs identified by the
legislators.163
The petitioners disagree, however, and insist that the DAP
supported the following PAPs that had not been covered with
appropriations in the respective GAAs, namely:
(i) ₱1.5 billion for the Cordillera People’s Liberation
Army;
(ii) ₱1.8 billion for the Moro National Liberation
Front;
(iii) ₱700 million for assistance to Quezon
Province;164 APPROPRIATION
CODE
(iv) ₱50 million to ₱100 (million) each to certain
senators;165 A.03.a.01.a
(v) ₱10 billion for the relocation of families living
along dangerous zones under the National Housing
Authority;
(vi) ₱10 billion and ₱20 billion equity infusion under
the Bangko Sentral;
Upon careful review of the documents contained in the seven
evidence packets, we conclude that the "savings" pooled
under the DAP were allocated to PAPs that were not covered
by any appropriations in the pertinent GAAs.
For example, the SARO issued on December 22, 2011 for the
highly vaunted Disaster Risk, Exposure, Assessment and
Mitigation (DREAM) project under the Department of Science
and Technology (DOST) covered the amount of ₱1.6
Billion,169 broken down as follows:
PARTICULARS AMOUN
AUTHORIZ
Generation of new knowledge and technologies and research
capability building in priority areas identified as strategic to
National Development
Personnel Services
Maintenance and Other Operating Expenses P
Capital Outlays 1,1
3
P 1,6

(vii) ₱5.4 billion landowners’ compensation under the pertinent provision of the 2011 GAA (R.A. No. 10147)
the Department of Agrarian Reform; showed that Congress had appropriated only ₱537,910,000
for MOOE, but nothing for personnel services and capital
outlays, to wit:
(viii) ₱8.6 billion for the ARMM comprehensive
peace and development program;
Perso Mainte Capit TOTAL
(ix) ₱6.5 billion augmentation of LGU internal nnel nance al
revenue allotments Servic and Outla
es Other ys
Operati
(x) ₱5 billion for crucial projects like tourism road
ng
construction under the Department of Tourism and
Expend
the Department of Public Works and Highways;
itures
(xi) ₱1.8 billion for the DAR-DPWH Tulay ng II Operations
Pangulo; I.
a Funding 177,40 1,887,3 49,09 2,113,8
(xii) ₱1.96 billion for the DOH-DPWH rehabilitation . Assistance 6,000 65,000 0,000 61,000
of regional health units; and to Science
and
Technology
(xiii) ₱4 billion for the DepEd-PPP school Activities
infrastructure projects.166
1 Central Office 1,554,2 1,554,2
In refutation, the OSG argues that a total of 116 DAP-financed . 38,000 38,000
PAPs were implemented, had appropriation covers, and could
properly be accounted for because the funds were released a.
following and pursuant to the standard practices adopted by Gener
the DBM.167 In support of its argument, the OSG has ation
submitted seven evidence packets containing memoranda, of new
SAROs, and other pertinent documents relative to the knowle
implementation and fund transfers under the DAP.168 dge
and 537,91 537,91
technol 0,000 0,000
 ogies
and
resear
ch
capabil
ity
buildin
g in
priority
areas
identifi
ed as
strateg
ic to
Nation
al
Develo
pment
Aside from this transfer under the DAP to the DREAM project
exceeding by almost 300% the appropriation by Congress for
the program Generation of new knowledge and technologies
and research capability building in priority areas identified as
strategic to National Development, the Executive allotted
funds for personnel services and capital outlays. The
Executive thereby substituted its will to that of Congress.
Worse, the Executive had not earlier proposed any amount for
personnel services and capital outlays in the NEP that became
the basis of the 2011 GAA.170
It is worth stressing in this connection that the failure of the
GAAs to set aside any amounts for an expense category
sufficiently indicated that Congress purposely did not see fit to
fund, much less implement, the PAP concerned. This
indication becomes clearer when even the President himself
did not recommend in the NEP to fund the PAP. The
consequence was that any PAP requiring expenditure that did
not receive any appropriation under the GAAs could only be a
new PAP, any funding for which would go beyond the authority
laid down by Congress in enacting the GAAs. That happened
in some instances under the DAP.
In relation to the December 22, 2011 SARO issued to the
Philippine Council for Industry, Energy and Emerging
Technology Research and Development (DOST-
PCIEETRD)171 for Establishment of the Advanced Failure
Analysis Laboratory, which reads:
ATION PARTICULARS
E AUTHORIZED
Development, integration and coordination of the National Research System for
a Industry, Energy and Emerging Technology and Related Fields
Capital Outlays
the appropriation code and the particulars appearing in the
SARO did not correspond to the program specified in the
GAA, whose particulars were Research and Management
Services(inclusive of the following activities: (1) Technological
and Economic Assessment for Industry, Energy and Utilities;
(2) Dissemination of Science and Technology Information; and
(3) Management of PCIERD Information System for Industry,
Energy and Utilities. Even assuming that Development,
integration and coordination of the National Research System
for Industry, Energy and Emerging Technology and Related
Fields– the particulars stated in the SARO – could fall under
the broad program description of Research and Management
Services– as appearing in the SARO, it would nonetheless
remain a new activity by reason of its not being specifically
stated in the GAA. As such, the DBM, sans legislative
authorization, could not validly fund and implement such PAP
under the DAP.
In defending the disbursements, however, the OSG contends
that the Executive enjoyed sound discretion in implementing
the budget given the generality in the language and the broad
policy objectives identified under the GAAs;172 and that the
President enjoyed unlimited authority to spend the initial
appropriations under his authority to declare and utilize
savings,173 and in keeping with his duty to faithfully execute
the laws.
Although the OSG rightly contends that the Executive was
authorized to spend in line with its mandate to faithfully
execute the laws (which included the GAAs), such authority
did not translate to unfettered discretion that allowed the
President to substitute his own will for that of Congress. He
was still required to remain faithful to the provisions of the
GAAs, given that his power to spend pursuant to the GAAs
was but a delegation to him from Congress. Verily, the power
to spend the public wealth resided in Congress, not in the
Executive.174 Moreover, leaving the spending power of the
Executive unrestricted would threaten to undo the principle of
separation of powers.175
Congress acts as the guardian of the public treasury in faithful
discharge of its power of the purse whenever it deliberates
and acts on the budget proposal submitted by the
Executive.176 Its power of the purse is touted as the very
foundation of its institutional strength,177 and underpins "all
other legislative decisions and regulating the balance of
influence between the legislative and executive branches of
government."178 Such enormous power encompasses the
capacity to generate money for the Government, to
appropriate public funds, and to spend the
AMOUNT
money.179 Pertinently, when it exercises its power of the purse,
Congress wields control by specifying the PAPs for which
public money should be spent.
PIt300,000,000
is the President who proposes the budget but it is Congress
that has the final say on matters of appropriations.180 For this
purpose, appropriation involves two governing principles,
namely: (1) "a Principle of the Public Fisc, asserting that all
monies received from whatever source by any part of the
government are public funds;" and (2) "a Principle of
Appropriations Control, prohibiting expenditure of any public
money without legislative authorization."181 To conform with
the governing principles, the Executive cannot circumvent the
prohibition by Congress of an expenditure for a PAP by
resorting to either public or private funds.182 Nor could the
Executive transfer appropriated funds resulting in an increase
in the budget for one PAP, for by so doing the appropriation
for another PAP is necessarily decreased. The terms of both
appropriations will thereby be violated.
b.4 Third Requisite – Cross-border
augmentations from savings were
prohibited by the Constitution
By providing that the President, the President of the Senate,
the Speaker of the House of Representatives, the Chief
Justice of the Supreme Court, and the Heads of the
Constitutional Commissions may be authorized to augment
any item in the GAA "for their respective offices," Section
25(5), supra, has delineated borders between their offices,
such that funds appropriated for one office are prohibited from
crossing over to another office even in the guise of
augmentation of a deficient item or items. Thus, we call such
transfers of funds cross-border transfers or cross-border
augmentations.
To be sure, the phrase "respective offices" used in Section
25(5), supra, refers to the entire Executive, with respect to the
President; the Senate, with respect to the Senate President;
the House of Representatives, with respect to the Speaker;
the Judiciary, with respect to the Chief Justice; the
Constitutional Commissions, with respect to their respective
Chairpersons.
Did any cross-border transfers or augmentations transpire?
During the oral arguments on January 28, 2014, Sec. Abad
admitted making some cross-border augmentations, to wit:
JUSTICE BERSAMIN:
Alright, the whole time that you have been Secretary of
Department of Budget and Management, did the Executive
Department ever redirect any part of savings of the National
Government under your control cross border to another
department?
SECRETARY ABAD:
Well, in the Memos that we submitted to you, such an
instance, Your Honor
JUSTICE BERSAMIN:
Can you tell me two instances? I don’t recall having read your
material.
SECRETARY ABAD:
Well, the first instance had to do with a request from the
House of Representatives. They started building their e-library
in 2010 and they had a budget for about 207 Million but they
lack about 43 Million to complete its 250 Million requirements.
Prior to that, the COA, in an audit observation informed the
Speaker that they had to continue with that construction
otherwise the whole building, as well as the equipments
therein may suffer from serious deterioration. And at that time,
since the budget of the House of Representatives was not
enough to complete 250 Million, they wrote to the President
requesting for an augmentation of that particular item, which
was granted, Your Honor. The second instance in the Memos
is a request from the Commission on Audit. At the time they
were pushing very strongly the good governance programs of
the government and therefore, part of that is a requirement to
conduct audits as well as review financial reports of many
agencies. And in the performance of that function, the
Commission on Audit needed information technology
equipment as well as hire consultants and litigators to help
them with their audit work and for that they requested funds
from the Executive and the President saw that it was important
for the Commission to be provided with those IT equipments
and litigators and consultants and the request was granted,
Your Honor.
JUSTICE BERSAMIN:
These cross border examples, cross border augmentations
were not supported by appropriations…
SECRETARY ABAD:
They were, we were augmenting existing items within their…
(interrupted)
JUSTICE BERSAMIN:
No, appropriations before you augmented because this is a
cross border and the tenor or text of the Constitution is quite
clear as far as I am concerned. It says here, "The power to
augment may only be made to increase any item in the
General Appropriations Law for their respective offices." Did
you not feel constricted by this provision?
SECRETARY ABAD:
Well, as the Constitution provides, the prohibition we felt was
on the transfer of appropriations, Your Honor. What we
thought we did was to transfer savings which was needed by
the Commission to address deficiency in an existing item in
 both the Commission as well as in the House of
Representatives; that’s how we saw…(interrupted)
JUSTICE BERSAMIN:
So your position as Secretary of Budget is that you could do
that?
SECRETARY ABAD:
In an extreme instances because…(interrupted)
JUSTICE BERSAMIN:
No, no, in all instances, extreme or not extreme, you could do
that, that’s your feeling.
SECRETARY ABAD:
Well, in that particular situation when the request was made by
the Commission and the House of Representatives, we felt
that we needed to respond because we felt…(interrupted). 183
The records show, indeed, that funds amounting to
₱143,700,000.00 and ₱250,000,000.00 were transferred
under the DAP respectively to the COA184 and the House of
Representatives.185 Those transfers of funds, which
constituted cross-border augmentations for being from the
Executive to the COA and the House of Representatives, are
graphed as follows:186
DATE
PURPOSE
RELEASED
IT Infrastructure Program and hiring of additional litigation 11/11/11
experts
Completion of the construction of the Legislative Library 07/23/12
and Archives Building/Congressional e-library (Savings of HOR)
The respondents further stated in their memorandum that the
President "made available" to the "Commission on Elections
the savings of his department upon [its] request for
funds…"187 This was another instance of a cross-border
augmentation.
The respondents justified all the cross-border transfers thusly:
99. The Constitution does not prevent the President from
transferring savings of his department to another department
upon the latter’s request, provided it is the recipient
department that uses such funds to augment its own
appropriation. In such a case, the President merely gives the
other department access to public funds but he cannot dictate
how they shall be applied by that department whose fiscal
autonomy is guaranteed by the Constitution.188
In the oral arguments held on February 18, 2014, Justice
Vicente V. Mendoza, representing Congress, announced a
different characterization of the cross-border transfers of funds
as in the nature of "aid" instead of "augmentation," viz:
HONORABLE MENDOZA:
The cross-border transfers, if Your Honors please, is not an
application of the DAP. What were these cross-border
transfers? They are transfers of savings as defined in the
various General Appropriations Act. So, that makes it similar
to the DAP, the use of savings. There was a cross-border
which appears to be in violation of Section 25, paragraph 5 of
Article VI, in the sense that the border was crossed. But never
has it been claimed that the purpose was to augment a
deficient item in another department of the government or
agency of the government. The cross-border transfers, if Your
Honors please, were in the nature of [aid] rather than
augmentations. Here is a government entity separate and
independent from the Executive Department solely in need of
public funds. The President is there 24 hours a day, 7 days a
week. He’s in charge of the whole operation although six or
seven heads of government offices are given the power to
augment. Only the President stationed there and in effect in-
charge and has the responsibility for the failure of any part of
the government. You have election, for one reason or another,
the money is not enough to hold election. There would be
chaos
AMOUNT if no money is given as an aid, not to augment, but as
(In an aid topesos)
thousand a department like COA. The President is responsible
in a way that the other heads, given the power to augment, are
Reserve not. So, he cannot very well allow this, if Your Honor please.189
Releases
Imposed
JUSTICE LEONEN: 143,700
May I move to another point, maybe just briefly. I am curious
207,034 that the position
250,000
now, I think, of government is that some
transfers of savings is now considered to be, if I’m not
mistaken, aid not augmentation. Am I correct in my hearing of
your argument?
HONORABLE MENDOZA:
That’s our submission, if Your Honor, please.
JUSTICE LEONEN:
May I know, Justice, where can we situate this in the text of
the Constitution? Where do we actually derive the concepts
that transfers of appropriation from one branch to the other or
what happened in DAP can be considered a said? What
particular text in the Constitution can we situate this?
HONORABLE MENDOZA:
There is no particular provision or statutory provision for that
matter, if Your Honor please. It is drawn from the fact that the
Executive is the executive in-charge of the success of the
government.
JUSTICE LEONEN:
So, the residual powers labelled in Marcos v. Manglapus
would be the basis for this theory of the government?
HONORABLE MENDOZA:
Yes, if Your Honor, please.
JUSTICE LEONEN:
A while ago, Justice Carpio mentioned that the remedy is
might be to go to Congress. That there are opportunities and
there have been opportunities of the President to actually go
to Congress and ask for supplemental budgets?
HONORABLE MENDOZA:
If there is time to do that, I would say yes.
JUSTICE LEONEN:
So, the theory of aid rather than augmentation applies in extra-
ordinary situation?
HONORABLE MENDOZA:
Very extra-ordinary situations.
JUSTICE LEONEN:
But Counsel, this would be new doctrine, in case?
HONORABLE MENDOZA:
Yes, if Your Honor please.190
Regardless of the variant characterizations of the cross-border
transfers of funds, the plain text of Section 25(5), supra,
disallowing cross border transfers was disobeyed. Cross-
border transfers, whether as augmentation, or as aid, were
prohibited under Section 25(5), supra.
4.
Sourcing the DAP from unprogrammed
funds despite the original revenue targets
not having been exceeded was invalid
Funding under the DAP were also sourced from
unprogrammed funds provided in the GAAs for 2011,
2012,and 2013. The respondents stress, however, that the
unprogrammed funds were not brought under the DAP as
savings, but as separate sources of funds; and that,
consequently, the release and use of unprogrammed funds
were not subject to the restrictions under Section 25(5), supra.
The documents contained in the Evidence Packets by the
OSG have confirmed that the unprogrammed funds were
treated as separate sources of funds. Even so, the release
and use of the unprogrammed funds were still subject to
restrictions, for, to start with, the GAAs precisely specified the
instances when the unprogrammed funds could be released
and the purposes for which they could be used.
The petitioners point out that a condition for the release of the
unprogrammed funds was that the revenue collections must
exceed revenue targets; and that the release of the
unprogrammed funds was illegal because such condition was
not met.191
The respondents disagree, holding that the release and use of
the unprogrammed funds under the DAP were in accordance
with the pertinent provisions of the GAAs. In particular, the
DBM avers that the unprogrammed funds could be availed of
when any of the following three instances occur, to wit: (1) the
revenue collections exceeded the original revenue targets
proposed in the BESFs submitted by the President to
Congress; (2) new revenues were collected or realized from
sources not originally considered in the BESFs; or(3) newly-
approved loans for foreign assisted projects were secured, or
when conditions were triggered for other sources of funds,
such as perfected loan agreements for foreign-assisted
projects.192 This view of the DBM was adopted by all the
respondents in their Consolidated Comment.193
The BESFs for 2011, 2012 and 2013 uniformly defined
"unprogrammed appropriations" as appropriations that
provided standby authority to incur additional agency
obligations for priority PAPs when revenue collections
exceeded targets, and when additional foreign funds are
generated.194 Contrary to the DBM’s averment that there were
three instances when unprogrammed funds could be released,
the BESFs envisioned only two instances. The third mentioned
by the DBM – the collection of new revenues from sources not
originally considered in the BESFs – was not included. This
meant that the collection of additional revenues from new
sources did not warrant the release of the unprogrammed
funds. Hence, even if the revenues not considered in the
BESFs were collected or generated, the basic condition that
the revenue collections should exceed the revenue targets
must still be complied with in order to justify the release of the
unprogrammed funds.
The view that there were only two instances when the
unprogrammed funds could be released was bolstered by the
following texts of the Special Provisions of the 2011 and 2012
GAAs, to wit:
2011 GAA
1. Release of Fund. The amounts authorized herein shall be
released only when the revenue collections exceed the
original revenue targets submitted by the President of the
Philippines to Congress pursuant to Section 22, Article VII of
the Constitution, including savings generated from
programmed appropriations for the year: PROVIDED, That
collections arising from sources not considered in the
aforesaid original revenue targets may be used to cover
releases from appropriations in this Fund: PROVIDED,
FURTHER, That in case of newly approved loans for foreign-
assisted projects, the existence of a perfected loan agreement
for the purpose shall be sufficient basis for the issuance of a
SARO covering the loan proceeds: PROVIDED,
FURTHERMORE, That if there are savings generated from
the programmed appropriations for the first two quarters of the
year, the DBM may, subject to the approval of the President,
release the pertinent appropriations under the Unprogrammed
Fund corresponding to only fifty percent (50%) of the said
savings net of revenue shortfall: PROVIDED, FINALLY, That
the release of the balance of the total savings from
programmed appropriations for the year shall be subject to
fiscal programming and approval of the President.
2012 GAA
1. Release of the Fund. The amounts authorized herein shall
be released only when the revenue collections exceed the
original revenue targets submitted by the President of the
Philippines to Congress pursuant to Section 22, Article VII of
the Constitution: PROVIDED, That collections arising from
sources not considered in the aforesaid original revenue
targets may be used to cover releases from appropriations in
this Fund: PROVIDED, FURTHER, That in case of newly
approved loans for foreign-assisted projects, the existence of
a perfected loan agreement for the purpose shall be sufficient
basis for the issuance of a SARO covering the loan proceeds.
As can be noted, the provisos in both provisions to the effect
that "collections arising from sources not considered in the
aforesaid original revenue targets may be used to cover
releases from appropriations in this Fund" gave the authority
to use such additional revenues for appropriations funded from
the unprogrammed funds. They did not at all waive
compliance with the basic requirement that revenue
collections must still exceed the original revenue targets.
In contrast, the texts of the provisos with regard to additional
revenues generated from newly-approved foreign loans were
clear to the effect that the perfected loan agreement would be
in itself "sufficient basis" for the issuance of a SARO to release
the funds but only to the extent of the amount of the loan. In
such instance, the revenue collections need not exceed the
revenue targets to warrant the release of the loan proceeds,
and the mere perfection of the loan agreement would suffice.
It can be inferred from the foregoing that under these
provisions of the GAAs the additional revenues from sources
not considered in the BESFs must be taken into account in
determining if the revenue collections exceeded the revenue
targets. The text of the relevant provision of the 2013 GAA,
which was substantially similar to those of the GAAs for 2011
and 2012, already made this explicit, thus:
1. Release of the Fund. The amounts authorized herein shall
be released only when the revenue collections exceed the
original revenue targets submitted by the President of the
Philippines to Congress pursuant to Section 22, Article VII of
the Constitution, including collections arising from sources not
considered in the aforesaid original revenue target, as certified
by the BTr: PROVIDED, That in case of newly approved loans
for foreign-assisted projects, the existence of a perfected loan
agreement for the purpose shall be sufficient basis for the
issuance of a SARO covering the loan proceeds.
Consequently, that there were additional revenues from
sources not considered in the revenue target would not be
enough. The total revenue collections must still exceed the
original revenue targets to justify the release of the
unprogrammed funds (other than those from newly-approved
foreign loans).
The present controversy on the unprogrammed funds was
rooted in the correct interpretation of the phrase "revenue
collections should exceed the original revenue targets." The
petitioners take the phrase to mean that the total revenue
collections must exceed the total revenue target stated in the
BESF, but the respondents understand the phrase to refer
only to the collections for each source of revenue as
enumerated in the BESF, with the condition being deemed
complied with once the revenue collections from a particular
source already exceeded the stated target.
The BESF provided for the following sources of revenue, with
the corresponding revenue target stated for each source of
revenue, to wit:
TAX REVENUES
Taxes on Net Income and Profits
Taxes on Property
Taxes on Domestic Goods and Services
 General Sales, Turnover or VAT dividend income amounting to ₱23.8 billion as of 31 January
Selected Excises on Goods 2011.196

Selected Taxes on Services
Taxes on the Use of Goods or Property or
Permission to Perform Activities
Other Taxes
Taxes on International Trade and Transactions
NON-TAX REVENUES
For 2012, the OSG submitted the certification dated April 26,
2012 issued by National Treasurer Roberto B. Tan, viz:
This is to certify that the actual dividend collections remitted to
the National Government for the period January to March
2012 amounted to ₱19.419 billion compared to the full year
program of ₱5.5 billion for 2012.197

Fees and Charges And, finally, for 2013, the OSG presented the certification
BTR Income dated July 3, 2013 issued by National Treasurer Rosalia V. De
Leon, to wit:
Government Services
Interest on NG Deposits This is to certify that the actual dividend collections remitted to
Interest on Advances to Government the National Government for the period January to May 2013
Corporations amounted to ₱12.438 billion compared to the full year
Income from Investments program of ₱10.0198 billion for 2013.

Interest on Bond Holdings
Guarantee Fee
Gain on Foreign Exchange
NG Income Collected by BTr
Dividends on Stocks
NG Share from Airport
Terminal Fee
NG Share from PAGCOR
Income
NG Share from MIAA Profit
Privatization
Foreign Grants
Thus, when the Court required the respondents to submit a
certification from the Bureau of Treasury (BTr) to the effect
that the revenue collections had exceeded the original
revenue targets,195 they complied by submitting certifications
from the BTr and Department of Finance (DOF) pertaining to
only one identified source of revenue – the dividends from the
shares of stock held by the Government in government-owned
and controlled corporations.
To justify the release of the unprogrammed funds for 2011, the
OSG presented the certification dated March 4, 2011 issued
by DOF Undersecretary Gil S. Beltran, as follows:
This is to certify that under the Budget for Expenditures and
Sources of Financing for 2011, the programmed income from
dividends from shares of stock in government-owned and
controlled corporations is 5.5 billion.
This is to certify further that based on the records of the
Bureau of Treasury, the National Government has recorded
Moreover, the National Government accounted for the sale of
the right to build and operate the NAIA expressway amounting
to ₱11.0 billion in June 2013.199
The certifications reflected that by collecting dividends
amounting to ₱23.8 billion in 2011, ₱19.419 billion in 2012,
and ₱12.438 billion in 2013 the BTr had exceeded only the
₱5.5 billion in target revenues in the form of dividends from
stocks in each of 2011 and 2012, and only the ₱10 billion in
target revenues in the form of dividends from stocks in 2013.
However, the requirement that revenue collections exceed the
original revenue targets was to be construed in light of the
purpose for which the unprogrammed funds were incorporated
in the GAAs as standby appropriations to support additional
expenditures for certain priority PAPs should the revenue
collections exceed the resource targets assumed in the budget
or when additional foreign project loan proceeds were
realized. The unprogrammed funds were included in the GAAs
to provide ready cover so as not to delay the implementation
of the PAPs should new or additional revenue sources be
realized during the year.200 Given the tenor of the
certifications, the unprogrammed funds were thus not yet
supported by the corresponding resources.201
The revenue targets stated in the BESF were intended to
address the funding requirements of the proposed
programmed appropriations. In contrast, the unprogrammed
funds, as standby appropriations, were to be released only
when there were revenues in excess of what the programmed
appropriations required. As such, the revenue targets should
be considered as a whole, not individually; otherwise, we
would be dealing with artificial revenue surpluses. The
requirement that revenue collections must exceed revenue
target should be understood to mean that the revenue
collections must exceed the total of the revenue targets stated
in the BESF. Moreover, to release the unprogrammed funds
simply because there was an excess revenue as to one
source of revenue would be an unsound fiscal management
measure because it would disregard the budget plan and
foster budget deficits, in contravention of the Government’s
surplus budget policy.202
We cannot, therefore, subscribe to the respondents’ view.
5.
Equal protection, checks and balances,
and public accountability challenges
The DAP is further challenged as violative of the Equal
Protection Clause, the system of checks and balances, and
the principle of public accountability.
With respect to the challenge against the DAP under the Equal
Protection Clause,203 Luna argues that the implementation of
the DAP was "unfair as it [was] selective" because the funds
released under the DAP was not made available to all the
legislators, with some of them refusing to avail themselves of
the DAP funds, and others being unaware of the availability of
such funds. Thus, the DAP practised "undue favoritism" in
favor of select legislators in contravention of the Equal
Protection Clause.
Similarly, COURAGE contends that the DAP violated the
Equal Protection Clause because no reasonable classification
was used in distributing the funds under the DAP; and that the
Senators who supposedly availed themselves of said funds
were differently treated as to the amounts they respectively
received.
Anent the petitioners’ theory that the DAP violated the system
of checks and balances, Luna submits that the grant of the
funds under the DAP to some legislators forced their silence
about the issues and anomalies surrounding the DAP.
Meanwhile, Belgica stresses that the DAP, by allowing the
legislators to identify PAPs, authorized them to take part in the
implementation and execution of the GAAs, a function that
exclusively belonged to the Executive; that such situation
constituted undue and unjustified legislative encroachment in
the functions of the Executive; and that the President
arrogated unto himself the power of appropriation vested in
Congress because NBC No. 541 authorized the use of the
funds under the DAP for PAPs not considered in the 2012
budget.
Finally, the petitioners insist that the DAP was repugnant to
the principle of public accountability enshrined in the
Constitution,204 because the legislators relinquished the power
of appropriation to the Executive, and exhibited a reluctance to
inquire into the legality of the DAP.
The OSG counters the challenges, stating that the supposed
discrimination in the release of funds under the DAP could be
raised only by the affected Members of Congress themselves,
and if the challenge based on the violation of the Equal
Protection Clause was really against the constitutionality of the
DAP, the arguments of the petitioners should be directed to
the entitlement of the legislators to the funds, not to the
proposition that all of the legislators should have been given
such entitlement.
The challenge based on the contravention of the Equal
Protection Clause, which focuses on the release of funds
under the DAP to legislators, lacks factual and legal basis. The
allegations about Senators and Congressmen being unaware
of the existence and implementation of the DAP, and about
some of them having refused to accept such funds were
unsupported with relevant data. Also, the claim that the
Executive discriminated against some legislators on the
ground alone of their receiving less than the others could not
of itself warrant a finding of contravention of the Equal
Protection Clause. The denial of equal protection of any law
should be an issue to be raised only by parties who
supposedly suffer it, and, in these cases, such parties would
be the few legislators claimed to have been discriminated
against in the releases of funds under the DAP. The reason for
the requirement is that only such affected legislators could
properly and fully bring to the fore when and how the denial of
equal protection occurred, and explain why there was a denial
in their situation. The requirement was not met here.
Consequently, the Court was not put in the position to
determine if there was a denial of equal protection. To have
the Court do so despite the inadequacy of the showing of
factual and legal support would be to compel it to speculate,
and the outcome would not do justice to those for whose
supposed benefit the claim of denial of equal protection has
been made.
The argument that the release of funds under the DAP
effectively stayed the hands of the legislators from conducting
congressional inquiries into the legality and propriety of the
DAP is speculative. That deficiency eliminated any need to
consider and resolve the argument, for it is fundamental that
speculation would not support any proper judicial
determination of an issue simply because nothing concrete
can thereby be gained. In order to sustain their constitutional
challenges against official acts of the Government, the
petitioners must discharge the basic burden of proving that the
constitutional infirmities actually existed.205 Simply put,
guesswork and speculation cannot overcome the presumption
of the constitutionality of the assailed executive act.
We do not need to discuss whether or not the DAP and its
implementation through the various circulars and memoranda
of the DBM transgressed the system of checks and balances
in place in our constitutional system. Our earlier expositions on
the DAP and its implementing issuances infringing the doctrine
of separation of powers effectively addressed this particular
concern.
Anent the principle of public accountability being transgressed
because the adoption and implementation of the DAP
constituted an assumption by the Executive of Congress’
power of appropriation, we have already held that the DAP
and its implementing issuances were policies and acts that the
Executive could properly adopt and do in the execution of the
GAAs to the extent that they sought to implement strategies to
ramp up or accelerate the economy of the country.
6.
Doctrine of operative fact was applicable
After declaring the DAP and its implementing issuances
constitutionally infirm, we must now deal with the
consequences of the declaration.
Article 7 of the Civil Code provides:
Article 7. Laws are repealed only by subsequent ones, and
their violation or non-observance shall not be excused by
disuse, or custom or practice to the contrary.
When the courts declared a law to be inconsistent with the
Constitution, the former shall be void and the latter shall
govern.
Administrative or executive acts, orders and regulations shall
be valid only when they are not contrary to the laws or the
Constitution.
A legislative or executive act that is declared void for being
unconstitutional cannot give rise to any right or
obligation.206 However, the generality of the rule makes us
ponder whether rigidly applying the rule may at times be
impracticable or wasteful. Should we not recognize the need
to except from the rigid application of the rule the instances in
which the void law or executive act produced an almost
irreversible result?
The need is answered by the doctrine of operative fact. The
doctrine, definitely not a novel one, has been exhaustively
explained in De Agbayani v. Philippine National Bank:207
The decision now on appeal reflects the orthodox view that an
unconstitutional act, for that matter an executive order or a
municipal ordinance likewise suffering from that infirmity,
cannot be the source of any legal rights or duties. Nor can it
justify any official act taken under it. Its repugnancy to the
fundamental law once judicially declared results in its being to
all intents and purposes a mere scrap of paper. As the new
Civil Code puts it: ‘When the courts declare a law to be
inconsistent with the Constitution, the former shall be void and
the latter shall govern.’ Administrative or executive acts,
orders and regulations shall be valid only when they are not
contrary to the laws of the Constitution. It is understandable
why it should be so, the Constitution being supreme and
paramount. Any legislative or executive act contrary to its
terms cannot survive.
Such a view has support in logic and possesses the merit of
simplicity. It may not however be sufficiently realistic. It does
not admit of doubt that prior to the declaration of nullity such
challenged legislative or executive act must have been in force
and had to be complied with. This is so as until after the
judiciary, in an appropriate case, declares its invalidity, it is
entitled to obedience and respect. Parties may have acted
under it and may have changed their positions. What could be
more fitting than that in a subsequent litigation regard be had
to what has been done while such legislative or executive act
was in operation and presumed to be valid in all respects. It is
now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to
reflect awareness that precisely because the judiciary is the
governmental organ which has the final say on whether or not
a legislative or executive measure is valid, a period of time
may have elapsed before it can exercise the power of judicial
review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if
there be no recognition of what had transpired prior to such
adjudication.
In the language of an American Supreme Court decision: ‘The
actual existence of a statute, prior to such a determination [of
unconstitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past
cannot always be erased by a new judicial declaration. The
effect of the subsequent ruling as to invalidity may have to be
considered in various aspects, with respect to particular
relations, individual and corporate, and particular conduct,
private and official.’"
The doctrine of operative fact recognizes the existence of the
law or executive act prior to the determination of its
unconstitutionality as an operative fact that produced
consequences that cannot always be erased, ignored or
disregarded. In short, it nullifies the void law or executive act
but sustains its effects. It provides an exception to the general
rule that a void or unconstitutional law produces no
effect.208 But its use must be subjected to great scrutiny and
circumspection, and it cannot be invoked to validate an
unconstitutional law or executive act, but is resorted to only as
a matter of equity and fair play.209 It applies only to cases
where extraordinary circumstances exist, and only when the
extraordinary circumstances have met the stringent conditions
that will permit its application.
We find the doctrine of operative fact applicable to the
adoption and implementation of the DAP. Its application to the
DAP proceeds from equity and fair play. The consequences
resulting from the DAP and its related issuances could not be
ignored or could no longer be undone.
To be clear, the doctrine of operative fact extends to a void or
unconstitutional executive act. The term executive act is broad
enough to include any and all acts of the Executive, including
those that are quasi legislative and quasi-judicial in nature.
The Court held so in Hacienda Luisita, Inc. v. Presidential
Agrarian Reform Council:210
Nonetheless, the minority is of the persistent view that the
applicability of the operative fact doctrine should be limited to
statutes and rules and regulations issued by the executive
department that are accorded the same status as that of a
statute or those which are quasi-legislative in nature. Thus, the
minority concludes that the phrase ‘executive act’ used in the
case of De Agbayani v. Philippine National Bank refers only to
acts, orders, and rules and regulations that have the force and
effect of law. The minority also made mention of the
Concurring Opinion of Justice Enrique Fernando in
Municipality of Malabang v. Benito, where it was supposedly
made explicit that the operative fact doctrine applies to
executive acts, which are ultimately quasi-legislative in nature.
We disagree. For one, neither the De Agbayani case nor the
Municipality of Malabang case elaborates what ‘executive act’
mean. Moreover, while orders, rules and regulations issued by
the President or the executive branch have fixed definitions
and meaning in the Administrative Code and jurisprudence,
the phrase ‘executive act’ does not have such specific
definition under existing laws. It should be noted that in the
cases cited by the minority, nowhere can it be found that the
term ‘executive act’ is confined to the foregoing. Contrarily, the
term ‘executive act’ is broad enough to encompass decisions
of administrative bodies and agencies under the executive
department which are subsequently revoked by the agency in
question or nullified by the Court.
A case in point is the concurrent appointment of Magdangal B.
Elma (Elma) as Chairman of the Presidential Commission on
Good Government (PCGG) and as Chief Presidential Legal
Counsel (CPLC) which was declared unconstitutional by this
Court in Public Interest Center, Inc. v. Elma. In said case, this
Court ruled that the concurrent appointment of Elma to these
offices is in violation of Section 7, par. 2, Article IX-B of the
1987 Constitution, since these are incompatible offices.
Notably, the appointment of Elma as Chairman of the PCGG
and as CPLC is, without a question, an executive act. Prior to
the declaration of unconstitutionality of the said executive act,
certain acts or transactions were made in good faith and in
reliance of the appointment of Elma which cannot just be set
aside or invalidated by its subsequent invalidation.
In Tan v. Barrios, this Court, in applying the operative fact
doctrine, held that despite the invalidity of the jurisdiction of
the military courts over civilians, certain operative facts must
be acknowledged to have existed so as not to trample upon
the rights of the accused therein. Relevant thereto, in Olaguer
v. Military Commission No. 34, it was ruled that ‘military
tribunals pertain to the Executive Department of the
Government and are simply instrumentalities of the executive
power, provided by the legislature for the President as
Commander-in-Chief to aid him in properly commanding the
army and navy and enforcing discipline therein, and utilized
under his orders or those of his authorized military
representatives.’
Evidently, the operative fact doctrine is not confined to statutes
and rules and regulations issued by the executive department
that are accorded the same status as that of a statute or those
which are quasi-legislative in nature.
Even assuming that De Agbayani initially applied the operative
fact doctrine only to executive issuances like orders and rules
and regulations, said principle can nonetheless be applied, by
analogy, to decisions made by the President or the agencies
under the executive department. This doctrine, in the interest
of justice and equity, can be applied liberally and in a broad
sense to encompass said decisions of the executive branch. In
keeping with the demands of equity, the Court can apply the
operative fact doctrine to acts and consequences that resulted
from the reliance not only on a law or executive act which is
quasi-legislative in nature but also on decisions or orders of
the executive branch which were later nullified. This Court is
not unmindful that such acts and consequences must be
recognized in the higher interest of justice, equity and fairness.
Significantly, a decision made by the President or the
administrative agencies has to be complied with because it
has the force and effect of law, springing from the powers of
the President under the Constitution and existing laws. Prior to
the nullification or recall of said decision, it may have produced
acts and consequences in conformity to and in reliance of said
decision, which must be respected. It is on this score that the
operative fact doctrine should be applied to acts and
consequences that resulted from the implementation of the
PARC Resolution approving the SDP of HLI. (Bold
underscoring supplied for emphasis)
In Commissioner of Internal Revenue v. San Roque Power
Corporation,211 the Court likewise declared that "for the
operative fact doctrine to apply, there must be a ‘legislative or
executive measure,’ meaning a law or executive issuance."
Thus, the Court opined there that the operative fact doctrine
did not apply to a mere administrative practice of the Bureau
of Internal Revenue, viz:
Under Section 246, taxpayers may rely upon a rule or ruling
issued by the Commissioner from the time the rule or ruling is
issued up to its reversal by the Commissioner or this Court.
The reversal is not given retroactive effect. This, in essence, is
the doctrine of operative fact. There must, however, be a rule
or ruling issued by the Commissioner that is relied upon by the
taxpayer in good faith. A mere administrative practice, not
formalized into a rule or ruling, will not suffice because such a
mere administrative practice may not be uniformly and
consistently applied. An administrative practice, if not
formalized as a rule or ruling, will not be known to the general
public and can be availed of only by those with informal
contacts with the government agency.
It is clear from the foregoing that the adoption and the
implementation of the DAP and its related issuances were
executive acts.1avvphi1 The DAP itself, as a policy,
transcended a merely administrative practice especially after
the Executive, through the DBM, implemented it by issuing
various memoranda and circulars. The pooling of savings
pursuant to the DAP from the allotments made available to the
different agencies and departments was consistently applied
throughout the entire Executive. With the Executive, through
the DBM, being in charge of the third phase of the budget
cycle – the budget execution phase, the President could
legitimately adopt a policy like the DAP by virtue of his primary
responsibility as the Chief Executive of directing the national
economy towards growth and development. This is simply
because savings could and should be determined only during
the budget execution phase.
As already mentioned, the implementation of the DAP resulted
into the use of savings pooled by the Executive to finance the
PAPs that were not covered in the GAA, or that did not have
proper appropriation covers, as well as to augment items
pertaining to other departments of the Government in clear
violation of the Constitution. To declare the implementation of
the DAP unconstitutional without recognizing that its prior
implementation constituted an operative fact that produced
consequences in the real as well as juristic worlds of the
Government and the Nation is to be impractical and unfair.
Unless the doctrine is held to apply, the Executive as the
disburser and the offices under it and elsewhere as the
recipients could be required to undo everything that they had
implemented in good faith under the DAP. That scenario
would be enormously burdensome for the Government. Equity
alleviates such burden.
The other side of the coin is that it has been adequately shown
as to be beyond debate that the implementation of the DAP
yielded undeniably positive results that enhanced the
economic welfare of the country. To count the positive results
may be impossible, but the visible ones, like public
infrastructure, could easily include roads, bridges, homes for
the homeless, hospitals, classrooms and the like. Not to apply
the doctrine of operative fact to the DAP could literally cause
the physical undoing of such worthy results by destruction,
and would result in most undesirable wastefulness.
Nonetheless, as Justice Brion has pointed out during the
deliberations, the doctrine of operative fact does not always
apply, and is not always the consequence of every declaration
of constitutional invalidity. It can be invoked only in situations
where the nullification of the effects of what used to be a valid
law would result in inequity and injustice;212 but where no such
result would ensue, the general rule that an unconstitutional
law is totally ineffective should apply.
In that context, as Justice Brion has clarified, the doctrine of
operative fact can apply only to the PAPs that can no longer
be undone, and whose beneficiaries relied in good faith on the
validity of the DAP, but cannot apply to the authors,
proponents and implementors of the DAP, unless there are
concrete findings of good faith in their favor by the proper
tribunals determining their criminal, civil, administrative and
other liabilities.
WHEREFORE, the Court PARTIALLY GRANTS the petitions
for certiorari and prohibition; and DECLARES the following
acts and practices under the Disbursement Acceleration
Program, National Budget Circular No. 541 and related
executive issuances UNCONSTITUTIONAL for being in
violation of Section 25(5), Article VI of the 1987 Constitution
and the doctrine of separation of powers, namely:
(a) The withdrawal of unobligated allotments from
the implementing agencies, and the declaration of
the withdrawn unobligated allotments and
unreleased appropriations as savings prior to the
end of the fiscal year and without complying with the
statutory definition of savings contained in the
General Appropriations Acts;
(b) The cross-border transfers of the savings of the
Executive to augment the appropriations of other
offices outside the Executive; and
(c) The funding of projects, activities and programs
that were not covered by any appropriation in the
General Appropriations Act.
The Court further DECLARES VOID the use of unprogrammed
funds despite the absence of a certification by the National
Treasurer that the revenue collections exceeded the revenue
targets for non-compliance with the conditions provided in the
relevant General Appropriations Acts.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
I join the Concurring
and Dissenting
See Dissenting
Opinion of J. Del
Opinion
Castillo
ANTONIO T. CARPIO
PRESBITERO J.
Associate Justice
VELASCO, JR.
Associate Justice
 5 Zero-based budgeting is a budgeting approach
No part: that involves the review/evaluation of on-going
TERSITA J. See: Separate Opinion programs and projects implemented by different
LEONARDO-DE ARTURO D. BRION departments/agencies in order to: (a) establish the
CASTRO Associate Justice continued relevance of programs/projects given the
Associate Justice current developments/directions; (b) assess
whether the program objectives/outcomes are being
Pls. see separate achieved; (c) ascertain alternative or more efficient
concurring and or effective ways of achieving the objectives; and
DIOSDADO M. (d) guide decision makers on whether or not the
dissenting opinion
PERALTA resources for the program/project should continue
MARIANO C. DEL
Associate Justice at the present level or be increased, reduced or
CASTILLO
Associate Justice discontinued. (see NBC Circular No. 539, March 21,
2012).

MARTIN S. JOSE PORTUGAL 6Constitutional and Legal Bases <

VILLARAMA, JR. PEREZ
http://www.dbm.gov.ph/?page_id=7364> (visited
Associate Justice Associate Justice
May 27, 2014).

JOSE CATRAL BIENVENIDO L. 7Belgica v. Executive Secretary Ochoa, G.R. No.

MENDOZA REYES 208566, November 19, 2013.
Associate Justice Associate Justice
8 The Villegas petition was originally undocketed
Pls. see Separate See separate due to lack of docket fees being paid; subsequently,
Concurring Opinion concurring opinion the docket fees were paid.
ESTELA M. PERLAS- MARVIC MARIO
BERNABE VICTOR F. LEONEN 9 Rollo (G.R. No. 209287), p. 119.
Associate Justice Associate Justice
10 Id. at 190-196. Sec. Abad manifested that the
Memorandum for the President dated June 25,
CERTIFICATION
2012 was the directive referred to in NBC No. 541;
and that although the date appearing on the
I certify that the conclusions in the above Decision had been Memorandum was June 25, 2012, the actual date of
reached in consultation before the cases were assigned to the its approval was June 27, 2012.
writer of the opinion of the court.
11 Id. at 523-625.
MARIA LOURDES P. A. SERENO
Chief Justice 12 Id. at 627-692.

13 Id. at 693-698.

14 Id. at 699-746.
Footnotes
15 Id. at 748-764.
1<http://www.dbm.gov.ph/?p=7302> (visited May
27, 2014).
16 Id. at 766-784.
2 Labeled as "Personal Services" under the GAAs.
17 Id. at 925.
3Frequently Asked Questions about the
Disbursement Acceleration Program (DAP)
18 Id. at 786-922.
<http://www.dbm.gov.ph/?page_id=7362> (visited
May 27, 2014). 19Rollo (G.R. No. 209287), pp. 1050-1051
(Respondents’ Memorandum).
4 See note 2.
20 Id. at 1044.
21 Id. at 1048.
22 Id. at 1053.
23 Id. at 1053-1056.
24 Id. at 1056.
25Bernas, The 1987 Constitution of the Republic of
the Philippines: A Commentary, 2009 Edition, p.
959.
I RECORD of the 1986 Constitutional
26
Commission 436 (July 10, 1986).
I RECORD of the 1986 Constitutional
27
Commission, 439 (July 10, 1986).
28 63 Phil. 139 (1936).
29 Id. at 157-158.
30G.R. No. 153852, October 24, 2012, 684 SCRA
410.
31 Id. at 420-423.
32 Municipal Council of Lemery v. Provincial Board
of Batangas, No. 36201, October 29, 1931, 56 Phil.
260, 266-267.
33G.R. No. 163980, August 3, 2006, 497 SCRA
581, 595-596.
34Francisco, Jr. v. Toll Regulatory Board, G.R. No.
166910, October 19, 2010, 633 SCRA 470, 494.
Planas v. Gil, 67 Phil. 62, 73-74 (1939), with the
35
Court saying:
It must be conceded that the acts of the
Chief Executive performed within the
limits of his jurisdiction are his official acts
and courts will neither direct nor restrain
executive action in such cases. The rule
is non-interference. But from this legal
premise, it does not necessarily follow
that we are precluded from making an
inquiry into the validity or constitutionality
of his acts when these are properly
challenged in an appropriate proceeding.
xxx As far as the judiciary is concerned,
while it holds "neither the sword nor the
purse" it is by constitutional placement
the organ called upon to allocate
constitutional boundaries, and to the
Supreme Court is entrusted expressly or
by necessary implication the obligation of
determining in appropriate cases the
constitutionality or validity of any treaty,
law, ordinance, or executive order or
regulation. (Sec.2 [1], Art. VIII,
Constitution of the Philippines.) In this
sense and to this extent, the judiciary
restrains the other departments of the
government and this result is one of the
necessary corollaries of the "system of
checks and balances" of the government
established.
36Funa v. Villar, G.R. No. 192791, April 24, 2012,
670 SCRA 579, 593. According to Black’s Law
Dictionary (Ninth Edition), lis motais "[a] dispute that
has begun and later forms the basis of a lawsuit."
37 Bernas, op. cit., at 970.
38 Supra note 7.
39 Oral Arguments, TSN of January 28, 2014, p. 14.
40 Id. at 23.
41Funa v. Ermita, G.R. No. 184740, February 11,
2010, 612 SCRA 308, 319.
42 Funa v. Villar, supra note 36, at 592; citing David
v. Macapagal-Arroyo, G.R. Nos. 171396, 171409,
171485, 171483, 171400, 171489 & 171424, May 3,
2006, 489 SCRA 160, 214-215.
43 Black’s Law Dictionary, 941 (6th Ed. 1991).
44G.R. No. 191002, March 17, 2010, 615 SCRA
666.
45 Id. at 722-726.
46G.R. No. 155001, May 5, 2003, 402 SCRA 612,
645.
47 Rollo (G.R. No. 209412), Petition, pp. 3-4.
48 Rollo (G.R. No. 209164), p. 5.
49 Rollo (G.R. No. 209260), p. 6.
Agan, Jr. v. Philippine International Air Terminals
50
Co., Inc., note 46 at 645.
51Magtolis-Briones, Leonor, Philippine Public Fiscal
Administration, National Research Council of the
Philippines and Commission on Audit, 1983, p. 243.
52Manasan, Rosario G., Public Finance in the
Philippines: A Review of the Literature, Philippine
Institute for Development Studies Working Paper
81-03, March 1981, p. 37.
53 Magtolis-Briones, op. cit., p. 79.
54American economist Prof. Philip E. Taylor has
tendered the following understanding of the term
budget (as quoted in Magtolis-Briones, op. cit., p.
243), to wit:
The budget is the master plan of government. It
brings together estimates of anticipated revenues
and proposed expenditures, implying the schedule
of activities to be undertaken and the means of
financing those activities. In the budget, fiscal
policies are coordinated, and only in the budget can
a more unified view of the financial direction which
the government is going to be observed.
55 Id. at 10.
56 Id. at 10-11.
57 Id. at 11.
58 Id. at 12.
59Manasan, op cit., at. 39; Manasan, Budget
Operations Manual Revised Edition, Operations
Budget Commission (1968), p. 3.
60 Magtolis-Briones, op cit., at 80.
61 Id.
http://www.dbm.gov.ph/?page_id=352. Visited on
62
May 27, 2014.
63 Id.
64 Magtolis-Briones, op cit., p. 269.
http://www.dbm.gov.ph/?page_id=352. Visited on
65
March 27, 2014.
66http://budgetngbayan.com/the-budget-cycle/.
Visited on March 27, 2014.
67http://budgetngbayan.com/budget-
101/budget.preparation.
68Section 22. The President shall submit to the
Congress, within thirty days from the opening of
every regular session as the basis of the general
appropriations bill, a budget of expenditures and
sources of financing, including receipts from existing
and proposed revenue measures.
69 Section 2(e), P.D. No. 1177 states that capital
expenditures « refer to appropriations for the
purchase of goods and services, the benefits of
which extend beyond the fiscal year and which add
to the assets of Government, including investments
in the capital of government-owned or controlled
corporations and their subsidiaries. »
70Section 2(d), PD 1177 defines current oprating
expenditures as « appropriations for the purchase of
goods and services for current consumption or
within the fiscal year, including the acquisition of
furniture and equipment normally used in the
conduct of government operations, and for
temporary construction of promotional, research
and similar purposes. »
71 Manasan, op.cit.,at 32.
72 Id.
73 Id.
74 Id.
75 Id.; see also Banzon Abello, Amelia, Pattern of
Philippine Public Expenditures and Revenue, UP
Institute of Economic Development and Research,
p. 2 (1962).
76 Magtolis-Briones, op.cit.,at 383.
77 Id. at 139.
78 Quoted in Banzon Abello, op.cit., at 32-33.
79 Prof. Charles Bastable, a political economist,
proposed a similar classification of public revenues
in Public Finance (3rd Edition (1917), Book II,
Chapter I(2), London: McMillan and Co., Ltd.), to
wit:
The widest division of public revenue is
into (1) that obtained by the State in its
various functions as a great corporation
 or "juristic person," operating under the
ordinary conditions that govern
individuals or private companies, and (2)
that taken from the revenues of the
society by the power of the sovereign. To
the former class belong the rents
received by the State as landlord, rent
charges due to it, interest on capital lent
by it, the earnings of its various
employments, whether these cover the
expenses of the particular function or not,
and finally the accrual of property by
escheat or absence of a visible owner.
Under the second class have to be
placed taxes, either general or special,
and finally all extra returns obtained by
state industrial agencies through the
privileges granted by them.
80 Magtolis-Briones, supra at 140.
81 Id. at 141.
82 Id.
83 Id. at 142.
84 Id.
85Manual on the New Government Accounting
System, Accounting Policies, Volume I, Chapter 1,
Section 17 (For National Government Agencies).
86http://budgetngbayan.com/budget-101/budget-
legislation.
87 Article VI of the 1987 Constitution provides:
Section 24. All appropriation, revenue or tariff bills,
bills authorizing increase of the public debt, bills of
local application, and private bills shall originate
exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
88Section 26, Article VI of the 1987 Constitution, to
wit:
Section 26.
1. Every bill passed by the Congress
shall embrace only one subject which
shall be expressed in the title thereof.
2. No bill passed by either House shall
become a law unless it has passed three
readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days
before its passage, except when the
President certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment thereto
shall be allowed, and the vote thereon
shall be taken immediately thereafter,
and the yeas and nays entered in the
Journal.
89 Id.
90 Section 27,1, Article VI of the 1987 Constitution,
viz:
Section 27.
1. Every bill passed by the Congress
shall, before it becomes a law, be
presented to the President. If he
approves the same he shall sign it;
otherwise, he shall veto it and return the
same with his objections to the House
where it originated, which shall enter the
objections at large in its Journal and
proceed to reconsider it. If, after such
reconsideration, two-thirds of all the
Members of such House shall agree to
pass the bill, it shall be sent, together with
the objections, to the other House by
which it shall likewise be reconsidered,
and if approved by two-thirds of all the
Members of that House, it shall become a
law. In all such cases, the votes of each
House shall be determined by yeas or
nays, and the names of the Members
voting for or against shall be entered in its
Journal. The President shall
communicate his veto of any bill to the
House where it originated within thirty
days after the date of receipt thereof,
otherwise, it shall become a law as if he
had signed it.
2. The President shall have the power to
veto any particular item or items in an
appropriation, revenue, or tariff bill, but
the veto shall not affect the item or items
to which he does not object.
91 Id.
92Section 25, 7, Article VI of the 1987 Constitution,
thus :
 xxxx.
7. If, by the end of any fiscal year, the
Congress shall have failed to pass the
general appropriations bill for the ensuing
fiscal year, the general appropriations law
for the preceding fiscal year shall be
deemed re-enacted and shall remain in
force and effect until the general
appropriations bill is passed by the
Congress.
xxxx.
93http://budgetngbayan.com/budget-101/budget-
execution.
94 The ABM disaggregates all programmed
appropriations for each agency into two main
expenditure categories: "not needing clearance"
and "needing clearance"; it is a comprehensive
allotment release document for all appropriations
that do not need clearance, or those that have
already been itemized and fleshed out in the GAA.
95Items identified as "needing clearance" are those
that require the approval of the DBM or the
President, as the case may be (for instance, lump
sum funds and confidential and intelligence funds).
For such items, an agency needs to submit a
Special Budget Request to the DBM with supporting
documents. Once approved, a SARO is issued.
96Liabilities legally incurred that the Government
will pay for.
97 Belgica v. Executive Secretary, supra note 7
clarifies the distinction between an NCA and SARO,
viz:
A SARO, as defined by the DBM itself in
its website, is "[a] specific authority
issued to identified agencies to incur
obligations not exceeding a given amount
during a specified period for the purpose
indicated. It shall cover expenditures the
release of which is subject to compliance
with specific laws or regulations, or is
subject to separate approval or clearance
by competent authority." Based on this
definition, it may be gleaned that a SARO
only evinces the existence of an
obligation and not the directive to pay.
Practically speaking, the SARO does not
have the direct and immediate effect of
placing public funds beyond the control of
the disbursing authority. In fact, a SARO
may even be withdrawn under certain
circumstances which will prevent the
actual release of funds. On the other
hand, the actual release of funds is
brought about by the issuance of the
NCA, which is subsequent to the
issuance of a SARO.
xxxx
98http://budgetngbayan.com/budget-101/budget-
accountability.
99Fisher, Presidential Spending Power, 1975, p.
165.
100Keefe and Ogul, The American Legislative
Process: Congress and the States, 1993, p. 359.
101 Magtolis-Briones, op. cit., p. 79.
102Diokno, Philippine Fiscal Behavior in Recent
History, The Philippine Review of Economics, Vol.
XLVII, No. 1, June 1, 2010, p. 53.
103World Bank, Philippines Quarterly Update: Solid
Economic Fundamentals Cushion External Turmoil,
available at
http://www.investphilippines.info/arangkada/wp-
content/uploads/2011/10/WB-PhilippinesQuarterly-
Update-Sept2011.pdf (last accessed March 31,
2014).
104 Id.
105Department of Budget and Management,
Frequently Asked Questions About the
Disbursement Acceleration Program (DAP),
available at http://www.dbm.gov.ph/?page_id=7362
(last accessed, December 3, 2013).
106 Respondent’s Consolidated Comment, p.8.
107 Public-Private Partnership.
108Philippines Quarterly Update: Solid Economic
Fundamentals Cushion External Turmoil, available
at http://www.investphilippines.info/arangkada/wp-
content/uploads/2011/10/WB-Philippines-
QuarterlyUpdate-Sept2011.pdf (last accessed
March 31, 2014).
109Respondent’s Memorandum, p. 2, citing the
Philippines Quarterly Update: From Stability to
Prosperity for All, available at http://www-
wds.worldbank.org/external/default/WDSContentSer
ver/WDSP/IB/
2012/06/12/000333037_20120612011744/Rendere
d/PDF/698330WP0₱12740ch020120FINAL005101
2.pdf (last accessed March 31, 2014).
110 The research group IBON International contests
this finding, saying that the contribution of the DAP
spending was only one-fourth of a percentage point
at most during the last quarter of 2011, and a
"negligible fraction" for the entire year of 2011. See
"DAP did not contribute 1.3 percentage points to
growth—IBON," available at
http://ibon.org/ibon_articles.php?id=344 (last
accessed April 5, 2014).
111 TSN, Oral Arguments, January 28, 2014, p. 12.
112Diokno, Philippine Fiscal Behavior in Recent
History, The Philippine Review of Economics, Vol.
XLVII, No. 1, June 1, 2010, p. 51.
113 Id. at 52.
114Rollo (G.R. No. 209287), p. 539, (Respondent’s
1st Evidence Packet).
Id. at 526-529, (Respondent’s 1st Evidence
115
Packet).
116 Id. at 537-540.
117 Id. at 549-555.
118 Id. at 563-568.
119 Id. at 579-587.
120 Id. at 601-608.
121This memorandum was a request to fund the
rehabilitation plan for the Typhoon Pablo-stricken
areas in Mindanao amounting to ₱10.534 billion to
be sourced from the (i) 2012 and 2013 pooled
savings from programmed appropriations, and (ii)
revenue windfall collections during the first
semester comprising the 2013 Unprogrammed
Fund, Respondent’s 1st Evidence Packet, p. 609-B.
122Rollo (G.R. No. 209287), p. 555, (Respondent’s
1st Evidence Packet).
123Id. at 185-189, (Respondent’s Manifestation
dated December 6, 2013).
124 Blacks’ Law Dictionary (6th Ed.) p. 102.
] G.R. No. 29627, December 19, 1989,
125
180SCRA 254.
126 Id. at 160.
127Daniel Tomassi, "Budget Execution," in
Budgeting and Budgetary Institutions, ed. Anwar
Shah (Washington: The International Bank for
Reconstruction and Development/World Bank,
2007), p. 279, available at
http://siteresources.worldbank.org/PSGLP/Resourc
es/BudgetingandBudgetaryInstitutions.pdf (last
accessed April 9, 2014).
Budget Operations Manual (Revised Edition)
128
1968, Office of the President, Budget Commission.
129Fujitani and Shirck, Executive Spending Powers:
The Capacity to Reprogram, Rescind, and Impound.
Harvard Law School, Federal Budget Policy
Seminar, Briefing Paper No. 8, p. 1, available at
http://www.law.harvard.edu/faculty/hjackson/Executi
veSpendingPowers_8.pdf (last accessed December
3, 2013).
130 Id. at 8.
131 Id.
132 Princeton University Press, 1975, pp. 261-262.
G.R. No. 103524, April 15, 1992, 208 SCRA 133,
133
150.
Waldby, Odell, Philippine Public Fiscal
134
Administration, Institute of Public Administration,
University of the Philippines, 1954, p. 319.
135The Philippine Commission, which lasted from
1900 to 1916, comprised the Upper House of the
Philippines Legislature. The Philippine Assembly,
which existed from 1907 to 1916, served in its time
as the Lower House of the Philippine Legislature.
136 Waldby, op. cit., pp. 321-322.
137In his Sponsorship Speech, Delegate Honesto
Mendoza, the Chairman of the Committee on
Budget and Appropriations of the 1971
Constitutional Convention, stated that it was
deemed "absolutely necessary to remove the
anomaly of illegal fund transfers of public funds to
projects or purposes not contemplated by law."
 Minutes of the Meeting, Commission on Budget
138 154These GAA provisions are reflected,
and Appropriations, 1971 Constitutional Convention, respectively, in NBC No. 528 (Guidelines on the
November 4, 1971, p. 18. Release of funds for FY 2011), thus:

139Minutes of the Meeting, Commission on Budget 3.9.1.2 Appropriations under FY 2011

and Appropriations, 1971 Constitutional Convention, GAA, R.A. 10147 shall be available for
January 13, 1972, p. 10. release and obligations up to December
31, 2012 with the exception of PS which
140 Id. at 9. shall lapse at the end of 2011.

141 Id. at 10-11. and NBC No. 535 (Guidelines on the

Release of funds for FY 2012), thus:
Demetria v. Alba, No. L-71977, February 27,
142

1987, 148 SCRA 208. 3.9.1.2 Appropriations under CY 2012

GAA, R.A. 10155 shall be available for
release and obligations up to December
143 Id. at 214-215. 31, 2013 with the exception of PS which
shall lapse at the end of 2012.
G.R. No. 188635, January 29, 2013, 689 SCRA
144

385, 402-404. 155 Rollo (G.R. No. 209442), p. 23.

145Constitutional and Legal Bases < 156 Rollo (G.R. No. 209287), p. 1060, (Memorandum
http://www.dbm.gov.ph/?page_id=7364> (visited
for the Respondents).
March 27, 2014)
157 Rollo (209287), pp. 18-19.
146 Rollo (G.R. No. 209442), p. 7.
158 Rollo (209442), pp. 21-22.
Rollo (G.R. No. 209260), p. 17; (G.R. No.
147

209517), p. 19; (G.R. No. 209155), p. 11; (G.R. No.

209135), p. 13. G.R. No. 113105, August 19, 1994, 235 SCRA
159

506, 545.
Rollo (G.R. No. 209287), p. 6; (G.R. No.
148

209517), p. 19; (G.R. No. 209442), p. 23.

160 Webster’s Third New International Dictionary.

149Section 17, Article VII of the 1987 Constitution

provides:
Section 17. The President shall have
control of all the executive departments,
bureaus, and offices. He shall ensure that
the laws be faithfully executed.
Sanchez v. Commission on Audit, G.R. No.
150
127545, April 23, 2008, 552 SCRA 471, 497.
151 NBC No. 541 (Rationale); see also NBC No. 541
(5.3), which stated that, in case of failure to submit
budget accountability reports, the DBM would
compute/approximate the agency’s obligation level
161 TSN, January 28, 2014, p. 12.
162DBM, "Sec. Abad: DAP used to buoy spending,
not to buy votes," available at
http://www.dbm.gov.ph/?p=7328 (last accessed
March 28, 2014).
163DBM, "Sec. Abad: DAP used to buoy spending,
not to buy votes," available at
http://www.dbm.gov.ph/?p=7328 (last accessed
March 28, 2014).
164 Rollo (G.R. No. 209136), p. 18.
Rollo (G.R. No. 209136), p. 18; (G.R. No.
165

as of June 30 to derive its unobligated allotments as 209442), p. 13.

of the same period.
166 Rollo (G.R. No. 209155), p. 9.
152 NBC No. 541 (2.1).
167Rollo (G.R. No. 209287), pp. 68-104;
153 NBC No. 541 (5.7.1). (Respondents’ Consolidated Comment).
168 Rollo (G.R. No. 209287), pp. 524-922. Wander and Herbert (Ed.), Congressional
178

Budgeting: Politics, Process and Power (1984), at

169SARO No. E-11-02253; Rollo (G.R. No. 209287), 133.
p. 628, (Respondents’ 2nd Evidence Packet).
179 Bernas, op. cit., at 812.
170See FY2011 National Expenditure Program, p.
1186, available at 180Philippine Constitution Association v. Enriquez,
http://www.dbm.gov.ph/wpcontent/uploads/NE₱201 supra, note 159, at 522.
1/DOSTG-GAA.pdf.
181Stith, Kate, "Congress’ Power of the Purse"
171SARO No. E-14-02254; Rollo (G.R. No. 209287), (1988), Faculty Scholarship Series, Paper No. 1267,
p. 630, (Respondents’ 2nd Evidence Packet). p. 1345, available at
http://digitalcommons.law.yale.edu/cgi/viewcontent.
Rollo (G.R. No. 209287), p. 27, (Respondents’
172 cgi?article=2282&context=fss_papers (last
Memorandum). accessed March 29, 2014).

173 TSN, January 28, 2014, p. 26.

182 Id. at 1377.

174Section 29(1), Article VI of the 1987 Constitution

183 TSN of January 28, 2014, pp. 42-45.
provides that no money shall be paid out of the
Treasury except in pursuance of an appropriation 184Rollo (G.R. No. 209287), p. 883, (Respondents’
made by law. 7th Evidence Packet).

175 According to Allen and Miller. The 185 Id. at 562, (Respondents’ 1st Evidence Packet).
Constitutionality of Executive Spending Powers,
Harvard Law School, Federal Budget Policy See the OSG’s Compliance dated February 14,
186
Seminar, Briefing Paper No. 38, p. 16, available at 2014, Annex B, p. 2.
http://www.law.harvard.edu/faculty/hjackson/Constit
utionalityOfExecutive_38.pdf (December 3, 2013): 187 Rollo (G.R. No. 209287), p. 35, (Memorandum
for the Respondents).
If the executive could spend under its
own authority, "then the constitutional 188 Id.
grants of power to the legislature to raise
taxes and to borrow money would be for
naught because the Executive could 189 TSN of February 18, 2014, p. 32.
effectively compel such legislation by
spending at will. The ‘[L]egislative 190 TSN of February 18, 2014, pp. 45-46.
Powers’ referred to in section 8 of Article I
would then be shared by the President in Rollo (G.R. No. 209287), p. 1027; (G.R. No.
191
his executive as well as in his legislative 209442), p. 8.
capacity" The framers intended the
powers to spend and the powers to tax to
be "two sides of the same coin," and for
192Other References: A Brief on the Special
good reason. Separating the two powers Purpose Funds in the National Budget
— or giving the President one without the <http://www.dbm.gov.ph/?page_id=7366> (visited
other — might reduce accountability and May 2, 2014).
result in excessive spending: the
President would be able to spend and 193 Rollo (G.R. No. 209287), p. 95.
leave Congress to deal with the political
repercussions of financing such spending 194 Glossary of Terms, BESF.
through heightened tax rates.
195 TSN, January 28, 2014, p. 106.
176 Bernas, op. cit., at 811.
196 Rollo (G.R. No. 209155), pp. 327 & 337.
Wander and Herbert (Ed.), Congressional
177

Budgeting: Politics, Process and Power (1984), p. 3. 197 Id. at 337 & 338.
 The target revenue for dividends on stocks of
198 Commissioner of Internal Revenue v. San Roque
211

₱5.5 billion was according to the BESF (2013), Power Corporation, G.R. No. 187485, October 8,
Table C.1 Revenue Program, by Source 2011-2013. 2013.

199 Rollo (G.R. No. 209155), pp. 337 & 339.
200Other References: A Brief on the Special
Purpose Funds in the National Budget
<http://www.dbm.gov.ph/?page_id=7366> (visited
May 2, 2014).
201Basic Concepts in Budgeting
<http://www.dbm.gov.ph/wp-
content/uploads/2012/03/PGB-B1.pdf> (visited May
2, 2014).
212 This view is similarly held by Justice Leonen,
who asserts in his separate opinion that the
application of the doctrine of operative fact should
be limited to situations (a) where there has been a
reliance in good faith in the acts involved, or (b)
where in equity the difficulties that will be borne by
the public far outweigh the rigid application of the
legal nullity of an act.

202 Id.

203The Equal Protection Clause is found in Section

1, Article III of the 1987 Constitution, to wit:

Section 1. No person shall be deprived of

life, liberty, or property without due
process of law, nor shall any person be
denied the equal protection of the laws.

204 Article XI of the 1987 Constitution states:

Section 1. Public office is a public trust.

Public officers and employees must, at all
times, be accountable to the people,
serve them with utmost responsibility,
integrity, loyalty, and efficiency; act with
patriotism and justice, and lead modest
lives.

See Fariñas v. Executive Secretary, G.R. No.

205

147387, December 10, 2003, 417 SCRA 503.

Commissioner of Internal Revenue v. San Roque

206

Power Corporation, G.R. No. 187485, October 8,

2013.

G.R. No. L-23127, April 29, 1971, 38 SCRA 429,

207

434-435.

Yap v. Thenamaris Ship’s Management, G.R.

208

No. 179532, May 30 2011, 649 SCRA 369, 381.

League of Cities Philippines v. COMELEC, G.R.

209

No. 176951, August 24, 2010, 628 SCRA 819, 833.

G.R. No. 171101, November 22, 2011, 660

210

SCRA 525, 545-548.

 Republic of the Philippines VI – VII 120 170 195
SUPREME COURT
Manila VII – VIII 170 230 255
VIII – IX 220 290 340
SECOND DIVISION
IX – X 260 350 455
G.R. No. 168612 December 10, 2014
On August 18, 1997 and with the previous collective
PHILIPPINE ELECTRIC CORPORATION bargaining agreements already expired, PHILEC selected
(PHILEC), Petitioner, Lipio for promotion from Machinist under Pay Grade VIII7 to
vs. Foreman I under Pay Grade B.8 PHILEC served Lipio a
COURT OF APPEALS, NATIONAL CONCILIATION AND memorandum,9 instructing him to undergo training for the
MEDIATION BOARD (NCMB), Department of Labor and position of Foreman I beginning on August 25, 1997. PHILEC
Employment, RAMON T. JIMENEZ, in his capacity as undertook to pay Lipio training allowance as provided in the
Voluntary Arbitrator, PHILEC WORKERS' UNION (PWU), memorandum:
ELEODORO V. LIPIO, and EMERLITO C.
IGNACIO, Respondents.
This will confirm your selection and that you will undergo
training for the position of Foreman I (PG B) of the Tank
DECISION Finishing Section, Distribution Transformer Manufacturing and
Repair effective August 25, 1997.
LEONEN, J.:
You will be trained as a Foreman I,and shall receive the
An appeal to reverse or modify a Voluntary Arbitrator's award following training allowance until you have completed the
or decision must be filed before the Court of Appeals within 10 training/observation period which shall not exceed four (4)
calendar days from receipt of the award or decision. months.

This is a petition1 for review on certiorari of the Court of First Month - - - - - 350.00
Appeals’ decision2 dated May 25, 2004, dismissing the
Philippine Electric Corporation’s petition for certiorari for lack Second month - - - - - 815.00
of merit. Philippine Electric Corporation (PHILEC) is a
domestic corporation "engaged in the manufacture and repairs Third month - - - - - 815.00
of high voltage transformers."3 Among its rank-and-file
employees were Eleodoro V. Lipio (Lipio) and Emerlito C. Fourth month - - - - - 815.00
Ignacio, Sr. (Ignacio, Sr.), former members of the PHILEC
Workers’ Union (PWU).4 PWU is a legitimate labor
organization and the exclusive bargaining representative of Please be guided accordingly.10
PHILEC’s rank-and-file employees.5
Ignacio, Sr., then DT-Assembler with Pay Grade VII,11 was
From June 1, 1989 to May 31, 1997, PHILEC and its rank- likewise selected for training for the position of Foreman
and-file employees were governed by collective bargaining I.12 On August 21, 1997, PHILEC served Ignacio, Sr. a
agreements providing for the following step increases in an memorandum,13 instructing him to undergo training with the
employee’s basic salary in case of promotion:6 following schedule of allowance:

This will confirm your selection and that you will undergo
Rank-and-File (PWU) training for the position of Foreman I (PG B) of the Assembly
Pay Section, Distribution Transformer Manufacturing and Repair
Grade June 1, 1989 to June 1, 1992 to June 1, 1994 to
May 31, 1992 May 31, 1994 effective
May 31, 1997
I – II 50 60 August6525, 1997.
II – III 60 70 78
You will be trained as a Foreman I,and shall receive the
III – IV 70 80 95 training allowance until you have completed the
following
training/observation period which shall not exceed four (4)
IV – V 80 110 120
months.
V- VI 100 140 150
 As an example, if a Grade I employee qualifies for a Grade III
First Month ----- 255.00
position, he will receive the training allowance for Grade I to
Second month - - - - - 605.00 Grade II for the first month. On the second month, he will
receive the training allowance for Grade I to Grade II plus the
Third month - - - - - 1,070.00 allowance for Grade II to Grade III. He will then continue to
receive this amount until he finishes his training or observation
Fourth month - - - - - 1,070.00 period.18

Claiming that the schedule of training allowance stated in the

Please be guided accordingly.14
memoranda served on Lipio and Ignacio,Sr. did not conform to
Article X, Section 4 of the June 1, 1997 collective bargaining
On September 17, 1997, PHILEC and PWU entered into a agreement, PWU submitted the grievance to the grievance
new collective bargaining agreement, effective retroactively on machinery.19
June 1, 1997 and expiring on May 31, 1999.15 Under Article X,
Section 4 of the June 1, 1997 collective bargaining agreement,
PWU and PHILEC failed to amicably settle their grievance.
a rank-and-file employee promoted shall be entitled to the
Thus, on December 21, 1998, the parties filed a submission
following step increases in his or her basic salary:16
agreement20 with the National Conciliation and Mediation
Board, submitting the following issues to voluntary arbitration:
Section 4. STEP INCREASES. [Philippine Electric
Corporation] shall adopt the following step increases on the
I
basic salary in case of promotion effective June 1, 1997. Such
increases shall be based on the scale below or upon the
minimum of the new pay grade to which the employee is WHETHER OR NOT PHILEC VIOLATED SECTION 4 (Step
promoted, whichever is higher: Increases) ARTICLE X (Wage and Position Standardization)
OF THE EXISTING COLLECTIVE BARGAINING
AGREEMENT (CBA) IN IMPLEMENTING THE STEP
Pay Grade Step Increase INCREASES RELATIVE TO THE PROMOTION OF
I - II ₱80.00 INDIVIDUAL COMPLAINANTS.
II - III ₱105.00
III - IV ₱136.00 II
IV - V ₱175.00
WHETHER OR NOT PHILEC’s MANNER OF
V - VI ₱224.00
IMPLEMENTING THE STEP INCREASES IN CONNECTION
VI - VII ₱285.00 WITH THE PROMOTION OF INDIVIDUAL COMPLAINANTS
VII - VIII ₱361.00 IN RELATION TO THE PROVISIONS OF SECTION 4,
VIII - IX ₱456.00 ARTICLE X OF THE CBA CONSTITUTES UNFAIR LABOR
PRACTICE.21
IX - X ₱575.00
To be promoted, a rank-and-file employee shall undergo
In their submission agreement, PWU and PHILEC designated
training or observation and shall receive training allowance as
Hon. Ramon T. Jimenez as Voluntary Arbitrator (Voluntary
provided in Article IX, Section 1(f) of the June 1, 1997
Arbitrator Jimenez).22
collective bargaining agreement:17

Voluntary Arbitrator Jimenez, in the order23 dated January 4,

Section 1. JOB POSTING AND BIDDING:
....
(f) Allowance for employees under Training or Observation
shall be on a graduated basis as follows:
For the first month of training, the allowance should be
equivalent to one step increase of the next higher grade.
Every month thereafter the corresponding increase shall be
equivalent to the next higher grade until the allowance for the
grade applied for is attained.
1999, directed the parties to file their respective position
papers.
In its position paper,24 PWU maintained that PHILEC failed to
follow the schedule of step increases under Article X, Section
4 of the June 1, 1997 collective bargaining agreement.
Machinist I, Lipio’s position before he underwent training for
Foreman I, fell under Pay Grade VIII, while Foreman I fell
under Pay Grade X. Following the schedule under Article X,
Section 4 of the June 1, 1997 collective bargaining agreement
and the formula under Article IX, Section 1(f), Lipio should be
paid training allowance equal to the step increase for pay
grade bracket VIII-IX for the first month of training. For the
succeeding months, Lipio should be paid an allowance equal
to the step increase for pay grade bracket VIII-IX plus
Paythe step
Grade
increase for pay grade bracket IX-X, thus:25 Pay Grade Scale
Scale under the
Step Increase under the Step Incre
Rank-and-File
Supervisory CBA
First Month ----- ₱456.00 CBA
VIII-IX ₱340.00 A ₱290.0
Second month - - - - - ₱1,031.00
IX-X ₱455.00 A-B ₱350.0
Third month ----- ₱1,031.00

Fourth month - - - - - ₱1,031.00. To preserve the hierarchical wage structure within PHILEC’s
enterprise, PHILEC and PWU allegedly agreed to implement
the uniform pay grade scale under the "Modified SGV" pay
With respect to Ignacio, Sr., he was holding the position of grade system, thus:34
DTAs sembler under Pay Grade VII when hewas selected to
train for the position of Foreman I under Pay Grade X. Thus,
for his first month of training, Ignacio, Sr. should be paid Pay Grade
training allowance equal to the step increase under pay grade Step Increase
bracket VII-VIII. For the second month, he should be paid an Rank-and-File Supervisory
allowance equal to the step increase under pay grade bracket
VIIVIII plus the step increase under pay grade bracket VIII-IX. I – II ₱65.00
For the third and fourth months, Ignacio, Sr. should receive an
allowance equal to the amount he received for the second II-III ₱78.00
month plus the amount equal to the step increase under pay III-IV ₱95.00
grade bracket IX-X, thus:26
IV-V ₱120.00
First Month ----- ₱361.00 V-VI ₱150.00
Second month - - - - - ₱817.00 VI-VII ₱195.00
Third month ----- ₱1,392.00 VII-VIII ₱255.00
Fourth month - - - - - ₱1,392.00. VIII-IX A ₱350.00

IX-X A-B ₱465.00

For PHILEC’s failure to apply the schedule of step increases
under Article X of the June 1, 1997 collective bargaining X-XI B-C ₱570.00
agreement, PWU argued that PHILEC committed an unfair
labor practice under Article 24827 of the Labor Code.28 XI-XII C-D ₱710.00

D-E ₱870.00
In its position paper,29 PHILEC emphasized that it promoted
Lipio and Ignacio, Sr. while it was still negotiating a new E-F ₱1,055.00
collective bargaining agreement with PWU. Since PHILEC and
PWU had not yet negotiated a new collective bargaining
agreement when PHILEC selected Lipio and Ignacio, Sr. for Pay grade bracket I–IX covered rank-and-file employees,
training, PHILEC applied the "Modified SGV" pay grade scale while pay grade bracket A–F covered supervisory
in computing Lipio’s and Ignacio, Sr.’s training allowance.30 employees.35

This "Modified SGV" pay grade scale, which PHILEC and
PWU allegedly agreed to implement beginning on May 9,
1997, covered both rank-and-file and supervisory
employees.31 According to PHILEC, its past collective
bargaining agreements withthe rank-and-file and supervisory
unions resulted in an overlap of union membership in Pay
Grade IX of the rank-and-file employees and Pay Grade A of
the supervisory employees.32 Worse, past collective
bargaining agreements resulted in rank-and-file employees
under Pay Grades IX and X enjoying higher step increases
than supervisory employees under Pay Grades A and B:33
Under the "Modified SGV" pay grade scale, the position of
Foreman I fell under Pay Grade B. PHILEC then computed
Lipio’s and Ignacio, Sr.’s training allowance accordingly.36
PHILEC disputed PWU’s claim of unfair labor practice.
According to PHILEC, it did not violate its collective bargaining
agreement with PWU when it implemented the "Modified SGV"
scale. Even assuming that it violated the collective bargaining
agreement, PHILEC argued that its violation was not "gross"
or a "flagrant and/or malicious refusal to comply with the
economic provisions of [the collective bargaining
agreement]."37 PHILEC, therefore, was not guilty of unfair
labor practice.38
Voluntary Arbitrator Jimenez held in the decision39 dated
August 13, 1999, that PHILEC violated its collective bargaining
agreement with PWU.40 According to Voluntary Arbitrator
Jimenez, the June 1, 1997 collective bargaining agreement
governed when PHILEC selected Lipio and Ignacio, Sr. for
promotion on August 18 and 21, 1997.41 The provisions of the
collective bargaining agreement being the law between the
parties, PHILEC should have computed Lipio’s and Ignacio,
Sr.’s training allowance based on Article X, Section 4 of the
June 1, 1997 collective bargaining agreement.42
As to PHILEC’s claim that applying Article X, Section 4 would
result in salary distortion within PHILEC’s enterprise, Voluntary
Arbitrator Jimenez ruled that this was "a concern that PHILEC
could have anticipated and could have taken corrective
action"43 before signing the collective bargaining agreement.
Voluntary Arbitrator Jimenez dismissed PWU’s claim of unfair
labor practice.44 According to him, PHILEC’s acts "cannot be
considered a gross violation of the [collective bargaining
agreement] nor . . . [a] flagrant and/or malicious refusal to
comply withthe economic provisions of the [agreement]."45
Thus, Voluntary Arbitrator Jimenez ordered PHILEC to pay
Lipio and Ignacio, Sr. training allowance based on Article X,
Section 4 and Article IX, Section 1 of the June 1, 1997
collective bargaining agreement.46
PHILEC received a copy of Voluntary Arbitrator Jimenez’s
decision on August 16, 1999.47 On August 26, 1999, PHILEC
filed a motion for partial reconsideration48 of Voluntary
Arbitrator Jimenez’s decision.
In the resolution49 dated July 7, 2000, Voluntary Arbitrator
Jimenez denied PHILEC’s motion for partial reconsideration
for lack of merit. PHILEC received a copy of the July 7, 2000
resolution on August 11, 2000.50
On August 29, 2000, PHILEC filed a petition51 for certiorari
before the Court of Appeals, alleging that Voluntary Arbitrator
Jimenez gravely abused his discretion in rendering his
decision.52 PHILEC maintained that it did not violate the June
1, 1997 collective bargaining agreement.53 It applied the
"Modified SGV" pay grade rates toavoid salary distortion within
its enterprise.54
In addition, PHILEC argued that Article X, Section 4 of the
collective bargaining agreement did not apply to Lipio and
Ignacio, Sr. Considering that Lipio and Ignacio, Sr. were
promoted to a supervisory position, their training allowance
should be computed based on the provisions of PHILEC’s
collective bargaining agreement with ASSET, the exclusive
bargaining representative of PHILEC’s supervisory
employees.55
The Court of Appeals affirmed Voluntary Arbitrator Jimenez’s
decision.56 It agreed that PHILEC was bound to apply Article
X, Section 4 of its June 1, 1997 collective bargaining
agreement with PWU in computing Lipio’s and Ignacio, Sr.’s
training allowance.57 In its decision, the Court of Appeals
denied due course and dismissed PHILEC’s petition for
certiorari for lack of merit.58
PHILEC filed a motion for reconsideration, which the Court of
Appeals denied in the resolution59 dated June 23, 2005.
On August 3, 2005, PHILEC filed its petition for review on
certiorari before this court,60 insisting that it did not violate its
collective bargaining agreement with PWU.61 PHILEC
maintains that Lipio and Ignacio, Sr. were promoted to a
position covered by the pay grade scale for supervisory
employees.62 Consequently, the provisions of PHILEC’s
collective bargaining agreement with its supervisory
employees should apply, not its collective bargaining
agreement with PWU.63 To insist on applying the pay grade
scale in Article X, Section 4, PHILEC argues, would result in a
salary distortion within PHILEC.64
In the resolution65 dated September 21, 2005,this court
ordered PWU to comment on PHILEC’s petition for review on
certiorari.
In its comment,66 PWU argues that Voluntary Arbitrator
Jimenez did not gravely abuse his discretion in rendering his
decision. He correctly applied the provisions of the PWU
collective bargaining agreement, the law between PHILEC and
its rank-and-file employees, in computing Lipio’s and Ignacio,
Sr.’s training allowance.67
On September 27, 2006, PHILEC filed its reply,68 reiterating its
arguments in its petition for review on certiorari.
The issue for our resolution is whether Voluntary Arbitrator
Jimenez gravely abused his discretion in directing PHILEC to
pay Lipio’s and Ignacio, Sr.’s training allowance based on
Article X, Section 4 of the June 1, 1997 rank-and-file collective
bargaining agreement.
This petition should be denied.
I
The Voluntary Arbitrator’s decision
dated August 13, 1999 is already final and
executory
We note that PHILEC filed before the Court of Appeals a
petition for certiorari under Rule 65 of the Rules ofCourt
against Voluntary Arbitrator Jimenez’s decision.69
This was not the proper remedy.
Instead, the proper remedy to reverse or modify a Voluntary
Arbitrator’s or a panel of Voluntary Arbitrators’ decision or
award is to appeal the award or decision before the Court of
Appeals. Rule 43, Sections 1 and 3 of the Rules of Court
provide:
Section 1. Scope.
This Rule shall apply to appeals from judgments or final orders
of the Court of Tax Appeals and from awards, judgments, final
orders or resolutions of orauthorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central
Board of Assessment Appeals, Securities and Exchange
Commission, Office of the President, Land Registration
Authority, Social Security Commission, Civil Aeronautics
Board, Bureau of Patents, Trademarks and Technology
Transfer, National Electrification Administration, Energy
Regulatory Board, National Telecommunications Commission,
Department of Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions Board,
Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators authorized
by law.
....
Sec. 3. Where to appeal.
An appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner herein provided,
whether the appeal involves questions of fact, of law, or mixed
questions of fact and law. (Emphasis supplied)
A Voluntary Arbitrator or a panel of Voluntary Arbitrators has
the exclusive original jurisdiction over grievances arising from
the interpretation or implementation of collective bargaining
agreements. Should the parties agree, a Voluntary Arbitrator
or a panel of Voluntary Arbitrators shall also resolve the
parties’ other labor disputes, including unfair labor practices
and bargaining deadlocks. Articles 261 and 262 of the Labor
Code provide:
ART. 261. JURISDICTION OF VOLUNTARY ARBITRATORS
OR PANEL OF VOLUNTARY ARBITRATORS.
The Voluntary Arbitrator or panel of Voluntary Arbitrators shall
have original and exclusive jurisdiction to hear and decide all
unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement and
those arising from the interpretation or enforcement of
company personnel policies referred to in the immediately
preceding article. Accordingly, violations of a Collective
Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the Collective
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
The Commission, its Regional Offices and the Regional
Directors of the Department of Labor and Employment shall
not entertain disputes, grievances, or matters under the
exclusive and original jurisdiction of the Voluntary Arbitrator
orpanel of Voluntary Arbitrators and shall immediately dispose
and refer the same to the Grievance Machinery or Voluntary
Arbitration provided in the Collective Bargaining Agreement.
ART. 262. JURISDICTION OVER OTHER LABOR
DISPUTES.
The Voluntary Arbitrator or panel of Voluntary Arbitrators,
upon agreement of the parties, shall also hear and decide all
other labor disputes including unfair labor practices and
bargaining deadlocks.
In Luzon Development Bank v. Association of Luzon
Development Bank Employees,70 this court ruled that the
proper remedy against the award or decision of the Voluntary
Arbitratoris an appeal before the Court of Appeals. This court
first characterized the office ofa Voluntary Arbitrator or a panel
of Voluntary Arbitrators as a quasi-judicial agency, citing
Volkschel Labor Union, et al. v. NLRC71 and Oceanic Bic
Division (FFW) v. Romero:72
In Volkschel Labor Union, et al. v. NLRC, et al.,on the settled
premise that the judgments of courts and awards of quasi-
judicial agencies must become final at some definite time, this
Court ruled that the awards of voluntary arbitrators determine
the rights of parties; hence, their decisions have the same
legal effect as judgments of a court. In Oceanic Bic Division
(FFW), et al. v. Romero, et al., this Court ruled that "a
voluntary arbitrator by the nature of her functions acts in a
quasi-judicial capacity." Under these rulings, it follows that the
voluntary arbitrator, whether acting solely or in a panel, enjoys
in law the status of a quasijudicial agency but independent of,
and apart from, the NLRC since his decisions are not
appealable to the latter.73 (Citations omitted)
This court then stated that the office of a Voluntary Arbitrator
or a panel of Voluntary Arbitrators, even assuming that the
office is not strictly a quasi-judicial agency, may be considered
an instrumentality, thus:
Assuming arguendo that the voluntaryarbitrator or the panel of
voluntary arbitrators may not strictly be considered as a quasi-
judicial agency, board or commission, still both he and the
panel are comprehended within the concept of a "quasi-judicial
instrumentality." It may even be stated that it was to meet the
very situation presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent
arbitrator/arbitral tribunal operating under the Construction
Industry Arbitration Commission, that the broader term
"instrumentalities" was purposely included in the above-quoted
provision.
An "instrumentality" is anything used as a means or agency.
Thus, the terms governmental "agency" or "instrumentality"
are synonymous in the sense that either of them is a means
by which a government acts, or by which a certain government
act or function is performed. The word "instrumentality," with
respect to a state, contemplates an authority to which the state
delegates governmental power for the performance of a state
function. An individual person, like an administrator or
executor, is a judicial instrumentality in the settling of an
estate, in the same manner that a sub-agent appointed by a
bankruptcy court is an instrumentality of the court, and a
trustee in bankruptcy of a defunct corporation is an
instrumentality of the state.
The voluntary arbitrator no less performs a state function
pursuant to a governmental power delegated to him under the
provisions therefor in the Labor Code and he falls, therefore,
within the contemplation of the term "instrumentality" in the
aforequoted Sec. 9 of B.P. 129.74 (Citations omitted)
Since the office of a Voluntary Arbitrator or a panel of
Voluntary Arbitrators is considered a quasi-judicial agency,
this court concluded that a decision or award rendered by a
Voluntary Arbitrator is appealable before the Court of Appeals.
Under Section 9 of the Judiciary Reorganization Act of 1980,
the Court of Appeals has the exclusive original jurisdiction
over decisions or awards of quasi-judicial agencies and
instrumentalities:
Section 9. Jurisdiction. The Court of Appeals shall exercise:
....
3. Exclusive appellate jurisdiction over all final judgements,
resolutions, orders or awardsof Regional Trial Courts and
quasijudicial agencies, instrumentalities, boards or
commission, including the Securities and Exchange
Commission, the Social Security Commission, the Employees
Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor
Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1)
of the third paragraph and subparagraph 4 of the fourth
paragraph of Section 17 of the Judiciary Act of 1948.
(Emphasis supplied)
Luzon Development Bankwas decided in 1995 but remains
"good law."75 In the 2002 case of Alcantara, Jr. v. Court of
Appeals,76 this court rejected petitioner Santiago Alcantara,
Jr.’s argument that the Rules of Court, specifically Rule 43,
Section 2, superseded the Luzon Development Bank ruling:
Petitioner argues, however, that Luzon Development Bank is
no longer good law because of Section 2, Rule 43 of the Rules
of Court, a new provision introduced by the 1997 revision. The
provision reads:
SEC. 2. Cases not covered. -This Rule shall not apply to
judgments or final orders issued under the Labor Code of the
Philippines.
The provisions may be new to the Rules of Court but it is far
from being a new law. Section 2, Rule 42 of the 1997 Rules of
Civil Procedure, as presently worded, is nothing more but a
reiteration of the exception to the exclusive appellate
jurisdiction of the Court of Appeals, as provided for in Section
9, Batas Pambansa Blg. 129,7 as amended by Republic Act
No. 7902:8
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities, boards
or commissions, including the Securities and Exchange
Commission, the Employees’ Compensation Commission and
the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with
the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of
this Act and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the
Judiciary Act of 1948.
The Court took into account this exception in Luzon
Development Bank but, nevertheless, held that the decisions
of voluntary arbitrators issued pursuant to the Labor Codedo
not come within its ambit:
x x x. The fact that [the voluntary arbitrator’s] functions and
powers are provided for in the Labor Code does not place him
within the exceptions to said Sec. 9 since he is a quasi-judicial
instrumentality as contemplated therein. It will be noted that,
although the Employees’ Compensation Commission is also
provided for in the Labor Code, Circular No. 1-91, which is the
forerunner of the present Revised Administrative Circular No.
1-95, laid down the procedure for the appealability of its
decisions to the Court of Appeals under the foregoing
rationalization, and this was later adopted by Republic Act No.
7902 in amending Sec. 9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or
panel of arbitrators should likewise be appealable to the Court
of Appeals, in line with the procedure outlined in Revised
Administrative Circular No. 1-95, just like those of the quasi-
judicial agencies, boards and commissions enumerated
therein.77 (Emphases in the original)
This court has since reiterated the Luzon Development
Bankruling in its decisions.78
Article 262-A of the Labor Code provides that the award or
decision of the Voluntary Arbitrator "shall befinal and
executory after ten (10) calendar days from receipt of the copy
of the award or decision by the parties":
Art. 262-A. PROCEDURES. The Voluntary Arbitrator or panel
of Voluntary Arbitrators shall have the power to hold hearings,
receive evidences and take whatever action isnecessary to
resolve the issue or issues subject of the dispute, including
efforts to effect a voluntary settlement between parties.
All parties to the dispute shall beentitled to attend the
arbitration proceedings. The attendance of any third party or
the exclusion of any witness from the proceedings shall be
determined by the Voluntary Arbitrator or panel of Voluntary
Arbitrators. Hearing may be adjourned for cause or upon
agreement by the parties.
Unless the parties agree otherwise, it shall be mandatory for
the Voluntary Arbitrator or panel of Voluntary Arbitrators to
render an award or decision within twenty (20) calendar days
from the date of submission of the dispute to voluntary
arbitration.
The award or decision of the Voluntary Arbitrator or panel of
Voluntary Arbitrators shall contain the facts and the law on
which it is based. It shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or
decision by the parties.
Upon motion of any interested party, the Voluntary Arbitrator
or panel of Voluntary Arbitrators or the Labor Arbiter in the
region where the movant resides, in case of the absence or
incapacity of the Voluntary Arbitrator or panel of Voluntary
Arbitrators, for any reason, may issue a writ of execution
requiring either the sheriff of the Commission or regular courts
or any public official whomthe parties may designate in the
submission agreement to execute the final decision, order or
award. (Emphasis supplied)
Thus, in Coca-Cola Bottlers Philippines, Inc. Sales Force
UnionPTGWO-BALAIS v. Coca Cola-Bottlers Philippines,
Inc.,79 this court declared that the decision of the Voluntary
Arbitrator had become final and executory because it was
appealed beyond the 10-day reglementary period under Article
262-A of the Labor Code.
It is true that Rule 43, Section 4 of the Rules of Court provides
for a 15-day reglementary period for filing an appeal:
Section 4. Period of appeal. — The appeal shall be taken
within fifteen (15) days from notice of the award, judgment,
final order or resolution, or from the date of its last publication,
if publication is required by law for its effectivity, or of the
denial of petitioner's motion for new trial or reconsideration
duly filed in accordance with the governing law of the court or
agency a quo. Only one (1) motion for reconsideration shall be
allowed. Upon proper motion and the payment of the full
amount of the docket fee before the expiration of the
reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days only within which to file
the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to
exceed fifteen (15) days. (Emphasis supplied)
The 15-day reglementary period has been upheld by this court
in a long line of cases.80 In AMA Computer College-Santiago
City, Inc. v. Nacino,81 Nippon Paint Employees Union-OLALIA
v. Court of Appeals,82 Manila Midtown Hotel v.
Borromeo,83 and Sevilla Trading Company v. Semana,84 this
court denied petitioners’ petitions for review on certiorari since
petitioners failed to appeal the Voluntary Arbitrator’s decision
within the 15-day reglementary period under Rule43. In these
cases, the Court of Appeals had no jurisdiction to entertain the
appeal assailing the Voluntary Arbitrator’s decision.
Despite Rule 43 providing for a 15-day period to appeal, we
rule that the Voluntary Arbitrator’s decision mustbe appealed
before the Court of Appeals within 10 calendar days from
receipt of the decision as provided in the Labor Code.
Appeal is a "statutory privilege,"85 which may be exercised
"only in the manner and in accordance withthe provisions of
the law."86 "Perfection of an appeal within the reglementary
period is not only mandatory but also jurisdictional so that
failure to doso rendered the decision final and executory, and
deprives the appellate court of jurisdiction to alter the final
judgment much less to entertain the appeal."87
We ruled that Article 262-A of the Labor Code allows the
appeal of decisions rendered by Voluntary
Arbitrators.88 Statute provides that the Voluntary Arbitrator’s
decision "shall befinal and executory after ten (10) calendar
days from receipt of the copy of the award or decision by the
parties." Being provided in the statute,this 10-day period must
be complied with; otherwise, no appellate court willhave
jurisdiction over the appeal. This absurd situation occurs
whenthe decision is appealed on the 11th to 15th day from
receipt as allowed under the Rules, but which decision, under
the law, has already become final and executory.
Furthermore, under Article VIII, Section 5(5) of the
Constitution, this court "shall not diminish, increase, or modify
substantive rights" in promulgating rules of procedure in
courts.89 The 10-day period to appeal under the Labor Code
being a substantive right, this period cannot be
diminished, increased, or modified through the Rules of
Court.90
In Shioji v. Harvey,91 this court held that the "rules of court,
promulgated by authority of law, have the force and effect of
law, if not in conflict with positive law."92 Rules of Court are
"subordinate to the statute."93 In case of conflict between the
law and the Rules of Court, "the statute will prevail."94
The rule, therefore, is that a Voluntary Arbitrator’s award or
decision shall be appealed before the Court of Appeals within
10 days from receipt of the award or decision. Should the
aggrieved party choose to file a motion for reconsideration
with the Voluntary Arbitrator,95 the motion must be filed within
the same 10-day period since a motion for reconsideration is
filed "within the period for taking an appeal."96
A petition for certiorari is a special civil action "adopted to
correct errors of jurisdiction committed by the lower court or
quasi-judicial agency, or when there is grave abuse of
discretion on the part of such court or agency amounting to
lack or excess of jurisdiction."97 An extraordinary remedy,98 a
petition for certiorari may be filed only if appeal is not
available.99 If appeal is available, an appeal must be taken
even if the ground relied upon is grave abuse of discretion.100
As an exception to the rule, this court has allowed petitions for
certiorari to be filed in lieu of an appeal "(a) when the public
welfare and the advancement of public policy dictate; (b) when
the broader interests of justice so require; (c) when the writs
issued are null; and (d) when the questioned order amounts to
an oppressive exercise of judicial authority."101
In Unicraft Industries International Corporation, et al. v. The
Hon. Court of Appeals,102 petitioners filed a petition for
certiorari against the Voluntary Arbitrator’s decision. Finding
that the Voluntary Arbitrator rendered an award without giving
petitioners an opportunity to present evidence, this court
allowed petitioners’ petition for certiorari despite being the
wrong remedy. The Voluntary Arbitrator’s award, thiscourt
said, was null and void for violation of petitioners’ right to due
process. This court decided the case on the merits.
In Leyte IV Electric Cooperative, Inc. v. LEYECO IV
Employees Union-ALU,103 petitioner likewise filed a petition for
certiorari against the Voluntary Arbitrator’s decision, alleging
that the decision lacked basis in fact and in law. Ruling that
the petition for certiorari was filed within the reglementary
period for filing an appeal, this court allowed petitioner’s
petition for certiorari in "the broader interests of justice."104
In Mora v. Avesco Marketing Corporation,105 this court held
that petitioner Noel E. Mora erred in filing a petition for
certiorari against the Voluntary Arbitrator’s decision.
Nevertheless, this court decided the case on the merits "in the
interest of substantial justice to arrive at the proper conclusion
that is conformable to the evidentiary facts."106
None of the circumstances similar to Unicraft, Leyte IV Electric
Cooperative, and Moraare present in this case. PHILEC
received Voluntary Arbitrator Jimenez’s resolution denying its
motion for partial reconsideration on August 11,
2000.107 PHILEC filed its petition for certiorari before the Court
ofAppeals on August 29, 2000,108 which was 18 days after its
receipt of Voluntary Arbitrator Jimenez’s resolution. The
petition for certiorari was filed beyond the 10-day reglementary
period for filing an appeal. We cannot consider PHILEC’s
petition for certiorari as an appeal.
There being no appeal seasonably filed in this case, Voluntary
Arbitrator Jimenez’s decision became final and executory after
10 calendar days from PHILEC’s receipt of the resolution
denying its motion for partial reconsideration.109 Voluntary
Arbitrator Jimenez’s decision is already "beyond the purview of
this Court to act upon."110
II
PHILEC must pay training allowance
based on the step increases provided in
the June 1, 1997 collective bargaining
agreement
The insurmountable procedural issue notwithstanding, the
case will also fail on its merits. Voluntary Arbitrator Jimenez
correctly awarded both Lipio and Ignacio, Sr. training
allowances based on the amounts and formula provided in the
June 1, 1997 collective bargaining agreement.
A collective bargaining agreement is "a contract executed
upon the request of either the employer or the exclusive
bargaining representative of the employees incorporating the
agreement reached after negotiations with respect to wages,
hours of work and all other terms and conditions of
employment, including proposals for adjusting any grievances
or questions arising under such agreement."111 A collective
bargaining agreement being a contract, its provisions
"constitute the law between the parties"112 and must be
complied with in good faith.113
PHILEC, as employer, and PWU, as the exclusive bargaining
representative of PHILEC’s rank-and-file employees, entered
into a collective bargaining agreement, which the parties
agreed to make effective from June 1, 1997 to May 31, 1999.
Being the law between the parties, the June 1, 1997 collective
bargaining agreement must govern PHILEC and its rank-and-
file employees within the agreed period.
Lipio and Ignacio, Sr. were rank-and-file employees when
PHILEC selected them for training for the position of Foreman
I beginning August 25, 1997. Lipio and Ignacio, Sr. were
selected for training during the effectivity of the June 1, 1997
rank-and-file collective bargaining agreement. Therefore,
Lipio’s and Ignacio, Sr.’s training allowance must be computed
based on Article X, Section 4 and ArticleIX, Section 1(f) of the
June 1, 1997 collective bargaining agreement.
Contrary to PHILEC’s claim, Lipio and Ignacio, Sr. were not
transferred out of the bargaining unit when they were selected
for training. Lipio and Ignacio, Sr. remained rank-and-file
employees while they trained for the position of Foreman I.
Under Article IX, Section 1(e) of the June 1, 1997 collective
bargaining agreement,114 a trainee who is "unable to
demonstrate his ability to perform the work . . . shall be
reverted to his previous assignment. . . ."115 According to the
same provision, the trainee "shall hold that job on a trial or
observation basis and . . . subject to prior approval of the
authorized management official, be appointed to the position
in a regular capacity."116
Thus, training is a condition precedent for promotion. Selection
for training does not mean automatic transfer out of the
bargaining unit of rankand-file employees.
Moreover, the June 1, 1997 collective bargaining agreement
states that the training allowance of a rank-and-file employee
"whose application for a posted job is accepted shall [be
computed] in accordance with Section (f) of [Article
IX]."117 Since Lipio and Ignacio, Sr. were rank-and-file
employees when they applied for training for the position of
Foreman I, Lipio’s and Ignacio, Sr.’s training allowance must
be computed based on Article IX, Section 1(f) of the June 1,
1997 rank-and-file collective bargaining agreement.
PHILEC allegedly applied the "Modified SGV" pay grade scale
to prevent any salary distortion within PHILEC’s enterprise.
This, however, does not justify PHILEC’s non-compliance with
the June 1, 1997 collective bargaining agreement. This pay
grade scale is not provided in the collective bargaining
agreement. In Samahang Manggagawa sa Top Form
Manufacturing United Workers of the Philippines (SMTFM-
UWP) v. NLRC,118 this court ruled that "only provisions
embodied in the [collective bargaining agreement] should be
so interpreted and complied with. Where a proposal raised by
a contracting party does not find print in the [collective
bargaining agreement], it is not part thereof and the proponent
has no claim whatsoever to its implementation."119
Had PHILEC wanted the "Modified SGV" pay grade scale
applied within its enterprise, "it could have requested or
demanded that [the ‘Modified SGV’ scale] be incorporated in
the [collective bargaining agreement]."120 PHILEC had "the
means under the law to compel [PWU] to incorporate this
specific economic proposal in the [collective bargaining
agreement]."121 It "could have invoked Article 252 of the Labor
Code"122 to incorporate the "Modified SGV" pay grade scale in
its collective bargaining agreement with PWU. But it did not.
Since this "Modified SGV" pay grade scale does not appear in
PHILEC’s collective bargaining agreement with PWU, PHILEC
cannot insist on the "Modified SGV" pay grade scale’s
application. We reiterate Voluntary Arbitrator Jimenez’s
decision dated August 13, 1999 where he said that:
. . . since the signing of the current CBA took place on
September 27, 1997, PHILEC, by oversight, may have
overlooked the possibility of a wage distortion occurring
among ASSET-occupied positions. It is surmised that this
matter could have been negotiated and settled with PWU
before the actual signing of the CBA on September 27.
Instead, PHILEC, again, allowed the provisions of Art. X, Sec.
4 of the CBA to remain the way it is and is now suffering the
consequences of its laches.123 (Emphasis in the original)
We note that PHILEC did not dispute PWU’s contention that it
selected several rank-and-file employees for training and paid
them training allowance based on the schedule provided in the
collective bargaining agreement effective at the time of the
trainees’ selection.124 PHILEC cannot choose when and to
whom to apply the provisions of its collective bargaining
agreement. The provisions of a collective bargaining
agreement must be applied uniformly and complied with in
good faith.
Given the foregoing, Lipio’s and Ignacio, Sr.’s training
allowance should be computed based on Article X, Section 4
in relation to Article IX, Section 1(f) of the June 1, 1997 rank-
and-file collective bargaining agreement. Lipio, who held the
position of Machinist before selection for training as Foreman
I, should receive training allowance based on the following
schedule:
First Month ----- ₱456.00
Second month - - - - - ₱1,031.00
Third month - - - - - ₱1,031.00
Fourth month - - - - - ₱1,031.00
Ignacio, Sr., who held the position of DT-Assembler before
selection for training as Foreman I, should receive training
allowance based on the following schedule:
First Month ----- ₱361.00
Second month - - - - - ₱817.00
Third month - - - - - ₱1,392.00
Fourth month - - - - - ₱1,392.00
Considering that Voluntary Arbitrator Jimenez’s decision
awarded sums of money, Lipio and Ignacio, Sr. are entitled to
legal interest on their training allowances. Voluntary Arbitrator
Jimenez’s decision having become final and executory on
August 22, 2000, PHILEC is liable for legal interest equal to
12% per annum from finality of the decision until full payment
as this court ruled in Eastern Shipping Lines, Inc. v. Court of
Appeals:125
When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest. . . shall
be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then as equivalent to a ANTONIO T. CARPIO
forbearance of credit.126 Associate Justice
Chairperson, Second Division
The 6% legal interest under CircularNo. 799, Series of 2013,
of the Bangko Sentral ng Pilipinas Monetary Board shall not CERTIFICATION
apply, Voluntary Arbitrator Jimenez’s decision having become
final and executory prior to the effectivity of the circular on July Pursuant to Section 13, Article VIII of the Constitution and the
1, 2013.1avvphi1 In Nacar v. Gallery Frames,127 we held that: Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in,
. . . with regard to those judgments that have become final and consultation before the case was assigned to the writer of the
executory prior to July 1, 2013, said judgments shall not be opinion of the Court's Division.
disturbed and shall continue to be implemented applying the
rate of interest fixed therein.128 MARIA LOURDES P.A. SERENO
Chief Justice
WHEREFORE, the petition for review on certiorari is DENIED.
The Court of Appeals' decision dated May 25, 2004 is
AFFIRMED.

Petitioner Philippine Electric Corporation is ORDERED to PAY Footnotes

respondent Eleodoro V. Lipio a total of ₱3,549.00 for a four
(4)-month training for the position of Foreman I with legal
interest of 12% per annum from August 22, 2000 until the * Designated acting member per Special Order No.
amount's full satisfaction. 1888 dated November 28, 2014.

For respondent Emerlito C. Ignacio, Sr., Philippine Electric

1 Rollo, pp. 9–29.
Corporation is ORDERED to PAY a total of ₱3,962.00 for a
four (4)-month training for the position of Foreman I with legal 2Id. at 32–40. The decision docketed as CA-G.R.
interest of 12% per annum from August 22, 2000 until the SP No. 60457 was penned by Associate Justice
amount's full satisfaction. Aurora Santiago-Lagman and concurred in by
Associate Justices Romeo A. Brawner and Juan Q.
Enriquez, Jr., of the Twelfth Division.
SO ORDERED.
3 Id. at 84.
MARVIC M.V.F. LEONEN
Associate Justice
4 Id.
WE CONCUR:
5 Id.
ANTONIO T. CARPIO
Associate Justice 6 Id. at 84 and 91.
Chairperson
7 Id. at 76.
MARIANO C. DEL MARTIN S. VILLARAMA,
CASTILLO JR.* 8 Id. at 134.
Associate Justice Associate Justice
9 Id.
JOSE CATRAL MENDOZA
Associate Justice 10 Id.

ATTESTATION 11 Id. at 76.

I attest that the conclusions in the above Decision had been 12 Id. at 135.
reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division. 13 Id.
14 Id. 35 Id.

15 Id. at 64 and 113. 36 Id. at 54.

16 Id. at 86–87 and 113–114. 37 LABOR CODE, Art. 261 provides:

17 Id. at 113–114. Art. 261. Jurisdiction of Voluntary

Arbitrators or panel of Voluntary
18 Id. at 65. Arbitrators. – The Voluntary Arbitrator or
panel of Voluntary Arbitrators shall have
original and exclusive jurisdiction to hear
19 Id. at 85–86 and 115. and decide all unresolved grievances
arising from the interpretation or
20 Id. at 73–74. implementation of the Collective
Bargaining Agreement and those arising
21 Id. at 73. from the interpretation or enforcement of
company personnel policies referred to in
22 Id. the immediately preceding article.
Accordingly, violations of a Collective
Bargaining Agreement, except those
23 Id. at 82. which are gross in character, shall no
longer be treated as unfair labor practice
24 Id. at 111–133. and shall be resolved as grievances
under the Collective Bargaining
25 Id. at 123–125. Agreement. For purposes of this article,
gross violations of Collective Bargaining
Agreement shall mean flagrant and/or
26 Id.
malicious refusal to comply with the
economic provisions of such agreement.
27 LABOR CODE, Art. 248 provides:
38 Rollo, p. 88.
Art. 248. Unfair labor practices of
employers. – It shall be unlawful for an 39 Id. at 63–71.
employer to commit any of the following
unfair labor practice:
40 Id. at 70.
....
41 Id. at 68–69.
(i) To violate a collective bargaining
agreement.
42 Id.

28 Rollo, p. 129.
43 Id. at 69–70.

29 Id. at 83–90.
44 Id. at 71.

30 Id. at 86–87.
45 Id. at 70–71.

31 Id. at 85.
46 Id. at 70.

32 Id. at 87.
47 Id. at 180.

33 Id. at 67.
48 Id. at 179–185.

34 Id.
49 Id. at 72.
50 Id. at 46. 74 Id. at 270–271.

51 Id. at 45–59. 75Alcantara, Jr. v. Court of Appeals, 435 Phil. 395,

404 (2002) [Per J. Kapunan, First Division].
52 Id. at 52.
76435 Phil. 395 (2002) [Per J. Kapunan, First
53 Id. at 57. Division].

54 Id. at 53.
77 Id. at 404–406.

55 Id.
78Royal Plant Workers Union v. Coca-Cola Bottlers
Philippines, Inc.-Cebu Plant, G.R. No. 198783, April
15, 2013, 696 SCRA 357 [Per J. Mendoza, Third
56 Id. at 40. Division]; Samahan ng mga Manggagawa sa Hyatt
(SAMASAH-NUWHRAIN) v. Magsalin, G.R. No.
57 Id. at 38. 164939, June 6, 2011, 650 SCRA 445 [Per J.
Villarama, Jr., Third Division]; Teng v. Pahagac,
58 Id. at 40. G.R. No. 169704, November 17, 2010, 635 SCRA
173 [Per J. Brion, Third Division]; Samahan ng mga
59 Id. at 42–43. Manggagawa sa Hyatt – NUWHRAIN-APL v.
Bacungan, 601 Phil. 365 (2009) [Per J. Tinga,
Second Division]; Mora v. Avesco Marketing
60 Id. at 9. Corporation, 591 Phil. 827 (2008) [Per J. Carpio
Morales, Second Division]; AMA Computer
61 Id. at 19. CollegeSantiago City, Inc. v. Nacino, 568 Phil. 465
(2008) [Per J. Nachura, Third Division]; Centro
62 Id. at 23. Escolar University Faculty and Allied Workers
Union-Independent v. Court of Appeals, 523 Phil.
427 (2006) [Per J. Puno, Second Division]; Coca-
63 Id.
Cola Bottlers Philippines, Inc. Sales Force Union-
PTGWOBALAIS v. Coca-Cola Bottlers Philippines,
64 Id. at 24. Inc., 502 Phil. 748 (2005) [Per J. Chico-Nazario,
Second Division]; Nippon Paint Employees Union-
65 Id. at 335. OLALIA v. Court of Appeals, 485 Phil. 675 (2004)
[Per J. Puno, Second Division]; Manila Midtown
66Id. at 350–387. The May 7, 2006 comment was Hotel v. Borromeo, 482 Phil. 137 (2004) [Per J.
entitled "MEMORANDUM." Sandoval Gutierrez, Third Division]; Sevilla Trading
Company v. Semana, G.R. No. 152456, April 28,
2004, 428 SCRA 239 [Per J. Puno, Second
67 Id. at 351. Division].

68 Id. at 398–408. 79502 Phil. 748, 757 (2005) [Per J. Chico-Nazario,

69 Id. at 45.
70 319 Phil. 262 (1995) [Per J. Romero, En Banc].
71187 Phil. 202 (1980) [Per J. De Castro, First
Division].
72215 Phil. 340 (1984) [Per J. Gutierrez, Jr.,
Second Division].
73Luzon Development Bank v. Association of Luzon
Development Bank Employees, 319 Phil. 262, 269
(1995) [Per J. Romero, En Banc].
Second Division].
80 Royal Plant Workers Union v. Coca-Cola Bottlers
Philippines, Inc.-Cebu Plant, G.R. No. 198783, April
15, 2013, 696 SCRA 357, 371–372 [Per J.
Mendoza, Third Division]; Samahan ng mga
Manggagawa sa Hyatt (SAMASAH-NUWHRAIN) v.
Magsalin, G.R. No. 164939, June 6, 2011, 650
SCRA 445, 456 [Per J. Villarama, Jr., Third
Division]; Mora v. Avesco Marketing Corporation,
591 Phil. 827, 836 (2008) [Per J. Carpio Morales,
Second Division]; AMA Computer College-Santiago
City, Inc. v. Nacino, 568 Phil. 465, 471 (2008) [Per
J. Nachura, Third Division]; Nippon Paint
Employees Union-OLALIA v. Court of Appeals, 485
Phil. 675, 682 (2004) [Per J. Puno, Second
Division]; Manila Midtown Hotel v. Borromeo, 482
Phil. 137, 142 (2004) [Per J. Sandoval-Gutierrez,
Third Division]; Sevilla Trading Company v.
Semana, G.R. No. 152456, April 28, 2004, 428
SCRA 239, 244 [Per J. Puno, Second Division].
81568 Phil. 465 (2008) [Per J. Nachura, Third
Division].
82485 Phil. 675 (2004) [Per J. Puno, Second
Division].
83482 Phil. 137 (2004) [Per J. Sandoval-Gutierrez,
Third Division].
84G.R. No. 152456, April 28, 2004, 428 SCRA 239
[Per J. Puno, Second Division].
85Fenequito v. Vergara, Jr., G.R. No. 172829, July
18, 2012, 677 SCRA 113, 117 [Per J. Peralta, Third
Division].
86 Id.
87Pedrosa v. Spouses Hill, 327 Phil. 153 (1996)
[Per J. Bellosillo, First Division].
88Coca-Cola Bottlers Philippines, Inc. Sales Force
Union-PTGWO-BALAIS v. Coca Cola-Bottlers
Philippines, Inc., 502 Phil. 748 (2005) [Per J. Chico-
Nazario, Second Division].
89 CONST., art. VIII, sec. 5, par. (5) provides:
Section 5. The Supreme Court shall have
the following powers:
....
5. Promulgate rules concerning the
protection and enforcement of
constitutional rights, pleading, practice,
and procedure in all courts, the admission
to the practice of law, the integrated bar,
and legal assistance to the under-
privileged. Such rules shall provide a
simplified and inexpensive procedure for
the speedy disposition of cases, shall be
uniform for all courts of the same grade,
and shall not diminish, increase, or
modify substantive rights. Rules of
procedure of special courts and quasi-
judicial bodies shall remain effective
unless disapproved by the Supreme
Court.
90Habaluyas Enterprises, Inc. v. Japson, 226 Phil.
145 (1986) [Per J. Feria, En Banc].
91 43 Phil. 333 (1922) [Per J. Malcolm, En Banc].
92 Id. at 342.
93 Id.
94 Id.
95Teng v. Pahagac, G.R. No. 169704, November
17, 2010, 635 SCRA 173, 184 [Per J. Brion, Third
Division].
96 RULES OF COURT, Rule 37, sec. 1.
97Centro Escolar University Faculty and Allied
Workers Union-Independent v. Court of Appeals,
523 Phil. 427, 437–438 (2006) [Per J. Puno,
Second Division].
98 Id. at 437.
99RULES OF COURT, Rule 65, sec. 1. Centro
Escolar University Faculty and Allied Workers Union
Independent v. Court of Appeals, 523 Phil. 427, 437
(2006) [Per J. Puno, Second Division].
100Bugarin v. Palisoc, 513 Phil. 59, 66 (2005) [Per
J. Quisumbing, First Division]; Association of
Integrated Security Force of Bislig (AISFB)-ALU v.
Hon. Court of Appeals, 505 Phil. 10, 18 (2005) [Per
J. Chico-Nazario, Second Division].
101Leyte IV Electric Cooperative, Inc. v. LEYECO IV
Employees Union-ALU, 562 Phil. 743, 755 (2007)
[Per J. Austria-Martinez, Third Division] (Emphases
omitted).
102407 Phil. 527 (2001) [Per J. Ynares-Santiago,
First Division].
103562 Phil. 743 (2007) [Per J. Austria-Martinez,
Third Division].
104 Id. at 756.
591 Phil. 827 (2008) [Per J. Carpio Morales,
105
Second Division].
106 Id. at 836.
107 Rollo, p. 46.
108 Id. at 45.
109See Manila Midtown Hotel v. Borromeo, 482 Phil.
137, 143 (2004) [Per J. Sandoval-Gutierrez, Third
Division].
110AMA Computer College-Santiago City, Inc. v.
Nacino, 568 Phil. 465, 471 (2008) [Per J. Nachura,
Third Division].
Davao Integrated Port Stevedoring Services v.
111
Abarquez, G.R. No. 102132, March 19, 1993, 220
SCRA 197, 204 [Per J. Romero, Third Division].
Roche (Philippines) v. NLRC, 258-A Phil. 160,
112
171 (1989) [Per J. Gancayco, First Division].
113 CIVIL CODE, art. 1159.
114 Rollo, p. 114. Collective Bargaining Agreement,
art. IX, sec. 1(e) provides:
....
(e) An employee whose application for a
posted job is accepted shall hold that job
on a trial or observation basis and during
that period shall receive a monthly
allowance of an amount in accordance
with Section (f) of this Article. During the
trial or observation period which shall not
exceed four (4) months of actual training
if the employee isunable[sic] to
demonstrate his ability to perform the
work, he shall be reverted to his previous
assignment and the last preceding rate of
pay but shall not, for a period of three (3)
months, be permitted to apply for any
posted job in the same higher
classification. On the other hand, should
the employee be considered capable of
holding the job, he shall, subject to prior
approval of the authorized management
official, be appointed to the position in a
regular capacity. Positions vacated during
the trial or observation period shall be
filled up by temporary employees hired
for this purpose only, if necessary.
115 Id.
116 Id.
117 Id.
118356 Phil. 480 (1998) [Per J. Romero, Third
Division].
119 Id. at 491.
120Samahang Manggagawa sa Top Form
Manufacturing United Workers of the Philippines
(SMTFMUWP) v. NLRC, 356 Phil. 480, 490 (1998)
[Per J. Romero, Third Division].
121 Id.
122 LABOR CODE, art. 252 provides:
Art. 252. Meaning of duty to bargain
collectively. – The duty to bargain
collectively means the performance of a
mutual obligation to meet and convene
promptly and expeditiously in good faith
for the purpose of negotiating an
agreement with respect to wages, hours
of work and all other terms and conditions
of employment including proposals for
adjusting any grievances or questions
arising under such agreements if
requested by either party but such duty
does not compel any party to agree to a
proposal or to make any concession.
Samahang Manggagawa sa Top Form
Manufacturing United Workers of the
Philippines (SMTFMUWP) v. NLRC, 356
Phil. 480, 490 (1998) [Per J. Romero,
Third Division].
123 Rollo, p. 70.
124Id. at 65. PHILEC selected rank-and-file
employees Rodolfo Montepio, Rodel Unidad,
Feliciano de los Santos, Berlin Diaz, and Melencio
Rodriguez for training for higher positions.
125G.R. No. 97412, July 12, 1994, 234 SCRA 78
[Per J. Vitug, En Banc].
126 Id. at 97.
G.R. No. 189871, August 13, 2013, 703 SCRA
127
439 [Per J. Peralta, En Banc].
128 Id. at 457.
 FIRST DIVISION
G.R. No. 199384, September 09, 2015
LE SOLEIL INT'L. LOGISTICS CO., INC., AND/OR BETH
UMALI, REYNANTE MALABANAN, AND EUGENIO S.
YNION, JR., Petitioners, v. VICENTE SANCHEZ, DAVID R.
CONDE, AND NATIONAL LABOR RELATIONS
COMMISSION, Respondents.
RESOLUTION
PEREZ, J.:
For resolution of the Court is the instant Petition for Review
on Certiorari1 filed by petitioners Le Soleil International
Logistics Co., Inc. and/or Beth Umali, Reynante Malabanan
and Eugenio Ynion, Jr., seeking to reverse and set aside the
Resolutions dated 16 September 20112 and 17 November
20113 of the Court of Appeals (CA) in CA-G.R. SP. No.
121097. The assailed resolutions dismissed the Petition
for Certiorari filed by petitioners for having been filed out of
time rendering the National Labor Relations Commission
(NLRC) Decision dated 25 April 2011 and its Resolution dated
14 June 2011 final and executory.
In a Resolution dated 17 November 2011, the appellate court
refused to reconsider its earlier Resolution.
The Antecedents
On 16 September 2011, the CA issued a Resolution
dismissing the Petition for Certiorari filed by petitioners for
failing to perfect their petition for certiorari within the 60-day
reglementary period provided under the Revised Rules of
Court. The assailed CA resolution reads in toto:
Filed pursuant to Rule 65 of the 1997 Rules of Civil Procedure,
the instant petition for certiorari seeks the nullification and
setting aside of the April 25, 2011 Decision of the National
Labor Relations Commission in NLRC-NCR Case No. 01-
00038-11 which modified the September 6, 2010 Decision in
turn rendered by the Labor Arbiter in NLRC-NCR Case No.
04-04439-10, and the June 14, 2011 Resolution denying the
Motion for Reconsideration thereof.
The Court resolves to dismiss the petition outright on the
following grounds:chanRoblesvirtualLawlibrary
First, the petition was filed three (3) days late on September 5,
2011. Under Section 4, Rule 65 Revised Rules of the Civil
Procedure, as amended by AM No. 07-7-12-SC, petitions
for certiorari must be filed strictly within 60 days from notice of
the judgment or order denying their motion for reconsideration.
Having received a copy of June 4, 2011 Resolution denying
the motion for reconsideration of the assailed April 25, 2011
Decision on July 24, 2011, petitioners had up to September 2,
2011 only to file the petition for certiorari.
Second, the petition contains no statement of the specific
material dates showing when petitioners received a copy of
the assailed April 25, 2011 Decision of the court a quo when a
motion for reconsideration was filed, contrary to Section 3,
Rule 46 of the 1997 Rules.
Third, the petition does not state the date of issue of
petitioners' counsel's Mandatory Continuing Legal Education
(MCLE) Certificate of Compliance, as required under Bar
Matter No. 1922, dated June 3, 2008.
WHEREFORE, the petition is DENIED DUE COURSE and
accordingly DISMISSED.4
Aggrieved by the foregoing resolution, petitioners timely
interposed a Motion for Reconsideration which was also
denied by the appellate court in a Resolution5 dated 17
November 2011.
Issues
Petitioners are now before this Court via this instant Petition
for Review on Certiorari praying that the CA Resolutions be
reversed and set aside on the following grounds:
I.
THE COURT OF APPEALS ERRED IN NOT EXERCISING
ITS EQUITY JURISDICTION AS ENUNCIATED BY
JURISPRUDENCE ON THE
MATTER;ChanRoblesVirtualawlibrary
II.
THE CA ERRED IN NOT FINDING THAT THE NLRC
GRAVELY ABUSED ITS DISCRETION.6
The Court's Ruling
We deny the petition.
The general rule is that a timely appeal is the remedy to obtain
reversal or modification of the judgment on the merits. This is
true even if one of the errors to be assigned on appeal is the
lack of jurisdiction on the part of the court rendering the
judgment over the subject matter, or the exercise of power by
said court is in excess of its jurisdiction, or the making of its
findings of fact or of law set out in the decision is attended by
grave abuse of discretion. In other words, the perfection of an
appeal within the reglementary period is mandatory because
the failure to perfect the appeal within the time prescribed by
the Rules of Court unavoidably renders the judgment final as
to preclude the appellate court from acquiring the jurisdiction
to review the judgment.7
The pertinent rules on the perfection of a petition
for certiorari is set forth under Section 4 of Rule 65 of the 1997
Rules of Civil Procedure, amended by A.M. No. 07-7-12-SC,
which reads:
SEC. 4. When and where to file petition. The petition shall be
filed not later than sixty (60) days from notice of the judgment
or resolution. In case a motion for reconsideration or new trial
is timely filed, whether such motion is required or not, the sixty
(60) days period shall be counted from the notice of the denial
of the motion.
If the petition relates to an act or an omission of a municipal
trial court or of a corporation, a board, an officer or a person, it
shall be filed with the Regional Trial Court exercising
jurisdiction over the territorial area as defined by the Supreme
Court. It may also be filed with the Court of Appeals or with the
Sandiganbayan, whether or not the same is in aid of the courts
appellate jurisdiction. If the petition involves an act or an
omission of a quasi-judicial agency, unless otherwise provided
by law or these rules, the petition shall be filed with and be
cognizable only by the Court of Appeals.
In election cases involving an act or omission of a municipal or
a regional trial court, the petition shall be filed exclusively with
the Commission on Elections, in aid of its appellate
jurisdiction.
Under the foregoing rules, petition for certiorari should be
instituted within a period of 60 days from notice of the
judgment, order, or resolution sought to be assailed.8 The 60-
day period is inextendible to avoid any unreasonable delay
that would violate the constitutional rights of parties to a
speedy disposition of their case.9 Rules of procedure must be
faithfully complied with and should not be discarded with the
mere expediency of claiming substantial merit.10 As a
corollary, rules prescribing the time for doing specific acts or
for taking certain proceedings are considered absolutely
indispensable to prevent needless delays and to orderly and
promptly discharge judicial business. By their very nature,
these rules are regarded as mandatory.11
Applying the foregoing statutory and jurisprudential rules in the
case at bar, we agree with the disquisition of the CA that
petitioners failed to seasonably perfect their appeal rendering
the Decision of the NLRC dated 25 April 2011 and its
Resolution dated 14 June 2011, final and executory.
In this case, there is no debate that petitioners incurred in
delay in filing the petition for certiorari before the appellate
court. While petitioners concede that the filing of the appeal
was three days late, they however invoke the indulgence of
the Court to liberally apply the rules to pave the way for the
resolution of the case on the merits. A careful scrutiny of the
pleadings submitted by petitioners reveals, however, that there
is no compelling reason to except this case from the operation
of the general rule since none of the exceptions12 enunciated
in the jurisprudence is attendant herein. Certainly, liberality is
not a magic word that once invoked will automatically be
considered as a mitigating circumstance in favor of the party
invoking it. There should be an effort on the part of the party
invoking liberality to advance a reasonable or meritorious
explanation for his/her failure to comply with the rules.13
Time and again, we have stressed that procedural rules do not
exist for the convenience of the litigants; the rules were
established primarily to provide order to, and enhance the
efficiency of, our judicial system. While procedural rules are
liberally construed, the provisions on reglementary periods are
strictly applied, indispensable as they are to the prevention of
needless delays, and are necessary to the orderly and speedy
discharge of judicial business. The timeliness of filing a
pleading is a jurisdictional caveat that even this Court cannot
trifle with.14
Viewed in this light, procedural rules are not to be belittled or
dismissed simply because their non-observance may have
prejudiced a party's substantive rights; like all rules, they are
required to be followed.15chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the instant petition is
hereby DENIED. The assailed Resolutions of the Court of
Appeals are hereby AFFIRMED.
SO ORDERED.chanroblesvirtuallawlibrary
Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin,
and Perlas-Bernabe, JJ., concur.
Endnotes:
1Rollo, pp. 3-33.
2Id. at 40-41; Penned by Associate Justice Rebecca De Guia-
Salvador with Sesinando E. Villon and Amy C. Lazaro-Javier
concurring.
3 Id. at 35-36.
4 Id. at 40-41.
5 Id. at 35-36.
6 Id. at 14.
7Prieto
v. Court of Appeals, G.R. No. 158597, 18 June 2012,
673 SCRA 371, 378.
8Labaov. Flores, G.R. No. 187984, 15 November 2010, 634
SCRA 723, 730-731.
9 Id. at 731.
10Laguna Metis Corporation v. Court of Appeals, 611 Phil. 530,
534 (2009).
11 Id. at 534-535.
12However, there are recognized exceptions to their strict
observance, such as: (1) most persuasive and weighty
reasons; (2) to relieve a litigant from an injustice not
commensurate with his failure to comply with the prescribed
procedure; (3) good faith of the defaulting party by
immediately paying within a reasonable time from the time of
the default; (4) the existence of special or compelling
circumstances; (5) the merits of the case; (6) a cause not
entirely attributable to the fault or negligence of the party
favored by the suspension of the rules; (7) a lack of any
showing that the review sought is merely frivolous and dilatory;
(8) the other party will not be unjustly prejudiced thereby; (9)
fraud, accident, mistake or excusable negligence without
appellant's fault; (10) peculiar legal and equitable
circumstances attendant to each case; (11) in the name of
substantial justice and fair play; (12) importance of the issues
involved; and (13) exercise of sound discretion by the judge
guided by all the attendant circumstances.

13Labao v. Flores, supra note 8 at 732.

14 Id. at 731-732.

15 Id. at 732.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 70054 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, petitioner,
vs.
THE MONETARY BOARD, CENTRAL BANK OF THE
PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P.
VALENZUELA, ARNULFO B. AURELLANO and RAMON V.
TIAOQUI, respondents.
G.R. No. 68878 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and
CELESTINA S. PAHIMUNTUNG, assisted by her
husband, respondents.
G.R. No. 77255-58 December 11, 1991
TOP MANAGEMENT PROGRAMS CORPORATION AND
PILAR DEVELOPMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, The Executive Judge of the
Regional Trial Court of Cavite, Ex-Officio Sheriff
REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.
G.R. No. 78766 December 11, 1991
EL GRANDE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of
The Regional Trial Court and Ex-Officio Sheriff
REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, FELICIANO AND
HERNANDEZ, respondents.
G.R. No. 78767 December 11, 1991
METROPOLIS DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE
PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P.
VALENZUELA, ARNULFO AURELLANO AND RAMON
TIAOQUI, respondents.
G.R. No. 78894 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, petitioner
vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE
PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P.
VALENZUELA, ARNULFO B. AURELLANO AND RAMON
TIAOQUI, respondents.
G.R. No. 81303 December 11, 1991
PILAR DEVELOPMENT CORPORATION, petitioner
vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his
capacity as Presiding Judge of Branch 136 of the
Regional Trial Court of Makati, CENTRAL BANK OF THE
PHILIPPINES AND CARLOTA P.
VALENZUELA, respondents.
G.R. No. 81304 December 11, 1991
BF HOMES DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, CENTRAL BANK AND
CARLOTA P. VALENZUELA, respondents.
G.R. No. 90473 December 11, 1991
EL GRANDE DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the
Regional Trial Court of Cavite, CLERK OF COURT and Ex-
Officio Sheriff ADORACION VICTA, BANCO FILIPINO
SAVINGS AND MORTGAGE BANK, CARLOTA P.
VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.
Panganiban, Benitez, Barinaga & Bautista Law Offices
collaborating counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for
intervenors.
MEDIALDEA, J.:
This refers to nine (9) consolidated cases concerning the
legality of the closure and receivership of petitioner Banco
Filipino Savings and Mortgage Bank (Banco Filipino for
brevity) pursuant to the order of respondent Monetary Board.
Six (6) of these cases, namely, G.R. Nos. 68878, 77255-68,
78766, 81303, 81304 and 90473 involve the common issue of
whether or not the liquidator appointed by the respondent
Central Bank (CB for brevity) has the authority to prosecute as
well as to defend suits, and to foreclose mortgages for and in
behalf of the bank while the issue on the validity of the
receivership and liquidation of the latter is pending resolution
in G.R. No. 7004. Corollary to this issue is whether the CB can
be sued to fulfill financial commitments of a closed bank
pursuant to Section 29 of the Central Bank Act. On the other
hand, the other three (3) cases, namely, G.R. Nos. 70054,
which is the main case, 78767 and 78894 all seek to annul
and set aside M.B. Resolution No. 75 issued by respondents
Monetary Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as
follows:
G.R No. 68878
This is a motion for reconsideration, filed by respondent
Celestina Pahimuntung, of the decision promulgated by
thisCourt on April 8, 1986, granting the petition for review
on certiorari and reversing the questioned decision of
respondent appellate court, which annulled the writ of
possession issued by the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has no
more personality to continue prosecuting the instant case
considering that petitioner bank was placed under receivership
since January 25, 1985 by the Central Bank pursuant to the
resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top
Management for brevity) and Pilar Development Corporation
(Pilar Development for brevity) are corporations engaged in
the business of developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco
Filipino as evidenced by a promissory note dated January 7,
1982 payable in three years from date. The loan was secured
by real estate mortgage in its various properties in Cavite.
Likewise, Pilar Development obtained loans from Banco
Filipino between 1982 and 1983 in the principal amounts of
P6,000,000, P7,370,000 and P5,300,000 with maturity dates
on December 28, 1984, January 5, 1985 and February 16,
1984, respectively. To secure the loan, Pilar Development
mortgaged to Banco Filipino various properties in Dasmariñas,
Cavite.
On January 25, 1985, the Monetary Board issued a resolution
finding Banco Filipino insolvent and unable to do business
without loss to its creditors and depositors. It placed Banco
Filipino under receivership of Carlota Valenzuela, Deputy
Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another
resolution placing the bank under liquidation and designating
Valenzuela as liquidator. By virtue of her authority as
liquidator, Valenzuela appointed the law firm of Sycip, Salazar,
et al. to represent Banco Filipino in all litigations.
On March 26, 1985, Banco Filipino filed the petition
for certiorari in G.R. No. 70054 questioning the validity of the
resolutions issued by the Monetary Board authorizing the
receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No.
70054 resolved to issue a temporary restraining order,
effective during the same period of 30 days, enjoining the
respondents from executing further acts of liquidation of the
bank; that acts such as receiving collectibles and receivables
or paying off creditors' claims and other transactions pertaining
to normal operations of a bank are not enjoined. The Central
Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the
due date. Hence, the law firm of Sycip, Salazar, et al. acting
as counsel for Banco Filipino under authority of Valenzuela as
liquidator, applied for extra-judicial foreclosure of the mortgage
over Top Management's properties. Thus, the Ex-Officio
Sheriff of the Regional Trial Court of Cavite issued a notice of
extra-judicial foreclosure sale of the properties on December
16, 1985.
On December 9, 1985, Top Management filed a petition for
injunction and prohibition with the respondent appellate court
docketed as CA-G.R. SP No. 07892 seeking to enjoin the
Regional Trial Court of Cavite, the ex-officio sheriff of said
court and Sycip, Salazar, et al. from proceeding with
foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its
loans. The law firm of Sycip, Salazar, et al. filed separate
applications with the ex-officio sheriff of the Regional Trial
Court of Cavite for the extra-judicial foreclosure of mortgage
over its properties.
Hence, Pilar Development filed with the respondent appellate
court a petition for prohibition with prayer for the issuance of a
writ of preliminary injunction docketed as CA-G.R SP Nos.
08962-64 seeking to enjoin the same respondents from
enforcing the foreclosure sale of its properties. CA-G.R. SP
Nos. 07892 and 08962-64 were consolidated and jointly
decided.
On October 30, 1986, the respondent appellate court rendered
a decision dismissing the aforementioned petitions.
Hence, this petition was filed by the petitioners Top
Management and Pilar Development alleging that Carlota
Valenzuela, who was appointed by the Monetary Board as
liquidator of Banco Filipino, has no authority to proceed with
the foreclosure sale of petitioners' properties on the ground
that the resolution of the issue on the validity of the closure
and liquidation of Banco Filipino is still pending with this Court
in G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande for
brevity) is engaged in the business of developing residential
subdivisions. It was extended by respondent Banco Filipino a
credit accommodation to finance its housing program. Hence,
petitioner was granted a loan in the amount of P8,034,130.00
secured by real estate mortgages on its various estates
located in Cavite.
On January 15, 1985, the Monetary Board forbade Banco
Filipino to do business, placed it under receivership and
designated Deputy Governor Carlota Valenzuela as receiver.
On March 22, 1985, the Monetary Board confirmed Banco
Filipino's insolvency and designated the receiver Carlota
Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to
Banco Filipino, the latter thru its liquidator, Carlota Valenzuela,
initiated the foreclosure with the Clerk of Court and Ex-officio
sheriff of RTC Cavite. Subsequently, on March 31, 1986, the
ex-officio sheriff issued the notice of extra-judicial sale of the
mortgaged properties of El Grande scheduled on April 30,
1986.
In order to stop the public auction sale, petitioner El Grande
filed a petition for prohibition with the Court of Appeals alleging
that respondent Carlota Valenzuela could not proceed with the
foreclosure of its mortgaged properties on the ground that this
Court in G.R. No. 70054 issued a resolution dated August 29,
1985, which restrained Carlota Valenzuela from acting as
liquidator and allowed Banco Filipino to resume banking
operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision
dismissing the petition.
Hence this petition for review on certiorari was filed alleging
that the respondent court erred when it held in its decision that
although Carlota P. Valenzuela was restrained by this
Honorable Court from exercising acts in liquidation of Banco
Filipino Savings & Mortgage Bank, she was not legally
precluded from foreclosing the mortgage over the properties of
the petitioner through counsel retained by her for the purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development
Corporation (Pilar Development for brevity) filed an action
against Banco Filipino, the Central Bank and Carlota
Valenzuela for specific performance, docketed as Civil Case
No. 12191. It appears that the former management of Banco
Filipino appointed Quisumbing & Associates as counsel for
Banco Filipino. On June 12, 1986 the said law firm filed an
answer for Banco Filipino which confessed judgment against
Banco Filipino.
On June 17, 1986, petitioner filed a second amended
complaint. The Central Bank and Carlota Valenzuela, thru the
law firm Sycip, Salazar, Hernandez and Gatmaitan filed an
answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants
including Banco Filipino moved that the answer filed by
Quisumbing & Associates for defendant Banco Filipino be
expunged from the records. Despite opposition from
Quisumbing & Associates, the trial court granted the motion to
expunge in an order dated March 17, 1987. Petitioner Pilar
Development moved to reconsider the order but the motion
was denied.
Petitioner Pilar Development filed with the respondent
appellate court a petition for certiorari and mandamus to annul
the order of the trial court. The Court of Appeals rendered a
decision dismissing the petition. A petition was filed with this
Court but was denied in a resolution dated March 22, 1988.
Hence, this instant motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF
Homes for brevity) filed an action with the trial court to compel
the Central Bank to restore petitioner's; financing facility with
Banco Filipino.
The Central Bank filed a motion to dismiss the action.
Petitioner BF Homes in a supplemental complaint impleaded
as defendant Carlota Valenzuela as receiver of Banco Filipino
Savings and Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental
complaint to which respondents filed a motion to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss
the supplemental complaint on the grounds (1) that plaintiff
has no contractual relation with the defendants, and (2) that
the Intermediate Appellate Court in a previous decision in AC-
G.R. SP. No. 04609 had stated that Banco Filipino has been
ordered closed and placed under receivership pending
liquidation, and thus, the continuation of the facility sued for by
the plaintiff has become legally impossible and the suit has
become moot.
The order of dismissal was appealed by the petitioner to the
Court of Appeals. On November 4, 1987, the respondent
appellate court dismissed the appeal and affirmed the order of
the trial court.
Hence, this petition for review on certiorari was filed, alleging
that the respondent court erred when it found that the private
respondents should not be the ones to respond to the cause of
action asserted by the petitioner and the petitioner did not
have any cause of action against the respondents Central
Bank and Carlota Valenzuela.
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande for
brevity) obtained a loan from Banco Filipino in the amount of
P8,034,130.00, secured by a mortgage over its five parcels of
land located in Cavite which were covered by Transfer
Certificate of Title Nos. T-82187, T-109027, T-132897, T-
148377, and T-79371 of the Registry of Deeds of Cavite.
When Banco Filipino was ordered closed and placed under
receivership in 1985, the appointed liquidator of BF, thru its
counsel Sycip, Salazar, et al. applied with the ex-officio sheriff
of the Regional Trial Court of Cavite for the extrajudicial
foreclosure of the mortgage constituted over petitioner's
properties. On March 24, 1986, the ex-officio sheriff issued a
notice of extrajudicial foreclosure sale of the properties of
petitioner.
Thus, petitioner filed with the Court of Appeals a petition for
prohibition with prayer for writ of preliminary injunction to
enjoin the respondents from foreclosing the mortgage and to
nullify the notice of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered a
decision dismissing the petition.
Not satisfied with the decision, petitioner filed the instant
petition for review on certiorari.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized to
operate as such under M.B. Resolution No. 223 dated
February 14, 1963. It commenced operations on July 9, 1964.
It has eighty-nine (89) operating branches, forty-six (46) of
which are in Manila, with more than three (3) million
depositors.
As of July 31, 1984, the list of stockholders showed the major
stockholders to be: Metropolis Development Corporation,
Apex Mortgage and Loans Corporation, Filipino Business
Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of
P119.7 million under M.B. Resolution No. 839 dated June 29,
1984. This was augmented with a P3 billion credit line under
M.B. Resolution No. 934 dated July 27, 1984.
On the same date, respondent Board issued M.B. Resolution
No. 955 placing petitioner bank under conservatorship of
Basilio Estanislao. He was later replaced by Gilberto Teodoro
as conservator on August 10, 1984. The latter submitted a
report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall
hereinafter be referred to as the Teodoro report.
Subsequently, another report dated January 23, 1985 was
submitted to the Monetary Board by Ramon Tiaoqui, Special
Assistant to the Governor and Head, SES Department II of the
Central Bank, regarding the major findings of examination on
the financial condition of petitioner BF as of July 31, 1984. The
report, which shall be referred to herein as the Tiaoqui Report
contained the following conclusion and recommendation:
The examination findings as of July 31, 1984, as
shown earlier, indicate one of insolvency and
illiquidity and further confirms the above conclusion
of the Conservator.
All the foregoing provides sufficient justification for
forbidding the bank from engaging in banking.
Foregoing considered, the following are
recommended:
1. Forbid the Banco Filipino Savings &
Mortgage Bank to do business in the
Philippines effective the beginning of
office January 1985, pursuant to Sec. 29
of R.A No. 265, as amended;
2. Designate the Head of the Conservator
Team at the bank, as Receiver of Banco
Filipino Savings & Mortgage Bank, to
immediately take charge of the assets
and liabilities, as expeditiously as
possible collect and gather all the assets
and administer the same for the benefit of
all the creditors, and exercise all the
powers necessary for these purposes
including but not limited to bringing suits
and foreclosing mortgages in the name of
the bank.
3. The Board of Directors and the
principal officers from Senior Vice
Presidents, as listed in the attached
Annex "A" be included in the watchlist of
the Supervision and Examination Sector
until such time that they shall have
cleared themselves.
4. Refer to the Central Bank's Legal
Department and Office of Special
Investigation the report on the findings on
 Banco Filipino for investigation and
possible prosecution of directors, officers,
and employees for activities which led to
its insolvent position. (pp- 61-62, Rollo)
On January 25, 1985, the Monetary Board issued
the assailed MB Resolution No. 75 which ordered
the closure of BF and which further provides:
After considering the report dated
January 8, 1985 of the Conservator for
Banco Filipino Savings and Mortgage
Bank that the continuance in business of
the bank would involve probable loss to
its depositors and creditors, and after
discussing and finding to be true the
statements of the Special Assistant to the
Governor and Head, Supervision and
Examination Sector (SES) Department II
as recited in his memorandum dated
January 23, 1985, that the Banco Filipino
Savings & Mortgage Bank is insolvent
and that its continuance in business
would involve probable loss to its
depositors and creditors, and in
pursuance of Sec. 29 of RA 265, as
amended, the Board decided:
1. To forbid Banco Filipino
Savings and Mortgage Bank
and all its branches to do
business in the Philippines;
2. To designate Mrs. Carlota P.
Valenzuela, Deputy Governor
as Receiver who is hereby
directly vested with jurisdiction
and authority to immediately
take charge of the bank's
assets and liabilities, and as
expeditiously as possible
collect and gather all the
assets and administer the
same for the benefit of its
creditors, exercising all the
powers necessary for these
purposes including but not
limited to, bringing suits and
foreclosing mortgages in the
name of the bank;
3. To designate Mr. Arnulfo B.
Aurellano, Special Assistant to
the Governor, and Mr. Ramon
V. Tiaoqui, Special Assistant to
the Governor and Head,
Supervision and Examination
Sector Department II, as
Deputy Receivers who are
likewise hereby directly vested
with jurisdiction and authority
to do all things necessary or
proper to carry out the
functions entrusted to them by
the Receiver and otherwise to
assist the Receiver in carrying
out the functions vested in the
Receiver by law or Monetary
Board Resolutions;
4. To direct and authorize
Management to do all other
things and carry out all other
measures necessary or proper
to implement this Resolution
and to safeguard the interests
of depositors, creditors and the
general public; and
5. In consequence of the
foregoing, to terminate the
conservatorship over Banco
Filipino Savings and Mortgage
Bank. (pp. 10-11, Rollo, Vol. I)
On February 2, 1985, petitioner BF filed a
complaint docketed as Civil Case No.
9675 with the Regional Trial Court of
Makati to set aside the action of the
Monetary Board placing BF under
receivership.
On February 28, 1985, petitioner filed
with this Court the instant petition
for certiorari and mandamus under Rule
65 of the Rules of Court seeking to annul
the resolution of January 25, 1985 as
made without or in excess of jurisdiction
or with grave abuse of discretion, to order
respondents to furnish petitioner with the
reports of examination which led to its
closure and to afford petitioner BF a
hearing prior to any resolution that may
be issued under Section 29 of R.A. 265,
also known as Central Bank Act.
On March 19, 1985, Carlota Valenzuela,
as Receiver and Arnulfo Aurellano and
Ramon Tiaoqui as Deputy Receivers of
Banco Filipino submitted their report on
the receivership of BF to the Monetary
Board, in compliance with the mandate of
Sec. 29 of R.A. 265 which provides that
the Monetary Board shall determine
within sixty (60) days from date of
receivership of a bank whether such bank
may be reorganized/permitted to resume
business or ordered to be liquidated. The
report contained the following
recommendation:
In view of the foregoing and
considering that the condition
of the banking institution
continues to be one of
insolvency, i.e., its realizable
assets are insufficient to meet
all its liabilities and that the
bank cannot resume business
with safety to its depositors,
other creditors and the general
public, it is recommended that:
1. Banco Filipino Savings & Mortgage
Bank be liquidated pursuant to paragraph
3, Sec. 29 of RA No. 265, as amended;
2. The Legal Department, through the
Solicitor General, be authorized to file in
the proper court a petition for assistance
in th liquidation of the Bank;
3. The Statutory Receiver be designated
as the Liquidator of said bank; and
4. Management be instructed to inform
the stockholders of Banco Filipino
Savings & Mortgage Bank of the
Monetary Board's decision liquidate the
Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion
before this Court praying that a
restraining order or a writ of preliminary
injunction be issued to enjoin
respondents from causing the dismantling
of BF signs in its main office and 89
branches. This Court issued a resolution
on August 8, 1985 ordering the issuance
of the aforesaid temporary restraining
order.
On August 20, 1985, the case was
submitted for resolution.
In a resolution dated August 29, 1985,
this Court Resolved direct the
respondents Monetary Board and Central
Bank hold hearings at which the
petitioner should be heard, and terminate
such hearings and submit its resolution
within thirty (30) days. This Court further
resolved to issue a temporary restraining
order enjoining the respondents from
executing further acts of liquidation of a
bank. Acts such as receiving collectibles
and receivables or paying off creditors'
claims and other transactions pertaining
to normal operations of a bank were no
enjoined. The Central Bank was also
ordered to designate comptroller for the
petitioner BF. This Court also ordered th
consolidation of Civil Cases Nos. 8108,
9676 and 10183 in Branch 136 of the
Regional Trial Court of Makati.
However, on September 12, 1985, this
Court in the meantime suspended the
hearing it ordered in its resolution of
August 29, 1985.
On October 8, 1985, this Court submitted
a resolution order ing Branch 136 of the
Regional Trial Court of Makati the
presided over by Judge Ricardo
Francisco to conduct the hear ing
contemplated in the resolution of August
29, 1985 in the most expeditious manner
and to submit its resolution to this Court.
In the Court's resolution of February 19,
1987, the Court stated that the hearing
contemplated in the resolution of August
29, 1985, which is to ascertain whether
substantial administrative due process
had been observed by the respondent
Monetary Board, may be expedited by
Judge Manuel Cosico who now presides
the court vacated by Judge Ricardo
Francisco, who was elevated to the Court
of Appeals, there being no legal
impediment or justifiable reason to bar
the former from conducting such hearing.
Hence, this Court directed Judge Manuel
Cosico to expedite the hearing and
submit his report to this Court.
On February 20, 1988, Judge Manuel
Cosico submitted his report to this Court
with the recommendation that the
resolutions of respondents Monetary
Board and Central Bank authorizing the
closure and liquidation of petitioner BP be
upheld.
On October 21, 1988, petitioner BF filed
an urgent motion to reopen hearing to
which respondents filed their comment on
December 16, 1988. Petitioner filed their
reply to respondent's comment of
January 11, 1989. After having
deliberated on the grounds raised in the
pleadings, this Court in its resolution
dated August 3, 1989 declared that its
intention as expressed in its resolution of
August 29, 1985 had not been faithfully
adhered to by the herein petitioner and
respondents. The aforementioned
resolution had ordered a healing on the
reports that led respondents to order
petitioner's closure and its alleged pre-
planned liquidation. This Court noted that
during the referral hearing however, a
different scheme was followed.
Respondents merely submitted to the
commissioner their findings on the
examinations conducted on petitioner,
affidavits of the private respondents
relative to the findings, their reports to the
Monetary Board and several other
documents in support of their position
while petitioner had merely submitted
objections to the findings of respondents,
counter-affidavits of its officers and also
documents to prove its claims. Although
the records disclose that both parties had
not waived cross-examination of their
deponents, no such cross-examination
has been conducted. The reception of
evidence in the form of affidavits was
followed throughout, until the
commissioner submitted his report and
recommendations to the Court. This
Court also held that the documents
pertinent to the resolution of the instant
petition are the Teodoro Report, Tiaoqui
Report, Valenzuela, Aurellano and
Tiaoqui Report and the supporting
documents which were made as the
bases by the reporters of their
conclusions contained in their respective
reports. This Court also Resolved in its
resolution to re-open the referral hearing
that was terminated after Judge Cosico
had submitted his report and
recommendation with the end in view of
allowing petitioner to complete its
presentation of evidence and also for
respondents to adduce additional
evidence, if so minded, and for both
parties to conduct the required cross-
examination of witnesses/deponents, to
be done within a period of three months.
To obviate all doubts on Judge Cosico's
impartiality, this Court designated a new
hearing commissioner in the person of
former Judge Consuelo Santiago of the
Regional Trial Court, Makati, Branch 149
(now Associate Justice of the Court of
Appeals).
Three motions for intervention were filed
in this case as follows: First, in G.R. No.
70054 filed by Eduardo Rodriguez and
Fortunate M. Dizon, stockholders of
petitioner bank for and on behalf of other
stockholders of petitioner; second, in
G.R. No. 78894, filed by the same
stockholders, and, third, again in G.R.
No. 70054 by BF Depositors' Association
and others similarly situated. This Court,
on March 1, 1990, denied the aforesaid
motions for intervention.
On January 28, 1991, the hearing
commissioner, Justice Consuelo
Santiago of the Court of Appeals
submitted her report and
recommendation (to be hereinafter called,
"Santiago Report") on the following
issues stated therein as follows:
l) Had the Monetary Board
observed the procedural
requirements laid down in Sec.
29 of R.A. 265, as amended to
justify th closure of the Banco
Filipino Savings and Mortgage
Bank?
2) On the date of BF's closure
(January 25, 1985) was its
condition one of insolvency or
would its continuance in
business involve probable loss
to its depositors or creditors?
The commissioner after evaluation of the
evidence presented found and
recommended the following:
1. That the TEODORO and
TIAOQUI reports did not
establish in accordance with
See. 29 of the R.A. 265, as
amended, BF's insolvency as
of July 31, 1984 or that its
continuance in business
thereafter would involve
probable loss to its depositors
or creditors. On the contrary,
the evidence indicates that BF
was solvent on July 31, 1984
and that on January 25, 1985,
the day it was closed, its
insolvency was not clearly
established;
 2. That consequently, BF's
closure on January 25, 1985,
not having satisfied the
requirements prescribed under
Sec. 29 of RA 265, as
amended, was null and void.
3. That accordingly, by way of
correction, BF should be
allowed to re-open subject to
such laws, rules and
regulations that apply to its
situation.
Respondents thereafter filed a motion for
leave to file objections to the Santiago
Report. In the same motion, respondents
requested that the report and
recommendation be set for oral argument
before the Court. On February 7, 1991,
this Court denied the request for oral
argument of the parties.
On February 25, 1991, respondents filed
their objections to the Santiago Report.
On March 5, 1991, respondents
submitted a motion for oral argument
alleging that this Court is confronted with
two conflicting reports on the same
subject, one upholding on all points the
Monetary Board's closure of petitioner,
(Cosico Report dated February 19, 1988)
and the other (Santiago Report dated
January 25, 1991) holding that
petitioner's closure was null and void
because petitioner's insolvency was not
clearly established before its closure; and
that such a hearing on oral argrument will
therefore allow the parties to directly
confront the issues before this Court.
On March 12, 1991 petitioner filed its
opposition to the motion for oral
argument. On March 20, 1991, it filed its
reply to respondents' objections to the
Santiago Report.
On June 18, 1991, a hearing was held
where both parties were heard on oral
argument before this Court. The parties,
having submitted their respective
memoranda, the case is now submitted
for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed
a complaint with the trial court docketed
as Civil Case No. 9675 to annul the
resolution of the Monetary Board dated
January 25, 1985, which ordered the
closure of the bank and placed it under
receivership.
On February 14, 1985, the Central Bank
and the receivers filed a motion to
dismiss the complaint on the ground that
the receivers had not authorized anyone
to file the action. In a supplemental
motion to dismiss, the Central Bank cited
the resolution of this Court dated October
15, 1985 in G.R. No. 65723 entitled,
"Central Bank et al. v. Intermediate
Appellate Court" whereby We held that a
complaint questioning the validity of the
receivership established by the Central
Bank becomes moot and academic upon
the initiation of liquidation proceedings.
While the motion to dismiss was pending
resolution, petitioner herein Metropolis
Development Corporation (Metropolis for
brevity) filed a motion to intervene in the
aforestated civil case on the ground that
as a stockholder and creditor of Banco
Filipino, it has an interest in the subject of
the action.
On July 19, 1985, the trial court denied
the motion to dismiss and also denied the
motion for reconsideration of the order
later filed by Central Bank. On June 5,
1985, the trial court allowed the motion
for intervention.
Hence, the Central Bank and the
receivers of Banco Filipino filed a petition
for certiorari with the respondent
appellate court alleging that the trial court
committed grave abuse of discretion in
not dismissing Civil Case No. 9675.
On March 17, 1986, the respondent
appellate court rendered a decision
annulling and setting aside the
questioned orders of the trial court, and
ordering the dismissal of the complaint
filed by Banco Filipino with the trial court
as well as the complaint in intervention of
petitioner Metropolis Development
Corporation.
Hence this petition was filed by
Metropolis Development Corporation
questioning the decision of the
respondent appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was
filed with the trial court in the name of
Banco Filipino to annul the resolution o
the Monetary Board dated January 25,
1985 which ordered the closure of Banco
Filipino and placed it under receivership.
The receivers appointed by the Monetary
Board were Carlota Valenzuela, Arnulfo
Aurellano and Ramon Tiaoqui.
On February 14, 1985, the Central Bank
and the receiver filed a motion to dismiss
the complaint on the ground that the
receiver had not authorized anyone to file
the action.
On March 22, 1985, the Monetary Board
placed the bank under liquidation and
designated Valenzuela as liquidator and
Aurellano and Tiaoqui as deputy
liquidators.
The Central Bank filed a supplemental
motion to dismiss which was denied.
Hence, the latter filed a petition
for certiorari with the respondent
appellate court to set aside the order of
the trial court denying the motion to
dismiss. On March 17, 1986, the
respondent appellate court granted the
petition and dismissed the complaint of
Banco Filipino with the trial court.
Thus, this petition for certiorari was filed
with the petitioner contending that a bank
which has been closed and placed under
receivership by the Central Bank under
Section 29 of RA 265 could file suit in
court in its name to contest such acts of
the Central Bank, without the
authorization of the CB-appointed
receiver.
After deliberating on the pleadings in the
following cases:
1. In G.R. No. 68878, the
respondent's motion for
reconsideration;
2. In G.R. Nos. 77255-58, the
petition, comment, reply,
rejoinder and sur-rejoinder;
2. In G.R. No. 78766, the
petition, comment, reply and
rejoinder;
3. In G.R. No. 81303, the
petitioner's motion for
reconsideration;
4. In G.R.No. 81304, the
petition, comment and reply;
5. Finally, in G.R. No. 90473,
the petition comment and
reply.
We find the motions for reconsideration in
G.R. Nos. 68878 and 81303 and the
petitions in G.R. Nos. 77255-58, 78766,
81304 and 90473 devoid of merit.
Section 29 of the Republic Act No. 265,
as amended known as the Central Bank
Act, provides that when a bank is
forbidden to do business in the
Philippines and placed under
receivership, the person designated as
receiver shall immediately take charge of
the bank's assets and liabilities, as
expeditiously as possible, collect and
gather all the assets and administer the
same for the benefit of its creditors, and
represent the bank personally or through
counsel as he may retain in all actions or
proceedings for or against the
institution, exercising all the powers
necessary for these purposes including,
but not limited to, bringing and foreclosing
mortgages in the name of the bank. If the
Monetary Board shall later determine and
confirm that banking institution is
insolvent or cannot resume business
safety to depositors, creditors and the
general public, it shall, public interest
requires, order its liquidation and appoint
a liquidator who shall take over and
continue the functions of receiver
previously appointed by Monetary
Board. The liquid for may, in the name of
the bank and with the assistance counsel
as he may retain, institute such actions
as may necessary in the appropriate
court to collect and recover a counts and
assets of such institution or defend any
action ft against the institution.
When the issue on the validity of the
closure and receivership of Banco Filipino
bank was raised in G.R. No. 70054,
pendency of the case did not diminish the
powers and authority of the designated
liquidator to effectuate and carry on the a
ministration of the bank. In fact when We
adopted a resolute on August 25, 1985
and issued a restraining order to
respondents Monetary Board and Central
Bank, We enjoined me further acts of
liquidation. Such acts of liquidation, as
explained in Sec. 29 of the Central Bank
Act are those which constitute the
conversion of the assets of the banking
institution to money or the sale,
assignment or disposition of the s to
creditors and other parties for the
purpose of paying debts of such
institution. We did not prohibit however
acts a as receiving collectibles and
receivables or paying off credits claims
and other transactions pertaining to
normal operate of a bank. There is no
doubt that the prosecution of suits
collection and the foreclosure of
mortgages against debtors the bank by
the liquidator are among the usual and
ordinary transactions pertaining to the
administration of a bank. their did Our
order in the same resolution dated
August 25, 1985 for the designation by
the Central Bank of a comptroller Banco
Filipino alter the powers and functions; of
the liquid insofar as the management of
the assets of the bank is concerned. The
mere duty of the comptroller is to
supervise counts and finances
undertaken by the liquidator and to d
mine the propriety of the latter's
expenditures incurred behalf of the bank.
Notwithstanding this, the liquidator is
empowered under the law to continue the
functions of receiver is preserving and
keeping intact the assets of the bank in
substitution of its former management,
and to prevent the dissipation of its
assets to the detriment of the creditors of
the bank. These powers and functions of
the liquidator in directing the operations
of the bank in place of the former
management or former officials of the
bank include the retaining of counsel of
his choice in actions and proceedings for
purposes of administration.
Clearly, in G.R. Nos. 68878, 77255-58,
78766 and 90473, the liquidator by
himself or through counsel has the
authority to bring actions for foreclosure
of mortgages executed by debtors in
favor of the bank. In G.R. No. 81303, the
liquidator is likewise authorized to resist
or defend suits instituted against the bank
by debtors and creditors of the bank and
by other private persons. Similarly, in
G.R. No. 81304, due to the aforestated
reasons, the Central Bank cannot be
compelled to fulfill financial transactions
entered into by Banco Filipino when the
operations of the latter were suspended
by reason of its closure. The Central
Bank possesses those powers and
functions only as provided for in Sec. 29
of the Central Bank Act.
While We recognize the actual closure of
Banco Filipino and the consequent legal
effects thereof on its operations, We
cannot uphold the legality of its closure
and thus, find the petitions in G.R. Nos.
70054, 78767 and 78894 impressed with
merit. We hold that the closure and
receivership of petitioner bank, which was
ordered by respondent Monetary Board
on January 25, 1985, is null and void.
It is a well-recognized principle that
administrative and discretionary functions
may not be interfered with by the courts.
In general, courts have no supervising
power over the proceedings and actions
of the administrative departments of the
government. This is generally true with
respect to acts involving the exercise of
judgment or discretion, and findings of
fact. But when there is a grave abuse of
discretion which is equivalent to a
capricious and whimsical exercise of
judgment or where the power is exercised
in an arbitrary or despotic manner, then
there is a justification for the courts to set
aside the administrative determination
reached (Lim, Sr. v. Secretary of
Agriculture and Natural Resources, L-
26990, August 31, 1970, 34 SCRA 751)
The jurisdiction of this Court is called
upon, once again, through these
petitions, to undertake the delicate task of
ascertaining whether or not an
administrative agency of the government,
like the Central Bank of the Philippines
and the Monetary Board, has committed
grave abuse of discretion or has acted
without or in excess of jurisdiction in
issuing the assailed order. Coupled with
this task is the duty of this Court not only
to strike down acts which violate
constitutional protections or to nullify
administrative decisions contrary to legal
mandates but also to prevent acts in
excess of authority or jurisdiction, as well
as to correct manifest abuses of
discretion committed by the officer or
tribunal involved.
The law applicable in the determination of
these issues is Section 29 of Republic
Act No. 265, as amended, also known as
the Central Bank Act, which provides:
SEC. 29. Proceedings upon
insolvency. — Whenever, upon
examination by the head of the
appropriate supervising or
examining department or his
examiners or agents into the
condition of any bank or non-
bank financial intermediary
performing quasi-banking
functions, it shall be disclosed
that the condition of the same
is one of insolvency, or that its
continuance in business would
involve probable loss to its
depositors or creditors, it shall
be the duty of the department
head concerned forthwith, in
writing, to inform the Monetary
Board of the facts. The Board
may, upon finding the
statements of the department
head to be true, forbid the
institution to do business in the
Philippines and designate an
official of the Central Bank or a
person of recognized
competence in banking or
finance, as receiver to
immediately take charge of its
assets and liabilities, as
expeditiously as possible
collect and gather all the
assets and administer the
same for the benefit's of its
creditors, and represent the
bank personally or through
counsel as he may retain in all
actions or proceedings for or
against the institution,
exercising all the powers
necessary for these purposes
including, but not limited to,
bringing and foreclosing
mortgages in the name of the
bank or non-bank financial
intermediary performing quasi-
banking functions.
The Monetary Board shall
thereupon determine within
sixty days whether the
institution may be reorganized
or otherwise placed in such a
condition so that it may be
permitted to resume business
with safety to its depositors
and creditors and the general
public and shall prescribe the
conditions under which such
resumption of business shall
take place as well as the time
for fulfillment of such
conditions. In such case, the
expenses and fees in the
collection and administration of
the assets of the institution
shall be determined by the
Board and shall be paid to the
Central Bank out of the assets
of such institution.
If the Monetary Board shall
determine and confirm within
the said period that the bank or
non-bank financial intermediary
performing quasi-banking
functions is insolvent or cannot
resume business with safety to
its depositors, creditors, and
the general public, it shall, if
the public interest requires,
order its liquidation, indicate
the manner of its liquidation
and approve a liquidation plan
which may, when warranted,
involve disposition of any or all
assets in consideration for the
assumption of equivalent
liabilities. The liquidator
designated as hereunder
provided shall, by the Solicitor
General, file a petition in the
regional trial court reciting the
proceedings which have been
taken and praying the
assistance of the court in the
liquidation of such institutions.
The court shall have
jurisdiction in the same
proceedings to assist in the
adjudication of the disputed
claims against the bank or non-
bank financial intermediary
performing quasi-banking
functions and in the
enforcement of individual
liabilities of the stockholders
and do all that is necessary to
preserve the assets of such
institutions and to implement
the liquidation plan approved
by the Monetary Board. The
Monetary Board shall
designate an official of the
Central bank or a person of
recognized competence in
banking or finance, as
liquidator who shall take over
and continue the functions of
the receiver previously
appointed by the Monetary
Board under this Section. The
liquidator shall, with all
convenient speed, convert the
assets of the banking
institutions or non-bank
financial intermediary
performing quasi-banking
function to money or sell,
assign or otherwise dispose of
the same to creditors and other
parties for the purpose of
paying the debts of such
institution and he may, in the
name of the bank or non-bank
financial intermediary
performing quasi-banking
functions and with the
assistance of counsel as he
may retain, institute such
actions as may be necessary
in the appropriate court to
collect and recover accounts
and assets of such institution
or defend any action filed
against the institution:
Provided, However, That after
having reasonably established
all claims against the
institution, the liquidator may,
with the approval of the court,
effect partial payments of such
claims for assets of the
institution in accordance with
their legal priority.
The assets of an institution
under receivership or
liquidation shall be deemed
in custodia legis in the hands
of the receiver or liquidator and
shall from the moment of such
receivership or liquidation, be
exempt from any order of
garnishment, levy, attachment,
orexecution.
The provisions of any law to
the contrary notwithstanding,
the actions of the Monetary
Board under this Section,
Section 28-A, an the second
paragraph of Section 34 of this
Act shall be final an executory,
and can be set aside by a court
only if there is convince proof,
after hearing, that the action is
plainly arbitrary and made in
bad faith: Provided, That the
same is raised in an
appropriate pleading filed by
the stockholders of record
representing the majority of th
capital stock within ten (10)
days from the date the receiver
take charge of the assets and
liabilities of the bank or non-
bank financial intermediary
performing quasi-banking
functions or, in case of
conservatorship or liquidation,
within ten (10) days from
receipt of notice by the said
majority stockholders of said
bank or non-bank financial
intermediary of the order of its
placement under
conservatorship o liquidation.
No restraining order or
injunction shall be issued by an
court enjoining the Central
Bank from implementing its
actions under this Section and
the second paragraph of
Section 34 of this Act in th
absence of any convincing
proof that the action of the
Monetary Board is plainly
arbitrary and made in bad faith
and the petitioner or plaintiff
files a bond, executed in favor
of the Central Bank, in an
amount be fixed by the court.
The restraining order or
injunction shall be refused or, if
 granted, shall be dissolved
upon filing by the Central Bank
of a bond, which shall be in the
form of cash or Central Bank
cashier's check, in an amount
twice the amount of the bond
of th petitioner or plaintiff
conditioned that it will pay the
damages which the petitioner
or plaintiff may suffer by the
refusal or the dissolution of the
injunction. The provisions of
Rule 58 of the New Rules of
Court insofar as they are
applicable and not inconsistent
with the provision of this
Section shall govern the
issuance and dissolution of the
re straining order or injunction
contemplated in this Section.
xxx xxx xxx
Based on the aforequoted provision, the
Monetary Board may order the cessation
of operations of a bank in the Philippine
and place it under receivership upon a
finding of insolvency or when its
continuance in business would involve
probable loss its depositors or creditors. If
the Monetary Board shall determine and
confirm within sixty (60) days that the
bank is insolvent or can no longer resume
business with safety to its depositors,
creditors and the general public, it shall, if
public interest will be served, order its
liquidation.
Specifically, the basic question to be
resolved in G.R. Nos. 70054, 78767 and
78894 is whether or not the Central Bank
and the Monetary Board acted arbitrarily
and in bad faith in finding and thereafter
concluding that petitioner bank is
insolvent, and in ordering its closure on
January 25, 1985.
As We have stated in Our resolution
dated August 3, 1989, the documents
pertinent to the resolution of these
petitions are the Teodoro Report, Tiaoqui
Report, and the Valenzuela, Aurellano
and Tiaoqui Report and the supporting
documents made as bases by the
supporters of their conclusions contained
in their respective reports. We will focus
Our study and discussion however on the
Tiaoqui Report and the Valenzuela,
Aurellano and Tiaoqui Report. The former
recommended the closure and
receivership of petitioner bank while the
latter report made the recommendation to
eventually place the petitioner bank under
liquidation. This Court shall likewise take
into consideration the findings contained
in the reports of the two commissioners
who were appointed by this Court to hold
the referral hearings, namely the report
by Judge Manuel Cosico submitted
February 20, 1988 and the report
submitted by Justice Consuelo Santiago
on January 28, 1991.
There is no question that under Section
29 of the Central Bank Act, the following
are the mandatory requirements to be
complied with before a bank found to be
insolvent is ordered closed and forbidden
to do business in the Philippines: Firstly,
an examination shall be conducted by the
head of the appropriate supervising or
examining department or his examiners
or agents into the condition of the bank;
secondly, it shall be disclosed in the
examination that the condition of the bank
is one of insolvency, or that its
continuance in business would involve
probable loss to its depositors or
creditors; thirdly, the department head
concerned shall inform the Monetary
Board in writing, of the facts; and lastly,
the Monetary Board shall find the
statements of the department head to be
true.
Anent the first requirement, the Tiaoqui
report, submitted on January 23, 1985,
revealed that the finding of insolvency of
petitioner was based on the partial list of
exceptions and findings on the regular
examination of the bank as of July 31,
1984 conducted by the Supervision and
Examination Sector II of the Central Bank
of the PhilippinesCentral Bank (p. 1,
Tiaoqui Report).
On December 17, 1984, this list of
exceptions and finding was submitted to
the petitioner bank (p. 6, Tiaoqui Report)
This was attached to the letter dated
December 17, 1984, of examiner-in-
charge Dionisio Domingo of SES
Department II of the Central Bank to
Teodoro Arcenas, president of petitione
bank, which disclosed that the
examination of the petitioner bank as to
its financial condition as of July 31, 1984
was not yet completed or finished on
December 17, 1984 when the Central
Bank submitted the partial list of findings
of examination to th petitioner bank. The
letter reads:
In connection with the regular
examination of your institution
a of July 31, 1984, we
are submitting herewith a
partial list of our
exceptions/findings for your
comments.
Please be informed that we
have not yet officially
terminated our examination
(tentatively scheduled last
December 7, 1984) and that
we are still awaiting for the
unsubmitted replies to our
previous letters requests.
Moreover, other findings/
observations are still being
summarized including the
classification of loans and
other risk assets. These shall
be submitted to you in due time
(p. 810, Rollo, Vol. III;
emphasis ours).
It is worthy to note that a conference was
held on January 21, 1985 at the Central
Bank between the officials of the latter an
of petitioner bank. What transpired and
what was agreed upon during the
conference was explained in the Tiaoqui
report.
... The discussion centered on
the substantial exposure of the
bank to the various entities
which would have a
relationship with the bank; the
manner by which some bank
funds were made indirectly
available to several entities
within the group; and the
unhealth financial status of
these firms in which the bank
was additionally exposed
through new funds or
refinancing accommodation
including accrued interest.
Queried in the impact of these
clean loans, on the bank
solvency Mr. Dizon (BF
Executive Vice President)
intimated that, collectively
these corporations have large
undeveloped real estate
properties in the suburbs which
can be made answerable for
the unsecured loans a well as
the Central Bank's credit
accommodations. A formal
reply of the bank would still be
forthcoming. (pp. 58-59, Rollo,
Vol. I; emphasis ours)
Clearly, Tiaoqui based his report on an
incomplete examination of petitioner bank
and outrightly concluded therein that the
latter's financial status was one of
insolvency or illiquidity. He arrived at the
said conclusion from the following facts:
that as of July 31, 1984, total capital
accounts consisting of paid-in capital and
other capital accounts such as surplus,
surplus reserves and undivided profits
aggregated P351.8 million; that capital
adjustments, however, wiped out the
capital accounts and placed the bank with
a capital deficiency amounting to
P334.956 million; that the biggest
adjustment which contributed to the
deficit is the provision for estimated
losses on accounts classified as doubtful
and loss which was computed at P600.4
million pursuant to the examination. This
provision is also known as valuation
reserves which was set up or deducted
against the capital accounts of the bank
in arriving at the latter's financial
condition.
Tiaoqui however admits the insufficiency
and unreliability of the findings of the
examiner as to the setting up of
recommended valuation reserves from
the assets of petitioner bank. He stated:
The recommended valuation
reserves as bases for
determining the financial status
of the bank would need to be
discussed with the bank,
consistent with standard
examination procedure, for
which the bank would in turn
reply. Also, the examination
has not been officially
terminated. (p. 7. Tiaoqui
report; p. 59, Rollo, Vol. I)
In his testimony in the second referral
hearing before Justice Santiago, Tiaoqui
testified that on January 21, 1985, he met
with officers of petitioner bank to discuss
the advanced findings and exceptions
made by Mr. Dionisio Domingo which
covered 70%-80% of the bank's loan
portfolio; that at that meeting, Fortunato
Dizon (BF's Executive Vice President)
said that as regards the unsecured loans
granted to various corporations, said
corporations had large undeveloped real
estate properties which could be
answerable for the said unsecured loans
and that a reply from BF was
forthcoming, that he (Tiaoqui) however
prepared his report despite the absence
of such reply; that he believed, as in fact
it is stated in his report, that despite the
meeting on January 21, 1985, there was
still a need to discuss the recommended
valuation reserves of petitioner bank and;
that he however, did not wait anymore for
a discussion of the recommended
valuation reserves and instead prepared
his report two days after January 21,
1985 (pp. 3313-3314, Rollo).
Records further show that the
examination of petitioner bank was
officially terminated only when Central
Bank Examination-charge Dionisio
Domingo submitted his final report of
examination on March 4,1985.
It is evident from the foregoing
circumstances that the examination
contemplated in Sec. 29 of the CB Act as
a mandatory requirement was not
completely and fully complied with.
Despite the existence of the partial list of
findings in the examination of the bank,
there were still highly significant items to
be weighed and determined such as the
matter of valuation reserves, before these
can be considered in the financial
condition of the bank. It would be a
drastic move to conclude prematurely
that a bank is insolvent if the basis for
such conclusion is lacking and
insufficient, especially if doubt exists as to
whether such bases or findings faithfully
represent the real financial status of the
bank.
The actuation of the Monetary Board in
closing petitioner bank on January 25,
1985 barely four days after a conference
with the latter on the examiners' partial
findings on its financial position is also
violative of what was provided in the CB
Manual of Examination Procedures. Said
manual provides that only after the
examination is concluded, should a pre-
closing conference led by the examiner-
in-charge be held with the
officers/representatives of the institution
on the findings/exception, and a copy of
the summary of the findings/violations
should be furnished the institution
examined so that corrective action may
be taken by them as soon as possible
(Manual of Examination Procedures,
General Instruction, p. 14). It is hard to
understand how a period of four days
after the conference could be a
reasonable opportunity for a bank to
undertake a responsive and corrective
action on the partial list of findings of the
examiner-in-charge.
We recognize the fact that it is the
responsibility of the Central Bank of the
Philippines to administer the monetary,
banking and credit system of the country
and that its powers and functions shall be
exercised by the Monetary Board
pursuant to Rep. Act No. 265, known as
the Central Bank Act. Consequently, the
power and authority of the Monetary
Board to close banks and liquidate them
thereafter when public interest so
requires is an exercise of the police
power of the state. Police power,
however, may not be done arbitratrily or
unreasonably and could be set aside if it
is either capricious, discriminatory,
whimsical, arbitrary, unjust or is
tantamount to a denial of due process
and equal protection clauses of the
Constitution (Central Bank v. Court of
Appeals, Nos. L-50031-32, July 27, 1981,
106 SCRA 143).
In the instant case, the basic standards of
substantial due process were not
observed. Time and again, We have held
in several cases, that the procedure of
administrative tribunals must satisfy the
fundamentals of fair play and that their
judgment should express a well-
supported conclusion.
In the celebrated case of Ang Tibay v.
Court of Industrial Relations, 69 Phil. 635,
this Court laid down several cardinal
primary rights which must be respected in
a proceeding before an administrative
body.
However, as to the requirement of notice
and hearing, Sec. 29 of RA 265 does not
require a previous hearing before the
Monetary Board implements the closure
of a bank, since its action is subject to
judicial scrutiny as provided for under the
same law (Rural Bank of Bato v. IAC,
G.R. No. 65642, October 15, 1984, Rural
Bank v. Court of Appeals, G.R. 61689,
June 20, 1988,162 SCRA 288).
Notwithstanding the foregoing,
administrative due process does not
mean that the other important principles
may be dispensed with, namely: the
decision of the administrative body must
have something to support itself and the
evidence must be substantial. Substantial
evidence is more than a mere scintilla. It
means such relevant evidence as a
reasonable mind might accept as
adequate to support a conclusion (Ang
Tibay vs. CIR, supra). Hence, where the
decision is merely based upon pieces of
documentary evidence that are not
sufficiently substantial and probative for
the purpose and conclusion they are
presented, the standard of fairness
mandated in the due process clause is
not met. In the case at bar, the
conclusion arrived at by the respondent
Board that the petitioner bank is in an
illiquid financial position on January 23,
1985, as to justify its closure on January
25, 1985 cannot be given weight and
finality as the report itself admits the
inadequacy of its basis to support its
conclusion.
The second requirement provided in
Section 29, R.A. 265 before a bank may
be closed is that the examination should
disclose that the condition of the bank is
one of insolvency.
As to the concept of whether the bank is
solvent or not, the respondents contend
that under the Central Bank Manual of
Examination Procedures, Central Bank
examiners must recommend valuation
reserves, when warranted, to be set up or
deducted against the corresponding
asset account to determine the bank's
true condition or net worth. In the case of
loan accounts, to which practically all the
questioned valuation reserves refer, the
manual provides that:
1. For doubtful loans, or loans the
ultimate collection of which is doubtful
and in which a substantial loss is
probable but not yet definitely
ascertainable as to extent, valuation
reserves of fifty per cent (50%) of the
accounts should be recommended to be
set up.
2. For loans classified as loss, or loans
regarded by the examiner as absolutely
uncollectible or worthless, valuation
reserves of one hundred percent (100%)
of the accounts should be recommended
to be set up (p. 8, Objections to Santiago
report).
The foregoing criteria used by
respondents in determining the financial
condition of the bank is based on Section
5 of RA 337, known as the General
Banking Act which states:
Sec. 5. The following terms
shall be held to be
synonymous and
interchangeable:
... f. Unimpaired Capital and
Surplus, "Combined capital
accounts," and "Net worth,"
which terms shall mean for the
purposes of this Act, the total
of the "unimpaired paid-in
capital, surplus, and undivided
profits net of such valuation
reserves as may be required
by the Central Bank."
There is no doubt that the Central Bank
Act vests authority upon the Central Bank
and Monetary Board to take charge and
administer the monetary and banking
system of the country and this authority
includes the power to examine and
determine the financial condition of banks
for purposes provided for by law, such as
for the purpose of closure on the ground
of insolvency stated in Section 29 of the
Central Bank Act. But express grants of
power to public officers should be
subjected to a strict interpretation, and
will be construed as conferring those
powers which are expressly imposed or
necessarily implied (Floyd Mechem,
Treatise on the Law of Public Offices and
Officers, p. 335).
In this case, there can be no clearer
explanation of the concept of insolvency
than what the law itself states. Sec. 29 of
the Central Bank Act provides that
insolvency under the Act, shall be
understood to mean that "the realizable
assets of a bank or a non-bank financial
intermediary performing quasi-banking
functions as determined by the Central
Bank are insufficient to meet its
liabilities."
Hence, the contention of the Central
Bank that a bank's true financial condition
is synonymous with the terms
"unimpaired capital and surplus,"
"combined capital accounts" and net
worth after deducting valuation reserves
from the capital, surplus and unretained
earnings, citing Sec. 5 of RA 337 is
misplaced.
Firstly, it is clear from the law that a
solvent bank is one in which its assets
exceed its liabilities. It is a basic
accounting principle that assets are
composed of liabilities and capital. The
term "assets" includes capital and
surplus" (Exley v. Harris, 267 p. 970, 973,
126 Kan., 302). On the other hand, the
term "capital" includes common and
preferred stock, surplus reserves, surplus
and undivided profits. (Manual of
Examination Procedures, Report of
Examination on Department of
Commercial and Savings Banks, p. 3-C).
If valuation reserves would be deducted
from these items, the result would merely
be the networth or the unimpaired capital
and surplus of the bank applying Sec. 5
of RA 337 but not the total financial
condition of the bank.
Secondly, the statement of assets and
liabilities is used in balance sheets.
Banks use statements of condition to
reflect the amounts, nature and changes
in the assets and liabilities. The Central
Bank Manual of Examination Procedures
provides a format or checklist of a
statement of condition to be used by
examiners as guide in the examination of
banks. The format enumerates the items
which will compose the assets and
liabilities of a bank. Assets include cash
and those due from banks, loans,
discounts and advances, fixed assets and
other property owned or acquired and
other miscellaneous assets. The amount
of loans, discounts and advances to be
stated in the statement of condition as
provided for in the manual is computed
after deducting valuation reserves when
deemed necessary. On the other hand,
liabilities are composed of demand
deposits, time and savings deposits,
cashier's, manager's and certified checks,
borrowings, due to head office, branches;
and agencies, other liabilities and
deferred credits (Manual of Examination
Procedure, p. 9). The amounts stated in
the balance sheets or statements of
condition including the computation of
valuation reserves when justified, are
based however, on the assumption that
the bank or company will continue in
business indefinitely, and therefore, the
networth shown in the statement is in no
sense an indication of the amount that
might be realized if the bank or company
were to be liquidated immediately
(Prentice Hall Encyclopedic Dictionary of
Business Finance, p. 48). Further, based
on respondents' submissions, the
allowance for probable losses on loans
and discounts represents the amount set
up against current operations to provide
for possible losses arising from non-
collection of loans and advances, and this
account is also referred to as valuation
reserve (p. 9, Objections to Santiago
report). Clearly, the statement of
condition which contains a provision for
recommended valuation reserves should
not be used as the ultimate basis to
determine the solvency of an institution
for the purpose of termination of its
operations.
Respondents acknowledge that under the
said CB manual, CB examiners must
recommend valuation reserves, when
warranted, to be set up against the
corresponding asset account (p. 8,
Objections to Santiago report). Tiaoqui
himself, as author of the report
recommending the closure of petitioner
bank admits that the valuation reserves
should still be discussed with the
petitioner bank in compliance with
standard examination procedure. Hence,
for the Monetary Board to unilaterally
deduct an uncertain amount as valuation
reserves from the assets of a bank and to
conclude therefrom without sufficient
basis that the bank is insolvent, would be
totally unjust and unfair.
The test of insolvency laid down in
Section 29 of the Central Bank Act is
measured by determining whether the
realizable assets of a bank are leas than
its liabilities. Hence, a bank is solvent if
the fair cash value of all its assets,
realizable within a reasonable time by a
reasonable prudent person, would equal
or exceed its total liabilities exclusive of
stock liability; but if such fair cash value
so realizable is not sufficient to pay such
liabilities within a reasonable time, the
bank is insolvent. (Gillian v. State, 194
N.E. 360, 363, 207 Ind. 661). Stated in
other words, the insolvency of a bank
occurs when the actual cash market
value of its assets is insufficient to pay its
liabilities, not considering capital stock
and surplus which are not liabilities for
such purpose (Exley v. Harris, 267 p.
970, 973,126 Kan. 302; Alexander v.
Llewellyn, Mo. App., 70 S.W. 2n
115,117).
In arriving at the computation of
realizable assets of petitioner bank,
respondents used its books which
undoubtedly are not reflective of the
actual cash or fair market value of its
assets. This is not the proper procedure
contemplated in Sec. 29 of the Central
Bank Act. Even the CB Manual of
Examination Procedures does not confine
examination of a bank solely with the
determination of the books of the bank.
The latter is part of auditing which should
not be confused with examination.
Examination appraises the soundness of
the institution's assets, the quality and
character of management and
determines the institution's compliance
with laws, rules and regulations. Audit is
a detailed inspection of the institution's
books, accounts, vouchers, ledgers, etc.
to determine the recording of all assets
and liabilities. Hence, examination
concerns itself with review and appraisal,
while audit concerns itself with verification
(CB Manual of Examination Procedures,
General Instructions, p. 5). This Court
however, is not in the position to
determine how much cash or market
value shall be assigned to each of the
assets and liabilities of the bank to
determine their total realizable value. The
proper determination of these matters by
using the actual cash value criteria
belongs to the field of fact-finding
expertise of the Central Bank and the
Monetary Board. Notwithstanding the fact
that the figures arrived at by the
respondent Board as to assets and
liabilities do not truly indicate their
realizable value as they were merely
based on book value, We will however,
take a look at the figures presented by
the Tiaoqui Report in concluding
insolvency as of July 31, 1984 and at the
figures presented by the CB authorized
deputy receiver and by the Valenzuela,
Aurellano and Tiaoqui Report which
recommended the liquidation of the bank
by reason of insolvency as o January
25,1985.
The Tiaoqui report dated January 23,
1985, which was based on partial
examination findings on the bank's
condition as of July 31, 1984, states that
total liabilities of P5,282.1 million exceeds
total assets of P4,947.2 million after
deducting from the assets valuation
reserves of P612.2 million. Since, as We
have explained in our previous discussion
that valuation reserves can not be legally
deducted as there was no truthful and
complete evaluation thereof as admitted
by the Tiaoqui report itself, then an
adjustment of the figures win show that
the liabilities of P5,282.1 million will not
exceed the total assets which will amount
to P5,559.4 if the 612.2 million allotted to
valuation reserves will not be deducted
from the assets. There can be no basis
therefore for both the conclusion of
insolvency and for the decision of the
respondent Board to close petitioner bank
and place it under receivership.
Concerning the financial position of the
bank as of January 25, 1985, the date of
the closure of the bank, the consolidated
statement of condition thereof as of the
aforesaid date shown in the Valenzuela,
Aurellano and Tiaoqui report on the
receivership of petitioner bank, dated
March 19, 1985, indicates that total
liabilities of 4,540.84 million does not
exceed the total assets of 4,981.53
million. Likewise, the consolidated
statement of condition of petitioner bank
as of January 25, 1985 prepared by the
Central Bank Authorized Deputy Receiver
Artemio Cruz shows that total assets
amounting to P4,981,522,996.22 even
exceeds total liabilities amounting to
P4,540,836,834.15. Based on the
foregoing, there was no valid reason for
the Valenzuela, Aurellano and Tiaoqui
report to finally recommend the
liquidation of petitioner bank instead of its
rehabilitation.
We take note of the exhaustive study and
findings of the Cosico report on the
petitioner bank's having engaged in
unsafe, unsound and fraudulent banking
practices by the granting of huge
unsecured loans to several subsidiaries
and related companies. We do not see,
however, that this has any material
bearing on the validity of the closure.
Section 34 of the RA 265, Central Bank
Act empowers the Monetary Board to
take action under Section 29 of the
Central Bank Act when a bank "persists
in carrying on its business in an unlawful
or unsafe manner." There was no
showing whatsoever that the bank had
persisted in committing unlawful banking
practices and that the respondent Board
had attempted to take effective action on
the bank's alleged activities. During the
period from July 27, 1984 up to January
25, 1985, when petitioner bank was
under conservatorship no official of the
bank was ever prosecuted, suspended or
removed for any participation in unsafe
and unsound banking practices, and
neither was the entire management of the
bank replaced or substituted. In fact, in
her testimony during the second referral
hearing, Carlota Valenzuela, CB Deputy
Governor, testified that the reason for
petitioner bank's closure was not
unsound, unsafe and fraudulent banking
practices but the alleged insolvency
position of the bank (TSN, August 3,
1990, p. 3316, Rollo, Vol. VIII).
Finally, another circumstance which point
to the solvency of petitioner bank is the
granting by the Monetary Board in favor
of the former a credit line in the amount of
P3 billion along with the placing of
petitioner bank under conservatorship by
virtue of M.B. Resolution No. 955 dated
July 27, 1984. This paved the way for the
reopening of the bank on August 1, 1984
after a self-imposed bank holiday on July
23, 1984.
On emergency loans and advances,
Section 90 of RA 265 provides two types
of emergency loans that can be granted
by the Central Bank to a financially
distressed bank:
Sec. 90. ... In periods of
emergency or of imminent
financial panic which directly
threaten monetary and banking
stability, the Central Bank may
grant banking institutions
extraordinary advances
secured by any assets which
are defined as acceptable by
by a concurrent vote of at least
five members of the Monetary
Board. While such advances
are outstanding, the debtor
institution may not expand the
total volume of its loans or
investments without the prior
authorization of the Monetary
Board.
The Central Bank may, at its
discretion, likewise grant
advances to banking
institutions, even during normal
periods, for the purpose of
assisting a bank in a
precarious financial condition
or under serious financial
pressures brought about by
unforeseen events, or events
which, though foreseeable,
could not be prevented by the
bank concerned. Provided,
however, That the Monetary
Board has ascertained that the
bank is not insolvent and has
clearly realizable assets to
secure the advances.
Provided, further, That a
concurrent vote of at least five
members of the Monetary
Board is obtained. (Emphasis
ours)
The first paragraph of the aforequoted
provision contemplates a situation where
the whole banking community is
confronted with financial and economic
crisis giving rise to serious and
widespread confusion among the public,
which may eventually threaten and
gravely prejudice the stability of the
banking system. Here, the emergency or
financial confusion involves the whole
banking community and not one bank or
institution only. The second situation on
the other hand, provides for a situation
where the Central Bank grants a loan to a
bank with uncertain financial condition but
not insolvent.
As alleged by the respondents, the
following are the reasons of the Central
Bank in approving the resolution granting
the P3 billion loan to petitioner bank and
the latter's reopening after a brief self-
imposed banking holiday:
WHEREAS, the closure by
Banco Filipino Savings and
Mortgage Bank of its Banking
offices on its own initiative has
worked serious hardships on
its depositors and has affected
confidence levels in the
banking system resulting in a
feeling of apprehension among
depositors and unnecessary
deposit withdrawals;
WHEREAS, the Central Bank
is charged with the function of
administering the banking
system;
WHEREAS, the reopening of
Banco Filipino would require
additional credit resources
from the Central Bank as well
as an independent
management acceptable to the
Central Bank;
WHEREAS, it is the desire of
the Central Bank to rapidly
diffuse the uncertainty that
presently exists;
... (M.B. Min. No. 35 dated July
27, 1984 cited in Respondents'
Objections to Santiago Report,
p. 26; p. 3387, Rollo, Vol. IX;
Emphasis ours).
A perusal of the foregoing "Whereas"
clauses unmistakably show that the clear
reason for the decision to grant the
emergency loan to petitioner bank was
that the latter was suffering from financial
distress and severe bank "run" as a result
of which it closed on July 23, 1984 and
that the release of the said amount is in
accordance with the Central Bank's full
support to meet Banco Filipino's
depositors' withdrawal requirements
(Excerpts of minutes of meeting on MB
Min. No. 35, p. 25, Rollo, Vol. IX).
Nothing therein shows that an
extraordinary emergency situation exists
affecting most banks, not only as regards
petitioner bank. This Court thereby finds
that the grant of the said emergency loan
was intended from the beginning to fall
under the second paragraph of Section
90 of the Central Bank Act, which could
not have occurred if the petitioner bank
was not solvent. Where notwithstanding
knowledge of the irregularities and unsafe
banking practices allegedly committed by
the petitioner bank, the Central Bank
even granted financial support to the
latter and placed it under
conservatorship, such actuation means
that petitioner bank could still be saved
from its financial distress by adequate aid
and management reform, which was
required by Central Bank's duty to
maintain the stability of the banking
system and the preservation of public
confidence in it (Ramos v. Central Bank,
No. L-29352, October 4, 1971, 41 SCRA
565).
In view of the foregoing premises, We
believe that the closure of the petitioner
bank was arbitrary and committed with
grave abuse of discretion. Granting
in gratia argumenti that the closure was
based on justified grounds to protect the
public, the fact that petitioner bank was
suffering from serious financial problems
should not automatically lead to its
liquidation. Section 29 of the Central
Bank provides that a closed bank may be
reorganized or otherwise placed in such a
condition that it may be permitted to
resume business with safety to its
depositors, creditors and the general
public.
We are aware of the Central Bank's
concern for the safety of Banco Filipino's
depositors as well as its creditors
including itself which had granted
substantial financial assistance up to the
time of the latter's closure. But there are
alternatives to permanent closure and
liquidation to safeguard those interests as
well as those of the general public for the
failure of Banco Filipino or any bank for
that matter may be viewed as an
irreversible decline of the country's entire
banking system and ultimately, it may
reflect on the Central Bank's own viability.
For one thing, the Central Bank and the
Monetary Board should exercise strict
supervision over Banco Filipino. They
should take all the necessary steps not
violative of the laws that will fully secure
the repayment of the total financial
assistance that the Central Bank had
already granted or would grant in the
future.
ACCORDINGLY, decision is hereby
rendered as follows:
1. The motion for reconsideration in G.R.
Nos. 68878 and 81303, and the petitions
in G.R. Nos. 77255-58, 78766, 81304
and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767
and 78894 are GRANTED and the
assailed order of the Central Bank and
the Monetary Board dated January 25,
1985 is hereby ANNULLED AND SET
ASIDE. The Central Bank and the
Monetary Board are ordered to
reorganize petitioner Banco Filipino
Savings and Mortgage Bank and allow
the latter to resume business in the
Philippines under the comptrollership of
both the Central Bank and the Monetary
Board and under such conditions as may
be prescribed by the latter in connection
with its reorganization until such time that
petitioner bank can continue in business
with safety to its creditors, depositors and
the general public.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin
and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and
Nocon, JJ., took no part.
Separate Opinions
MELENCIO-HERRERA, J., dissenting:
I join Mme. Justice Carolina G. Aquino in
her dissent and vote to deny the prayer,
in G.R. No. 70054, to annul Monetary
Board Resolution No. 75 placing Banco
Filipino (BF) under receivership.
Even assuming that the BF was not, as
alleged, in a literal state of insolvency at
the time of the passage of said
Resolution, there was a finding in the
Teodoro report that, based on that Bank's
illiquidity, to have allowed it to continue in
operation would have meant probable
loss to depositors and creditors. That is
also a ground for placing the bank under
receivership, as a first step, pursuant to
Section 29 of the Central Bank Act (Rep.
Act No. 265, as amended). The closure of
BF, therefore, can not be said to have
been arbitrary or made in bad faith. There
was sufficient justification, considering its
inability to meet the heavy withdrawals by
its depositors and to pay its liabilities as
they fell due, to forbid the bank from
further engaging in banking.
The matter of reopening, reorganization
or rehabilitation of BF is not within the
competence of this Court to ordain but is
better addressed to the Monetary Board
and the Central Bank considering the
latter's enormous infusion of capital into
BF to the tune of approximately P3.5
Billion in total accommodations, after a
thorough assessment of whether or not
BF is, indeed, possessed, as it stoutly
contends, of sufficient assets and
capabilities with which to repay such
huge indebtedness, and can operate
without loss to its many depositors and
creditors.
GRIÑO-AQUINO, J., dissenting:
Although these nine (9) Banco Filipino
(BF) cases have been consolidated under
one ponencia, all of them except one,
raise issues unrelated to the receivership
and liquidation of said bank. In fact, two
of these cases (G.R. No. 68878 and
81303) have already been decided by
this Court and are only awaiting the
resolution of the motions for
reconsideration filed therein. Only G.R.
No. 70054 "Banco Filipino Savings and
Mortgage Bank (BF) vs. the Monetary
Board (MB), Central Bank of the
Philippines (CB), et al.," is an original
action for mandamus and certiorari filed
in this Court by former officials of BF to
annul the Monetary Board Resolution No.
75 dated January 25, 1985 (ordering the
closure of Banco Filipino [BF] and
appointing Carlota Valenzuela as receiver
of the bank) on the ground that the
resolution was issued "without affording
BF a hearing on the reports" on which the
Monetary Board based its decision to
close the bank, hence, without
"administrative due process.", The prayer
of the petition reads:
WHEREFORE, petitioner
respectfully prays that a writ of
mandamus be issued
commanding respondents
immediately to furnish it copies
of the reports of examination of
BF employed by respondent
Monetary Board to support its
Resolution of January 25, 1985
and thereafter to afford it a
hearing prior to any resolution
that may be issued under
Section 29 of R.A. 265,
meanwhile annulling said
Resolution of January 25, 1985
by writ of certiorari as made
without or in excess
ofjurisdiction or with grave
abuse of discretion.
So as to expedite proceedings,
petitioner prays that the
assessment of the damages
respondents should pay it be
deferred and referred to
commissioners.
Petitioner prays for such other
remedy as the Court may
deem just and equitable in the
premises.
Quezon City for Manila,
February 28, 1985. (p.
8, Rollo I-)
and the prayer of the Supplement to
Petition reads:
WHEREFORE, in addition to
its prayer for mandamus
and certiorari contained in its
original petition, petitioner
respectfully prays that Sections
28-A and 29 of the Central
Bank charter (R.A. 265)
including its amendatory
Presidential Decrees Nos. 72,
1771, 1827 and 1937 be
annulled as unconstitutional.
Quezon City for Manila, March
4, 1985. (p. 11-G, Rollo I.)
The other eight (8) cases merely involve
transactions of BF with third persons and
certain "related" corporations which had
defaulted on their loans and sought to
prohibit the extrajudicial foreclosure of the
mortgages on their properties by the
receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate
Appellate Court and Celestina
Pahimutang" involves the repossession
by BF of a house and lot which the buyer
(Pahimutang) claimed to have completely
paid for on the installment plan. The
appellate court's judgment for the buyer
was reversed by this Court. The buyer's
motion for reconsideration is awaiting
resolution by this Court;
2. G.R. Nos. 77255-58, "Top
Management Programs Corporation and
Pilar Development Corporation vs. Court
of appeals, et al." (CA-G.R. SP No.
07892) and "Pilar Development
Corporation vs. Executive Judge, RTC,
Cavite" (CA-G.R. SP Nos. 0896264) is a
consolidated petition for review of the
Court of Appeals' joint decision
dismissing the petitions for prohibition in
which the petitioners seek to prevent the
receiver/liquidator of BF from
extrajudicially foreclosing the P4.8 million
mortgage on Top Management's
properties and the P18-67 million
mortgage on Pilar Development
properties. The Court of Appeals
dismissed the petitions on October 30,
1986 on the ground that "the functions of
the liquidator, as receiver under Section
29 (R.A. 265), include taking charge of
the insolvent's assets and administering
the same for the benefit of its creditors
and of bringing suits and foreclosing
mortgages in the name of the bank;"
3. G.R. No. 78766, "El Grande
Corporation vs. Court of Appeals, et
al.," is an appeal from the Court of
Appeals' decision in CA-G.R. SP No.
08809 dismissing El Grande's petition for
prohibition to prevent the foreclosure of
BF's P8 million mortgage on El Grande's
properties;
4. G.R. No. 78894, "Banco Filipino
Savings and Mortgage Bank vs. Court of
Appeals, et al." is an appeal of BFs old
management (using the name of BF)
from the decision of the Court of Appeals
in CA-G.R. SP No. 07503 entitled,
"Central Bank, et al. vs. Judge Zoilo
Aguinaldo, et al" dismissing the complaint
of "BF" to annul the receivership, for no
suit may be brought or defended in the
name of the bank except by its receiver;
5. G.R. No. 87867, "Metropolis
Development Corporation vs. Court of
Appeals" (formerly AC-G.R. No. 07503,
"Central Bank, et al. vs. Honorable Zoilo
Aguinaldo, et al.') is an appeal of the
intervenor (Metropolis) from the same
Court of Appeals' decision subject of G.R.
No. 78894, which also dismissed
Metropolis' complaint in intervention on
the ground that a stockholder (Metropolis)
may not bring suit in the name of BF
while the latter is under receivership,
without the authority of the receiver;
6. G.R. No. 81303, "Pilar Development
Corporation vs. Court of Appeals, et
al." is an appeal from the decision dated
October 22, 1987 of the Court of Appeals
in CA-G.R. SP No. 12368, "Pilar
Development Corporation, et al. vs.
Honorable Manuel Cosico, et al.,"
dismissing the petition
for certiorari against Judge Manuel
Cosico, Br. 136, RTC, Makati, who
dismissed the complaint filed by Pilar
Development Corporation against BF, for
specific performance of certain developer
contracts. An answer filed by Norberto
Quisumbing and Associates, as BF's
supposed counsel, virtually confessed
judgment in favor of Pilar Development.
On motion of the receiver, the answer
was expunged and the complaint was
dismissed. On a petition for certiorari in
this Court, we held that: "As liquidator of
BF by virtue of a valid appointment from
the Central Bank, private respondent
Carlota Valenzuela has the authority to
direct the operation of the bank in
substitution of the former management,
which authority includes the retainer of
counsel to represent it in bringing or
resisting suits in connection with such
liquidation and, in the case at bar, to take
the proper steps to prevent collusion, to
the prejudice of the legitimate creditors,
between BF and the petitioners herein
which appear to be owned and controlled
by the same interest controlling BF" (p.
49, Rollo). The petitioners' motion for
reconsideration of that decision is
pending resolution.
7. G.R. No. 81304, "BF Homes
Development Corporation vs. Court of
Appeals, et al." is an appeal from the
decision dated November 4, 1987 of the
Court of Appeals in CA-G.R. CV No.
08565 affirming the trial court's order
dismissing BF Homes' action to compel
the Central Bank to restore the financing
facilities of BF, because the plaintiff (BF
Homes) has no cause of action against
the CB.
8. G.R. No. 90473, "El Grande
Development Corporation vs. Court of
Appeals, et al.," is a petition to review the
decision dated June 6, 1989 in CA-G.R.
SP No. 08676 dismissing El Grande's
petition for prohibition to stop foreclosure
proceedings against it by the receiver of
BF.
As previously stated, G.R. No. 70054 "BF
vs. Monetary Board, et al.," is an original
special civil action for certiorari and
mandamus filed in this Court by the old
management of BF, through their
counsel, N.J. Quisumbing & Associates,
using the name of the bank and praying
for the annulment of MB Resolution No.
75 which ordered the closure of BF and
placed it under receivership. It is a
"forum-shopping" case because it was
filed here on February 28, 1985 three
weeks after they had filed on February 2,
1985 Civil Case No. 9675 "Banco Filipino
vs. Monetary Board, et al." in the
Regional Trial Court of Makati, Br. 143
(presided over by Judge Zoilo Aguinaldo)
for the same purpose of securing a
declaration of the nullity of MB Resolution
No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered
the transfer and consolidation of Civil
Case No. 9676 (to annul the receivership)
from Br. 143 to Br. 136 (Judge Manuel
Cosico) of the Makati Regional Trial
Court where Civil Case No. 8108 (to
annul the conservatorship) and Civil Case
No. 10183 (to annul the liquidation) of BF
were and are still pending. All these three
(3) cases were archived on June 30,
1988 by Judge Cosico pending the
resolution of G.R. No. 70054 by this
Court.
Because of my previous participation, as
a former member of the Court of Appeals,
in the disposition of AC-G.R. No. 02617
(now G.R. No. 68878) and AC-G.R. SP
No. 07503 (now G.R. Nos. 78767 and
78894), I am taking no part in G.R. Nos.
68878, 78767 and 78894. It may be
mentioned in this connection that neither
in AC-G.R. SP No. 02617, nor in AC-G.R.
SP No. 07503, did the Court of Appeals
rule on the constitutionality of Sections
28-A and 29 of Republic Act 265 (Central
Bank Act), as amended, and the validity
of MB Resolution No. 75, for those issues
were not raised in the Court of Appeals.
I concur with the ponencia insofar as it
denies the motion for reconsideration in
G.R. No. 81303, and dismisses the
petitions for review in G.R. Nos. 77255-
58, 78766, 81304, and 90473.
I respectfully dissent from the majority
opinion in G.R. No. 70054 annulling and
setting aside MB Resolution No. 75 and
ordering the respondents, Central Bank
of the Philippines and the Monetary
Board —
to reorganize petitioner Banco
Filipino Savings and Mortgage
Bank, and allow the latter to
resume business in the
Philippines under the
comptrollership of both the
Central Bank and the Monetary
Board and under such
conditions as may be
prescribed by the latter until
such time that petitioner bank
can continue in business with
safety to its creditors,
depositors and the general
public.
for I believe that this Court has neither
the authority nor the competence to
determine whether or not, and under
what conditions, BF should be
reorganized and reopened. That decision
should be made by the Central Bank and
the Monetary Board, not by this Court.
All that we may determine in this case is
whether the actions of the Central Bank
and the Monetary Board in closing BF
and placing it under receivership were
"plainly arbitrary and made in bad faith.
Section 29 of Republic Act No. 265
provides:
Section 29. Proceedings upon
insolvency. — Whenever, upon
examination by the head of the
appropriate supervising and
examining department or his
examiners or agents into the
condition of any banking
institution, it shall be disclosed
that the condition of the same
is one of insolvency, or that its
continuance in business would
involve probable loss to its
depositors or creditors, it shall
be the duty of the department
head concerned forthwith, in
writing, to inform the Monetary
Board of the facts, and the
Board may, upon finding the
statements of the department
head to be true, forbid the
institution to do business in the
Philippines and shall designate
an official of the Central Bank
as receiver to immediately take
charge of its assets and
liabilities, as expeditiously as
possible collect and gather all
the assets and administer the
same for the benefit of its
creditors, exercising all the
powers necessary for these
purposes including, but not
limited to, bringing suits and
foreclosing mortgages in the
name of the banking institution.
The Monetary Board shall
thereupon determine
within sixty days whether the
institution may be reorganized
or otherwise placed in such a
condition so that it may be
permitted to resume business
with safety to
its depositors and creditors and
the general public and shall
prescribe the conditions under
which such resumption of
business shall take place as
well as the time for fulfillment
of such conditions. In such
case, the expenses and fees in
the collection and
administration of the assets of
the institution shall be
determined by the Board and
shall be paid to the Central
Bank out of the assets of such
banking institution.
If the Monetary Board shall
determine and confirm within
the said period that the
banking institution is insolvent
or cannot resume business
with safety to its depositors,
creditors and the general
public, it shall, if the public
interest requires, order its
liquidation, indicate the manner
of its liquidation and approve a
liquidation plan. The Central
Bank shall, by the Solicitor
General, file a petition in the
Court of First Instance, reciting
the proceedings which have
been taken and praying the
assistance of the court in the
liquidation of the banking
institutions. The court shall
have jurisdiction in the same
proceedings to adjudicate
disputed claims against the
bank and enforce individual
liabilities of the stockholders
and do all that is necessary to
preserve the assets of the
banking institution and to
implement the liquidation plan
approved by the Monetary
Board. The Monetary Board
shall designate an official of
the Central Bank as liquidator
who shall take over the
functions of the receiver
previously appointed by the
Monetary Board under this
section. The liquidator shall,
with all convenient speed,
convert the assets of the
banking institution to money or
sell, assign or otherwise
dispose of the same to
creditors and other parties for
the purpose of paying the
debts of such bank and he
may, in the name of the
banking institution, institute
such actions as may be
necessary in the appropriate
court to collect and recover
accounts and assets of the
banking institution.
The provisions of any law to
the contrary
notwithstanding, the actions of
the Monetary Board under this
section and the second
paragraph of Section 34 of this
Act shall be final and
executory, and can be set
aside by the court only if there
is convincing proof that
theaction is plainly arbitrary
and made in bad faith. No
restraining order or injunction
shall be issued by the court
enjoining the Central Bank
from implementing its actions
under this section and the
second paragraph of Section
34 of this Act, unless there is
convincing proof that the action
of the Monetary Board is
plainly arbitrary and made in
bad faith and the petitioner or
plaintiff files with the clerk or
judge of the court in which the
action is pending a bond
executed in favor of the Central
Bank, in an amount to be fixed
by the court. The restraining
order or injunction shall be
refused or, if granted, shall be
dissolved upon filing by the
Central Bank of a bond, which
shall be in the form of cash or
Central Bank cashier's check,
in an amount twice the amount
of the bond of the petitioner or
plaintiff, conditioned that it will
paythe which the petitioner or
plaintiff may suffer by the
 refusalor the dissolution of the
injunction. The provisions of
Rule 58 of the new Rules of
Court insofar as they are
applicable and not inconsistent
with the provisions of this
section shall govern the
issuance and dissolution of the
restraining order or injunction
contemplated in this section.
Insolvency, under this Act,
shall be understood to mean
the inability of a banking
institution to pay its liabilities as
they fall due in the usual and
ordinary course of
business, provided, however,
that this shall not include the
inability to pay of an otherwise
non-insolvent bank caused by
extra-ordinary demands
induced by financial panic
commonly evidenced by a run
on the banks in the banking
community.
The determinative factor in the closure,
receivership, and liquidation of a bank is
the finding, upon examination by the SES
of the Central Bank, that its condition "is
one of insolvency, or that its continuance
in business would involve probable loss
to its depositors and creditors." (Sec. 29,
R.A. 265.) It should be pointed out that
insolvency is not the only statutory
ground for the closure of a bank. The
other ground is when "its continuance in
business would involve probable loss to
its depositors and creditors.
Was BF insolvent i.e., unable to pay its
liabilities as they fell due in the usual and
ordinary course of business, on and for
some time before January 25, 1985 when
the Monetary Board issued Resolution
No. 75 closing the bank and placing it
under receivership? Would its continued
operation involve probable loss to its
depositors and creditors?
The answer to both questions is yes.
Both the conservator Gilberts Teodoro
and the head of the SES (Supervision
and Examination Sector) Ramon V.
Tiaoqui opined that BF's continuance in
business would cause probable loss to
depositors and creditors. Tiaoqui further
categorically found that BF was insolvent.
Why was this so?
The Teodoro and Tiaoqui reports as well
as the report of the receivers, Carlota
Valenzuela, Arnulfo B. Aurellano and
Ramon V. Tiaoqui, showed that since the
end of November 1983 BF had already
been incurring "chronic reserve
deficiencies' and experiencing severe
liquidity problems. So much so, that it had
become "a substantial borrower in the
call loans market" and in June 1984 it
obtained a P30 million emergency loan
from the Central Bank. (p. 2, Receiver's
Report.) Additional emergencyt loans (a
total of P119.7 millions) were extended
by the Central Bank to BF that month
(MB Res. No. 839 dated June 29,1984).
On July 12, 1984, BFs chairman, Anthony
Aguirre, offered to "turn over the
administration of the affairs of the bank"
to the Central Bank (Aguirre's letter to
Governor Jose Fernandez, Annex 7 of
Manifestation dated May 3,1991). On July
23,1984, unable to meet heavy deposit
withdrawals, BF's management motu
proprio, without obtaining the conformity
of the Central Bank, closed the bank and
declared a bank holiday. On July 27,
1984, the CB, responding to BFs pleas
for additional financial assistance,
granted BF a P3 billion credit line (MB
Res. No. 934 of July 27, 1984) to enable
it to reopen and resume business on
August 1, 1984. P2.3601 billions of the
credit line were availed of by the end of
1984 exclusive of an overdraft of P932.4
millions (p. 2, Tiaoqui Report). Total
accommodations granted to BF
amounted to P3.4122 billions (p. 19,
Cosico Report).
Presumably to assure that the financial
assistance would be properly used, the
MB appointed Basilio Estanislao as
conservator of the bank. A
conservatorship team of 78 examiners
and accountants was assigned at the
bank to keep track of its activities and
ascertain its financial condition (p. 8,
Tiaoqui Report).
Estanislao resigned after two weeks for
health reasons. He was succeeded by
Gilberto Teodoro as conservator in
August, 1984 up to January 8, 1985.
Besides the conservatorship team,
Teodoro hired financial consultants
Messrs. Tirso G. Santillan, Jr. and Plorido
P. Casuela to make an analysis of BF's
financial condition. Teodoro also engaged
the accounting firm of Sycip, Gorres,
Velayo and Company to make an asset
evaluation. The Philippine Appraisal
Company (PAC) appraised BFs real
estate properties, acquired assets, and
collaterals held. On January 9, 1985,
Teodoro submitted his Report. Three
weeks later, on January 23, 1985,
Tiaoqui also submitted his Report. Both
reports showedthat, in violation of Section
37 of the General Banking Act
(R.A.337): 2
1. BF had been continually
deficient in liquidity reserves
(Teodoro Report). The bank
had been experiencing a
severe drop in liquidity
levels. The ratio of liquid
assets to deposits and
borrowings plunged from about
20% at end-1983, to about
8.6% by end-May 1984, much
below the statutory
requirements of 24% for
demand deposits/deposit
substitutes and 14% for
savings and time deposits. (p.
2, Tiaoqui Report.)
2. Deficiencies in average daily
legal reserves rose from P63.0
million during the week of
November 21-25, 1983 to a
high of P435.9 million during
the week of June 11-15, 1984
(pp. 2-3, Tiaoqui Report).
Accumulated penalties on
reserve deficiencies amounted
to P37.4 million by July 31, and
rose to P48 million by the end
of 1984. (Tiaoqui Report.)
3. Deposit levels, which were
at P3,845 million at end-May
l984 (its last "normal" month),
dropped to P935 million at the
end of November 1984 or a
loss of P2,910 million. This
represented an average
monthly loss of P485 million
vs. an average monthly gain of
P26 million during the first 5
months of 1984. (pp. 2-3,
Tiaoqui Report.)
4. Deposits had declined at the
rate of P20 million during the
month of December 1984, but
expenses of about P17 million
per month were required to
maintain the bank's operation.
(p. 6, Teodoro Report.)
5. Based on the projected
outlook, the Bank's average
yield on assets of 16.3% p.a.,
was insufficient to meet the
average cost of funds of 19.5%
p.a. and operating expenses of
4.8% p.a. (p. 5 Teodoro
Report.)
6. An imprudently large
proportion of assets were
locked into long-term
applications. (Teodoro Report.)
7. BF overextended itself in
lending to the real estate
industry, committing as much
as 52% of its peso deposits to
its affiliates or "related
accounts" to which it continued
lending even when it was
already suffering from liquidity
stresses. (Teodoro Report.)
This was done in violation of
Section 38 of the General
Banking Act (R.A. 337). 3
8. During the period of marked decline in liquidity
levels the loan portfolio grew by P417.3 million in
the first five months of 1984 — and by another
P105.l million in the next two months. (pp. 2-3,
Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the
end of July 1984, 56.2% of it channeled to
companies whose stockholders, directors and
officers were related to the officers, directors, and
some stockholders of BF. (p. 8, Tiaoqui Report.)
Here again BF violated the General Banking Act
(R.A. 337). 4
 suspension of payments, owes
P502 million to BF.

10. Some of the loans were used to acquire

preferred stocks of BF. Between September 17, 13. BF had been suffering heavy losses. —
1983 and February 10, 1984, P49.9 million of
preferred non-convertible stocks were issued.
a) For the eleven (11) months
About 85% or P42.4 million was paid out of the
ended November 30, 1984, the
proceeds of loans to stockholders/ borrowers with
estimated net loss was P372.6
relationship to the bank (Annex D). Around P18.8 Million;
million were issued in the name of an entity other
than the purchaser of the stocks. (Tiaoqui
b) For the twelve (12) months
Report.)
from November 1984, the
projected net loss would
11. Loans amounting to some P69.3 million were be P390.7 Million and would
granted simply to pay-off old loans including
continue unabated; (p. 2,
accrued interest, as an accommodation for the
Teodoro Report)
direct maturing loans of some firms and as a way
of paying-off loans of other borrower firms which
c) Around 71.7% of the total
have their own credit lines with the bank. These
accommodations of P2.0677
helped to make otherwise delinquent loans
billions to the related/linked
appear "current" and deceptively "improved" the
entities were adversely
quality of the loan portfolio. (Tiaoqui Report.)
classified. Close to 33.7% or
P697.1 millions were clean loans
12. Examination of the collaterals for the loan
or against PNs (promissory
accounts of 63 major borrowers and 32 other notes) of these entities. Of the
selected borrowers as of July 31, 1984, showed
latter, 52.6% were classified as
that:
loss." (P. 5, Tiaoqui Report.)

(a) 2,658 TCT's which BF

evaluated to be worth P1,487
million were appraised by PAC
to be worth only P1,196 million,
hence, deficient by P291 million.
(b) Other properties (collaterals)
supposedly worth P711 million
could not be evaluated by PAC
because the details submitted by
the bank were insufficient;
(c) While P674 million in loans
were supposedly guaranteed by
the Home Financing Corporation
(HFIC), the latter confirmed only
P427 million. P247 million in
loans were not guaranteed by
HFC. (Teodoro Report.)
(d) Per SGV's report, loans
totalling P1.882 million including
accrued interest, were secured
by collateral worth only Pl.54
billion. Hence, BFs unsecured
exposure amounted to P586.2
million. BF Homes, Inc., a
related company which has filed
with the SEC a petition for
d) The bank's financial condition
as of date of examination, after
setting up the additional
valuation reserves of P612.2
millions and accumulated net
loss of P48.2 millions, indicates
one of insolvency. Total liabilities
of P5,282.1 million exceeds total
assets of P4,947.2 million by
6.8%. Total capital account of
P334.9 million) is deficient by
P322.7 million against the
minimum capital required of
P657.6 million (Annex F). Capital
to risk assets ratio is negative
10.38%.
e) Total loans and investment
portfolio amounted to P3,914.3
millions (gross), of which P194.0
millions or 5.0% were past due
and P1,657.1 millions or 42.3%
were adversely classified
(Substandard — P1,011.4
millions; Doubtful — P274.6
millions and Loss — P371.1
millions). Accounts adversely
classified included unmatured
loan of Pl,482.0 million to entities
 related with each other and to Savings &
the bank, several of which Mortgage Bank
showed distressed conditions. to do business
(p. 7, Tiaoqui Report.) in the
Philippines
effective the
Teodoro's conclusion was that "the continuance
beginning of
of the bank in business would involve probable
office on
loss to its depositors and creditors." He
January, 1985,
recommended "that the Monetary Board take a
pursuant to Sec.
more effective and responsible action to protect
29 of R.A. No.
the depositors and creditors ... in the light of the
265, as
bank's worsening condition." (p. 5, Teodoro
amended;
Report.)

2. Designate the
On January 23, 1985, Tiaoqui submitted his
Head of the
report to the Monetary Board, Like Teodoro,
Conservator
Tiaoqui believed that the principal cause of the
Team at the
bank's failure was that in violation of the General
bank, as
Banking Law and CB rules and regulations, BF's
Receiver of
major stockholders, directors and officers,
Banco Filipino
through their "related" companies: (i.e.
Savings &
companies owned or controlled by them of their
Mortgage Bank,
relatives) had been "borrowing" huge chunks of
to immediately
the money of the depositors. His Conclusion and
take charge of
Recommendations were:
the assets and
liabilities, as
expeditiously as
possible collect
and gather all
The Conservator, in his report to the assets and
the Monetary Board dated administer the
January 8, 1985, has stated that same for the
the continuance of the bank in benefit of all the
business would involve probable creditors, and
loss to its depositors and exercise all the
creditors. It has recommended powers
that a more effective action be necessary for
taken to protect depositors and these purposes
creditors. including but not
limited to

The examination findings as of bringing suits

July 31, 1984 as shown earlier, and foreclosing

indicate one of insolvency and mortgages in

illiquidity and further confirms the the name of the

above conclusion of the bank.

Conservator.

3. The Board of

All the foregoing provides directors and

sufficient justification for the principal

forbidding the bank from further officers from

engaging in banking. Senior Vice

President, as
listed in the
Foregoing considered, the
attached Annex
following are recommended:
"A" be included
in the watchlist
1. Forbid the
of the
Banco Filipino
 Supervision and Members:
Examination
Sector until
1. Cesar E.A.
such time that Virata, Prime
they shall have
Minister &
cleared
Concurrently
themselves.
Minister of
Finance
4. Refer to the
Central Banles
2. Roberto V.
Legal
Ongpin, Minister
Department and
of Trade &
Office of Special
Industry &
Investigation the
Chairman of
report on the Board of
findings on
Investment
Banco Filipino
for investigation
3. Vicente B.
and possible
Valdepeñas, Jr.,
prosecution of
Minister of
directors,
Economic
officers and
Planning &
employees for
Director General
activities which
of NEDA
led to its
insolvent
position." (pp. 9- 4. Cesar A.

10, Tiaoqui Buenaventura,

Report.) President of
Filipinas Shell
Petroleum Corp.
On January 25, 1985 or two
(p. 37, Annual
days after the submission of
Report 1985)
Tiaoqui's Report, and three
weeks after it received Teodoro's
Report, the Monetary Board, issued Resolution No. 75 closing

then composed of: BF and placing it under

receivership. The MB Resolution
reads as follows:
Chairman: Jose
B. Fernandez,
Jr.
CB Governor

After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the
continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to
be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department
II, as recited in his memorandum dated January 23, 1985. that the Banco Filipino Savings and Mortgage Bank is insolvent and that
its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Section 29 of R.A. No.
265, as amended, the Board decided:

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the Philippines;

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver who is hereby directly vested with
jurisdiction and authority to immediately take charge of the bank's assets and liabilities, and as expeditiously as
possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the-
 powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the
name of the bank;

3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V. Tiaoqui, Special
Assistant to the Governor and Head, Supervision and Examination Sector Department II. as Deputy Receivers who
are likewise hereby directly vested with jurisdiction and authority to do all things necessary or proper to carry out the
functions entrusted to them by the Receiver and otherwise to assist the Receiver in carrying out the functions
vested in the Receiver by law or Monetary Board resolutions;

4. To direct and authorize Management to do all other things and carry out all other measures necessary or proper
to implement this Resolution and to safeguard the interests of depositors/credition and the general public; and

5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings and Mortgage
Bank. (pp. 126-127, Rollo I.)

On March 19,1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui,
submitted a report to the Monetary Board as required in Section 29, 2nd paragraph of R.A. 265 which provides that within sixty (60)
days from date of the receivership, the Monetary Board shall determine whether the bank may be reorganized and permitted to
resume business, or be liquidated. The receivers recommended that BF be placed under litigation. For, among other things, they
found that:

1. BF had been suffering a capital deficiency of P336.5 million as of July 31, 1984 (pp. 2 and 4, Receivers' Report).

2. The bank's weekly reserve deficiencies averaged P146.67 million from November 25, 1983 up to March 16, 1984, rising to a peak
of P338.09 million until July 27, 1984. Its reserve deficiencies against deposits and deposit substitutes began on the week ending
June 15, 1984 up to December 7, 1984, with average daily reserve deficiencies of P2.98 million.

3. Estimated losses or "unhooked valuation reserves" for loans to entities with relationships to certain stockholder/directors and
officers of the bank amounted to P600.5 million. Combined with other adjustments in the amount of P73.2 million, they will entirely
wipe out the bank's entire capital account and leave a capital deficiency of P336.5 million. The bank was already insolvent on July
31, 1984. The capital deficiency increased to P908.4 million as of January 26, 1985 on account of unhooked penalties for
deficiencies in legal reserves (P49.07 million), unhooked interest on overdrawings, emergency advance of P569.49 million from
Central Bank, and additional valuation reserves of P124.5 million. (pp. 3-4, Receivers' Report.)

The Receivers further noted that —

After BF was closed as of January 25, 1985, there were no collections from loans granted to firms related to each
other and to BF classified as "doubtful" or "loss," there were no substantial improvements on other loans classified
"doubtful"or "loss;" there was no further increase in the value of assets owned/acquired supported by new
appraisals and there was no infusion of additional capital such that the estimated realizable assets of BF remained
at P3,909.23, (millions) while the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent with
estimated deficiency to creditors of Pl,250.21 (millions).

Moreover, there were no efforts on the part of the stockholders of the bank to improve its financial condition and the
possibility of rehabilitation has become more remote. (P. 8, Receivers' Report.)

In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do not find that the CB's Resolution No. 75
ordering BF to cease banking operations and placing it under receivership was "plainly arbitrary and made in bad faith." The
receivership was justified because BF was insolvent and its continuance in business would cause loss to its depositors and
creditors. Insolvency, as defined in Rep. Act 265, means 'the inability of a banking institution to pay its liabilities as they fall due in
the usual and ordinary course of business. Since June 1984, BF had been unable to meet the heavy cash withdrawals of its
depositors and pay its liabilities to its creditors, the biggest of them being the Central Bank, hence, the Monetary Board correctly
found its condition to be one of insolvency.

All the discussion in the Santiago Report concerning the bank's assets and liabilities as determinants of BF's solvency or insolvency
is irrelevant and inconsequential, for under Section 29 of Rep. Act. 265, a bank's insolvency is not determined by its excess of
liabilities over assets, but by its "inability to pay its liabilities as they fall due in the ordinary course of business" and it was
abundantly shown that BF was unable to pay its liabilities to depositors for over a six-month-period before it was placed under
receivership.

Even if assets and liabilities were to be factored into a formula for determining whether or not BF was already insolvent on or before
January 25, 1985, the result would be no different. The bank's assets as of the end of 1984 amounted to P4.891 billions (not P6
billions) according to the Report signed and submitted to the CB by BF's own president, and its total liabilities were P4.478 billions
(p. 58, Cosico Report). While Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report did not make any
provision for estimated valuation reserves amounting to P600.5 millions, (50% of face value of doubtful loans and 100% of face
value of loss accounts) which BF had granted to its related/linked companies. The estimated valuation reserves of P600.5 millions
plus BF's admitted liabilities of P4.478 billions, put together, would wipe out BFs realizable assets of P4.891 billions and confirm its
insolvent condition to the tune of P187.538 millions.

BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves should not be considered because the
matter was not discussed by Tiaoqui with BF officials is not well taken for:

(1) The records of the defaulting debtors were in the possession of BF.

(2) The "adversely classified" loans were in fact included in the List of Exceptions and Findings (of irregularities and violations of
laws and CB rules and regulations) prepared by the SES, a copy of which was furnished BF on December 1 7, 1984;

(3) A conference on the matter washeld on January 2l, 1985 with senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico
Report.) BF did not formally protest against the CBs estimate of valuation reserves. The CB could not wait forever for BF to respond
for the CB had to act with reasonable promptness to protect the depositors and creditors of BF because the bank continued to
operate.

(4) Subsequent events proved correct the SES classification of the loan accounts as "doubtful" or "loss' because as of January 25,
1985 none of the loans, except three, had been paid either partially or in full, even if they had already matured (p. 53, Cosico
Report).

The recommended provision for valuation reserves of P600.5 millions for "doubtful" and "loss" accounts was a proper factor to
consider in the capital adjustments of BF and was in accordance with accounting rules. For, if the uncollectible loan accounts would
be entered in the assets column as "receivables," without a corresponding entry in the liabilities column for estimated losses or
valuation reserves arising from their uncollectability, the result would be a gravely distorted picture of the financial condition of BF.

BF's strange argument that it was not insolvent for otherwise the CB would not have given it financial assistance does not merit
serious consideration for precisely BF needed financial assistance because it was insolvent.

Tiaoqui's admission that the examination of BF had "not yet been officially terminated" when he submitted his report on January 23,
1985 did not make the action of the Monetary Board of closing the bank and appointing receivers for it, 'plainly arbitrary and in bad
faith." For what had been examined by the SES was more than enough to warrant a finding that the bank was "insolvent and could
not continue in business without probable loss to its depositors or creditors," and what had not been examined was negligible and
would not have materially altered the result. In any event, the official termination of the examination with the submission by the Chief
Examiner of his report to the Monetary Board in March 1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui
Report.

The responsibility of administering the Philippine monetary and banking systems is vested by law in the Central Bank whose duty it
is to use the powers granted to it under the law to achieve the objective, among others, of maintaining monetary stability in the
country (Sec. 2, Rep. Act 265). I do not think it would be proper and advisable for this Court to interfere with the CB's exercise of its
prerogative and duty to discipline banks which have persistently engaged in illegal, unsafe, unsound and fraudulent banking
practices causing tremendous losses and unimaginable anxiety and prejudice to depositors and creditors and generating
widespread distrust and loss of confidence in the banking system. The damage to the banking system and to the depositing public is
bigger when the bank, like Banco Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila alone, pumping the hard-
earned savings of 3 million depositors into the bank, BF had no reason to go bankrupt if it were properly managed. The Central
Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even this financial assistance was misused, for
instead of satisfying the depositors' demands for the withdrawal of their money, BF channeled and diverted a substantial portion of
the finds into the coffers of its related/linked companies. Up to this time, its officers, directors and major stockholders have neither
repaid the Central Bank's P3.6 billion financial assistance, nor put up adequate collaterals therefor, nor submitted a credible plan for
the rehabilitation of the bank. What authority has this Court to require the Central Bank to reopen and rehabilitate the bank, and in
effect risk more of the Government's money in the moribund bank? I respectfully submit that decision is for the Central Bank, not for
this Court, to make.

WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054 for lack of merit.

Romero, J., concurs.

# Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R. No. 70054, to annul Monetary Board
Resolution No. 75 placing Banco Filipino (BF) under receivership.

Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of the passage of said Resolution, there
was a finding in the Teodoro report that, based on that Bank's illiquidity, to have allowed it to continue in operation would have
meant probable loss to depositors and creditors. That is also a ground for placing the bank under receivership, as a first step,
pursuant to Section 29 of the Central Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to
have been arbitrary or made in bad faith. There was sufficient justification, considering its inability to meet the heavy withdrawals by
its depositors and to pay its liabilities as they fell due, to forbid the bank from further engaging in banking.

The matter of reopening, reorganization or rehabilitation of BF is not within the competence of this Court to ordain but is better
addressed to the Monetary Board and the Central Bank considering the latter's enormous infusion of capital into BF to the tune of
approximately P3.5 Billion in total accommodations, after a thorough assessment of whether or not BF is, indeed, possessed, as it
stoutly contends, of sufficient assets and capabilities with which to repay such huge indebtedness, and can operate without loss to
its many depositors and creditors.

GRIÑO-AQUINO, J., dissenting:

Although these nine (9) Banco Filipino (BF) cases have been consolidated under one ponencia, all of them except one, raise issues
unrelated to the receivership and liquidation of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have already
been decided by this Court and are only awaiting the resolution of the motions for reconsideration filed therein. Only G.R. No. 70054
"Banco Filipino Savings and Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an
original action for mandamus and certiorari filed in this Court by former officials of BF to annul the Monetary Board Resolution No.
75 dated January 25, 1985 (ordering the closure of Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank)
on the ground that the resolution was issued "without affording BF a hearing on the reports" on which the Monetary Board based its
decision to close the bank, hence, without "administrative due process.", The prayer of the petition reads:

WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued commanding respondents
immediately to furnish it copies of the reports of examination of BF employed by respondent Monetary Board to
support its Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any resolution that may be
issued under Section 29 of R.A. 265, meanwhile annulling said Resolution of January 25, 1985 by writ
of certiorari as made without or in excess ofjurisdiction or with grave abuse of discretion.
 So as to expedite proceedings, petitioner prays that the assessment of the damages respondents should pay it be
deferred and referred to commissioners.

Petitioner prays for such other remedy as the Court may deem just and equitable in the premises.

Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-)

and the prayer of the Supplement to Petition reads:

WHEREFORE, in addition to its prayer for mandamus and certiorari contained in its original petition, petitioner
respectfully prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265) including its amendatory
Presidential Decrees Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional.

Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.)

The other eight (8) cases merely involve transactions of BF with third persons and certain "related" corporations which had defaulted
on their loans and sought to prohibit the extrajudicial foreclosure of the mortgages on their properties by the receiver of BF. These
eight (8) cases are:

1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang" involves the repossession by BF of a house and
lot which the buyer (Pahimutang) claimed to have completely paid for on the installment plan. The appellate court's judgment for the
buyer was reversed by this Court. The buyer's motion for reconsideration is awaiting resolution by this Court;

2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar Development Corporation vs. Court of appeals, et
al." (CA-G.R. SP No. 07892) and "Pilar Development Corporation vs. Executive Judge, RTC, Cavite" (CA-G.R. SP Nos. 0896264) is
a consolidated petition for review of the Court of Appeals' joint decision dismissing the petitions for prohibition in which the
petitioners seek to prevent the receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage on Top
Management's properties and the P18-67 million mortgage on Pilar Development properties. The Court of Appeals dismissed the
petitions on October 30, 1986 on the ground that "the functions of the liquidator, as receiver under Section 29 (R.A. 265), include
taking charge of the insolvent's assets and administering the same for the benefit of its creditors and of bringing suits and
foreclosing mortgages in the name of the bank;"

3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal from the Court of Appeals' decision in CA-G.R.
SP No. 08809 dismissing El Grande's petition for prohibition to prevent the foreclosure of BF's P8 million mortgage on El Grande's
properties;

4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et al." is an appeal of BFs old management
(using the name of BF) from the decision of the Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge
Zoilo Aguinaldo, et al" dismissing the complaint of "BF" to annul the receivership, for no suit may be brought or defended in the
name of the bank except by its receiver;

5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al.
vs. Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor (Metropolis) from the same Court of Appeals' decision subject of
G.R. No. 78894, which also dismissed Metropolis' complaint in intervention on the ground that a stockholder (Metropolis) may not
bring suit in the name of BF while the latter is under receivership, without the authority of the receiver;

6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated October 22,
1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico, et al.,"
dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by Pilar
Development Corporation against BF, for specific performance of certain developer contracts. An answer filed by Norberto
Quisumbing and Associates, as BF's supposed counsel, virtually confessed judgment in favor of Pilar Development. On motion of
the receiver, the answer was expunged and the complaint was dismissed. On a petition for certiorari in this Court, we held that: "As
liquidator of BF by virtue of a valid appointment from the Central Bank, private respondent Carlota Valenzuela has the authority to
direct the operation of the bank in substitution of the former management, which authority includes the retainer of counsel to
represent it in bringing or resisting suits in connection with such liquidation and, in the case at bar, to take the proper steps to
prevent collusion, to the prejudice of the legitimate creditors, between BF and the petitioners herein which appear to be owned and
controlled by the same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of that decision is pending
resolution.

7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated
November 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial court's order dismissing BF Homes' action to
compel the Central Bank to restore the financing facilities of BF, because the plaintiff (BF Homes) has no cause of action against the
CB.

8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a petition to review the decision dated June
6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's petition for prohibition to stop foreclosure proceedings against it by the
receiver of BF.

As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special civil action for certiorari and mandamus
filed in this Court by the old management of BF, through their counsel, N.J. Quisumbing & Associates, using the name of the bank
and praying for the annulment of MB Resolution No. 75 which ordered the closure of BF and placed it under receivership. It is a
"forum-shopping" case because it was filed here on February 28, 1985 three weeks after they had filed on February 2, 1985 Civil
Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the Regional Trial Court of Makati, Br. 143 (presided over by Judge
Zoilo Aguinaldo) for the same purpose of securing a declaration of the nullity of MB Resolution No. 75 dated January 25, 1985.

On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No. 9676 (to annul the receivership) from Br.
143 to Br. 136 (Judge Manuel Cosico) of the Makati Regional Trial Court where Civil Case No. 8108 (to annul the conservatorship)
and Civil Case No. 10183 (to annul the liquidation) of BF were and are still pending. All these three (3) cases were archived on June
30, 1988 by Judge Cosico pending the resolution of G.R. No. 70054 by this Court.

Because of my previous participation, as a former member of the Court of Appeals, in the disposition of AC-G.R. No. 02617 (now
G.R. No. 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878, 78767 and
78894. It may be mentioned in this connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the Court of
Appeals rule on the constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act), as amended, and the validity of
MB Resolution No. 75, for those issues were not raised in the Court of Appeals.

I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No. 81303, and dismisses the petitions for
review in G.R. Nos. 77255-58, 78766, 81304, and 90473.

I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting aside MB Resolution No. 75 and ordering the
respondents, Central Bank of the Philippines and the Monetary Board —

to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow the latter to resume business in the
Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions
as may be prescribed by the latter until such time that petitioner bank can continue in business with safety to its
creditors, depositors and the general public.

for I believe that this Court has neither the authority nor the competence to determine whether or not, and under what conditions, BF
should be reorganized and reopened. That decision should be made by the Central Bank and the Monetary Board, not by this Court.

All that we may determine in this case is whether the actions of the Central Bank and the Monetary Board in closing BF and placing
it under receivership were "plainly arbitrary and made in bad faith.

Section 29 of Republic Act No. 265 provides:

Section 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate
supervising and examining department or his examiners or agents into the condition of any banking institution, it
shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith,
in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the Philippines and shall designate an official of
the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible
 collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers
necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of
the banking institution.

The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or
otherwise placed in such a condition so that it may be permitted to resume business with safety to
its depositors and creditors and the general public and shall prescribe the conditions under which such resumption
of business shall take place as well as the time for fulfillment of such conditions. In such case, the expenses and
fees in the collection and administration of the assets of the institution shall be determined by the Board and shall
be paid to the Central Bank out of the assets of such banking institution.

If the Monetary Board shall determine and confirm within the said period that the banking institution is insolvent or
cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest
requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank
shall, by the Solicitor General, file a petition in the Court of First Instance, reciting the proceedings which have been
taken and praying the assistance of the court in the liquidation of the banking institutions. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities
of the stockholders and do all that is necessary to preserve the assets of the banking institution and to implement
the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central
Bank as liquidator who shall take over the functions of the receiver previously appointed by the Monetary Board
under this section. The liquidator shall, with all convenient speed, convert the assets of the banking institution to
money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the
debts of such bank and he may, in the name of the banking institution, institute such actions as may be necessary
in the appropriate court to collect and recover accounts and assets of the banking institution.

The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this section and
the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if
there is convincing proof that theaction is plainly arbitrary and made in bad faith. No restraining order or injunction
shall be issued by the court enjoining the Central Bank from implementing its actions under this section and the
second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is
plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which
the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The
restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a
bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the
bond of the petitioner or plaintiff, conditioned that it will paythe which the petitioner or plaintiff may suffer by the
refusalor the dissolution of the injunction. The provisions of Rule 58 of the new Rules of Court insofar as they are
applicable and not inconsistent with the provisions of this section shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this section.

Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as
they fall due in the usual and ordinary course of business, provided, however, that this shall not include the inability
to pay of an otherwise non-insolvent bank caused by extra-ordinary demands induced by financial panic commonly
evidenced by a run on the banks in the banking community.

The determinative factor in the closure, receivership, and liquidation of a bank is the finding, upon examination by the SES of the
Central Bank, that its condition "is one of insolvency, or that its continuance in business would involve probable loss to its depositors
and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency is not the only statutory ground for the closure of a bank.
The other ground is when "its continuance in business would involve probable loss to its depositors and creditors.

Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary course of business, on and for some time
before January 25, 1985 when the Monetary Board issued Resolution No. 75 closing the bank and placing it under receivership?
Would its continued operation involve probable loss to its depositors and creditors?

The answer to both questions is yes. Both the conservator Gilberts Teodoro and the head of the SES (Supervision and Examination
Sector) Ramon V. Tiaoqui opined that BF's continuance in business would cause probable loss to depositors and creditors. Tiaoqui
further categorically found that BF was insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V.
Tiaoqui, showed that since the end of November 1983 BF had already been incurring "chronic reserve deficiencies' and
experiencing severe liquidity problems. So much so, that it had become "a substantial borrower in the call loans market" and in June
1984 it obtained a P30 million emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt loans (a total
of P119.7 millions) were extended by the Central Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July 12, 1984,
BFs chairman, Anthony Aguirre, offered to "turn over the administration of the affairs of the bank" to the Central Bank (Aguirre's
letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May 3,1991). On July 23,1984, unable to meet heavy deposit
withdrawals, BF's management motu proprio, without obtaining the conformity of the Central Bank, closed the bank and declared a
bank holiday. On July 27, 1984, the CB, responding to BFs pleas for additional financial assistance, granted BF a P3 billion credit
line (MB Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on August 1, 1984. P2.3601 billions of the credit
line were availed of by the end of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations
granted to BF amounted to P3.4122 billions (p. 19, Cosico Report).

Presumably to assure that the financial assistance would be properly used, the MB appointed Basilio Estanislao as conservator of
the bank. A conservatorship team of 78 examiners and accountants was assigned at the bank to keep track of its activities and
ascertain its financial condition (p. 8, Tiaoqui Report).

Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto Teodoro as conservator in August, 1984 up
to January 8, 1985.

Besides the conservatorship team, Teodoro hired financial consultants Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to
make an analysis of BF's financial condition. Teodoro also engaged the accounting firm of Sycip, Gorres, Velayo and Company to
make an asset evaluation. The Philippine Appraisal Company (PAC) appraised BFs real estate properties, acquired assets, and
collaterals held. On January 9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted
his Report. Both reports showedthat, in violation of Section 37 of the General Banking Act (R.A.337): 2

1. BF had been continually deficient in liquidity reserves (Teodoro

Report). The bank had been experiencing a severe drop in liquidity
levels. The ratio of liquid assets to deposits and borrowings plunged from
about 20% at end-1983, to about 8.6% by end-May 1984, much below
the statutory requirements of 24% for demand deposits/deposit
substitutes and 14% for savings and time deposits. (p. 2, Tiaoqui
Report.)

2. Deficiencies in average daily legal reserves rose from P63.0 million

during the week of November 21-25, 1983 to a high of P435.9 million
during the week of June 11-15, 1984 (pp. 2-3, Tiaoqui Report).
Accumulated penalties on reserve deficiencies amounted to P37.4
million by July 31, and rose to P48 million by the end of 1984. (Tiaoqui
Report.)

3. Deposit levels, which were at P3,845 million at end-May l984 (its last
"normal" month), dropped to P935 million at the end of November 1984
or a loss of P2,910 million. This represented an average monthly loss of
P485 million vs. an average monthly gain of P26 million during the first 5
months of 1984. (pp. 2-3, Tiaoqui Report.)

4. Deposits had declined at the rate of P20 million during the month of
December 1984, but expenses of about P17 million per month were
required to maintain the bank's operation. (p. 6, Teodoro Report.)

5. Based on the projected outlook, the Bank's average yield on assets of

16.3% p.a., was insufficient to meet the average cost of funds of 19.5%
p.a. and operating expenses of 4.8% p.a. (p. 5 Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term
applications. (Teodoro Report.)

7. BF overextended itself in lending to the real estate industry,

committing as much as 52% of its peso deposits to its affiliates or
"related accounts" to which it continued lending even when it was
already suffering from liquidity stresses. (Teodoro Report.) This was
done in violation of Section 38 of the General Banking Act (R.A. 337). 3

8. During the period of marked decline in liquidity levels the loan portfolio grew by P417.3 million in the first five
months of 1984 — and by another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.)
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 SECOND DIVISION
[G.R. No. 162575 : December 15, 2010]
BEATRIZ SIOK PING TANG,
PETITIONER, VS. SUBIC BAY
DISTRIBUTION, INC., RESPONDENT.
DECISION
PERALTA, J.:
Before us is a petition for review
on certiorari filed by petitioner Beatriz
Siok Ping Tang seeking to annul and set
aside the Decision[1] dated October 17,
2003 and the Resolution[2] dated March 5,
2004 of the Court of Appeals (CA) in CA-
G.R. SP No. 74629.
The antecedent facts are as follows:
Petitioner is doing business under the
name and style of Able Transport.
Respondent Subic Bay Distribution, Inc.
(SBDI) entered in two Distributorship
Agreements with petitioner and Able
Transport in April 2002. Under the
Agreements, respondent, as seller, will
sell, deliver or procure to be delivered
petroleum products, and petitioner, as
distributor, will purchase, receive and pay
for its purchases from respondent. The
two Agreements had a period of one
year, commencing on October 2001 to
October 2002, which shall continue on an
annual basis unless terminated by either
party upon thirty days written notice to the
other prior to the expiration of the original
term or any extension thereof.
Section 6.3 of the Distributorship
Agreement provides that respondent may
require petitioner to put up securities, real
or personal, or to furnish respondent a
performance bond issued by a bonding
company chosen by the latter to secure
and answer for petitioner's outstanding
account, and or faithful performance of
her obligations as contained or arising out
of the Agreement. Thus, petitioner
applied for and was granted a credit line
by the United Coconut Planters Bank
(UCPB), International Exchange Bank
(IEBank), and Security Bank Corporation
(SBC). Petitioner also applied with the
Asia United Bank (AUB) an irrevocable
domestic standby letter of credit in favor
of respondent. All these banks separately
executed several undertakings setting the
terms and conditions governing the
drawing of money by respondent from
these banks.
Petitioner allegedly failed to pay her
obligations to respondent despite
demand, thus, respondent tried to
withdraw from these bank undertakings.
Petitioner then filed with the Regional
Trial Court (RTC) of Quezon City
separate petitions[3] against the banks for
declaration of nullity of the several bank
undertakings and domestic letter of credit
which they issued with the application for
the issuance of a temporary restraining
order (TRO) and writ of preliminary
injunction. The cases were later
consolidated and were assigned to
Branch 101. Petitioner asked for the
annulment of the bank undertakings/letter
of credit which she signed on the
ground that the prevailing market rate at
the time of respondent's intended
drawings with which petitioner will be
charged of as interests and penalties is
oppressive, exorbitant, unreasonable and
unconscionable rendering it against
public morals and policy; and that to
make her automatically liable for millions
of pesos on the bank undertakings, these
banks merely required the submission of
a mere certification from the company
(respondent) that the customer
(petitioner) has not paid its account (and
its statement of account of the client)
without first verifying the truthfulness of
the alleged petitioner's total liability to the
drawer thereon. Therefore, such
contracts are oppressive,
unreasonable and unconscionable as
they would result in her obtaining several
millions of liability.
On November 28, 2002, a hearing was
conducted for the issuance of the TRO
and the writ of preliminary injunction
wherein the petitioner and the bank
representatives were present. On query
of the respondent Judge Normandie
Pizarro (Judge Pizarro) to the bank
representatives with regard to the
eventual issuance of the TRO, the latter
all replied that they will abide by the
sound judgment of the court. The court
then issued an Order[4] granting the TRO
and requiring petitioner to implead
respondent as an indispensable party
and for the latter to submit its position
paper on the matter of the issuance of the
injunction. Petitioner and respondent
submitted their respective position
papers.
On December 17, 2002, the RTC
rendered an Order,[5] the dispositive
portion of which reads:
ACCORDINGLY, let a Writ of Preliminary
Injunction be issued restraining and
enjoining herein Respondent UCPB, IEB,
SB and AUB from releasing any funds to
SBDI, pursuant to the Bank Undertakings
and/or Domestic Standby Letter of Credit
until further orders from this Court.
Consequently, Petitioner is hereby
DIRECTED to post a bond in the amount
of TEN MILLION PESOS
(P10,000,000.00), to answer for whatever
damages respondent banks and SBDI
may suffer should this Court finally decide
that petitioner was not entitled thereto. [6]
The RTC found that both respondent and
petitioner have reasons for the
enforcement or non-enforcement of the
bank undertakings, however, as to
whether said reasons were justifiable or
not, in view of the attending
circumstances, the RTC said that these
can only be determined after a full blown
trial. It ruled that the outright denial of
petitioner's prayer for the issuance of
injunction, even if the evidence warranted
the reasonable probability that real injury
will occur if the relief for shall not be
granted in favor of petitioner, will not
serve the ends of justice.
Respondent filed with the CA a petition
for certiorari with prayer for the issuance
of a TRO and writ of preliminary
injunction against respondent Judge
Pizarro and petitioner. Subsequently,
petitioner filed her Comment and
respondent filed its Reply.
On July 4, 2003, the CA issued a
Resolution[7] granting the TRO prayed for
by respondent after finding that it was
apparent that respondent has a legal right
under the bank undertakings issued by
UCPB, SBC, and IEBank; and that until
those undertakings were nullified,
respondent's rights under the same
should be maintained.
On July 11, 2003, the CA issued a
Supplemental Resolution[8] wherein the
Domestic Standby Letter of Credit issued
by AUB was ordered included among the
bank undertakings, to which respondent
has a legal right.
On October 17, 2003, the CA rendered its
assailed Decision, the decretal portion of
which reads:
WHEREFORE, the petition is hereby
GRANTED. The Order dated December
17, 2002 is hereby ANNULLED AND SET
ASIDE. The writ of preliminary injunction
issued by the lower court is hereby
LIFTED.[9]
In so ruling, the CA said that the grant or
denial of an injunction rests on the sound
discretion of the RTC which should not be
intervened, except in clear cases of
abuse. Nonetheless, the CA continued
that the RTC should avoid issuing a writ
of preliminary injunction which would, in
effect, dispose of the main case without
trial. It found that petitioner was
questioning the validity of the bank
undertakings and letter of credit for being
oppressive, unreasonable and
unconscionable. However, as provided
under the law, private transactions are
presumed to be fair and regular and that
a person takes ordinary care of his
concerns. The CA ruled that the RTC's
issuance of the injunction, which was
premised on the abovementioned
justification, would be a virtual
acceptance of petitioner's claim, thus,
already a prejudgment of the main
case. It also said that contracts are
presumed valid until they are voided by a
court of justice, thus, until such time that
petitioner has presented sufficient
evidence to rebut such presumption, her
legal right to the writ is doubtful.
As to petitioner's claim of respondent's
non-filing of a motion for reconsideration
before resorting to a petition for certiorari,
the CA said that it is not a rigid rule, as
jurisprudence had said, that when a
definite question has been properly
raised, argued and submitted in the RTC
and the latter had decided the question, a
motion for reconsideration is no longer
necessary before filing a petition
for certiorari. The court found that both
parties had fully presented their sides on
the issuance of the writ of preliminary
injunction and that the RTC had squarely
resolved the issues presented by both
parties. Thus, respondent could not be
faulted for not filing a motion for
reconsideration.
In a Resolution dated March 5, 2004,
petitioner's motion for reconsideration
was denied.
Hence, this petition, wherein petitioner
raises the following assignment of errors:
I. THE HONORABLE COURT OF
APPEALS A QUO COMMITTED A
SERIOUS AND REVERSIBLE ERROR
IN GIVING DUE COURSE AND
GRANTING THE PETITION
FOR CERTIORARI FILED BY PRIVATE
RESPONDENT SBDI, DESPITE THE
FACT THAT THE ORIGINAL PARTIES
IN THE TRIAL COURT, WHO ARE
EQUALLY MANDATED BY THE
QUESTIONED ORDER OF THE TRIAL
COURT, NAMELY; UCPB, IEBANK, SBC
AND AUB, AS DEFENDANTS IN THE
MAIN CASE, WERE NOT IMPLEADED
AS INDISPENSABLE PARTIES IN THE
PETITION.
II. THE HONORABLE COURT OF
APPEALS A QUO COMMITTED A
SERIOUS AND REVERSIBLE ERROR
IN GIVING DUE COURSE AND
GRANTING PRIVATE RESPONDENT
SBDI'S PETITION WHEN THE LATTER
ADMITTEDLY FAILED TO FILE A
PRIOR MOTION FOR
RECONSIDERATION BEFORE THE
TRIAL COURT, MORESO WHEN
INDISPENSABLE PARTIES WERE NOT
IMPLEADED WHICH SHOULD HAVE
RENDERED THE COURT OF APPEALS
IN WANT OF JURISDICTION TO ACT.[10]
Petitioner claims that the CA decision is
void for want of authority of the CA to act
on the petition as the banks should have
been impleaded for being indispensable
parties, since they are the original party
respondents in the RTC; that the filing
with the CA of respondent's petition
for certiorari emanated from the RTC
Order wherein the banks were the ones
against whom the questioned Order was
issued; that the banks are the ones who
stand to release hundred millions of
pesos which respondent sought to draw
from the questioned bank undertakings
and domestic standby letter of credit
through the certiorari proceedings, thus,
they should be given an opportunity to be
heard. Petitioner claims that even the CA
recognized the banks' substantial interest
over the subject matter of the case when,
despite not being impleaded as parties in
the petition filed by respondent, the CA
also notified the banks of its decision.
Petitioner argues that a petition
for certiorari filed without a prior motion
for reconsideration is a premature action
and such omission constitutes a fatal
infirmity; that respondent explained its
omission only when petitioner already
brought the same to the attention of the
CA, thus, a mere afterthought and an
attempt to cure the fatal defects of its
petition.
In its Comment, respondent contends
that the banks which issued the bank
undertakings and letter of credit are not
indispensable parties in the petition
for certiorari filed in the CA. Respondent
argues that while the RTC preliminarily
resolved the issue of whether or not
petitioner was entitled to an injunctive
relief, and the enforcement of any
decision granting such would necessarily
involve the banks, the resolution of the
issue regarding the injunction does not
require the banks' participation. This is so
because on one hand the entitlement or
non-entitlement to an injunction is a
matter squarely between petitioner and
respondent, the latter being the party that
is ultimately enjoined from benefiting from
the banks' undertakings. On the other
hand, respondent contends that the issue
resolved by the CA was whether or not
the RTC gravely abused its discretion in
granting the injunctive relief to
respondent; that while the enforcement of
any decision enjoining the
implementation of the injunction issued
by the RTC would affect the banks, the
resolution of whether there is grave
abuse of discretion committed by the
RTC does not require the banks'
participation.
Respondent claims that while as a rule, a
motion for reconsideration is required
before filing a petition for certiorari, the
rule admits of exceptions, which are,
among others: (1) when the issues raised
in the certiorari proceedings have been
duly raised and passed upon by the RTC
or are the same as those raised and
passed upon in the RTC; (2) there is an
urgent necessity and time is of the
essence for the resolution of the issues
raised and any further delay would
prejudice the interests of the petitioner;
and (3) the issue raised is one purely of
law, which are present in respondent's
case.
In her Reply, petitioner claims that the
decree that will compel and order the
banks to release any funds to respondent
pending the resolution of her petition in
the RTC will have an injurious effect upon
her rights and interest. She reiterates her
arguments in her petition.
Respondent filed a Rejoinder saying that
it is misleading for petitioner to allege that
the decree sought by respondent before
the CA is directed against the banks; that
even the dispositive portion of the CA
decision did not include any express
directive to the banks; that there was
nothing in the CA decision which
compelled and ordered the banks to
release funds in favor of respondent as
the CA decision merely annulled the RTC
Order and lifted the writ of preliminary
injunction. Respondent contends that the
banks are not persons interested in
sustaining the RTC decision as this was
obvious from the separate answers they
filed in the RTC wherein they uniformly
maintained that the bank
undertakings/letter of credit are not
oppressive, unreasonable and
unconscionable. Respondent avers that
petitioner is the only person interested in
upholding the injunction issued by the
RTC, since it will enable her to prevent
the banks from releasing funds to
respondent. Respondent insists that
petitioner's petition before the RTC and
the instant petition have caused and
continues to cause respondent grave and
irreparable damage.
Both parties were then required to file
their respective memoranda, in which
they complied.
Petitioner's insistence that the banks are
indispensable parties, thus, should have
been impleaded in the petition
for certiorari filed by respondent in the
CA, is not persuasive.
In Arcelona v. Court of Appeals,[11] we
stated the nature of indispensable party,
thus:
An indispensable party is a party who has
such an interest in the controversy or
subject matter that a final adjudication
cannot be made, in his absence, without
injuring or affecting that interest, a party
who has not only an interest in the
subject matter of the controversy, but
also has an interest of such nature that a
final decree cannot be made without
affecting his interest or leaving the
controversy in such a condition that its
final determination may be wholly
inconsistent with equity and good
conscience. It has also been considered
that an indispensable party is a person in
whose absence there cannot be a
determination between the parties
already before the court which is
effective, complete, or equitable. Further,
an indispensable party is one who must
be included in an action before it may
properly go forward.
A person is not an indispensable party,
however, if his interest in the controversy
or subject matter is separable from the
interest of the other parties, so that it will
not necessarily be directly or injuriously
affected by a decree which does
complete justice between them. Also, a
person is not an indispensable party if his
presence would merely permit complete
relief between him and those already
parties to the action, or if he has no
interest in the subject matter of the
action. It is not a sufficient reason to
declare a person to be an indispensable
party that his presence will avoid multiple
litigation.[12]
Applying the foregoing, we find that the
banks are not indispensable parties in the
petition for certiorari which respondent
filed in the CA assailing the RTC Order
dated December 17, 2002. In fact,
several circumstances would show that
the banks are not parties interested in the
matter of the issuance of the writ of
preliminary injunction, whether in the
RTC or in the CA.
First. During the hearing of petitioner's
prayer for the issuance of a TRO, the
RTC, in open court, elicited from the
lawyer-representatives of the four banks
their position in the event of the issuance
of the TRO, and all these representatives
invariably replied that they will abide
and/or submit to the sound judgment of
the court.[13]
Second. When the RTC issued its Order
dated December 17, 2002 granting the
issuance of the writ of preliminary
injunction, the banks could have
challenged the same if they believe that
they were aggrieved by such issuance.
However, they did not, and such
actuations were in consonance with their
earlier position that they would submit to
the sound judgment of the RTC.
Third. When respondent filed with the CA
the petition for certiorari with prayer for
the issuance of a TRO and writ of
preliminary injunction, and a TRO was
subsequently issued, copies of the
resolution were also sent[14] to the banks,
although not impleaded, yet the latter
took no action to question their non-
inclusion in the petition. Notably, the SBC
filed an Urgent Motion for
Clarification[15] on whether or not the
issuance of the TRO has the effect of
restraining the bank from complying with
the writ of preliminary injunction issued by
the RTC or nullifying /rendering
ineffectual the said writ. In fact, SBC
even stated that the motion was filed for
no other purpose, except to seek proper
guidance on the issue at hand so that
whatever action or position it may take
with respect to the CA resolution will be
consistent with its term and purposes.
Fourth. When the CA rendered its
assailed Decision nullifying the injunction
issued by the RTC, and copies of the
decision were furnished these banks, not
one of these banks ever filed any
pleading to assail their non-inclusion in
the certiorari proceedings.
Indeed, the banks have no interest in the
issuance of the injunction, but only the
petitioner. The banks' interests as
defendants in the petition for declaration
of nullity of their bank undertakings filed
against them by petitioner in the RTC are
separable from the interests of petitioner
for the issuance of the injunctive relief.
Moreover, certiorari, as a special civil
action, is an original action invoking the
original jurisdiction of a court to annul or
modify the proceedings of a tribunal,
board or officer exercising judicial or
quasi-judicial functions.[16] It is an original
and independent action that is not part of
the trial or the proceedings on the
complaint filed before the trial
court.[17] Section 5, Rule 65 of the Rules
of Court provides:
Section 5. Respondents and costs in
certain cases. - When the petition filed
relates to the acts or omissions of a
judge, court, quasi-judicial agency,
tribunal, corporation, board, officer or
person, the petitioner shall join, as private
respondent or respondents with such
public respondent or respondents. the
person or persons interested in
sustaining the proceedings in the court;
and it shall be the duty of such private
respondents to appear and defend, both
in his or their own behalf and in behalf of
the public respondent or respondents
affected by the proceedings, and the
costs awarded in such proceedings in
favor of the petitioner shall be against the
private respondents only, and not against
the judge, court, quasi-judicial agency,
tribunal, corporation, board, officer or
person impleaded as public respondent
or respondents.
xxxx
Clearly, in filing the petition for certiorari,
respondent should join as party
defendant with the court or judge, the
person interested in sustaining the
proceedings in the court, and it shall be
the duty of such person to appear and
defend, both in his own behalf and in
behalf of the court or judge affected by
the proceedings. In this case, there is no
doubt that it is only the petitioner who is
the person interested in sustaining the
proceedings in court since she was the
one who sought for the issuance of the
writ of preliminary injunction to enjoin the
banks from releasing funds to
respondent. As earlier discussed, the
banks are not parties interested in the
subject matter of the petition. Thus, it is
only petitioner who should be joined as
party defendant with the judge and who
should defend the judge's issuance of
injunction.
Notably, the dispositive portion of the
assailed CA Decision declared the
annulment of the Order dated December
17, 2002 and lifted the writ of preliminary
injunction issued by the RTC. The
decision was directed against the order of
the judge. There was no order for the
banks to release the funds subject of their
undertakings/letter of credit although
such order to lift the injunction would
ultimately result to the release of funds to
respondent.
Petitioner contends that respondent filed
its petition for certiorari in the CA without
a prior motion for reconsideration, thus,
constitutes a fatal infirmity.
We do not agree.
Concededly, the settled rule is that a
motion for reconsideration is a
condition sine qua non for the filing of a
petition for certiorari.[18] Its purpose is to
grant an opportunity for the court to
correct any actual or perceived error
attributed to it by the re-examination of
the legal and factual circumstances of the
case.[19] The rule is, however,
circumscribed by well-defined exceptions,
such as (a) where the order is a patent
nullity, as where the court a quo had no
jurisdiction; (b) where the questions
raised in the certiorari proceeding have
been duly raised and passed upon by the
lower court, or are the same as those
raised and passed upon in the lower
court; (c) where there is an urgent
necessity for the resolution of the
question and any further delay would
prejudice the interests of the Government
or of the petitioner or the subject matter
of the action is perishable; (d) where,
under the circumstances, a motion for
reconsideration would be useless; (e)
where petitioner was deprived of due
process and there is extreme urgency for
relief; (f) where, in a criminal case, relief
from an order of arrest is urgent and the
granting of such relief by the trial court is
improbable; (g) where the proceedings in
the lower court are a nullity for lack of due
process; (h) where the proceedings
were ex parte, or in which the petitioner
had no opportunity to object; and (i)
where the issue raised is one purely of
law or where public interest is involved.[20]
Respondent explained their omission of
filing a motion for reconsideration before
resorting to a petition for certiorari based
on exceptions (b), (c) and (i). The CA
brushed aside the filing of the motion for
reconsideration based on the ground that
the questions raised in
the certiorari proceedings have been duly
raised and passed upon by the lower
court, or are the same as those raised
and passed upon in the lower court. We
agree.
Respondent had filed its position paper in
the RTC stating the reasons why the
injunction prayed for by petitioner should
not be granted. However, the RTC
granted the injunction. Respondent filed a
petition for certiorari with the CA and
presented the same arguments which
were already passed upon by the
RTC. The RTC already had the
opportunity to consider and rule on the
question of the propriety or impropriety of
the issuance of the injunction. We found
no reversible error committed by the CA
for relaxing the rule since respondent's
case falls within the exceptions.
Petitioner's reliance on Philippine
National Construction Corporation v.
National Labor Relations
Commission,[21] where we required the
filing of a motion for reconsideration
before the filing of a petition
for certiorari notwithstanding petitioner's
invocation of the recognized
exception, i.e., the same questions raised
before the public respondent were to be
raised before us, is not applicable. In
said case, we ruled that petitioner failed
to convince us that his case falls under
the recognized exceptions as the basis
was only petitioner's bare allegation. In
this case before us, the CA found, and to
which we agree, that both parties have
fully presented their respective
arguments in the RTC on petitioner's
prayer for the issuance of the writ of
preliminary injunction, and that
respondent's argument that petitioner is
not entitled to the injunctive relief had
been squarely resolved by the RTC.

WHEREFORE, the petition is DENIED.

The Decision dated October 17, 2003
and the Resolution dated March 5, 2004
of the Court of Appeals, in CA-G.R. SP
No. 74629, are hereby AFFIRMED.

SO ORDERED.
 THIRD DIVISION
G.R. No. 224804, September 21, 2016
EFREN R.
LEYNES, Petitioner, v. PEOPLE OF THE
PHILIPPINES, Respondent.
RESOLUTION
PEREZ, J.:
This is an appeal from the Decision1 of
the Court of Appeals (CA) dated 3
December 2015 in CA-G.R. CR No.
36638, which sentenced petitioner Efren
R. Leynes to suffer the penalty of six (6)
years and one (1) day, as minimum, up to
twelve (12) years, as maximum, and a
fine of Eighty Thousand Pesos
(P80,000.00), for the offense of
conversion of mangroves as punishable
under Section 94 of Republic Act (R.A.)
No. 8550, otherwise known as the
"Philippine Fisheries Code of 1998."
Facts
An Information for violation of Section 94,
R.A. No. 8550 otherwise known as the
"Philippine Fisheries Code of 1998" was
filed against petitioner Efren R. Leynes,
Alan Leynes, and Javier Leynes
(collectively hereinafter referred to as
"defendants") for cutting mangrove trees
and for excavating, constructing a dike,
and installing an outlet (prinsa) in the
mangrove forest without a fishpond lease
agreement. The Information
reads:ChanRoblesVirtualawlibrary
That on or about the 9th day of July 2009
and [for] sometime[s] prior thereto, at
Sitio Bigyan, [Barangay] Sibulan,
Municipality of Polillo, Province of
Quezon, Philippines, and within the
jurisdiction of this Honorable Court, the
above named-accused, conspiring and
confederating together and mutually
helping one another, did then and there
willfully, unlawfully, and feloniously enter,
occupy, possess, and make fishpond one
half (1/2) hectare, more or less, of the
mangrove forest area, causing damage to
the mangroves found therein, without any
authority under a license agreement,
lease, license, or permit from the proper
government authority, to the damage and
prejudice of the government of the
Philippines.
Contrary to
law.2chanroblesvirtuallawlibrary
During arraignment, petitioner Efren and
Alan entered a plea of not guilty. While
their co-accused, Javier, remained at
large. After pre-trial, trial on the merits
ensued.
The defendants denied the charge
against them. The defendants contend
that they cannot be convicted for
improving and rehabilitating the
mangrove forest because the act
punishable under Section 94 of R.A. No.
8550 is "conversion." According to
defendants, the construction of dikes and
installation of an outlet (prinsa) do not
amount to conversion, but a rehabilitation
and improvement of the mangrove forest.
Moreover, prior to Efren's introduction of
improvements in the mangrove forest, it
was already a fishpond since; 1970. In
fact, Efren was able to work in the
aforesaid fishpond as a young man when
it was still owned by his grandfather
Emilio Leynes, who has a tax declaration
issued in his name, showing ownership
over the subject mangrove area. To
support his claim of good faith, after his
grandfather's death, Efren introduced
improvements in the area by virtue of a
Certificate of Non Coverage issued in his
favor by the Department of Natural
Resources.
On 25 April 2014, the Regional Trial
Court (RTC) convicted petitioner Efren.
However, the RTC dismissed the charge
against Alan for failure of the prosecution
to prove conspiracy between him and
Efren and/or participation in the
commission of the offense. On the other
hand, the case against Javier was
archived while he is still at large. The
RTC resolved that the fact that Efren's
grandfather was issued a tax declaration
does not justify his continued possession
and introduction of improvements.
Besides, the issuance of a tax declaration
of a land not classified as alienable and
disposable is a criminal act under Section
75 of P.D. No. 705. As regards the
Certificate of Non Coverage issued in
favor of Efren, the RTC determined that:
(1) "the issuance thereof shall not exempt
the grantee from compliance with
applicable environmental laws, rules and
regulations, including the permitting
requirements of other government
agencies, and (2) only the granting of
fishpond lease agreement pursuant to
Sec. 45 of R.A. 8550 could exempt
accused [Efren] from prosecution under
Sec. 94 of the same law."
The pertinent portions of the RTC
Decision
read:ChanRoblesVirtualawlibrary
IN THE LIGHT OF THE FOREGOING,
judgment is hereby rendered against
accused Efren Leynes finding him guilty
beyond reasonable doubt of the crime of
violation of Sec. 94 of R.A. 8550 and
applying the Indeterminate Sentence
Law, this Court hereby imposes upon him
the penalty of six (6) years and one (1)
day, as minimum, up to twelve (12) years,
as maximum, and to pay a fine of Eighty
thousand, pesos (Php80,000.00), to
suffer all the accessory penalties and to
pay the cost of the suit.
With respect to accused Alan Leynes, the
information for violation of Sec. 94 of R.A.
8550 filed-against him is ordered
DISMISSED.
Likewise, the court is recommending for
the prosecution of the concerned
assessor's office/employee who may
have issued a tax declaration over the
area in question pursuant under Sec. 75
of P.D. 705, as amended.
With respect to accused Javier Leynes,
the fact that he (sic) having remained at
large, accordingly, this case in so far as
he is concerned is ordered consigned to
the archive so as for it (sic) not to remain
pending for an indefinite period of time
and so as to unclog the docket of this
court to be revived upon his
apprehension.
Issue alias warrant of arrest against him
copy furnished all law enforcement
agencies for their implementation.
SO the same being a mangrove forest area,
ORDERED.3chanroblesvirtuallawlibrary impose upon him criminal liability.
On appeal, the CA affirmed Efren's
In any case, what the law prohibits is not
conviction. The CA considered Efren's
only the conversion of the mangrove
Letter of Appeal, where he admitted to
forest into fishponds, but its conversion
the destruction of the mangrove area, as
into any other purpose. Indeed, Efren
a judicial admission. Absent any showing
may not have caused the conversion of
that the Letter of Appeal was made
the mangrove forest into a fishpond, but
through palpable mistake, the same is
his acts of cutting mangrove trees,
conclusive against Efren.
constructing a dike, installing an outlet
(prinsa), and excavating in the mangrove
Our Ruling
forest altered the natural structure and
form of the mangrove forest—an act
For an offense of conversion of mangrove
punishable by Sec. 94 of R.A. No. 8550.
forest to exist, the following elements
must concur:ChanRoblesVirtualawlibrary
Anent his claim of good faith, this Court,
1. The site of the fishpond is a mangrove
as already held in our past
forest;
pronouncements, cannot give credence
2. There was a conversion of the
to such defense. R.A. No. 8550 is a
mangrove area into a fishpond; and
special law. It punishes conversion of
3. The appellant made the conversion.
mangrove forests into fishponds and for
The presence of the first and third other purposes. As a special law, failure
elements, i.e., the site of the fishpond is a to comply with the same being malum
mangrove forest and the appellant made prohihitum, intent to commit it or good
the conversion, are undisputed. Now, the faith is immaterial.6chanrobleslaw
discussion of whether or not there was a
conversion of the mangrove forest into a As regards Efren's defense that the
fishpond. mangrove forest area is covered by a tax
declaration, we reiterate the findings of
The relevant provision is Section 94, R.A. the lower court that the issuance of a tax
No. 8550, to declaration does not justify Efren's
wit:ChanRoblesVirtualawlibrary continued possession and introduction of
It shall be unlawful for any person to improvements. In fact, pursuant to
convert mangroves into fishponds or for Section 75 of P.D. No. 705,7 the issuance
any other purposes. of a tax declaration of a land not
classified as alienable and disposable is
Violation of the provision of this section a criminal act. The tax declaration issued
shall be punished by imprisonment of six in his favor cannot act as a shield from
(6) years and one (1) day to twelve (12) criminal liability.
years and/or a fine of Eighty thousand
pesos (P80,000.00): Provided, That if the Efren also cannot invoke the Certificate of
area requires rehabilitation or restoration Non Coverage issued in his name as a
as determined by the court, the offender permit to introduce improvements in the
should also be required to restore or mangrove forest. As correctly held by the
compensate for the restoration of the RTC: (1) "the issuance thereof shall not
damage. exempt the grantee from compliance with
applicable environmental laws, rules and
As stated, the law punishes "conversion"
regulations, including, the permitting
of mangrove forest into fishponds or for
requirements of other government
any other purposes. Efren argues that he
agencies, and (2) only the granting of
cannot be convicted of the offense
fishpond lease agreement pursuant to
because his act of introducing
Sec. 45 of R.A. 8550 could exempt
improvements and rehabilitating the
accused [Efren] from prosecution of Sec.
mangrove forest area do not amount to
94 of the same law." A perusal of the
conversion. Also, when he improved and
records reveals that Efren is bereft of any
rehabilitated the same, it was already a
fishpond lease agreement. Absent any
fishpond.
fishpond lease agreement, Efren, despite
the issuance of a Certificate of Non
Efren's contention must fail.
Coverage in his name, is not exempted
from compliance with applicable
The elementary rule of statutory
environmental laws, rules and
construction provides that in construing
regulations, such as Sec. 94 of R.A. No.
words and phrases used in a statute, and
8550.
in the absence of legislative intent to the
contrary, these words and phrases
In any case, as correctly held by the
should be given their plain, ordinary, and
lower court, Efren is estopped from
common usage meaning,4 Thus, absent
claiming that he did not convert the
any intent to the contrary, we apply the
mangrove forest area. In his Letter of
aforesaid principle in the case at bar. As
Appeal, Efren admitted that "he caused
defined, conversion means "the act or
the cutting of number of trees inside the
process of changing from one form, state,
old fishpond", which is deemed as a
etc., to another."5 In the case at bar,
judicial admission. A judicial admission,
Efren's acts of cutting mangrove trees,
verbal or written, is made by a party in
constructing a dike, installing an outlet
the course of the proceedings in the
(prinsa), and excavating in the mangrove
same case which does not require
forest constitute conversion because it
proof.8 To contradict one's own
altered the natural structure and form of
admission, the person who made the
the mangrove forest. Even if we consider
same must show that it was made
Efren's defense that when he inherited
through palpable mistake or that no such
the mangrove forest area from his
admission was made. Judicial admissions
grandfather it was already fishpond, such
are legally binding on the party making
does not absolve him from liability. His
the admissions. In the case at bar, no
continued introduction of improvements
denial was made on the part of Efren that
and continued use of the mangrove forest
he cut a number of trees in the mangrove
area as a fishpond, despite knowledge of
forest.9 As elucidated by this Court
in Alfelor v. Halasan:10
A party who judicially admits a fact
cannot later challenge [the] fact as
judicial admissions are a waiver of proof;
production of evidence is dispensed with.
A judicial admission also removes an
admitted fact from the field of
controversy. Consequently, an admission
made in the pleadings cannot be
controverted by the party making such
admission and are conclusive as to such
party, and all proofs to the contrary or
inconsistent therewith should be ignored,
whether objection is interposed by the
party or not. The allegations, statements
or admissions contained in a pleading are
conclusive as against the pleader. A party
cannot subsequently take a position
contrary of or inconsistent with what was
pleaded.11chanroblesvirtuallawlibrary
Thus, Efren's judicial admission, in
addition to the aforementioned grounds,
is a sufficient ground to sustain a
conviction.

It is high time, therefore, and to avoid

confusion, that mangrove forests do not
consists of the typical mangrove trees
only. As defined, mangroves are "a
community of intertidal plants including all
species of trees, shrubs, vines and herbs
found on coasts, swamps, or border of
swamps."12 Contrary to Efren's belief,
"the word 'mangroves' refers to a group
of plants which may actually belong to
several families (species that distinctly
belong to their own evolutionary
group)."13 By cutting a tree in the
mangrove forest, regardless of its
species, Efren caused conversion of the
same.

WHEREFORE, the Decision of the

Honorable Court of Appeals dated 3
December 2015 in CA-G.R. CR No.
36638, which sentenced petitioner Efren
R. Leynes to suffer the penalty of six (6)
years and one (1) day, as minimum, up to
twelve (12) years, as maximum, and a
fine of Eighty Thousand Pesos
(P80,000.00), for the offense of
conversion of mangroves as punishable
under Section 94 of Republic Act No.
8550, otherwise known as the "Philippine
Fisheries Code of 1998", is
hereby AFFIRMED in toto.

SO
ORDERED.chanRoblesvirtualLawlibrary

Velasco, Jr., (Chairperson), Peralta,

Reyes, and Jardeleza, JJ., concur.
G.R. No. 146710-15 March 2, 2001
JOSEPH E. ESTRADA, petitioner,
vs.
ANIANO DESIERTO, in his capacity as
Ombudsman, RAMON GONZALES,
VOLUNTEERS AGAINST CRIME AND
CORRUPTION, GRAFT FREE
PHILIPPINES FOUNDATION, INC.,
LEONARD DE VERA, DENNIS FUNA,
ROMEO CAPULONG and ERNESTO B.
FRANCISCO, JR., respondent.
----------------------------------------
G.R. No. 146738 March 2, 2001
JOSEPH E. ESTRADA, petitioner,
vs.
GLORIA MACAPAGAL-
ARROYO, respondent.
PUNO, J.:
On the line in the cases at bar is the office
of the President. Petitioner Joseph Ejercito
Estrada alleges that he is the President on
leave while respondent Gloria Macapagal-
Arroyo claims she is the President. The
warring personalities are important enough
but more transcendental are the
constitutional issues embedded on the
parties' dispute. While the significant issues
are many, the jugular issue involves the
relationship between the ruler and the ruled
in a democracy, Philippine style.
First, we take a view of the panorama of
events that precipitated the crisis in the
office of the President.
In the May 11, 1998 elections, petitioner
Joseph Ejercito Estrada was elected
President while respondent Gloria
Macapagal-Arroyo was elected Vice-
President. Some ten (10) million Filipinos
voted for the petitioner believing he would
rescue them from life's adversity. Both
petitioner and the respondent were to serve
a six-year term commencing on June 30,
1998.
From the beginning of his term, however,
petitioner was plagued by a plethora of
problems that slowly but surely eroded his
popularity. His sharp descent from power
started on October 4, 2000. Ilocos Sur
Governor, Luis "Chavit" Singson, a longtime
friend of the petitioner, went on air and
accused the petitioner, his family and
friends of receiving millions of pesos
from jueteng lords.1
The exposẻ immediately ignited reactions
of rage. The next day, October 5, 2000,
Senator Teofisto Guingona, Jr., then the
Senate Minority Leader, took the floor and
delivered a fiery privilege speech entitled "I
Accuse." He accused the petitioner of
receiving some P220 million
in jueteng money from Governor Singson
from November 1998 to August 2000. He
also charged that the petitioner took from
Governor Singson P70 million on excise tax
on cigarettes intended for Ilocos Sur. The
privilege speech was referred by then
Senate President Franklin Drilon, to the
Blue Ribbon Committee (then headed by
Senator Aquilino Pimentel) and the
Committee on Justice (then headed by
Senator Renato Cayetano) for joint
investigation.2
The House of Representatives did no less.
The House Committee on Public Order and
Security, then headed by Representative
Roilo Golez, decided to investigate the
exposẻ of Governor Singson. On the other
hand, Representatives Heherson Alvarez,
Ernesto Herrera and Michael Defensor
spearheaded the move to impeach the
petitioner.
Calls for the resignation of the petitioner
filled the air. On October 11, Archbishop
Jaime Cardinal Sin issued a pastoral
statement in behalf of the Presbyteral
Council of the Archdiocese of Manila,
asking petitioner to step down from the
presidency as he had lost the moral
authority to govern.3 Two days later or on
October 13, the Catholic Bishops
Conference of the Philippines joined the cry
for the resignation of the petitioner.4 Four
days later, or on October 17, former
President Corazon C. Aquino also
demanded that the petitioner take the
"supreme self-sacrifice" of
resignation.5 Former President Fidel Ramos
also joined the chorus. Early on, or on
October 12, respondent Arroyo resigned as
Secretary of the Department of Social
Welfare and Services6 and later asked for
petitioner's resignation.7 However, petitioner
strenuously held on to his office and
refused to resign.
The heat was on. On November 1, four (4)
senior economic advisers, members of the
Council of Senior Economic Advisers,
resigned. They were Jaime Augusto Zobel
de Ayala, former Prime Minister Cesar
Virata, former Senator Vicente Paterno and
Washington Sycip.8 On November 2,
Secretary Mar Roxas II also resigned from
the Department of Trade and Industry.9 On
November 3, Senate President Franklin
Drilon, and House Speaker Manuel Villar,
together with some 47 representatives
defected from the ruling coalition, Lapian ng
Masang Pilipino.10
The month of November ended with a big
bang. In a tumultuous session on
November 13, House Speaker Villar
transmitted the Articles of
Impeachment11 signed by 115
representatives, or more than 1/3 of all the
members of the House of Representatives
to the Senate. This caused political
convulsions in both houses of Congress.
Senator Drilon was replaced by Senator
Pimentel as Senate President. Speaker
Villar was unseated by Representative
Fuentebella.12 On November 20, the Senate
formally opened the impeachment trial of
the petitioner. Twenty-one (21) senators
took their oath as judges with Supreme
Court Chief Justice Hilario G. Davide, Jr.,
presiding.13
The political temperature rose despite the
cold December. On December 7, the
impeachment trial started.14 The battle
royale was fought by some of the marquee
names in the legal profession. Standing as
prosecutors were then House Minority Floor
Leader Feliciano Belmonte and
Representatives Joker Arroyo, Wigberto
Tañada, Sergio Apostol, Raul Gonzales,
Oscar Moreno, Salacnib Baterina, Roan
Libarios, Oscar Rodriguez, Clavel Martinez
and Antonio Nachura. They were assisted
by a battery of private prosecutors led by
now Secretary of Justice Hernando Perez
and now Solicitor General Simeon Marcelo.
Serving as defense counsel were former
Chief Justice Andres Narvasa, former
Solicitor General and Secretary of Justice
Estelito P. Mendoza, former City Fiscal of
Manila Jose Flaminiano, former Deputy
Speaker of the House Raul Daza, Atty.
Siegfried Fortun and his brother, Atty.
Raymund Fortun. The day to day trial was
covered by live TV and during its course
enjoyed the highest viewing rating. Its high
and low points were the constant
conversational piece of the chattering
classes. The dramatic point of the
December hearings was the testimony of
Clarissa Ocampo, senior vice president of
Equitable-PCI Bank. She testified that she
was one foot away from petitioner Estrada
when he affixed the signature "Jose
Velarde" on documents involving a P500
million investment agreement with their
bank on February 4, 2000.15
After the testimony of Ocampo, the
impeachment trial was adjourned in the
spirit of Christmas. When it resumed on
January 2, 2001, more bombshells were
exploded by the prosecution. On January
11, Atty. Edgardo Espiritu who served as
petitioner's Secretary of Finance took the
witness stand. He alleged that the petitioner
jointly owned BW Resources Corporation
with Mr. Dante Tan who was facing charges
of insider trading.16 Then came the fateful
day of January 16, when by a vote of 11-
1017 the senator-judges ruled against the
opening of the second envelope which
allegedly contained evidence showing that
petitioner held P3.3 billion in a secret bank
account under the name "Jose Velarde."
The public and private prosecutors walked
out in protest of the ruling. In disgust,
Senator Pimentel resigned as Senate
President.18 The ruling made at 10:00 p.m.
was met by a spontaneous outburst of
anger that hit the streets of the metropolis.
By midnight, thousands had assembled at
the EDSA Shrine and speeches full of
sulphur were delivered against the
petitioner and the eleven (11) senators.
On January 17, the public prosecutors
submitted a letter to Speaker Fuentebella
tendering their collective resignation. They
also filed their Manifestation of Withdrawal
of Appearance with the impeachment
tribunal.19 Senator Raul Roco quickly
moved for the indefinite postponement of
the impeachment proceedings until the
House of Representatives shall have
resolved the issue of resignation of the
public prosecutors. Chief Justice Davide
granted the motion.20
January 18 saw the high velocity
intensification of the call for petitioner's
resignation. A 10-kilometer line of people
holding lighted candles formed a human
chain from the Ninoy Aquino Monument on
Ayala Avenue in Makati City to the EDSA
Shrine to symbolize the people's solidarity
in demanding petitioner's resignation.
Students and teachers walked out of their
classes in Metro Manila to show their
concordance. Speakers in the continuing
rallies at the EDSA Shrine, all masters of
the physics of persuasion, attracted more
and more people.21
On January 19, the fall from power of the
petitioner appeared inevitable. At 1:20 p.m.,
the petitioner informed Executive Secretary
Edgardo Angara that General Angelo
Reyes, Chief of Staff of the Armed Forces
of the Philippines, had defected. At 2:30
p.m., petitioner agreed to the holding of a
snap election for President where he would
not be a candidate. It did not diffuse the
growing crisis. At 3:00 p.m., Secretary of
National Defense Orlando Mercado and
General Reyes, together with the chiefs of
all the armed services went to the EDSA
Shrine.22 In the presence of former
Presidents Aquino and Ramos and
hundreds of thousands of cheering
demonstrators, General Reyes declared
that "on behalf of Your Armed Forces, the
130,000 strong members of the Armed
Forces, we wish to announce that we are
withdrawing our support to this
government."23 A little later, PNP Chief,
Director General Panfilo Lacson and the
major service commanders gave a similar
stunning announcement.24 Some Cabinet
secretaries, undersecretaries, assistant
secretaries, and bureau chiefs quickly
resigned from their posts.25 Rallies for the
resignation of the petitioner exploded in
various parts of the country. To stem the
tide of rage, petitioner announced he was
ordering his lawyers to agree to the opening
of the highly controversial second
envelope.26 There was no turning back the
tide. The tide had become a tsunami.
January 20 turned to be the day of
surrender. At 12:20 a.m., the first round of
negotiations for the peaceful and orderly
transfer of power started at Malacañang''
Mabini Hall, Office of the Executive
Secretary. Secretary Edgardo Angara,
Senior Deputy Executive Secretary Ramon
Bagatsing, Political Adviser Angelito
Banayo, Asst. Secretary Boying Remulla,
and Atty. Macel Fernandez, head of the
Presidential Management Staff, negotiated
for the petitioner. Respondent Arroyo was
represented by now Executive Secretary
Renato de Villa, now Secretary of Finance
Alberto Romulo and now Secretary of
Justice Hernando Perez.27 Outside the
palace, there was a brief encounter at
Mendiola between pro and anti-Estrada
protesters which resulted in stone-throwing
and caused minor injuries. The negotiations
consumed all morning until the news broke
out that Chief Justice Davide would
administer the oath to respondent Arroyo at
high noon at the EDSA Shrine.
At about 12:00 noon, Chief Justice Davide
administered the oath to respondent Arroyo
as President of the Philippines.28 At 2:30
p.m., petitioner and his family hurriedly left
Malacañang Palace.29 He issued the
following press statement:30
"20 January 2001
STATEMENT FROM
PRESIDENT JOSEPH
EJERCITO ESTRADA
At twelve o'clock noon today,
Vice President Gloria
Macapagal-Arroyo took her oath
as President of the Republic of
the Philippines. While along with
many other legal minds of our
country, I have strong and
serious doubts about the legality
and constitutionality of her
proclamation as President, I do
not wish to be a factor that will
prevent the restoration of unity
and order in our civil society.
It is for this reason that I now
leave Malacañang Palace, the
seat of the presidency of this
country, for the sake of peace
and in order to begin the healing
process of our nation. I leave the
Palace of our people with
gratitude for the opportunities
given to me for service to our
people. I will not shirk from any
future challenges that may come
ahead in the same service of our
country.
I call on all my supporters and
followers to join me in to
promotion of a constructive
 national spirit of reconciliation
and solidarity.
May the Almighty bless our
country and beloved people.
MABUHAY!
(Sgd.) JOSEPH EJERCITO
ESTRADA"
It also appears that on the same day,
January 20, 2001, he signed the following
letter:31
"Sir:
By virtue of the provisions of
Section 11, Article VII of the
Constitution, I am hereby
transmitting this declaration that
I am unable to exercise the
powers and duties of my office.
By operation of law and the
Constitution, the Vice-President
shall be the Acting President.
(Sgd.) JOSEPH EJERCITO
ESTRADA"
A copy of the letter was sent to former
Speaker Fuentebella at 8:30 a.m. on
January 20.23 Another copy was transmitted
to Senate President Pimentel on the same
day although it was received only at 9:00
p.m.33
On January 22, the Monday after taking her
oath, respondent Arroyo immediately
discharged the powers the duties of the
Presidency. On the same day, this Court
issued the following Resolution in
Administrative Matter No. 01-1-05-SC, to
wit:
"A.M. No. 01-1-05-SC — In re:
Request of Vice President Gloria
Macapagal-Arroyo to Take her
Oath of Office as President of
the Republic of the Philippines
before the Chief Justice —
Acting on the urgent request of
Vice President Gloria
Macapagal-Arroyo to be sworn in
as President of the Republic of
the Philippines, addressed to the
Chief Justice and confirmed by a
letter to the Court, dated January
20, 2001, which request was
treated as an administrative
matter, the court Resolve
unanimously to confirm the
authority given by the twelve
(12) members of the Court then
present to the Chief Justice on
January 20, 2001 to administer
the oath of office of Vice
President Gloria Macapagal-
Arroyo as President of the
Philippines, at noon of January
20, 2001.1âwphi1.nêt
This resolution is without
prejudice to the disposition of
any justiciable case that may be
filed by a proper party."
Respondent Arroyo appointed members of
her Cabinet as well as ambassadors and
special envoys.34 Recognition of respondent
Arroyo's government by foreign
governments swiftly followed. On January
23, in a reception or vin d' honneur at
Malacañang, led by the Dean of the
Diplomatic Corps, Papal Nuncio Antonio
Franco, more than a hundred foreign
diplomats recognized the government of
respondent Arroyo.35 US President George
W. Bush gave the respondent a telephone
call from the White House conveying US
recognition of her government.36
On January 24, Representative Feliciano
Belmonte was elected new Speaker of the
House of Representatives.37 The House
then passed Resolution No. 175
"expressing the full support of the House of
Representatives to the administration of Her
Excellency, Gloria Macapagal-Arroyo,
President of the Philippines."38 It also
approved Resolution No. 176 "expressing
the support of the House of
Representatives to the assumption into
office by Vice President Gloria Macapagal-
Arroyo as President of the Republic of the
Philippines, extending its congratulations
and expressing its support for her
administration as a partner in the attainment
of the nation's goals under the
Constitution."39
On January 26, the respondent signed into
law the Solid Waste Management Act.40 A
few days later, she also signed into law the
Political Advertising ban and Fair Election
Practices Act.41
On February 6, respondent Arroyo
nominated Senator Teofisto Guingona, Jr.,
as her Vice President.42 The next day,
February 7, the Senate adopted Resolution
No. 82 confirming the nomination of
Senator Guingona, Jr.43 Senators Miriam
Defensor-Santiago, Juan Ponce Enrile, and
John Osmena voted "yes" with
reservations, citing as reason therefor the
pending challenge on the legitimacy of
respondent Arroyo's presidency before the
Supreme Court. Senators Teresa Aquino-
Oreta and Robert Barbers were
absent.44 The House of Representatives
also approved Senator Guingona's
nomination in Resolution No. 178.45 Senator
Guingona, Jr. took his oath as Vice
President two (2) days later.46
On February 7, the Senate passed
Resolution No. 83 declaring that the
impeachment court is functus officio and
has been terminated.47 Senator Miriam
Defensor-Santiago stated "for the record"
that she voted against the closure of the
impeachment court on the grounds that the
Senate had failed to decide on the
impeachment case and that the resolution
left open the question of whether Estrada
was still qualified to run for another elective
post.48
Meanwhile, in a survey conducted by Pulse
Asia, President Arroyo's public acceptance
rating jacked up from 16% on January 20,
2001 to 38% on January 26, 2001.49 In
another survey conducted by the ABS-
CBN/SWS from February 2-7, 2001, results
showed that 61% of the Filipinos nationwide
accepted President Arroyo as replacement
of petitioner Estrada. The survey also
revealed that President Arroyo is accepted
by 60% in Metro Manila, by also 60% in the
balance of Luzon, by 71% in the Visayas,
and 55% in Mindanao. Her trust rating
increased to 52%. Her presidency is
accepted by majorities in all social classes:
58% in the ABC or middle-to-upper classes,
64% in the D or mass class, and 54%
among the E's or very poor class.50
After his fall from the pedestal of power, the
petitioner's legal problems appeared in
clusters. Several cases previously filed
against him in the Office of the Ombudsman
were set in motion. These are: (1) OMB
Case No. 0-00-1629, filed by Ramon A.
Gonzales on October 23, 2000 for bribery
and graft and corruption; (2) OMB Case No.
0-00-1754 filed by the Volunteers Against
Crime and Corruption on November 17,
2000 for plunder, forfeiture, graft and
corruption, bribery, perjury, serious
misconduct, violation of the Code of
Conduct for Government Employees, etc;
(3) OMB Case No. 0-00-1755 filed by the
Graft Free Philippines Foundation, Inc. on
November 24, 2000 for plunder, forfeiture,
graft and corruption, bribery, perjury,
serious misconduct; (4) OMB Case No. 0-
00-1756 filed by Romeo Capulong, et al.,
on November 28, 2000 for malversation of
public funds, illegal use of public funds and
property, plunder, etc.; (5) OMB Case No.
0-00-1757 filed by Leonard de Vera, et al.,
on November 28, 2000 for bribery, plunder,
indirect bribery, violation of PD 1602, PD
1829, PD 46, and RA 7080; and (6) OMB
Case No. 0-00-1758 filed by Ernesto B.
Francisco, Jr. on December 4, 2000 for
plunder, graft and corruption.
A special panel of investigators was
forthwith created by the respondent
Ombudsman to investigate the charges
against the petitioner. It is chaired by
Overall Deputy Ombudsman Margarito P.
Gervasio with the following as
members, viz: Director Andrew Amuyutan,
Prosecutor Pelayo Apostol, Atty. Jose de
Jesus and Atty. Emmanuel Laureso. On
January 22, the panel issued an Order
directing the petitioner to file his counter-
affidavit and the affidavits of his witnesses
as well as other supporting documents in
answer to the aforementioned complaints
against him.
Thus, the stage for the cases at bar was
set. On February 5, petitioner filed with this
Court GR No. 146710-15, a petition for
prohibition with a prayer for a writ of
preliminary injunction. It sought to enjoin the
respondent Ombudsman from "conducting
any further proceedings in Case Nos. OMB
0-00-1629, 1754, 1755, 1756, 1757 and
1758 or in any other criminal complaint that
may be filed in his office, until after the term
of petitioner as President is over and only if
legally warranted." Thru another counsel,
petitioner, on February 6, filed GR No.
146738 for Quo Warranto. He prayed for
judgment "confirming petitioner to be the
lawful and incumbent President of the
Republic of the Philippines temporarily
unable to discharge the duties of his office,
and declaring respondent to have taken her
oath as and to be holding the Office of the
President, only in an acting capacity
pursuant to the provisions of the
Constitution." Acting on GR Nos. 146710-
15, the Court, on the same day, February 6,
required the respondents "to comment
thereon within a non-extendible period
expiring on 12 February 2001." On
February 13, the Court ordered the
consolidation of GR Nos. 146710-15 and
GR No. 146738 and the filing of the
respondents' comments "on or before 8:00
a.m. of February 15."
On February 15, the consolidated cases
were orally argued in a four-hour hearing.
Before the hearing, Chief Justice Davide,
Jr.51 and Associate Justice Artemio
Panganiban52 recused themselves on
motion of petitioner's counsel, former
Senator Rene A. Saguisag. They debunked
the charge of counsel Saguisag that they
have "compromised themselves by
indicating that they have thrown their weight
on one side" but nonetheless inhibited
themselves. Thereafter, the parties were
given the short period of five (5) days to file
their memoranda and two (2) days to
submit their simultaneous replies.
In a resolution dated February 20, acting on
the urgent motion for copies of resolution
and press statement for "Gag Order" on
respondent Ombudsman filed by counsel
for petitioner in G.R. No. 146738, the Court
resolved:
"(1) to inform the parties that the
Court did not issue a resolution
on January 20, 2001 declaring
the office of the President vacant
and that neither did the Chief
Justice issue a press statement
justifying the alleged resolution;
(2) to order the parties and
especially their counsel who are
officers of the Court under pain
of being cited for contempt to
refrain from making any
comment or discussing in public
the merits of the cases at bar
while they are still pending
decision by the Court, and
(3) to issue a 30-day status quo
order effective immediately
enjoining the respondent
Ombudsman from resolving or
deciding the criminal cases
pending investigation in his
office against petitioner, Joseph
E. Estrada and subject of the
cases at bar, it appearing from
news reports that the respondent
Ombudsman may immediately
resolve the cases against
petitioner Joseph E. Estrada
seven (7) days after the hearing
held on February 15, 2001,
which action will make the cases
at bar moot and academic."53
The parties filed their replies on February
24. On this date, the cases at bar were
deemed submitted for decision.
The bedrock issues for resolution of this
Court are:
I
Whether the petitions present a
justiciable controversy.
II
Assuming that the petitions
present a justiciable controversy,
whether petitioner Estrada is a
President on leave while
respondent Arroyo is an Acting
President.
III
Whether conviction in the
impeachment proceedings is a
condition precedent for the
criminal prosecution of petitioner
Estrada. In the negative and on
the assumption that petitioner is
still President, whether he is
immune from criminal
prosecution.
IV
Whether the prosecution of
petitioner Estrada should be
enjoined on the ground of
prejudicial publicity.
We shall discuss the issues in seriatim.
 I Constitution has narrowed the reach of the
Whether or not the cases
At bar involve a political question
Private respondents54 raise the threshold
issue that the cases at bar pose a political
question, and hence, are beyond the
jurisdiction of this Court to decide. They
contend that shorn of its embroideries, the
cases at bar assail the "legitimacy of the
Arroyo administration." They stress that
respondent Arroyo ascended the
presidency through people power; that she
has already taken her oath as the
14th President of the Republic; that she has
exercised the powers of the presidency and
that she has been recognized by foreign
governments. They submit that these
realities on ground constitute the political
thicket, which the Court cannot enter.
We reject private respondents' submission.
To be sure, courts here and abroad, have
tried to lift the shroud on political question
but its exact latitude still splits the best of
legal minds. Developed by the courts in the
20th century, the political question doctrine
which rests on the principle of separation of
powers and on prudential considerations,
continue to be refined in the mills of
constitutional law.55 In the United States,
the most authoritative guidelines to
determine whether a question is political
were spelled out by Mr. Justice Brennan in
the 1962 case or Baker v. Carr,56 viz:
"x x x Prominent on the surface
of any case held to involve a
political question is found a
textually demonstrable
constitutional commitment of the
issue to a coordinate political
department or a lack of judicially
discoverable and manageable
standards for resolving it, or the
impossibility of deciding without
an initial policy determination of
a kind clearly for non-judicial
discretion; or the impossibility of
a court's undertaking
independent resolution without
expressing lack of the respect
due coordinate branches of
government; or an unusual need
for unquestioning adherence to a
political decision already made;
or the potentiality of
embarrassment from multifarious
pronouncements by various
departments on question. Unless
one of these formulations is
inextricable from the case at bar,
there should be no dismissal for
non justiciability on the ground of
a political question's presence.
The doctrine of which we treat is
one of 'political questions', not of
'political cases'."
In the Philippine setting, this Court has
been continuously confronted with cases
calling for a firmer delineation of the inner
and outer perimeters of a political
question.57 Our leading case is Tanada v.
Cuenco,58 where this Court, through former
Chief Justice Roberto Concepcion, held that
political questions refer "to those questions
which, under the Constitution, are to
be decided by the people in their
sovereign capacity, or in regard to
which full discretionary authority has
been delegated to the legislative or
executive branch of the government. It is
concerned with issues dependent upon
the wisdom, not legality of a particular
measure." To a great degree, the 1987
political question doctrine when it expanded
the power of judicial review of this court not
only to settle actual controversies involving
rights which are legally demandable and
enforceable but also to determine
whether or not there has been a grave
abuse of discretion amounting to lack or
excess of jurisdiction on the part of any
branch or instrumentality of
government.59 Heretofore, the judiciary has
focused on the "thou shalt not's" of the
Constitution directed against the exercise of
its jurisdiction.60 With the new provision,
however, courts are given a greater
prerogative to determine what it can do to
prevent grave abuse of discretion
amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality
of government. Clearly, the new provision
did not just grant the Court power of
doing nothing. In sync and symmetry with
this intent are other provisions of the 1987
Constitution trimming the so called political
thicket. Prominent of these provisions is
section 18 of Article VII which empowers
this Court in limpid language to "x x x
review, in an appropriate proceeding filed
by any citizen, the sufficiency of the factual
basis of the proclamation of martial law or
the suspension of the privilege of the writ
(of habeas corpus) or the extension thereof
x x x."
Respondents rely on the case of Lawyers
League for a Better Philippines and/or
Oliver A. Lozano v. President Corazon C.
Aquino, et al.61 and related cases62 to
support their thesis that since the cases at
bar involve the legitimacy of the
government of respondent Arroyo, ergo,
they present a political question. A more
cerebral reading of the cited cases will
show that they are inapplicable. In the cited
cases, we held that the government of
former President Aquino was the result of
a successful revolution by the sovereign
people, albeit a peaceful one. No less than
the Freedom Constitution63 declared that
the Aquino government was installed
through a direct exercise of the power of the
Filipino people "in defiance of the
provisions of the 1973 Constitution, as
amended." In is familiar learning that the
legitimacy of a government sired by a
successful revolution by people power is
beyond judicial scrutiny for that government
automatically orbits out of the constitutional
loop. In checkered contrast, the
government of respondent Arroyo is not
revolutionary in character. The oath that
she took at the EDSA Shrine is the oath
under the 1987 Constitution.64 In her oath,
she categorically swore to preserve and
defend the 1987 Constitution. Indeed, she
has stressed that she is discharging the
powers of the presidency under the
authority of the 1987 Constitution.
In fine, the legal distinction between
EDSA People Power I EDSA People Power
II is clear. EDSA I involves the exercise of
the people power of
revolution which overthrew the whole
government. EDSA II is an exercise
of people power of freedom of speech
and freedom of assembly to petition the
government for redress of
grievances which only affected the office
of the President. EDSA I is extra
constitutional and the legitimacy of the
new government that resulted from it cannot
be the subject of judicial review, but EDSA
II is intra constitutional and the
resignation of the sitting President that it
caused and the succession of the Vice
President as President are subject to
judicial review. EDSA I presented a
political question; EDSA II involves legal
questions. A brief discourse on freedom of
speech and of the freedom of assembly to
petition the government for redress of
grievance which are the cutting edge of
EDSA People Power II is not inappropriate.
Freedom of speech and the right of
assembly are treasured by Filipinos. Denial
of these rights was one of the reasons of
our 1898 revolution against Spain. Our
national hero, Jose P. Rizal, raised the
clarion call for the recognition of freedom of
the press of the Filipinos and included it as
among "the reforms sine quibus
non."65 The Malolos Constitution, which is
the work of the revolutionary Congress in
1898, provided in its Bill of Rights that
Filipinos shall not be deprived (1) of the
right to freely express his ideas or opinions,
orally or in writing, through the use of the
press or other similar means; (2) of the right
of association for purposes of human life
and which are not contrary to public means;
and (3) of the right to send petitions to the
authorities, individually or
collectively." These fundamental rights
were preserved when the United States
acquired jurisdiction over the
Philippines. In the Instruction to the
Second Philippine Commission of April 7,
1900 issued by President McKinley, it is
specifically provided "that no law shall be
passed abridging the freedom of speech or
of the press or of the rights of the people to
peaceably assemble and petition the
Government for redress of grievances." The
guaranty was carried over in the Philippine
Bill, the Act of Congress of July 1, 1902 and
the Jones Law, the Act of Congress of
August 29, 1966.66
Thence on, the guaranty was set in stone in
our 1935 Constitution,67 and
the 197368 Constitution. These rights are
now safely ensconced in section 4, Article
III of the 1987 Constitution, viz:
"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."
The indispensability of the people's freedom
of speech and of assembly to democracy is
now self-evident. The reasons are well put
by Emerson: first, freedom of expression is
essential as a means of assuring individual
fulfillment; second, it is an essential process
for advancing knowledge and discovering
truth; third, it is essential to provide for
participation in decision-making by all
members of society; and fourth, it is a
method of achieving a more adaptable and
hence, a more stable community of
maintaining the precarious balance
between healthy cleavage and necessary
consensus."69 In this sense, freedom of
speech and of assembly provides a
framework in which the "conflict
necessary to the progress of a society
can take place without destroying the
society."70 In Hague v. Committee for
Industrial Organization,71 this function of
free speech and assembly was echoed in
the amicus curiae filed by the Bill of Rights
Committee of the American Bar Association
which emphasized that "the basis of the
right of assembly is the substitution of the
expression of opinion and belief by talk
rather than force; and this means talk for
all and by all."72 In the relatively recent
case of Subayco v. Sandiganbayan,73 this
Court similar stressed that "… it should be
clear even to those with intellectual deficits
that when the sovereign people assemble
to petition for redress of grievances, all
should listen. For in a democracy, it is the
people who count; those who are deaf to
their grievances are ciphers."
Needless to state, the cases at bar pose
legal and not political questions. The
principal issues for resolution require the
proper interpretation of certain provisions in
the 1987 Constitution, notably section 1 of
Article II,74 and section 875 of Article VII, and
the allocation of governmental powers
under section 1176 of Article VII. The issues
likewise call for a ruling on the scope of
presidential immunity from suit. They also
involve the correct calibration of the right of
petitioner against prejudicial publicity. As
early as the 1803 case of Marbury v.
Madison,77 the doctrine has been laid down
that "it is emphatically the province and
duty of the judicial department to say
what the law is . . ." Thus, respondent's in
vocation of the doctrine of political question
is but a foray in the dark.
II
Whether or not the petitioner
Resigned as President
We now slide to the second issue. None of
the parties considered this issue as posing
a political question. Indeed, it involves a
legal question whose factual ingredient is
determinable from the records of the case
and by resort to judicial notice. Petitioner
denies he resigned as President or that he
suffers from a permanent disability. Hence,
he submits that the office of the President
was not vacant when respondent Arroyo
took her oath as President.
The issue brings under the microscope the
meaning of section 8, Article VII of the
Constitution which provides:
"Sec. 8. In case of death,
permanent disability, removal
from office or resignation of the
President, the Vice President
shall become the President to
serve the unexpired term. In
case of death, permanent
disability, removal from office, or
resignation of both the President
and Vice President, the
President of the Senate or, in
case of his inability, the Speaker
of the House of Representatives,
shall then act as President until
the President or Vice President
shall have been elected and
qualified.
x x x."
The issue then is whether the petitioner
resigned as President or should be
considered resigned as of January 20, 2001
when respondent took her oath as the
14th President of the Public. Resignation is
not a high level legal abstraction. It is a
factual question and its elements are
beyond quibble: there must be an intent
to resign and the intent must be coupled
by acts of relinquishment.78 The validity of
a resignation is not government by any
formal requirement as to form. It can be
oral. It can be written. It can be express. It
can be implied. As long as the resignation is
clear, it must be given legal effect.
In the cases at bar, the facts show that
petitioner did not write any formal letter of
resignation before he evacuated
Malacañang Palace in the afternoon of
January 20, 2001 after the oath-taking of
respondent Arroyo. Consequently, whether
or not petitioner resigned has to be
determined from his act and omissions
before, during and after January 20, 2001
or by the totality of prior,
contemporaneous and posterior facts
and circumstantial evidence bearing a
material relevance on the issue.
Using this totality test, we hold that
petitioner resigned as President.
To appreciate the public pressure that led to
the resignation of the petitioner, it is
important to follow the succession of events
after the exposẻ of Governor Singson. The
Senate Blue Ribbon Committee
investigated. The more detailed revelations
of petitioner's alleged misgovernance in the
Blue Ribbon investigation spiked the hate
against him. The Articles of Impeachment
filed in the House of Representatives which
initially was given a near cipher chance of
succeeding snowballed. In express speed,
it gained the signatures of 115
representatives or more than 1/3 of the
House of Representatives. Soon,
petitioner's powerful political allies began
deserting him. Respondent Arroyo quit as
Secretary of Social Welfare. Senate
President Drilon and former Speaker Villar
defected with 47 representatives in tow.
Then, his respected senior economic
advisers resigned together with his
Secretary of Trade and Industry.
As the political isolation of the petitioner
worsened, the people's call for his
resignation intensified. The call reached a
new crescendo when the eleven (11)
members of the impeachment tribunal
refused to open the second envelope. It
sent the people to paroxysms of outrage.
Before the night of January 16 was over,
the EDSA Shrine was swarming with people
crying for redress of their grievance. Their
number grew exponentially. Rallies and
demonstration quickly spread to the
countryside like a brush fire.
As events approached January 20, we can
have an authoritative window on the state
of mind of the petitioner. The window is
provided in the "Final Days of Joseph
Ejercito Estrada," the diary of Executive
Secretary Angara serialized in
the Philippine Daily Inquirer.79 The
Angara Diary reveals that in the morning of
January 19, petitioner's loyal advisers were
worried about the swelling of the crowd at
EDSA, hence, they decided to create an ad
hoc committee to handle it. Their worry
would worsen. At 1:20 p.m., petitioner
pulled Secretary Angara into his small office
at the presidential residence and exclaimed:
"Ed, seryoso na ito. Kumalas na si Angelo
(Reyes) (Ed, this is serious. Angelo has
defected.)"80 An hour later or at 2:30 p.m.,
the petitioner decided to call for a snap
presidential election and stressed he
would not be a candidate. The proposal
for a snap election for president in May
where he would not be a candidate is an
indicium that petitioner had intended to
give up the presidency even at that time.
At 3:00 p.m., General Reyes joined the sea
of EDSA demonstrators demanding the
resignation of the petitioner and
dramatically announced the AFP's
withdrawal of support from the petitioner
and their pledge of support to respondent
Arroyo. The seismic shift of support left
petitioner weak as a president. According to
Secretary Angara, he asked Senator
Pimentel to advise petitioner to consider the
option of "dignified exit or
resignation."81 Petitioner did not
disagree but listened intently.82 The sky
was falling fast on the petitioner. At 9:30
p.m., Senator Pimentel repeated to the
petitioner the urgency of making a graceful
and dignified exit. He gave the proposal a
sweetener by saying that petitioner would
be allowed to go abroad with enough funds
to support him and his
family.83 Significantly, the petitioner
expressed no objection to the
suggestion for a graceful and dignified
exit but said he would never leave the
country.84 At 10:00 p.m., petitioner
revealed to Secretary Angara, "Ed, Angie
(Reyes) guaranteed that I would have five
days to a week in the palace."85 This is
proof that petitioner had reconciled
himself to the reality that he had to
resign. His mind was already concerned
with the five-day grace period he could
stay in the palace. It was a matter of
time.
The pressure continued piling up. By 11:00
p.m., former President Ramos called up
Secretary Angara and requested, "Ed,
magtulungan tayo para magkaroon tayo ng
(let's cooperate to ensure a) peaceful and
orderly transfer of power."86 There was no
defiance to the request. Secretary Angara
readily agreed. Again, we note that at this
stage, the problem was already about a
peaceful and orderly transfer of power.
The resignation of the petitioner was
implied.
The first negotiation for a peaceful and
orderly transfer of power immediately
started at 12:20 a.m. of January 20, that
fateful Saturday. The negotiation was
limited to three (3) points: (1) the transition
period of five days after the petitioner's
resignation; (2) the guarantee of the safety
of the petitioner and his family, and (3) the
agreement to open the second envelope to
vindicate the name of the
petitioner.87 Again, we note that the
resignation of petitioner was not a
disputed point. The petitioner cannot
feign ignorance of this fact. According to
Secretary Angara, at 2:30 a.m., he briefed
the petitioner on the three points and the
following entry in the Angara Diary shows
the reaction of the petitioner, viz:
"x x x
I explain what happened during
the first round of negotiations.
The President immediately
stresses that he just wants the
five-day period promised by
Reyes, as well as to open the
second envelope to clear his
name.
If the envelope is opened, on
Monday, he says, he will leave
by Monday.
The President says. "Pagod na
pagod na ako. Ayoko na
masyado nang masakit. Pagod
na ako sa red tape,
bureaucracy, intriga. (I am
very tired. I don't want any
more of this – it's too painful.
I'm tired of the red tape, the
bureaucracy, the intrigue.)
I just want to clear my name,
then I will go."88
Again, this is high grade evidence that
the petitioner has resigned. The intent to
resign is clear when he said "x x x Ayoko
na masyado nang masakit." "Ayoko na"
are words of resignation.
The second round of
negotiation resumed at 7:30 a.m.
According to the Angara Diary, the following
happened:
"Opposition's deal
7:30 a.m. – Rene arrives with
Bert Romulo and (Ms.
Macapagal's spokesperson)
Rene Corona. For this round, I
am accompanied by Dondon
Bagatsing and Macel.
Rene pulls out a document titled
"Negotiating Points." It reads:
'1. The President shall sign a
resignation document within the
day, 20 January 2001, that will
be effective on Wednesday, 24
January 2001, on which day the
Vice President will assume the
Presidency of the Republic of
the Philippines.
2. Beginning to day, 20 January
2001, the transition process for
the assumption of the new
administration shall commence,
and persons designated by the
Vice President to various
positions and offices of the
government shall start their
orientation activities in
coordination with the incumbent
officials concerned.
3. The Armed Forces of the
Philippines and the Philippine
National Police shall function
under the Vice President as
national military and police
authority effective immediately.
4. The Armed Forced of the
Philippines, through its Chief of
Staff, shall guarantee the
security of the President and his
family as approved by the
national military and police
authority (Vice President).
5. It is to be noted that the
Senate will open the second
envelope in connection with the
alleged savings account of the
President in the Equitable PCI
Bank in accordance with the
rules of the Senate, pursuant to
the request to the Senate
President.
Our deal
We bring out, too, our discussion
draft which reads:
The undersigned parties, for and
in behalf of their respective
principals, agree and undertake
as follows:
'1. A transition will occur and
take place on Wednesday, 24
January 2001, at which time
President Joseph Ejercito
Estrada will turn over the
presidency to Vice President
Gloria Macapagal-Arroyo.
'2. In return, President Estrada
and his families are guaranteed
security and safety of their
person and property throughout
their natural lifetimes. Likewise,
President Estrada and his
families are guarantee freedom
from persecution or retaliation
from government and the private
sector throughout their natural
lifetimes.
This commitment shall be
guaranteed by the Armed Forces
of the Philippines (AFP) through
the Chief of Staff, as approved
by the national military and
police authorities – Vice
President (Macapagal).
'3. Both parties shall endeavor to
ensure that the Senate sitting as
an impeachment court will
authorize the opening of the
second envelope in the
impeachment trial as proof that
the subject savings account
does not belong to President
Estrada.
'4. During the five-day transition
period between 20 January 2001
and 24 January 2001 (the
'Transition Period"), the incoming
Cabinet members shall receive
an appropriate briefing from the
outgoing Cabinet officials as part
of the orientation program.
During the Transition Period, the
AFP and the Philippine National
Police (PNP) shall function Vice
President (Macapagal) as
national military and police
authorities.
Both parties hereto agree that
the AFP chief of staff and PNP
director general shall obtain all
the necessary signatures as
affixed to this agreement and
insure faithful implementation
and observance thereof.
Vice President Gloria
Macapagal-Arroyo shall issue a
public statement in the form and
tenor provided for in "Annex A"
heretofore attached to this
agreement."89
The second round of negotiation cements
the reading that the petitioner has resigned.
It will be noted that during this second
round of negotiation, the resignation of the
petitioner was again treated as a given fact.
The only unsettled points at that time were
the measures to be undertaken by the
parties during and after the transition
period.
According to Secretary Angara, the draft
agreement, which was premised on the
resignation of the petitioner was further
refined. It was then, signed by their side
and he was ready to fax it to General Reyes
and Senator Pimentel to await the signature
of the United Opposition. However, the
signing by the party of the respondent
Arroyo was aborted by her oath-taking. The
Angara diary narrates the fateful
events, viz;90
"xxx
11:00 a.m. – Between General
Reyes and myself, there is a firm
agreement on the five points to
effect a peaceful transition. I can
hear the general clearing all
these points with a group he is
with. I hear voices in the
background.
Agreement.
The agreement starts: 1. The
President shall resign today, 20
January 2001, which resignation
shall be effective on 24 January
2001, on which day the Vice
President will assume the
presidency of the Republic of the
Philippines.
xxx
The rest of the agreement
follows:
2. The transition process for the
assumption of the new
administration shall commence
on 20 January 2001, wherein
persons designated by the Vice
President to various government
positions shall start orientation
activities with incumbent
officials.
'3. The Armed Forces of the
Philippines through its Chief of
Staff, shall guarantee the safety
and security of the President and
his families throughout their
natural lifetimes as approved by
the national military and police
authority – Vice President.
'4. The AFP and the Philippine
National Police (PNP) shall
function under the Vice
President as national military
and police authorities.
'5. Both parties request the
impeachment court to open the
second envelope in the
impeachment trial, the contents
of which shall be offered as
proof that the subject savings
account does not belong to the
President.
The Vice President shall issue a
public statement in the form and
tenor provided for in Annex "B"
heretofore attached to this
agreement.
11:20 a.m. – I am all set to fax
General Reyes and Nene
Pimentel our agreement, signed
by our side and awaiting the
signature of the United
opposition.
And then it happens. General
Reyes calls me to say that the
Supreme Court has decided that
Gloria Macapagal-Arroyo is
President and will be sworn in at
12 noon.
'Bakit hindi naman kayo
nakahintay? Paano na ang
agreement (why couldn't you
wait? What about the
agreement)?' I asked.
Reyes answered: 'Wala na, sir
(it's over, sir).'
I ask him: Di yung transition
period, moot and academic na?'
And General Reyes answers:
' Oo nga, I delete na natin, sir
(yes, we're deleting the part).'
Contrary to subsequent reports, I
do not react and say that there
was a double cross.
But I immediately instruct Macel
to delete the first provision on
resignation since this matter is
already moot and academic.
Within moments, Macel erases
the first provision and faxes the
documents, which have been
signed by myself, Dondon and
Macel, to Nene Pimentel and
General Reyes.
I direct Demaree Ravel to rush
the original document to General
Reyes for the signatures of the
other side, as it is important that
the provisions on security, at
least, should be respected.
I then advise the President that
the Supreme Court has ruled
that Chief Justice Davide will
administer the oath to Gloria at
12 noon.
The President is too stunned for
words:
Final meal
12 noon – Gloria takes her oath
as president of the Republic of
the Philippines.
12:20 p.m. – The PSG
distributes firearms to some
people inside the compound.
The president is having his final
meal at the presidential
Residence with the few friends
and Cabinet members who have
gathered.
By this time, demonstrators have
already broken down the first
line of defense at Mendiola. Only
the PSG is there to protect the
Palace, since the police and
military have already withdrawn
their support for the President.
1 p.m. – The President's
personal staff is rushing to pack
as many of the Estrada family's
personal possessions as they
can.
During lunch, Ronnie Puno
mentions that the president
needs to release a final
statement before leaving
Malacañang.
The statement reads: At twelve
o'clock noon today, Vice
President Gloria Macapagal-
Arroyo took her oath as
President of the Republic of the
Philippines. While along with
many other legal minds of our
country, I have strong and
serious doubts about the legality
and constitutionality of her
proclamation as President, I do
not wish to be a factor that will
prevent the restoration of unity
and order in our civil society.
 It is for this reason that I now
leave Malacañang Palace, the
seat of the presidency of this
country, for the sake of peace
and in order to begin the healing
process of our nation. I leave the
Palace of our people with
gratitude for the opportunities
given to me for service to our
people. I will not shirk from any
future challenges that may come
ahead in the same service of our
country.
I call on all my supporters and
followers to join me in the
promotion of a constructive
national spirit of reconciliation
and solidarity.
May the Almighty bless our
country and our beloved people.
MABUHAY!"'
It was curtain time for the petitioner.
In sum, we hold that the resignation of the
petitioner cannot be doubted. It was
confirmed by his leaving Malacañang. In the
press release containing his final statement,
(1) he acknowledged the oath-taking of the
respondent as President of the Republic
albeit with reservation about its legality; (2)
he emphasized he was leaving the Palace,
the seat of the presidency, for the sake of
peace and in order to begin the healing
process of our nation. He did not say he
was leaving the Palace due to any kind
inability and that he was going to re-assume
the presidency as soon as the disability
disappears: (3) he expressed his gratitude
to the people for the opportunity to serve
them. Without doubt, he was referring to the
past opportunity given him to serve the
people as President (4) he assured that he
will not shirk from any future challenge that
may come ahead in the same service of our
country. Petitioner's reference is to a future
challenge after occupying the office of the
president which he has given up; and (5) he
called on his supporters to join him in the
promotion of a constructive national spirit of
reconciliation and solidarity. Certainly, the
national spirit of reconciliation and solidarity
could not be attained if he did not give up
the presidency. The press release was
petitioner's valedictory, his final act of
farewell. His presidency is now in the part
tense.
It is, however, urged that the petitioner did
not resign but only took a temporary leave
dated January 20, 2001 of the petitioner
sent to Senate President Pimentel and
Speaker Fuentebella is cited. Again, we
refer to the said letter, viz:
"Sir.
By virtue of the provisions of
Section II, Article VII of the
Constitution, I am hereby
transmitting this declaration that
I am unable to exercise the
powers and duties of my office.
By operation of law and the
Constitution, the Vice President
shall be the Acting president.
(Sgd.) Joseph Ejercito Estrada"
To say the least, the above letter is
wrapped in mystery.91 The pleadings filed
by the petitioner in the cases at bar did not
discuss, may even intimate, the
circumstances that led to its preparation.
Neither did the counsel of the petitioner
reveal to the Court these circumstances
during the oral argument. It strikes the
Court as strange that the letter, despite its
legal value, was never referred to by the
petitioner during the week-long crisis. To be
sure, there was not the slightest hint of its
existence when he issued his final press
release. It was all too easy for him to tell the
Filipino people in his press release that he
was temporarily unable to govern and that
he was leaving the reins of government to
respondent Arroyo for the time bearing.
Under any circumstance, however, the
mysterious letter cannot negate the
resignation of the petitioner. If it was
prepared before the press release of the
petitioner clearly as a later act. If, however,
it was prepared after the press released,
still, it commands scant legal significance.
Petitioner's resignation from the presidency
cannot be the subject of a changing caprice
nor of a whimsical will especially if the
resignation is the result of his reputation by
the people. There is another reason why
this Court cannot given any legal
significance to petitioner's letter and this
shall be discussed in issue number III of
this Decision.
After petitioner contended that as a matter
of fact he did not resign, he also argues that
he could not resign as a matter of law. He
relies on section 12 of RA No. 3019,
otherwise known as the Anti-graft and
Corrupt Practices Act, which allegedly
prohibits his resignation, viz:
"Sec. 12. No public officer shall
be allowed to resign or retire
pending an investigation,
criminals or administrative, or
pending a prosecution against
him, for any offense under this
Act or under the provisions of
the Revised Penal Code on
bribery."
A reading of the legislative history of RA
No. 3019 will hardly provide any comfort to
the petitioner. RA No. 3019 originated form
Senate Bill No. 293. The original draft of the
bill, when it was submitted to the Senate,
did not contain a provision similar to section
12 of the law as it now stands. However, in
his sponsorship speech, Senator Arturo
Tolentino, the author of the bill, "reserved to
propose during the period of amendments
the inclusion of a provision to the effect that
no public official who is under prosecution
for any act of graft or corruption, or is under
administrative investigation, shall be
allowed to voluntarily resign or
retire."92 During the period of amendments,
the following provision was inserted as
section 15:
"Sec. 15. Termination of office –
No public official shall be
allowed to resign or retire
pending an investigation,
criminal or administrative, or
pending a prosecution against
him, for any offense under the
Act or under the provisions of
the Revised Penal Code on
bribery.
The separation or cessation of a
public official form office shall
not be a bar to his prosecution
under this Act for an offense
committed during his
incumbency."93
The bill was vetoed by then President
Carlos P. Garcia who questioned the
legality of the second paragraph of the
provision and insisted that the President's
immunity should extend after his tenure.
Senate Bill No. 571, which was substantially
similar Senate Bill No. 293, was thereafter
passed. Section 15 above became section
13 under the new bill, but the deliberations
on this particular provision mainly focused
on the immunity of the President, which was
one of the reasons for the veto of the
original bill. There was hardly any debate
on the prohibition against the resignation or
retirement of a public official with pending
criminal and administrative cases against
him. Be that as it may, the intent of the law
ought to be obvious. It is to prevent the act
of resignation or retirement from being used
by a public official as a protective shield to
stop the investigation of a pending criminal
or administrative case against him and to
prevent his prosecution under the Anti-Graft
Law or prosecution for bribery under the
Revised Penal Code. To be sure, no person
can be compelled to render service for that
would be a violation of his constitutional
right.94 A public official has the right not to
serve if he really wants to retire or resign.
Nevertheless, if at the time he resigns or
retires, a public official is facing
administrative or criminal investigation or
prosecution, such resignation or retirement
will not cause the dismissal of the criminal
or administrative proceedings against him.
He cannot use his resignation or retirement
to avoid prosecution.
There is another reason why petitioner's
contention should be rejected. In the cases
at bar, the records show that when
petitioner resigned on January 20, 2001,
the cases filed against him before the
Ombudsman were OMB Case Nos. 0-00-
1629, 0-00-1755, 0-00-1756, 0-00-1757 and
0-00-1758. While these cases have been
filed, the respondent Ombudsman refrained
from conducting the preliminary
investigation of the petitioner for the reason
that as the sitting President then, petitioner
was immune from suit. Technically, the said
cases cannot be considered as pending for
the Ombudsman lacked jurisdiction to act
on them. Section 12 of RA No. 3019 cannot
therefore be invoked by the petitioner for it
contemplates of cases whose investigation
or prosecution do not suffer from any
insuperable legal obstacle like the immunity
from suit of a sitting President.
Petitioner contends that the impeachment
proceeding is an administrative
investigation that, under section 12 of RA
3019, bars him from resigning. We hold
otherwise. The exact nature of an
impeachment proceeding is debatable. But
even assuming arguendo that it is an
administrative proceeding, it can not be
considered pending at the time petitioner
resigned because the process already
broke down when a majority of the senator-
judges voted against the opening of the
second envelope, the public and private
prosecutors walked out, the public
prosecutors filed their Manifestation of
Withdrawal of Appearance, and the
proceedings were postponed indefinitely.
There was, in effect, no impeachment case
pending against petitioner when he
resigned.
III
Whether or not the petitioner Is only
temporarily unable to Act as President.
We shall now tackle the contention of the
petitioner that he is merely temporarily
unable to perform the powers and duties of
the presidency, and hence is a President on
leave. As aforestated, the inability claim is
contained in the January 20, 2001 letter of
petitioner sent on the same day to Senate
President Pimentel and Speaker
Fuentebella.
Petitioner postulates that respondent Arroyo
as Vice President has no power to adjudge
the inability of the petitioner to discharge
the powers and duties of the presidency.
His significant submittal is that "Congress
has the ultimate authority under the
Constitution to determine whether the
President is incapable of performing his
functions in the manner provided for in
section 11 of article VII."95 This contention
is the centerpiece of petitioner's
stance that he is a President on leave and
respondent Arroyo is only an Acting
President.
An examination of section 11, Article VII is
in order. It provides:
"SEC. 11. Whenever the
President transmits to the
President of the Senate and the
Speaker of the House of
Representatives his written
declaration that he is unable to
discharge the powers and duties
of his office, and until he
transmits to them a written
declaration to the contrary, such
powers and duties shall be
discharged by the Vice-
President as Acting President.
Whenever a majority of all the
Members of the Cabinet transmit
to the President of the Senate
and to the Speaker of the House
of Representatives their written
declaration that the President is
unable to discharge the powers
and duties of his office, the Vice-
President shall immediately
assume the powers and duties
of the office as Acting President.
Thereafter, when the President
transmits to the President of the
Senate and to the Speaker of
the House of Representatives
his written declaration that no
inability exists, he shall
reassume the powers and duties
of his office. Meanwhile, should
a majority of all the Members of
the Cabinet transmit within five
days to the President of the
Senate and to the Speaker of
the House of Representatives
their written declaration that the
President is unable to discharge
the powers and duties of his
office, the Congress shall decide
the issue. For that purpose, the
Congress shall convene, if it is
not in session, within forty-eight
hours, in accordance with its
rules and without need of call.
If the Congress, within ten days
after receipt of the last written
declaration, or, if not in session,
within twelve days after it is
required to assemble,
determines by a two-thirds vote
of both Houses, voting
separately, that the President is
unable to discharge the powers
and duties of his office, the Vice-
President shall act as President;
otherwise, the President shall
continue exercising the powers
and duties of his office."
That is the law. Now, the operative facts:
1. Petitioner, on January
20, 2001, sent the
above letter claiming
inability to the Senate
President and
Speaker of the
House;
2. Unaware of the letter,
respondent Arroyo
took her oath of office
as President on
January 20, 2001 at
about 12:30 p.m.;
3. Despite receipt of the
letter, the House of
Representatives
passed on January
24, 2001 House
Resolution No. 175;96
On the same date, the House of the
Representatives passed House Resolution
No. 17697 which states:
"RESOLUTION EXPRESSING
THE SUPPORT OF THE
HOUSE OF
REPRESENTATIVES TO THE
ASSUMPTION INTO OFFICE
BY VICE PRESIDENT GLORIA
MACAPAGAL-ARROYO AS
PRESIDENT OF THE
REPUBLIC OF THE
PHILIPPINES, EXTENDING ITS
CONGRATULATIONS AND
EXPRESSING ITS SUPPORT
FOR HER ADMINISTRATION
AS A PARTNER IN THE
ATTAINMENT OF THE
NATION'S GOALS UNDER THE
CONSTITUTION
WHEREAS, as a consequence
of the people's loss of
confidence on the ability of
former President Joseph Ejercito
Estrada to effectively govern, the
Armed Forces of the Philippines,
the Philippine National Police
and majority of his cabinet had
withdrawn support from him;
WHEREAS, upon authority of
an en banc resolution of the
Supreme Court, Vice President
Gloria Macapagal-Arroyo was
sworn in as President of the
Philippines on 20 January 2001
before Chief Justice Hilario G.
Davide, Jr.;
WHEREAS, immediately
thereafter, members of the
international community had
extended their recognition to Her
Excellency, Gloria Macapagal-
Arroyo as President of the
Republic of the Philippines;
WHEREAS, Her Excellency,
President Gloria Macapagal-
Arroyo has espoused a policy of
national healing and
reconciliation with justice for the
purpose of national unity and
development;
WHEREAS, it is axiomatic that
the obligations of the
government cannot be achieved
if it is divided, thus by reason of
the constitutional duty of the
House of Representatives as an
institution and that of the
individual members thereof of
fealty to the supreme will of the
people, the House of
Representatives must ensure to
the people a stable, continuing
government and therefore must
remove all obstacles to the
attainment thereof;
WHEREAS, it is a concomitant
duty of the House of
Representatives to exert all
efforts to unify the nation, to
eliminate fractious tension, to
heal social and political wounds,
and to be an instrument of
national reconciliation and
solidarity as it is a direct
representative of the various
segments of the whole nation;
WHEREAS, without surrending
its independence, it is vital for
the attainment of all the
foregoing, for the House of
Representatives to extend its
support and collaboration to the
administration of Her Excellency,
President Gloria Macapagal-
Arroyo, and to be a constructive
partner in nation-building, the
national interest demanding no
less: Now, therefore, be it
Resolved by the House of
Representatives, To express its
support to the assumption into
office by Vice President Gloria
Macapagal-Arroyo as President
of the Republic of the
Philippines, to extend its
congratulations and to express
its support for her administration
as a partner in the attainment of
the Nation's goals under the
Constitution.
Adopted,
(Sgd.) FELICIANO BELMONTE
JR.
Speaker
This Resolution was adopted by
the House of Representatives on
January 24, 2001.
(Sgd.) ROBERTO P.
NAZARENO
Secretary General"
On February 7, 2001, the House of the
Representatives passed House Resolution
No. 17898 which states:
"RESOLUTION CONFIRMING
PRESIDENT GLORIA
MACAPAGAL-ARROYO'S
NOMINATION OF SENATOR
TEOFISTO T. GUINGONA, JR.
AS VICE PRESIDENT OF THE
REPUBLIC OF THE
PHILIPPINES
WHEREAS, there is a vacancy
in the Office of the Vice
President due to the assumption
to the Presidency of Vice
President Gloria Macapagal-
Arroyo;
WHEREAS, pursuant to Section
9, Article VII of the Constitution,
the President in the event of
such vacancy shall nominate a
Vice President from among the
members of the Senate and the
House of Representatives who
shall assume office upon
confirmation by a majority vote
of all members of both Houses
voting separately;
WHEREAS, Her Excellency,
President Gloria Macapagal-
Arroyo has nominated Senate
Minority Leader Teofisto T.
Guingona Jr., to the position of
Vice President of the Republic of
the Philippines;
WHEREAS, Senator Teofisto T.
Guingona Jr., is a public servant
endowed with integrity,
competence and courage; who
has served the Filipino people
with dedicated responsibility and
patriotism;
WHEREAS, Senator Teofisto T.
Guingona, Jr. possesses sterling
qualities of true statesmanship,
having served the government in
various capacities, among
others, as Delegate to the
Constitutional Convention,
Chairman of the Commission on
Audit, Executive Secretary,
Secretary of Justice, Senator of
the Philippines – qualities which
merit his nomination to the
position of Vice President of the
Republic: Now, therefore, be it
Resolved as it is hereby
resolved by the House of
Representatives, That the House
of Representatives confirms the
nomination of Senator Teofisto
T. Guingona, Jr. as the Vice
President of the Republic of the
Philippines.
Adopted,
(Sgd.) FELICIANO BELMONTE
JR.
Speaker
This Resolution was adopted by
the House of Representatives on
February 7, 2001.
(Sgd.) ROBERTO P.
NAZARENO
Secretary General"
(4) Also, despite receipt of
petitioner's letter claiming
inability, some twelve (12)
members of the Senate signed
the following:
"RESOLUTION
WHEREAS, the recent transition
in government offers the nation
an opportunity for meaningful
change and challenge;
WHEREAS, to attain desired
changes and overcome
awesome challenges the nation
needs unity of purpose and
resolve cohesive resolute (sic)
will;
WHEREAS, the Senate of the
Philippines has been the forum
for vital legislative measures in
unity despite diversities in
perspectives;
WHEREFORE, we recognize
and express support to the new
government of President Gloria
Macapagal-Arroyo and resolve
to discharge and overcome the
nation's challenges." 99
On February 7, the Senate also
passed Senate Resolution No.
82100 which states:
"RESOLUTION CONFIRMING
PRESIDENT GLORIA
MACAPAGAL ARROYO'S
NOMINATION OF SEM.
TEOFISTO T. GUINGONA, JR.
AS VICE PRESIDENT OF THE
REPUBLIC OF THE
PHILIPPINES
WHEREAS, there is vacancy in
the Office of the Vice President
due to the assumption to the
Presidency of Vice President
Gloria Macapagal-Arroyo;
WHEREAS, pursuant to Section
9 Article VII of the Constitution,
the President in the event of
such vacancy shall nominate a
Vice President from among the
members of the Senate and the
House of Representatives who
shall assume office upon
confirmation by a majority vote
of all members of both Houses
voting separately;
WHEREAS, Her Excellency,
President Gloria Macapagal-
Arroyo has nominated Senate
Minority Leader Teofisto T.
Guingona, Jr. to the position of
Vice President of the Republic of
the Philippines;
WHEREAS, Sen. Teofisto T.
Guingona, Jr. is a public servant
endowed with integrity,
competence and courage; who
has served the Filipino people
with dedicated responsibility and
patriotism;
WHEREAS, Sen. Teofisto T.
Guingona, Jr. possesses sterling
qualities of true statemanship,
having served the government in
various capacities, among
others, as Delegate to the
Constitutional Convention,
Chairman of the Commission on
Audit, Executive Secretary,
Secretary of Justice, Senator of
the land - which qualities merit
his nomination to the position of
Vice President of the Republic:
Now, therefore, be it
Resolved, as it is hereby
resolved, That the Senate
confirm the nomination of Sen.
Teofisto T. Guingona, Jr. as Vice
President of the Republic of the
Philippines.
Adopted,
(Sgd.) AQUILINO Q. PIMENTEL
JR.
President of the Senate
This Resolution was adopted by
the Senate on February 7, 2001.
 (Sgd.) LUTGARDO B. BARBO
Secretary of the Senate"
On the same date, February 7,
the Senate likewise
passed Senate Resolution No.
83101 which states:
"RESOLUTION RECOGNIZING
THAT THE IMPEACHMENT
COURT IS FUNCTUS OFFICIO
Resolved, as it is hereby
resolved. That the Senate
recognize that the Impeachment
Court is functus officio and has
been terminated.
Resolved, further, That the
Journals of the Impeachment
Court on Monday, January 15,
Tuesday, January 16 and
Wednesday, January 17, 2001
be considered approved.
Resolved, further, That the
records of the Impeachment
Court including the "second
envelope" be transferred to the
Archives of the Senate for
proper safekeeping and
preservation in accordance with
the Rules of the Senate.
Disposition and retrieval thereof
shall be made only upon written
approval of the Senate
president.
Resolved, finally. That all parties
concerned be furnished copies
of this Resolution.
Adopted,
(Sgd.) AQUILINO Q. PIMENTEL,
JR.
President of the Senate
This Resolution was adopted by
the Senate on February 7, 2001.
(Sgd.) LUTGARDO B. BARBO
Secretary of the Senate"
(5) On February 8, the Senate also
passed Resolution No. 84 "certifying to the
existence of vacancy in the Senate and
calling on the COMELEC to fill up such
vacancy through election to be held
simultaneously with the regular election on
May 14, 2001 and the Senatorial candidate
garnering the thirteenth (13th) highest
number of votes shall serve only for the
unexpired term of Senator Teofisto T.
Guingona, Jr.'
(6) Both houses of Congress started
sending bills to be signed into law by
respondent Arroyo as President.
(7) Despite the lapse of time and still
without any functioning Cabinet, without any
recognition from any sector of government,
and without any support from the Armed
Forces of the Philippines and the Philippine
National Police, the petitioner continues to
claim that his inability to govern is only
momentary.
What leaps to the eye from these
irrefutable facts is that both houses of
Congress have recognized respondent
Arroyo as the President. Implicitly clear
in that recognition is the premise that
the inability of petitioner Estrada. Is no
longer temporary. Congress has clearly
rejected petitioner's claim of inability.
The question is whether this Court has
jurisdiction to review the claim of
temporary inability of petitioner
Estrada and thereafter revise the decision
of both Houses of Congress recognizing
respondent Arroyo as president of the
Philippines. Following Tañada v.
Cuenco,102 we hold that this Court cannot
exercise its judicial power or this is an issue
"in regard to which full discretionary
authority has been delegated to the
Legislative xxx branch of the government."
Or to use the language in Baker vs.
Carr,103 there is a "textually demonstrable
or a lack of judicially discoverable and
manageable standards for resolving it."
Clearly, the Court cannot pass upon
petitioner's claim of inability to discharge the
power and duties of the presidency. The
question is political in nature and
addressed solely to Congress by
constitutional fiat. It is a political issue,
which cannot be decided by this Court
without transgressing the principle of
separation of powers.
In fine, even if the petitioner can prove
that he did not resign, still, he cannot
successfully claim that he is a President
on leave on the ground that he is merely
unable to govern temporarily. That claim
has been laid to rest by Congress and
the decision that respondent Arroyo is
the de jure, president made by a co-
equal branch of government cannot be
reviewed by this Court.
IV
Whether or not the petitioner enjoys
immunity from suit.
Assuming he enjoys immunity, the
extent of the immunity
Petitioner Estrada makes two
submissions: first, the cases filed against
him before the respondent Ombudsman
should be prohibited because he has not
been convicted in the impeachment
proceedings against him; and second, he
enjoys immunity from all kinds of suit,
whether criminal or civil.
Before resolving petitioner's contentions, a
revisit of our legal history executive
immunity will be most enlightening. The
doctrine of executive immunity in this
jurisdiction emerged as a case law. In
the 1910 case of Forbes, etc. vs. Chuoco
Tiaco and Crosfield,104 the respondent
Tiaco, a Chinese citizen, sued petitioner W.
Cameron Forbes, Governor-General of the
Philippine Islands. J.E. Harding and C.R.
Trowbridge, Chief of Police and Chief of the
Secret Service of the City of Manila,
respectively, for damages for allegedly
conspiring to deport him to China. In
granting a writ of prohibition, this Court,
speaking thru Mr. Justice Johnson, held:
" The principle of nonliability, as
herein enunciated, does not
mean that the judiciary has no
authority to touch the acts of the
Governor-General; that he may,
under cover of his office, do
what he will, unimpeded and
unrestrained. Such a
construction would mean that
tyranny, under the guise of the
execution of the law, could walk
defiantly abroad, destroying
rights of person and of property,
wholly free from interference of
courts or legislatures. This does
not mean, either that a person
injured by the executive authority
by an act unjustifiable under the
law has n remedy, but must
submit in silence. On the
contrary, it means, simply, that
the governors-general, like the
judges if the courts and the
members of the Legislature, may
not be personally mulcted in civil
damages for the consequences
of an act executed in the
performance of his official duties.
The judiciary has full power to,
and will, when the mater is
properly presented to it and the
occasion justly warrants it,
declare an act of the Governor-
General illegal and void and
place as nearly as possible in
status quo any person who has
been deprived his liberty or his
property by such act. This
remedy is assured to every
person, however humble or of
whatever country, when his
personal or property rights have
been invaded, even by the
highest authority of the state.
The thing which the judiciary can
not do is mulct the Governor-
General personally in damages
which result from the
performance of his official duty,
any more than it can a member
of the Philippine Commission of
the Philippine Assembly. Public
policy forbids it.
Neither does this principle of
nonliability mean that the chief
executive may not be personally
sued at all in relation to acts
which he claims to perform as
such official. On the contrary, it
clearly appears from the
discussion heretofore had,
particularly that portion which
touched the liability of judges
and drew an analogy between
such liability and that of the
Governor-General, that the latter
is liable when he acts in a case
so plainly outside of his power
and authority that he can not be
said to have exercised discretion
in determining whether or not he
had the right to act. What is held
here is that he will be protected
from personal liability for
damages not only when he acts
within his authority, but also
when he is without authority,
provided he actually used
discretion and judgement, that
is, the judicial faculty, in
determining whether he had
authority to act or not. In other
words, in determining the
question of his authority. If he
decide wrongly, he is still
protected provided the question
of his authority was one over
which two men, reasonably
qualified for that position, might
honestly differ; but he s not
protected if the lack of authority
to act is so plain that two such
men could not honestly differ
over its determination. In such
case, be acts, not as Governor-
General but as a private
individual, and as such must
answer for the consequences of
his act."
Mr. Justice Johnson underscored the
consequences if the Chief Executive was
not granted immunity from suit, viz "xxx.
Action upon important matters of state
delayed; the time and substance of the
chief executive spent in wrangling litigation;
disrespect engendered for the person of
one of the highest officials of the state and
for the office he occupies; a tendency to
unrest and disorder resulting in a way, in
distrust as to the integrity of government
itself."105
Our 1935 Constitution took effect but it did
not contain any specific provision on
executive immunity. Then came the tumult
of the martial law years under the late
President Ferdinand E. Marcos and the
1973 Constitution was born. In 1981, it was
amended and one of the amendments
involved executive immunity. Section 17,
Article VII stated:
"The President shall be immune
from suit during his tenure.
Thereafter, no suit whatsoever
shall lie for official acts done by
him or by others pursuant to his
specific orders during his tenure.
The immunities herein provided
shall apply to the incumbent
President referred to in Article
XVII of this Constitution.
In his second Vicente G. Sinco professional
Chair lecture entitled, "Presidential
Immunity and All The King's Men: The Law
of Privilege As a Defense To Actions For
Damages,"106 petitioner's learned counsel,
former Dean of the UP College of Law, Atty.
Pacificao Agabin, brightened the
modifications effected by this constitutional
amendment on the existing law on
executive privilege. To quote his
disquisition:
"In the Philippines, though, we
sought to do the Americans one
better by enlarging and fortifying
the absolute immunity concept.
First, we extended it to shield the
President not only form civil
claims but also from criminal
cases and other claims. Second,
we enlarged its scope so that it
would cover even acts of the
President outside the scope of
official duties. And third, we
broadened its coverage so as to
include not only the President
but also other persons, be they
government officials or private
individuals, who acted upon
orders of the President. It can be
said that at that point most of us
were suffering from AIDS (or
absolute immunity defense
syndrome)."
The Opposition in the then Batasan
Pambansa sought the repeal of this
Marcosian concept of executive immunity in
the 1973 Constitution. The move was led by
them Member of Parliament, now Secretary
of Finance, Alberto Romulo, who argued
that the after incumbency immunity granted
to President Marcos violated the principle
that a public office is a public trust. He
denounced the immunity as a return to the
anachronism "the king can do no
wrong."107 The effort failed.
The 1973 Constitution ceased to exist when
President Marcos was ousted from office by
the People Power revolution in 1986. When
the 1987 Constitution was crafted, its
framers did not reenact the executive
immunity provision of the 1973 Constitution.
The following explanation was given by
delegate J. Bernas vis:108
"Mr. Suarez. Thank you.
The last question is with
reference to the Committee's
omitting in the draft proposal the
immunity provision for the
President. I agree with
Commissioner Nolledo that the
Committee did very well in
striking out second sentence, at
the very least, of the original
provision on immunity from suit
under the 1973 Constitution. But
would the Committee members
not agree to a restoration of at
least the first sentence that the
President shall be immune from
suit during his tenure,
considering that if we do not
provide him that kind of an
immunity, he might be spending
all his time facing litigation's, as
the President-in-exile in Hawaii
is now facing litigation's almost
daily?
Fr. Bernas. The reason for the
omission is that we consider it
understood in present
jurisprudence that during his
tenure he is immune from suit.
Mr. Suarez. So there is no need
to express it here.
Fr. Bernas. There is no need. It
was that way before. The only
innovation made by the 1973
Constitution was to make that
explicit and to add other things.
Mr. Suarez. On that
understanding, I will not press
for any more query, Madam
President.
I think the Commissioner for the
clarifications."
We shall now rule on the contentions of
petitioner in the light of this history. We
reject his argument that he cannot be
prosecuted for the reason that he must first
be convicted in the impeachment
proceedings. The impeachment trial of
petitioner Estrada was aborted by the
walkout of the prosecutors and by the
events that led to his loss of the presidency.
Indeed, on February 7, 2001, the Senate
passed Senate Resolution No. 83
"Recognizing that the Impeachment Court is
Functus Officio."109 Since, the Impeachment
Court is now functus officio, it is untenable
for petitioner to demand that he should first
be impeached and then convicted before he
can be prosecuted. The plea if granted,
would put a perpetual bar against his
prosecution. Such a submission has
nothing to commend itself for it will place
him in a better situation than a non-sitting
President who has not been subjected to
impeachment proceedings and yet can be
the object of a criminal prosecution. To be
sure, the debates in the Constitutional
Commission make it clear that when
impeachment proceedings have become
moot due to the resignation of the
President, the proper criminal and civil
cases may already be filed against him,
viz:110
"xxx
Mr. Aquino. On another point, if
an impeachment proceeding has
been filed against the President,
for example, and the President
resigns before judgement of
conviction has been rendered by
the impeachment court or by the
body, how does it affect the
impeachment proceeding? Will it
be necessarily dropped?
Mr. Romulo. If we decide the
purpose of impeachment to
remove one from office, then his
resignation would render the
case moot and academic.
However, as the provision says,
the criminal and civil aspects of it
may continue in the ordinary
courts."
This is in accord with our ruling In Re:
Saturnino Bermudez111 that 'incumbent
Presidents are immune from suit or from
being brought to court during the period of
their incumbency and tenure" but not
beyond. Considering the peculiar
circumstance that the impeachment
process against the petitioner has been
aborted and thereafter he lost the
presidency, petitioner Estrada cannot
demand as a condition sine qua non to his
criminal prosecution before the
Ombudsman that he be convicted in the
impeachment proceedings. His reliance on
the case of Lecaroz vs.
Sandiganbayan112 and related cases113 are
inapropos for they have a different factual
milieu.
We now come to the scope of immunity that
can be claimed by petitioner as a non-sitting
President. The cases filed against petitioner
Estrada are criminal in character. They
involve plunder, bribery and graft and
corruption. By no stretch of the imagination
can these crimes, especially plunder which
carries the death penalty, be covered by the
alleged mantle of immunity of a non-sitting
president. Petitioner cannot cite any
decision of this Court licensing the
President to commit criminal acts and
wrapping him with post-tenure immunity
from liability. It will be anomalous to hold
that immunity is an inoculation from liability
for unlawful acts and conditions. The rule is
that unlawful acts of public officials are not
acts of the State and the officer who acts
illegally is not acting as such but stands in
the same footing as any trespasser.114
Indeed, critical reading of current literature
on executive immunity will reveal a judicial
disinclination to expand the privilege
especially when it impedes the search for
truth or impairs the vindication of a right. In
the 1974 case of US v. Nixon,115 US
President Richard Nixon, a sitting
President, was subpoenaed to produce
certain recordings and documents relating
to his conversations with aids and advisers.
Seven advisers of President Nixon's
associates were facing charges of
conspiracy to obstruct Justice and other
offenses, which were committed in a
burglary of the Democratic National
Headquarters in Washington's Watergate
Hotel during the 972 presidential campaign.
President Nixon himself was named an
unindicted co-conspirator. President Nixon
moved to quash the subpoena on the
ground, among others, that the President
was not subject to judicial process and that
he should first be impeached and removed
from office before he could be made
amenable to judicial proceedings. The claim
was rejected by the US Supreme Court. It
concluded that "when the ground for
asserting privilege as to subpoenaed
materials sought for use in a criminal trial is
based only on the generalized interest in
confidentiality, it cannot prevail over the
fundamental demands of due process of
law in the fair administration of criminal
justice." In the 1982 case of Nixon v.
Fitzgerald,116 the US Supreme Court further
held that the immunity of the president from
civil damages covers only "official acts."
Recently, the US Supreme Court had the
occasion to reiterate this doctrine in the
case of Clinton v. Jones117 where it held
that the US President's immunity from suits
for money damages arising out of their
official acts is inapplicable to unofficial
conduct.
There are more reasons not to be
sympathetic to appeals to stretch the scope
of executive immunity in our jurisdiction.
One of the great themes of the 1987
Constitution is that a public office is a public
trust.118 It declared as a state policy that
"the State shall maintain honesty and
integrity in the public service and take
positive and effective measures against
graft and corruptio."119 it ordained that
"public officers and employees must at all
times be accountable to the people, serve
them with utmost responsibility, integrity,
loyalty, and efficiency act with patriotism
and justice, and lead modest lives."120 It set
the rule that 'the right of the State to recover
properties unlawfully acquired by public
officials or employees, from them or from
their nominees or transferees, shall not be
barred by prescription, latches or
estoppel."121 It maintained the
Sandiganbayan as an anti-graft court.122 It
created the office of the Ombudsman and
endowed it with enormous powers, among
which is to "investigate on its own, or on
complaint by any person, any act or
omission of any public official, employee,
office or agency, when such act or omission
appears to be illegal, unjust improper or
inefficient."123 The Office of the
Ombudsman was also given fiscal
autonomy.124 These constitutional policies
will be devalued if we sustain petitioner's
claim that a non-sitting president enjoys
immunity from suit for criminal acts
committed during his incumbency.
V our bedrooms. These news form
Whether or not the prosecution of
petitioner
Estrada should be enjoined due to
prejudicial publicity
Petitioner also contends that the
respondent Ombudsman should be stopped
from conducting the investigation of the
cases filed against him due to the barrage
of prejudicial publicity on his guilt. He
submits that the respondent Ombudsman
has developed bias and is all set file the
criminal cases violation of his right to due
process.
There are two (2) principal legal and
philosophical schools of thought on how to
deal with the rain of unrestrained publicity
during the investigation and trial of high
profile cases.125 The British approach the
problem with the presumption that publicity
will prejudice a jury. Thus, English courts
readily stay and stop criminal trials when
the right of an accused to fair trial suffers a
threat.126 The American approach is
different. US courts assume a skeptical
approach about the potential effect of
pervasive publicity on the right of an
accused to a fair trial. They have developed
different strains of tests to resolve this
issue, i.e., substantial; probability of
irreparable harm, strong likelihood, clear
and present danger, etc.
This is not the first time the issue of trial by
publicity has been raised in this Court to
stop the trials or annul convictions in high
profile criminal cases.127 In People vs.
Teehankee, Jr.,128 later reiterated in the
case of Larranaga vs. court of Appeals, et
al.,129 we laid down the doctrine that:
"We cannot sustain appellant's
claim that he was denied the
right to impartial trial due to
prejudicial publicity. It is true that
the print and broadcast media
gave the case at bar pervasive
publicity, just like all high profile
and high stake criminal trials.
Then and now, we rule that the
right of an accused to a fair trial
is not incompatible to a free
press. To be sure, responsible
reporting enhances accused's
right to a fair trial for, as well
pointed out, a responsible press
has always been regarded as
the criminal field xxx. The press
does not simply publish
information about trials but
guards against the miscarriage
of justice by subjecting the
police, prosecutors, and judicial
processes to extensive public
scrutiny and criticism.
Pervasive publicity is not per se
prejudicial to the right of an
accused to fair trial. The mere
fact that the trial of appellant was
given a day-to-day, gavel-to-
gavel coverage does not by itself
prove that the publicity so
permeated the mind of the trial
judge and impaired his
impartiality. For one, it is
impossible to seal the minds of
members of the bench from pre-
trial and other off-court publicity
of sensational criminal cases.
The state of the art of our
communication system brings
news as they happen straight to
our breakfast tables and right to
part of our everyday menu of the
facts and fictions of life. For
another, our idea of a fair and
impartial judge is not that of a
hermit who is out of touch with
the world. We have not installed
the jury system whose members
are overly protected from
publicity lest they lose there
impartially. xxx xxx xxx. Our
judges are learned in the law
and trained to disregard off-court
evidence and on-camera
performances of parties to
litigation. Their mere exposure to
publications and publicity stunts
does not per se fatally infect
their impartiality.
At best, appellant can only
conjure possibility of prejudice
on the part of the trial judge due
to the barrage of publicity that
characterized the investigation
and trial of the case. In
Martelino, et al. v. Alejandro, et
al., we rejected this standard of
possibility of prejudice and
adopted the test of actual
prejudice as we ruled that to
warrant a finding of prejudicial
publicity, there must be
allegation and proof that the
judges have been unduly
 influenced, not simply that they concerned and
might be, by the barrage of discouraging perjury,
publicity. In the case at a bar, the misconduct of
the records do not show that the participants, or
trial judge developed actual bias decisions based on
against appellants as a secret bias or
consequence of the extensive partiality. In addition,
media coverage of the pre-trial the significant
and trial of his case. The totality community
of circumstances of the case therapeutic value of
does not prove that the trial public trials was
judge acquired a fixed opinion as recognized when a
a result of prejudicial publicity, shocking crime
which is incapable of change occurs a community
even by evidence presented reaction of outrage
during the trial. Appellant has the and public protest
burden to prove this actual bias often follows, and
and he has not discharged the thereafter the open
burden.' processes of justice
serve an important
We expounded further on this doctrine in prophylactic purpose,
the subsequent case of Webb vs. Hon. Raul providing an outlet for
de Leon, etc.130 and its companion cases, community concern,
viz: hostility and emotion.
To work effectively, it
is important that
"Again petitioners raise the effect society's criminal
of prejudicial publicity on their process satisfy the
right to due process while appearance of
undergoing preliminary justice,' Offutt v.
investigation. We find no United States, 348
procedural impediment to its US 11, 14, 99 L ED
early invocation considering the 11, 75 S Ct 11, which
substantial risk to their liberty can best be provided
while undergoing a preliminary by allowing people to
investigation. observe such
process. From this
xxx unbroken,
uncontradicted
The democratic settings, media history, supported by
coverage of trials of sensational reasons as valid
cases cannot be avoided and today as in centuries
oftentimes, its excessiveness past, it must be
has been aggravated by kinetic concluded that a
developments in the presumption of
telecommunications industry. For openness inheres in
sure, few cases can match the the very nature of a
high volume and high velocity of criminal trial under
publicity that attended the this Nation's system
preliminary investigation of the of justice, Cf., e,g.,
case at bar. Our daily diet of Levine v. United
facts and fiction about the case States, 362 US 610, 4
continues unabated even today. L Ed 2d 989, 80 S Ct
Commentators still bombard the 1038.
public with views not too many of b. The freedoms of
which are sober and sublime. speech. Press and
Indeed, even the principal actors assembly, expressly
in the case – the NBI, the guaranteed by the
respondents, their lawyers and First Amendment,
their sympathizers have share a common core
participated in this media blitz. purpose of assuring
The possibility of media abuses freedom of
and their threat to a fair trial communication on
notwithstanding, criminal trials matters relating to the
cannot be completely closed to functioning of
the press and public. In the government. In
seminal case of Richmond guaranteeing freedom
Newspapers, Inc. v. Virginia, it such as those of
was speech and press,
the First Amendment
can be read as
xxx protecting the right of
everyone to attend
a. The historical trials so as give
evidence of the meaning to those
evolution of the explicit guarantees;
criminal trial in Anglo- the First Amendment
American justice right to receive
demonstrates information and ideas
conclusively that at means, in the context
the time this Nation's of trials, that the
organic laws were guarantees of speech
adopted, criminal and press, standing
trials both here and in alone, prohibit
England had long government from
been presumptively summarily closing
open, thus giving courtroom doors
assurance that the which had long been
proceedings were open to the public at
conducted fairly to all the time the First
 Amendment was it does not appear that they
adopted. Moreover, considered any extra-record
the right of assembly evidence except evidence
is also relevant, properly adduced by the parties.
having been regarded The length of time the
not only as an investigation was conducted
independent right but despite its summary nature and
also as a catalyst to the generosity with which they
augment the free accommodated the discovery
exercise of the other motions of petitioners speak well
First Amendment of their fairness. At no instance,
rights with which the we note, did petitioners seek the
draftsmen disqualification of any member of
deliberately linked it. the DOJ Panel on the ground of
A trial courtroom is a bias resulting from their
public place where bombardment of prejudicial
the people generally publicity." (emphasis supplied)
and representatives
of the media have a Applying the above ruling, we hold
right to be present, that there is not enough evidence to
and where their warrant this Court to enjoin the
presence historically preliminary investigation of the
has been thought to petitioner by the respondent
enhance the integrity Ombudsman. Petitioner needs to offer
and quality of what more than hostile headlines to discharge his
takes place. burden of proof.131 He needs to show more
c. Even though the weighty social science evidence to
Constitution contains successfully prove the impaired capacity of
no provision which be a judge to render a bias-free decision. Well
its terms guarantees to note, the cases against the petitioner
to the public the right are still undergoing preliminary
to attend criminal investigation by a special panel of
trials, various prosecutors in the office of the respondent
fundamental rights, Ombudsman. No allegation whatsoever has
not expressly been made by the petitioner that the minds
guaranteed, have of the members of this special panel have
been recognized as already been infected by bias because of
indispensable to the the pervasive prejudicial publicity against
enjoyment of him. Indeed, the special panel has yet to
enumerated rights. come out with its findings and the Court
The right to attend cannot second guess whether its
criminal trial is implicit recommendation will be unfavorable to the
in the guarantees of petitioner.1âwphi1.nêt
the First Amendment:
without the freedom
to attend such trials, The records show that petitioner has
which people have instead charged respondent Ombudsman
exercised for himself with bias. To quote petitioner's
centuries, important submission, the respondent Ombudsman
aspects of freedom of "has been influenced by the barrage of
speech and of the slanted news reports, and he has buckled
press be eviscerated. to the threats and pressures directed at him
by the mobs."132 News reports have also
been quoted to establish that the
Be that as it may, we recognize respondent Ombudsman has already
that pervasive and prejudicial prejudged the cases of the petitioner133 and
publicity under certain it is postulated that the prosecutors
circumstances can deprive an investigating the petitioner will be influenced
accused of his due process right by this bias of their superior.
to fair trial. Thus, in Martelino, et
al. vs. Alejandro, et al., we held
that to warrant a finding of Again, we hold that the evidence proffered
prejudicial publicity there must by the petitioner is insubstantial. The
be allegation and proof that the accuracy of the news reports referred to by
judges have been unduly the petitioner cannot be the subject of
influenced, not simply that they judicial notice by this Court especially in
might be, by the barrage of light of the denials of the respondent
publicity. In the case at bar, we Ombudsman as to his alleged prejudice and
find nothing in the records that the presumption of good faith and regularity
will prove that the tone and in the performance of official duty to which
content of the publicity that he is entitled. Nor can we adopt the
attended the investigation of theory of derivative prejudice of
petitioners fatally infected the petitioner, i.e., that the prejudice of
fairness and impartiality of the respondent Ombudsman flows to his
DOJ Panel. Petitioners cannot subordinates. In truth, our Revised Rules
just rely on the subliminal effects of Criminal Procedure, give investigation
of publicity on the sense of prosecutors the independence to make their
fairness of the DOJ Panel, for own findings and recommendations albeit
these are basically unbeknown they are reviewable by their
and beyond knowing. To be superiors.134 They can be reversed but they
sure, the DOJ Panel is can not be compelled cases which they
composed of an Assistant Chief believe deserve dismissal. In other words,
State Prosecutor and Senior investigating prosecutors should not be
State Prosecutors. Their long treated like unthinking slot machines.
experience in criminal Moreover, if the respondent Ombudsman
investigation is a factor to resolves to file the cases against the
consider in determining whether petitioner and the latter believes that the
they can easily be blinded by the findings of probable cause against him is
klieg lights of publicity. Indeed, the result of bias, he still has the remedy of
their 26-page Resolution carries assailing it before the proper court.
no indubitable indicia of bias for
 VI.

Epilogue

A word of caution to the "hooting throng."

The cases against the petitioner will now
acquire a different dimension and then
move to a new stage - - - the Office of the
Ombudsman. Predictably, the call from the
majority for instant justice will hit a higher
decibel while the gnashing of teeth of the
minority will be more threatening. It is the
sacred duty of the respondent Ombudsman
to balance the right of the State to
prosecute the guilty and the right of an
accused to a fair investigation and trial
which has been categorized as the "most
fundamental of all freedoms."135 To be sure,
the duty of a prosecutor is more to do
justice and less to prosecute. His is the
obligation to insure that the preliminary
investigation of the petitioner shall have a
circus-free atmosphere. He has to provide
the restraint against what Lord Bryce calls
"the impatient vehemence of the majority."
Rights in a democracy are not decided by
the mob whose judgment is dictated by
rage and not by reason. Nor are rights
necessarily resolved by the power of
number for in a democracy, the dogmatism
of the majority is not and should never be
the definition of the rule of law. If
democracy has proved to be the best form
of government, it is because it has
respected the right of the minority to
convince the majority that it is wrong.
Tolerance of multiformity of thoughts,
however offensive they may be, is the key
to man's progress from the cave to
civilization. Let us not throw away that key
just to pander to some people's prejudice.

IN VIEW WHEREOF, the petitions of

Joseph Ejercito Estrada challenging the
respondent Gloria Macapagal-Arroyo as
the de jure 14th President of the Republic
are DISMISSED.

SO ORDERED.
 SECOND DIVISION
G.R. No. 188658, January 11, 2017
HEIRS OF TEODORA LOYOLA,
REPRESENTED HEREIN BY ZOSIMO L.
MENDOZA, SR., Petitioners, v. COURT OF
APPEALS AND ALICIA R.
LOYOLA, Respondents.
DECISION
LEONEN, J.:
This resolves a Petition for
Certiorari1 assailing the Court of Appeals'
December 22, 2008 Decision2 and its May
20, 2009 Resolution3 in CA-G.R. CV No.
88655. The assailed decision affirmed the
Decision4 of Branch 3 of the Regional Trial
Court, City of Balanga, which dismissed
petitioners Heirs of Teodora Loyola's
Complaint for annulment of free patent and
original certificate of title, reconveyance of
ownership and possession, and
damages.5 The assailed resolution denied
the heirs' Motion for Reconsideration.6
This case involves a 4,419-square-meter
parcel of land located in Lingatin, Morong,
Bataan, known as Lot No. 780, Cad. 262 of
the Morong Cadastre.7 The land is formerly
a public agricultural land planted with nipa
and coconut.8
On May 19, 2003, the Heirs of Teodora
Loyola (Heirs),9 represented by Zosimo
Mendoza, Sr. (Zosimo), filed a Complaint
for annulment of free patent and original
certificate of title, reconveyance of
ownership and possession, and damages
against respondent Alicia Loyola
(Alicia).10 The Heirs claimed that the
property belonged to the parents of their
mother, Teodora Loyola (Teodora), who
had been in possession of the property
since time immemorial.11 Teodora inherited
the property from her parents upon their
demise. In turn, when Teodora died in
1939, the Heirs inherited it from her.12
The Heirs insisted that they since
maintained open, continuous, exclusive,
and notorious possession until the
present.13 However, Alicia was allegedly
able to obtain Free Patent No. (III-14)
001627 and Original Certificate of Title No.
178214 over the property through fraud and
misrepresentation.15 Alicia was the wife of
their deceased cousin Gabriel Loyola
(Gabriel), who was given permission to use
part of Teodora's property.16
In her Answer,17 Alicia denied the
allegations of fraud and illegality on the
registration of the free patent and issuance
of the original certificate of title.18 She
countered that the Complaint was barred by
laches and prescription as the free patent
was registered as early as December
1985.19
The case proceeded to trial.20
The Heirs relied on testimonial evidence to
prove their claim over the property. Zosimo
testified that he and his siblings inherited
the property from their mother.21 He
admitted that their cousin Gabriel was given
permission to use part of the property, but
they never expected him or his wife Alicia to
apply for a free patent and title over the
entire property.22 Zosimo further explained
that they filed the Complaint only in 2003 as
after Gabriel died, they tried for several
years to peacefully recover the property
from Alicia, but to no avail.23 Zosimo and his
sister Paulina were also unaware of the
condition of the property as they had been
residing in the United States of America.24
Jose Perez, their neighbor, corroborated
Zosimo's testimony that Teodora was
known in town as the owner of the
property.25cralawred However, upon cross
examination, Jose Perez admitted that
Teodora had a brother, Jose Loyola, the
father of Gabriel and father-in-law of
Alicia.26 He also admitted that he did not
know if Teodora and her brother co-owned
the property.27
The Heirs could only present a tax
declaration issued in 1948 as documentary
evidence to prove their claim over the
property.28 Although they maintained that
one of the heirs, Raymunda, had religiously
paid the real estate taxes, they could not
present any receipts because these were
allegedly lost.29
Alicia denied all the allegations of the Heirs
and maintained that she and Gabriel legally
and regularly obtained the free patent and
the original certificate of title.30
The Regional Trial Court did not rule on the
merits.31 Instead, it dismissed the case
without prejudice for failure to implead an
indispensable party.32 The trial court found
that the successors of one of the heirs,
Guillermo Mendoza (Zosimo's deceased
brother), were not impleaded as party-
plaintiffs.33 The Regional Trial Court held:
In the light of the fact that the surviving legal
heirs of the deceased Guillermo Mendoza
are pro-indiviso co-owners of the property in
question together with the rest of the heirs
of the late Teodora Loyola who, as such are
indispensable parties in this case without
whom no final determination can be
rendered by the Court, there is no option at
hand but to dismiss the Complaint for failure
of plaintiffs to implead therein said
indispensable parties.
As a matter of course, the Court finds no
more need to delve into the merits of the
case as well as the issues raised by the
parties.
WHEREFORE, the Complaint is
DISMISSED, but without prejudice.
No pronouncement as to costs.
SO ORDERED.34
The Heirs moved for reconsideration,35 but
the Motion was denied in the Order dated
October 30, 2006.36
The Heirs then filed an appeal before the
Court of Appeals questioning the
dismissal.37
In its Decision38 dated December 22, 2008,
the Court of Appeals upheld the Regional
Trial Court's dismissal of the case.
The Court of Appeals found that the
Regional Trial Court erred in finding that
there was a failure to implead an
indispensable party as the heirs of
Guillermo Mendoza were not indispensable
parties and judgment could be rendered
without impleading them as party-
plaintiffs.39 It noted that in explicitly
identifying themselves in the Complaint as
representatives of Guillermo Mendoza and
executing a Special Power of Attorney for
Zosimo to represent them in the case, the
heirs of Guillermo Mendoza voluntarily
submitted themselves to the jurisidiction of
the trial court.40
Nevertheless, the Court of Appeals found
that the evidence presented by the Heirs
was insufficient to overcome the
presumption of regularity of the free patent
and original certificate of title issued to
Alicia.41 It found that the Heirs failed to
submit evidence showing that Teodora
alone inherited the property when
testimonies revealed that she had a brother.
Likewise, they failed to prove that they were
legally related to or were the only heirs of
Teodora.42 They did not even prove that
she had died, and that she had the power to
validly transmit rights over the property to
them.43 Thus:
In the face of plaintiff Heirs' failure to prove
that they have a right or title to the subject
property, the dismissal of their complaint is
in order.
WHEREFORE, the appeal
is DISMISSED and the decision appealed
from is AFFIRMED in toto.44 (Emphasis in
the original)
The Heirs moved for reconsideration,45 but
the Motion was denied in the Court of
Appeals Resolution46 dated May 20, 2009.
On July 24, 2009, the Heirs of Teodora
Loyola filed this Petition for Certiorari.47
Petitioners claim that the Court of Appeals
committed grave abuse of discretion
amounting to lack or excess of jurisdiction
in going beyond the issues raised on
appeal. They claim that the Court of
Appeals touched on the factual findings of
the Regional Trial Court although these
were not even contested by
respondent.48 They insist that their appeal
focused only on the procedural aspect of
jurisdiction over indispensable parties.
Thus, the Court of Appeals should have
ruled on this matter alone.49 Petitioners
assert that in any case, they have
convincingly proven their claim and
allegations as to their rights over the land
and that the patent issued to respondent is
null and void.50
Further, petitioners aver that the Court of
Appeals failed to consider that respondent
did not comply with the requirements for the
issuance of a free patent and original
certificate of title. According to petitioners,
the Land Registration Authority, the
Register of Deeds of Bataan, the Provincial
Environment and Natural Resources Office
(PENRO), and the Central Environment and
Natural Resources Office (CENRO) all
certified that they did not have the
documents on the application in their
respective offices.51
Petitioners likewise insist that their
witnesses' testimonies show that they have
been in open, continuous, exclusive, and
notorious possession and occupation of the
property. Thus, they are deemed to have
acquired the land by operation of law,
without need of a certificate of title.52
In her Comment53 dated November 2, 2010,
respondent Alicia R. Loyola states that she
and her predecessors in-interest
exclusively, adversely, and publicly
possessed the property as owners since
time immemorial.54 She claims that the
patent was granted after land officers
investigated the land area, the
improvements, the nature of her
possession, and the taxes paid.55 She
alleges that after the issuance of the title,
she continued to pay the taxes and
introduced improvements to the land,
including fruit trees she had planted,
houses she and her husband had built, and
the houses of their seven (7)
children.56 Respondent maintains that
petitioners never resided in the land
because petitioners' ancestral house was
located elsewhere, as shown by their non-
payment of property taxes.57
On the claim that no record of the
processing of the free patent application
exists in the PENRO and the CENRO,
respondent states that Amado M.
Villanueva of the Department of Natural
Resources - Bataan testified that the
Bureau of Lands did not endorse all its
records to the Department of Environment
and Natural Resources.58 Amado M.
Villanueva even categorically stated that he
did not find anything illegal or irregular in
the issuance of the free patent and title.59
Moreover, respondent asserts that the
Court of Appeals was correct in finding that
petitioners showed no documentary
evidence that Teodora was the only owner
of the property, and that they were her only
heirs.60
In their Reply61 dated March 11, 2011,
petitioners reiterate that there is no record
nor document in the proper government
agencies showing that respondent validly
complied with the requirements for the
issuance of the patent title. Thus, this
effectively overcame the presumption of
regularity accorded to its issuance.62
For resolution are the following issues:
First, whether the Court of Appeals gravely
abused its discretion when it went beyond
the issue of dismissal and ruled on the
sufficiency of petitioners' evidence before
the Regional Trial Court; and
Second, whether petitioners were able to
sufficiently establish their title or ownership
over the property.
We dismiss the Petition.
Petitioners availed themselves of the wrong
remedy. They should have filed a petition
for review under Rule 45 instead of a
petition for certiorari under Rule 65 of the
Rules of Court.
In Microsoft Corp. v. Best Deal Computer
Center Corp.:63
A special civil action for certiorari will
prosper only if grave abuse of discretion is
manifested. For an abuse to be grave the
power must be exercised in an arbitrary or
despotic manner by reason of passion or
personal hostility. The abuse of discretion
must be so patent and gross as to amount
to an evasion of a positive duty, or a virtual
refusal to perform the duty enjoined or act
in contemplation of law. There is grave
abuse of discretion when respondent acts in
a capricious or whimsical manner in the
exercise of its judgment as to be equivalent
to lack of jurisdiction.
Petitioner asserts that respondent trial court
gravely abused its discretion in denying its
application for the issuance of an ex
parte order. However, other than this bare
allegation, petitioner failed to point out
specific instances where grave abuse of
discretion was allegedly committed....
Significantly, even assuming that the orders
were erroneous, such error would merely
be deemed as an error of judgment that
cannot be remedied by certiorari. As long
as the respondent acted with jurisdiction,
any error committed by him or it in the
exercise thereof will amount to nothing
more than an error of judgment which may
be reviewed or corrected only by appeal.
The distinction is clear: A petition
for certiorari seeks to correct errors of
jurisdiction while a petition for review seeks
to correct errors of judgment committed by
the court. Errors of judgment include errors
of procedure or mistakes in the court's
findings. Where a court has jurisdiction over
the person and subject matter, the decision
on all other questions arising in the case is
an exercise of that jurisdiction.
Consequently, all errors committed in the
exercise of such jurisdiction are merely
errors of judgment. Certiorari under Rule 65
is a remedy designed for the correction of
errors of jurisdiction and not errors of
judgment.64 (Citations omitted)
Petitioners claim that the Court of Appeals
committed grave abuse of discretion when it
went beyond the issue of dismissal of the
Complaint and touched on the factual
findings of the Regional Trial Court. They
allege that respondent did not contest the
trial court's factual findings as she did not
file an appellee's brief. They posit that the
Court of Appeals should have just ruled on
the issue of dismissal alone.65
The Court of Appeals did not commit grave
abuse of discretion in - dismissing
petitioners' Complaint. It had jurisdiction
over the person and the subject matter of
the case, and there is no showing that it
whimsically or capriciously exercised this
jurisdiction. At most, it may have committed
an error of procedure, as petitioners
question its ruling on the merits of the case
and not just on the issue of dismissal for
failure to implead indispensable parties.
As petitioners fail to avail themselves of the
proper remedy, the Petition ought to be
dismissed. Nonetheless, so as not to further
delay the disposition of this case, this Court
resolves the issue of whether the Court of
Appeals erred in ruling on the merits of the
case and not just on the issue of dismissal
for failure to implead indispensable parties.
As a general rule, only matters assigned as
errors in the appeal may be resolved. Rule
51, Section 8 of the Rules of Court
provides:
SECTION 8. Questions that May Be
Decided. — No error which does not affect
the jurisdiction over the subject matter or
the validity of the judgment appealed from
or the proceedings therein will be
considered unless stated in the assignment
of errors, or closely related to or dependent
on an assigned error and properly argued in
the brief, save as the court may pass upon
plain errors and clerical errors.
This provision likewise states that the Court
of Appeals may review errors that are not
assigned but are closely related to or
dependent on an assigned error.66 The
Court of Appeals is allowed discretion if it
"finds that their consideration is necessary
in arriving at a complete and just resolution
of the case."67
Jurisprudence has established several
exceptions to this rule. These exceptions
are enumerated in Catholic Bishop of
Balanga v. Court of Appeals:68
True, the appealing party is legally required
to indicate in his brief an assignment of
errors, and only those assigned shall be
considered by the appellate court in
deciding the case. However, equally settled
in jurisprudence is the exception to this
general rule.
"... Roscoe Pound states that 'according to
Ulpian in Justinian's Digest, appeals are
necessary to correct the unfairness or
unskillfulness of whose who judge.['] Pound
comments that 'the purpose of review is
prevention quite as much as correction of
mistakes. The possibility of review by
another tribunal, especially a bench of
judges ... is an important check upon
tribunals of first instance. It is a preventive
of unfairness. It is also a stimulus to care
and thoroughness as not to make
mistakes.['] Pound adds that 'review
involves matters of concern both to the
parties to the case and to the public. . . . It
is of public concern that full justice be done
to [e]very one.['] This judicial injunction
would best be fulfilled and the interest of full
justice would best be served if it should be
maintained that . . . appeal brings before
the reviewing court the totality of the
controversy resolved in the questioned
judgment and order apart from the fact that
such full-scale review by appeal is
expressly granted as a matter of right and
therefore of due process by the Rules of
Court."
Guided by the foregoing precepts, we have
ruled in a number of cases that the
appellate court is accorded a broad
discretionary power to waive the lack of
proper assignment of errors and to consider
errors not assigned. It is clothed with ample
authority to review rulings even if they are
not assigned as errors in the appeal.
Inasmuch as the Court of Appeals may
consider grounds other than those touched
upon in the decision of the trial court and
uphold the same on the basis of such other
grounds, the Court of Appeals may, with no
less authority, reverse the decision of the
trial court on the basis of grounds other
than those raised as errors on appeal. We
have applied this rule, as a matter of
exception, in the following instances:
(1) Grounds not assigned as errors
but affecting jurisdiction over the
subject matter;
(2) Matters not assigned as errors
on appeal but are evidently plain
or clerical errors within
contemplation of law;
(3) Matters not assigned as errors
on appeal but consideration of
which is necessary in arriving at
a just decision and complete
resolution of the case or to serve
the interest of justice or to avoid
dispensing piecemeal justice;
(4) Matters not specifically assigned
as errors on appeal but raised in
the trial court and are matters of
record having some bearing on
the issue submitted which the
parties failed to raise or which
the lower court ignored;

(5) Matters not assigned as errors
on appeal but closely related to
an error assigned; and
(6) Matters not assigned as errors
on appeal but upon which the
determination of a question
properly assigned, is
dependent.69 (Emphasis
supplied, citations omitted)
Thus, the Court of Appeals has the
discretion to consider the issue and address
the matter where its ruling is necessary (a)
to arrive at a just and complete resolution of
the case; (b) to serve the interest of justice;
or (c) to avoid dispensing piecemeal justice.
This is consistent with its authority to review
the totality of the controversy brought on
appeal.
Petitioners' appeal primarily focused on the
Regional Trial Court's dismissal of the
Complaint for failure to implead an
indispensable party.70 Nonetheless, the
Court of Appeals correctly ruled on whether
petitioners were able to prove their claim. It
had the discretion to properly consider this
separate issue in order to arrive at a
complete resolution of the case.
Ordinarily, this case should have been
remanded to the Regional Trial Court to
make the proper factual determination.
However, due to judicial economy, or "the
goal to have cases prosecuted with the
least cost to the parties,"71 the Court of
Appeals correctly reviewed the case in its
entire context.
Moreover, petitioners are incorrect in saying
that their appeal before the Court of
Appeals focused only on the procedural
issue of dismissal. In petitioners' Appellant's
Brief dated July 2, 2007 before the Court of
Appeals, one of its assigned errors reads:72
5.D THE HONORABLE REGIONAL TRIAL
COURT GRIEVOUSLY ERRED WHEN IT
ABDICATED FROM ITS ROLE TO RULE
ON THE MERITS AS IT COULD HAVE
DONE RIGHTLY SO, THUS CALLING FOR
THE INTERVENTION OF THE
HONORABLE COURT OF APPEALS TO
CONSIDER THE FACTS AND RENDER
THE PERTINENT DECISION.
5.D.l Considering the circumstances
surrounding the instant case, it is
respectfully submitted that, after deciding
on the procedural issues raised, the
Honorable Court of Appeals render a
decision based on the merits;
5.D.2 Such action on the part of the
Honorable Court of Appeals acquires
utmost importance and urgency in view of
the evident prejudgment by the RTC of the
case at hand. At the risk of sounding
redundant, with but a single bold stroke, the
court a quo brushed aside all the pleadings,
all the evidence, all the testimonies, all the
documents properly introduced and offered
by appellants, covering a span of three (3)
years;
....
5.D.5 Yet, the RTC decided to wash off its
hands and sought an excuse on the issue
of jurisdiction. Appellants, thus request for
the Honorable Court of Appeals' wisdom in
so deciding the instant appeal both on
technical and substantive
grounds.73 (Emphasis supplied)
The prayer in their appeal states:
WHEREFORE, premises considered:
6.1 Plaintiff-Appellants respectfully pray that
the assailed Decision dated 15 March 2006
and Order dated 22 November 2006 of the
Honorable Regional Trial [Court] -Branch 3
(Balanag City, Bataan) in the civil case of
"Heirs of Teodora Loyola represented by
Zosimo L. Mendoza, Sr. vs. Alicia R.
Loyola," with docket no. 7732, be reversed
an set aside for utter lack of merit;
6.2 Appellants further pray that, after ruling
on the merits, the Honorable Court of
Appeals grant the prayers as indicated in
the appellants' Complaint, to wit -
1. Declaring as null and void ab initio Free
Patent No. (III-14) 001627 and Original
Certificate of Title No. 1782 of the Registry
of Deeds for the Province of Bataan
registered or issued in the name of
defendant Alicia R. Loyola;
2. Declaring herein appellants as the true
and lawful owners of the above-mentioned
parcel of land covered by Free Patent No.
(III-14) 001627 and Original Certificate of
Title No. 1782 of the Registry of Deeds for
the Province of Bataan;
3. Ordering appellee to reconvey to herein
appellants the ownership and possession
over the above-mentioned parcel of land
covered by Free Patent No. (III-14) 001627
and Original Certificate of Title No. 1782 of
the Registry of Deeds for the Province of
Bataan; and
4. Ordering appellee to pay to herein
appellants the amount of Two Hundred
Thousand Pesos (P200,000.00) as and for
attorney's fees, plus Five Thousand Pesos
(P5,000.00) per hearing as appearance fee,
and other litigation expenses, and the costs
of suit.
6.3 Appellants finally pray for such other
just and equitable relief.74
Petitioners prayed that the Court of Appeals
rule on both the procedural and substantive
issues. They sought its authority to consider
the facts and evidence presented during the
trial and to render a decision based on the
merits. Section 9 of Batas Blg. 129 grants
the Court of Appeals the power to , receive
evidence and perform any and all acts
necessary to resolve factual issues raised
in cases falling within its original and
appellate jurisdiction:
SECTION 9. Jurisdiction. —
....
The Intermediate Appellate Court shall have
the power to try cases and conduct
hearings, receive evidence and perform any
and all acts necessary to resolve factual
issues raised in cases falling within its
original and appellate jurisdiction, including
the power to grant and conduct new trials or
further proceedings.
These provisions shall not apply to
decisions and interlocutory orders issued
under the Labor Code of the Philippines
and by the Central Board of Assessment
Appeals. (Emphasis supplied)
Thus, petitioners cannot now claim that the
Court of Appeals exceeded its jurisdiction in
ruling on the merits after consideration of
the facts and evidence just because the
decision was unfavorable to them. They
have invoked the jurisdiction of the Court of
Appeals, and thus, are now bound by it.
Petitioners assert that respondent did not
controvert the factual findings of the
Regional Trial Court, thus, the Court of
Appeals should have accorded respect to
these findings since the trial court was in
the best position to consider the evidence of
the parties.75
The Regional Trial Court did not actually
make any findings on any matter in favor of
any party. Rather, it limited its evaluation
and discussion to the issue of failure to
implead indispensable parties. The
Regional Trial Court Decision stated the
various pieces of evidence presented by the
parties, but it gave no particular weight to
any of this. The trial court made no explicit
conclusion as to which of the parties was
more entitled to the property.76
absence of any proof, the complaint for
reconveyance cannot be granted.
Furthermore, we sustain the Court of
Appeals' finding that petitioners failed to
adequately prove their claim over the
property against respondent. The
testimonies of their witnesses and the tax
declaration issued in 1948 without tax
receipts are not sufficient to overcome the
presumption of validity of patents and titles
as well as the presumption of regularity of
the performance of official duties of the
government offices responsible for the
issuance.
There is no evidence of any anomaly or
irregularity in the proceedings that led to the
registration of the land. Tax declarations
and tax receipts "are not conclusive
evidence of ownership or of the right to
possess land, in the absence of any other
strong evidence to support them. . . . The
tax receipts and tax declarations are
merely indicia of a claim of ownership.''89

It is incorrect for petitioners to argue that
the factual findings of the Regional Trial
Court are binding when, in fact, these do
not exist.
In any case, the Court of Appeals has the
authority to reverse the factual findings of
the Regional Trial Court if these are not in
accord with evidence. In Gonzales v. Court
of Appeals:77
The right of the Court of Appeals to review,
alter and reverse the findings of the trial
court where the appellate court, in
reviewing the evidence has found that facts
and circumstances of weight and influence
have been ignored and overlooked and the
significance of which have been
misinterpreted by the trial court, cannot be
disputed.78
Petitioners failed to show that Teodora
Loyola is the only heir to the property.
Testimonies revealed that she has a
brother. Likewise, petitioners failed to show
that they are the only heirs of Teodora
Loyola.
Failing to prove their title over the property,
petitioners cannot rightfully claim that they
have been fraudulently deprived of the
property.
WHEREFORE, premises considered, this
Court resolves to DISMISS the Petition. The
December 22, 2008 Decision and May 20,
2009 Resolution of the Court of Appeals in
CA-G.R. CV No. 88655 are
hereby AFFIRMED.
SO ORDERED.

Petitioners insist that respondent has no

rights over the land. They insist that she
committed fraud.79 According to petitioners,
the Land, Registration Authority, the
Register of Deeds of Bataan, the PENRO,
and the CENRO certified that the
documents of respondent's application
could not be found in their respective
offices.80Petitioners posit that these
certifications show that respondent did not
comply with the requirements for the
issuance of a free patent or title.81

However, these certifications contain no

explicit statement that respondent did not
comply with the requirements for patent
application.82 What was certified, rather,
was that the requested documents were not
to be found in their particular office.83 Some
of these certifications even refer to other
offices where the documents may be
found.84 There is no categorical statement
that the documents do not exist.

Such certifications are not enough to prove

respondent's alleged fraud and irregularity.

Fraud and irregularity are presupposed in

an action for reconveyance of
property.85 The party seeking to recover the
property must prove, by clear and
convincing evidence, that he or she is
entitled to the property, and that the
adverse party has committed fraud in
obtaining his or her title.86 Allegations of
fraud are not enough.87 "Intentional acts to
deceive and deprive another of his right, or
in some manner injure him, must be
specifically alleged and proved."88 In the
 FIRST DIVISION
G.R. No. 197191, November 21, 2016
OASIS PARK
HOTEL, Petitioner, v. LESLEE G.
NAVALUNA, AMIE M. TUBELLEJA,
JOAN REODIQUE, JOCELYN
ORENCIADA, ELLAINE B. VILLAGOMEZ,
OLIVIA E. AMASOLA AND JONA MAE
COSTELO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
In this Petition for Review
on Certiorari under Rule 45 of the Rules of
Court, petitioner Oasis Park Hotel assails
the Resolutions dated January 26,
20111 and June 6, 20112 of the Court of
Appeals in CA-G.R. SP No. 117663 which,
respectively, dismissed the Petition
for Certiorari under Rule 65 of the Revised
Rules of Court due to procedural infirmities
and denied the Motion for Reconsideration
of petitioner. The appellate court effectively
affirmed the Decision3 dated August 31,
2010 of the National Labor Relations
Commission (NLRC) in NLRC LAC No. 11-
003089-09 which (a) reversed the
Decision4 of the Labor Arbiter (LA) in NLRC
NCR Case Nos. 11-15936-08, 11-16353-
08, and 01-01669-09, finding the dismissal
of respondents Leslee G. Navaluna, Arnie
M. Tubelleja, Joan Reodique, Jocelyn
Orenciada, Jona Mae Costelo, Olivia E.
Amasola, and Ellaine B. Villagomez valid;
(b) declared that respondents were illegally
dismissed; and (c) ordered petitioner to
immediately reinstate respondents to their
former positions, pay respondents full
backwages, wage differentials, and
proportionate 13th month pay.
Respondents were variously employed by
petitioner as food attendant, cashier, or
front desk clerk since 2003 to 2004.
Respondents, believing that they were not
being accorded the labor standard benefits
for regular employees, filed on August 28,
2008 a complaint for violation of labor
standard laws against petitioner and/or the
spouses Jean and William Victor (also
called Bill) Percy, President and Vice
President, respectively, of petitioner, before
the Department of Labor and Employment
(DOLE), docketed as NCROO-MFO-0809-
IS-004. Respondents, though, continued
reporting for work, confident that they were
merely exercising their constitutional rights.
On September 17, 2008, petitioner issued a
similarly worded Notice to Explain and
Preventive Suspension5 to each
respondent. The Notice required
respondents to submit within five days from
notice their written explanation on why they
should not be subject to disciplinary action
or their services terminated for the following
alleged offenses:
a. Serious Misconduct
and Willful Breach of
the trust reposed
upon you by
management,
specifically when you,
together with [names
of the other co-
respondents],
conspired among
yourselves to
sabotage the
operations of the
hotel by committing
the following acts:
1 By being moody and miserable in
dealing with the hotel's customers;
2 By intentional "slowdown" in the
performance of your duties;
b.
c. Serious Misconduct,
specifically by
breeding contempt
and fostering
discontent among
your co-workers
through rumor
mongering,
discourtesy and crude
attitude towards
management.
chanroblesvirtuallawlibrary
The Notice also summoned respondents,
assisted by their counsel, if they so desired,
to attend the investigation/conference as
regards their administrative cases on
September 24, 2008 at the office of
petitioner's counsel. Respondents' failure to
submit their written explanation within the
prescribed period or to attend the
scheduled hearing would be deemed as a
waiver of the same. The Notice further
placed respondents on preventive
suspension effective immediately and
during the course of the investigation as
their continued presence at the hotel "will
pose a meaningful disruption in the
productive operations."
Respondents individually submitted their
written explanations to refute the charges
against them,6 but did not attend the
administrative hearing. On October 16,
2008, petitioner issued to each respondent
a written Notice of Termination,7 all
identically stating that:
Based on your written explanation and your
refusal and failure to attend the
administrative hearing, you failed to present
reasonable justification and sufficient
evidence to counter the charges against
you.
After a thorough and careful deliberation of
the evidence presented and investigation,
management hereby finds that there exists
substantial evidence establishing that you
had committed all the said offenses
charged against you. The offenses that you
had committed constitute serious
misconduct, willful disobedience of lawful
orders of management and willful breach of
the trust reposed on you by management,
which are just causes of termination of
employment according to Article 282 of the
Labor Code of the Philippines.
Considering the gravity of the offenses that
you had committed, your failure to dutifully
perform your functions, and your previous
offenses against the company, your
employment is hereby terminated effective
immediately from the date of this Notice.
chanroblesvirtuallawlibrary
Consequently, respondents filed before the
NLRC three separate complaints for illegal
dismissal, underpayment of wages and
labor standard benefits, damages, and
attorney's fees, against petitioner and the
spouses Percy, docketed as NLRC NCR
Case Nos. 11-15936-08, 11-16353-08, and
01-01669-09.
In their Position Papers, respondents
averred that the acts imputed against them
by petitioner were not substantiated and did
not constitute serious misconduct. Hence,
there was no valid ground for their
termination. Respondents asserted that
they were dismissed as retaliation for their
prior complaint against petitioner and the
spouses Percy filed before the
DOLE, i.e., NCROO-MFO-0809-IS-004.
After receiving notice of NCROO-MFO-
0809-IS-004, the spouses Percy verbally
and emotionally maltreated respondents
even more. Bill, in particular, became more
vicious when he was drunk, throwing ice
cubes and empty bottles, and uttering
offensive remarks at respondents, such as
"fuck you," "take off your pants," "do you
want to have sex with a fat old guy," "you're
fucking stupid," or "fucking idiot." During
those moments, respondents would just
reply to Bill "I love you, sir," to avoid further
trouble. Subsequently, respondents were
strictly prohibited from entering the main
restaurant and transferred to the newly
reopened sports bar, which was located at
what used to be a stock area. Jean
reportedly commented about respondents'
transfer that, "mabuti yan, para lamukin
sila."
Petitioner and the spouses Percy
maintained that respondents were
terminated for intentionally slowing down
the performance of their duties; being rude,
moody, and miserable towards the patrons
of the hotel; and breeding contempt and
fostering discontent among other
employees, which amount to serious
misconduct and wilful breach of trust
punishable by termination. Petitioner and
the spouses Percy also argued that they
had fully complied with labor standard laws,
and that respondents were dismissed only
after compliance with the twin requirements
of notice and hearing.
On September 10, 2009, the Labor Arbiter
rendered a Decision favoring petitioner and
the spouses Percy. According to the Labor
Arbiter:
[Respondents'] acts, established by
substantial evidence, notably, by the
verified Position Paper and its Annexes,
coupled with Affidavits of witnesses
(Annexes A, B, and C of [petitioner and the
spouses Percy's] Sur-Rejoinder) submitted
by the [petitioner and the spouses Percy],
constitute serious misconduct that justified
the [petitioner] hotel into validly dismissing
them from employment under Article 282 of
the Labor Code. Maintaining them in its
employ would further ruin the reputation of
the hotel and ultimately destroy its business
altogether.
As the [petitioner and the spouses Percy's]
Position Paper validly argues: It is
respectfully submitted that the acts of
[respondents] fall within the purview of what
is serious misconduct which is a just cause
for termination under the Labor Code.
[Respondents] were food attendants for
[petitioner] Oasis Park Hotel ("Hotel" for
brevity). As food attendants, their primary
responsibility is to attend to the customers
of the [petitioner] Hotel. As food attendants,
they were supposed to show the [petitioner]
hotel's customers that they were very much
happy and willing to accommodate them.
They were supposed to answer the
legitimate needs of the [petitioner} hotel's
customers. When they have shown their
lack of interests in serving the [petitioner]
hotel's customers, when they were
intentionally slow in answering the orders of
the said customers, when they worked very
sluggish in the performance of their primary
duties, these acts constitute dereliction of
duty and, thus, qualify as a misconduct.
Such acts of misconduct are of grave and
aggravated character considering that to
serve with gusto and eagerness the
[petitioner] hotel's customers are their
primary duty and the fact that these acts
were done intentionally completely make it
serious misconduct.
Indeed, with a mental make-up and
disposition that would drive away our
country's tourists, the [respondents] do not
deserve a place in the hotel industry.8
chanroblesvirtuallawlibrary
The Labor Arbiter, while denying
respondents' claims for overtime pay, night
shift differential pay, premium pay for
holiday and rest day work, and damages,
granted respondents' claims for
proportionate 13th month pay for October
2008 and wage differentials due to
underpayment of wages.
The dispositive portion of the Labor Arbiter's
Decision reads:
WHEREFORE, judgment is hereby made
dismissing as wanting in merit the charge of
illegal dismissal but ordering the [petitioner]
hotel to pay each [respondent] a
proportionate 13th month pay for the year
2008.
The [petitioner] hotel is also ordered to pay
each [respondent] wage differentials arising
from underpayment of wages but subject to
the usual three years prescriptive period on
money claims.
Other claims are dismissed for lack of
merit9.
chanroblesvirtuallawlibrary
Respondents filed an appeal before the
NLRC, docketed as NLRC LAC No. 11-
003089-09. In its Decision dated August 31,
2010, the NLRC found:
At the outset, it bears stressing the well-
entrenched rule in dismissal cases that
the onus of proving that the employee was
not dismissed or if dismissed, that the
dismissal was not illegal, rests on the
employer and failure to discharge the same
would mean that the dismissal is not
justified and therefore illegal. Thus, the
employer must not only rely on the
weakness of the employees' evidence but
must stand on the merits of their own
defense. A party alleging a critical fact must
support his allegation with substantial
evidence for any decision based on
unsubstantiated allegation cannot stand as
it will offend due process. (Dina Abad et al.,
vs. Roselle Cinema Silverscreen Corp. and
Vermy Trinidad, G.R. No. 141371, March
24, 2006)
In the case at bar, We find that [petitioner
and the spouses Percy] failed to hurdle the
aforesaid duties. By relying alone on the
affidavits attached to Sur-Rejoinder,
[petitioner and the spouses Percy], in effect,
put the cart before the horse when they
dismissed the [respondents] on account of
the alleged offenses. In other words,
[petitioner and the spouses Percy] failed to
present substantial evidence to support
their accusations against [respondents] at
the time they were dismissed from
employment. As correctly pointed out by the
[respondents], the belated execution of the
questioned affidavits a year after the
alleged infractions only tend to show that
their dismissals were not supported by any
evidence, much less substantial evidence,
since the likelihood being that they were
non-existing evidence at the time of the
alleged investigation conducted by
[petitioner]. This likelihood was further
bolstered by the fact that [petitioner and the
spouses Percy] considered the belated
submission of the said affidavits of
witnesses in their Sur-Rejoinder as newly
discovered evidence, an implied admission
that they were non-existing evidence at the
very time [petitioner and the spouses Percy]
supposedly deliberated on the dismissal of
the [respondents].
The same is true anent the Position Paper
filed by [petitioner and the spouses Percy].
Contrary to the Labor Arbiter's finding, such
can never partake of an evidence nor
carries evidentiary weight, unless
substantiated with the quantum of evidence
required in this proceedings. For it is an
elementary rule that mere allegations are
not evidence.
Moreover, We note the proximity of the
complaint filed by [respondents] against the
[petitioner] for violation of labor laws, in one
hand, and the date [petitioner and the
spouses Percy] subsequently effected their
dismissals, on the other. The lapse of the
short period of time between the two
inextricably related incidents further lends
strong credence upon the [respondents']
stance that their dismissal was in retaliation
to their filing of said complaint.
The foregoing disquisitions are in accord
with the settled rule in termination cases
enunciated in Acebedo Optical vs.
NLRC, G.R. No. 150171, July 17, 2007,
thus:
"From the preceding discussion, the dearth
of reliable evidence on record constitutes
serious doubt as to the factual basis of the
charge of violation of company policy filed
against private respondent. This doubt shall
be resolved in her favor in line with the
policy under the Labor Code to afford
protection to labor and construe doubts in
favor of labor. The consistent rule is that if
doubts exist between the evidence
presented by the employer and the
employee, the scales of justice must be
tilted in favor of the latter. The employer
must affirmatively show rationally adequate
evidence that the dismissal was for a
justifiable cause. Having failed to satisfy this
burden of proof, we find that petitioners
dismissed private respondent without just
cause. Consequently, the termination of her
employment was illegal." x x x.10
chanroblesvirtuallawlibrary
The NLRC decreed in the end:
WHEREFORE, the appeal is hereby
GRANTED and the appealed decision of
the Labor Arbiter is SET ASIDE in so far as
it upheld as valid the termination of
[respondents]. A new one is issued finding
all [respondents] to have been illegally
dismissed from employment. Accordingly,
[petitioner] Oasis Park Hotel owned by
Perth, Incorporated is hereby ordered to
immediately reinstate [respondents] to their
former positions without loss of seniority
rights and pay them full backwages
computed from date of their dismissal up to
their actual reinstatement. The monetary
award as of the date of this Decision is
appended as Annex "A".
The grant of wage differentials and
proportionate 13th month pay is
AFFIRMED.11
chanroblesvirtuallawlibrary
The NLRC, in a Resolution12 dated
November 30, 2010, denied the Motion for
Reconsideration of petitioner and the
spouses Percy.
Aggrieved, petitioner filed before the Court
of Appeals a Petition for Certiorari under
Rule 65 of the Revised Rules of Court,
docketed as CA-G.R. SP No. 117663.
The Court of Appeals issued a Resolution
dated January 26, 2011 dismissing the
Petition in CA-G.R. SP No. 117663 due to
the following procedural infirmities:
1) Incomplete verified statement of
material dates as to the date of
receipt of the assailed Decision
dated August 31, 2010 of public
respondent NLRC and the date of
filing of the motion for
reconsideration thereof in
violation of Section 3, Rule 46 of
the Revised Rules of Court;
2) Defective Verification and
Certificate of Non-Forum
Shopping and Affidavit of Service
dated January 17, 2011 in that
the same were not accompanied
by duly
accomplished jurat indicating the
respective affiants' competent
evidence of identity pursuant to
A.M. 02-8-13-SC dated February
19, 2008, which amended Section
12(a), Rule II of the 2004 Rules
on Notarial Practice, for failure to
attach photocopies of their valid
identification cards showing their
photographs thereon;
3) The petition was not
accompanied by other material
supporting documents which were
filed before the Labor Arbiter such
as certified true copies of the
respective complaints for illegal
dismissal filed by private
respondents in violation of
Section 3, Rule 46 of the Revised
Rules of Court;
4) The Affidavit of Fact dated
September 8, 2008, marked as
Annex "2" of petitioners' Position
Paper filed before the Labor
Arbiter, which in turn is marked as
Annex "F" of the instant petition,
is not a clear and legible copy
thereof;
5) There was no proof of service of
the petition upon private
respondents in violation of
Section 3, Rule 46 of the Revised
Rules of Court in relation to
Section[s] 2 and 13, Rule 13 of
the same Rules; and
6) The petition's caption is defective
for failure to implead the complete
names of all private respondents
pursuant to Section 1, Rule 7 of
the Revised Rules of Court.13
cralawlawlibrary
Consequently, the Court of Appeals
resolved:
WHEREFORE, premises considered, the
instant petition is hereby DISMISSED. This
case is
considered CLOSED and TERMINATED.14
chanroblesvirtuallawlibrary
Petitioner filed a Motion for
Reconsideration, to which respondents filed
a Comment. In its Resolution dated June 6,
2011, the Court of Appeals denied the
Motion for Reconsideration of petitioner. On
procedural matters, the appellate court
adjudged:
After going over the grounds raised in the
said Motion for Reconsideration, vis-vis the
Comment filed by private respondents, We
find that petitioner still failed to substantially
rectify all the infirmities cited in the
Resolution dated January 26, 2011.
First, petitioner failed to sufficiently comply
with the requirement of a verified
petition which shall indicate the material
dates to show the timeliness of its filing in
accordance with Section 3, Rule 46, in
relation to Section 1, Rule 65 of the Rules
of Court. Contrary to petitioner's
asseveration that its failure to state the date
of receipt of the assailed NLRC Decision
dated August 31, 2010 is not a fatal defect,
it bears to stress the well-settled rule that
there are three (3) material dates that must
be stated in a petition for certiorari under
Rule 65, i.e. (1) the date when notice of the
judgment or final order or resolution was
received; (2) the date when a motion for
new trial or reconsideration was filed; and
(3) the date when notice of the denial
thereof was received.
Second, We find no sufficient justification
for petitioner's failure to attach the other
pertinent and relevant portions of the
records of the case such as the respective
complaints for illegal dismissal filed by
private respondents before the Labor
Arbiter. Also, the attached affidavit of fact
which is a material part of the records of the
case was not clear and legible. These
documents are relevant and pertinent for
proper appreciation of the antecedent facts
and the complete disposition of the case
pursuant to Section 3, Rule 46 of the Rules
of Court.
Third, petitioner's reason of inadvertence
does not constitute justifiable circumstance
that could excuse non-compliance with the
rule requiring that all the names of the
parties be indicated in the petition pursuant
to Section 1, Rule 7 of the Rules of Court.
Verily, Section 3, Rule 46 of the Rules of
Court is explicit that the failure of petitioner
to comply with any of the requirements set
forth therein shall be a sufficient ground for
the dismissal of the petition. The rules of
procedure are tools designed to promote
efficiency and orderliness, as well as, to
facilitate attainment of justice, such that
strict adherence thereto is required. Their
application may be relaxed only when
rigidity would result in a defeat of equity and
substantial justice, which is not present in
the case at bar.15
chanroblesvirtuallawlibrary
The Court of Appeals also did not find merit
m the substantive grounds argued by
petitioner:
After considering the records, We find that
petitioner failed to adduce sufficient
evidence to prove that private respondents
committed serious misconduct and willful
disobedience warranting their dismissal
from employment.
To prove the charges of serious misconduct
and willful disobedience, petitioner relied on
the affidavits of its alleged witnesses
executed a year after the alleged infractions
were committed by private respondents.
Petitioner also labeled these as newly-
discovered evidence when the same were
presented before the Labor Arbiter.
However, a perusal of the aforesaid
affidavits readily reveals that these are
clearly self-serving and mere afterthought.
They could not be given evidentiary weight
considering that they were executed a year
after the alleged infraction were committed
by private respondents and sans any
explanation as to their unavailability at the
time of the supposed investigation
conducted by petitioner prior to private
respondents' termination. Hence, We agree
with the NLRC in holding that the belated
execution of the questioned affidavits which
were considered by petitioner as newly-
discovered evidence clearly shows that the
dismissal of private respondents were not
supported by substantial evidence.
Any allegation constituting serious
misconduct or willful disobedience that
warrants the dismissal of an employee must
be proven by facts and substantial
evidence, or such relevant evidence as a
reasonable mind might accept as adequate
to support a conclusion. Thus, when there
is no showing of a clear, valid and legal
cause for the termination of employment,
the law considers the matter a case of
illegal dismissal.
In fine, for a writ of certiorari to issue, it is a
condition sine qua non that there be grave
abuse of discretion or such capricious and
whimsical exercise of judgment, or is
equated to lack of jurisdiction. It must be
shown that the discretion was exercised
arbitrarily, or despotically, or whimsically.
We find neither lack of jurisdiction nor grave
abuse of discretion on the part of the NLRC
in rendering the assailed Decision dated
August 31, 2010.16
chanroblesvirtuallawlibrary
Hence, petitioner comes before the
Court via the instant Petition which raises
the following assignment of errors:
THE COURT OF APPEALS COMMITTED
GRAVE ERROR OF LAW IN SUSTAINING
THE NATIONAL LABOR RELATIONS
COMMISSION'S FINDING THAT THE
RESPONDENTS WERE ILLEGALLY
DISMISSED, DEPARTING FROM
APPLICABLE DECISIONS OF THIS
HONORABLE TRIBUNAL.
THE COURT OF APPEALS
OVERLOOKED MATERIAL
CIRCUMSTANCES AND FACTS WHICH
WERE NOT DISPUTED AND IF TAKEN
INTO ACCOUNT WOULD SIGNIFICANTLY
ALTER THE COURT'S RESOLUTION.
THE COURT OF APPEALS COMMITTED
GRAVE ERROR OF LAW IN DISMISSING
PETITIONER'S PETITION FOR
CERTIORARI ON ALLEGED
PROCEDURAL INFIRMITIES.17
chanroblesvirtuallawlibrary
The Court determines that the issues for its
resolution are (1) substantive, whether or
not respondents were illegally dismissed;
and (2) procedural, whether or not the
Petition for Certiorari of petitioner in CA-
G.R. SP No. 117663 was dismissible for its
procedural infirmities.
The Court addresses the procedural issue
first and rules that the Court of Appeals did
not commit any reversible error for
dismissing the Petition for Certiorari of
petitioner in CA-G.R. SP No. 117663 for
failing to state the material dates as
required by Rule 46, Section 3 of the
Revised Rules of Court.
It is settled that the mode of judicial review
over decisions of the NLRC is by a petition
for certiorari under Rule 65 of the Revised
Rules of Court filed before the Court of
Appeals. This special original action is
limited to the resolution of jurisdictional
issues, that is, lack or excess of jurisdiction
and grave abuse of discretion amounting to
lack of jurisdiction.18
To recall, the Court of Appeals identified in
its Resolution dated January 26, 2011 six
procedural infirmities as grounds for the
dismissal of the Petition for Certiorari in CA-
G.R. SP No. 117663. Out of the six
procedural infirmities, though, five are
without basis or are not fatal to the
Petition, viz.:
(a) The Verification and Certificate of Non-
Forum Shopping and Affidavit of Service
attached to the Petition were accompanied
by a duly accomplished jurat indicating the
respective affiants' competent evidence of
identity, particularly, their Social Security
System Card and Voter's ID,
respectively.19 The Court already pointed
out in Heirs of Amada Zaulda v. Isaac
Zaulda,20 that dismissal by the Court of
Appeals of the petition for lack of competent
evidence on the affiant's identity on the
attached verification and certification
against forum shopping was without clear
basis. The 2004 Rules on Notarial Practice
does not require the attachment of a
photocopy of the identification card in the
document. Even A.M. No. 02-8-13-SC,
amending Section 12 thereof, is silent on it.
(b) When service is done by registered mail,
proof of service shall consist of the affidavit
of the person effecting the mailing and the
registry receipt,21 both of which are present
in this case. The notarized Affidavit of
Service attached to the Petition stated that
a copy of said Petition was served by
registered mail upon Atty. Nicolas B.
Medenilla, respondents' counsel, and
indicated as well the corresponding registry
receipt number and date and place the mail
was posted. The registry receipt was
attached to the Affidavit of Service. Service
upon Atty. Medenilla is sufficient as the
Court had previously declared that if a party
to a case has appeared by counsel, service
of pleadings and judgments shall be made
upon said counsel, unless service upon the
party is specifically ordered by the court.22
(c) The failure of petitioner to implead the
complete names of all private respondents
in the caption of the Petition did not warrant
the dismissal of said Petition, especially
when all the names and circumstances of
the parties were stated in the body of the
Petition, under "PARTIES." As the Court
held in Genato v. Viola:23 "It is not the
caption of the pleading but the allegations
therein that are controlling. The inclusion of
the names of all the parties in the title of a
complaint is a formal requirement under
Section [1], Rule 7 of the Rules of Court.
However, the rules of pleadings require
courts to pierce the form and go into the
substance. The non-inclusion of one or
some of the names of all the complainants
in the title of a complaint, is not fatal to the
case, provided there is a statement in the
body of the complaint indicating that such
complainant/s was/were made party to such
action."
(d) The failure of petitioner to attach to the
Petition respondents' complaints before the
NLRC, as well as a clear and legible copy
of the Affidavit of Fact dated September 8,
2008, likewise did not justify the dismissal
of said Petition. In Gutierrez v.
Valiente,24 the Court described what
constitutes relevant or pertinent documents
under Rule 65, Section 1 of the Revised
Rules of Court:
With regard to the failure to attach material
portions of the record in support of the
petition, Section 1 of Rule 65 of the Rules of
Court requires that petition
for certiorari shall be accompanied by a
clearly legible duplicate original or certified
true copy of the judgment, order, resolution,
or ruling subject thereof, such material
portions of the records as are referred to
therein, and other documents relevant or
pertinent thereto; and failure of compliance
shall be sufficient ground for the dismissal
of the petition.
xxxx
These documents, however, are not at all
relevant to the petition for certiorari. Since
the issue of whether the RTC committed
grave abuse of discretion pertained only to
the Orders dated May 15, 2000, June 23,
2003, June 9, 2004 and September 9,
2004, copies of said Orders would have
sufficed as basis for the CA to resolve the
issue. It was in these Orders that the RTC
supposedly made questionable rulings.
Thus, the attachment of these Orders to the
petition was already sufficient even without
the other pleadings and portions of the case
record. Moreover, Spouses Gutierrez
corrected the purported deficiency by
submitting the required documents in their
Motion for Reconsideration.
In Air Philippines Corporation v.
Zamora, the Court clarified that not all
pleadings and parts of case records are
required to be attached to the petition; only
those pleadings, parts of case records and
documents which are material and
pertinent, in that they may provide the basis
for a determination of a prima facie case for
abuse of discretion, are required to be
attached to a petition for certiorari, and
omission to attach such documents may be
rectified by the subsequent submission of
the documents required. (Citations omitted.)
chanroblesvirtuallawlibrary
Based on the foregoing, copies of the
NLRC Decision dated August 31, 2010 and
Resolution dated November 30, 2010
attached to the Petition would have
sufficed. Even if respondents' complaints
before the NLRC and the Affidavit of Fact
dated September 8, 2008 were arguably
"relevant and pertinent for proper
appreciation of the antecedent facts and the
complete disposition of the case x x x," then
the Court of Appeals could have simply
required their subsequent submission.
Nonetheless, the Petition for Certiorari in
CA-G.R. SP No. 117663 did fail to comply
with one requirement which cannot be
excused, i.e., the statement of material
dates, specifically, the date petitioner
received a copy of the NLRC Decision
dated August 31, 2010.
Petitioner insists that the date they received
the NLRC Decision dated August 31, 2010
is immaterial, as the 60-day period for filing
its Petition for Certiorari in CA-G.R. SP No.
117663 is reckoned from the date it
received the NLRC Resolution dated
November 30, 2010 denying its Motion for
Reconsideration.
Petitioner's argument is without merit.

Apropos herein is the following disquisition
of the Court on the matter in Blue Eagle
Management, Inc. v. Naval25cralawred:
On the matter of procedure, the Court of
Appeals should have, at the outset,
dismissed respondent's Petition
for Certiorari in CA-G.R. SP No. 106037 for
failure to state material dates.
A petition for certiorari must be filed within
the prescribed periods under Section 4,
Rule 65 of the Rules of Court, as amended:
Section 4. When and where to file the
petition. - The petition shall be filed not later
than sixty (60) days from notice of the
judgment, order or resolution. In case a
motion for reconsideration or new trial is
timely filed, whether such motion is required
or not, the petition shall be filed not later
than sixty (60) days counted from the notice
of the denial of the motion.
For the purpose of determining whether or
not a petition for certiorari was timely filed,
Section 3, Rule 46 of the Rules of Court, as
amended, requires the petition itself to state
the material dates:
SEC. 3. Contents and filing of petition,
effect of non-compliance with
requirements. – x x x
In actions filed under Rule 65, the petition
shall further indicate the material
dates showing when notice of the judgment
or final order or resolution subject thereof
was received, when a motion for new trial or
reconsideration, if any, was filed and when
notice of the denial thereof was received.
xxxx
The failure of the petitioner to comply with
any of the foregoing requirements shall
be sufficient ground for the dismissal of
the petition. x x x.
chanroblesvirtuallawlibrary
The Court, in Vinuya v. Romulo, expounded
on the importance of stating the material
dates in a petition for certiorari:
As the rule indicates, the 60-day period
starts to run from the date petitioner
receives the assailed judgment, final order
or resolution, or the denial of the motion for
reconsideration or new trial timely filed,
whether such motion is required or not. To
establish the timeliness of the petition
for certiorari, the date of receipt of the
assailed judgment, final order or resolution
or the denial of the motion for
reconsideration or new trial must be stated
in the petition; otherwise, the petition
for certiorari must be dismissed. The
importance of the dates cannot be
understated, for such dates determine the
timeliness of the filing of the petition
for certiorari. As the Court has emphasized
in Tambong v. R. Jorge Development
Corporation:
There are three essential dates that must
be stated in a petition for certiorari brought
under Rule 65. First, the date when notice
of the judgment or final order or resolution
was received; second, when a motion for
new trial or reconsideration was filed;
and third, when notice of the denial thereof
was received. Failure of petitioner to
comply with this requirement shall be
sufficient ground for the dismissal of the
petition. Substantial compliance will not
suffice in a matter involving strict
observance with the Rules. x x x.
chanroblesvirtuallawlibrary
The Court has further said in Santos v.
Court of Appeals:
The requirement of setting forth the three
(3) dates in a petition for certiorari under
Rule 65 is for the purpose of determining its
timeliness. Such a petition is required to be
filed not later than sixty (60) days from
notice of the judgment, order
or Resolution sought to be assailed.
Therefore, that the petition for certiorari was
filed forty-one (41) days from receipt of the
denial of the motion for reconsideration is
hardly relevant. The Court of Appeals was
not in any position to determine when this
period commenced to run and whether the
motion for reconsideration itself was filed on
time since the material dates were not
stated. It should not be assumed that in no
event would the motion be filed later than
fifteen (15) days. Technical rules of
procedure are not designed to frustrate the
ends of justice. These are provided to effect
the proper and orderly disposition of cases
and thus effectively prevent the clogging of
court dockets. Utter disregard of the Rules
cannot justly be rationalized by harking on
the policy of liberal construction. x x x.
xxxx
Absent the date when respondent received
the NLRC Decision dated May 31, 2007,
there is no way to determine whether
respondent's Motion for Partial
Reconsideration of the same was timely
filed. A late motion for reconsideration
would render the decision or resolution
subject thereof already final and executory.
xxx
It is true that in a number of cases, the
Court relaxed the application of procedural
rules in the interest of substantial justice.
Nevertheless, the Court is also guided
accordingly in this case by its declarations
in Sebastian v. Morales:
Under Rule 1, Section 6 of the 1997 Rules
of Civil Procedure, liberal construction of
the rules is the controlling principle to effect
substantial justice. Thus, litigations should,
as much as possible, be decided on their
merits and not on technicalities. This does
not mean, however, that procedural rules
are to be ignored or disdained at will to suit
the convenience of a party. Procedural law
has its own rationale in the orderly
administration of justice, namely, to ensure
the effective enforcement of substantive
rights by providing for a system that
obviates arbitrariness, caprice, despotism,
or whimsicality in the settlement of disputes.
Hence, it is a mistake to suppose that
substantive law and procedural law are
contradictory to each other, or as often
suggested, that enforcement of procedural
rules should never be permitted if it would
result in prejudice to the substantive rights
of the litigants.
Litigation is not a game of technicalities, but
every case must be prosecuted in
accordance with the prescribed procedure
so that issues may be properly presented
and justly resolved. Hence, rules of
procedure must be faithfully followed except
only when for persuasive reasons, they may
be relaxed to relieve a litigant of an injustice
not commensurate with his failure to comply
with the prescribed procedure. Concomitant
to a liberal application of the rules of
procedure should be an effort on the part of
the party invoking liberality to explain his
failure to abide by the rules. x x x. (Citations
omitted.)
chanroblesvirtuallawlibrary
Based on the rules and jurisprudence, the
Court of Appeals correctly dismissed the
Petition for Certiorari in CA-G.R. SP No.
117663 for failure to state material dates.
The Court, furthermore, finds no persuasive
reason to relax or liberally apply the rules of
procedure in the instant Petition for the
sake of substantive justice, as the finding of
the NLRC, sustained by the Court of
Appeals, that respondents were illegally
dismissed by petitioner is supported by the
evidence or record.
Article 277 of the Labor Code guarantees
the right of an employee to security of
tenure, thus –
dismissal on October 16, 2008, deserve
little weight and credence for these were
non-existent at the time petitioner
conducted its alleged investigation of the
charges against respondents and could not
have been the basis for respondents'
dismissal. Moreover, the Court cannot tum
a blind eye to the very short period between
respondents' filing of their complaint before
the DOLE on August 28, 2008 and the
issuance by petitioner to respondents of the
Notices to Explain and Preventive
Suspension on September 17, 2008 and
Notices of Termination on October 16,
2008, giving rise to the reasonable belief
that petitioner administratively charged and
dismissed respondents as retaliation for
respondents' filing of their complaint before
the DOLE.

(b) Subject to the constitutional right of WHEREFORE, finding no reversible error in

workers to security of tenure and their right the herein assailed Resolutions dated
to be protected against dismissal except for January 26, 2011 and June 6, 2011 of the
a just and authorized cause and without Court of Appeals in CA-G.R. SP No.
prejudice to the requirement of notice under 117663, the instant Petition for Review is
Article 283 of this Code, the employer shall hereby DENIED.
furnish the worker whose employment is
sought to be terminated a written notice SO ORDERED. cralawlawlibrary
containing a statement of the causes for
termination and shall afford the latter ample
opportunity to be heard and to defend
himself with the assistance of his
representative if he so desires in
accordance with company rules and
regulations promulgated pursuant to
guidelines set by the Department of Labor
and Employment. Any decision taken by the
employer shall be without prejudice to the
right of the worker to contest the validity or
legality of his dismissal by filing a complaint
with the regional branch of the National
Labor Relations Commission. The burden
of proving that the termination was for a
valid or authorized cause shall rest on the
employer. x x x.
chanroblesvirtuallawlibrary

It is clear from the above provision that the

dismissal of respondents may be sustained
only if shown to have been made for a just
and authorized cause and with due
process; and that the burden of proving that
the termination was for a valid or authorized
cause rests upon the employer.

Time and again, the Court has ruled that in

illegal dismissal cases, the onus of proving
that the employee was not dismissed or if
dismissed, that the dismissal was not
illegal, rests on the employer, and failure to
discharge the same would mean that the
dismissal is not justified and, therefore,
illegal. The petitioner must not only rely on
the weakness of the respondents' evidence,
but must stand on the merits of its own
defense. A party alleging a critical fact must
support his allegation with substantial
evidence, for any decision based on
unsubstantiated allegation and unreliable
documentary evidence cannot stand, as it
will offend due process.26

Petitioner was unable to submit substantial

evidence that respondents actually
committed serious misconduct and wilful
breach of trust to justify the respondents'
dismissal from employment. Initially, there
were only the self-serving and
unsubstantiated allegations of petitioner
and the spouses Percy. Subsequently,
petitioner and the spouses Percy attached
to the Sur-Rejoinder they submitted to the
Labor Arbiter on August 18, 2009 "newly
discovered evidence," i.e., the affidavits of
other hotel employees to establish
respondents' guilt. The Court agrees with
the observation of the NLRC that such
affidavits, belatedly executed by the hotel
employees almost a year after respondents'
 SECOND DIVISION
G.R. No. 224974, July 03, 2017
MARVIN CRUZ AND FRANCISCO CRUZ,
IN HIS CAPACITY AS
BONDSMAN, Petitioners, v. PEOPLE OF
THE PHILIPPINES, Respondent.
DECISION
LEONEN, J.:
The trial court's failure to comply with
procedural rules constitutes grave abuse of
discretion and may be the subject of a
petition for certiorari before the Court of
Appeals.
This is a Petition for Review on
Certiorari1 assailing the Decision2 dated
January 18, 2016 and Resolution3 dated
June 1, 2016 of the Court of Appeals, which
dismissed the Petition for Certiorari filed by
Marvin Cruz (Cruz) and his bondsman,
Francisco Cruz (Francisco) for being the
wrong remedy. They filed the Petition
before the Court of Appeals to assail the
Regional Trial Court's denial of their Motion
to Release Cash Bond after the criminal
case against Cruz was dismissed.
In an Information4 dated September 19,
2013, Cruz, along with seven (7) others,
was charged with Robbery in an
Uninhabited Place and by a Band for
unlawfully taking four (4) sacks filled with
scraps of bronze metal and a copper pipe
worth P72,000.00 collectively.5 Cruz posted
bail through a cash bond in the amount of
P12,000.00.6
The private complainant in the criminal case
subsequently filed an Affidavit of
Desistance7 stating that he was no longer
interested in pursuing his complaint against
Cruz.8 On October 23, 2014, Assistant City
Prosecutor Deborah Marie Tan filed a
Motion to Dismiss,9 which was granted by
Branch 170, Regional Trial Court, City of
Malabon in an Order10 dated October 24,
2014.
Cruz, through his bondsman Francisco,
filed a Motion to Release Cash Bond.11 In
an Order12 dated January 7, 2015, the
Regional Trial Court denied the Motion on
the ground that the case was dismissed
through desistance and not through
acquittal. The Motion for
Reconsideration13 filed by Francisco was
likewise denied in an Order14 dated April 6,
2015.
Cruz and Francisco filed a Petition for
Certiorari15 with the Court of Appeals,
arguing that the Regional Trial Court
committed grave abuse of discretion in
dismissing the Motion to Release Cash
Bond.
On January 18, 2016, the Court of Appeals
rendered a Decision16 dismissing the
Petition.
The Court of Appeals anchored its
dismissal on the ground that Cruz and
Francisco should have filed an appeal,
instead of a petition for certiorari, to
question the denial of their Motion to
Release Cash Bond.17 The Court of
Appeals further stated that it could not treat
the Petition for Certiorari as an appeal since
the period for appeal had lapsed before its
filing.18
Cruz and Francisco filed a Motion for
Reconsideration but this was denied in the
Resolution19 dated June 1, 2016. Hence,
this Petition20 was filed.
Petitioners Cruz and Francisco insist that
the filing of a petition for certiorari was
proper since the Regional Trial Court's
denial of their Motion to Release Cash
Bond amounted to grave abuse of
discretion. They point out that under Rule
114, Section 2221 of the Rules of Court, bail
is deemed automatically cancelled upon the
dismissal of the case regardless of whether
the case was dismissed through acquittal or
desistance.22
The Office of the Solicitor General,
however, points out that while Rule 114,
Section 22 calls for automatic cancellation,
the cancellation is without prejudice to any
liabilities on the bond.23 Thus, it posits that
while the cancellation is automatic, the
release of the bond is still subject to further
proceedings. It adds that if the trial court
erred in dismissing petitioners' Motion to
Release Cash Bond, the error is "perhaps .
. . a mistake in the application of the law"
and not grave abuse of discretion, which
should not be the subject of a petition for
certiorari.24
Considering the parties' arguments, the sole
issue to be resolved is whether the Court of
Appeals erred in dismissing the petition for
certiorari for being the wrong remedy to
question the denial of a motion to release
cash bond.
The writ of certiorari is not issued to correct
every error that may have been committed
by lower courts and tribunals. It is a remedy
specifically to keep lower courts and
tribunals within the bounds of their
jurisdiction. In our judicial system, the writ is
issued to prevent lower courts and tribunals
from committing grave abuse of discretion
in excess of their jurisdiction. Further, the
writ requires that there is no appeal or other
plain, speedy, and adequate remedy
available to correct the error. Thus,
certiorari may not be issued if the error can
be the subject of an ordinary appeal. As
explained in Delos Santos v. Metrobank:25
We remind that the writ of certiorari —
being a remedy narrow in scope and
inflexible in character, whose purpose is to
keep an inferior court within the bounds of
its jurisdiction, or to prevent an inferior court
from committing such grave abuse of
discretion amounting to excess of
jurisdiction, or to relieve parties from
arbitrary acts of courts (i.e., acts that courts
have no power or authority in law to
perform) — is not a general utility tool in the
legal workshop, and cannot be issued to
correct every error committed by a lower
court.
In the common law, from which the remedy
of certiorari evolved, the writ of certiorari
was issued out of Chancery, or the King's
Bench, commanding agents or officers of
the inferior courts to return the record of a
cause pending before them, so as to give
the party more sure and speedy justice, for
the writ would enable the superior court to
determine from an inspection of the record
whether the inferior court's judgment was
rendered without authority. The errors were
of such a nature that, if allowed to stand,
they would result in a substantial injury to
the petitioner to whom no other remedy was
available. If the inferior court acted without
authority, the record was then revised and
corrected in matters of law. The writ of
certiorari was limited to cases in which the
inferior court was said to be exceeding its
jurisdiction or was not proceeding according
to essential requirements of law and would
lie only to review judicial or quasi-judicial
acts.
The concept of the remedy of certiorari in
our judicial system remains much the same
as it has been in the common law. In this
jurisdiction, however, the exercise of the
power to issue the writ of certiorari is largely
regulated by laying down the instances or
situations in the Rules of Court in which a
superior court may issue the writ of
certiorari to an inferior court or officer.
Section 1, Rule 65 of the Rules of Court
compellingly provides the requirements for
that purpose[.]
....
Pursuant to Section 1, supra, the petitioner
must show that, one, the tribunal, board or
officer exercising judicial or quasi-judicial
functions acted without or in excess of
jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction,
and, two, there is neither an appeal nor any
plain, speedy and adequate remedy in the
ordinary course of law for the purpose of
amending or nullifying the
proceeding.26 (Citations omitted)
An essential requisite for filing a petition for
certiorari is the allegation that the judicial
tribunal acted with grave abuse of discretion
amounting to lack or excess of
jurisdiction.27 Grave abuse of discretion has
been defined as a "capricious or whimsical
exercise of judgment that is patent and
gross as to amount to an evasion of positive
duty or a virtual refusal to perform a duty
enjoined by law."28 In order to determine
whether the Court of Appeals erred in
dismissing the Petition for Certiorari for
being the wrong remedy, it is necessary to
find out whether the Regional Trial Court
acted with grave abuse of discretion as to
warrant the filing of a petition for certiorari
against it.
Rule 114, Section 22 of the Rules of Court
states:
Section 22. Cancellation of bail. — Upon
application of the bondsmen, with due
notice to the prosecutor, the bail may be
cancelled upon surrender of the accused or
proof of his death.
The bail shall be deemed automatically
cancelled upon acquittal of the accused,
dismissal of the case, or execution of the
judgment of conviction.
In all instances, the cancellation shall be
without prejudice to any liability on the bail.
The provisions of the Rules of Court are
clear. Bail shall be deemed automatically
cancelled in three (3) instances: (1) the
acquittal of the accused, (2) the dismissal of
the case, or (3) the execution of the
judgment of conviction. The Rules of Court
do not limit the cancellation of bail only
upon the acquittal of the accused.
The Office of the Solicitor General made the
same observation in its Comment29 before
the Court of Appeals:
The trial court denied the motion to release
cash bond on the ground that the dismissal
was only due to the desistance of the
complainant and not because the accused
was acquitted or that the crime was not
proved beyond reasonable doubt.
Such ruling, however, has no legal basis. In
fact, the provision of Section 22, Rule 114 is
clear: the dismissal of the criminal case
results to the automatic cancellation of the
bail bond.30 (Citation omitted)
Non-compliance with the Rules of Court is
not, as the Office of the Solicitor General
asserts, a mere error of judgment. It
constitutes grave abuse of discretion.
In Crisologo v. JEWM Agro-Industrial
Corporation:31
This manifest disregard of the basic rules
and procedures constitutes a grave abuse
of discretion.
In State Prosecutors II Comilang and
Lagman v. Judge Medel Belen, the Court
held as inexcusable abuse of authority the
trial judge's "obstinate disregard of basic
and established rule of law or procedure."
Such level of ignorance is not a mere error
of judgment. It amounts to "evasion of a
positive duty or to a virtual refusal to
perform a duty enjoined by law, or to act at
all in contemplation of law," or in essence,
grave abuse of discretion amounting to lack
of jurisdiction.
Needless to say, judges are expected to
exhibit more than just a cursory
acquaintance with statutes and procedural
laws. They must know the laws and apply
them properly in good faith as judicial
competence requires no less.32 (Citations
omitted)
When a court or tribunal renders a decision
tainted with grave abuse of discretion, the
proper remedy is to file a petition for
certiorari under Rule 65 of the Rules of
Court. Rule 65, Section 1 states:
Section 1. Petition for certiorari. — When
any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction,
or with grave abuse of discretion amounting
to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a
verified petition in the proper court, alleging
the facts with certainty and praying that
judgment be rendered annulling or
modifying the proceedings of such tribunal,
board or officer, and granting such
incidental reliefs as law and justice may
require.
The petition shall be accompanied by a
certified true copy of the judgment, order or
resolution subject thereof, copies of all
pleadings and documents relevant and
pertinent thereto, and a sworn certification
of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46.
Considering that the trial court blatantly
disregarded Rule 114, Section 22 of the
Rules of Court, petitioners' remedy was the
filing of a petition for certiorari with the
proper court.
The Court of Appeals, however, focused on
the Office of the Solicitor General's
argument that petitioners availed the wrong
remedy. It cited Belfast Surety and
Insurance Company, Inc. v.
People33 and Babasa v. Linebarger34 as
bases to rule that appeal was the proper
remedy for a denial of a motion to release
cash bond.
In Belfast Surety,35 the trial court declared a
forfeiture of cash bond under Rule 114,
Section 1536 of the 1964 Rules of Criminal
Procedure37 for failure of the accused to
appear on trial. This Court stated that while
appeal would be the proper remedy from a
judgment of forfeiture of bond, certiorari is
still available if the judgment complained of
was issued in lack or excess of jurisdiction:
While appeal is the proper remedy from a
judgment of forfeiture, nevertheless,
certiorari is available despite the existence
of the remedy of appeal where the
judgment or order complained of was either
issued in excess of or without jurisdiction.
Besides, appeal under the circumstances of
the present case is not an adequate remedy
since the trial court had already issued a
writ of execution. Hence, the rule that
certiorari does not lie when there is an
appeal is relaxed where, as in the present
case, the trial court had already ordered the
issuance of a writ of execution.38 (Citations
omitted)
indiscriminate application should never be
used to defeat the substantial rights of
litigants.43
WHEREFORE, the Decision dated January
18, 2016 and Resolution dated June 1,
2016 in CA-G.R. SP No. 141009
are REVERSED and SET ASIDE. The case
is hereby REMANDED to the Court of
Appeals for a resolution on the merits of the
case.
SO ORDERED.

Babasa, meanwhile, states that an appeal

should be available in denials of petitions
for the cancellation of a bond. Nothing
in Babasa, however, limits the remedy to an
appeal only:

Inasmuch as the said petition to procure the

cancellation of the bond was denied without
further process of law, it is unquestionable
that the order of court denying it could be
appealed from, for the reason that if this last
decision were not appealable, it would
become final, without ulterior remedy, and
would work irreparable injury to the
petitioner.39

Thus, a party may still file a petition for

certiorari in instances where the lower court
commits grave abuse of discretion in
excess of jurisdiction.

The automatic cancellation of bail, however,

does not always result in the immediate
release of the bail bond to the accused. A
cash bond, unlike a corporate surety or a
property bond, may be applied to fines and
other costs determined by the court.40 The
excess shall be returned to the accused or
to the person who deposited the money on
the accused's behalf.41 Here, the Order
dated October 24, 2014 reads:

Acting on the Motion to Dismiss filed by

Assistant City Prosecutor Deborah Marie O.
Tan, based on the Affidavit of Desistance
executed by private complainant Efren C.
Ontog, which states, among others, that he
is no longer interested in the further
prosecution of this case, hence, without the
active participation of the said private
complainant, the prosecution could no
longer effectively obtain the required
evidence to sustain the conviction of the
accused, the motion to dismiss is granted.

WHEREFORE, this case of "Robbery in

Uninhabited Place and by a Band" against
Marvin Cruz (MNU) is hereby DISMISSED.

SO ORDERED.

City of Malabon, October 24, 2014.42

There was no fine imposed on Cruz. The

Order does not specify any costs of court
that he must answer for. There was, thus,
no lien on the bond that could prevent its
immediate release. Considering these
circumstances, petitioners could not have
been faulted for filing a petition for certiorari
before the Court of Appeals since there was
no legal basis for the Regional Trial Court to
deny their Motion to Release Cash Bond.

Instead of addressing the merits of the

case, the Court of Appeals instead chose to
focus on procedural technicalities,
dismissing the petition for certiorari based
on cases that did not actually prohibit the
filing of a petition for certiorari. While
procedural rules are necessary for the
speedy disposition of justice, its
 August 15, 2017
G.R. No. 226679
SALVADOR ESTIPONA, JR. y
ASUELA, Petitioner,
vs.
HON. FRANK E. LOBRIGO, Presiding
Judge of the Regional Trial Court,
Branch 3, Legazpi City, Albay, and
PEOPLE OF THE
PHILIPPINES, Respondents.
DECISION
PERALTA, J.:
Challenged in this petition for certiorari and
prohibition1 is the constitutionality of Section
23 of Republic Act (R.A.) No. 9165, or
the "Comprehensive Dangerous Drugs Act
of 2002, "2 which provides:
SEC 23. Plea-Bargaining Provision. - Any
person charged under any provision of this
Act regardless of the imposable penalty
shall not be allowed to avail of the provision
on plea-bargaining.3
The facts are not in dispute.
Petitioner Salvador A. Estipona,
Jr. (Estipona) is the accused in Criminal
Case No. 13586 for violation of Section 11,
Article II of R.A. No. 9165 (Possession of
Dangerous Drugs). The Information alleged:
That on or about the 21st day of March,
2016, in the City of Legazpi, Philippines,
and within the jurisdiction of this Honorable
Court, the above-named accused, not being
lawfully authorized to possess or otherwise
use any regulated drug and without the
corresponding license or prescription, did
then and there, willfully, unlawfully and
feloniously have, in his possession and
under his control and custody, one (1) piece
heat-sealed transparent plastic sachet
marked as VOP 03/21/16- l G containing
0.084 [gram] of white crystalline substance,
which when examined were found to be
positive for Methamphetamine
Hydrocloride (Shabu), a dangerous drug.
CONTRARY TO LAW.4
On June 15, 2016, Estipona filed a Motion
to Allow the Accused to Enter into a Plea
Bargaining Agreement,5 praying to withdraw
his not guilty plea and, instead, to enter a
plea of guilty for violation of Section 12,
Article II of R.A. No. 9165 (Possession of
Equipment, Instrument, Apparatus and
Other Paraphernalia for Dangerous
Drugs) with a penalty of rehabilitation in
view of his being a first-time offender and
the minimal quantity of the dangerous drug
seized in his possession. He argued that
Section 23 of R.A. No. 9165 violates: (1) the
intent of the law expressed in paragraph 3,
Section 2 thereof; (2) the rule-making
authority of the Supreme Court under
Section 5(5), Article VIII of the 1987
Constitution; and (3) the principle of
separation of powers among the three
equal branches of the government.
In its Comment or Opposition6 dated June
27, 2016, the prosecution moved for the
denial of the motion for being contrary to
Section 23 of R.A. No. 9165, which is said
to be justified by the Congress' prerogative
to choose which offense it would allow plea
bargaining. Later, in a Comment or
Opposition7 dated June 29, 2016, it
manifested that it "is open to the Motion of
the accused to enter into plea bargaining to
give life to the intent of the law as provided
in paragraph 3, Section 2 of [R.A. No.]
9165, however, with the express mandate
of Section 23 of [R.A. No.] 9165 prohibiting
plea bargaining, [it] is left without any
choice but to reject the proposal of the
accused."
On July 12, 2016, respondent Judge Frank
E. Lobrigo of the Regional Trial
Court (RTC), Branch 3, Legazpi City, Albay,
issued an Order denying Estipona's motion.
It was opined:
The accused posited in his motion that Sec.
23 of RA No. 9165, which prohibits plea
bargaining, encroaches on the exclusive
constitutional power of the Supreme Court
to promulgate rules of procedure because
plea bargaining is a "rule of procedure."
Indeed, plea bargaining forms part of the
Rules on Criminal Procedure, particularly
under Rule 118, the rule on pre-trial
conference. It is only the Rules of Court
promulgated by the Supreme Court
pursuant to its constitutional rule-making
power that breathes life to plea bargaining.
It cannot be found in any statute.
Without saying so, the accused implies that
Sec. 23 of Republic Act No. 9165 is
unconstitutional because it, in effect,
suspends the operation of Rule 118 of the
Rules of Court insofar as it allows plea
bargaining as part of the mandatory pre-trial
conference in criminal cases.
The Court sees merit in the argument of the
accused that it is also the intendment of the
law, R.A. No. 9165, to rehabilitate an
accused of a drug offense. Rehabilitation is
thus only possible in cases of use of illegal
drugs because plea bargaining is
disallowed. However, by case law, the
Supreme Court allowed rehabilitation for
accused charged with possession of
paraphernalia with traces of dangerous
drugs, as held in People v. Martinez, G.R.
No. 191366, 13 December 2010. The ruling
of the Supreme Court in this case
manifested the relaxation of an otherwise
stringent application of Republic Act No.
9165 in order to serve an intent for the
enactment of the law, that is, to rehabilitate
the offender.
Within the spirit of the disquisition in People
v. Martinez, there might be plausible basis
for the declaration of Sec. 23 of R.A. No.
9165, which bars plea bargaining as
unconstitutional because indeed the
inclusion of the provision in the law
encroaches on the exclusive constitutional
power of the Supreme Court.
While basic is the precept that lower courts
are not precluded from resolving, whenever
warranted, constitutional questions, the
Court is not unaware of the admonition of
the Supreme Court that lower courts must
observe a becoming modesty in examining
constitutional questions. Upon which
admonition, it is thus not for this lower court
to declare Sec. 23 of R.A. No. 9165
unconstitutional given the potential
ramifications that such declaration might
have on the prosecution of illegal drug
cases pending before this judicial station.8
Estipona filed a motion for reconsideration,
but it was denied in an Order9 dated July
26, 2016; hence, this petition raising the
issues as follows:
I.
WHETHER SECTION 23 OF REPUBLIC
ACT NO. 9165, WHICH PROHIBITS PLEA
BARGAINING IN ALL VIOLATIONS OF
THE SAID LAW, IS UNCONSTITUTIONAL
FOR BEING VIOLATIVE OF THE
CONSTITUTIONAL RIGHT TO EQUAL
PROTECTION OF THE LAW.
II.
WHETHER SECTION 23 OF REPUBLIC
ACT NO. 9165 IS UNCONSTITUTIONAL
AS IT ENCROACHED UPON THE POWER
OF THE SUPREME COURT TO
PROMULGATE RULES OF PROCEDURE.
III.
WHETHER THE REGIONAL TRIAL
COURT, AS PRESIDED BY HON. FRANK
E. LOBRIGO, COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION
WHEN IT REFUSED TO DECLARE
SECTION 23 OF REPUBLIC ACT NO.
9165 AS UNCONSTITUTIONAL.10
We grant the petition.
PROCEDURAL MATTERS
The People of the Philippines, through the
Office of the Solicitor
General (OSG), contends that the petition
should be dismissed outright for being
procedurally defective on the grounds that:
(1) the Congress should have been
impleaded as an indispensable party; (2)
the constitutionality of Section 23 of R.A.
No. 9165 cannot be attacked collaterally;
and (3) the proper recourse should have
been a petition for declaratory relief before
this Court or a petition for certiorari before
the RTC. Moreover, the OSG argues that
the petition fails to satisfy the requisites of
judicial review because: (1) Estipona lacks
legal standing to sue for failure to show
direct injury; (2) there is no actual case or
controversy; and (3) the constitutionality of
Section 23 of R.A. No. 9165 is not the lis
mota of the case.
On matters of technicality, some points
raised by the OSG maybe
correct.1âwphi1 Nonetheless, without much
further ado, it must be underscored that it is
within this Court's power to make
exceptions to the rules of court. Under
proper conditions, We may permit the full
and exhaustive ventilation of the parties'
arguments and positions despite the
supposed technical infirmities of a petition
or its alleged procedural flaws. In
discharging its solemn duty as the final
arbiter of constitutional issues, the Court
shall not shirk from its obligation to
determine novel issues, or issues of first
impression, with far-reaching implications.11
Likewise, matters of procedure and
technicalities normally take a backseat
when issues of substantial and
transcendental importance are
present.12 We have acknowledged that the
Philippines' problem on illegal drugs has
reached "epidemic," "monstrous," and
"harrowing" proportions,13 and that its
disastrously harmful social, economic, and
spiritual effects have broken the lives,
shattered the hopes, and destroyed the
future of thousands especially our young
citizens.14 At the same time, We have
equally noted that "as urgent as the
campaign against the drug problem must
be, so must we as urgently, if not more so,
be vigilant in the protection of the rights of
the accused as mandated by the
Constitution x x x who, because of
excessive zeal on the part of the law
enforcers, may be unjustly accused and
convicted."15 Fully aware of the gravity of
the drug menace that has beset our country
and its direct link to certain crimes, the
Court, within its sphere, must do its part to
assist in the all-out effort to lessen, if not
totally eradicate, the continued presence of
drug lords, pushers and users.16
Bearing in mind the very important and
pivotal issues raised in this petition,
technical matters should not deter Us from
having to make the final and definitive
pronouncement that everyone else depends
for enlightenment and guidance.17 When
public interest requires, the Court may
brush aside procedural rules in order to
resolve a constitutional issue.18
x x x [T]he Court is invested with the power
to suspend the application of the rules of
procedure as a necessary complement of
its power to promulgate the same. Barnes
v. Hon. Quijano Padilla discussed the
rationale for this tenet, viz. :
Let it be emphasized that the rules of
procedure should be viewed as mere tools
designed to facilitate the attainment of
justice. Their strict and rigid application,
which would result in technicalities that tend
to frustrate rather than promote substantial
justice, must always be eschewed. Even
the Rules of Court reflect this principle. The
power to suspend or even disregard rules
can be so pervasive and compelling as to
alter even that which this Court itself has
already declared to be final, x x x.
The emerging trend in the rulings of this
Court is to afford every party litigant the
amplest opportunity for the proper and just
determination of his cause, free from the
constraints of technicalities. Time and
again, this Court has consistently held that
rules must not be applied rigidly so as not to
override substantial justice. 19
SUBSTANTIVE ISSUES
Rule-making power of the Supreme
Court under the 1987 Constitution
Section 5(5), A1iicle VIII of the 1987
Constitution explicitly provides:
Sec. 5. The Supreme Court shall have the
following powers:
xxxx
(5) Promulgate rules concerning the
protection and enforcement of constitutional
rights, pleading, practice, and procedure in
all courts, the admission to the practice of
law, the Integrated Bar, and legal
assistance to the underprivileged. Such
rules shall provide a simplified and
inexpensive procedure for the speedy
disposition of cases, shall be uniform for all
courts of the same grade, and shall not
diminish, increase, or modify substantive
rights. Rules of procedure of special courts
and quasi-judicial bodies shall remain
effective unless disapproved by the
Supreme Court.
The power to promulgate rules of pleading,
practice and procedure is now Our
exclusive domain and no longer shared with
the Executive and Legislative
departments.20 In Echegaray v. Secretary of
Justice, 21 then Associate Justice (later
Chief Justice) Reynato S. Puno traced the
history of the Court's rule-making power
and highlighted its evolution and
development.
x x x It should be stressed that the power to
promulgate rules of pleading, practice and
procedure was granted by our Constitutions
to this Court to enhance its
independence, for in the words of Justice
Isagani Cruz "without independence and
integrity, courts will lose that popular trust
so essential to the maintenance of their
vigor as champions of justice." Hence, our
Constitutions continuously vested this
power to this Court for it enhances its
independence. Under the 1935
Constitution, the power of this Court to
promulgate rules concerning pleading,
practice and procedure was granted but it
appeared to be co-existent with legislative
power for it was subject to the power of
Congress to repeal, alter or
supplement. Thus, its Section 13, Article
VIII provides:
"Sec. 13. The Supreme Court shall have the
power to promulgate rules concerning
pleading, practice and procedure in all
courts, and the admission to the practice of
law. Said rules shall be uniform for all
courts of the same grade and shall not
diminish, increase, or modify substantive
rights. The existing laws on pleading,
practice and procedure are hereby repealed
as statutes, and are declared Rules of
Court, subject to the power of the Supreme
Court to alter and modify the same. The
Congress shall have the power to repeal,
alter or supplement the rules concerning
pleading, practice and procedure, and the
admission to the practice of law in the
Philippines."
The said power of Congress, however, is
not as absolute as it may appear on its
surface. In In re: Cunanan Congress in the
exercise of its power to amend rules of the
Supreme Court regarding admission to the
practice of law, enacted the Bar Flunkers
Act of 1953 which considered as a passing
grade, the average of 70% in the bar
examinations after July 4, 1946 up to
August 1951 and 71 % in the 1952 bar
examinations. This Court struck down the
law as unconstitutional. In his ponencia, Mr.
Justice Diokno held that "x x x the disputed
law is not a legislation; it is a judgment - a
judgment promulgated by this Court during
the aforecited years affecting the bar
candidates concerned; and although this
Court certainly can revoke these judgments
even now, for justifiable reasons, it is no
less certain that only this Court, and not the
legislative nor executive department, that
may do so. Any attempt on the part of these
departments would be a clear usurpation of
its function, as is the case with the law in
question." The venerable jurist further ruled:
"It is obvious, therefore, that the ultimate
power to grant license for the practice of
law belongs exclusively to this Court, and
the law passed by Congress on the matter
is of permissive character, or as other
authorities say, merely to fix the minimum
conditions for the license." By its ruling, this
Court qualified the absolutist tone of the
power of Congress to "repeal, alter or
supplement the rules concerning pleading,
practice and procedure, and the admission
to the practice of law in the Philippines.
The ruling of this Court in In re
Cunanan was not changed by the 1973
Constitution. For the 1973 Constitution
reiterated the power of this Court "to
promulgate rules concerning pleading,
practice and procedure in all courts, x x x
which, however, may be repealed, altered
or supplemented by the Batasang
Pambansa x x x." More completely, Section
5(2)5 of its Article X provided:
xxxx
"Sec. 5. The Supreme Court shall have the
following powers.
xxxx
(5) Promulgate rules concerning pleading,
practice, and procedure in all courts, the
admission to the practice of law, and the
integration of the Bar, which, however, may
be repealed, altered, or supplemented by
the Batasang Pambansa. Such rules shall
provide a simplified and inexpensive
procedure for the speedy disposition of
cases, shall be uniform for all courts of the
same grade, and shall not diminish,
increase, or modify substantive rights."
Well worth noting is that the 1973
Constitution further strengthened the
independence of the judiciary by giving to it
the additional power to promulgate rules
governing the integration of the Bar.
The 1987 Constitution molded an
even stronger and more independent
judiciary. Among others, it enhanced the
rule making power of this Court. Its Section
5(5), Article VIII provides:
xxxx
"Section 5. The Supreme Court shall have
the following powers:
xxx
(5) Promulgate rules concerning the
protection and enforcement of constitutional
rights, pleading, practice and procedure in
all courts, the admission to the practice of
law, the Integrated Bar, and legal
assistance to the underprivileged. Such
rules shall provide a simplified and
inexpensive procedure for the speedy
disposition of cases, shall be uniform for all
courts of the same grade, and shall not
diminish, increase, or modify substantive
rights. Rules of procedure of special courts
and quasi-judicial bodies shall remain
effective unless disapproved by the
Supreme Court. "
The rule making power of this Court was
expanded. This Court for the first time was
given the power to promulgate rules
concerning the protection and enforcement
of constitutional rights. The Court was also
granted for the .first time the power to
disapprove rules of procedure of special
courts and quasi-judicial bodies. But most
importantly, the 1987 Constitution took
away the power of Congress to repeal,
alter, or supplement rules concerning
pleading, practice and procedure. In fine,
the power to promulgate rules of pleading,
practice and procedure is no longer shared
by this Court with Congress, more so with
the Executive. x x x.22
Just recently, Carpio-Morales v. Court of
Appeals (Sixth Division)23 further
elucidated:
While the power to define, prescribe, and
apportion the jurisdiction of the various
courts is, by constitutional design, vested
unto Congress, the power to promulgate
rules concerning the protection and
enforcement of constitutional rights,
pleading, practice, and procedure in all
courts belongs exclusively to this
Court. Section 5 (5), Article VIII of the 1987
Constitution reads:
xxxx
In Echegaray v. Secretary of Justice
(Echegaray), the Court traced the evolution
of its rule-making authority, which, under
the 1935 and 1973 Constitutions, had been
priorly subjected to a power-sharing
scheme with Congress. As it now stands,
the 1987 Constitution textually altered the
old provisions by deleting the
concurrent power of Congress to amend
the rules, thus solidifying in one body
the Court's rule-making powers, in line
with the Framers' vision of institutionalizing
a " [ s] tronger and more independent
judiciary."
The records of the deliberations of the
Constitutional Commission would show that
the Framers debated on whether or not the
Court's rulemaking powers should be
shared with Congress. There was an initial
suggestion to insert the sentence "The
National Assembly may repeal, alter, or
supplement the said rules with the advice
and concurrence of the Supreme Court,"
right after the phrase "Promulgate rules
concerning the protection and enforcement
of constitutional rights, pleading, practice,
and procedure in all courts, the admission
to the practice of law, the integrated bar,
and legal assistance to the
underprivileged[,]" in the enumeration of
powers of the Supreme Court. Later,
Commissioner Felicitas S. Aquino proposed
to delete the former sentence and, instead,
after the word "[under]privileged," place a
comma(,) to be followed by "the phrase with
the concurrence of the National Assembly."
Eventually, a compromise formulation was
reached wherein (a) the Committee
members agreed to Commissioner Aquino's
proposal to delete the phrase "the National
Assembly may repeal, alter, or supplement
the said rules with the advice and
concurrence of the Supreme Court"
and (b) in turn, Commissioner Aquino
agreed to withdraw his proposal to add
"the phrase with the concurrence of the
National Assembly." The changes were
approved, thereby leading to the present
lack of textual reference to any form of
Congressional participation in Section 5
(5), Article VIII, supra. Theprevailing
consideration was that "both bodies, the
Supreme Court and the Legislature, have
their inherent powers."
Thus, as it now stands, Congress has no
authority to repeal, alter, or supplement
rules concerning pleading, practice, and
procedure.x x x.24
The separation of powers among the three
co-equal branches of our government has
erected an impregnable wall that keeps the
power to promulgate rules of pleading,
practice and procedure within the sole
province of this Court.25 The other branches
trespass upon this prerogative if they enact
laws or issue orders that effectively repeal,
alter or modify any of the procedural rules
promulgated by the Court.26 Viewed from
this perspective, We have rejected previous
attempts on the part of the Congress, in the
exercise of its legislative power, to amend
the Rules of Court (Rules), to wit:
1. Fabian v. Desierto27 -Appeal from the
decision of the Office of the Ombudsman in
an administrative disciplinary case should
be taken to the Court of Appeals under the
provisions of Rule 43 of the Rules instead
of appeal by certiorari under Rule 45 as
provided in Section 27 of R.A. No. 6770.
2. Cathay Metal Corporation v. Laguna
West Multi-Purpose Cooperative, Inc. 28 -
The Cooperative Code provisions on
notices cannot replace the rules on
summons under Rule 14 of the Rules.
3. RE: Petition for Recognition of the
Exemption of the GSIS from Payment of
Legal Fees; 29 Baguio Market Vendors
Multi-Purpose Cooperative
(BAMARVEMPCO) v. Hon. Judge Cabato-
Cortes;30 In Re: Exemption of the National
Power Corporation from Payment of
Filing/Docket Fees; 31 and Rep. of the Phils.
v. Hon. Mangotara, et al. 32 - Despite
statutory provisions, the GSIS,
BAMARVEMPCO, and NPC are not exempt
from the payment of legal fees imposed by
Rule 141 of the Rules.
4. Carpio-Morales v. Court of Appeals
(Sixth Division)33 - The first paragraph of
Section 14 of R.A. No. 6770, which
prohibits courts except the Supreme Court
from issuing temporary restraining order
and/or writ of preliminary injunction to enjoin
an investigation conducted by the
Ombudsman, is unconstitutional as it
contravenes Rule 58 of the Rules.
Considering that the aforesaid laws
effectively modified the Rules, this Court
asserted its discretion to amend, repeal or
even establish new rules of procedure, to
the exclusion of the legislative and
executive branches of government. To
reiterate, the Court's authority to promulgate
rules on pleading, practice, and procedure
is exclusive and one of the safeguards of
Our institutional independence.34
Plea bargaining in criminal cases
Plea bargaining, as a rule and a practice,
has been existing in our jurisdiction since
July 1, 1940, when the 1940 Rules took
effect. Section 4, Rule 114 (Pleas) of which
stated:
SEC. 4. Plea of guilty of lesser offense. -
The defendant, with the consent of the court
and of the fiscal, may plead guilty of any
lesser offense than that charged which is
necessarily included in the offense charged
in the complaint or information.
When the 1964 Rules became effective on
January 1, 1964, the same provision was
retained under Rule 118
(Pleas).1âwphi1 Subsequently, with the
effectivity of the 1985 Rules on January 1,
1985, the provision on plea of guilty to a
lesser offense was amended. Section 2,
Rule 116 provided:
SEC. 2. Plea of guilty to a lesser offense. -
The accused with the consent of the
offended party and the fiscal, may be
allowed by the trial court to plead guilty to a
lesser offense, regardless of whether or not
it is necessarily included in the crime
charged, or is cognizable by a court of
lesser jurisdiction than the trial court. No
amendment of the complaint or information
is necessary. (4a, R-118)
As well, the term "plea bargaining" was first
mentioned and expressly required during
pre-trial. Section 2, Rule 118 mandated:
SEC. 2. Pre-trial conference; subjects. -
The pre-trial conference shall consider the
following:
(a) Plea bargaining;
(b) Stipulation of facts;
(c) Marking for identification of evidence of
the parties;
(d) Waiver of objections to admissibility of
evidence; and
(e) Such other matters as will promote a fair
and expeditious trial. (n)
The 1985 Rules was later amended. While
the wordings of Section 2, Rule 118 was
retained, Section 2, Rule 116 was modified
in 1987. A second paragraph was added,
stating that "[a] conviction under this plea
shall be equivalent to a conviction of the
offense charged for purposes of double
jeopardy."
When R.A. No. 8493 ("Speedy Trial Act of
1998 ') was enacted,35 Section 2, Rule 118
of the Rules was substantially adopted.
Section 2 of the law required that plea
bargaining and other matters36 that will
promote a fair and expeditious trial are to
be considered during pre-trial conference in
all criminal cases cognizable by the
Municipal Trial Court, Municipal Circuit Trial
Court, Metropolitan Trial Court, Regional
Trial Court, and the Sandiganbayan.
Currently, the pertinent rules on plea
bargaining under the 2000 Rules37 are
quoted below:
RULE 116 (Arraignment and Plea):
SEC. 2. Plea of guilty to a lesser offense. -
At arraignment, the accused, with the
consent of the offended party and the
prosecutor, may be allowed by the trial
court to plead guilty to a lesser offense
which is necessarily included in the offense
charged. After arraignment but before trial,
the accused may still be allowed to plead
guilty to said lesser offense after
withdrawing his plea of not guilty. No
amendment of the complaint or information
is necessary. (Sec. 4, Cir. 38-98)
RULE 118 (Pre-trial):
SEC. 1. Pre-trial; mandatory in criminal
cases. - In all criminal cases cognizable by
the Sandiganbayan, Regional Trial Court,
Metropolitan Trial Court, Municipal Trial
Court in Cities, Municipal Trial Court and
Municipal Circuit Trial Court, the court shall,
after arraignment and within thirty (30) days
from the date the court acquires jurisdiction
over the person of the accused, unless a
shorter period is provided for in special laws
or circulars of the Supreme Court, order a
pre-trial conference to consider the
following:
(a) plea bargaining;
(b) stipulation of facts;
(c) marking for identification of evidence of
the parties;
(d) waiver of objections to admissibility of
evidence;
(e) modification of the order of trial if the
accused admits the charge but interposes a
lawful defense; and
(f) such matters as will promote a fair and
expeditious trial of the criminal and civil
aspects of the case. (Sec. 2 & 3, Cir. 38-98)
Plea bargaining is a rule of procedure
The Supreme Court's sole prerogative to
issue, amend, or repeal procedural rules is
limited to the preservation of substantive
rights, i.e., the former should not diminish,
increase or modify the latter.38 "Substantive
law is that part of the law which creates,
defines and regulates rights, or which
regulates the right and duties which give
rise to a cause of action; that part of the law
which courts are established to administer;
as opposed to adjective or remedial law,
which prescribes the method of enforcing
rights or obtain redress for their
invasions."39 Fabian v. Hon. Desierto40 laid
down the test for determining whether a rule
is substantive or procedural in nature.
It will be noted that no definitive line can be
drawn between those rules or statutes
which are procedural, hence within the
scope of this Court's rule-making power,
and those which are substantive. In fact, a
particular rule may be procedural in one
context and substantive in another. It is
admitted that what is procedural and what is
substantive is frequently a question of great
difficulty. It is not, however, an
insurmountable problem if a rational and
pragmatic approach is taken within the
context of our own procedural and
jurisdictional system.
In determining whether a rule prescribed by
the Supreme Court, for the practice and
procedure of the lower courts, abridges,
enlarges, or modifies any substantive right,
the test is whether the rule really regulates
procedure, that is, the judicial process for
enforcing rights and duties recognized by
substantive law and for justly administering
remedy and redress for a disregard or
infraction of them. If the rule takes away a
vested right, it is not procedural. If the rule
creates a right such as the right to appeal, it
may be classified as a substantive matter;
but if it operates as a means of
implementing an existing right then the rule
deals merely with procedure.41
In several occasions, We dismissed the
argument that a procedural rule violates
substantive rights. For example, in People
v. Lacson, 42 Section 8, Rule 117 of
the Rules on provisional dismissal was held
as a special procedural limitation qualifying
the right of the State to prosecute, making
the time-bar an essence of the given right
or as an inherent part thereof, so that its
expiration operates to extinguish the right of
the State to prosecute the
accused.43 Speaking through then
Associate Justice Romeo J. Callejo, Sr., the
Court opined:
In the new rule in question, as now
construed by the Court, it has fixed a time-
bar of one year or two years for the revival
of criminal cases provisionally dismissed
with the express consent of the accused
and with a priori notice to the offended
party. The time-bar may appear, on first
impression, unreasonable compared to the
periods under Article 90 of the Revised
Penal Code. However, in fixing the time-
bar, the Court balanced the societal
interests and those of the accused for the
orderly and speedy disposition of criminal
cases with minimum prejudice to the State
and the accused. It took into account the
substantial rights of both the State and of
the accused to due process. The Court
believed that the time limit is a reasonable
period for the State to revive provisionally
dismissed cases with the consent of the
accused and notice to the offended parties.
The time-bar fixed by the Court must be
respected unless it is shown that the period
is manifestly short or insufficient that the
rule becomes a denial of justice. The
petitioners failed to show a manifest
shortness or insufficiency of the time-bar.
The new rule was conceptualized by the
Committee on the Revision of the Rules
and approved by the Court en
banc primarily to enhance the
administration of the criminal justice system
and the rights to due process of the State
and the accused by eliminating the
deleterious practice of trial courts of
provisionally dismissing criminal cases on
motion of either the prosecution or the
accused or jointly, either with no time-bar
for the revival thereof or with a specific or
definite period for such revival by the public
prosecutor. There were times when such
criminal cases were no longer revived or
refiled due to causes beyond the control of
the public prosecutor or because of the
indolence, apathy or the lackadaisical
attitude of public prosecutors to the
prejudice of the State and the accused
despite the mandate to public prosecutors
and trial judges to expedite criminal
proceedings.
It is almost a universal experience that the
accused welcomes delay as it usually
operates in his favor, especially if he greatly
fears the consequences of his trial and
conviction. He is hesitant to disturb the
hushed inaction by which dominant cases
have been known to expire.
The inordinate delay in the revival or refiling
of criminal cases may impair or reduce the
capacity of the State to prove its case with
the disappearance or nonavailability of its
witnesses. Physical evidence may have
been lost. Memories of witnesses may have
grown dim or have faded. Passage of time
makes proof of any fact more difficult. The
accused may become a fugitive from justice
or commit another crime. The longer the
lapse of time from the dismissal of the case
to the revival thereof, the more difficult it is
to prove the crime.
On the other side of the fulcrum, a mere
provisional dismissal of a criminal case
does not terminate a criminal case. The
possibility that the case may be revived at
any time may disrupt or reduce, if not derail,
the chances of the accused for
employment, curtail his association, subject
him to public obloquy and create anxiety in
him and his family. He is unable to lead a
normal life because of community suspicion
and his own anxiety. He continues to suffer
those penalties and disabilities incompatible
with the presumption of innocence. He may
also lose his witnesses or their memories
may fade with the passage of time. In the
long run, it may diminish his capacity to
defend himself and thus eschew the
fairness of the entire criminal justice
system.
The time-bar under the new rule was fixed
by the Court to excise the malaise that
plagued the administration of the criminal
justice system for the benefit of the State
and the accused; not for the accused only.44
Also, We said in Jaylo, et al. v.
Sandiganbayan, et al. 45 that Section 6,
Rule 120 of the Rules, which provides that
an accused who failed to appear at the
promulgation of the judgment of conviction
shall lose the remedies available against
the judgment, does not take away
substantive rights but merely provides the
manner through which an existing right may
be implemented.
Section 6, Rule 120, of the Rules of Court,
does not take away per se the right of the
convicted accused to avail of the remedies
under the Rules. It is the failure of the
accused to appear without justifiable cause
on the scheduled date of promulgation of
the judgment of conviction that forfeits their
right to avail themselves of the remedies
against the judgment.
It is not correct to say that Section 6, Rule
120, of the Rules of Court diminishes or
modifies the substantive rights of
petitioners. It only works in pursuance of the
power of the Supreme Court to "provide a
simplified and inexpensive procedure for
the speedy disposition of cases." This
provision protects the courts from delay in
the speedy disposition of criminal cases -
delay arising from the simple expediency of
nonappearance of the accused on the
scheduled promulgation of the judgment of
conviction.46
By the same token, it is towards the
provision of a simplified and inexpensive
procedure for the speedy disposition of
cases in all courts47 that the rules on plea
bargaining was introduced. As a way of
disposing criminal charges by agreement of
the parties, plea bargaining is considered to
be an "important," "essential," "highly
desirable," and "legitimate" component of
the administration of justice.48 Some of its
salutary effects include:
x x x For a defendant who sees slight
possibility of acquittal, the advantages of
pleading guilty and limiting the probable
penalty are obvious - his exposure is
reduced, the correctional processes can
begin immediately, and the practical
burdens of a trial are eliminated. For the
State there are also advantages - the more
promptly imposed punishment after an
admission of guilt may more effectively
attain the objectives of punishment; and
with the avoidance of trial, scarce judicial
and prosecutorial resources are conserved
for those cases in which there is a
substantial issue of the defendant's guilt or
in which there is substantial doubt that the
State can sustain its burden of proof. (Brady
v. United States, 397 U.S. 742, 752 [1970])
Disposition of charges after plea
discussions x x x leads to prompt and
largely final disposition of most criminal
cases; it avoids much of the corrosive
impact of enforced idleness during pretrial
confinement for those who are denied
release pending trial; it protects the public
from those accused persons who are prone
to continue criminal conduct even while on
pretrial release; and, by shortening the time
between charge and disposition, it
enhances whatever may be the
rehabilitative prospects of the guilty when
they are ultimately imprisoned. (Santobello
v. New York, 404 U.S. 257, 261 [1971])
The defendant avoids extended pretrial
incarceration and the anxieties and
uncertainties of a trial; he gains a speedy
disposition of his case, the chance to
acknowledge his guilt, and a prompt start in
realizing whatever potential there may be
for rehabilitation. Judges and prosecutors
conserve vital and scarce resources. The
public is protected from the risks posed by
those charged with criminal offenses who
are at large on bail while awaiting
completion of criminal
proceedings. (Blackledge v. Allison, 431
U.S. 63, 71 [1977])
In this jurisdiction, plea bargaining has been
defined as "a process whereby the accused
and the prosecution work out a mutually
satisfactory disposition of the case subject
to court approval."49 There is give-and-take
negotiation common in plea
bargaining.50 The essence of the agreement
is that both the prosecution and the defense
make concessions to avoid potential
losses.51 Properly administered, plea
bargaining is to be encouraged because the
chief virtues of the system - speed,
economy, and finality - can benefit the
accused, the offended party, the
prosecution, and the court.52
Considering the presence of mutuality of
advantage,53 the rules on plea bargaining
neither create a right nor take away a
vested right. Instead, it operates as a
means to implement an existing right by
regulating the judicial process for enforcing
rights and duties recognized by substantive
law and for justly administering remedy and
redress for a disregard or infraction of them.
The decision to plead guilty is often heavily
influenced by the defendant's appraisal of
the prosecution's case against him and by
the apparent likelihood of securing leniency
should a guilty plea be offered and
accepted.54 In any case, whether it be to the
offense charged or to a lesser crime, a
guilty plea is a "serious and sobering
occasion" inasmuch as it constitutes a
waiver of the fundamental rights to be
presumed innocent until the contrary is
proved, to be heard by himself and counsel,
to meet the witnesses face to face, to bail
(except those charged with offenses
punishable by reclusion perpetua when
evidence of guilt is strong), to be convicted
by proof beyond reasonable doubt, and not
to be compelled to be a witness against
himself.55
Yet a defendant has no constitutional right
to plea bargain. No basic rights are
infringed by trying him rather than accepting
a plea of guilty; the prosecutor need not do
so if he prefers to go to trial.56 Under the
present Rules, the acceptance of an offer to
plead guilty is not a demandable right but
depends on the consent of the offended
party57 and the prosecutor, which is a
condition precedent to a valid plea of guilty
to a lesser offense that is necessarily
included in the offense charged.58 The
reason for this is that the prosecutor has full
control of the prosecution of criminal
actions; his duty is to always prosecute the
proper offense, not any lesser or graver
one, based on what the evidence on hand
can sustain.59
[Courts] normally must defer to
prosecutorial decisions as to whom to
prosecute. The reasons for judicial
deference are well known. Prosecutorial
charging decisions are rarely simple. In
addition to assessing the strength and
importance of a case, prosecutors also
must consider other tangible and intangible
factors, such as government enforcement
priorities. Finally, they also must decide
how best to allocate the scarce resources of
a criminal justice system that simply cannot
accommodate the litigation of every serious
criminal charge. Because these decisions
"are not readily susceptible to the kind of
analysis the courts are competent to
undertake," we have been "properly
hesitant to examine the decision whether to
prosecute. "60
The plea is further addressed to the sound
discretion of the trial court, which may allow
the accused to plead guilty to a lesser
offense which is necessarily included in the
offense charged. The word may denotes an
exercise of discretion upon the trial court on
whether to allow the accused to make such
plea.61 Trial courts are exhorted to keep in
mind that a plea of guilty for a lighter
offense than that actually charged is not
supposed to be allowed as a matter of
bargaining or compromise for the
convenience of the accused.62
Plea bargaining is allowed during the
arraignment, the pre-trial, or even up to the
point when the prosecution already rested
its case.63 As regards plea bargaining
during the pre-trial stage, the trial court's
exercise of discretion should not amount to
a grave abuse thereof.64 "Grave abuse of
discretion" is a capricious and whimsical
exercise of judgment so patent and gross
as to amount to an evasion of a positive
duty or a virtual refusal to perform a duty
enjoined by law, as where the power is
exercised in an arbitrary and despotic
manner because of passion or hostility; it
arises when a court or tribunal violates the
Constitution, the law or existing
jurisprudence.65
If the accused moved to plead guilty to a
lesser offense subsequent to a bail hearing
or after the prosecution rested its case, the
rules allow such a plea only when the
prosecution does not have sufficient
evidence to establish the guilt of the crime
charged.66 The only basis on which the
prosecutor and the court could rightfully act
in allowing change in the former plea of not
guilty could be nothing more and nothing
less than the evidence on record. As soon
as the prosecutor has submitted a comment
whether for or against said motion, it
behooves the trial court to assiduously
study the prosecution's evidence as well as
all the circumstances upon which the
accused made his change of plea to the
end that the interests of justice and of the
public will be served.67 The ruling on the
motion must disclose the strength or
weakness of the prosecution's
evidence.68 Absent any finding on the
weight of the evidence on hand, the judge's
acceptance of the defendant's change of
plea is improper and irregular.69
On whether Section 23 of R.A. No.
9165 violates the equal protection
clause
At this point, We shall not resolve the issue
of whether Section 23 of R.A. No. 9165 is
contrary to the constitutional right to equal
protection of the law in order not to preempt
any future discussion by the Court on the
policy considerations behind Section 23 of
R.A. No. 9165. Pending deliberation on
whether or not to adopt the statutory
provision in toto or a qualified version
thereof, We deem it proper to declare as
invalid the prohibition against plea
bargaining on drug cases until and unless it
is made part of the rules of procedure
through an administrative circular duly
issued for the purpose.
WHEREFORE, the petition for certiorari and
prohibition is GRANTED. Section 23 of
Republic Act No. 9165 is declared
unconstitutional for being contrary to the
rule-making authority of the Supreme Court
under Section 5(5), Article VIII of the 1987
Constitution.
SO ORDERED.
 THIRD DIVISION
G.R. No. 211356, September 29, 2014
CRISOSTOMO B.
AQUINO, Petitioner, v. MUNICIPALITY OF
MALAY, AKLAN, REPRESENTED BY
HON. MAYOR JOHN P. YAP,
SANGGUNIANG BAYAN OF MALAY,
AKLAN, REPRESENTED BY HON. EZEL
FLORES, DANTE PASUGUIRON, ROWEN
AGUIRRE, WILBEC GELITO, JUPITER
GALLENERO, OFFICE OF THE
MUNICIPAL ENGINEER, OFFICE OF THE
MUNICIPAL TREASURER, BORACAY
PNP CHIEF, BORACAY FOUNDATION,
INC., REPRESENTED BY NENETTE
GRAF, MUNICIPAL AUXILIARY POLICE,
AND JOHN AND JANE
DOES, Respondents.
DECISION
VELASCO JR., J.:
Nature of the Case
Before the Court is a Petition for Review on
Certiorari challenging the Decision1 and the
Resolution of the Court of Appeals (CA) in
CA-G.R. SP No. 120042 dated August 13,
2013 and February 3, 2014, respectively.
The assailed rulings denied Crisostomo
Aquino’s Petition for Certiorari for not being
the proper remedy to question the issuance
and implementation of Executive Order No.
10, Series of 2011 (EO 10), ordering the
demolition of his hotel establishment.
The Facts
Petitioner is the president and chief
executive officer of Boracay Island West
Cove Management Philippines, Inc.
(Boracay West Cove). On January 7, 2010,
the company applied for a zoning
compliance with the municipal government
of Malay, Aklan.2 While the company was
already operating a resort in the area, the
application sought the issuance of a
building permit covering the construction of
a three-storey hotel over a parcel of land
measuring 998 sqm. located in Sitio
Diniwid, Barangay Balagab, Boracay Island,
Malay, Aklan, which is covered by a Forest
Land Use Agreement for Tourism Purposes
(FLAgT) issued by the Department of
Environment and Natural Resources
(DENR) in favor of Boracay West Cove.
Through a Decision on Zoning dated
January 20, 2010, the Municipal Zoning
Administrator denied petitioner’s application
on the ground that the proposed
construction site was within the “no build
zone” demarcated in Municipal Ordinance
2000-131 (Ordinance).3 As provided in the
Ordinance:chanRoblesvirtualLawlibrary
SECTION 2. – Definition of Terms. As used
in this Ordinance, the following words,
terms and phrases shall mean as
follows:chanRoblesvirtualLawlibrary
xxxx
(b) No Build Zone – the space twenty-five
(25) meters from the edge of the mean high
water mark measured inland;
xxxx
SECTION 3. – No building or structure of
any kind whether temporary or permanent
shall be allowed to be set up, erected or
constructed on the beaches around the
Island of Boracay and in its offshore waters.
During the conduct of special activities or
special events, the Sangguniang Bayan
may, through a Resolution, authorize the
Office of the Mayor to issue Special Permits
for construction of temporary structures on
the beach for the duration of the special
activity as embodied in the Resolution.
In due time, petitioner appealed the denial
action to the Office of the Mayor on
February 1, 2010.
On May 13, 2010, petitioner followed up his
appeal through a letter but no action was
ever taken by the respondent mayor. On
April 5, 2011, however, a Notice of
Assessment was sent to petitioner asking
for the settlement of Boracay West Cove’s
unpaid taxes and other liabilities under pain
of a recommendation for closure in view of
its continuous commercial operation since
2009 sans the necessary zoning clearance,
building permit, and business and mayor’s
permit. In reply, petitioner expressed
willingness to settle the company’s
obligations, but the municipal treasurer
refused to accept the tendered payment.
Meanwhile, petitioner continued with the
construction, expansion, and operation of
the resort hotel.
Subsequently, on March 28, 2011, a Cease
and Desist Order was issued by the
municipal government, enjoining the
expansion of the resort, and on June 7,
2011, the Office of the Mayor of Malay,
Aklan issued the assailed EO 10, ordering
the closure and demolition of Boracay West
Cove’s hotel.
EO 10 was partially implemented on June
10, 2011. Thereafter, two more instances
followed wherein respondents demolished
the improvements introduced by Boracay
West Cove, the most recent of which was
made in February 2014.
Alleging that the order was issued and
executed with grave abuse of discretion,
petitioner filed a Petition for Certiorari with
prayer for injunctive relief with the CA. He
argued that judicial proceedings should first
be conducted before the respondent mayor
could order the demolition of the company’s
establishment; that Boracay West Cove
was granted a FLAgT by the DENR, which
bestowed the company the right to
construct permanent improvements on the
area in question; that since the area is a
forestland, it is the DENR—and not the
municipality of Malay, or any other local
government unit for that matter—that has
primary jurisdiction over the area, and that
the Regional Executive Director of DENR-
Region 6 had officially issued an opinion
regarding the legal issues involved in the
present case; that the Ordinance admits of
exceptions; and lastly, that it is the mayor
who should be blamed for not issuing the
necessary clearances in the company’s
favor.
In rebuttal, respondents contended that the
FLAgT does not excuse the company from
complying with the Ordinance and
Presidential Decree No. 1096 (PD 1096),
otherwise known as the National Building
Code of the Philippines. Respondents also
argued that the demolition needed no court
order because the municipal mayor has the
express power under the Local Government
Code (LGC) to order the removal of illegally
constructed buildings.
Ruling of the Court of Appeals
In its assailed Decision dated August 13,
2013, the CA dismissed the petition solely
on procedural ground, i.e., the special writ
of certiorari can only be directed against a
tribunal, board, or officer exercising judicial
or quasi-judicial functions and since the
issuance of EO 10 was done in the exercise
of executive functions, and not of judicial or
quasi-judicial functions, certiorari will not lie.
Instead, the proper remedy for the
petitioner, according to the CA, is to file a
petition for declaratory relief with the
Regional Trial Court.
Petitioner sought reconsideration but this
was denied by the CA on February 3, 2014
through the challenged Resolution. Hence,
the instant petition raising arguments on
both procedure and substance.
The Issues
Stripped to the essentials, the pivotal issues
in the extant case are as
follows:chanRoblesvirtualLawlibrary
The propriety under the premises of the
filing of a petition for certiorari instead
of a petition for declaratory relief;
a. Whether or not declaratory relief
is still available to petitioner;
b. Whether or not the CA correctly
ruled that the respondent mayor
was performing neither a judicial
nor quasi-judicial function when
he ordered the closure and
demolition of Boracay West
Cove’s hotel;
Whether or not respondent mayor
committed grave abuse of discretion
when he issued EO 10;
a. Whether or not petitioner’s right
to due process was violated
when the respondent mayor
ordered the closure and
demolition of Boracay West
Cove’s hotel without first
conducting judicial proceedings;
b. Whether or not the LGU’s refusal
to issue petitioner the necessary
building permit and clearances
was justified;
c. Whether or not petitioner’s rights
under the FLAgT prevail over the
municipal ordinance providing
for a no-build zone;
andChanRoblesVirtualawlibrary
d. Whether or not the DENR has
primary jurisdiction over the
controversy, not the LGU.
The Court’s Ruling
We deny the petition.
Certiorari, not declaratory relief, is the
proper remedy
a. Declaratory relief no longer viable
Resolving first the procedural aspect of the
case, We find merit in petitioner’s
contention that the special writ of certiorari ,
and not declaratory relief, is the proper
remedy for assailing EO 10. As provided
under Sec. 1, Rule 63 of the Rules of
Court:chanRoblesvirtualLawlibrary
SECTION 1. Who may file petition. – Any
person interested under a deed, will,
contract or other written instrument, whose
rights are affected by a statute, executive
order or regulation, ordinance or any other
governmental regulation may, before
breach or violation thereof, bring an action
in the appropriate Regional Trial Court to
determine any question of construction or
validity arising, and for a declaration of his
rights or duties, thereunder. x x x (emphasis
added)
An action for declaratory relief presupposes
that there has been no actual breach of the
instruments involved or of the rights arising
thereunder. Since the purpose of an action
for declaratory relief is to secure an
authoritative statement of the rights and
obligations of the parties under a statute,
deed, or contract for their guidance in the
enforcement thereof, or compliance
therewith, and not to settle issues arising
from an alleged breach thereof, it may be
entertained before the breach or violation of
the statute, deed or contract to which it
refers. A petition for declaratory relief gives
a practical remedy for ending controversies
that have not reached the state where
another relief is immediately available; and
supplies the need for a form of action that
will set controversies at rest before they
lead to a repudiation of obligations, an
invasion of rights, and a commission of
wrongs.4cralawlawlibrary
In the case at bar, the petition for
declaratory relief became unavailable by
EO 10’s enforcement and implementation.
The closure and demolition of the hotel
rendered futile any possible guidelines that
may be issued by the trial court for carrying
out the directives in the challenged EO 10.
Indubitably, the CA erred when it ruled that
declaratory relief is the proper remedy given
such a situation.
b. Petitioner correctly resorted
to certiorari
On the propriety of filing a petition
for certiorari , Sec. 1, Rule 65 of the Rules
of Court
provides:chanRoblesvirtualLawlibrary
Section 1. Petition for certiorari . — When
any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction,
or with grave abuse of discretion amounting
to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a
verified petition in the proper court, alleging
the facts with certainty and praying that
judgment be rendered annulling or
modifying the proceedings of such tribunal,
board or officer, and granting such
incidental reliefs as law and justice may
require. x x x
For certiorari to prosper, the petitioner must
establish the concurrence of the following
requisites,
namely:chanRoblesvirtualLawlibrary
1. The writ is directed against a
tribunal, board, or officer
exercising judicial or quasi-
judicial functions;
2. Such tribunal, board, or officer
has acted without or in excess of
jurisdiction, or with grave abuse
of discretion amounting to lack
or excess of jurisdiction;
andChanRoblesVirtualawlibrary
3. There is no appeal or any plain
speedy, and adequate remedy in
the ordinary course of law.5

Guilty of reiteration, the CA immediately
dismissed the Petition for Certiorari upon
determining that the first element is
wanting—that respondent mayor was
allegedly not exercising judicial or quasi-
judicial functions when he issued EO 10.
We are not persuaded.
The CA fell into a trap when it ruled that a
mayor, an officer from the executive
department, exercises an executive function
whenever he issues an Executive Order.
This is tad too presumptive for it is the
nature of the act to be performed, rather
than of the office, board, or body which
performs it, that determines whether or not
a particular act is a discharge of judicial or
quasi-judicial functions. The first
requirement for certiorari is satisfied if the
officers act judicially in making their
decision, whatever may be their public
character.6cralawlawlibrary
It is not essential that the challenged
proceedings should be strictly and
technically judicial, in the sense in which
that word is used when applied to courts of
justice, but it is sufficient if they are quasi-
judicial.7 To contrast, a party is said to be
exercising a judicial function where he has
the power to determine what the law is and
what legal rights of the parties are, and then
undertakes to determine these questions
and adjudicate upon the rights of the
parties, whereas quasi-judicial function is “a
term which applies to the actions,
discretion, etc., of public administrative
officers or bodies x x x required to
investigate facts or ascertain the existence
of facts, hold hearings, and draw
conclusions from them as a basis for their
official action and to exercise discretion of a
judicial nature.”8cralawlawlibrary
In the case at bench, the assailed EO 10
was issued upon the respondent mayor’s
finding that Boracay West Cove’s
construction, expansion, and operation of
its hotel in Malay, Aklan is illegal. Such a
finding of illegality required the respondent
mayor’s exercise of quasi-judicial functions,
against which the special writ
of certiorari may lie. Apropos hereto is Our
ruling in City Engineer of Baguio v.
Baniqued:9cralawlawlibrary
There is no gainsaying that a city mayor is
an executive official nor is the matter of
issuing demolition notices or orders not a
ministerial one. In determining whether or
not a structure is illegal or it should be
demolished, property rights are involved
thereby needing notices and opportunity to
be heard as provided for in the
constitutionally guaranteed right of due
process. In pursuit of these functions, the
city mayor has to exercise quasi-judicial
powers.
With the foregoing discussion, the CA erred
in ruling that the respondent mayor was
merely exercising his executive functions,
for clearly, the first requisite for the special
writ has been satisfied.
Aside from the first requisite, We likewise
hold that the third element, i.e., the
unavailability of a plain, speedy, or
adequate remedy, is also present herein.
While it may be argued that, under the
LGC, Executive Orders issued by mayors
are subject to review by provincial
governors,10 this cannot be considered as
an adequate remedy given the exigencies
of petitioner’s predicament.
In a litany of cases, We have held that it is
inadequacy, not the mere absence of all
other legal remedies and the danger of
failure of justice without the writ, that must
usually determine the propriety of certiorari .
A remedy is plain, speedy and adequate if it
will promptly relieve the petitioner from the
injurious effects of the judgment, order, or
resolution of the lower court or agency. It is
understood, then, that a litigant need not
mark time by resorting to the less speedy
remedy of appeal in order to have an order
annulled and set aside for being patently
void for failure of the trial court to comply
with the Rules of Court.11cralawlawlibrary
Before applying this doctrine, it must first be
borne in mind that respondents in this case
have already taken measures towards
implementing EO 10. In fact, substantial
segments of the hotel have already been
demolished pursuant to the mayor’s
directive. It is then understandable why
petitioner prayed for the issuance of an
injunctive writ––a provisional remedy that
would otherwise have been unavailable had
he sought a reversal from the office of the
provincial governor of Aklan. Evidently,
petitioner correctly saw the urgent need for
judicial intervention via certiorari .
In light of the foregoing, the CA should have
proceeded to grab the bull by its horns and
determine the existence of the second
element of certiorari ––whether or not there
was grave abuse of discretion on the part of
respondents.
Upon Our finding that a petition
for certiorari under Rule 65 is the
appropriate remedy, We will proceed to
resolve the core issues in view of the
urgency of the reliefs prayed for in the
petition.
Respondents did not commit grave
abuse of discretion
a. The hotel’s classification as a
nuisance
Article 694 of the Civil Code defines
“nuisance” as any act, omission,
establishment, business, condition or
property, or anything else that (1) injures or
endangers the health or safety of others; (2)
annoys or offends the senses; (3) shocks,
defies or disregards decency or morality; (4)
obstructs or interferes with the free passage
of any public highway or street, or any body
of water; or (5) hinders or impairs the use of
property.12cralawlawlibrary
In establishing a no build zone through local
legislation, the LGU effectively made a
determination that constructions therein,
without first securing exemptions from the
local council, qualify as nuisances for they
pose a threat to public safety. No build
zones are intended for the protection of the
public because the stability of the ground’s
foundation is adversely affected by the
nearby body of water. The ever present
threat of high rising storm surges also
justifies the ban on permanent
constructions near the shoreline. Indeed,
the area’s exposure to potential geo-
hazards cannot be ignored and ample
protection to the residents of Malay, Aklan
should be afforded.
Challenging the validity of the public
respondents’ actuations, petitioner posits
that the hotel cannot summarily be abated
because it is not a nuisance per se, given
the hundred million peso-worth of capital
infused in the venture. Citing Asilo, Jr. v.
People,13 petitioner also argues that
respondents should have first secured a
court order before proceeding with the
demolition.

Preliminarily, We agree with petitioner’s
posture that the property involved cannot be
classified as a nuisance per se, but not for
the reason he so offers. Property valuation,
after all, is not the litmus test for such a
determination. More controlling is the
property’s nature and conditions, which
should be evaluated to see if it qualifies as
a nuisance as defined under the law.
As jurisprudence elucidates, nuisances are
of two kinds: nuisance per se and
nuisance per accidens. The first is
recognized as a nuisance under any and all
circumstances, because it constitutes a
direct menace to public health or safety,
and, for that reason, may be abated
summarily under the undefined law of
necessity. The second is that which
depends upon certain conditions and
circumstances, and its existence being a
question of fact, it cannot be abated without
due hearing thereon in a tribunal authorized
to decide whether such a thing does in law
constitute a nuisance.14cralawlawlibrary
In the case at bar, the hotel, in itself, cannot
be considered as a nuisance per se since
this type of nuisance is generally defined as
an act, occupation, or structure, which is a
nuisance at all times and under any
circumstances, regardless of location or
surrounding.15 Here, it is merely the hotel’s
particular incident––its location––and not its
inherent qualities that rendered it a
nuisance. Otherwise stated, had it not been
constructed in the no build zone, Boracay
West Cove could have secured the
necessary permits without issue. As such,
petitioner is correct that the hotel is not a
nuisance per se, but to Our mind, it is still a
nuisance per accidens.
b. Respondent mayor has the power to
order the demolition of illegal
constructions
Generally, LGUs have no power to declare
a particular thing as a nuisance unless such
a thing is a nuisance per se.16 So it was
held in AC Enterprises v. Frabelle
Properties Corp:17cralawlawlibrary
We agree with petitioner’s contention that,
under Section 447(a)(3)(i) of R.A. No. 7160,
otherwise known as the Local Government
Code, the Sangguniang Panglungsod is
empowered to enact ordinances declaring,
preventing or abating noise and other forms
of nuisance. It bears stressing, however,
that the Sangguniang Bayan cannot declare
a particular thing as a nuisance per se and
order its condemnation. It does not have
the power to find, as a fact, that a
particular thing is a nuisance when such
thing is not a nuisance per se; nor can it
authorize the extrajudicial condemnation
and destruction of that as a nuisance
which in its nature, situation or use is
not such. Those things must be
determined and resolved in the ordinary
courts of law. If a thing, be in fact, a
nuisance due to the manner of its operation,
that question cannot be determined by a
mere resolution of the Sangguniang Bayan.
(emphasis supplied)
Despite the hotel’s classification as a
nuisance per accidens, however, We still
find in this case that the LGU may
nevertheless properly order the hotel’s
demolition. This is because, in the exercise
of police power and the general welfare
clause,18 property rights of individuals may
be subjected to restraints and burdens in
order to fulfill the objectives of the
government. Otherwise stated, the
government may enact legislation that may
interfere with personal liberty, property,
lawful businesses and occupations to
promote the general
welfare.19cralawlawlibrary
One such piece of legislation is the LGC,
which authorizes city and municipal
governments, acting through their local
chief executives, to issue demolition orders.
Under existing laws, the office of the mayor
is given powers not only relative to its
function as the executive official of the
town; it has also been endowed with
authority to hear issues involving property
rights of individuals and to come out with an
effective order or resolution
thereon.20 Pertinent herein is Sec. 444
(b)(3)(vi) of the LGC, which empowered the
mayor to order the closure and removal of
illegally constructed establishments for
failing to secure the necessary permits, to
wit:chanRoblesvirtualLawlibrary
Section 444. The Chief Executive: Powers,
Duties, Functions and Compensation. –
xxxx
(b) For efficient, effective and economical
governance the purpose of which is the
general welfare of the municipality and its
inhabitants pursuant to Section 16 of this
Code, the municipal mayor
shall:chanroblesvirtuallawlibrary
xxxx
(3) Initiate and maximize the generation of
resources and revenues, and apply the
same to the implementation of development
plans, program objectives and priorities as
provided for under Section 18 of this Code,
particularly those resources and revenues
programmed for agro-industrial
development and country-wide growth and
progress, and relative thereto,
shall:chanroblesvirtuallawlibrary
xxxx
(vi) Require owners of illegally
constructed houses, buildings or other
structures to obtain the necessary
permit, subject to such fines and
penalties as may be imposed by law or
ordinance, or to make necessary
changes in the construction of the same
when said construction violates any law
or ordinance, or to order the demolition
or removal of said house, building or
structure within the period prescribed by
law or ordinance. (emphasis supplied)
c. Requirements for the exercise of the
power are present
i. Illegality of structures
In the case at bar, petitioner admittedly
failed to secure the necessary permits,
clearances, and exemptions before the
construction, expansion, and operation of
Boracay Wet Cove’s hotel in Malay, Aklan.
To recall, petitioner declared that the
application for zoning compliance was still
pending with the office of the mayor even
though construction and operation were
already ongoing at the same time. As such,
it could no longer be denied that petitioner
openly violated Municipal Ordinance 2000-
131, which
provides:chanRoblesvirtualLawlibrary
SECTION 9. – Permits and Clearances.
(a)No building or structure shall be
allowed to start construction unless a
Building Permit therefore has been
duly issued by the Office of the
Municipal Engineer. Once issued, the
building owner or any person in charge
of the construction shall display on the lot
 or on the building undergoing
construction a placard containing the
Building Permit Number and the date of
its issue. The office of the Municipal
Engineer shall not issue any building
permit unless:
1. The proposed construction
has been duly issued a
Zoning Clearance by the
Office of the Municipal
Zoning Officer;
2. The proposed construction
has been duly endorsed by
the Sangguniang Bayan
through a Letter of
Endorsement.
(b)Only buildings/structures which has
complied with all the requirements for its
construction as verified to by the Building
Inspector and the Sangguniang Bayan
shall be issued a Certificate of
Occupancy by the Office of the Municipal
Engineer.
(c) No Business or Mayor’s Permit shall
be issued to businesses being
undertaken on buildings or structures
which were not issued a certificate of
Occupancy beginning January 2001
and thereafter.
xxxx
SECTION 10. – Penalties.
xxxx
(e) Any building, structure, or contraption
erected in any public place within the
Municipality of Malay such as but not limited
to streets, thoroughfares, sidewalks, plazas,
beaches or in any other public place are
hereby declared as nuisance and illegal
structure. Such building structure or
contraption shall be demolished by the
owner thereof or any of his authorized
representative within ten (10) days from
receipt of the notice to demolish. Failure
or refusal on the part of the owner or any
of his authorized representative to
demolish the illegal structure within the
period herein above specified shall
automatically authorize the government
of the Municipality of Malay to demolish
the same, gather and keep the
construction materials of the
demolished structure. (emphasis
supplied)
Petitioner cannot justify his position by
passing the blame onto the respondent
mayor and the latter’s failure to act on his
appeal for this does not, in any way, imply
that petitioner can proceed with his
infrastructure projects. On the contrary, this
only means that the decision of the
zoning administrator denying the
application still stands and that
petitioner acquired no right to construct
on the no build zone. The illegality of the
construction cannot be cured by merely
tendering payment for the necessary fees
and permits since the LGU’s refusal rests
on valid grounds.
Instead of taking the law into his own
hands, petitioner could have filed, as an
alternative, a petition for mandamus to
compel the respondent mayor to exercise
discretion and resolve the controversy
pending before his office. There is indeed
an exception to the rule that matters
involving judgment and discretion are
beyond the reach of a writ
of mandamus, for such writ may be issued
to compel action in those matters, when
refused. Whether or not the decision would
be for or against petitioner would be for the
respondent mayor to decide, for while
mandamus may be invoked to compel the
exercise of discretion, it cannot compel
such discretion to be exercised in a
particular way.21 What would have been
important was for the respondent mayor to
immediately resolve the case for petitioner
to be able to go through the motions that
the zoning clearance application process
entailed.
Alas, petitioner opted to defy the zoning
administrator’s ruling. He consciously chose
to violate not only the Ordinance but also
Sec. 301 of PD 1096, laying down the
requirement of building permits, which
provides:chanRoblesvirtualLawlibrary
Section 301. Building Permits. No person,
firm or corporation, including any agency or
instrumentality of the government shall
erect, construct, alter, repair, move, convert
or demolish any building or structure or
cause the same to be done without first
obtaining a building permit therefor from the
Building Official assigned in the place
where the subject building is located or the
building work is to be done.
This twin violation of law and ordinance
warranted the LGU’s invocation of Sec. 444
(b)(3)(vi) of the LGC, which power is
separate and distinct from the power to
summarily abate nuisances per se. Under
the law, insofar as illegal constructions are
concerned, the mayor can, after satisfying
the requirement of due notice and hearing,
order their closure and demolition.
ii. Observance of procedural due
process rights
In the case at bench, the due process
requirement is deemed to have been
sufficiently complied with. First, basic is the
rule that public officers enjoy the
presumption of regularity in the
performance of their duties.22 The burden is
on the petitioner herein to prove that
Boracay West Cove was deprived of the
opportunity to be heard before EO 10 was
issued. Regrettably, copies of the Cease
and Desist Order issued by the LGU and of
the assailed EO 10 itself were never
attached to the petition before this Court,
which documents could have readily shed
light on whether or not petitioner has been
accorded the 10-day grace period provided
in Section 10 of the Ordinance. In view of
this fact, the presumption of regularity must
be sustained. Second, as quoted by
petitioner in his petition before the CA, the
assailed EO 10 states that petitioner
received notices from the municipality
government on March 7 and 28, 2011,
requiring Boracay West Cove to comply
with the zoning ordinance and yet it failed to
do so.23 If such was the case, the grace
period can be deemed observed and the
establishment was already ripe for closure
and demolition by the time EO 10 was
issued in June. Third, the observance of the
10-day allowance for the owner to demolish
the hotel was never questioned by
petitioner so there is no need to discuss the
same. Verily, the only grounds invoked by
petitioner in crying due process violation are
(1) the absence of a court order prior to
demolition and (2) the municipal
government’s exercise of jurisdiction over
the controversy instead of the DENR.
Therefore, it can no longer be belatedly
argued that the 10-day grace period was
not observed because to entertain the same
would result in the violation of the
respondents’ own due process rights.
Given the presence of the requirements
under Sec. 444 (b)(3)(vi) of the LGC,
whether the building constituted a
nuisance per se or a nuisance per
accidens becomes immaterial. The hotel
was demolished not exactly because it is a
nuisance but because it failed to comply
with the legal requirements prior to
construction. It just so happened that, in the
case at bar, the hotel’s incident that
qualified it as a nuisance per accidens––its
being constructed within the no build zone–
–further resulted in the non-issuance of the
necessary permits and clearances, which is
a ground for demolition under the LGC.
Under the premises, a court order that is
required under normal circumstances is
hereby dispensed with.
d. The FLAgT cannot prevail over the
municipal ordinance and PD 1096
Petitioner next directs our attention to the
following FLAgT
provision:chanRoblesvirtualLawlibrary
VII. The SECOND PARTY may construct
permanent and/or temporary improvements
or infrastructure in the FLAgT Area
necessary and appropriate for its
development for tourism purposes pursuant
to the approved SMP. “Permanent
Improvements” refer to access roads, and
buildings or structures which adhere to the
ground in a fixed and permanent manner.
On the other hand, “Temporary
Improvements” include those which are
detachable from the foundation or the
ground introduced by the SECOND PARTY
in the FLAgT Area and which the SECOND
PARTY may remove or dismantle upon
expiration or cancellation of this
AGREEMENT x x x.24chanrobleslaw
Taken in conjunction with the exceptions
laid down in Sections 6 and 8 of the
Ordinance, petitioner argues that Boracay
West Cove is exempted from securing
permits from the LGU. Said exceptions
read:chanRoblesvirtualLawlibrary
SECTION 6. – No building or structure shall
be allowed to be constructed on a slope
Twenty Five Percent (25%) or higher unless
provided with soil erosion protective
structures and authorized by the
Department of Environment and Natural
Resources.
xxxx
SECTION 8. – No building or structure shall
be allowed to be constructed on a swamp
or other water-clogged areas unless
authorized by the Department of
Environment and Natural Resources.
According to petitioner, the fact that it was
issued a FLAgT constitutes sufficient
authorization from the DENR to proceed
with the construction of the three-storey
hotel.
The argument does not persuade.
The rights granted to petitioner under the
FLAgT are not unbridled. Forestlands,
although under the management of the
DENR, are not exempt from the territorial
application of municipal laws, for local
government units legitimately exercise their
powers of government over their defined
territorial jurisdiction.
Furthermore, the conditions set forth in the
FLAgT and the limitations circumscribed in
the ordinance are not mutually exclusive
and are, in fact, cumulative. As sourced
from Sec. 447 (a)(5)(i) of the
LGC:chanRoblesvirtualLawlibrary
Section 447. Powers, Duties, Functions
and Compensation. –
(a) The sangguniang bayan, as the
legislative body of the municipality, shall
enact ordinances, approve resolutions and
appropriate funds for the general welfare of
the municipality and its inhabitants pursuant
to Section 16 of this Code and in the proper
exercise of the corporate powers of the
municipality as provided for under Section
22 of this Code, and
shall:chanroblesvirtuallawlibrary
xxxx
(5) Approve ordinances which shall ensure
the efficient and effective delivery of the
basic services and facilities as provided for
under Section 17 of this Code, and in
addition to said services and facilities,
shall:chanroblesvirtuallawlibrary
(i) Provide for the establishment,
maintenance, protection, and
conservation of communal forests and
watersheds, tree parks, greenbelts,
mangroves, and other similar forest
development projects x x x. (emphasis
added)
Thus, aside from complying with the
provisions in the FLAgT granted by the
DENR, it was incumbent on petitioner to
likewise comply with the no build zone
restriction under Municipal Ordinance 2000-
131, which was already in force even before
the FLAgT was entered into. On this point, it
is well to stress that Sections 6 and 8 of the
Ordinance do not exempt petitioner from
complying with the restrictions since these
provisions adverted to grant exemptions
from the ban on constructions on slopes
and swamps, not on the no build zone.
Additionally, the FLAgT does not excuse
petitioner from complying with PD 1096. As
correctly pointed out by respondents, the
agreement cannot and will not amend or
change the law because a legislative act
cannot be altered by mere contractual
agreement. Hence, petitioner has no valid
reason for its failure to secure a building
permit pursuant to Sec. 301 of the National
Building Code.
e. The DENR does not have primary
jurisdiction over the controversy
Lastly, in ascribing grave abuse of
discretion on the part of the respondent
mayor, petitioner argued that the hotel site
is a forestland under the primary jurisdiction
of the DENR. As such, the merits of the
case should have been passed upon by the
agency and not by the LGU. In the
alternative, petitioner explains that even if
jurisdiction over the matter has been
devolved in favor of the LGU, the DENR still
has the power of review and supervision
over the former’s rulings. As cited by the
petitioner, the LGC
reads:chanRoblesvirtualLawlibrary
Section 17. Basic Services and Facilities. –
xxxx
(b) Such basic services and facilities
include, but are not limited to, the
following:chanroblesvirtuallawlibrary
xxxx
(2) For a
Municipality:chanroblesvirtuallawlibrary
xxxx
(ii) Pursuant to national policies and subject
to supervision, control and review of the
DENR, implementation of community-based
forestry projects which include integrated
social forestry programs and similar
projects; management and control of
communal forests with an area not
exceeding fifty (50) square kilometers;
establishment of tree parks, greenbelts, and
similar forest development projects.
(emphasis added)

Petitioner has made much of the fact that in

line with this provision, the DENR Region 6
had issued an opinion favourable to
petitioner.25 To petitioner, the adverted
opinion effectively reversed the findings of
the respondent mayor that the structure
introduced was illegally constructed.

We disagree.

In alleging that the case concerns the

development and the proper use of the
country’s environment and natural
resources, petitioner is skirting the principal
issue, which is Boracay West Cove’s non-
compliance with the permit, clearance, and
zoning requirements for building
constructions under national and municipal
laws. He downplays Boracay West Cove’s
omission in a bid to justify ousting the LGU
of jurisdiction over the case and transferring
the same to the DENR. He attempts to blow
the issue out of proportion when it all boils
down to whether or not the construction of
the three-storey hotel was supported by the
necessary documentary requirements.

Based on law and jurisprudence, the office

of the mayor has quasi-judicial powers to
order the closing and demolition of
establishments. This power granted by the
LGC, as earlier explained, We believe, is
not the same power devolved in favor of the
LGU under Sec. 17 (b)(2)(ii), as above-
quoted, which is subject to review by the
DENR. The fact that the building to be
demolished is located within a forestland
under the administration of the DENR is of
no moment, for what is involved herein,
strictly speaking, is not an issue on
environmental protection, conservation of
natural resources, and the maintenance of
ecological balance, but the legality or
illegality of the structure. Rather than
treating this as an environmental issue
then, focus should not be diverted from the
root cause of this debacle––compliance.

Ultimately, the purported power of review by

a regional office of the DENR over
respondents’ actions exercised through an
instrumentality of an ex-parte opinion, in
this case, finds no sufficient basis. At best,
the legal opinion rendered, though perhaps
informative, is not conclusive on the courts
and should be taken with a grain of salt.

WHEREFORE, in view of the foregoing, the

petition is hereby DENIED for lack of merit.
The Decision and the Resolution of the
Court of Appeals in CA-G.R. SP No.
120042 dated August 13, 2013 and
February 3, 2014, respectively, are
hereby AFFIRMED.

SO ORDERED.cralawred